Thursday, December 29, 2011

Proposed Cain v. Hassan Settlement Terms: Governance Changes, and $5 Million In Legal Fees, To Plaintiffs' Law Firms?

I'll confess that I've been sitting on this (a 19 page PDF file) one for a bit, as I reviewed the proposed settlement documents, thus far filed (last updated by the court clerk, electronically, as of December 21, 2011), in the federal District courthouse, in Newark, New Jersey.

Regular readers will recall that we've repeatedly reported, since mid-October 2011, that it seemed there was a deal in the works, though the Merck third quarter 2011 SEC Form 10-Q provided no details as to terms.

Well, now we have at least the proposed terms -- as submitted to Judge Cavanaugh -- for preliminary approval. The deal may still be scuttled, as "not enough" in recovery for the shareholders, or for "too much," for the plaintiffs' lawyers. In any event, the proposed terms, in large part, contemplate a new board committee -- each member independent of management, each with relevant life-science, and clinical trial, experience, being interposed between the science staff, and the executive management team -- to evaluate the timeliness of completion of each study, and promptly drive the full public disclosure of all clinical trial results registered by Merck (with

Just such a delay -- related to the ENHANCE results -- was almost certainly the but-for cause of the between $13 and $5 per share loss that various shareholders suffered (and closer to $20 per share, if one measures from the last public underwritten stock sale -- at $32.50).

So -- on balance, after much thought, over the holidays -- and given that the securities class actions (for money damages) are still pending, and being contested -- I'd say the terms are fair to the aggrieved shareholders. This is so, even though the settlement only covers clinical trials for products already on the market in the US -- as those kinds of trials are most likely to most directly impact New Merck NYSE stock trading prices.

Not rich, by any means -- and certainly, the plaintiffs' lawyers have earned their $5 million in fees -- but probably fair. Here's a bit of the proposed notice:

. . . .In the settlement, New Merck agreed to make the following corporate governance change: Once a year, Merck Research Laboratories will provide a report to the Research Committee of the New Merck Board of Directors concerning any Covered Clinical Trial with Delayed Results (as defined below), including the reasons for the delay in the reporting of the results and any corrective action taken. New Merck agreed to retain this change to corporate governance for at least three (3) years, unless a majority of the independent directors, upon notification to shareholders, deem the change to no longer be in the best interest of the Company as a result of changed circumstances. . . .

"Covered Clinical Trial with Delayed Results" means any New Merck-sponsored clinical trial of marketed products in the United States for which New Merck is required to register and post results under the Food and Drug Administration Amendments Act of 2007 (“FDAAA”), where the Basic Results of the trial have not been submitted for publication or to within twelve (12) months of the Completion Date. “Basic Results” means the summary results information required to be reported on (a service of the U.S. National Institutes of Health) pursuant to Section 801 of the Food and Drug Administration Amendments Act (Sept. 27, 2007). “Completion Date” means the date that the final subject of a clinical trial was examined or received an intervention for the purposes of final collection of data for the primary outcome, whether the clinical trial concluded according to the prespecified protocol or was terminated. . . .

Yes -- I think, had this provision existed during Fred Hassan's tenure, it is likely that the 16 month delay would have been significantly shortened, due to the pressure of having to specifically explain to science savvy board-members any non-routine delays.

Finally, as a technical matter, because this was a shareholders' derivative suit, brought on behalf of the corporation itself, by the shareholders of the corporation, it was always less likely to result in monetary recoveries (and the performance-related remedies, of kicking Hassan et al., out -- were mooted by the closing of the bust-up, on the morning of November 3, 2009).

[A post script note: the new by-law provisions -- effective January 1, 2012 -- will insulate these science/research committee directors, from just about all liability, for good-faith, but wrong, decisions, while sitting on the committee.]

Wednesday, December 28, 2011

Merck Fund Leads $30 Million Venture Round -- In Aviir, A Cardiac Risk Tool Company

Merck's Global Health Innovation Fund will invest (along with others), contingent (in part) on milestone acheivments, up to $30 million in Aviir, an Orange County, California company founded on research conducted up in Palo Alto, at Stanford. Here's a bit from a local paper:

. . . .Aviir, which was founded in 2005, has already received $10 million and could receive another $20 million if it meets certain milestones. Merck Global Health Innovation Fund led the round, which included existing investors Bay City Capital, Aberdare Ventures and New Leaf Venture Partners.

Aviir CEO Douglas Harrington said, "Most people believe that narrowing arteries cause heart attacks, but the truth is that more than 70% of heart attacks are caused by a blood clot in the artery resulting from rupture of unstable plaque, which stops blood flow to the heart. And, while cholesterol is implicated in the development of unstable plaque, more than 50% of people who have a heart attack have normal cholesterol levels. . . ."

We'll keep an eye on this one -- for the readership, but it is true that early detection is literally half the battle in fighting heart disease. So, this might well prove to be a prescient bet, by the team led by CEO Frazier.

Monday, December 26, 2011

An Undue Reticence To Cut Peers' Heads; Great Ease With Cutting Subordinates': That Defines Fred Hassan

In his role as lead director of the Avon board -- and quite appropriatley, in my view -- Fred Hassan has come under very-significant fire, for setting up an arguably-flawed succession plan at Avon, now that CEO Jung is on her way out (per a December board decision).

The crux of Fred's problem (according to CEOs who spoke on the record to The Wall Street Jounral [$$$], here) appears to be too much loyalty to a woman executive he regards as a peer (hmmmm. . . think Carrie Cox, here), allowing her to essentially set the terms of her own departure. This will make it much tougher (the argument runs) to get a truly first rate new CEO -- as many of the best won't want to have to assauge the feelings (or worse, kow-tow to) the now ex-CEO -- sitting in a non-executive chairman's role -- for almost two years.

In short, Fred has been too protective of his fellow-executives' predilections, and too-quick to slash the jobs of his subordinates -- by the high-multiple tens of thousands, over the last decade [at AHP, Pharmacia, then Schering-Plough].

If nothing else, it is extremely unusual to see other Fortune 200 CEOs willing to go on the record, and in writing, to criticize lead director Hassan's strategy -- all at a company in which only a few of them still hold shares. One could more readily understand it -- as simple sour grapes -- if (for example) it were Mr. Buffett criticizing moves that hurt one of his investments. But this is different, and deadly, to Fred Hassan's reputation among his peers -- in my eye. Take a look, but do go read it all:

. . . .Former Avon CEO James Preston, once one of Ms. Jung's closest mentors, took the unusual step of writing a letter to the board two days after the shake-up. He criticized Ms. Jung's leadership, stressed that departing CEOs should step aside and called on the board to replace her with someone with deep experience in the direct-selling world. . . "I have long held the belief that once a CEO leaves that position, he or she should make a 'clean break' and not question or second-guess the actions of his successor. . . ."

Fred Hassan. . . defended having Ms. Jung remain executive chairman for two years after the new CEO arrives. "Given the specific nature of the company and the specific nature of the board, we have very strong confidence that we can make this transition work. . . ."

David Mitchell, Avon's chief executive from 1975 to 1983 and a current shareholder, said in an interview he was particularly perturbed over Ms. Jung's desire to stay for so long. Mr. Mitchell remained on Avon's board for a short time after leaving his post in 1983. He said he has met Ms. Jung only a handful of times.

He called the split CEO-chairman structure "a stupid arrangement" that will make the board's search for a quality successor nearly impossible. . . .

Ms. Jung doesn't plan to cede much power.

"I am not going anywhere," Ms. Jung wrote in an internal memo, reviewed by The Wall Street Journal, last week to all U.S. employees and global managers. "I will remain very close to the business, defining the company's strategy and brand positioning."

As executive chairman, she will earn a $1 million salary, a maximum annual bonus of $1 million and long-term incentives valued at as much as $4 million a year. . . .

Maybe the worm has finally turned -- and fellow CEOs are seeing Fred Hassan for who he is -- someone who appears to manage "up, and sideways" very well (telling everyone at his level, or above, exactly what they want to hear -- but doing none of it) -- while entirely failing to manage "down".

Time will tell.

Friday, December 23, 2011

Merck Is 2011's "Job-Cuttingest" Pharma Company: 13,000 In 2011 Alone

And that follows some 25,000 to 30,000, over the last three years (between the now-combined companies).

So -- it is probably appropriate that this run as a latter-day Bob Cratchit story (for those that remain, at least), and right before the Ghost of Christmas to Come appears (for those that have departed).

Most of the layoffs announced in May 2011 actually occured in October of this year. Still, it makes for a tough holiday for those 13,000. Our thoughts are with them -- as we've "once been there"; all we can say is that "it will get better." In time. So try to be of good cheer -- being down about it won't change it. That much is certain.

This, is a bit from the FiercePharma story, this morning -- do go read it all:

. . . .Perhaps the most persistent trend in the drug business is one management would prefer to discuss only with analysts, and certainly not with the rank-and-file. Once again, a laundry list of pharma companies are laying off workers by the thousands. Companies. . . [including] Merck, which in May announced plans to cut up to 13,000 jobs.

Before Merck revealed its latest cost-cutting plans, it looked as if 2011 might be a relatively blood-free year. And it's true the numbers don't approach the layoffs announced in 2009, when Pfizer merged with Wyeth and Merck with Schering-Plough -- and both mega-mergers resulted in mega-job cuts. . . .

But saying it isn't as bad as 2009, is really cold comfort. And for that, I am truly sorry -- but it does need to be marked. Merck was the layoff champion in pharma, in 2011. In many ways, though, all current CEO Frazier was doing was cleaning up the mess Ex-Schering-Plough CEO Fred Hassan left him, as a coal-bin to ashes legacy. Unfortunate. So Hassan's Fortune "accolade", from last year, runs here -- at right.

Thursday, December 22, 2011

Merck Adopts "Irrevocable" Retroactive Indemnity For Os And Ds -- Now Including Legislative Investigations, As Well As Litigation

Last night, Whitehouse Station quietly amended its corporate by-laws (to take effect January 1, 2012), to take advantage of some changing (i.e., liberalized) aspects of New Jersey corporate law (as compared to current provisions of Delaware corporate law). The changes are filed with the SEC here, as required by law. The most salient clauses are bolded:

. . . .Subject to the terms and conditions of this Article V, each former, present or future Director, officer or employee of the Company or of any of the Company’s subsidiaries or the respective legal representatives of such individuals (each an “Indemnitee”) shall be indemnified by the Company, to the fullest extent permitted by the laws of the State of New Jersey as they exist as of the date hereof or as they may hereafter be amended, from and against any and all liabilities and expenses in connection with any civil, criminal, administrative, legislative, or arbitrative action, suit or other proceeding (each a “Proceeding”), or any inquiry or investigation that could lead to any such Proceeding or any appeal therein in which he or she is or was involved, or is or was threatened to become involved, by reason of being or having been a corporate agent; provided that in connection with any Proceeding by or in the right of the Company, no indemnification shall be provided as to any person adjudged by any court to be liable to the Company except as and to the extent determined by such court; and provided, further, that any indemnification pursuant to this Section 1(a) in connection with the settlement or other similar nonadjudicative disposition of any threatened or pending Proceeding shall only be granted to the extent permitted by law. . . .

[All new:] No Retroactive Repeal or Amendment. No amendment or repeal of this Article V, nor the adoption of any provision of the Certificate of Incorporation or these By-Laws inconsistent with this Article V, shall deprive any corporate agent of any rights under this Article V with respect to any act or omission of such corporate agent occurring prior to such amendment or repeal of this Article V or the adoption of such inconsistent provision. . . .

Remember that this provision grants Fred Hassan, Carrie Cox and the lot of former Schering-Plough officers and directors non-repealable new rights to reimbursment -- in all the ENHANCE matters, by way of example. Anything spent defending Senator Grassley's ENHANCE investigation (i.e., the Covington & Burling bills, for example), is now to be reimbursable from "New" Merck's corporate coffers. [There were two Congressional investigations, at the time, just to be clear.]

This Merck is, after all, the same entity that was once legacy Schering-Plough. Cozy. I don't think the change is primarily intended to benefit the Ex-Schering-Plough Ds & Os, but it clearly does just that.

More broadly, the narrative surrounding this change in law is part of what has been called "the race to the bottom", between Nevada, Delaware and New Jersey -- ostensibly to keep or retain corporate franchise tax rolls, in each state. And for my part, I don't see how the change is helpful to any affected shareholder. [Later, I'll I've attached a PDF markup of the changes to Merck's Article V, here.]

Wednesday, December 21, 2011

Legacy Schering-Plough Company Incurs Largest "Single-Case" Medi-Fraud Fine In Massachusetts History

And so, the legacy albuterol matter ends (in Massachusetts, at least -- but Wisconsin, and other states still retain their individual claims, here), leaving Ken Frazier holding yet another bad I.O.U. note, from Fred Hassan and crew. His band of merry elves (payout artists) escaped with some $400 to $500 million in change of control and separation benefits, as the top six busted up Schering-Plough, and sold it off (essentially in pieces) to Whitehouse Station, in Novemeber of 2009.

From this morning's online version of the Boston Globe, called (with a gracious hat tip, to Ed, at Pharmalot), here's a bit:

. . . .Massachusetts recovers $24 million from Merck, in its largest Medicaid fraud settlement ever. . . .

The state previously recovered a total of $23.4 million from the other 12 companies involved, but Merck, the nation’s second-largest drug maker, appealed a US District Court ruling last year in favor of the state. Its decision to settle brings the entire case to a close. . . . The state could have accepted $1.5 million to $2 million two years ago as part of a settlement of a related federal case against Merck, but it chose to press its own case against the Whitehouse Station, N.J., company. . . . Initially, the suit named Warrick Pharmaceuticals Corp., a generic drug unit of the former Schering-Plough Corp.; it was bought by Merck for $41 billion in 2009. . . .

Since 2007, the attorney general’s office has returned more than $210 million to the state Medicaid program through fraud settlements. . . .

Yet another parting "White Elephant failed-bust-up gift", courtesy of that impish elf, and Ex-CEO, Fast Freddy Hassan. Sheesh. [Remember here that Hassan and Co. had proposed a highly structured animal health deal that ultimately had to be unwound, in early 2011 -- as it was almost universally found to be too likely to violate relevant US and EU antitrust laws.] Where were we? Oh yes.

Still it is true (on the main topic) that, at one point, the Massachusetts AG thought it could recover up to $250 million from Merck, for this (alleged) Warrick malfeasance. So, this isn't the top of the range, in settlement, by any means.

Saturday, December 17, 2011

Good News! Zostavax® Status Update: Merck Has Finally Cleared All Backorders

Last night, Merck updated its online "Vaccine Supply Status" page -- it seems that all the kinks in the live herpes zoster vaccine production facilities have been solved, and all back orders are being filled, in nearly real time, now (click to see full-size image of relevant page at right -- salmon-colored matter is new):

. . . .All backorders have shipped. Zostavax®, 1 single-dose 0.65 mL vials have resumed standard shipping. . . .

Orders through 12/09/11 have shipped. Order Date: Estimated Delivery:

12/10/11 - 12/16/11 12/21/11
12/17/11 - 12/26/11 12/28/11

For orders 12/27/11 or later, Zostavax®, 10 single-dose 0.65 mL vials will resume standard shipping. . . .

This is clearly good news. Still, it points to just how complicated vaccine manufacturing is -- as a uniquely biological process. It is not a simple powder-pill stamping endeavor, by any means. It is not even cooking a perfect soufflé -- it is far more difficult than that. And it has to be done by the hundred of thousands of doses, in a batch. Daunting bio-science, that.

This vaccine has faced manufacturing issues, and resulting short supplies, for almost two and one half years, straight. Still, good to see Merck get the process worked out, and back online, in scale. My hat's off -- 'ere's to 'em.

Friday, December 16, 2011

Ex-Merck Guy To Clear Path, For Ex-Abbott Guy -- At Vertex

This is a much tighter circle than the first-glance "six degrees of Kevin Bacon" usual game might otherwise suggest, here -- especially given that Vertex's closest current competitor is Merck itself (well, okay -- technically, it's legacy Schering-Plough, but you know what I mean). [See, Incivek® posts here.]

Here is more, per this morning's Boston Herald -- do go read it all, there -- this is a bit of it:

. . . .The front-office shuffle comes as the Cambridge-based company — now building a massive new waterfront headquarters in Boston’s Seaport District — prepares to bring its second drug to market. The Food and Drug Administration has agreed to expedite its review of the first potential treatment targeting the underlying cause of cystic fibrosis.

A board member since 2009, Leiden is a managing director at Clarus Ventures in Cambridge. He previously was president of Abbott Laboratories and has experience as a practicing cardiologist. . . .

Indeed. I still think Vertex has been oversold by Wall Street -- it has a clear path (leading the Hep C next-gen state of the art) until at least 2015, in my estimation.

Tuesday, December 13, 2011

Chairman and CEO Frazier -- WSJ Video: Vioxx® "Like Penn State's Sandusky Matter"?

We all by now know that Merck Chairman and CEO Ken Frazier is leading the oversight of the investigation into "who knew what, and when?" -- at Penn State. Even so, this is pretty bold -- from this morning's Wall Street Journal breakfast -- do watch the middle portion (about two minutes in):

Per Mr. Frazier, this morning:
. . . .This does not define the institution [Penn State]. . . so, too with Merck -- Vioxx® did not define us. . . .

Without knowing all the Sandusky facts (and given that he waived a preliminary hearing this morning), I'd be very careful about equating these two -- in any fashion (even along the Frazier-suggested lines). There can be no way to know whether the Sandusky matter will be more devastating to Penn State than Vioxx was -- to Merck. Time will tell, but this really caught me off guard.

Monday, December 12, 2011

Legacy Schering-Plough's Iconic Coppertone Sign: To Be Funded By Merck

I note -- with a smile -- this "HuffPo" article, which largely reprints an earlier local Miami Herald story I read on the topic:

. . . .Pharmaceutical company Merck will fund maintenance of the Little Miss Coppertone sign, according to the Miami Herald. For the next five years, the parent company of Coppertone will donate $1,800 to cover insurance costs and any repair of the iconic billboard, which now sits at 73rd Street and Biscayne Boulevard. It was designated a historic landmark in 2008.

The pig-tailed tiny sunbather, with her backside partially revealed by a playful dog tugging at her bathing suit, was created in 1959 by pin-up artist Joyce Brand (nee Ballantyne). The same year, the ad became a 35-foot billboard on the side of the Parkleigh Building near the Freedom Tower on Biscayne Boulevard. . . . Little Miss Coppertone defined the Miami skyline for the next 30 years. . . .

Fascinating. [The graphic at right also commemorates the three year long battle Coppertone waged against J&J's Neutrogena -- about the relative veracity of SPF claims each made, in FTC regulated advertising in the USA.]

Thursday, December 8, 2011

Credit Suisse Lowers Its Merck 2012 EPS Estimates; Keeps $44 Target

The notion that Credit Suisse is still holding on to this relatively high price target (in light of looming patent cliffs, a thin pipeline and a still-very-tough global economy) might be hard to figure. It might be hard to figure, if we hadn't looked at the two recent allocations of Merck's December 7, 2010 debt offering, and (even more impressively, its) 2009 debt offering business -- these are very high margin, easy chunks of substantial business -- for the securities underwriting side of the Credit Suisse sprawling investment house.

And so, Credit Suisse has a note out, on Merck, and tersely summarized in Divdend Stocks this morning, thus:

Pharmaceuticals giant Merck & Co., Inc. on Thursday saw its earnings estimates lowered by analysts at Credit Suisse.

The firm said it cut its estimates for Merk through 2013, noting that AstraZeneca plc will likely exercise its call option on heartburn drugs Nexium and Prilosec. Under a previous agreement between the two drug giants, AstraZeneca retains the right to repurchase Merck’s interests in Prilosec and Nexium in the U.S. in 2012. . . .

But still Credit Suisse holds $44 as the Merck NYSE price target. I think a more realistic 12 month target (even in a recovering global economy) is closer to $38. Having said all of that, I still believe Credit Suisse's analysts have complied with their (rather meager) "honest opinion" duties, under SEC Reg AC.

As ever, we shall see.

Wednesday, December 7, 2011

From Pharma, To Gorilla Glass, I Guess: Mr. Clark Joins Corning Board

I think Corning -- the maker of Gorilla Glass -- has done well for its shareholders, here. Mr. Clark is a fine executive, and will bring world-class manufacturing/operational insights to the Corning board. After all, chemicals and pharmaceuticals aren't even second cousins -- they're first cousins. From the Corning press release of this evening, then:

. . . .Corning Incorporated today appointed Richard T. Clark, retired chairman and chief executive officer of Merck, to Corning’s board of directors, effective immediately. . . .

He is a director of Automatic Data Processing, Inc. (ADP) and serves on the advisory board of American Securities. He is a trustee of PENN Medicine, which includes the University of Pennsylvania School of Medicine and the University of Pennsylvania Health System. Clark is chairman of the board for Project Hope, a global health education and humanitarian assistance organization. Clark serves as a trustee of Washington & Jefferson College and as a member of several other business, policy, and charitable organizations. . . .

Mr. Clark will serve on the Corning Board's Audit Committee, and its Compensation Committee. So, not such a quiet retirement, after all.

Tuesday, December 6, 2011

Merck To Put A Lot Of Meat On The Bones: $1.5 Billion China Investment

I simply have to note that -- at least for the near term (the next seven to ten years) -- Merck's investment spend in China will likely exceed its return (in domestic Chinese net profits on its sales revenue), but the higher-end health care consumption market emerging there is simply so large, that Merck cannot afford not to make these investments. So it has plunked down $1.5 billion, to build an R&D complex there.

From Merck's press release of this morning, a bit:

. . . .Merck. . . known as MSD outside the United States and Canada, today announced the establishment of an Asia Research & Development (R&D) headquarters for innovative drug discovery and development located in Beijing, China. The new facility is part of a $1.5 billion commitment the company has made to invest in R&D in China over the next five years. . . .

Located in Wangjing Park, one of Beijing's rapidly expanding science and technology parks, the facility will consist of 47,000 square meters of office and laboratory space. The first phase of construction, scheduled to be completed by 2014, will provide capacity for approximately 600 employees working in the areas of drug discovery, translational research, clinical development, regulatory affairs and external scientific research programs. . . .

That's about $300 million per year for the next five years. To be clear, I am not being critical -- this is a smart Whitehouse Station strategy, primarily because it is likely the only way to really establish a sustainable selling effort in China: one must invest in China -- put down planted roots -- to grow in China, given that the state still owns (and/or largely influences) all of the significant health care expenditures made there.

Friday, December 2, 2011

World AIDS Day: Harvard Med Students Advocate For HIV Patent Pool

As a metaphor for joining the patent pool, some Harvard med students and undergrads showed up in swimsuits, carrying an inflatable pool. They more than playfully urged Whitehouse Station to make its HIV and auto-immune disorder intellectual property available -- on a non-exclusive basis -- to the non-profit researchers looking to combat AIDS in the less-developed world. Several other large pharma concerns have nobly agreed to do so (J&J among them). For its part, Merck has said it is still studying the idea. After nearly two years of "study," is time for Merck to decide: is it in -- or out -- of the pool?

Some media coverage, per this morning's online edition of the Harvard Crimson -- do go read it all -- but here is a bit:

. . . ."Merck knows about our campaign," said Yamamoto, adding that she thought Merck held "internal conversations" about the previous demonstrations carried out by Harvard AIDS activists. Yamamoto added that after sustained pressure from the coalition, Merck agreed to meet with them in January 2012.

Harvard AIDS activists said they hope the meeting will increase pressure on Merck to relinquish patents on several of its HIV/AIDS drugs to the Medicines Patent Pool. The Pool opens up patented drugs to generic producers for sale in developing countries and compensates the original patent holders with royalties. . . .

". . .[T]here is a special role for these drug owners because drug prices in the developing world directly impact the availability of critical medicines," said protester Nathan T. Georgette ’13, who wore swim trunks over his khaki slacks and sports coat.

Organizers planned Thursday’s protest to fall on World Aids Day, observed every year on Dec. 1.

"Typically, World Aids Day is a day of remembrance and mourning,” said Yamamoto. “We want to make sure it also sounds a call for action."

Protesters maintained that Merck’s participation in the patent pool would have a dramatic impact on reducing AIDS mortality in developing countries.

"Lots of people throw around the term ‘life-saving’, but these medications literally save lives," said Arjun A. Suri ’08, a Harvard Medical School student who sported a lab coat, stethoscope, and swim trunks. "They turn HIV from a death sentence into a manageable chronic illness. . . ."

In the United States, Merck's Isentress® costs as much as $12,864 per patient per year -- that is more than an average African could hope to earn over two decades. Significantly, Isentress is literally the difference between life -- and death -- it is a miraculous, life-saving wonder.

The largely-admirable United States-only Isentress price subsidy programs offered by Merck (and depicted at right) only apply to those patients with health insurance here, and even if such a discount were offered in the developing world, it wouldn't begin to make a meaningful dent -- the annual cost, even discounted -- is too far out of reach to be of any real use.

Time to decide, Merck.

Thursday, December 1, 2011

So Ends A Gilded Age Of Pharma. . . Farewell, Branded Lipitor®!

Almost certainly, no other pill so definitively embodied the passing of a golden age of pharma company dominance -- Lipitor® was the single highest-grossing prescription drug in history -- regularly clocking $12 billion, year after year, for over a decade.

And now, as it moves reluctantly toward the longer shadows, it is witness to the largest generic launch in history -- that began in earnest early today, with two generic manufacturers selling the bio-equivalent (one authorized by Pfizer, the other a pure generic). For its part, Pfizer itself began offering the branded vesion at very-near a generic price -- to try to keep some share.

So we bid that complicated branded molecule (at right) "Adieu." Per The Wall Street Journal, here -- a bit (do go read it all):

. . . . Watson Pharmaceuticals Inc. began selling a generic version of Lipitor, marking the long-awaited loss of U.S. market exclusivity for the world's top-selling drug. Watson, of Parsippany, N.J., is selling a so-called authorized generic version of Lipitor, in partnership with Pfizer for the next five years.

The FDA said Ranbaxy Laboratories Ltd., a unit of Japan's Daiichi Sankyo Co., gained approval to make generic atorvastatin calcium tablets in four strengths ranging from 10 to 80 milligrams. However, the agency said the drug would be manufactured by Ohm Laboratories in New Brunswick, N.J.

Under the federal law authorizing generic drugs, Ranbaxy was given first dibs on selling a no-name version of Lipitor for 180 days because it was the first to apply for FDA approval, submitting a request in 2002. . . .

Pfizer has offered health payers contracts to make brand-name Lipitor available at or below the generic cost beginning Wednesday. The company is offering consumers incentives to stay on the branded drug, including coupons that lower monthly copays to $4, as well as a mail-order service. . . .

Watson has [already] shipped about 1.5 million bottles of generic Lipitor. . . . Some of the pharmacies should have received the product already and have it available to patients, he said.

The nation's two biggest drugstore chains, Walgreen Co. and CVS Caremark Corp., said their customers would be able to start getting the generic version on Thursday. . . .

Merck's Singular® is the next really big cliff-fall we will be keeping our eyes on. . . . G'Night.

CFO's Summary Of What 2012 Will Look Like, At Merck

About three weeks ago now, Merck CFO Peter Kellogg sumed up the near term outlook this way (see page 3 of this Credit Suisse investors' conference transcript -- a PDF file):

. . . .Looking more to the short-term in 2012, one of the things that we did highlight is as you look ahead to next year there are some challenges in terms of what we'll be going up against in the top-line. Clearly you're all familiar with the austerity measures and Health Care Reform.

You may be well aware that we have a relationship that's been very successful with AstraZeneca, but in the first part of next year they'll have an option, which is completely theirs to execute or not, to unwind the rest of that relationship. That could be a headwind for next year.

In immunology with Remicade and SIMPONI you're aware that at midyear we relinquished some territories around the world as part of the settlement with J&J. We'll have that -- we are experiencing that impact in the third quarter and the fourth quarter this year, but obviously we'll be lapping having those territories in the first and second quarter next year.

And then finally, Singulair, one of our biggest products will be going off patent in the midyear time frame, so that will be certain headwind. With that said, in our core business, and you can see that in our results as we go through this year, our core products are doing well, our emerging market performance is great, the JANUVIA | JANUMET franchise continues to exceed all expectations and do very well. And we are very actively launching products all around the world.

And one of the points that we made was actually when you think about the headwinds, we are not in a situation where we're going to have to deal with a trough, if you will.We are really planning to go through next year where we can maintain our top-line near where it is today. And so we actually think -- we've done this before.

The magnitude of those headwinds on the left is not totally different than what we've seen when we had the FOSAMAX expiry or when we had the Zocor expiry previously as a percentage of our top-line revenue. So we've been through this before, we've maintained our top-line when we go through it and so that's what we're working on. As we stand here today we're working on our 2012 plan, it's not really completed.

But [Chairman/CEO] Ken [Frazier] did, in his opening remarks, say as he looks ahead to 2012 what he's trying to accomplish, what he's aspiring to is to make sure that we don't in any way hinder our ability to advance the innovative R&D pipeline.

On the other hand he also in the short-term wants to make sure that 2012 is a year where we continue to achieve strong operating performance. And so we're trying to maintain the revenues near or at the 2011 levels and continue to drive a leveraged P&L, all of which is -- the end result is having a strong pipeline, a lot of excitement coming out of the pipeline in '12 and '13 as well as solid, strong financial performance, and we think that will increase shareholder value.

We did -- beyond that, that generates a lot of cash. Ken highlighted that our priorities are to, first, make sure we can operate the business with the credit rating that we have; second, to invest in the growth opportunities whether they be in the pipeline or whether they be an expansion of the business. But third, to return cash to shareholders. . . .

We shall see what all else 2012 brings, but Merck did up its dividend by 11 percent (returning more cash to shareholders), shortly after this November 11, 2011 presentation.