The Easy Way to Develop Drugs

One of the benefits to raking in $6.7 billion in free cash flow is that you can splurge a little if you don't feel like developing something in-house.

Such is the case with Merck (NYSE: MRK  ) getting into the follow-on biologics industry -- making copycat versions of biologic drugs -- which the company announced back in December. But bioreactors take time to build, and developing manufacturing processes for producing protein-based biologics isn't as simple as for small molecule drugs. So Merck has decided to go the easy route, and buy something that's already established.

The drugmaker is paying $130 million for Insmed's (Nasdaq: INSM  ) manufacturing facility and its follow-on biologics pipeline, including copycats of Amgen's (Nasdaq: AMGN  ) Neupogen and Neulasta. The drugs, which boost white blood cells in cancer patients, combined to bring in more than $4.6 billion in worldwide sales last year. That's no small potatoes, even if Merck will have to offer them at a discount.

Merck and Eli Lilly (NYSE: LLY  ) , which has also said it's interested in jumping into follow-on biologics, are behind other drugmakers like Teva Pharmaceutical (Nasdaq: TEVA  ) , Novartis (NYSE: NVS  ) , and Hospira (NYSE: HSP  ) that already have approvals in the European Union. The U.S. market is presumably larger, but Congress hasn't set up a system for the Food and Drug Administration to approve the follow-on biologics.

The purchase by Merck helps it catch up a little, and it should put the company in a good position to be able to submit a marketing application in the U.S., once the FDA starts accepting them. When it comes to revenue growth, Merck can certainly use all the help it can get.

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Let us know what you think in Motley Fool CAPS. Make an outperform  or underperform call on these companies or post a pitch about whether you think companies will benefit from follow-on biologics. It's free. It's fun. And, it's Foolish.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


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