Friday, February 28, 2014

It Has Been FOUR DECADES Since Research On ONE Drug Candidate Was Considered A "Material" Risk Factor As To All Of Merck's Worldwide Revenue

Long after the NYSE closing bell tonight, Merck filed its Annual SEC Form 10-K, and while I will have other posts in the coming days (and weeks) -- as to the interesting matters discussed in it -- this one literally leaps off of page 19. I've not done a completely definitive and exhaustive search yet tonight, but it would preliminarily seem that it has been about four decades, or 40 full years (and perhaps many more), since the behemoth Merck last labeled the research being conducted on any one drug candidate as a "material" risk factor -- for the whole company's fortunes, world-wide.

But that is what is disclosed tonight, as to pembrolizumab, or MK-3475. Wow. With over $44 billion in 2013 worldwide revenue, that disclosure implies (to seasoned SEC lawyers) that spending on this one drug (or, biologic, to be more technical about it -- but remember 40 years ago, Merck had no protein chain biologics research & development programs in its pipe -- only chemical drug compounds). . . is material, to that number. Normally that would, in turn, mean that the spending is approaching 5 per cent of revenue. So -- Merck may be spending $2.2 billion over the next 12 rolling months, on MK-3475. That's one BIG hairy science bet, given that Whitehouse Station likely already had over $2 billion invested in the program, at year end 2013.

To be fair, this disclosure is an "Is the glass half full, or half-empty?" sort of conundrum: by that I mean I pretty firmly believe MK-3475 will be a very successful biologic franchise in oncology (so too do most Wall Streeters). And so, spending very heavily now, to well-arm and position it across several additional types of cancers -- with solid clinical trials data (especially in combination with existing market-leading therapies, in those other oncological settings) makes for an excellent business strategy. But it is far from risk free. Spending perhaps $4.5 billion on one bet, even if MK-3475 turns out to be every bit as efficacious as hoped, doesn't guarantee market leadership.

Why? Well, because as we've repeatedly noted, BMS has an anti PD-1 candidate called nivolumab. And most Wall Street analysts presently have the future $25 to $35 billion market for an effective anti PD-1 biologic splitting 65-35 in favor of BMS's nivolumab. That still leaves Merck's pembrolizumab with perhaps $8 to $12 billion in peak sales -- but places BMS in a position to crowd Merck considerably, should it reach market in the heavy burden cancers first. The only thing that is certain now, is that this is going to be a very fascinating, wildy high stakes game of poker, between two (or three) of the largest drug companies on the planet. Just last week, Novartis bought a seat at this table. So we shall see.

In any event, from page 19, "Risk Factors," then:

. . . .The Company is devoting substantial resources to the development of MK-3475, Merck’s anti-PD-1 immunotherapy, and there can be no assurance that it will be approved for marketing by the FDA.

On January 13, 2014, the Company announced that it had initiated a rolling submission to the FDA of a BLA for MK-3475, the Company's anti-PD-1 immunotherapy, for patients with advanced melanoma who have been previously treated with ipilimumab. The Company also stated that it expected to complete the submission in the first half of 2014. There can be no assurance that the Company will complete the submission, or that the FDA will approve MK-3475 for marketing and sale in the United States for the initial indication or for additional indications. In addition, if approved, there can be no assurance that MK-3475 will succeed in the marketplace. . . .

Don't get it twisted -- I love the audacity, here. And I genuinely hope it pays off fabulously, for Mr. Frazier. He has earned a big win, that much is certain. He did so, by being very careful to this point -- by largely keeping the powder dry. Now he taking one big cannon shot -- he is making a very big bet. Yep. I love it. Go man go!

[I apologize. I am having trouble putting into perspective just how big a sea change this is -- making one big bet, as opposed to hundreds of much smaller ones. I do think it a smart bet. But it is decidedly unlike the Merck of the last three decades, and more like the Merck of a half-century or more, ago. Whoosh!]

1 comment:

Anonymous said...

Condor, can you please provide some opinion on what effect (if any) you feel these, what are sure to be spendy therapies are to have on the new healthcare landscape? With more reports of those enrolling basing their decision on policy price and not necessarily coverage, what impact will these new super expensive wonder drugs have in the areas of coverage and reimbursements for those in either the public or private enrollments?