Tuesday, January 29, 2013

What To Expect, Come Early Friday -- From Whitehouse Station

Again -- I'll be more keenly interested in the finer details of the financial analysis -- as opposed to the simple top-line and bottom-line figures (too noisy).

To be clear, I do now expect a wallop of sorts, from foreign exchange (just as Pfizer reported, this morning), in the fourth quarter of 2012 -- at Merck.

Here is how Forbes sees it, as of Tuesday evening:
. . . .Analysts are expecting Merck to come in with earnings of 81 cents per share, 16.5% less than a year ago when it reported earnings of 97 cents per share. . . .

Analysts are expecting earnings of $3.81 per share for the fiscal year. Analysts look for revenue to decrease 6.7% year-over-year to $11.47 billion for the quarter, after being $12.29 billion a year ago. For the year, revenue is projected to roll in at $47 billion. . . .

As I say, we shall see, come Friday morning -- but it seems that stodgy old branded pharma is supporting a minor market rally today on the NYSE. Who'd a' thunk it?

Currencies Continue Significant Drag On Pfizer's (And Thus Merck's) Foreign Revenue

Pfizer soundly beat the average estimates for top-line and bottom-line 2012 growth, this morning.

As I wrote last night, however, I am more interested in what happened at the foreign exchange line for the fourth quarter, as that will likely be a clear window into Merck's results on Friday. Translating non-US sales into US dollars produced a seven per cent erosion in revenue. Seven percent on $15 billion. . . is a big down-draft. That's just over a billion dollars. Wow.

This is very significant, and is likely to continue -- at both Pfizer and Merck.

Both companies employ "natural" hedging (in addition to market-instrument hedging), which means that they hold property, plant and equipment "in-country" -- in order to partially offset the effect of translating those sales back into local US currency, at quarter-, and year-end. In fact, Pfizer was able to reduce its overall S, G & A expenses by 12 percent in Q4 2012, but two per cent of that was currency translation, on natural hedges -- so the actual (repeating) expense reduction was really only 10 per cent.

I'm not sure that Merck will beat at the top-, or bottom-lines on Friday, but I'd look for similar trends at the foreign exchange lines, out of Whitehouse Station later this week -- from the notes to Pfizer's release:

. . . .In addition, reported cost of sales in fourth-quarter 2012 reflects the unfavorable impact of foreign exchange of 7%, while reported cost of sales in full-year 2012 reflects the favorable impact of foreign exchange of 3%. . . .

Stay tuned for Friday. Separately, the Scheinberg Fosamax ONJ bellwether case has reached the point where Merck is putting on its defense -- and Rhoda Scheinberg has rested the plaintiff's case in chief. So, we could have a verdict by the end of the week, there. I'll keep you apprised.

Monday, January 28, 2013

I'll Be Most-Interested In the Trend-lines, On Pfizer's Foreign Exchange/Currencies

While Pfizer is, on average, expected to post Q4 2012 EPS of 44 cents, and revenue for the quarter is expected to come in around $14.35 billion --personally, I'll look most closely at the trends in euro and yen, vs. the US dollar.

Whatever headwinds or tailwinds Pfizer sees, ought to roughly mirror those Merck sees. Within broad limits, both companies run roughly analogous hedging programs -- so we ought to get a sense from Pfizer, tomorrow, as to Merck's Friday release.

More tomorrow -- but on last Friday, the AP had it thus, for Pfizer:
. . . .Read likely will update investors on efforts to boost revenue and streamline Pfizer by shedding noncore businesses, including the pending $11.5 billion sale of its nutrition business to Nestle SA and the planned spinoff of the $4.2 billion-a-year animal health business. Last week, Pfizer disclosed plans to sell 86.1 million shares in the new company, Zoetis, for $22 to $25 each. . . .

See you in the morning.

Saturday, January 26, 2013

Oxytrol® Comes Out From Behind The Counter -- Adding Only Incremental Revenue

Yesterday, the FDA granted Merck's Oxytrol® transdermal patch OTC status. That means women may now purchase and use it without a prescription. That's good for Whitehouse Station's uptake and market penetration here in the US.

I do imagine (and studies confirm -- see quote below) that there are many untreated US women with overactive bladders, I would also imagine that most of the US women who have a dire need for it it, and have insurance plans that cover most of the cost of it -- or those with higher incomes, who can afford to puchase it, outright -- are already on it.

And so, I expect only a modest bump to Merck's Oxytrol quarterly revenues, here in the US, in 2013. Said another way, it takes an immense "knock-on effect" to move the needle on over $50 billion of annual sales revenue, company-wide.

Do go read all about the FDA action, though -- from a reputable source -- right here:
. . . .Women with overactive bladder have access to an over-the-counter treatment for the first time, thanks to the Food and Drug Administration’s approval of Merck’s Oxytrol for Women Jan. 25.

This is a partial switch for the drug from prescription to over-the-counter, as men with overactive bladder still need a prescription for Oxytrol.

Although overactive bladder affects an estimated 33 million women, some studies suggest that many don’t seek treatment for it, and those who do seek treatment continue to have daily leakage (J. Urol. 2007;177:680-4). . . .

The male version still requires a 'scrip -- and as I say, my belief is that the vast bulk of women who can afford it -- and really need it -- are already on it. In any event, we shall soon see whether my hypothesis holds. . . um, water. Yes, we shall. . . see.

Friday, January 25, 2013

Merck Reports Friday; Pfizer On Tuesday -- We'll "Go To School"

When Pfizer reports 2012 results on Tuesday morning, we ought to get a sense of what Merck's year-end 2012 holds, by inference -- at least on industry trends.

I'll offer some analysis, as to what may be divined from the Pfizer tea leaves, for Merck, by Tuesday evening.

Keep it spinnin' in good karma, one and all!

Thursday, January 24, 2013

Mr. Frazier's Somewhat Surprising Remarks -- From Davos: 01.24.2013

I wouldn't read too terribly much into this -- from the World Economic Forum in Davos overnight -- but it certainly allows for a whimsical manga-style graphic(!). See this:
. . . .We need a strong FDA. . .

Actually, I think the FDA is the gold standard worldwide. . . .

A little more seriously, I quite agree with Mr. Frazier's, above. If one plays by the rules -- as New Merck usually has, under Mr. Frazier's leadership -- one should expect that the government agencies will help make sure that all market participants play by the same rules. That's just, and equitable.

Analysts Show Up -- To Defend Merck's 52-Week Price Targets, And Ratings

JP Morgan was the latest, on Tuesday -- reiterating its "Overwieght" rating and a $52 price target. But JP Morgan is at the upper edge of what the other major bankers expect.

In any event, this sort of defense of Merck is what I had in mind last night -- because a $42 handle is near the bottom of fair value for New Merck, in these current market conditions. [I didn't want anyone reading too much into the latest back and 'fro in the Scheingberg Fosamax® ONJ Bellwether trial.]

Do go read all of this -- but here's a bit:

. . . .Eleven equities research analysts have rated the stock with a buy rating, three have issued an overweight rating, and eight have given a hold rating to the company’s stock. The company has a consensus rating of “overweight” and a consensus target price of $48.47. . . .

I think that's about right -- the bolded bit above sounds about right for fair value, 52 weeks from today. I think Merck (and Pfizer, as well) are poised to benefit, on balance, from health care reform in the US -- and I see currencies moderating, as a drag on revenue, for both companies. We shall see.

Wednesday, January 23, 2013

Scheinberg Fosamax® Bellwether No. 5: Thursday Morning Update?

If Merck's NYSE price is falling in an otherwise rising market again tomorrow morning -- and/or falling significantly more than its peers -- as it was today, I may offer a few thoughts on, and some analysis of the recent developments in the fifth Fosamax® ONJ bellwether trial (of a scheduled seven) -- still underway in Manhattan's federal District courthouse.

There have been some interesting disputes, here in week two, about what may be offered as evidence on behalf of Rhoda Scheinberg, the plaintiff -- to support her Fosamax ONJ design defect and failure to warn claims.

We shall see -- do tune in tomorrow, but the trial is likely to continue well into next week.

Might Zoetis' Impending Launch Explain Merck's NYSE Chart Today?

With Pfizer's Animal Health businesses set to debut (under the less-than awe-inspiring name "Zoetis"), as a partially independent public company on February 1, 2013, it struck me that the investment community may be awakening (see one smallish example) to the fact that ZoetisTM will be the largest animal health "pure play" on the planet. Zoetis will thus easily eclipse Merck's similar businesses, in size and global reach.

In addition, and of concern to Whitehouse Station, Zoetis will no longer be competing for capital with the various higher-margin pure human pharma projects -- at the allocation meetings, with ex-mother-Pfizer.

In fact, Zoetis will have its own public equity and debt markets to tap.

Finally, due to Zoetis' shark repellant measures, Merck may well be dissuaded from trying any sort of re-roll up transaction, with the legacy Schering-Plough/Intervet animal health businesses.

Zoetis is poised to be the clear market leader here. Maybe that explains the rather disproportionate decline on the NYSE today, in Merck, compared to its peers.

We will keep an eye on this.

Saturday, January 19, 2013

In Which George Will Hopes For -- And Believes In -- Tooth Fairies. . . .

In this morning's Washington Post -- which I am reading locally here inside the Beltway -- George F. Will takes a Missouri-based libertarian law professor's op ed, and recasts it as some goofy form of authoritative legal analysis. Mr. Will thinks that if Congress were to increase the level of taxation in the mandate's incentive, the ACA of 2010, as amended, would fail to pass muster. Not so. Not even remotely so. [See my backgrounder here -- with actual legal analysis.]

The problem with Mr. Will's is actually his crediting as plausible the Missouri professor's views -- without noticing that the Missouri professor cites no actual cases to support his claims. And that is understandable, as these same Cato Institute funded arguments (and briefed by amici colleagues of that professor) were soundly rejected last term, when Justice Roberts voted with the other four to unsurprisingly uphold Congress's power to tax.

The Justices also broadly hinted that even very high taxes -- on lawful activities -- will survive Supreme Court scrutiny, in a case decided four days before the ACA case (think about the level of taxation on liquor and cigarettes, for example -- each laid on lawful activities, and long held constitutional).

. . . .[A]mong the enumerated powers of Government. . . we find the great powers, to lay and collect taxes; to borrow money; to regulate commerce; to declare and conduct a war; and to raise and support armies and navies. The sword and the purse, all the external relations, and no inconsiderable portion of the industry of the nation are intrusted to its Government.

Let the end be legitimate, let it be within the scope of the Constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the Constitution, are Constitutional. . . .

-- McCulloch v. Maryland. . . .

All that need be shown, then, is that the tax is rationally related to a legitimate end Congress is seeking. Even a tax that well-exceeds the cost of paying for insurance would thus very likely survive. Think cigarettes here. So endeth the lesson.

Mr. Will ought to forget about his Mizzou tooth fairies. UPDATED: A private -- but very helpful -- e-mailer suggests that I've used far too much shorthand, here. Fair enough. Let me elaborate.

Mr. Will (and his Missouri inspiration) labor under the misconception that in order for any federal tax to be sustained as constitutional, it must be small. [Of course, that would be a libertarian's opening prejudice.] Not so, in actuality -- all a true tax need do (under actual Supreme Court precedents) is have an objective of raising revenue. This tax, in the ACA of 2010, does just that, and is graduated by individual income. Res Ipsa.

Moreover, as Justice Roberts explicitly wrote -- at pages 36 to 37 of his 5 vote-attracting opinion:

. . . .Today, federal and state taxes can compose more than half the retail price of cigarettes not just to raise more money, but to encourage people to quit smoking. And we have upheld such obviously regulatory measures as taxes on selling marijuana and sawed-off shotguns. See United States v. Sanchez, 340 U. S. 42, 44– 45 (1950); Sonzinsky v. United States, 300 U. S. 506, 513 (1937). Indeed, “[e]very tax is in some measure regulatory. To some extent it interposes an economic impediment to the activity taxed as compared with others not taxed. . . .” That §5000A seeks to shape decisions about whether to buy health insurance does not mean that it cannot be a valid exercise of the taxing power.

In distinguishing penalties from taxes, this Court has explained that “if the concept of penalty means anything, it means punishment for an unlawful act or omission.” United States v. Reorganized CF&I Fabricators of Utah, Inc., 518 U. S. 213, 224 (1996); see also United States v. La Franca, 282 U. S. 568, 572 (1931) (“[A] penalty, as the word is here used, is an exaction imposed by statute aspunishment for an unlawful act”). While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to do so is unlawful. Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. The Government agrees with that reading, confirming that if someone chooses to pay rather than obtain health insurance, they have fully complied with the law. . . .

So -- there you have it. Libertarians in Mizzou, and tooth fairies unite -- and Geoge Will quotes them -- as actual law. They aren't. The above, on the other hand, is. Again, res ipsa.

Friday, January 18, 2013

Most "Atypical" Fosamax® Claims Are Now Subject To Pre-Inclusion "Lone Pine" Medical Documentation Requirements

While there will be no verdict in the pending Scheinberg Fosamax® trial for perhaps two weeks yet (additional older background), I've done some more reading (catching up, actually) -- and Judge Keenan has ordered that if any of the 4,000 or so Fosamax cases pending allege an injury other than osteonecrosis of the jaw ("ONJ", or jaw bone death), or osteomyellitis, the claimant will need to provide evidence from a doctor as to (among other things) whether the doctor believes to a reasonable degree of medical certainty that Fosamax caused the alleged injury, and if so, the factual and medical/scientific bases for that opinion.

These sorts of pre-inclusion requirements are called Lone Pine orders -- after a seminal case. The idea is that the MDL is more about ONJ and low energy fractures, and less about outlier claims. So the outlier claims ought to be filtered for some degree of veracity testing, prior to inclusion in the ONJ MDL.

The full text (PDF) of Judge Keenan's Lone Pine order may be found here -- but here's a bit, as to the critical time frames:

. . . .Plaintiffs shall produce the documents and Expert Report required. . . above pursuant to the following schedule:

a. Plaintiffs in cases in which the surname of the first named Plaintiff begins with the letter A through I shall make their productions by February 20, 2013.

b. Plaintiffs in cases in which the surname of the first named Plaintiff begins with the letter J through R shall make their productions by April 22, 2013.

c. Plaintiffs in cases in which the surname of the first named Plaintiff begins with the letter S through Z shall make their productions by June 20, 2013. . . .

The failure to comply with the terms of this Order within the time periods prescribed by this Order may result in the dismissal of the delinquent Plaintiffs’ claim with prejudice. . .

We will, as ever, keep an eye on this for you. Have a great MLK Day weekend (do something for your community!), and then look for us at the Inaugural!

Thursday, January 17, 2013

Fifth Bellwether Fosamax® Trial: Day 3 -- Rhoda Scheinberg

Another clearly material consolidated set of federal cases pending against New Merck relates to claims that Fosamax® causes, or is associated with increased risk of ONJ and femur fractures. Here's an update on those. [Prior case background may be found here.]

The fifth full "test" case -- or bellwether, if you will -- has been underway in earnest since Tuesday morning of this week, being tried to a jury, in Judge John F. Keenan's US District courtroom in Manhattan. We will report any verdict, but that may not come for another week or two.

The very able judge has ruled that Rhoda Scheinberg's lawyers will not be able to seek punitive damages, and that her claims are limited to Merck's alleged failure to adequately warn about Fosamax risks, and design defects related to the drug.

It is estimated that more than 4,000 such claims are pending in the state and federal courts around the nation. We will keep you up to date -- from page 20 of Merck's latest SEC filed Form 10-Q:

. . . .Merck is a defendant in product liability lawsuits in the United States involving Fosamax (the “Fosamax Litigation”). As of September 30, 2012, approximately 4,005 cases, which include approximately 4,580 plaintiff groups, had been filed and were pending against Merck in either federal or state court, including one case which seeks class action certification, as well as damages and/or medical monitoring. In approximately 1,215 of these actions, plaintiffs allege, among other things, that they have suffered osteonecrosis of the jaw (“ONJ”), generally subsequent to invasive dental procedures, such as tooth extraction or dental implants and/or delayed healing, in association with the use of Fosamax. In addition, plaintiffs in approximately 2,785 of these actions generally allege that they sustained femur fractures and/or other bone injuries (“Femur Fractures”) in association with the use of Fosamax. . . .

When (and if) there is a verdict -- you'll read it here, first.

ENHANCE Federal Securities Class Action Litigation Nears Trial On Merits

It has been quite a while since we last updated the readership on the status of various pieces of material litigation at New Merck. We do so now. New Merck is the successor to legacy Schering-Plough here (and legacy Merck has been similarly sued, as well).

The claim in these federal class actions is that investors in Merck and Schering-Plough were damaged by the alleged late-2006 to March 2008 delay in disclosing the ENHANCE study null-result. That is a gross oversimplification of these cases, but it captures the essence of it.

Various of the securities defendants have asked that the trial -- now docketed for March 14, 2013 -- be bifurcated into two phases, the first of which would address class-wide issues of liability, and the second, individualized issues of reliance and damages. The very able Judge Cavaqnaugh will decide that motion on February 19, 2013. [I think he is likely to grant it.]

Also pending is a motion to allow all the class members (perhaps well-into the low hundreds of thousands of individual securities holders/beneficial owners) to receive a class notice explaining their rights, as to whether they agree to be bound by the outcome of the March 14, 2013 trial on the merits -- or whether they'd rather bring their own individual lawsuit.

It is my experienced opinion that time is now running short -- to get such a large class notified in a meaningful way -- given that many many of the holders will need to receive the notice by retransmission, from their broker or advisor. These are important decisions -- so hopefully Judge Cavanaugh will allow the notice to be sent shortly. Here is a bit of that back and forth (from before Christmas 2012):
. . . .On October 31, 2012 – nearly two [now three] months ago – [plaintiffs] sent copies of the proposed notices and orders to Defendants [including legacy Schering-Plough Executive Officers Hassan, Bertolini and Cox, as well as New Merck, as successor to legacy Schering-Plough] requesting that they provide us with any comments to the language in the proposed notices and orders. . . .

On November 2, 2012, Defendants stated that, although they viewed the notices as premature, they would get back to us with any such comments. . . . Having not received a response from Defendants regarding their position on the language in the notices and orders, on November 14, 2012 and December 13, 2012, we again requested that Defendants provide us with any comments to the language in the notices and orders.

Plaintiffs first received comments from Defendants yesterday [December 18, 2012] and have incorporated most of Defendants’ changes to avoid any further delay. However, Plaintiffs cannot agree to Defendants’ request that Merck (as opposed to the notice administrator) issue the notices to the classes in these actions. . . .

Another month has passed -- and still the class notices have not gone out. As I say -- I am hopeful that Judge Cavanaugh will order them sent shortly. I have no role in this litigation, and I hold no investment affected by it -- I just want to see the right thing done, here. Whether the securities law claims prevail, or they don't -- class members need adequate time to decide whether to "ride along, with the posse" or "go it alone." In the vast bulk of the cases, then, these notices will need to be remailed once, and in some cases, twice, to reach the beneficial owner. Time is running out.

Here endeth the sermon -- but people must know they have rights, before they may meaningfully exercise them. Thus, the notices should already be on their way to them.

The C. Diff./Fecal Implants Story Finally Reaches Mass Media; We Had It Seven Weeks Ago

Finally -- just now being reported (in a very long article) in the Health/Science Sections of The New York Times. Here was our December 1, 2012 posting on it (same study) -- do go read all of the NYT story:
. . . .The treatment may sound appalling, but it works.

Transplanting feces from a healthy person into the gut of one who is sick can quickly cure severe intestinal infections caused by a dangerous type of bacteria that antibiotics often cannot control. . . .

The donors were tested for an array of diseases to make sure they did not infect the patients. Their specimens were mixed with saline in a blender and strained, to produce a solution that Dr. Keller said resembled chocolate milk. . . .

So it goes.

Tuesday, January 15, 2013

Life-Science Maven Investor Isaly, Others Add To Merck Positions

Market Watch notes that -- as of the end of Q3, 2012, the legendary Sam Isaly and his OrbiMed entities had more than doubled down on Merck. That trend-line is telling. Isaly has long held a large Pfizer stake, but has been an aggressive buyer of Merck throughout 2012 -- will that continue in 2013?

We will have to wait a few weeks to see. We should have his year end 2012 holdings before Valentines Day. Here's a bit of the Market Watch story I mentioned:
. . . .Orbimed reported a position of 4.6 million shares in Merck, a 33% increase from three months earlier.

Point State Capital, which is managed by Sean Cullinan and other former portfolio managers at billionaire Stanley Druckenmiller's Duquesne Capital, was also a heavy buyer of Merck. Merck, similarly to Pfizer, carries trailing and forward P/E multiples of 19 and 12 respectively. Its financial performance has been steady. . . .

Anyone who has been around life sciences investing for a bit knows what a sharp operator Isaly is. I'll report where his holdings stand when he files his latest Section 13 reports at the SEC in the second week of February -- but I'd not bet against him -- not in life sciences, anyway.

Merck and Pfizer are now over 12 percent of his entire managed fund's dollar value. Wow.

HHS Secretary Sebelius To Give State-Federal Health Insurance Exchanges More Time

This is both smart politics -- and a nod to many of the Republican-led states -- it is Mr. Obama signalling that he will be open to constructive suggestions for a partnership here.

Even so, in states like Florida, it is hard to imagine why Governor Rick Scott (R) is comfortable with over 3.8 million of his fellow Floridians having no coverage at all. That is both morally, and politically, a backward facing vision.

For in the end, refusing to cover all simply shifts the economic burden of caring for these un-insured folks -- to the front doors of Florida's hospitals -- without any real rhyme, or reason. Accidents of local geography then dictate which charitable hospital(s) pay the tab for the uninsured -- for we know the for-profit hospitals simply turn them away.

That is not sound public policy -- and has been repeatedly demonstrated to be an extremely expensive way to deliver the health care the uninusred. The uninsured are going to get the care (usually at the ER, in the nearly most expensive setting possible), anyway (when what was a mild flu -- long untreated -- has escalated to a life-threatening situation) -- why not do it in a thoughtful, less expensive, more systemic way (i.e., a more-preventative way)?

Mr. Scott well knows all of this -- but his politics are hamstringing his ability to do what is clearly in his state's interest, and let the federal government help him pay for 95 percent of the cost of care (in the early years, ultimately dwindling to 85 percent -- in later years).

From The New York Times, then, this morning:
. . . . Kathleen Sebelius, working with the White House, said she would waive or extend the deadline for any states that expressed interest in creating their own exchanges or regulating insurance sold through a federal exchange.

A political benefit of this strategy is that it allows the administration to keep working with even the most recalcitrant states. Administration officials said they were trying to persuade such states to share the work of running an exchange, supervising health plans and assisting consumers.

The exchanges are a crucial element of President Obama’s health care law. Every state is supposed to have one by October, and most Americans will be required to have coverage, starting in January 2014. The federal government will run the exchange in any state that is unwilling or unable to do so. It now appears that federal officials will have the primary responsibility for running exchanges in at least half the states — far more than expected when the law was passed in 2010.

Ms. Sebelius has given “conditional approval” to 17 states that want to run their own insurance exchanges. The 17 include Utah, where officials have said they are reluctant to perform some functions of an exchange. . . .

We will, of course, keep you up to date on this topic.

Friday, January 11, 2013

As I Predicted In December, Merck Will Globally Withdraw Tredaptive

Again, the quite sensible notion here is that staying on Tredaptive may "crowd out" a given patient's ability to acheive better outcomes, through other regimens. So, Whitehouse Station is responsibly urging doctors to take their patients off of the drug.

I predicted this sequence of events on December 20 -- in the comments box, right here -- but the Reuters story on today's Merck announcement may be found under this link:
. . . .Merck & Co Inc said it would withdraw its cholesterol drug Tredaptive from markets worldwide after European regulators recommended that marketing of the drug be suspended.

The drug was under review in Europe after the failure of a major study raised safety concerns.

Merck recommended that physicians stop prescribing the drug and review treatment plans for patients taking it. . . .

So it ends. With this news, and the likely approval of a Januvia competitor last evening, Merck is off a bit in the NASDAQ-Pre-Market trading, this morning.

Thursday, January 10, 2013

BREAKING: FDA Advisory Committee Vote: Invokana Should Be Approved

Not terribly surprising -- and we still need to wait for a full commission vote, but in as few as six weeks' time, Januvia should prepare to compete head to head with Invokana.

The FDA Advisory Panel just voted, 10-5, to recommend that FDA approve this new drug candidate for adults with Type-2 diabetes.

Beware what that portends for Januvia -- and Whitehouse Station. This is now Merck's biggest selling franchise.

UPDATED: FDA Advisory Committee Proceedings Going Well For Janssen Pharma

The committee meeting is now on lunch break, until 1:30 p.m. Eastern -- but the morning session went quite well, from Janssen's perspective, I thought. Here are today's background materials, from FDA.gov, as a PDF file.

I'd be pretty confident that InvokanaTM will see a majority committee vote for approval, later this afternoon/this evening. Of course, the advisory committee is just that -- advisory. And so, the full commission at FDA could choose to ignore the committee vote. But it only very rarely does.

So. . . Whitehouse Station ought to buckle-up -- now that Singulair® has gone generic, it is true that Januvia® is the single largest seller in Merck's 2013 portfolio, quarter by quarter. And that may see substantial erosion next quarter, if J&J/Janssen is ready to lauch Invokana on approval day. And you may bet that J&J is.

As ever, do stay tuned.

Today's FDA Meeting: An Important, And Nerve-Wracking Moment, For Merck's Januvia® Franchise

An FDA Advisory Committee meets today to make final recommendations on Janssen/J&J's next-gen diabetes drug candidate, to be branded as InvokanaTM -- backed by a massive 10,000 patient clinical trial data set -- it soundly bested Merck's Januvia® in a head to head trial.

It should be noted, though, that another drug-maker's candidate (in the same SGLT2 inhibiting class) showed a safety signal. That's the central question for today's panel: was the other drug's signal material enough to warrant additional study data, for this drug of the same class -- or was that an artifact unique to the other drugmaker's drug, and thus not likely to ultimately appear in the J&J candidate? There will be a committee vote, up or down, by day's end.

In any event, it is certainly true that Whitehouse Station will be listening in. Why? beacause, if Invokana is approved by FDA in a few weeks' time -- the Merck Januvia franchise, its second biggest seller overall, will be at material risk of erosion.

Per Endocrine Today, then -- do go read it all:
. . . .The FDA Endocrinologic and Metabolic Drugs Advisory Committee will today discuss the new drug application for canagliflozin, which has been developed as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes. . . .

In addition, Invokana, the new J&J candidate, seems to avoid some of the obesity risk present in the older medication regimes (or, it may actually offer a weight-loss on-drug effect -- etiher way, that would be very good news).

This all may leave Merck only about 2 to 3 months of remaining consistency in the diabetes space -- for Januvia/Janumet.

We shall see.

Tuesday, January 8, 2013

Bausch + Lomb Buyout "Sorta" Worth Thinking About: CEO Frazier

This is really no surprise -- Mr. Frazier, on behalf of the shareholders, is always supposed to keep an open mind about transactional opportunities to boost returns. But I read this as little more than that.

Remember that only about five days ago he told the bankers running the B + L deal process that even though Merck's consumer health business is a smaller contributor -- and he is looking at ways to increase the contribution -- he was relatively happy with it.

And adding perhaps $10 billion to the allocated capital the consumer health unit needs to cover, for EPS purposes, given the relatively lower margin businesses/franchises B + L operates [as compared to say Merck's Isentress® (HIV) or Victrelis® (HCV)]. . . seems a bit of a stretch. At that price, it would be a higher multiple of current year's sales (around 3.2X) than Merck paid for all of legacy Schering-Plough (around 2.2X). [Nice try, Fred!]

And so, this is very likely just idle investment conference chatter, so as not to offend Goldman's bankers -- who took the time to pitch B + L to Whitehouse Station over the holidays.

Here is the Bloomberg item -- for what it is worth -- but do go read it all:
. . . .“It’s something that’s worth thinking about, that’s the most I can say,” Frazier said in an interview yesterday at the JPMorgan Chase & Co. health conference in San Francisco.

Warburg, working with Goldman Sachs Group Inc., is giving interested parties access to its financial data and seeking first-round bids by month’s end, said people with knowledge of the matter, who asked not to be named because the process is private. Warburg is seeking at least $10 billion for the business, these people said. Goldman Sachs contacted some prospective bidders including Merck before Christmas with information about Bausch & Lomb, said one of the people.

Frazier has said that he’s happy with Merck’s diversified business model, which includes animal health and consumer health units. . . .
So, file this one under "the price makes the horse" (or, doesn't!), right? Of course, as ever, we will keep you posted if this gets serious.

Branded Pharma (Merck) Revenue Benefits, As The ACA of 2010 Has "Half-Closed" The Donut Hole

Tonight, most major media outlets are highlighting the slowing growth in overall US health care spending, as delineated in the latest comphrensive US health-care spending report, out of US Health and Human Services Department's CMS -- The New York Times, the PBS Online Newshour and the Wall Street Journal among them. However, I've seen no extended media coverage of how the Affordable Care Act of 2010 (or "Obamacare," if you prefer!) has benefitted brand name pharma manufacturers' bottom lines. Mr. Frazier mentioned it in passing tonight, at the JP Morgan conference in San Francisco -- but only in passing.

While I understand the political sensitivities here -- multi-billion dollar branded pharmas appearing to reap a large benefit from Obamacare, while small employers claim to be unduly suffering from it -- Mr. Frazier should be highlighting the fact that this means that many more hundreds of thousands of real people of modest means can now afford life saving branded medications, year round. That should be celebrated -- even if it means that pharma's political manuevering in late 2009 is once again dragged back into the spotlight.

It does also mean that Obamacare, or the ACA of 2010, was -- in part -- a real piece of reform, of the delivery system.

Rather than quoting the media -- I'll quote the actual HHS/CMS report (reprint page 92):
. . . .[T]he Affordable Care Act offered a 50 percent discount on brand-name prescription drugs to Medicare Part D enrollees whose out-of-pocket spending for drugs reached the coverage gap, or “doughnut hole.” This provision led to somewhat greater use of brand name drugs by Medicare beneficiaries in 2011 and decreased the amount that Medicare beneficiaries spent out of pocket on drugs. Other provisions affecting Medicare expenditures in 2010, 2011, or both years included coverage for new preventive services and reduced costsharing requirements for existing ones, together with lower payment rate updates for hospitals and certain other providers. . . .
As ever, much more to come -- as the ACA implementation provisions really get rolling, here in 2013.

The historical backgrounder video:

Monday, January 7, 2013

Ex-CEO Hassan's "Chief Star": Now Five Years Behind Schedule

At the outset, let me be clear: this is in no way intended as any criticism of current New Merck management. They are simply trying to make lemonade, from some old legacy Schering-Plough lemons.

No, the fault lies with the moon-eyed leadership of legacy Schering-Plough, for drinking too much of its own lemonade. [Although, I suppose to be fair, some small fault should lie with the former legacy Merck Chairman and CEO, for believing "Fast" Fred Hassan's snake-oil pitches, as the diligence was conducted -- on the Schering-Plough yard sale. But only a small portion.]

In any event, what was hailed as Fred Hassan's lead star for the years 2008-2009, is just now -- almost five years later -- ready to seek US market approval.

Sales of Bridion® have limped along at an immaterial level in the EU, ever since it was approved in July 2008. Without full US reimbursement, and a strong case for its clearly-additive benefits -- in US surgical suites -- I predict this will never be a material drug franchise for New Merck.

Once again, this is likely just finishing off the last bit of spend -- on what may be a half-billion dollars of previously-sunk costs at legacy Schering-Plough. If New Merck can recoup some of that with a US market approval, that is the likely best case rationale -- for today's announcement.

From Whitehouse Station, this morning, then:

. . . .Sugammadex sodium injection is the company's investigational agent for the reversal of neuromuscular blockade (NMB) induced by rocuronium or vecuronium (neuromuscular blocking agents). NMB is used in anesthesiology to induce muscle relaxation during surgery. Sugammadex is designed to work by inactivating rocuronium or vecuronium molecules directly by encapsulation. If approved, it would be the first in a new class of medicines in the U.S. known as selective relaxant binding agents to be used in the surgical setting.

In 2008, the FDA did not approve the original NDA for sugammadex sodium injection, requesting additional data related to hypersensitivity (allergic) reactions and coagulation (bleeding) events. Merck submitted this requested data within the NDA resubmission, which the FDA has now deemed complete for review. . . .

Just the same, I'd look for Mr. Frazier to remark upon the FDA filing at tonight's JP Morgan conference in San Francisco. We will keep you posted.

Saturday, January 5, 2013

With Pfizer's Lipitor® Available As A Cheap Generic, Does This FDA Resubmission Make Any Sense?

An observant commenter quite correctly reminded me that I hadn't weighed in on this. And, as you might imagine, I've long-held opinions on it (that's the backgrounder).

Whitehouse Station disclosed this week that the US FDA had accepted receipt of a resubmitted New Drug Application (that's the long form -- not an abbreviated one) for a cholesterol management combination pill. The combination is a generic version of Pfizer's branded Lipitor® (atorvastatin), with legacy Schering-Plough's Zetia® (ezetimibe) -- all in one solid pill. [FDA had rejected such a proposal in March of 2012.]

The central problem with the thesis upon which this particular combo-pill is based is that. . . there is very scant evidence for it -- and at least three failed (or null-result) similar study outcomes, as to actual cardio-vascular-event risk benefits, here. Specifically, the question is whether statins (of which generic atorvastatin is one) combined with Zetia (soon also to be available as a cheap generic form of ezetimibe) actually improve outcomes, or just lower the numbers, in blood levels, without any overall CV risk reduction effect.

So -- with the Affordable Care Act of 2010 clearly applying new pressures on providers to use the vastly cheaper generic equivalents -- who might prescribe this one-off pill? In addition, given that the massive (32,000 patients!) IMPROVE-IT study isn't likely to answer the question on any CV risk benefit from simvastain plus ezetimibe until mid 2014. . . what is the rationale for allocating capital in 2013 to a resumbitted NDA?

Perhaps -- just perhaps -- I might answer my own question by suggesting that New Merck had already spent the vast bulk of the money, in 2011 and early 2012, when it made the first NDA submission to FDA. And so, all it is doing is finishing up on the spend -- on the relatively-small chance that the thesis for CV risk reduction via statin-ezetimibe combinations turns out to be supported by actual science, at some future date.

I hope that is the case -- that most of this was spent money, already -- sunk cost. And that only a smallish portion (some $5 to $10 million) will be needed to get definitive word back from FDA.

I hope. In any event, here is the presser:
. . . .Merck. . . announced. . . that the U.S. Food and Drug Administration (FDA) has acknowledged the resubmission of a New Drug Application (NDA) for ezetimibe and atorvastatin tablets, an investigational combination medicine. The updated NDA was deemed complete for review after Merck submitted additional data in response to the FDA’s Complete Response Letter issued last year. Merck expects the FDA’s review to be completed in the first half of 2013. . . .
Well -- here's to hoping, I guess.