Thursday, February 28, 2013

Merck's Executives Get 107 Per Cent Of Targeted Awards: From March 2010 Performance Share Units

The full picture of Merck's 2012 earned, vested, accrued and as-yet-unvested executive compensation levels (in cash, equity, perks and future pension benefits) will be revealed in an as-yet-unfiled SEC proxy statement. However, we just got an "early peek" at part of the haul -- as overnight, SEC Forms 4 were filed by all 14 of the Section 16 reporting executive officers of Merck -- including Chairman and CEO Frazier (his SEC Form 4 is here). Don't misunderstand: they certainly earned it, but it is right, well and good -- that it be widely-disclosed.

Sunshine is the best antiseptic, as ever -- it will prevent any excesses that might otherwise creep into the process, or the outcome (think legacy Schering-Plough, here)

And so, it would seem that the board's compensation committee has determined that the executives have over-acheived the targets laid out in that March 2010 installment of the the Executive Performance Share Units program.

Now we need to wait -- to read the full-narrative, in the proxy -- but here is the footnote to the Forms 4:

. . . .Distribution of net after tax shares of common stock on satisfaction of performance criteria for performance share units granted on 3/31/2010. Performance shares were paid out at 107 percent of target awards. . . .

More to come in mid-March, when the Form 10-K and Proxy, proper, are filed.

Lone Pine Deadline Only Missed In About 45 "Atypical" Fosamax® Cases, Thus Far

If you've been paying attention, here -- you'll likely recall that last week we mentioned the passing of an important deadline for plaintiffs whose surnames start with A though I. Merck has filed its list of the plaintiffs it thinks haven't filed the required papers -- and the outcome doesn't look too terrible, overall, for plaintiffs' side.

The actual number of plaintiffs potentially affected by the missed deadline is around 220 or so, though -- as several of the individual case numbers list dozens of plaintiffs, each.You can inspect the full spreadsheet listing here (a 7 page PDF file). Even so, based on this preliminary data, it would seem that not too many of the atypical Fosamax® cases will be bounced for lack of a doctor's report on injury and causation. Remember, there are now well over 4,000 Fosamax cases pending, so even if it triples, as the remaining two (J through R, and S through Z) deadlines pass -- it will still mean that over 3,500 cases will remain open, viable and pending.

And, as long as we are updating litigation -- I'll note that in other litigation, it now appears that by about March 27, 2013 the $688 million federal ENHANCE Securities Class Action settlement agreement ought to be be finalized, and made available to the public, at the PACER filing desk in Newark's federal District Courthouse. This updated timeline information comes from a letter filed in that litigation overnight.

As ever, we will keep you updated.

Wednesday, February 27, 2013

Hmmm. . . Is Mr. Bertolini's CFO Role Only Temporary?

I am trying to remember if I've ever seen (post-Sarbanes-Oxley) any public life science or health care company with a market cap of more than $2 billion where the Chief Financial Officer role (essentially the person most directly responsible for the integrity of management's financial statements, among other matters, under S-Ox) has been combined with the President's role (essentially the person most directly accountable for delivering the operational results of the company, rolled up).

Not that Mr. Hassan, et al., have ever been model citizens for good corporate governance structures, mind you -- but. . . I literally cannot recall this ever being done. Except as a temporary assignment, when the President is becoming CEO, and the CFO is the likely incumbent for the President role. [Note that life science companies inherently run on, and create, massive "binary" disclosure events: success or failure of pivotal clinical trials; FDA ordered withdrawals; sudden market obsoleting new drugs, etc., etc. -- and so, the area is ripe for "informational asymmety" securities trading -- or less politely, insider trading.]

In the case of Bausch + Lomb, Brent Saunders is clearly the lead executive officer -- and unless Fred Hassan is planning on exiting as the Chairman of the Board (not likely) -- it is very odd that Mr. Bertolini holds both a "financial control/reporting" and "direct operations" responsibility. [Indeed, some might argue that similar structural oddities just cost legacy Schering-Plough over two-thirds of a billion dollars in federal securities class action settlements.]

Twice - actually. As both Cain v. Hassan and Manson (the ENHANCE matter) involved structural role problems at legacy Schering-Plough, to one degree or another. Yes, many corporate governance experts might say the B + L announcement of yesterday contains a flashing yellow warning light: it creates an inherent tension -- between the executive's office(s): does Mr. Bertolini finance the company, or does he operate it? Is he responsible for financial reporting compliance -- or does he answer to Wall Street, for the operational results?

These are important -- and wholly-unanswered -- questions, out of yesterday's "we're putting the legacy Schering-Plough team back on the field" announcement -- at Bausch + Lomb.

But, as I say, in my experienced opinion, Mr. Hassan has never been one to worry much about the seemingly trifling matters of good governance at public life science companies. Now we will keep a close eye on that situation -- and report accordingly.

Tuesday, February 26, 2013

Historical Footnote Dept.: Fred Hassan "Up To Old Tricks" -- At Bausch + Lomb; Re-Hires Ex-Schering-Plough CFO

Over the past week or so, it has become clear that "Fast" Fred Hassan, sitting as the outside Chairman of the Board of Directors of privately-held, but Warburg Pincus-influenced Bausch + Lomb, will not get the $10 billion asking price he's seeking for B + L -- from either a strategic, or financial buyer.

This has, in my opinion, clearly displeased Warburg Pincus -- the principals of which very-likely hired Mr. Hassan to squeeze some acceptable gain out -- of some form of a B + L transaction. Recall that Warburg took B + L private about six years ago.

So -- as the transaction of [nearly] last resort, it would seem that Warurg has engaged Goldman Sachs to prepare an IPO.

Taking B + L public (again) is sub-optimal to Fred and his Warburg crew because with it will require three years of audited, and public, financial disclosures -- and ongoing disclosure of all material contracts. Who knows what will need to be ammended, or novated -- to get ready for public view, again.

But that is exactly what Warburg Pincus LLC will need to do, to salvage its investment, here. I say "salvage" -- but in fact, Warburg has privately indicated that it would be displeased with anything short of a 200 per cent return on the B + L investment. Thus the new push to go public, now that Abbott, and others have pushed away from the table, and decided not to bid north of $9 billion, outright (all of this has been set out in various news reports, since Friday of last week).

So, Fred has now -- as of this morning -- moved the old CFO of B + L to the side, and installed his own CFO, from the Schering-Plough days (2003 to 2009), one Bob Bertolini -- as his new CFO. He has also given Mr. Bertonlini the added office of President of B + L.

This is clearly in preparation for a transactional push -- likely the IPO of B + L. So, Fred's deal goggles are firmly affixed; he has Brent Saunders in at  B + L as CEO (also legacy Schering-Plough), and now the President and CFO are also his legacy teammates, from those bad old Kennilworth days.

Let the shenanigans ensue -- sez me.

In any event, here is the local online Democrat-Chronicle paper's story on Mr. Bertolini -- at B + L, as of mid-day today (I was busy with more weighty matters until now; so I am sorry for the delay in getting to this):

. . . .Bertolini will report to B+L chief executive officer Brent Saunders.

Bertolini takes over at a time of uncertainty about B+L’s future. Recently, the private-equity firm that owns B+L, Warburg Pincus LLC, said it is considering taking the company public again after attempts to sell the company fell through, according to Bloomberg News and The Wall Street Journal.

Warburg is interviewing banks for an IPO after an effort to sell the company brought disappointing bids, according to Bloomberg. Reportedly, potential bidders were put off by the $10 billion asking price. . . .

This whole goofy exercise is just a footnote -- of some historical confirmation of a repeating pattern -- to the New Merck. Even so, my guess is that the Hassan-Saunders-Bertolini led IPO will launch with an implied value of around $7 billion -- some time in the late summer of 2013. If the deal gets done at all. But that's just my guess.

We will have to see how much grumbling will become public, from the Warburg principals -- at that sub-par pricing (sub-par, that is, at least from Mr. Hassan's perspective).

Citi To Hear From Merck CFO Tomorrow In Manhattan, at 9:35 AM

I think Citi -- since at least July 2012 -- has had a "buy" recommendation out on Merck, with a price target of $50.

Back then, it was late to the party, but was right about the directionality.

Merck's CFO, Peter N. Kellogg will present at the Citi health care conference in mid-town Manhattan tomorrow morning. He is likely cover (or be asked about, at least) the various news items affecting Merck, post its year end conference call. Those are likely to include the Venezuelan $200 million currency devaluation charge, the $688 million settlement of the ENHANCE-era federal securities class actions (thanks, Fred Hassan!), the smallish loss in the Scheinberg Fosamax ONJ bellwether trial. . . and -- of course -- the latest developments/evolution in the New Merck R&D pipeline (including 2013's revamped bio-similars approach -- with the Samsung Bioepis/Biogen Idec JV).

See the Yahoo! Finance blurb, in any event -- for webcast details:

. . . .Peter N. Kellogg, executive vice president and chief financial officer, Merck, is scheduled to present at the Citi 2013 Global Healthcare Conference in New York on February 27 at 9:35 a.m. EST. Investors, analysts, members of the media and the general public are invited to listen to a live audio webcast of the presentation at [the Company's Investor page]. . . .
If anything truly noteworthy occurs, we will blog on it, likely in the late afternoon. So stay tuned, tomorrow.

Monday, February 25, 2013

Pancreatitis Risk From Merck's Januvia®: 6 In 1,000. Yawn.

As I reported, back in January 2010, Merck revised the label copy for Januvia® (sitagliptin) -- with FDA concurrence -- to reflect an elevated, but unquantified, risk of pancreatitis associated with taking the drug (or with taking Bristol-Myers Squibb's Byetta®). Both affect insulin production through the patient's pancreas.

At the time, no study had reliably quantified that risk, to an acceptable level of scientific certainty. This evening, at least one study large enough has been completed, and published in JAMA Internal Medicine -- in order to quantify the risk. It turns out that similar, "normalized" patients (on other drugs) have about a 3 in 1,000 chance of developing pancreatitis. Patients taking Januvia (or Byetta) have about a 6 in 1,000 chance of developing pancreatitis.

While that is a doubling of absolute risk, it is also only a little higher than a one-in-two-hundred chance.

It is important to note that -- generally speaking -- the adverse health risks of non-treatment of diabetes at that level of severity far outweigh the risk of pancreatitis. so -- net, net -- I'd put the news tonight just slightly in the "better than originally feared" column. And Merck is rising (as expected) in after-hours trading on the NASDAQ, by about a half a percent, after being off about one per cent for most of the day, on the NYSE.

Here is a link to the Bloomberg report -- do go read it all:
. . . .“This is the first real study to give an estimate of what the risk is, until now we just had a few case reports,” said Sonal Singh, the study’s author and an assistant professor of medicine at Johns Hopkins University in Baltimore. “These drugs are effective in lower glucose, but we should also consider the risk of pancreatitis and balance the risk versus the benefit.”

Merck, the second-largest U.S. drugmaker, reported $4 billion in sales, or about 9 percent of total revenue, from Januvia last year. The daily pill blocks an enzyme that breaks down GLP-1. Janumet, which combines Januvia with the older diabetes drug metformin, generated $1.7 billion in sales last year for Whitehouse Station, New Jersey-based Merck. . . .

We will keep you posted, as additional studies/analyses are completed.

Friday, February 22, 2013

A Through I "Lone Pine" Expiration: In Fosamax® MDL Was. . . Wednesday

I mentioned these looming Lone Pine deadlines, back on January 18, 2013 -- right here. Now one has elapsed -- let's hope no truly injured person's rights were lost, here.

So, if any US Fosamax® plaintiff is claiming a "non-typical" injury from Fosamax (i.e., not jaw bone death, or ONJ as it is sometimes called), Wednesday of this week was the last day to submit a doctor's report averring to the non-typical injury -- for all plaintiffs whose last names begin with an A through I. These reports must cover, among other things, evidence from a doctor as to 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.

And as a reminder, plaintiffs with last names J through R must so submit by April 22, 2013.

The very-able Judge John F. Keenan, in the federal District Courthouse in Manhattan, entered the following order, overnight:

. . . .Noting that the first deadline set forth in the Court's Lone Pine order, which pertained to cases in which the surname of the first named Plaintiff begins with the letter A through I, elapsed yesterday (February 20, 2013), the Court orders Merck to supply a list of the Plaintiffs who have failed to provide the information required. This list is due to the Court no later than March 7, 2013.

(Signed by Judge John F. Keenan on 2/21/2013). . . .

Plaintiffs with last names S through Z must submit reports by June 20, 2013 -- just FYI.

Ragweed Announcement Is Immaterial; But The EU Hexyon 6-in-1 Vaccine Could Be Big

It will be a few months yet, in all likelihood, before the full EMEA's governing commission votes to approve HexyonTM in the EU, but that will almost certainly lead to a multi-billion dollar product, in the year after it occurs.

Why? Because at the moment Glaxo has a monopoly in the EU -- on such childrens' vaccines.

Merck will receive a portion of that multi-billion euro stream, via its JV with Sanofi Pasteur on these vaccines, in Europe.

That is Whitehouse Station's big news for a snowy Friday, here in the colonies -- per Bloomberg:
. . . .Sanofi’s new vaccine will compete with Glaxo’s Infanrix Hexa, one of several Infanrix products sold by the U.K. competitor. Infanrix garnered 775 million pounds ($1.2 billion) in total worldwide sales last year. The EMA had in 2005 suspended the marketing authorization for Hexavac, a previous Sanofi version of such a shot, over doubts on the protection provided by its hepatitis B component.

“Right now, Glaxo has a monopoly in this area,” Eric Le Berrigaud, an analyst at Bryan Garnier & Co. in Paris, said in a telephone interview before the CHMP opinion was announced. . . .

It would seem that Sanofi and Merck are well-positioned here -- as we all know the EU is even more price sensitive on these single-payer funded vaccine contracts, than here in the US. I'd look for some serious competition, to emerge against Infanrix HexaTM (the GSK offering) now. As ever -- we will keep you informed.

Thursday, February 21, 2013

Florida's Republican Governor, On His "About Face" On Medicaid Expansion

The logic in favor of accepting the Medicaid expansion -- in every state -- is beyond serious debate.

Over 20 percent of Florida's citizens are without insurance -- and most of those are poor enough to qualify for the expansion. So, by investing a relatively small amount of their own money to cover the poor, states (red and blue) will see a massive number of additional citizens helped into affordable healthcare, via an increasee in federal Medicaid funds. For instance, by spending $6 billion over the next decade on Medicaid, Mr. Scott’s state will receive $52 billion. The Kaiser Family Foundation estimates that the collective incremental cost to states for expanding Medicaid is $8 billion, a 0.3 percent increase through 2022. During the same period, federal spending on Medicaid increases by $800 billion, or 21 percent. This is, obviously, more than a ten-fold return -- on states' money spent.

Simple math -- and it provides basic coverage for people who most need affordable health care.

From The New York Times reporting, yesterday, then:
. . . .“While the federal government is committed to paying 100 percent of the cost, I cannot in good conscience deny Floridians that needed access to healthcare,'’ Mr. Scott said at a news conference. “We will support a three-year expansion of the Medicaid program under the new health care law as long as the federal government meets their commitment to pay 100 percent of the cost during that time.”

He said that there were “no perfect options'’ when it came to the Medicaid expansion. “To be clear: our options are either having Floridians pay to fund this program in other states while denying health care to our citizens,” he said, “or using federal funding to help some of the poorest in our state with the Medicaid program as we explore other health care reforms. . . .”

The tide is now almost certainly turning. . . in the red states. So -- what's the "over/under" line on how much longer the useful idiot Rick Perry, Governor of Texas, can hold out? How long until his fellow Texans tell him they don't want to contribute federal tax dollars to fund Louisiana's -- or Tennessee's -- Medicaid expansion, all while not receiving any of it for themselves? How long? Two months? Six?

I'll guess that by July 4, 2013, Mr. Perry will flip -- he'll accept the expansion under the ACA of 2010.

Wednesday, February 20, 2013

The AP Reporter Linda A. Johnson Offers An Intriguing "Gloss" To My Morning's Story

Linda A. Johnson -- when filing stories on pharma for the AP -- is an impeccable fact-checker, so I'll take her word at face value, here. She reports off-handedly, at the end of her as-filed-story this afternoon (on the Samsung Bioepis/Merck collaboration), that (1) Merck is in the process of developing (in-house) a biosimilar version of rituximab. She mentions (2) that one version of rituximab is branded by Biogen Idec as RituxanTM.

She also reports that (3) Samsung Bioepis is actually a joint venture of Biogen Idec and Samsung Biologics. Now that's interesting, right?

We know Merck is collaborating to be the market muscle behind undisclosed biosimilars, with Samsung acting as the laboring oar -- on development and regulatory clearance -- as of this morning.

Did Biogen Idec offer Whitehouse Station a "cut of the action", to keep Merck from completely eating its lunch, globally, if and when the in-house version of Merck's rituximab reaches market? We won't know for a few years yet, in all likelihood -- but this is suddenly a very entertaining parlor game. Which biosimilars will most benefit from the momentum Merck has built in HPV, Hep B, Hep C and. . . HIV (think Isentress here).

We will certainly keep a weather eye on this, now. Here is the concluding bit of Linda Johnson's AP story -- but do go read it all:
. . . .Merck already makes a few biologic medicines, including drugs to treat hepatitis B and C, an infertility treatment and its genetically engineered Gardasil vaccine against a sexually transmitted virus, HPV, that causes several types of cancer and genital warts.

The company, based in Whitehouse Station, N.J., has said it's developing an experimental biosimilar version of rituximab, an antibody-based biologic drug sold under brand names including Rituxan.

Samsung Bioepis is a joint venture between Korea's Samsung Biologics and Biogen Idec Inc. of Weston, Mass. Biogen Idec makes biologic medicines including Rituxan. . . .


Samsung Subsidiary "Dials Up" A Merck BioSimilars Commercialization "Hook-Up"

A few observations, if I may: (1) While financial terms were not disclosed, we may safely assume this is a pretty significant collaboration -- because these two very large multinationals issued a joint press release. Merck does that (on its front page) for only the largest of its deals. Note that Merck didn't do so for the now $650 million relationship with Lycera I mentioned on Monday. So it's likely big.

(2) But, how big? Well, it almost certainly cannot be over $2.5 billion. At that level, it would approach five percent of Merck's yearly sales -- and would be arguably "material" (a magic word, that), and thus the projected amount would be have to be disclosed, under applicable SEC rules, and case law. It may well be north of the $650 million figure we mentioned on Lycera, though -- we shall see. Even so, it may well run into the high hundreds of millions, or (perhaps somewhat fancifully) not too far under $2 billion. But, to be clear, that is all just educated conjecture -- on my part.

(3) The most fascinating story-line here, though (Oops! I buried my lead!) -- for my money -- is the accelerating shift toward biosimilars, by once "branded-only" pharma multinationals. Merck is offering to be the market muscle behind what used to be derisively called -- at Whitehouse Station -- the "generic copies" made by "thieves". Or so (used to say) the branded pharma "innovators". Now, these same companies are seeing that there is much money to be made by selling biologically similar agents -- and competing against branded biological agents. Oh, how the world turns. Those nasty patent cliffs will do that, right?

In any event, here is a bit of Samsung Bioepis version of the the release:
. . . .Under the agreement, Samsung Bioepis will be responsible for preclinical and clinical development, process development and manufacturing, clinical trials and registration. Merck will be responsible for commercialization. Samsung Bioepis will receive an upfront payment from Merck, product supply income and will be eligible for additional payments associated with pre-specified clinical and regulatory milestones. Further financial terms were not disclosed. . . .

Personally, I think they could have just txted it. More seriously, we will keep you posted. [This is the 3,000th post on this blog. Woot!]

Tuesday, February 19, 2013

Merck Files ENHANCE Securities Settlement SEC Form 8-K; Actual Settlement Agreement Still Not Public

We will keep an eye on the electronic PACER filing window -- in the US District courthouse, in Newark, New Jersey, as well as on the SEC's EDGAR filing window.

We will do so, because at a minimum, the mechanical details of how Manson/Genessee ENHANCE Securities class members are to receive their opt-out notices, and/or payments, will be made public, once Judge Cavanaugh approves the previously negotiated terms of settlement, here.

Okay, then -- just to keep an up to date record, though -- here is a link to the SEC-filed Form 8-K I mentioned in the headline, filed after-hours tonight. The filing includes selected restated 2012 financial results, to reflect the $498 million charge to Q4 2012 earnings.

More -- as the same becomes available.

Merck's 2012 Spending On US Lobbyists Eclipsed $10 Million -- A New Record

Merck's lobbying spend-trend is detailed in the graphic at right. The 2012 level is a record -- even if one looks back in time, and artificially combines legacy Schering-Plough total spend -- together with legacy Merck, pre-merger. For so long as such disclosures have been available (since the early 2000s), the lobbyist spending has never been more than $10 million in a year. Until now.

By way of comparison, I'll note that Apple (the second largest company worldwide, by market cap) spent $2 million in 2012 -- on lobbying. I know, different industry, but still highly entwined in tech, patent and tax law and policy issues. And Apple spends a fifth of what Merck does. However, to be fair -- each number is definitively immaterial to either company, overall -- but at Apple, the $2 million is literally not even a rounding error

During the last three years then, Merck (or firms and lobbyists it hired) lobbied on specific measures as indicated in the parentheticals, or if no bill is indicated, generally about (among other matters):
Δ Against expansion of the Prescription Drug User Fee Act, during reauthorization discussions (no specific bill)

Δ Liberalizing favorable federal income tax treatment (tax-sheltering) repatriation of foreign net profits (no specific bill), and liberalizing deferral of taxation of foreign earned income

Δ Generally, on government budget issues, including Medicare Part D rebates. Discussions and possible legislation amending Title XVIII, Part D (Medicare Part D) of SSA, including issues of "non-interference clause" and Medicare Advantage. Legislation to address physician payments issues, including SGR and related provisions to Medicare package. Health reform implementation. Independent Payment Advisory Board. Support efforts to ensure appropriate access to vaccines and preventive care. . . .

Δ Improving treatment of transfer pricing of intangibles (no specific bill)

Δ Opposing unrestricted re-importation of pharmaceuticals (no specific bill)

Δ In favor of incentives for antibiotic research and devlopment (H.R. 2182); hepatitis C education (no specific bill)

Δ Alleviating pharmaceutical shortages (S. 296, HR. 2245)

Δ In favor of comprehensive tax reform (no specific bill); transfer pricing of intangibles (no specific bill)

Δ In favor of renewal and expansion of the R&D tax credit (H.R. 942); repatriation (no specific bill); territorial tax system (no specific bill)

Δ In favor of Patent law reform (H.R. 1249)

Δ In favor of Access to over-the-counter medications (no specific bill)

Δ In favor of Non-interference in Medicare Part D (no specific bill)

Δ Against Medicaid-style rebates in Medicare Part D (no specific bill)

Δ Against Independent Payment Advisory Board (H.R. 452, S. 668)

Δ In favor of increasing the number of people eligible for health insurance coverage

Δ In favor of U.S. fedeeral deficit reduction (no specific bill)

Δ Lobbying about the WTO Cotton agreement (H.R. 2112)

Δ In favor of FDA funding (H.R. 2112)

Δ In favor of ADAP funding (no specific bill)

Δ In favor of Korea, Colombia and Panama Free Trade Agreements (no specific bills)

Δ In favor of data exclusivity in free trade agrements (no specific bills)

Δ In plainer English then, Merck lobbied to oppose government negotiated prices -- on drugs purchased by government programs, beyond what already exists in the current scheme

Δ And -- of course -- implementation issues regarding H.R. 3590, the Patient Protection and Affordable Care Act. More plainly, Merck is seeking advantage as the ACA of 2010, and health care reform, more generally, continues to be implemented by the Obama administration. . . .

There. Now you know.

Monday, February 18, 2013

Merck Is Spending $650 Million, With Ex-Merck Led Lycera -- On "Outsourced" Oral Auto-Immune R&D

This is -- in my opinion -- simply more evidence of the accelerating meta-trend: moving the riskier R&D bets off of the company's balance sheets, in the early years (i.e., no asset to write down, if the research effort doesn't pan out; thus no massive charges or restatements, or internal head-cutting). No, just an income statement line, for quarter by quarter R&D spend (expense) to manage, inside Merck. This is smart business, especially in the field of oral autoimmune candidates, as the very next "big thing" might emerge anywhere, at any moment, rendering the effort entirely outmoded.

So, on balance, it is wiser for Whitehouse Station to have the relationship only "blossom into" an asset, as it were, at near commercial launch time -- should that day ever approach.

Just the same, in December 2011, Lycera met its first R&D milestone under the prerviously-inked 2011 $350 million R&D aggreement with Merck -- proving the concept. And this is a highly regarded ex-Merck scientist, running Lycera, afterall -- so, Merck is making some pretty smart bets, it would seem, even in its choices of outsourced partners.

Here is a bit of last week's press release from Lycera:
. . . .This new relationship between the two companies builds on a previous agreement announced in 2011 that is focused on therapies targeting the retinoic acid related orphan receptor (RORγt), the key transcription factor coordinating both differentiation of T-helper 17 (Th17) cells and production of highly pro-inflammatory mediators such as interleukin-17 (IL-17).

“We are absolutely delighted to expand our relationship with Merck, a collaboration that builds on the culture of scientific excellence fostered by both companies,” said Kathleen M. Metters, Ph.D., Lycera president and chief executive officer. “Lycera’s proven track record in accelerating early stage programs to development candidate status holds the potential to fuel Merck’s early stage pipeline.”

Under the terms of the agreement, Lycera will receive an upfront payment and research funding, and is eligible to receive in excess of $300 million in research, development, regulatory and commercial milestone payments. Further details of the financial terms were not disclosed. Merck is responsible for clinical development and will have worldwide marketing and commercialization rights to any products that may be developed as a result of the collaboration. . . .

Since the markets are closed for Presidents' Day, it seemed sensible to file a "catch-up" story today. This was the winner. As ever, we will keep you posted.

Thursday, February 14, 2013

Capital World Investors Holds Steady -- At 6.4% Of Merck, For Two Years, Now

The graphic pretty much sets out the trend line I see, here.

Capital World used to hold legacy Schering-Plough, as well, so it ended up with a temporary "double dip" holding -- in the year of the merger. It was obviously working that position, that year.

So, 2010 is an outlier in my opinion.

The 2011 and 1012 6.4 per cent holdings look to be the "new normal".

Again, as bad news hits New Merck, it is well to recall that these are some of the world's most sophisticated equity managers -- and they have about $8 billion invested in Merck, on any given morning. See this, filed with the SEC overnight.

Food for thought. [Of course, the SEC-filed Schedule 13G totals are reported as of year-end; and thus may have changed, subsequently. But I wouldn't bet on it, here.]

This $688 Million Must Be Attributed To Fred Hassan's "Corporate Culture"

First -- Happy Valentines Day, one and all!

Next -- the good news: This resolves the single biggest litigation exposure New Merck faces, as a result of the bust-up of Schering-Plough, in late 2009. Perhaps immodestly, I must note that I predicted (repeatedly) that it would settle for over $500 million (as there was a veritable orgy of evidence of scienter -- allegedly, of course). It has.

Now, the sobering object lesson: Ex-CEO Hassan, Ex- No. 2 Carrrie S. Cox, Ex-CFO Bob Bertolini, Ex-GC Tom Sabatino and the rest of the top ten officers at legacy Schering-Plough walked off with more than the $498 million non-reserved charge taken today -- in golden parachute payments -- after they (allegedly) delayed a pivotal null-study result on the cholesterol management franchise for nearly two years. During that time, legacy Schering-Plough sold about $5 billion of that franchise's drugs to the public. As Dr. Harlan Krumholz of Yale said, when the study results were finally known in March of 2008 "this drug may just be a very expensive placebo. . ." So, during those two or so years -- patients did not get more effective drugs, due to the delay. In the end, the executive team busted-up Schering, sold it off, and pocketed their parachutes (with the help of an allegedly complicit Compensation Committee of the legacy Schering-Plough board).

The culture Mr. Hassan promoted as a supposed "turnaround artist" was largely antithetical to good science, and careful patient-focused care. It was all about slick marketing studies -- like ENHANCE (a study not completed until well after FDA approval of the drug being "studied"). No doubt, RMS Schering has some problems when Hassan, Cox, Bertolini and Sabatino and the rest joined in March of 2004 -- but the idea that they steered it directly into the iceberg, so that they could personally profit (and profit wildly) from its bust-up (all allegedly) should be compared with equal distain to the role of the banksters in the financial meltdown of 2008.

There can be no doubt that the Merck and Schering shareholders lost far more than the two-thirds of a billion -- for which New Merck is paying today. New Merck has a blotch on its once stellar reputation (most admired company for seven straight years, in the late 1980s), thanks in large part to the "buccaneer's" attitiude -- of the legacy Schering "turn-around" executive team. People aren't as likely to think that the best treatment will be promoted by Merck, post the ENHANCE debacle.

And that's very unfortunate. Thanks Fred, Carrie, Bob and Tom!

Here's a bit from Reuters:

. . . .Merck. . . said it has agreed to pay $688 million to settle two U.S. investor lawsuits over its disclosures concerning the Enhance drug study released in early 2008.

Two federal lawsuits led by several pension funds alleged that Merck and Schering-Plough Corp knew more than a year in advance that the trial known as ENHANCE was a failure, but withheld that information from investors. . . .

Merck said it has recorded a $493 million after-tax charge for the settlements. It said this reduced previously-reported fourth-quarter profit per share to 30 cents from 46 cents. . . .

It is baffling that each of those people still hold very responsible positions in corporate America -- and in most cases, at public health care companies. Baffling. [I should note the that legacy Merck team bears some responsibilty here, too -- as co-venturer on Vytorin. But only some. As anyone who has read the public emails (produced in the federal ENHANCE securities class action litigation) well-knows, the sharp end of the marketing speer was almost always being held by, and brandished about, by Schering-Plough people.]

Wednesday, February 13, 2013

What's Good For Tourism -- Is Bad For Merck: Currency Deval In Venezuela

I'll be back with more local color/explanations later, but Merck can't reasonably be expected to obtain hedges in hyper-inflationary markets like Venezuela -- and because it is nearly the largest pharma (by revenue) there, it suffers greatly when Mr. Chavez devalues the bolivar, as he did last week.

No one ought to fault Whitehouse Station for this, as I say, though -- because hedging this exposure would cost several times the exposure itself. The good news is that Merck sells a lot of life saving medicine there -- and it still projects that it will  make the year 2013, overall -- as to its announced guidance.

The deval makes US tourists happy -- as it makes Venezuelan goods and services less expensve, in US dollars -- i.e., more purchasing power. Conversely, though, it means Merck receives less -- for each bolivar collected for its drugs, when it brings the same home to the US -- to report GAAP sales, and earnings per share.

Here is a bit of the Bloomberg item -- do go read it all:

. . . .Earnings excluding one-time items will be 76 cents to 78 cents a share, the Whitehouse Station, New Jersey-based company said today in a statement. Analysts had been expecting 86 cents, the average of 14 estimates compiled by Bloomberg.

The devaluation of the currency won’t change Merck’s full- year earnings outlook, the company said. The Venezuelan government said on Feb. 8 that it intended to devalue its currency, moving the exchange rate to 4.30 bolivars per dollar from 6.30 bolivars per dollar. . . .

Do stay tuned -- more to come -- but this won't move the needle much, either way, on the NYSE.

Watch out for euro-zone headwinds, though -- and those are hedge-worthy. In some future installment, I'll analyze Mr. Kellogg's EU hedging strategy, given current EU market dynamics.

Tuesday, February 12, 2013

Merck CFO Presenting At Leerink Swann Tomorrow: 11:30 am EST

There is almost no chance anything truly new and material will be disclosed by the CFO, here -- given that the year end earnings release conference was just 13 days ago -- but I'll check in on it, just the same.

Given that the Leerink firm just downgraded Merck about a week ago, there might be some testy lines of questioning.
. . . .Merck & Co., Inc. CFO Peter Kellogg
at Leerink Swann Global Healthcare Conference
Wednesday, February 13, 2013 11:30 a.m. ET. . . .

It turns out that I'll have to catch the replay -- as I am busy at that time, tomorrow -- but will post late in the day if anything truly significant is said.

Saturday, February 9, 2013

Matt Herper -- At Forbes -- Echoes My Themes Of This Past Week, On Merck

Certainly Mr. Herper is always a worthwhile, incisive read, on all things Merck -- and this is no exception. Do go read it all.

That said, I do think he was a little bit too enthralled by the torpid language the buy-side analysts at Morgan Stanley, among others, had been tossing about, this week. But I guess it sells magazines.

More specifically, as I said on Monday afternoon, I think a disappointing IMPROVE-IT outcome is already largely priced into the stock. So too, do most buy-side analysts, according to Mr. Herper's own article, yesterday: ". . .83% of respondents expect that the study will show no benefit in adding Zetia to Zocor to make a Vytorin pill. . . ." And that was an October 2012 poll. It is priced in.

But the concern over Merck's latest string of pipeline delays and outright failures is real. I just don't think it will cause a long spate of sub-$40 price quotes on the NYSE. In fact, Mr. Herper and I agree that much of the excitement about Merck's future was lost in the din over Peter Kim's "Cheshire Cat" routine this week. His description, then:

. . . .What really seems to be happening between Wall Street and Merck is that investors have completely lost faith in their ability to read the company’s “body language.” If Merck executives are confident about odanacatib, should investors believe them? The problem is that Merck was confident about vorapaxar, a new blood thinner, and then it ran into trouble. It was confident about Victrelis, a drug for hepatitis C. Victrelis sold, but not as well as the rival drug Incivek from Vertex Pharmaceuticals. Many observers thought that Merck’s Tredaptive cholesterol drug would succeed, but then it failed, too. . . .

All of the above is important -- but in my estimation, at least -- this will not define Merck's future. Why? Well, consider just one example (of several in Merck's pipeline, unmentioned this past week): Anacetrapib holds the promise to revolutionalize the cardio-vascular disease-care space (see image, lower right). It may be on-market in some geographies as early as 2015. Now, we all know what Lipitor did for Pfizer for nearly ten years (north of $12 billion a year), there, in revolutionizing CV risk management.

As ever, we shall see -- but like Mr. Herper implies, I'd not dash for the exits, just yet -- on Merck.

[Disclosure: I am neither long or short on any of the stocks mentioned on this blog.]

Thursday, February 7, 2013

Merck Does Well By Doing Good -- HIV+ Public Awareness/Treatment Conversation-Starter

To be clear, Merck's Isentress® franchise is truly a breakthrough therapy. It is literally a life saving medicine. And it is priced like it, as well. I applaud today's efforts, by Merck. Smart business, welded to a compassionate posture -- that's what is going on here.

Even so, various private parties (AHF and CalPERS among them) have advocated for additional "affordability" programs -- from the federal government and private insurance payers -- as well as from Merck itself (which already provides a pretty decent one, BTW).

And that is critical -- if 90 percent of the HIV+ population cannot afford the $17,000 or so per year annual treatment cost, in the US -- much of the miracle is lost. In addition, Merck may not recoup its perhaps $1 billion investment in developing the drug. So, today, Merck offers a series of initiatives, all ultimately aimed at getting the patient to fill out a conversation starter/checklist -- and speak to his/her doctor, about whether Isentress will be an option for treatment. Again -- smart. Smart. Smart.

Here is a bit of the Yahoo! version of today's Whitehouse Station announcement:

. . . .Merck today announced that Duane Cramer, an acclaimed photographer and HIV advocate, is joining the national HIV education campaign I Design. Duane has partnered with Project Runway star Mondo Guerra, who served as the voice of the campaign in 2012, to help empower people living with HIV to work with their doctors and approach HIV treatment “through their own lens.” The I Design campaign traveled the United States in 2012, and is embarking on its second year on the road this National Black HIV/AIDS Awareness Day,including the launch of interactive digital tools to help with HIV management on

“As a person who has lived with HIV for a long time, I’ve learned that self-expression is incredibly important, especially when it comes to working with my doctor on a treatment plan,” said Cramer. “I am thrilled to join Merck and Mondo on theI Design campaign and to be kicking off the second year of this successful initiative on National Black HIV/AIDS Awareness Day. I look forward to helping people living with HIV understand the importance of an open and ongoing dialogue with their healthcare provider to manage this chronic disease.”

An internationally known photographer, Duane has lived with HIV for nearly two decades. He is also a passionate activist for HIV awareness and education, particularly for the African-American community, who are disproportionately affected by the disease. . . .

This is a worthwhile use of Merck's corporate resources, as it is likely to drive additional penetration for the high-margin, high-priced Isentress franchise.

Finally, as an update on the status of the franchise, I should note that GSK has -- as of December 18, 2012 -- submitted its once a day dolutegravir HIV+ treatment cadidate for FDA approval, via an NDA filing.

And so, Merck may have some real competition in this space -- perhaps as soon as July 2013. We shall see, but my hunch is that GSK will price dolutegravir above the twice a day regimen of Merck's Isentress. [See graphic at lower right.]

Wednesday, February 6, 2013

MSD Netherlands Issues Clarifying Press Release -- On Oss API; Confirms Aspen Talks

Forgive the Google Translate function, but I don't speak the language. The key takeaway is that only the API capability is for sale -- and that the intent is to keep the jobs.

English first, then the native Dutch -- from this presser, out of MSD Netherlands overnight:

. . . .MSD makes intention to sell any of the production parts in Oss, Active Pharmaceutical Ingredients (API)
February 4, 2013

MSD has announced its intention to become one of the production parts, Active Pharmaceutical Ingredients (API), in Oss sell to the South African pharmaceutical company Aspen Pharmacare. This company is a leading supplier of branded and generic medicines. The intention is that the API manufacturing facility in Oss and remains that all the MSD employees shall be transferred to the new company as an agreement is reached. The plans are currently being further discussed and coordinated with both the Employees and trade unions. It is expected that in the coming months more clarity can be given about the progress of the plans.

API is one of the production components of MSD in Oss. The other two production units, Pharmaceutical and Biotech Operations continue with the Development Center, part of MSD Oss and are not part of the discussions.

The MSD manufacturing API makes about 55 different active ingredients for medicines in the field of Women's Health (contraception and fertility), Endocrinology, Psychiatry, Anesthesia and Hematology. These raw materials except for medicines from MSD for other pharmaceutical companies produced. At present there are about 950 employees for the MSD manufacturing API.

Responding to the question in the interest patients

The proposed sale is the result of an extensive study opportunities to meet the increased demand for active ingredients (APIs) that are made in Oss. Despite the substantial efficiency improvements in recent years have made, MSD concluded that the sale to be a reliable partner in making high-quality raw materials is central, the best choice is to also in the long term supply of these important products protection. Aspen Pharmacare has extensive experience in the production of medicines and has manufacturing locations worldwide including South Africa, Australia, Latin America and Germany.

The intended sale is in line with MSD's strategy focused on the process (and therefore do not produce) of active ingredients and the trading of own drugs still under patent are. The production of APIs in the innovative pharmaceutical industry often largely outsourced. In addition, the API business in Oss mainly produces MSD medicines whose patent has ended. At Aspen Pharmacare are medicines like central and fits into their business strategy.

MSD customer will be to provide the necessary resources to take off. It is expected that some yet to be determined

MSD products also part of the agreement.

The existing supply of raw materials to third parties will not be affected by this proposal and both MSD and Aspen Pharmacare guarantee supply to these customers.

Maintaining employment prerequisite for the future

Securing employment for workers in the API Oss is a very important principle in achieving these plans and acquisition is an important condition in the now ongoing discussions with Aspen Pharmacare. It is also important that the API raw material production in Oss is guaranteed, making it important for patients who are dependent on drugs with these materials are made, not undermined.

Consultation with Employees and unions

The plans will be further developed in close consultation and coordination with both the Works Council (OR) and the unions. The Supervisory Board of Merck Netherlands is involved in the process.

The details of the acquisition plans are currently MSD and Aspen Pharmacare further. It is expected that in the coming months more clarity can be given about the progress of the plans.

MSD in Oss

If the proposed sale continues, reserves MSD in Oss two production departments (production pharmaceutical and biotech production) and the MSD Development Center (Development Center Oss) and support functions with a total of over 2,000 employees. This MSD reserves even after passage of the proposed sale a large office in Oss.

~~~~~~~~~~~~ [ORIGINAL] ~~~~~~~~~~~~

MSD maakt voornemen bekend tot verkoop van één van de productieonderdelen in Oss, Active Pharmaceutical Ingredients (API)
4 februari 2013

MSD heeft het voornemen bekend gemaakt om één van de productieonderdelen, Active Pharmaceutical Ingredients (API), in Oss te verkopen aan het Zuid-Afrikaanse geneesmiddelenbedrijf Aspen Pharmacare. Dit bedrijf is een toonaangevende leverancier van merk- en generieke geneesmiddelen. De intentie is dat de API productiefaciliteit gevestigd blijft in Oss en dat alle betrokken MSD werknemers over zullen gaan naar het nieuwe bedrijf als een overeenkomst is bereikt. De plannen worden momenteel verder besproken en worden afgestemd met zowel de Ondernemingsraad als de vakbonden. De verwachting is dat de komende maanden meer duidelijkheid gegeven kan worden over het verdere verloop van de plannen.

API is één van de productieonderdelen van MSD in Oss. De andere twee productieonderdelen, Pharmaceutical Operations en Biotech blijven samen met het Development Center onderdeel van MSD Oss en maken geen deel uit van de besprekingen.

De MSD productiefaciliteit API maakt ongeveer 55 verschillende actieve grondstoffen voor geneesmiddelen op het gebied van Women’s Health (anticonceptie en fertiliteit) , Endocrinologie, Psychiatrie, Anesthesie en Hematologie. Deze grondstoffen worden behalve voor medicijnen van MSD ook voor andere farmaceutische bedrijven geproduceerd. Op dit moment werken er ongeveer 950 werknemers voor de MSD productiefaciliteit API.

Tegemoetkomen aan de vraag in het belang patiënten

De voorgenomen verkoop is het gevolg van een uitgebreide studie naar mogelijkheden om tegemoet te komen aan de toegenomen vraag naar actieve grondstoffen (API’s) die in Oss worden gemaakt. Ondanks de flinke efficiencyslagen die in de afgelopen jaren zijn gemaakt, is MSD tot de conclusie gekomen dat de verkoop aan een betrouwbare partner waar het maken van hoogwaardige grondstoffen centraal staat, de beste keuze is om ook op de langere termijn de levering van deze belangrijke producten te waarborgen. Aspen Pharmacare heeft uitgebreide ervaring met de productie van geneesmiddelen en heeft wereldwijd productielocaties in onder andere Zuid-Afrika, Australië, Latijns-Amerika en Duitsland.

Het voornemen tot verkoop is in lijn met MSD’s strategie die gericht is op het verwerken (en dus niet zelf produceren) van actieve grondstoffen en het verhandelen van eigen geneesmiddelen die nog onder octrooi staan. De productie van API’s wordt in de innovatieve farmaceutische industrie vaak grotendeels uitbesteed. Daarbij komt dat de API business in Oss hoofdzakelijk voor MSD geneesmiddelen produceert waarvan het octrooi is beëindigd. Bij Aspen Pharmacare staan dit soort geneesmiddelen centraal en past het in hun bedrijfsstrategie.

MSD zal klant worden om de benodigde grondstoffen af te nemen. Naar verwachting zullen enkele nog nader te bepalen MSD producten ook onderdeel van de overeenkomst zijn.

De bestaande levering van grondstoffen aan derde partijen zal niet worden beïnvloed door dit voornemen en zowel MSD als Aspen Pharmacare garanderen de levering aan deze klanten.

Behoud van werkgelegenheid belangrijke voorwaarde voor de toekomst

Het behoud van werkgelegenheid voor de API-werknemers in Oss is een zeer belangrijk uitgangspunt bij het realiseren van deze overnameplannen en is een belangrijke voorwaarde in de nu lopende besprekingen met Aspen Pharmacare. Daarnaast is het belangrijk dat de API grondstofproductie in Oss wordt gewaarborgd, waardoor het belang voor patiënten die afhankelijk zijn van de medicijnen die met deze grondstoffen worden gemaakt, niet in gedrang komt.

Overleg met Ondernemingsraad en vakbonden

De plannen worden verder uitgewerkt in goed overleg en afstemming met zowel de Ondernemingsraad (OR) als de vakbonden. Ook de Raad van Commissarissen van MSD Nederland is bij het proces betrokken.

De details van de overnameplannen worden momenteel door MSD en Aspen Pharmacare verder uitgewerkt. De verwachting is dat de komende maanden meer duidelijkheid gegeven kan worden over het verdere verloop van de plannen.

MSD in Oss

Als de voorgenomen verkoop doorgaat, behoudt MSD in Oss twee productieafdelingen (farmaceutische productie en Biotech-productie) evenals het MSD ontwikkelingscentrum (Development Center Oss) en ondersteunende functies met in totaal ruim 2.000 medewerkers. Daarmee behoudt MSD ook na doorgang van de voorgenomen verkoop een grote vestiging in Oss. . . .

We will keep an eye on this.

Tuesday, February 5, 2013

Long Term Merck Holder Increases Stake Significantly During 2012: SEC Report

While the graphic at right pretty much says it all, in a slightly-whimsical fashion (click to enlarge), this development (here's tonight's SEC-filing) is a decidedly significant counter-point to the Morgan Stanley and Leerink Swann opinions offered earlier this week.

Afterall, BlackRock, Inc. has -- in 2012 alone -- acquired almost 16 million Merck shares. That is a likely incremental investment of over $650 million of its own capital. That's more than ink on paper. That's real cash.

And so, it would seem that BlackRock's "best & brightest" -- some of the most sophisticated equity investors on the planet -- feel that Merck is a worthy "accumulate".

Of course, this SEC information at right is current only as of year end 2012 -- but Merck was trading between $40 and $42 near year end 2012, so it would be fair to assume that with the stock at around $41.50 tonight, BlackRock would still be a holder -- if not an opportunitistic accumulator, from time to time.

A few more such SEC-filed Schedules 13G and 13D will appear in the balance of February 2013. I'll cover them here, for you -- but you'll also see them listed in a summary table in Merck's annual proxy statement (see the version from last year, at page 27).

However, the Merck proxy never shows year-over-year trendlines for the major holders (SEC rules don't require any such disclosure). So, I'll do that for you.

. . . .BlackRock, Inc. | Aggregate amount beneficially owned by each reporting person: 191,262,292 shares. . . Percent of class represented by amount. . . 6.29%. . . .

We will report the others as they roll in, here, in February.

The Completed Scheinberg Verdict Form

Here it is -- click to enlarge: