Saturday, June 29, 2013

Merck Declined Friday -- On News Of Pending EU Approvals For Generic/"Biosimilar" Versions Of Infliximab


As many here well-know, J&J and Merck -- via the (pre bust up transaction) joint venture with legacy Schering-Plough -- used to jointly sell Remicade® and Simponi® -- in various geographies around the globe. Yesterday, the EMEA recommended approved the first "biosimilars" ever -- and these "sort of genericized" versions of Remicade (Infliximab) clearly mean that Merck's share of royalties in Europe on the branded version of infliximab will decline.

That is so, because Merck's biggest retained geography, after the settlement of the 2010 arbitration proceedings is Europe -- right where these first approvals were just granted.

Thus the Friday decline of Merck's common stock, on the NYSE.

Friday, June 28, 2013

Mrs. Glynn's Fosamax® Aytpical Femur Fracture "Failure To Warn" Claim Is Preempted Under Wyeth v. Levine: NJ DC


Overnight, the very able US District Court Judge Joel Pisano, sitting in New Jersey's federal courthouse in Trenton, issued an opinion effectively all but blocking Mrs. Glynn's realistic avenues for an appeal, on her Fosamax® fracture case.

You'll likely recall that at the end of April, after deliberating for only a little more than an hour, the jury found Mrs. Glynn hadn't proved up a failure to warn claim. So, this is by no means big news. It might become important in settings that are factually very close to Mrs. Glynn's though. It turns out that FDA rejected Merck's proposed change to the Fosamax warning label, for injuries such as the one Mrs. Glynn claimed -- only a month after she suffered her fracture. And so, Merck was prohibited under federal law, from making the warning Mrs. Glynn claimed would have helped her avoid her injury. That is the simplified root of what federal preemption is all about (at least as decided by the US Spureme Court in Wyeth v. Levine a few terms ago).

Here is a PDF of the Glynn opinion (an economical 17 pages of reasoning, penned by Judge Pisano) -- and the operative bit:

. . . .Here, preemption is warranted because there is clear evidence that the FDA would not have approved a change to the Precautions section of the Fosamax label prior to Mrs. Glynn’s fracture. In September 2008, Defendant submitted a PAS to the FDA, seeking to add language about low-energy femur fractures to the Precautions and Adverse Reactions sections of the label. In May 2009, approximately one month after Mrs. Glynn’s fracture, the FDA sent Defendant a letter approving the change to the Adverse Reactions section of the label but denying the change to the Precautions section of the label. The FDA’s rejection constitutes clear evidence that the FDA would not have approved a label change to the Precautions section of the label prior to Mrs. Glynn’s injury. . . .

Indeed, the evidence presented at trial establishes that the FDA would not have approved a label change to the Precautions section of the Fosamax label prior to Mrs. Glynn’s injury. In fact, Dr. Cheryl Blume (“Dr. Blume”), one of Plaintiffs’ experts who was “central” to Plaintiffs’ preemption analysis, testified that the FDA “rejected” Defendant’s PAS [the proposed label change]. . . .

Plaintiffs did not present any evidence at trial to refute preemption. First, Plaintiffs did not offer any evidence that Defendant’s PAS was rejected due to language, specifically the use of “stress fracture” instead of “AFF,” or that the FDA would have approved a properly worded label change. Instead, it would have been improper for Defendant to use the term “AFF” in 2008 when they submitted the PAS because, as Dr. Blume [Plaintiff's own expert] testified, the phrase “atypical femur fractures. . . wasn’t even contrived until 2010 or 2011. . . .”

The old adage is that "bad facts make hard law. . . ." This is one of those cases, given the statements of her own expert. As ever, we will track all material developments on the MDL/bellwether processes. [I'll be off the grid for most of the rest of the day -- watching Lord Stanley's Cup get hoisted, and bussed, live.]

Thursday, June 27, 2013

This Would-Be Television Report Is Rather Confused. . . So Take It With A Grain Truckload Of Salt


I am not sure I'd believe all (or even very much) of what is claimed here, especially since within the report itself, a reporter quotes Sun Pharma as denying it. That is, the "source's" report of a Januvia®/Janumet® license being signed, between MSD India and Sun, for an authorized copycat version of sitagliptin [no phosphate] -- may or may not be ficticious.

IF, however, this TV report turns out to be accurate, then it would bolster my speculation of April 16, 2013, that MSD might choose to undercut Glenmark's generic traction in India (even before the Delhi High Court rules), by allowing Sun to sell an "authorized" cut-rate version of sitagliptin. In short, Merck would cannibalize its own higher margin sales (but share in the lower margin sales made by Sun, in India), all in an effort to prevent Glenmark from garnering the full measure of the generic profits on its sitagliptin phosphate compound. Glenmark's compound is now on the Indian market, at about 20 cents on the dollar, to Merck's branded offering.

Again, I am linking to the TV report, just so you may make your own assessment of its relative veracity.

. . . .Merck has now licensed its patents on Januvia to Sun Pharma in India. This was a mandatory procedural requirement, which was missing when Merck and Sun Pharma filed a patent infringement suit against Glenmark on April 1. Now, any company filing a patent suit or becoming party to a patent case needs to have a license for that patent.

But here, Sun Pharma, which was a co-plaintiff in the Januvia patent case, did not have any license for Januvia’s patent. . . .


Or so the TV report claims. For the record, Sun has denied this report. My preliminary assessment is that we will all have to wait for July 15, and the High Court's hearing, to know for certain -- as I would not, and do not, expect any official statement from MSD prior to that time. So, do stay tuned -- as Januvia/Janumet is Merck's single largest franchise, by sales volume, worldwide -- now that Singulair has gone generic.

Merck FINALLY Sells Legacy Schering-Plough Oss API FacilityTo Aspen; Signs Long Term Supply Agreement


As we first reported in mid-February of 2013, from Dutch sources (and a rumor piece here, dated February 4, 2013), Aspen (a South African pharma major) had been in talks with MSD to purchase the active pharmaceutical ingredient lines in the Netherlands.

This morning, US news outlets are confirming that the deal has been done. This also explains the persistent chatter (most recently, about two weeks ago) of additional job cuts at Oss, rumored to occur at the end of June.

Here is Reuters reporting on the US $1 billion deal -- do go read it all:

. . . .Africa's biggest maker of generic drugs said it would buy an active pharmaceutical ingredient (API) business located in the Netherlands and a portfolio of 11 drug brands from Merck. . . .

From Merck's perspective, then: "a billion here; a billion there. . . and pretty soon you are talking about some real money. . ." That is, even at ten figures, it is only a drop in Merck's gargantuan buckets. The deal must still clear South African antitrust review, but that ought not be much of an obstacle. It will likely close before the end of the year. My thoughts are with our friends across the pond, this morning.

While Merck has saved quite a few local Netherlands jobs, by doing this deal -- this marks the end of all those proud, fine legacy local operations of multinational companies (think Organon, Intervet, and Merial, in local Dutch operations) -- companies that Schering-Plough "rolled up," and then systematically laid to waste.

Wednesday, June 26, 2013

Supremes Grant Merck's Certorari Petition; Then Summarily Remand K-Dur® Antitrust Case To Third Circuit


As I said last Friday, even though the Supremes have, in Actavis, now adopted the "rule of reason" test in pay for delay cases, I suspect the outcome in the legacy Schering-Plough K-Dur® antitrust litigation will not change.

Just the same, this week the US Supreme Court summarily remanded the litigation to the Third Circuit Court of Appeals, for reconsideration, in light of the reasoning announced in Actavis. While the matter is not free from doubt, I don't expect that Merck, as successor to legacy Schering-Plough, will be exonerated any time soon.

Why? Well, to my eye, the original 2012 analysis at the Third Circuit was pretty close to the rule of reason analysis (albeit travelling in a cloak called "quick look" -- the then operative standard in the Third Circuit). The Supremes endorsed the rule of reason on June 17, 2013.

So, at the end of the reconsideration -- briefings, oral arguments, and then a decision -- I don't foresee a change in outcome. While that might lead to a new trial, at the District Court level, I have grave doubts about any "settlement" which delayed the entry of generics beyond the life of the relevant patents. Doubly so, on a simple coated potasium chloride crystal -- i.e., a weak-ish patent -- where a "rule of reason" analysis even at the District Court level will require that the settlement reasonably relfect a reasonable compromise of the parties' relative risks, in continuing the litigation. Where the generic is staying off the market past the end date of the patent, it is hard to see how that is a reasonable outcome -- if the generic is getting paid to stay off market.

Moreover, I expect that the District Court will find in favor of the FTC, and then, some four years from now, the Third Circuit will resolve this as a matter of law, and hold that the rule of reason analysis mandates that "settlements" of weak patents that extend beyond the life of the putative patent are. . . anticompetitive, and violate the Sherman and Clayton Acts.

But, as I say, that's just my educated guess. Here is the Supremes' order (see page one of that PDF), from Monday, by the way.

Tuesday, June 25, 2013

Goldman, "Fast" Fred, and Valeant Just Had To Up The Yields -- Mid-Offering -- On The Junk Bonds, For B + L

I just cannot resist this. Apparently, the M&A debt financing the Valeant buyout of B + L just wasn't. . . junky enough.

That is to say -- potential high yield investors were apparently shying away from the deal, at current pricing.

So, while out on the West Coast leg of the road show, Goldman and Valeant, and by implication, "Fast" Fred, had to bump up the interest rates being offered to be paid on the debt.
This deal may yet not get done -- even in these loosening credit markets. Wow.

Of course, it's not that the coupon yield on the debt was priced too low -- that's just the symptom.

No, the root cause of the marketing problem is that Goldman (here conflicted!) has approved too high an overall price for B+L, at Fred's insistence. Thus, Valeant will need to take on too much additional debt, overall, to give Fred his $8.7 billion. That's why this deal may yet crater.

More later; here is Reuters on it all:.

. . . .According to market sources, the shorter dated tranche - which is expected to gain the most traction - is now being touted around a yield level of 7% from initial talk in the 6% range and then mid to high 6% late last week. . . .

"I think it's going to be tough to get such a big deal under way," said Gershon Distenfeld, director of high-yield debt at Alliance Bernstein. . . .

"When people have to sell to meet redemptions in a very illiquid market, their appetite to buy is not what it is in a normal market."

Goldman Sachs is lead-left bookrunner. . . . The two tranches are callable after three and five years respectively.


"My guess is that they will get this deal done but they will have to pay up for it," said Mark McCabe of KDP Investment Advisors, an independent provider of credit research and analysis.

"The acquisition doesn't close until September. They could put the deal on hold and come back in a few weeks when the market could be a little more receptive. . . ."

I still can't get over the idea that -- on a nearly $9 billion M&A deal -- where the acquirer is a public company (and thus the public shareholders are being asked to foot the bill for the deal) -- Goldman Sachs is sitting on BOTH sides of the table. Afterall, no reputable retained, independent banker party has opined that the deal is in any way fair to Valeant's pre-deal shareholders. Valeant just closed on over $2 billion of dilutive common shares issued, yesterday. And as I say, those are dilutive to the pre-deal shareholders. I've now looked far and wide -- and I cannot find another US public company M&A deal with a closed value of $8 billion or more, in the last five years -- where one bank was on BOTH sides. You've been amply warned.

Merck Granted Preliminary Injunction In India -- Against Aprica -- To Prevent A Second Generic Sitagliptin Market Entry


While we wait for the July 15 "on the merits" hearing in India -- related to the Glenmark v. Merck case (also involving a generic version of sitagliptin, now being sold in India), we learn that the Delhi High Court has granted Merck the same interim relief -- against Aprica Pharma -- that it was denied, against Glenmark, back in April.

The difference in preliminary outcomes here is likely related to the fact that Glenmark is making a salt of sitagliptin which Merck declined to patent in India. I have seen no detailed analysis of the Aprica case yet, but I am guessing -- and so, cannot verify -- that Aprica simply directly copied the patented version of Januvia® which is on market in India, and thus got bounced. Recall that Glenmark was able to show -- at this stage -- that Merck had long ago abandoned its Indian patent application on the salt of sitagliptin, sitagliptin phosphate, which is what Glenmark is now steadily selling, there.

Here is a bit of the Reuters reporting, this morning -- do go read it all:

. . . .A source with direct knowledge of the matter, declining to be identified, confirmed that the injunction by the Delhi High Court covered the two diabetes drugs.

Merck sued another Indian company, Glenmark Pharmaceuticals, over the two brands in April, saying Glenmark had directly infringed MSD's intellectual property. The same court is due to hear that case on July 15, 2013. . . .
We will keep you informed, as July 15 looms large for Whitehouse Station.

Monday, June 24, 2013

Federal Fosamax® MDL Update: Last Set Of "Lone Pine" Plaintiffs' Deadlines -- S Through Z -- Expired Last Thursday


The ever capable Judge John F. Keenan, sitting in Manhattan's federal District courtroom, ordered Merck's lawyers to provide a list of non-compliant Lone Pine Fosamax® plaintiffs by next Monday morning -- July 1, 2013. [My prior backgrounder, here.]

As was true with the prior A - S boluses, I expect that the actual number of non-compliant plaintiffs (and eventual resulting dismissals) will be pretty small.

. . . .Noting that the third 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 S through Z, elapsed today, 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 July 1, 2013. . . .


So it goes -- we will let you know when the next bellwether trial gets docketed -- and will ultimately occur, as that information becomes clear, in the next few weeks.

BMO Capital Markets Lowers Merck NYSE Price Target -- By About 2 Per Cent


As we approach the close of the second quarter, I might point more directly to the non-improvement in currencies (from Merck's perspective), and the developments in India over the patentability of Januvia® -- but I do agree with BMO's analysts that $54 may have been a little overheated, in the near term.

Even so, BMO keeps its "outperform" rating/outlook on Merck, as do I -- though my reasons have more to do with the amount of "financial machinery" leverage the behemoth possesses at the moment (buyback, etc. as a tax advantaged way to repatriate those massive, and growing, foreign earnings), to tell the truth.

I agree with BMO, though -- I wouldn't bet against Merck this year. In the near term, I'd expect J&J's on-market Invokana® to eat into Merck's Januvia share more than the not yet approved SGLT2 "candidate" diabetes drugs -- but why quibble? We both agree that Januvia's superbly-upramped rollout, measured in worldwide sales increase rates, is almost certain to slow down. It won't flatten out completely, but it will slow down.

Here is a bit of the update, via Benzinga -- do go read it all:

. . . .New data from SGLT2 drugs presented at the ADA and supporting expert feedback lead us to believe that these drugs will compete directly with. . . Januvia for the post metformin type-2 diabetes patients. . . . [T]hey have low risk for hypoglycemia and typically produce 2-3Kg weight loss and modest blood pressure reduction. . . . .
Do stay tuned -- this will be a revolution, in the diabetes management space -- over the course of the next three or so years.

Friday, June 21, 2013

Supremes' FTC v. Actavis® "Pay to Delay" Decision Unlikely To Change Outcome Of S-P K-Dur® Antitrust Appeal Loss


Well, one cannot fault a skillful lawyer for trying, I guess. Last July, the Third Circuit handed legacy Schering-Plough a loss, on antitrust grounds, for paying to delay generic versions of K-Dur® (after some 23 years of patent monopoly protections). K-Dur is simply a coated potasium chloride crystal. And so, the efforts to delay generics were found to be unlawful.

That is, the "presumptively unlawful" standard had been embraced by the Third Circuit, in In re K-Dur Antitrust Litig., 686 F.3d 197 (3d Cir. 2012). This week, Merck's lawyers, as successors to legacy Schering-Plough's lawyers, filed a supplemental brief essentially re-arguing their appeal in light of the Supremes' "rule of reason" analysis in Actavis, this week.

At base, it argues that since the Supremes have rejected a "bright line" test advocated by the FTC (called the "presumptively unlawful" test), Merck ought to get a reconsideration at the Third Circuit.

I will analyze this brief in closer detail over the weekend, and post on it then. Other duties call at the moment, but here is a bit from that prior Third Cicuit decision, and my full backgrounder, on it:

. . . .After consideration of the arguments of counsel, the conflicting decisions in the other circuits, the Report of the Special Master, and our own reading, we cannot agree with those courts that apply the scope of the patent test. In our view, that test improperly restricts the application of antitrust law and is contrary to the policies underlying the Hatch-Waxman Act and a long line of Supreme Court precedent on patent litigation and competition.

Rather than adopt an unrebuttable presumption of patent validity, we believe courts must be mindful of the fact that “[a] patent, in the last analysis, simply represents a legal conclusion reached by the Patent Office.” Lear, Inc. v. Adkins, 395 U.S. 653, 670 (1969). Many patents issued by the PTO are later found to be invalid or not infringed, and a 2002 study conducted by the FTC concluded that, in Hatch-Waxman challenges made under paragraph IV, the generic challenger prevailed seventy-three percent of the time. . . .


Actually, that sounds like a "rule of reason," just traveling under an assumed name -- so I think the outcome will not change. More later. Have a great Friday, one and all!

Thursday, June 20, 2013

US DC Judge Keenan Seems Unlikely To Set Aside Scheinberg Bellwether Fosamax® Jury Verdict


I wasn't in the courtroom in Manhattan yesterday, but based on various press reports, I'd wager that the $285,000 failure to warn verdict entered by the jury (backgrounder, there) in Scheinberg v. Merck will not be set aside by the very able Judge Keenan.

Judge Keenan would have to hold, as a matter of law, that no rational jury could possibly have found a failure to warn of the specific risk which afflicted Mrs. Scheinberg's jaw, while taking Fosamax®. Since Merck's expert on the matter did not testify live, and Mrs. Scheinberg's expert did, all the jury had to do was decide that it believed the plaintiff's expert, live and in person, at trial.

Said another way, if the jury credited live testimony over a cold, written transcript of a Merck expert's deposition, which it seems likely the jury in fact did do, Judge Keenan is all but precluded by precedent from disturbing the jury's verdict.

Here's a bit of the reporting on yesterday's oral argument, from Thompson/Reuters -- do go read it all:

. . . .Paul Strain, of the law firm Venable, said no rational jury could find that the Fosamax label failed to adequately warn plaintiff Rhoda Scheinberg's doctors of the risks of developing a bone disease called osteonecrosis of the jaw.

But U.S. District Judge John Keenan seemed to be skeptical that Merck had given him enough of a reason to overcome the "high bar" of setting aside the verdict.

"The idea of setting aside a jury verdict is serious business," Keenan said. . . .


Indeed. While Judge Keenan hasn't yet ruled on Merck's post-trial motion, I expect he will -- and fairly shortly. Then, Merck is likely to appeal that trial loss, to the Third Circuit -- but (in my opinion) it is likely to lose there, too -- based on my experience.

Overall, Merck might have done better to have its expert appear live, at trial. That's just a friendly note for future defense counsel, here.

Wednesday, June 19, 2013

Mr. Hassan May Choose His Opinions; But He Can't Choose His "Facts" -- Even A Decade On.


When Fred Hassan was hired at Schering-Plough in April of 2003 (that's his full employment agreement, via SEC's EDGAR database), he got one truly sweetheart deal. While it was only average on the cash compensation side, it was essentially riskless, as the equity values were in the ditch -- and he was getting a LOT of equity; mostly in the form of riskless stock options, at a very low strike price.

So -- chalk it up to irony that he would now tell us he transforms cultures of corruption into cultures of integrity. All the evidence points the other way -- and points to his enriching himself mightily along the way.

Even so, do read this nonsense written by Fast Fred on Monday:
. . . .When I joined Schering-Plough as CEO in 2003, the company was in trouble with authorities. . . . I had to face 3,000 employees, most of them unhappy, at the national sales meeting. . . .

The meeting was a game changer. We went on to deliver 17 consecutive quarters of double-digit sales growth. . . .

Mr. Hassan's "17 quarters of double-digit sales growth" is accurate -- but misleadingly incomplete. First off, that streak then ended July 1, 2007. And that was. in fact, two and a half years before the merger with Merck was complete. During those two plus years, he presided over a train-wreck of his own making -- by (allegedly) delaying the ENHANCE study results. So, certainly, at least the last two years -- on his watch, were truly horrific.

Second, and of the greatest relevance here, is HOW he achieved that sales growth.

It was largely on the back of rising Vytorin® sales. And, as we now know, from about November of 2006 until March 30 of 2008, that sales growth was a sham -- a fraud. Had it been known, by prescribing physicians (as it has been alleged, in federal court documents) that he and other executives of legacy Schering-Plough knew, or should have known, of the immensely likely pending null-result in ENHANCE, a study which tested Vytorin's combo-pill performance against a statin alone, and failed (leading Dr. Harlan Krumholz of Yale to wonder aloud whether Vytorin was just a very expensive placebo) -- the sales figures would have plummeted, not risen. And that's exactly what happened -- from about late 2007 to 2009, once the study results were known.

A Congressional investigation into the matter began in late 2007, yet Mr. Hassan did not come fully clean about the ENHANCE failure until the end of March of 2008. That event more than any other, forced the sale to Merck. He essentially cratered the company to keep his personal $235 million of all-in compensation corporate jet roaring skyward (all allegedly, of course).

So, you might imagine that I found his latest self-promotion, in the marginalia blog-space of the Harvard Business Review -- for his "leadership" book -- just a little too precious. He may well view himself as a leader with integrity. I don't. He's entitled to his opinions -- as am I.

But he is not entitled to "make up" his facts. Now you know -- he always has -- and likely always will -- cherry pick his metrics for measuring his own performance. On that you may certainly rely.

BTW -- his hand was seen again this morning, in the Valeant deal: S&P just dropped Valeant's debt rating to three notches below investment grade -- or deep junk status. It did so solely due to the amount of debt Valeant is taking on, from legacy Bausch + Lomb. And yes, that's a Hassan-Saunders project.

Sad -- but you've been warned -- repeatedly, so.

Tuesday, June 18, 2013

Merck, GSK and AZ All Exploring Future Drug Candidates On Biotic/Electronic "Chipsets" -- Models of Human Organs


Jonathan D. Rockoff, writing for the technology/med-tech section of The Wall Street Journal, overnight highlighted the potential uses for a "lung on a chip" device, to avoid blind alley research (and unduly cruel animal testing/destruction -- on candidates very likely to fail).

Until FDA certifies the approach as reliable enough to be used as a precursor to human testing, though -- it will simply be the precursor to animal model tests.

Even so, the idea holds great promise. Here's a bit, from Mr. Rockoff -- do go read it all:

. . . .Companies are starting to tinker with this new technology, mostly for internal decision-making, since health regulators haven’t yet authorized their use in decisions about whether a compound can enter human testing.

At Merck & Co.’s labs in Boston, researchers are looking at using microchips engineered to resemble a diseased lung in their hunt for a new asthma treatment.

Company scientists want to see whether these “lungs on a chip” can help them better understand the biology behind asthma and identify promising candidates for medicines, says Don Nicholson, who oversees Merck’s respiratory drug research.

If efforts like Merck’s pan out, drug makers could have a powerful new tool, and avoid wasting millions of dollars chasing compounds that will flame out. . . .

Depicted at right is the Wyss Institute's "lung on a chip" device, its prototype "robo-bee" project, and the founder of the Institute, Hansjörg Wyss (Harvard MBA '65). We will, of course, keep an eye on this -- and the Institute, more broadly.

Monday, June 17, 2013

A "Rule Of Reason" Is. . . Well, A Right Reasonable Rule


I am very late getting to this, tonight -- an unusually busy day -- in the realms of my other duties.

I think the Supremes have crafted a wise and important decision today -- applying a "rule of reason" analysis to so-called "pay for delay" patent litigation settlements -- between branded pharma on the one hand, and generic makers, on the other.

[By the way, the decision is not nearly so novel as the dissenting justices might try to have us believe. The "rule of reason", in antitrust settings, is a well-worn path, for almost 90 years now. And it is the right one. It's a moderates' moderate approach to the problem. And here is my half-hearted guess, back in March 2013, that it would turn out this way.]

It is certainly true that the law should still favor reasonable, modest, sensible settlement of disputes -- without "Thunderdome-style" death-matches -- in patent litigation. But the law ought also protect the consuming public from collusive settlements -- ones that are so unreasonably large -- that they appear to simply be thinly disguised "splittings" of the monopoly (patented drug) market profits, by artificially delaying the entry of a generic drug. There can scarcely be any doubt that today's decision will enhance the overall effectiveness of Obamacare. It will improve the positive US economic impact (savings to be garnered from lower drug pricing) of the health care reform measures, system wide.

That said, it will now be interesting to see how this all plays out, in future industry practice. What will be branded pharma's counter move? And will the generics be willing to risk enforcement by the FTC, in order to keep playing the same old games? I doubt it, especially now that the balance tips toward competing, head to head -- as soon as possible -- on a straight market risk-return analysis. Finally, the weakness of some of the branded pharmas' patents will be front-and-center, and generics will -- I predict -- be more willing to exploit (under a Paragraph IV challenge) the weaker patents, and risk being sued by the branded makers. So, in sum, I suspect we will see more litigation; fewer quick settlements, fewer massive settlements, and falling prices, overall -- at least for US health care consumers.

Quoted below is a bit of Justice Stephen G. Breyer's analysis (for the majority) -- feel free to read it all, here (as a 43 page PDF file):

. . . .[T]he fact that a large, unjustified reverse payment risks antitrust liability does not prevent litigating parties from settling their lawsuit. They may, as in other industries, settle in other ways, for example, by allowing the generic manufacturer to enter the patentee’s market prior to the patent’s expiration, without the patentee paying the challenger to stay out prior to that point. Although the parties may have reasons to prefer settlements that include reverse payments, the relevant antitrust question is: What are those reasons? If the basic reason is a desire to maintain and to share patent-generated monopoly profits, then, in the absence of some other justification, the antitrust laws are likely to forbid the arrangement.

In sum, a reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects; one who makes such a payment may be unable to explain and to justify it; such a firm or individual may well possess market power derived from the patent; a court, by examining the size of the payment, may well beable to assess its likely anticompetitive effects along withits potential justifications without litigating the validity of the patent; and parties may well find ways to settle patent disputes without the use of reverse payments. In our view, these considerations, taken together, outweigh the single strong consideration -- the desirability of settlements -- that led the Eleventh Circuit to provide near-automatic antitrust immunity to reverse payment settlements. . . .


I do think the majority's opinion got this one just right. More commentary, in the coming weeks, as we watch the holding take effect -- in pending cases, in the lower courts. I will confidently predict that more generic drugs will make it to the US market -- and make it there, earlier -- than was the case, prior to today's decision. And that will certainly be good for the 99.999 per cent of Americans whose health care and prescription budgets are contrained by varying degrees of lack, in resources.

Saturday, June 15, 2013

And -- Courtesy Of A Dutch Commenter -- More Layoffs At Merck Animal Health On The Continent


Just as the axe was falling at MRL out East, here -- new layoff rounds were being announced in the Dutch Intervet operations of Merck's Animal Health businesses. [Much appreciated, Anon. commenters!] These are legacy Schering-Plough operations, and all I have is an original Dutch language account, but see the below -- you'll get the sense of it.

[Some ask "When's it gonna' rain. . . I ask when's it gonna' stop?"]

Yes, this is the decidely-awkward Google translation software ("What?! It's not free enough for ya'?") -- if anyone out there speaks Dutch, and would like to clean up the translation, here is the original local news item, out of Boxmeer -- just leave the clean up in the coment-box -- I'll print it:

. . . .Veterinary Medicines Company Merck Animal Health (Intervet) is again decreasing its workforce. Staff has indicated that in about a week or two, further announcements will be made about the plans.

The company would not comment on any reorganization. "There is no comment to be made," a spokesperson said.

Layoff Rounds

The staff was told to expect that such an announcement would be made in week 26 (that would be late-June). According to the trade union FNV, this is a possible new round of redundancies. Previously, in 2012, MSD announced layoffs in the unit, even though more than a hundred people left then -- the new round is not unexpected. The U.S. parent company wants cost cuts and has to reorganize workflows at [legacy] Intervet. . . .

We will keep you apprised. [Editor's Note: This is a small milestone for this blog: 2,600 posts, as of this moment! Woot!]

Friday, June 14, 2013

Derek Lowe's Rumor Piece Has Been Confirmed By The WSJ -- A Layer Cake Elimination, At MRL


I've waited all day to mention the rumors I too heard, because at this site -- being front-line-level "employee-friendly" -- I don't want to traffic in rumors that may affect peoples' livelihoods and careers, without some firm substantiation. Executives are fair game; ordinary people, not so much so.

That came late this afternoon, in The Wall Street Journal [Second bit, below the line, is from the Journal's reporting].

Still -- Kudos to Derek! -- here is a bit of his (in the comments section, actually), from early this morning, on it. Do go read it all:

. . . .Research Leadership Team (RLT)

Rupert Vessey will lead Discovery and Early Development.

Rich Tillyer will have responsibility for Preclinical Development, including process chemistry.

Linda Schaffer will lead Project Management group, and will have responsibility for all performance metrics.

Barry Gertz will head the Clinical Development organization, including clinical operations, the clinical therapeutic areas, and the Japan development organization,

Dennis Erb will be responsible for our Regulatory Affairs and Safety organization, which will be expanded to include our emerging market activities,

Rich Murray will lead research in Biologics and Vaccines, including process development activities necessary to provide materials for clinical trials and the transfer of commercially viable manufacturing processes to MMD.

Licensing organization will report directly to Roger Perlmutter. An external search for a new head of licensing is underway Roger Pomerantz is gone.

All senior management roles associated explicitly with franchise governance (Franchise Heads and Franchise Worldwide Discovery Heads) have been eliminated, and the people have been let go.

All site heads have been let go.

Blood bath at the managerial levels of MRL.

Rumor has it that Roger said that the dysfunction was beyond belief, and not the fault of the scientists. . . .

~~~~~~~~~~~~~

And from the WSJ:

~~~~~~~~~~~~~



. . . .Roger Perlmutter, who took the helm of Merck's laboratories in April, has eliminated "franchise head" positions managing the discovery and development of new drugs, according to a memo sent to Merck employees this week and reviewed by The Wall Street Journal. These senior managers oversaw teams working on new drugs for diabetes, cancer and other diseases.

In place of these positions, Dr. Perlmutter established a new team of senior leaders to manage the various aspects of drug R&D, from early discovery to regulatory affairs.

"Virtually everyone has expressed frustration with our system of governance and the complexity of our organizational design," Dr. Perlmutter wrote in the memo. He expressed regret the changes "resulted in the elimination of several senior positions" and said they take effect immediately. . . . .


Of course, we will follow up as this develops.

Of Concern? Lilly's BACE Inhibitor Candidate Drug -- For Alzheimer’s -- Shows Liver Toxicity


UPDATED | 06.14.13 @ 1 PM EDT: My buddy, Ed, this time writing for Forbes, has amplified my small observations -- and collected some great additional Merck-related detail, from on the record sources, here. Do go read his. [End, Updated portion.]

Let's hope that Lilly's drug candidate -- LY-2886721 -- is not showing the emergence of a class-wide effect.

Overnight, Eli Lilly, in Indy, announced that it was stopping work on its BACE inhibitor candidate for Alzheimer’s, due to a safety signal in the livers of study participants. The patients showed some liver toxicity while on the drug. [Previously, in other classes, both Lilly and Baxter have seen drug candidate flame-outs, chasing the elusive white whale -- an Alzheimer’s cure. But the rewards would be vast, should any of these majors harpoon the fearsome Moby Dick.]

And so, recall now that Merck has an Alzheimer’s beta-amyloid pathway (or BACE inhibitor) candidate in mid-stage trials, called MK-8931, as well.

While both Lilly's drug candidate, and Merck's are of the same basic class, it is often the case that subtle variances in the composition/structure of the chemicals turn out to be responsible for these "off-target" effects. Let's hope that is so, here. I continue to applaud Mr. Frazier and Dr. Perlmutter for taking these "big science" (i.e., big risk; big reward) projects forward. This is how the face of Alzheimer’s medicine will change -- with some great leap forward -- acheived by some bold risk-taking CEO and science team.

Here's a bit of the Lilly story -- do go read it all, at Bloomberg:

. . . .Lilly ended the trial of the therapy, called LY2886721, after participants showed abnormal liver biochemistry, the Indianapolis-based company said today in a statement. The drug was in the second of three phases of clinical trials typically required before regulatory approval and was being tested in about 150 patients, the company said.

“Lilly will further evaluate this data prior to determining next steps for the entire LY2886721 clinical development program,” the company said.

The drug was in a category called beta secretase, or BACE, inhibitors. Merck is developing a drug in the same class. The therapies help prevent the formation of plaque tangles in the brain called beta amyloid, which is associated with Alzheimer’s. . . .

Finally, recall that Merck is working with Luminex to develop a companion diagnostic panel for the ultimate commercialization of its BACE inhibitor program (thus the file graphic at right -- I don't have time to create a custom Lilly-Merck graphic for this story).

Thursday, June 13, 2013

US Financial Press Outlets: "Better Late Than Never," I Guess


MSM outlets are just now pickng up on the post May 15 spike in Merck's short interest. As I said on Monday, there was a move afoot -- in block trading mostly -- to clip Merck's cash dividend, while insulating the trader from price moves in Merck's stock, which could eat into the dividend expected. An uptick would be nice, but downward pressure would be. . . bad.

So, the 300 per cent increase in short positions likely reflects these traders stop loss positions. In any event, I don't expect it will increase after tonight -- Merck is now ex-dividend. Here's what I wrote at the beginning of the week:

In order to clip the fat cash dividend off of Merck's common shares, many institutional holders are arranging largely riskless trades in Merck. Riskless, from a stock price perspective, that is. The goal here is not to lose money on the price of the stock -- while clipping off that fat Merck dividend payment right.

So, traders are buying and selling (or actually writing) both puts and calls, pivoted around Merck's current price, agreeing that if the stock price doesn't move at all, all they will be out is the premium. This is driving up volumes, and distorting normal market trading.



Slow Merck News Day -- So, We Take A Look At Where Fred (And Howard) Will Slice The Headcount At B + L


As the details emerge, at investor conferences, from the Valeant CFO -- we learn that a good chunk of the Valeant executive team has Goldman roots (natch!), and that the CFO claims that Warburg Pincus "didn't have time" to get around to doing all the head-count reductions it should have, during its five and a half year stint owning B + L.

Riiiiight.

What does strike us as plausible, though, is the notion that Fred, Brent and Warburg were recently adding layers to the management structure, to prepare for the return to the public company markets -- with global business unit heads in between the CEO/CFO level, and the operating in-country management CEO/CFO teams.

That sort of one over one checking will no longer be needed, now that Valeant will roll up all results to its Canadian public holding company. So, it is certain that the entire global business unit oversight teams (or, region management, if you prefer) will disappear under Valeant ownership, and be handled by legacy Valeant public company people resident in Canada.

All of this is from the CFO's mouth, a few days ago, at a. . . you guessed it! Goldman Sachs confab (transcript courtesy of SeekingAlpha.com), in Manhattan:
Howard Bradley Schiller - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Director

. . . .The areas where they probably didn't have enough time to get through yet, that we'll be able to get to quickly, is in the cost structure. They run their business as three global business units. As you all know, anyone who knows us well knows that we don't run global business units. We run a decentralized model. So they have three global business units. In addition, they have regional infrastructure. So Mike and I were in Europe last week, we kicked off the integration in Europe. And they have their three global business units and they have a European regional infrastructure. Then they'll have a country manager and then they'll have individual managers for each of the three business units underneath, with a complicated matrix between the global business units and regional structures. That's not how we're going to run the business. We're going to be true to our decentralized approach. So in any one country, they'll -- we have a country manager in Poland. We'll have -- continue to have one, but we'll have one person that deals with eye care in Poland, not four people to deal with eye care. We're not going to have regional European infrastructure nor are we going to have it in Latin America or Asia, and we will be running global business units. And that's where the bulk of the savings, just breaking down that infrastructure is going to come from. . . .

[T]hese buckets are moving around daily as we get deeper and deeper in our integration process. But the $800 million is probably roughly around $450 million in what I'll call G&A and R&D, and then $350 million in commercial. And a big piece of the commercial is where there's overlap. Anytime where there's real overlap, whether it be in G&A or commercial, we can take 80% to 90% of the cost out, and we've done that time and time again. In commercial, we also -- we're not a big believer in a lot of the marketing spend. We've talked about that pretty openly. So we're going to be pretty tough on and disciplined around marketing spend. In addition, on the G&A side -- in the commercial side, it's probably split, roughly 50-50 between FTE and non-FTE. But on the G&A side, we talked about the global business units. Well, first of all, they had a corporate structure on top of everything that was built for a public company, which, obviously, we don't need. We're not going to have the global business unit infrastructure, which we talked about, and we won't have the regional infrastructure. So those three layers will come out. . . .

So, look for the ad agencies on the contact lens business -- and the internal marketing staffs -- to shrink immensely, as Valeant takes over B + L. We will check in, from time to time, on this deal -- since it has such a strong odor of Fred, all about it.

Wednesday, June 12, 2013

Merck, Novo Nordisk Join Post-Market Diabetes Study Efforts: "Drug Safety Is Paramount"


Novo Nordisk, Pfizer, BMS, Merck and others will join an independent review of the entire of class of on-market diabetes drugs. That is the right thing to do, and smart management.

It will take some time, but I suspect that the class will be cleared of the suspicion that elevated precancerous cell growth in the pancreas is related to the drugs.

Here is a bit from the Whitehouse Station version of the related press releases:
. . . .“Nothing is more important to Merck than the safety of our medicines and the people who take them. We welcome opportunities to discuss the data that support the safety profile of sitagliptin in the treatment of adults with type 2 diabetes. Type 2 diabetes is a disease with serious consequences if left untreated,” said Michael Rosenblatt, M.D., chief medical officer, Merck. “We are committed to participating in an independent review of our data, and will join the ADA in planning for such an initiative.”

Merck will participate in the NIDDK-NCI Workshop on Pancreatitis-Diabetes-Pancreatic Cancer that starts today. During the meeting, Merck researchers will present data and the company’s perspective on the safety profile of sitagliptin, including an updated analysis of data in more than 14,000 patients from 25 randomized clinical trials of sitagliptin that was recently published. . . .
As I've written before, J&J's recently-approved Invokana® (acting via a different mechanism) may well gain lots more market share, if the study fails to clear the GLP-1 and DPP-4 inhibitor class, of pre-cancerous cell safety concerns. Stay tuned.

Tuesday, June 11, 2013

Merck Goes Ex-Dividend On The 13th. . . That's Why Stock Is Slightly Declining


In order to clip the fat cash dividend off of Merck's common shares, many institutional holders are arranging largely riskless trades in Merck. Riskless, from a stock price perspective, that is. The goal here is not to lose money on the price of the stock -- while clipping off that fat Merck dividend payment right.

So, traders are buying and selling (or actually writing) both puts and calls, pivoted around Merck's current price, agreeing that if the stock price doesn't move at all, all they will be out is the premium. This is driving up volumes, and distorting normal market trading.

But it will all be over at the end of the trading day, on the 13th -- as the ex-date will have come, and gone. Institutions looking for a painless way to fund quarter-end cash redemptions in their funds' portfolio, will likely put on some of these trades -- Merck is a steady, stable bet on which to make such a move. And it raises cash effortlessly. Now you know.

Will Merck Now Book A Material Impairment Charge -- In Q2 2013 -- Due To Apotex's Generic Nasonex® Win?


I'll have a graphic here in a minute, but this is from Merck's latest SEC Form 10-K -- at page 50.

. . . .If the Nasonex intangible asset is determined to be impaired, the impairment charge could be material. As a result of the unfavorable U.S. District Court decision, the Company evaluated the Nasonex intangible asset for impairment and concluded that it was not impaired. U.S. sales of Nasonex were $597 million in 2012. Worldwide sales of Nasonex increased 5% in 2011 to $1.3 billion, including a 1% favorable effect from foreign exchange. The sales increase was driven largely by volume growth in Japan and Latin America, partially offset by volume declines in the United States. . . .
We will wait a few weeks to see whether Merck's audit firm will allow it to delay any charge until the US Supreme Court denies all of Merck's remaining avenues of appeal, before booking an impairment charge. But with this speedy a "no" vote, at the appellate level, both the company's internal audit staff, and Price Waterhouse Coopers will need to rethink the mix of information on whether the Nasonex® patent assets are "impaired".

An alternative approach would be to estimate the low end of the erosion in value, and book that charge this quarter (recognizing that an addition, of about the same size, to that chage may be needed, later). For example, Merck could book about 50 per cent of the annual US sales of Nasonex this quarter (or around $290 to $300 million), as a charge -- pending any additional appeals -- then add to the charge in late 2013, when final outcomes are known. And when Apotex's sales trend/trajectory is better defined.

To be clear, the largest portion of the coming charge will be non-cash -- as an impairment to the carrying value of the patents -- but at least a small portion of it will be a cash charge. Net, net -- it shouldn't move Merck's NYSE price by much, at all. And, yes -- this also goes into the "Thanks, Fast Fred!" file. Do stay tuned.

Merck's Nasonex® Appeal Formally Denied Only One Week After Oral Arguments


I suppose speedy, and clear, decision making is a good thing, in judicial circles. And this legacy Schering-Plough patent fight -- about Nasonex®, has been brewing since December of 2009 -- a little over three and one half years. But this is very speeedy.

The order affirming Apotex's win, at the trial court level, is unusual in that oral arguments were held only last week. From my vantage point, that's a pretty strong suggestion that Merck -- claiming under legacy Schering-Plough patents -- had essentially no appealable case. While the basic legacy Schering-Plough patent was held valid, the US Court of Appeals for the Federal Circuit in Washington, DC just flatly agreed with Apotex -- that Apotex's formulation of the active ingredients in Nasonex, did not infringe the core Schering-Plough patent.

Here is my latest 2012 backgrounder, followed by a bit from Bloomberg on it -- do go read it all:
. . . .[My 2102 background, updated:] So, the core patent legacy Schering-Plough claimed was violated by Apotex's generic -- the '353 patent -- has been held not to read on Apotex's reformulation, by the federal appeals panel in DC. At the trial court level, the judge specifically cited other, additional chemical structures in the Apotex formulation -- each of which surround the claimed compound, and in Apotex's reformulation(s) of Nasonex, change its character appreciably. This, it seems, was the core reason for the opinion of non-infringement. . . .

[From Bloomberg, overnight:] Apotex didn’t infringe the patent, the U.S. Court of Appeals for the Federal Circuit in Washington said in a notice posted yesterday on its website. The court, without issuing a formal opinion, did affirm a lower court ruling that upheld the validity of the Merck patent.

The cases are Merck Sharp and Dohme Corp. v. Apotex Inc., 2012-1516,-1543, U.S. Court of Appeals for the Federal Circuit (Washington). . . .
With Apotex now soon likely clear to sell (I don't know if Apotex has cleared FDA on its generic applicaiton, yet) in the US, Merck's steady $1.26 billion a year revenue stream from the medication will shrink, in 2013 and beyond. Expect an appeal by Merck's patent lawyers, to the Supremes, and a fairly routine denial of cert, there. We will keep an eye on it, just the same.

Friday, June 7, 2013

One Fascinating -- But Unverified -- Anonymous Explanation For The Pricing Of the Valeant/Bausch + Lomb Deal


An anonymous commenter just left this -- perhaps explaining at least some part of the back story, on how the Valeant Bausch + Lomb deal may have come together.

"May" is the operative word, here. We likely won't ever know if Mr. Pearson is actually bailing out his old buddy Fred (assuming the below is entirely true; and not apocryphal), by agreeing to overpay, by about 20 per cent for B + L -- and thus save Fred's reputation, by creating an acceptable return on the B + L investment, for Fred's cohorts -- over at Warburg Pincus.

That said, it is certainly the case that Valeant is overpaying here (in my opinion). Want some hard[er] proof? Okay -- thus far, and note that the deal has now been sealed by the boards of both companies -- yet Valeant's. Board. And. Stockholders. Will. Not. Receive. A. Fairness. Opinion.

In a deal this size, where the acquiror is a public company -- a so-called financial fairness opinion, from a banker, would be common here in the States -- to protect the board of the acquiror (here, Valeant) from a stockholders' breach of fiduciary duty claim, if it were (allegedly) a significantly-overpriced deal.

Earlier today, Valeant filed its Canadian preliminary prospectus for the $1.5 to $2 billion issuance of stock, to pay in part for the deal -- and there is no mention of a fairness opinion, on the deal. [It would be too late now, anyway, as the board couldn't say it made the deal contingent on a fairness opinion, now.] Moreover, the merger agreement contains no such condition. That is significant.

Here is the comment I mentioned at the top, in full:

. . . . In 2003, during the transition from Dick Kogan to Fast Fred, J. Michael Pearson was the first person that Fred sent in. If you recall, Fred was still waiting for the Pharmacia merger to complete before he could join SP in August. Bertolini helped Fred out with the Pharmacia Financial Audit and Pearson helped Fred and Bob out with VEI at SP (saving over $1B in cuts). (Did they ever sell the Gulfstream IV?) Pearson left McKinsey to head up Valeant, so now it seems he is just helping out an old buddy. . . .

Anonymous at 9:13 PM, July 7, 2013. . . .


Anyone else have any additional local color, on that 2003 time-frame? If you do, I'll print it.