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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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« The Redfield Paper Is Out (And So Are Arsenic Bacteria, It Seems) | Main | How Not to Do Science Education »

June 5, 2012

Merck Finds Its Phase II Candidates For Sale on the Internet

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Posted by Derek

Via Pharmalot, it appears that a former WuXi employee helped himself to samples of two Merck Phase II clinical candidates that were under evaluation. The samples were then offered for sale.

Here's a link to a Google Translate version of a Chinese news report. It looks like gram quantities were involved, along with NMR spectra, with the compounds being provided to a middleman. It's not clear who bought them from him, but the article gives the impression that someone did, was satisfied with the transaction, and wanted more. But in the meantime, Merck did pick up on an offer made by this middleman to sell one of the compounds online, and immediately went after him, which unraveled the whole scheme. (The machine translation is pretty rocky, but I did appreciate that an idiom came through: it mentions that having these valuable samples in an unlocked cabinet was like putting fish in front of a cat).

I would think that this kind of thing is just the nightmare that WuXi's management fears - and if it isn't, it should be. The cost advantage to doing business with them (and other offshore contract houses) is still real, but not as large as it used to be. Stories like this can close that price gap pretty quickly.

Comments (45) + TrackBacks (0) | Category: Business and Markets | Drug Development | The Dark Side


COMMENTS

1. Student on June 5, 2012 9:32 AM writes...

With the shaky IP rules in China, is big pharma going to watch this and see if it ends up on shelves under other names? What would big pharma have to do to make stealing their compounds (for use in the Chinese market) useless?

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2. PPedroso on June 5, 2012 9:36 AM writes...

This was just a rebranding...
Chinese Traditional Medicine probably has all the compounds in the world.

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3. Chaos on June 5, 2012 9:48 AM writes...

Derck: Many @ Merck (past and present employees in medicinal chemistry) paid gargantuan price for the short term goals of their inept management policies. I mean when we all came to know that many of our responsibilities will be progressively out sourced, a lot of us envisioned several things that can go wrong. That an employee (disgruntled?) from Wuxi will sell these for a price over the internet was not one of them. I feel sorry for those employees at Merck who have been shortchanged. Merck management must pay and heed the lessons of outsourcing to a morally bankrupt country. The question is, will they ever learn?

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4. anchor on June 5, 2012 10:03 AM writes...

Derek: The link to the article is fine but also in the process loaded some material bordering on "soft porno". Watch out guys!

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5. barry on June 5, 2012 10:14 AM writes...

the theft and sale of the research specimens is criminal, but it is only a shadow of the risk Merck takes in situating a research lab in China. The real value generated by Drug Discovery Research is IP. Not only the IP generated at a China site, but all the company databases that researches on that site must access to do their jobs is at risk as long as China functions as a pirate haven.

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6. Lu on June 5, 2012 10:22 AM writes...

having these valuable samples in an unlocked cabinet

Derek, is it normal for the industry to lock up chemicals?

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7. anon on June 5, 2012 10:24 AM writes...

The asian FTE CRO model will die in the next 5 years. It appears capital-efficient, but you get what you pay for. 4 bachelors chemists at $75K/FTE cannot deliver what a skilled chemist (med or process) can deliver in-house, either synthetically or cerebrally. Take into account IT, internal time-management, communcation and it just isnt as efficient as the sellers pitch. couple onto it the IP concern...and this will all be over in a few years...my opinion.

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8. Anonymous on June 5, 2012 10:26 AM writes...

Knowing the risks very well, big pharmas have already pumped so much into China. AZ, GSK, Novartis etc., are going to play this game and hoping to succeed in the end. In the long run, they may even achieve changing the culture in India and China!

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9. Hap on June 5, 2012 10:43 AM writes...

At Phase II - probably - if they're doing trials, I assumed that the company has to account for the chain of custody. I don't know, though.

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10. Nick K on June 5, 2012 11:09 AM writes...

I'll wager that this won't be the last case of IP theft in China. Perhaps the senior managers who pushed for outsourcing are now wondering if it was worthwhile after all.

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11. Stretch on June 5, 2012 11:27 AM writes...

The WuXi employee who stole the samples was an unsophisticated criminal wanting to make a fast buck. More sophisticated scientists at the country's CROs will use them as entrance fee to garner a senior position at a local biotech.

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12. WCA on June 5, 2012 12:25 PM writes...

This guy was the dumb thief and got caught. The bigger worry are the smart ones that don't.

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13. Anonymous on June 5, 2012 1:38 PM writes...

Merck MBA: "Our compound has been stolen? INCONCEIVABLE!"

Merck Chemist: "You keep using that word. I do not think it means what you think it means."

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14. Quintus on June 5, 2012 1:47 PM writes...

@8, The big companies will fail miserably. They certainly will not change any culture, except perhaps to increase corruption.
And I hope they fail, but of course the big salaried managers won't suffer, the bean counters won't suffer, it will be the companies best asset that will be decimated, the normal workers, chemists, biologists, plant workers etc, they will suffer.
These bastards in upper management should never have started this China/India venture in the first place knowing the morals of the respective countries.


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15. Ed on June 5, 2012 1:49 PM writes...

This particular case may be notable for involving Phase II compounds, but it is more unusual for resulting in a criminal penalty. The behavior evidenced in this story, however, is quite routine.

Chemistry CROs in China routinely use the intellectual property of their clients to benefit themselves. We have found on more than one occasion that intermediates scaled-up for our internal projects soon become commercially available from Chinese companies shortly afterwards. We pay the CRO to prepare a certain amount of material using a synthetic strategy we developed. They then make twice as much as we request. They send half of it to us, and sell the rest to various chemical suppliers. They get paid twice for the same work, and they think we don't know about it.

One time when we requested an intermediate, they delivered it astonishingly quickly. When we complimented them on their delivery time, they responded by saying that they prepared it using a superior procedure that was developed by , who had recently requested the same intermediate.

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16. Interesting on June 5, 2012 1:55 PM writes...

"(The machine translation is pretty rocky, but I did appreciate that an idiom came through: it mentions that having these valuable samples in an unlocked cabinet was like putting fish in front of a cat)."

Is this not a profound cultural statement of where certain morals are regarding unethical behavior?

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17. Crocowboy on June 5, 2012 2:21 PM writes...

There is rumour of a well known uk cro selling old project intermediates and final compounds in their catalogue

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18. CMCguy on June 5, 2012 2:30 PM writes...

The only part I find unusual is that the actual samples involved were stolen from an "authorized source". There are "suppliers" that will list drug development compounds for sale very shortly after the structure is identified in literature or on a Meeting presentation slide (People should test this out and run a search on their molecules, use the CAS# and would bet get a few "offered by" hits). Never have pursued as I suspect what this involves is that material is not on the shelf but if willing to pay them they will make it based on some literature or Patent route.

Not sure about all the legalities but its not uncommon in industry and even academia (if can't get directly from innovator) to make a someone else's compound to use in in-house models- as long as not "sold" them would be considered allowed for Research use.

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19. MTK on June 5, 2012 3:26 PM writes...

I hate reading about stuff like this, because I'd like to believe that all people have respect for laws and ethics regardless of nationality or culture. Unfortunately, this doesn't seem to be the case.

Too often when this type of thing happens it's a Chinese national and therefore reinforces whatever biases one might have. Perhaps it's just a product of the high percentage of work and workers that are Chinese in chemistry, but it sure doesn't seem so. They seem completely over-represented in these types of matters. The amazing part is that most times they don't even think they've done anything wrong.

It's a shame, but it seems that if you've lived your entire life where the authorities are shamelessly amoral and corrupt that it's human nature to do likewise.

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20. processchemist on June 5, 2012 3:33 PM writes...

Routine... is a common industrial practice to make in house or ask to a CRO for patented compounds from competitors to conduct tests. But everyone in the sector knows how strong is the respect for IP by chinese companies. I get spam everyday from chinese companies and in one of the last emails someone was offering fingolimod, bulk, at the lowest price you can think of.

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21. yi on June 5, 2012 3:37 PM writes...

你们这些坐在美国办公室喝着咖啡,一天上八小时班,实际只有五个小时在工作,同时拿着10万美元年薪的,是不会理解在中国外包公司的人是如何勤奋工作的。随便你们如何嫉妒,漫骂和愤怒,这些外包的工作,是不会回到US的。 I am getting a PhD degree in US, I am so pissed off at the fact that every big company is out sourcing too. Now there is almost no chance for an international student stay in US for a job. But those out sourcing jobs are never gonna come back, just like Apple would never make its iphones and Macs in US. Workers in China work hard than salves in order to get 1/30 of US average salary. You really think those "smart" CEO would let people in US to do it?

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22. Todd on June 5, 2012 3:41 PM writes...

Regarding #2, this has happened with astonishing regularity. There have been "traditional medicines" with sildenafil in it, HGH being marketed as "watermelon extract" and diuretics being sold in Chinese herbal weight loss products.

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23. Hap on June 5, 2012 4:00 PM writes...

I think this happens where "Just win, baby" and "If you're not cheating, you're not trying, and it's only cheating if you get caught" are the (un)official mottos. After all, didn't this happen in the US some time ago? (The FDA was started because cough medicine was made and sold using cheaper diethylene glycol rather than glycerol as a carrier, killing > 100 kids; a longer time ago, the US had had a reputation of not respecting others' IP.) People want to win. Since, as noted, the Chinese government wants power, and drives much of the business world, they are likely to foster and harness those impulses as long as those impulses benefit it and don't threaten its power (usually meaning that the winnings come from someone else).

Of course, that implies that protecting your business in China is not just a matter of securing IP and valuables from your employees, but also from the Chinese government. That doesn't seem like a game any private business is likely to win, and perhaps something that companies should have thought about before outsourcing their core businesses.

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24. Esteban on June 5, 2012 4:02 PM writes...

Keep in mind that "return on investment" is not just about research productivity. There is also a diplomatic componnet to outsourcing. Big pharma wants to ingratiate itself with the leadership in China, India, etc. in hopes that this translates into better access to those markets.

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25. startup on June 5, 2012 4:32 PM writes...

@23
Re: ethylene glycol. Chinese did exactly the same thing about 5-6 years ago killing about 400 people in Panama.

@24
Esteban, I've read that it is more like extorsion by the the government demanding companies to develop locally if they want any sort of access to local market.

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26. WCA on June 5, 2012 5:00 PM writes...

Chemistry CROs in China routinely use the intellectual property of their clients to benefit themselves. We have found on more than one occasion that intermediates scaled-up for our internal projects soon become commercially available from Chinese companies shortly afterwards. We pay the CRO to prepare a certain amount of material using a synthetic strategy we developed. They then make twice as much as we request. They send half of it to us, and sell the rest to various chemical suppliers. They get paid twice for the same work, and they think we don't know about it.

Exactly.

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27. WCA on June 5, 2012 5:13 PM writes...

Heard about a year ago that Lilly had some similar issues with final compounds showing up for sale.

Never able to verify this, but it is telling that they opted to source 40+ chemists from AMRI to work in Indy this year. Probably not a coincidence.

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28. Hap on June 5, 2012 5:26 PM writes...

25: That was my point (though I thought it was diethylene glycol, because at least with ethylene glycol, there's an antidote). I don't know how much the perpetrators in the US knew when they sold their product, but the people who killed the Panamanians had to have known of our experience and still sold them poisoned products anyway.

24: There was the question here of whether negotiating with the government over health care had been a good idea, since the government has much more power than a company or set of companies. Here, though, at least some of our economic and physical well-being depend on pharma's existence, which should mitigate how much power the government has. In China, none of that is true. While they've got an awfully big market for medicines (which makes them attractive), they don't need US pharma to exist - once they can duplicate its products and methods, the outside companies are expendable, which means pharma has very little leverage in negotiations once they've made the initial deals and tech transfers.

The rare earth mining scenario looks a lot like the old-time US monopoly scenarios of the Rockefellers, et al. That doesn't make me think well of China's government's motives, either.

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29. Anonymous on June 5, 2012 5:56 PM writes...

You mean it wasn't a good idea to lay off a boat load of chemists and help kill chemistry in the US to save a couple of bucks?

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30. Bruce Hamilton on June 5, 2012 6:57 PM writes...

Google shows ( possibly not for much longer? ), includes COA, LCMS, NMR...

http://www.biochempartner.com/goods.php?id=331

" BCP0339/MK-5172/MK5172
Brand Name :Biochempartner
M.Wt: 554.63
Formula: C29H38N4O7
Solubility: Unknown
Purity: >99%
Storage: -20℃ 2 years
Surprise price with large stock
High quality with HPLC & NMR Chart
Fast delivery about 4-5 working days "

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31. startup on June 5, 2012 7:07 PM writes...

@29

It was never about saving a couple of bucks, it was always about making millions for people doing it.

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32. A Chemist Boston on June 5, 2012 11:02 PM writes...

This is just the tip of the iceberg of what is going on in Chinese/Indian CRO. The CRO companies are just sweat shops and the bench chemists in these companies all feel under paid and highly stressed. As a result, they will look for ways to make a few extra bucks. Plus, talking about protecting Western companies' intellectual property in China, are you kidding yourself? Just look at the much cheaper fake iPhones, hand bags, watches etc sold in China.

None of the pharmaceutical IP leakage in China will matter until one of the compounds becomes a drug. Even more scaring is that a lot of the CRO companies are offering "integrated service"--they are doing the design for American phama companies. Who says the same guy will not "design" a close-in and "novel" molecule for Pfizer or Lilly or Novartis based on the not-yet disclosed Structure-activity relationship or the structure of MK-3102 and MK-5172? Try to untangle that IP nightmare when Pfizer or Lilly or Novartis found out that! Mark my word, more and bigger CRO IP scandal WILL happen in the future, unfortunately. And, the American Pharma corporate officers won't care either, after they have collected their bonuses.

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33. eugene on June 5, 2012 11:37 PM writes...

Hap: "I think this happens where "Just win, baby" and "If you're not cheating, you're not trying, and it's only cheating if you get caught" are the (un)official mottos. After all, didn't this happen in the US some time ago? (The FDA was started because cough medicine was made and sold using cheaper diethylene glycol rather than glycerol as a carrier, killing > 100 kids; a longer time ago, the US had had a reputation of not respecting others' IP.)"

I agree 100%. That people start moralizing about Chinese ethics and negative connotations is ridiculous coming from citizens of a country with Catholic Italian church-going mafia bosses or a religious Jewish mobster who tried to claim the moral high ground by saying that he did it so his kids would live a clean lifestyle. I guess not enough people read 'The Great Gatsby', or if you're not into that whole history thing, watched 'The Smartest Guys in the Room' about Enron. How can you complain about suspect ethics in China and Pharma CEOs (who are mostly Americans) what ship out jobs there without a care as long as it fills their bank accounts in the same breath and then mark the Chinese out as the ones who should not be trusted due to their culture?

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34. jackgg on June 6, 2012 1:34 AM writes...

Re#20: Fingolimod was a modified simple compound originated from a Chinese medicine recipe. The reported synthesis appeared in literatures since 1991. It is not surprising that they can offer you tons of it at the price of dirt. Think of another example?

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35. processchemist on June 6, 2012 3:18 AM writes...

@34

It was just another example of IP respect... the first patent expires in 2014.

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36. kling on June 6, 2012 6:12 AM writes...

It is a sad situation. Not all Chinesee employees are morally corrupt. The vast majority are working stiffs with families, just trying to get by. When I helped start a CRO (no longer exists) about 4 years ago, I set up an IP training program, and a enlisted the help of the govt district attorneys office to set up security and legal oversight. The employees were made aware of punishments involved if IP theft occurred. The Chinese govt is understaffed to control IP theft so they resort to draconian measures to make *examples* of high profile criminals. Recall the head of the sFDA was executed for corruption, also some perpetrators of the milk melanin poisoning were also executed. I think the same for cough syrup poison guys. For us, the DA suggested ways in which if someone committed IP theft, how those perps could be caught quickly and brought to justice harshly. It is a different reality over there. It will be very interesting to find out what happens to the Merck thief.

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37. Anonalso on June 6, 2012 6:43 AM writes...

@21 -- I actually disagree on your point comparing pharma research to Apple making iPhones in China. ALL research and development for Apple is done in house under such secrecy that most people that work on the projects don't know what the other hand is doing. Manufacturing is always done with the lowest bidder and highest quality. This is pretty standard free-market stuff.

Outsourcing pharma R&D, where IP is your life blood for exclusivity reasons, should be done in parts of the world where the Hammer of the Law will destroy the CRO if things get out. What would happen if WuXi was in the US and this happened? WuXi would probably lose most of their customers and have to re-org under a new name to distance themselves from the case.

I work for a domestic CRO here in the US and we have now found that our prices are only slightly higher with those in China. These IP problems will only grow and continue to drive our business model. Once big pharma MBAs discover that they have lost exclusivity due to these incursions, they will frantically be looking for alternatives domestically.

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38. NH_chem on June 6, 2012 8:37 AM writes...

To work with a true Chinese company has its risks. I have seen a few companies (CMOs) that are from Europe that started their own companies in China and put into place their own people to lead these companies. Seems like a better business model to me.

Of course, a rogue employee could be anywhere. I would be very fearful of doing med. chem in China or India and a little less fearful of scale up. Certainly would make sure I knew the company and trusted them thus a smaller company would make me feel better than a huge company like WuXi.

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39. tom on June 6, 2012 9:53 AM writes...

Does Pfizer fear the possibility of some disgruntled scientist selling Chantix trade secrets? Wouldn't those trade secrets be revealed anyway once trials start in October?

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40. alan on June 7, 2012 12:45 AM writes...

27# is right, I see the outsourcing trend evolving to a in-sourcing one. Consequence : lower salaries for western scientist.

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41. exMerck on June 7, 2012 5:43 AM writes...

Is is bad that I take some joy in this (schadenfreude)? But really, I was about as surprised by this news article as I was when I saw the sun rise this morning. People, myself included, have been predicting a situation like this for years. In this case, I don't hate to say I told you so...I take joy in it.

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42. emjeff on June 7, 2012 9:02 AM writes...

The bloom is off the Chinese Rose - this is what we will come to expect...

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43. NuPageGel on June 8, 2012 12:44 PM writes...

After reading all the comments Vertex and/or other USA based pharma Executives are laughing - "Chinese people need to evolve a little bit...why are they stealing compounds...it may not fetch them much....they should learn how to hide the information and sell the stocks to make more money"

Guys following is more exciting...

Vertex stock sales questioned after CF data gaffe

http://www.fiercebiotech.com/story/vertex-stock-sales-questioned-after-cf-data-gaffe/2012-06-08?utm_medium=nl&utm_source=internal

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44. So What on June 11, 2012 6:29 PM writes...

So what?

The structure of compounds that have reached clinical trials must end up being common knowledge amongst people in the industry. Big deal, someone got their hands on the actual material rather than having to make it. Still have to spend the cash to push it through trials. If anything it's probably a great way for a company like Merck to get competitors in places like China and India to blow a fortune on testing the compound for what in the end may be nothing more than a waste of time. If the compound had value, highly doubtful they'd get "scooped" to any extent, still have to file for patents etc. , something a company like Merck has already got locked up.

Big deal....

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45. Anonymous on June 17, 2012 11:43 PM writes...

I agree with comment 19 that all people have respect for laws and ethics not considering of nationality.

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