Monday, November 10, 2014

SEC Filings Speak Only "As Of" Their Dates

Some -- including the very smart Pete Loftus -- in the Wall Street Journal, are making note of the Merck SEC Form 10-Q filing of this morning.

In the Form 10-Q, Merck says it has determined that the Zetia® and Vytorin® intangible assets are not impaired (by the unblinded data in IMPROVE-IT, at page 35). All that means (to my experienced securities lawyer sensibilities) is that today -- i.e., before the November 17, 2014 presentation in Chicago, of fully vetted, analyzed and peer reviewed study results -- the unblinded data does not show obvious futility. It likewise doesn't show a harm to patients, otherwise the safety committee would have stopped it much earlier. No more -- and no less. That's all.

How the market reacts to the data, on the other hand, may in fact impair the assets' value, at some future date. But as of today Merck says the asset is not impaired. That is all. Here's Pete's take:

. . . .Some analysts have speculated the Improve-It study will show that Vytorin isn’t significantly better than simvastatin alone. Prior studies have shown that while Vytorin can help reduce levels of bad cholesterol beyond what can be achieved by simvastatin alone, it hasn’t been proven to further reduce the risk of heart attacks and strokes compared with simvastatin alone. Zetia, which is also sold as a stand-alone drug, works by a different mechanism than simvastatin, a generic drug that belongs to a class of widely used cholesterol drugs known as statins.

Merck said in a filing Monday with the Securities and Exchange Commission that it has been “unblinded” to the study’s results. As recently as Oct. 27, Merck had said it was still “blinded” to the results, meaning it didn’t know how the outcomes of patients receiving Vytorin compared with those who received simvastatin alone. . . .

The SEC 10-Q also says: "Global sales of Vytorin (marketed outside the United States as Inegy), a combination product containing the active ingredients of both Zetia and Zocor (simvastatin), a statin for modifying cholesterol, were $369 million in the third quarter of 2014 and $1.1 billion in the first nine months of 2014, declines of 7% and 5%, respectively, compared with the same periods in 2013. Foreign exchange favorably affected global sales performance by 1% in both the third quarter and first nine months of 2014. The sales declines primarily reflect lower volumes in the United States. . . ." So -- we wait for November 17. I still expect additional reductions in the sales of the pair of drugs. And I expect over time, those reductions may be material.

UPDATED 11.11.14 11 AM EST: Ed Silverman, at Pharmalot, largely concurs, thus:
. . . .This could lead to another key issue – the possibility the trial yields a statistically significant outcome, yet the “magnitude” of a clinical benefit remains “marginal.” This would not, of course, help Merck very much.

Although this may remove an “overhang” on Merck stock, the outlook for Vytorin is unlikely to change much, or as Anderson puts it, it would be “too little, too late.” Why? Crestor, which is sold by AstraZeneca, matches Vytorin in reducing LDL cholesterol, offers cardiovascular benefits and, most of all, has not generated controversy. . . .

I suspect, myself, that the results will be just under statistical significance, but positive. Just barely positive. Even so, I expect continued erosion in the franchise for all the reasons we set out over the last six years.

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