Saturday, July 31, 2010

What Yesterday's "Tap-Dancing" Was Really All About -- At Merck

Overnight, The Wall Street Journal got Q2 2010 at Whitehouse Station just exactly pitch-perfect -- do go read it all:

. . . .Weighing on the DJIA, Merck fell 60 cents, or 1.7%, to 34.46 after the drug company said its second-quarter earnings dropped 52%. Sales of key drugs weren't as strong as in recent quarters, and its revenue missed expectations. Merck also narrowed its 2010 earnings forecast while trimming the top end of its sales view. . . .

Only a few potential "upside" Merck catalysts, near term, I'm afraid -- and the arbitration looms very large -- over $4 billion worth of high margin revenue on an annual basis, either way -- up or down. Wow.

Friday, July 30, 2010

Today's [Non-] Update On Remicade®/Simponi® Arbitration

In answer to the request of a kindly commenter, here's what little was said on Remicade®/Simponi® (really not much of anything) today, per SeekingAlpha transcripts:

. . . .Question: Tim Anderson, Bernstein Research

I know you don't like to say much about the REMICADE dispute, but I'm hoping you can give us some more information. You used to talk about being highly confident that you would prevail in the dispute, but I don't really hear that language being used anymore and I'm wondering if that's still the case. On arbitration, can you run through different options here? Is it all or nothing, or could there be some sort of middle ground or what exactly? And then your comments about not impacting 2013, it's not clear to me why that wouldn't impact your 2013 guidance because it is a pretty material contributor to your financials. And by extension, if it doesn't impact 2013, can we assume that it wouldn't impact 2010 either?

. . . .Answer: Bruce Kuhlik, General Counsel, Merck

At this point, we provided the information about when we expect the arbitration hearing to begin and the selection of the panel. We're looking at whether we can provide some additional information with respect to the process, and I hope to do that in a relatively near future. We continue to believe very strongly that we've structured this transaction in a way that's appropriate for the REMICADE distribution agreement. . . .

The question was more accurate than the answer -- Merck has definitely pulled in its horns on talk about confidence-levels in any specific set of outcomes. Now, they'll only say they "believe they've structured" appropriately. Indeed.

It Seems The Dutch Are (Justifiably) Steamed -- At Merck

An anonymous but kindly commenter offers us this lead.

And so, just as I predicted, the Dutch Works Council has asserted its right to consultation, and negotiation -- related to the Dutch parts of the 2009 bust-up of Schering-Plough -- per Dow Jones:

. . . .The works council. . . is taking the U.S. pharmaceutical firm to court over planned job cuts in the Netherlands, a works council spokesman said Friday, confirming earlier media reports.

The works council said it hasn't been consulted on the reorganization of Merck's Dutch operations, which will see R&D sites shut down and 2,175 of a total 4,500 workers laid off, even though [consultation] is compulsory under Dutch law. . . .

The works council is seeking to block the reorganization and is asking the court to prevent Merck from selling any equipment and other assets while legal procedure is ongoing. . . .

I'll keep you posted.

Merck Tightens 2010 Guidance Range -- SLASHES GAAP Range

Merck's Q2 2010 earnings are out -- and Whitehouse Station has tightened its 2010 guidance range for EPS, raising the bottom by two cents, and lowering the top by two cents, on a non-GAAP basis.

The real story though, is that it has slashed the GAAP EPS range -- now $0.82 to $1.16 for the full year. As recently as June 2, 2010 (a PDF file), this was Merck's 2010 guidance -- so, the lowering reflects additional GAAP down-bubbles since June 2:

. . . .As of June 2, 2010, the company reconfirms its full year 2010 guidance non-GAAP EPS range of $3.27 to $3.41, excluding certain items and 2010 GAAP EPS range of $1.15 to $1.50. The company also reconfirms its long-term target high single digit non-GAAP EPS compound annual growth rate from 2009 to 2013. . . .

Wild. Literally. The BOTTOM, on a GAAP basis, as of June 2, 2010 is now the top.

Merck is now off $0.86 in NASDAQ moderate volume premarket trading.

Seamus Fernadez of Leerink, Swann now says that Merck has reported in-line (no $0.03 EPS "beat") Q2 results this morning -- when the company's lower than expected tax rate is excluded -- he's clearly disappointed. He had been particularly bullish before this morning.

Sales are weaker than earlier expected, globally -- just as they were at J&J, ten days ago -- there's your driver.

Thursday, July 29, 2010

Merck's Q2 2010 Conference Call -- Live Blogged

The call/webcast will run live, from this link, tomorrow.

We'll probably get underway around 7:55 am EDT tomorrow, here.

▲ Seamus Fernadez of Leerink, Swann now says that Merck has reported in-line (no $0.03 EPS "beat") Q2 results this morning -- when the company's lower than expected tax rate is excluded -- he's clearly disappointed. He had been particularly bullish before this morning.

Merck's Q2 2010 earnings are out -- and Whitehouse Station has tightened its 2010 guidance range for EPS, raising the bottom by two cents, and lowering the top by two cents, on a non-GAAP basis.

The real story though, is that it has slashed the GAAP EPS range -- now $0.82 to $1.16 for the full year. As recently as June 2, 2010 (a PDF file), this was Merck's 2010 guidance -- so the lowering reflects additional GAAP down-bubbles since June 2:
. . . .As of June 2, 2010, the company reconfirms its full year 2010 guidance non-GAAP EPS range of $3.27 to $3.41, excluding certain items and 2010 GAAP EPS range of $1.15 to $1.50. The company also reconfirms its long-term target high single digit non-GAAP EPS compound annual growth rate from 2009 to 2013. . . .

Wild. Literally. The BOTTOM, on a GAAP basis, as of June 2, 2010 is now the top.

▲ We'll watch for consensus expected earnings per share of 83 cents, excluding one-time items, on expected revenue of $11.47 billion for the quarter. . . .

▲ However, while many analysts expect "in-line" results, several are predicting softer than projected sales, globally -- on foreign currency exchange rates, and European weakness. . . . we'll see, in the morning.

▲ "It's a tug-of-war between the stronger earnings and the signs that the economy is not recovering as rapidly as it has after other recessions," said Donald Selkin, chief market strategist at National Securities. . . .

Good Analysis Of "What To Expect" On Merck's Call Tomorrow

I think this BusinessWeek reporting gets it just right -- finally:

. . . .Merck has insisted its Schering-Plough acquisition was about science, not the chance to slash jobs and other costs to boost net income in the short term. Executives will have to show progress in boosting sales of newer drugs and in advancing experimental drugs -- many initially developed at Schering-Plough. Those revenues are needed offset sales lost as older, blockbuster drugs get generic competition.

Merck also needs to retain rights to blockbuster immune disorder drugs Remicade and its successor, Simponi. Schering-Plough shared revenue from them with Johnson & Johnson, which now is trying to grab all the money under change-of-control provisions in its contract with Schering-Plough. The case is to be heard by an arbitrator in late September, and Merck may discuss its prospects. Barclays Capital analyst Tony Butler says loss of both drugs could cost Merck about $3 billion in sales next year. . . .

Analysts. . . expect earnings per share of 83 cents, excluding one-time items, on revenue of $11.47 billion for the April-June quarter. . . .

Do tune in tomorrow, to see how it all unfolds, but note well that in the Remicade®/Simponi® matter mentioned, the panel of arbitrators could assess monetary damages, in addition to the "lost sales" figures, against New Merck. Thus I place the figure at closer to $4 billion, including such damages, legal fees and costs. [Should J&J prevail, the legal theory would hold that all New Merck sales of these two drugs after November 3, 2009 -- about three quarter of a year's worth of revenue, at this point -- ALSO belongs to J&J. By the time the arbitration ends, that will be almost a full year's sales.]

Wednesday, July 28, 2010

Some Additional Analysis Of The "New" Merial-Intervet Joint Venture Executive Leadership

A courageous commenter has provided us with additional color on the Raul Kohan as Merial-Intervet CEO announcement -- of yesterday, thus:

. . . .This is bad. If you work for Merial, a well run company, this is not good news. If you worked for the old Intervet, it also was well run, this is good news bad news. Good in that the saga of who do I work for is nearing an end. Bad in that they have now seen Raul's management. If you worked for legacy Schering this is of course bad news as you were hoping for new and better management. Raul is of course a chip off the Hassan block. If you work for Merck, you might be glad to be rid of another ex Schering executive team member.

July 28, 2010 7:54 AM. . . .

I trust this is a shared perception among the old Organon/Intervet crowd. Any additional readers willing to weigh in? I will protect your anonymity.

Is Merck Planning A "Silent Exit" From Hep B Vaccines Market?

Given that Merck stopped manufacturing its Hep B (not Hep C) Recombivax HB® vaccine over a year and a half ago, and is now talking about allocating that production away from West Point, PA (a union facility) to Durham, NC (a non-union facility), could it be that New Merck actually intends to surrender this market space to GSK? [As a side issue, is Merck permitted to do so, under the recently-ratified USW Local No. 10-86 three year collective bargaining agreement? I dunno.]

Stranger events have transpired in the past -- see this, from a Canadian medical journal, yesterday -- do go read it all:

. . . .The shortage began in January 2009, when Merck. . . announced that equipment upgrades at its vaccine plant in West Point, Pennsylvania, would disrupt production of the adult version of its hepatitis B vaccine (Recombivax HB®). The vaccine will likely remain unavailable for the near future.

"We do not anticipate availability of the adult formulation of our Hepatitis B vaccine for the rest of 2010 and will provide an update on availability of the adult formulation when more information is available," Jennifer Allen Woodruff, a spokeswoman for Merck, writes in an email. "Over the last couple of years, supply disruptions have occurred due to unexpected manufacturing issues that prompted modification to some of our processes and equipment. As a result, some of our vaccines have been in backorder and other vaccines have been unavailable for order for some time. . . ."

Merck is addressing its production issues in several ways: by investing in manufacturing capabilities to increase capacity and create redundancy; by building new vaccine-production facilities in Durham, North Carolina. . . and by modernizing equipment and processes at its West Point facility.

"Of course, these changes take time because of the complexity of the vaccine manufacturing process and because some require regulatory approvals moving forward," writes Woodruff.

In the mean time, GlaxoSmithKline (GSK) has been attempting to address the shortage by ramping up production of its adult hepatitis B vaccine (Adult Engerix-B®). . . .

Fascinating. I'll keep a tab on this, but as a very mature vaccine, it is likely that the margins on these Merck Hep B vaccines are pretty thin -- especially when sold into Canada (and other single-government-payer dominated economies).

Tuesday, July 27, 2010

US Vioxx® MDL Settlement Payment Details Emerge: Over 20,500 Heart Attacks

This afternoon, in the federal district courthouse in New Orleans, lawyers detailed for the first time how many -- and how much -- U.S. Vioxx® claims now settled involved (per BusinessWeek's online reporting -- do go read it all):

. . . .Merck, based in Whitehouse Station, New Jersey, settled after battling plaintiffs who claimed in state and federal courts that it didn’t adequately disclose Vioxx safety data to the U.S. Food and Drug Administration, didn’t properly warn doctors and patients of the drug’s risks and misrepresented the potential harm in marketing materials.

Under the program, BrownGreer [a court-appointed lawfirm] determined that 20,591 heart attack claims merited payment, including the 2,878 death cases. The average payment for all heart attack cases was $186,825. The payments for fatal heart attacks ranged from $18,743 to $1.79 million, with the average at $374,112.

The law firm concluded that 12,447 stroke claims merited payment, including the 590 death cases. Average payments for all stroke cases was $61,165. Payments for fatal strokes ranged from $5,015 to $818,119, with the average at $119,618.

A total of 1,061 different law firms handled Vioxx claims. . . .

So, Merck paid out on nearly 20,600 additional heart attacks as a result of Vioxx prescriptions, and nearly 2,900 of those heart attacks were fatal. Overall, Merck paid on 3,468 claims involving fatalities. Although almost all the individual US Vioxx cases are now settled, potentially thousands still remain open and unsettled -- in active dispute -- in Australia (some previous detail on those, here), throughout Europe, Canada and the United Kingdom, among other places.

As ever, more to come.

Merck's "Bait And Switch", Alleged -- USW Local 10-86's Signing Bonuses: Still MIA

Here's at least one union member's sentiment:

. . . .Our union should be demanding the signing bonus and not forced into signing the contract to get it.

F*** the signing bonus.

Don't sign the contract until all the gray areas and issues are settled.

We have another three years of hell.

Don't make it worse. Get things right before you sign the contract. . . .

This looks -- here now, more than ten weeks after an agreement was reached, with Merck management -- like some potentially-brewing labor unrest -- in Merck's West Point facility. Should it fester, Merck management will have only itself to blame. [This is a follow-up on this post.]

Kohan to Lead New Merial-Intervet JV With Sanofi

Not an hour ago, I wrote that I'd like an update on the New Merial JV -- and ECC/FTC timing -- and here it is, courtesy of Raul Kohan's annointment, erh. . . appointment, out of Merck's press corps:

. . . .Raul E. Kohan will be appointed Chief Executive Officer of their proposed Animal Health joint venture. Sanofi-aventis and Merck -- known as MSD outside the United States and Canada -- intend to combine Merial with Intervet/Schering-Plough, to create a new global leader in Animal Health to be called Merial-Intervet.

Mr. Kohan is currently President of Intervet/Schering-Plough, Merck's Animal Health business. He will commence his new responsibilities when the new joint venture is approved by regulatory authorities and closes, which is expected to occur in the first quarter of 2011. The formation of this new animal health joint venture is subject to execution of final agreements, antitrust review in the United States, Europe and other countries, as well as other customary closing conditions. . . .

Color me skeptical about that early 2011 date, as no ECC filing has been made, nor any Hart-Scott filing. I'll keep you posted.

Merck To Make HPV Vaccine -- With Sinopharm -- In China?

At least that's what the latest presser out of Whitehouse Station proclaims:

. . . .Richard T. Clark, chairman and chief executive officer, Merck. "We look forward to furthering our discussions with Sinopharm to establish a joint venture to significantly increase the number of people in China who have access to important vaccines."

Merck and Sinopharm have maintained a good relationship for many years, Sinopharm said. Both Merck and Sinopharm expect the importance of public health will be elevated and the development of the pharmaceutical industry in China will be promoted through this strategic cooperation. . . .

It is certain that China has required some local manufacturing -- for inside China deliveries, and presumably, at very low price points -- in order for Merck to secure access to her vast market-potentials. What is unlcear is whether any of these HPV vaccine-stocks (or other future vaccine-stocks) will be made available for export. Here's one recent backgrounder.

What (Else) To Watch For, Come Friday Morning

As I said I would over the weekend, here are a few sign-posts -- to watch for -- on Merck's Q2 2010 results webcast early Friday morning (I just wrote this for another purpose, but I'll reprint it here, now):

. . . .I now think Merck will post essentially in-line results, at the EPS line, but slightly below consensus (as did J&J, a week ago) at the sales line, globally.

I think currencies (when translated back to US Dollars) will continue to be an issue -- I think EU zone (Greece, particularly) sales will show the effects of austerity measures, and price cutting.

Even so, I expect Whitehouse Station to say that its most-recent round of 17,500 firings in Q2 have (mostly) covered these gaps.

What I am really waiting on are status reports/updates on:

(i) The Remicade®/Simponi® J&J/Centocor arbitration or settlement talks

(ii) Any additions to reserves for Fosamax® liability, globally (post the $8 million federal jury verdict in Manhattan)

(iii) Any additions/new reserves for the Vytorin®/Zetia® ENHANCE-related federal and state litigation outcomes

(iv) Status of the Vioxx® opt-outs (people who've chosen not to take the global settlement)

(v) An update on the timing for an ECC/FTC transaction filing on the "New" Merial JV contribution of legacy Schering-Plough's Organon Animal Health assets, and. . .

(vi) Any update on the criminal investigations underway at the DoJ.

That's most of what I'll be looking for. . . .

Stay tuned for analyst commentary.

Monday, July 26, 2010

West Point, PA Union Contract Signing Bonuses Still Unpaid

Even now, more than ten weeks after the United Steelworkers Local 10-86 voted in favor a new three year agreement at Merck's West Point, Pennsylvania facility, the company hasn't paid the workers their contract signing bonuses. Here's the most-recent update, from the USW 10-86 webpage:

. . . .The Negotiating Committee met again with our law firm and then the Company to clarify language in regards to about ten items in the contract. These meetings took place Tuesday, July 20th. There are still issues about what some of the language actually means. Once the language is clarified, the contract will be signed, and signing bonuses will be released. . . .

I'll keep you posted -- but it looks like the signing bonus won't come until the August paycheck runs are processed.

WikiLeaks' Monday NYSE Impact: Not Really Off-Topic

The coordinated release, tonight, by three of the world's leading news outlets, of the "WikiLeaks War Diaries" is an event that undoubtedly dwarfs the 1971 release of the so-called "Pentagon Papers" by Daniel Ellsberg during the latter stages of the Vietnam War, and by several orders of magnitude.

There is simply no plausible way to paint this as good for the oil industry, or defense contractors, or for any business with military connections and contracts.

And so, my question: how deeply into negative territory will the NYSE open, tomorrow?

Feel free to take a guess. Bonus pool: How far down will Merck slide, by mid-morning tomorrow?

I really don't know -- I just have a strong hunch, here, that this highly-damning 92,000 page cache shakes the scant remaining faith of the undereducated masses -- in the military-industrial complex, and its pervasive influence in world commerce.

Although the documents point most squarely at deception by the former Administration [Mr. Cheney's, in particular], they may well lead to a quicker exit from Afghanistan -- as Mr. Obama may now become convinced that if many of the Pakistani secret forces are actually aiding the Taliban, then the Afghan conflict is an unwinnable quagmire.

If nothing else, that is one central lesson contained inside the 92,000 pages -- that we are as much fighting what purport to be our Pakistani allies -- as we are fighting the Taliban, in Afghanistan.

Sunday, July 25, 2010

What Should We Expect, From New Merck, This Friday Morning?

Friday morning, before market open, "New" Merck will webcast its second quarter 2010 operating results. We'll cover it -- and the guessing game of predicting the same, right here this week (CNN leads us off, this morning, below):

. . . .As a strong July draws to a close, the earnings reporting period is just heating up, with 157 of the biggest companies in the country due to open their books in the week ahead.

Standouts include Dow components Boeing (Tues.), DuPont (Wed.), Exxon Mobil (Thurs.), and Chevron and Merck (Friday). Also, BP (BP) reports Tuesday, the first snapshot of the company's performance during the quarter in which the oil spill began. . . .

"It's a tug-of-war between the stronger earnings and the signs that the economy is not recovering as rapidly as it has after other recessions," said Donald Selkin, chief market strategist at National Securities. . . .

J&J's slightly off-results, and BristolMyersSquibb's confusing ones further obscure any guesses about Merck. Still, I'll collect the guesses, such as they are, here -- during the week ahead.

Of course, I'll live blog the noteworthy parts of the results on Friday -- assuming I am not off-the-grid at that time on Friday morning (which is still unclear as I write this).

Saturday, July 24, 2010

Why FDA Will Likely Never Approve Gardasil® For Throat Cancers Prevention

The irrepressible Matt Herper has the whole story (though not in his usual venue) -- do go read all of his fine piece -- but here is a snippet:

. . . .The vaccine manufacturers aren't terribly hot on the idea. GlaxoSmithKline says it has no plans to study throat cancer. It adds that it is "committed to providing a vaccine specifically designed to protect against cervical cancer in girls and young women."

Merck, the maker of Gardasil, seemed more interested a couple of years ago. In 2008 it funded Maura Gillison, the Ohio State University researcher who established the HPV-throat-cancer link in 2000, to do a pilot study to show that test could reliably detect HPV infection in the throat. The pilot study was successful. By early 2009 Gillison says that a larger study of the vaccine in throat cancer looked close to being green lit.

But after Merck agreed to buy rival Schering-Plough for $41 billion in March 2009, interest in a big study seemed to evaporate, Gillison says. In a statement, Merck says that "due to competing research and business priorities, we decided not to move ahead with an efficacy study at this time. . . ."

Given some of the other FDA regulatory swirl surrounding Gardasil®, I suspect it will never be approved to prevent throat cancers in men.

Legacy Schering-Plough's NuvaRing® -- And Venous Bloodclots

We've mentioned the reports of 300 or so federal products liability suits alleging injury from NuvaRing® a few times before, but it certainly seems as though the pace of the filings is accelerating, of late. From the Louisiana Record, then -- a local press report:

. . . .[Another plaintiff, this time in New Orleans] has filed suit against the manufacturers of the birth control product NuvaRing®, alleging the product caused her to suffer a blood clot within a vein.

[The woman] filed suit against Organon Pharmaceuticals USA, Organon International and Schering-Plough Corp. on July 16 in federal court in New Orleans.

She claims she was prescribed NuvaRing in January 2005 and suffered a venous thromboembolism after she began using the drug. Lorusso says it was not until August 2009 that she became aware of the risks associated with NuvaRing through an advertisement. . . .

The case has been assigned to Judge Ivan L.R. Lemelle. . . .

I'll keep an eye on the arc of these cases.

Friday, July 23, 2010

Avoiding That "Next Iceberg" -- Of "Negative" Studies

A gracious anonymous commenter points us to this well-thought out Wa Po item -- do go read it all, and keep the ENHANCE study, the SEAS study and the IMPROVE-IT study in mind, as you do:

. . . .Consider: In the past two years scientists have announced the results of a $300 million trial sponsored by the National Institutes of Health to evaluate common, seemingly sensible but unproven strategies to treat blood sugar, lipids and blood pressure in patients with diabetes. In each case the more intensive approach, which used more medication to improve a patient's risk-factor profile, failed to improve the health of patients. One finding, corroborated by two other trials, confirmed that the strategy of markedly lowering blood pressure was not effective for older patients with long-standing diabetes.

There are many other examples of trials in which anticipated benefits from drugs and procedures did not materialize. A study published last fall tested the value of darbepoetin alfa, a drug that increases the red blood cell count and can treat anemia. This industry-sponsored study showed that the drug had no benefit and increased the risk of stroke. . . .


No Friday Litigation Update -- USDC In NYC Is "404"/MIA -- PACER Offline

UPDATED: Noon, EDT: The Southern District is back up -- only a corrected version of Merck's Memo of Law In Support Of New Trial, in Boles II has been filed.

Well, Friday would normally bring a litigation update on all matters New Merck, but inasmuch as the ECF/PACER interface for the United States District Court for the Southern District of New York is offline, at the moment, there will be nothing to report:

. . . .Internet Explorer Cannot Display Requested Page. . . .

Maybe tomorrow.

Wednesday, July 21, 2010

Details Emerge From Latest Merck -- J&J FDA "483" Letter

UPDATED -- 07.22.10 @ 9 AM EDT -- Here is the full-text FDA 483 report (in PDF format), courtesy of Pharmalot -- and, it's a doozy!

We first mentioned this over the weekend, but now -- per Reuters reporting, this afternoon -- the details are trickling out:

. . . .U.S. government inspectors found problems with test procedures, record-keeping and handling of consumer complaints at a Johnson & Johnson and Merck & Co. manufacturing plant in Pennsylvania, a report released on Wednesday said.

The Food and Drug Administration listed 12 shortcomings uncovered by agency inspectors who visited the Lancaster, Pennsylvania, site in late June and early July. . . .

As ever, more to come -- but Merck is off about $0.60, on pretty solid volume, on the NYSE on the news.

Australian Update -- On Merck's 500-Plus Vioxx® Cases Pending, There

Back in early June, in Australia, Merck lost a bench trial (at least in part), in the Vioxx® matters. Now, according to published reports, plaintiffs' attorneys in Melbourne are trying to expedite a payment mechanism, so that claimants will not die prior to receiving their payouts -- see this snippet:

. . . .The [Australian] Federal Court should expedite the cases of hundreds of Australians who had heart attacks after taking the anti-arthritis drug Vioxx so they do not die before receiving compensation, a barrister has argued.

Julian Burnside, QC, made the plea at a directions hearing in Melbourne yesterday after a judge this year found Vioxx doubled the risk of heart attack and the Australian subsidiary of Merck, one of the world's largest pharmaceutical companies, had breached the Trade Practices Act by selling it.

In his ruling in the landmark class action in March, Justice Christopher Jessup awarded $287,000 to lead claimant Graeme Peterson, 59, who had a heart attack in 2003 after taking Vioxx. . . .

If the number of claimants rises to more than 1,000 -- at $287,000 per -- the damages look to be north of $287 million. I'll keep you posted.