Wednesday, April 30, 2014

Published Reports: UK's Reckitt Is. . . Out. Consumer Health Indicated Deal Numbers MAY Be Over-Heated. [Just As I Said.]


So, it is now reputedly down to Bayer AG and maybe P&G and a few others. Reckitts (the plural is the British way of referring to it, BTW) has pushed away from the table, we are told.

But just as I said -- IF the rumored numbers are remotely-accurate -- Merck would be getting the very tip top of the market. Per LiveMint's reporting -- do go read it all:

. . . .Bayer AG moved a step closer to winning Merck and Co.’s consumer business after lead rival Reckitt Benckiser Group Plc walked away from the deal because the asset became too expensive.

“We are a highly disciplined acquirer with strict return metrics, which we will not break,” Reckitt Benckiser chief executive officer (CEO) Rakesh Kapoor said in an e-mailed statement. . . .


We shall -- as ever -- see.

So. . . Pfizer's Ian Read Is. . . Wesley Snipes?! [A US Tax Protestor?]


Okay. Caveats, first: These are only my opinions. Opinions. I am not urging anyone to buy or sell any specific equity. Nor am I soliciting proxy votes, on either side (so no SEC Schedule 14 solicitation materials will be filed by me -- today. Hah!). Finally, I am no takeover tax law specialist.

But I am pretty well-versed in how larger M&A deals, friendly and hostile, inside and outside of life sciences generally play out. And so -- punchline next: either Pfizer is about to radically break the mold, or perhaps -- perhaps -- this is simply Mr. Read's very showy way of making a tax protest. And he is able to destabilize and/or mess with a smaller childhood competitor in the process. "What's not to like," from his Machiavellian point of view? Read on. . . for the details.

From the beginning of this iteration of his Pfizer chairmanship, Mr. Read has complained about Pfizer's US tax rates. [Mr. Kindler (a lawyer, and his immediate predecessor) -- mostly just paid Pfizer's US fair share, and went about his job.] Mr. Read is plainly frustrated with the inaction in Congress -- on overhauling corporate tax schemes. And there clearly is wood to chop, here. America could be more competitive on its corporate income tax rates -- and in the same stroke, abolish a lot of the below gaming of the system, by people like Mr. Read.

He's a Briton -- and yesterday, while I was busy with far more pleasurable company -- he flew to London to essentially threaten the British government to stay out of "his" merger business. His hostile takeover business, actually. Ahem. Hostile "British job slashing takeover business," actually -- all the truths told.

That's cheeky, indeed -- even for a man with Mr. Read's estimable ego.

But be that as it may (and the British Lords will weigh in on his proxy fight ideas -- and the anti-competitive nature of it all), I am beginning to think it is all. . . a convoluted ruse. A ruse, to prod Congress to reform tax rates. Mr. Read (using his own captialist's bully pulpit) is trying to (1) destabilze a British competitor -- AstraZeneca, and in one fell move -- also (2) create a sharpened sense -- in the sphere of US public policy debate -- that US tax rates are too high. Said another way, I now doubt he has any real abiding intention to actually close a perhaps $120 billion, leveraged, hostile proxy battled AstraZeneca wipeout. I think he is trying to prod Congress into action, that's all. [I know he'd rather not spend his time declaring the end of his fellow Britons' careers -- and there will be thousands of those decisions, should the deal close.]

Why do I believe he is running a ruse? Well, because his own math doesn't work. Not under the current IRS § 7874(a)(2)(B) rules. He has very publicly stated he intends to acheive an inversion with this deal. By that he means he will avoid IRS § 7874(a)(2)(B), and effectively make Pfizer a British-only domiciled tax-payer, by having AZ nominally acquire Pfizer, and the resulting entity be. . . British. And thus pay home taxes to the United Kingdom -- at a far lower rate, if all goes without a hitch. But there is a hitch -- a math problem.

The mathematical problem is that now that AZ has rebuffed him, he will almost certainly have to increase the size of his offer to win the likely coming proxy battle, with confidence -- and he will without any doubt -- have to offer a greater proportion of cash. Not Pfizer stock -- to get the deal done. That's the way hostile deals work. The target's board -- here AZ -- may simply say "no," until a nearly all-cash topping offer is made. Then it will need to negotiate in earnest. But today's offer (from January 2014, actually). . . isn't that day -- it is only 30 per cent cash.

And to avoid the anti-inversion rules of the US IRS under § 7874, he must ensure that less than 80 per cent of all the former Pfizer shareholders will control the new post-acquisition (British) combined entity. Well -- if he pays mostly cash, he can't get there. [Truthfully there are lots of ways to "get there" -- but they all generally require a friendly target's cooperation.] Let's call Pfizer's current market capitalization as $200 billion -- give or take. So, at least $40 billion (to greatly over-simplify the tax analysis here) of Pfizer securities must leave the hands of Pfizer's shareholders, and reside in the hands of former AZ holders -- at the close of the likely proxy battle. If he is only offering $100 billion, that means his Pfizer offer will be less than 50 percent cash to AZ -- to meet the US IRS inversion rules. The board of AZ is (as I say) likely to say "no" (and is lawfully permitted to do so) -- if such a large portion of Pfizer stock is to be injected into the former AZ holders' risk profile, on the transaction. Afterall, Pfizer stock is likely to decline on the NYSE during the proxy battle -- due to the uncertainties surrounding whether the deal can get closed. So, Mr. Read's current structure is "Rock -- meet Hard Place." That is, there is no math. Not if he wants to avoid the anti-inversion rules. He needs a friendly deal. And he doesn't have one.

I've not even begun to talk about the antitrust impediments to getting the deal closed. And they are manifold. We will come to those, if there is an increased offer from Mr. Read's side of the table. But I suspect this is a straw man transaction -- to goad the US tax policy debate. He is. . . grandiose like that. Just my opinion.

But he is toying with thousands of peoples' lives -- and careers -- and is using his stewardship of a $200 billion public company to manipulatively remake US tax policy?! Seriously? That is unfortunate.
~~~~~~~~~~~~~~~~~~~~


Finally, and generally off topic: sweet Shiva -- may we please please please, once and for all -- "stop tinkering with the machinery of death"? [Bonus points for anyone who can identify the Justice who coined that now-immortal turn of phrase.] Yes, I have been a life long death penalty opponent. If that link doesn't convince you that it is both "cruel and unusual," I am at a loss -- a loss to explain why we are any better, any different -- than the perp himself.

Tuesday, April 29, 2014

Q1 2014 A Little Better Than Forecast -- Now We Wait -- For Word From Boston


I expect to hear about Consumer Health later this morning -- but off grid until 10:15 AM EDT...

So do check Google News for Merck updates. . . .

. . . .GAAP EPS beat by $0.09. . . .


Do see my comments regarding Pfizer being a net seller... then, since we have no announced deal on Consumer Health. . . . I'll note that the rumor sheets suggest Bayer AG may offer to swap assets with Merck to win the deal -- handing over $1.8 billion in Animal Health assets. We shall see.

Monday, April 28, 2014

Okay. Pop the Popcorn! -- "Trivial Pursuits!" -- Merck May Yet Have A Role In Ian Read's Drama, Here! EXCLUSIVE!


So as long as Ian C. Read presently fancies himself as some reincarnated (albeit darker) version of Oren Trask (reference "Working Girl"). . . I thought I'd play along. You see -- back in the 80s, in real life, when a larger deal in a concentrated set of markets went hostile. . . as this one plainly has (see AZ's latest SEC filings quoted below) -- the other competitors in the space often (if not usually) closed ranks -- and called the DoJ and FTC to ask that the Merger Guidelines be very strictly applied to such a hostile deal. It was simple self preservation.

Fast forward 30 years -- and it is likely that Merck will ultimately call the FTC/DoJ, and the European Competition Commission to express just how Ian's likely hostile takeover will affect the markets here and there. S-w-e-e-e-e-e-e-t. From AstraZeneca's Form 6-K and SEC Rule 425 prospectus, as filed an hour or so ago, then:

. . . . At this [January 4, 2014] meeting, Pfizer made a preliminary and conditional proposal regarding a possible offer for AstraZeneca (the "Proposal"). The Proposal comprised £13.98 in cash (30%) and 1.758 Pfizer shares (70%) per AstraZeneca share, representing a value of £46.61 per AstraZeneca share, based on the closing price of Pfizer shares of $30.52 on 3 January 2014. The Proposal also involved a new US listed and headquartered holding company. . . .

The Board of AstraZeneca concluded that the Proposal very significantly undervalued AstraZeneca and its prospects. The Board highlighted its concerns regarding the proposed transaction structure, which contained a large proportion of the consideration in Pfizer shares. The Board of AstraZeneca also raised certain concerns regarding the execution risks associated with the proposed inversion structure, as Pfizer would redomicile to the UK for tax purposes. As a result, AstraZeneca wrote to Pfizer on 12 January 2014 rejecting the proposal and did not engage further with Pfizer. AstraZeneca was subsequently notified by Pfizer on 15 January 2014 that it was no longer actively considering making an offer for AstraZeneca. . . .

AstraZeneca's share price has performed strongly and consistently since late last year as AstraZeneca has continued to deliver on its clearly stated strategy, in particular the strengthening of its diabetes franchise and the progression of its oncology pipeline.

Goldman Sachs International, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting exclusively for AstraZeneca and no one else in connection with the matters referred to in this announcement and will not be responsible to anyone other than AstraZeneca for providing the protections afforded to clients of Goldman Sachs International, or for providing advice in connection with the matters referred to in this announcement.

Morgan Stanley & Co. International plc, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting as financial adviser to AstraZeneca, and no one else in connection with the matters referred to in this announcement. In connection with such matters, Morgan Stanley & Co. International plc, its affiliates and its and their respective directors, officers, employees and agents will not regard any other person as their client, nor will they be responsible to any other person other than AstraZeneca for providing the protections afforded to their clients or for providing advice in connection with the contents of this announcement or any other matter referred to herein. . . .


Note these four things, just quickly -- (1) the original offer was not a cash offer -- it was primarily a Pfizer stock offer. That's not attractive in a hostile setting. In fact, having done it in that way, Ian Read has bolstered the AZ board's "exercise of fiduciary duty" (just saying "no") defense -- in refusing his demonstrably inadequate offer. When the deal goes fully hostile, PFE's NYSE price may be likely to tumble, reducing the overall deal value to AZ shareholders [Ian may be out of his depth, here]; (2) it is perfectly appropriate for the AZ board to just say no, until Pfizer makes a firm, all cash, $100 billion plus offer -- with either secured financing, or highly confident letters from reputable banks; (3) Merck and Lilly and Glaxo (among others) are all likely to complain to the antitrust authorities (delaying everything -- at a minimum); and (4) Goldman is repping AZ. 'Nuff said. This is going to be one great and entertaining train-wreck. Um. . . say Bye-bye, Ian. Bye bye.

Merck To Hold "Highly Unusual" Business Review/Update A Week After Q1 Results Call -- While NYSE Is Open


Okay. . . we all know that Merck has -- for some six weeks -- planned for the webcast release of Q1 2014 earnings tommorrow before the NYSE opens. That will happen around 7:30 a.m. EDT. No big quarterly results surprises are expected, here at our shop, on the numbers. What is expected, here -- and at Wall & Broad -- is a transactional announcement. And so, as if to confirm the same. . . Merck drops a last-second NEW item:

What is new -- and highly unusual -- is for Whitehouse Station to schedule a business update (at the newly expanding Boston R&D site, no less!), only one week thereafter -- at 9 a.m. EDT, while the NYSE is open, and trading. One version of this press strategy would contemplate that the team will take questions about an announcement made a few minutes before the market open, on the NYSE. One that differs, in kind -- from regular quarterly results/business reviews.

In short, one that announces a divestiture -- and the transfer of related Merck debt (more speculatively), to a buyer -- likely in Europe. And likely involving Consumer Health -- but it could also involve Animal Health. Here's the late-breaking announcement.

. . . .Merck, known as MSD outside the United States and Canada, will hold an Investor Briefing on Tuesday, May 6, 2014 starting at 9:00 a.m. EDT at its research facility in Boston, MA. During the event, members of Merck's senior management will detail the company's research strategy, showcase candidates from the research and development pipeline and provide a business update.

There will be a live webcast of the event available on Merck's website. . . .


We expect GAAP EPS of $0.49 -- consistent with consensus, on Wall Street -- pre market tomorrow. We also expect significant currency headwinds, at the sales line -- something like 3 per cent.

Now -- will my weekend musings prove wingingly-prophetic -- or clay-footed? Now we wait, to find out. Stay dry, and sheltered, one and all, today.

Ian C. Read's Pfizer Offer, For AstraZeneca: Now Clearly HOSTILE. Sheesh!


Okay. Wild, as I would have guessed Mr. Read was smarter than this -- or at least less stubborn. Pig-headed, actually.

He just went hostile. Open, notorious and hostile -- on AZ's board -- at north of $100 billion. Wow. His April 28 letters are plainly a suggestion that he will consider going directly to AZ shareholders -- i.e., a proxy fight. This, my friends, is hostile takeover talk:

. . . .We made our intentions public to communicate what we believe are the benefits of a potential combination to shareholders of both companies, and to make clear to all our stakeholders the many advantages such combination of Pfizer and AstraZeneca would present. And we believe pursuing a potential transaction would support our recent reorganization into three new commercial businesses. . . .

Next steps really depend on the response we get from AstraZeneca. We’ve put out our announcement. We want to have conversations with them. When they progress, we’ll keep our promise to be as transparent as we can to our colleagues. I want an ownership culture. Ownership means I need to inform you. I need to be as transparent as I can. We will continue to let the colleagues know as much as we can, as soon as we can during this process.

So why do this now? Well, I would say why not now? Because now is a good time. We have a good structure. We have a good strategy. But we’re always looking for ways to improve it and accelerate it. And this is a great opportunity to go from strength to strength both in development, commercialization and our culture. . . .


Such goofily-mindless bravado (last bolded bit). In fact, it is filed under the takeover rules here in the US, at the SEC -- for proxy fights. But maybe all he is doing is messing with a competitor's morale. Maybe all Ian is up to is destabilizing AstraZeneca. And its board.

That at least makes sense -- and fits his rather Machiavellian "leadership" style. We shall see. We will only occasionally mention this -- as it only tangentially affects Merck -- at least until a super-majority of AZ shareholders indicate that they will vote in favor of Mr. Read's gambit.

UPDATED: the New York Times now has AstraZeneca's clear indication that this is now hostile: ". . .The company said that on Saturday, Pfizer’s chairman requested that the companies make an announcement before the markets opened on Monday saying they had entered discussions regarding a potential deal, though Pfizer did not make a specific proposal. AstraZeneca’s board declined. . . ." Yep. It is the '80s all over again. Crazy Ian.

Sunday, April 27, 2014

As Long As We Are Speculating Rather Wantonly -- Let's Make ANOTHER Guess: EU Cash Vault Edition!


So. . . as is our usual way, here on sleepy Sunday mornings, we start with some fresh orange juice, hot coffee (extra cream and sugar), and a banana. . . croissants optional (maybe a little later). We also tend let our mind wander -- as our retinas are bathed -- in luminous dawn light. Some Sundays, the light makes things fuzzier -- but today that luminosity makes things. . . clearer. At least we hope so.

Let us assume for a moment that the Reuters-sourced Merck Consumer Health imminent sale rumors overnight, of a near $14 billion price tag. . . prove correct. Let me again remind that this figure -- to make any financial sense -- must mean that the buyer is taking on significant liabilities associated with the businesses, and that the $14 billion is a gross, not net number. [Net number should be at $7 billion or below, in my estimation.]

I do find it fascinating that Thursday Fitch's reaffirmed the debt ratings of Merck (outlook negative), at A+. The outlook negative, according to Fitch's itself -- has to do with concerns about debt levels relative to EBITDA, on a consolidated basis -- even though Whitehouse Station wasn't in the debt markets (at least not on a disclosed basis). So, sending debt out -- with an asset sale -- would help with this, no? Say. . . $7 billion of debt, transferred to either Reckitts or Bayer AG? Sure, the ratings are reviewed on a periodic basis, and reaffirmed or adjusted -- for all large issuers. But why last week, in particular?

Let us then take a stab at linking these up. . . it is possible that Merck will announce another large trauche of MSD non-parent guaranteed debt, on the continent of Europe (or in London, itself) -- (or outright transfer existing non-parent Merck debt to the buyer) at about the same time it sells Consumer Health to that same Euro buyer. Possible. But no one has said this yet -- this is a pure rumor scoop -- of mine alone. That is to say, 'tis is my conjecture, alone.

Why? Well, as I've long suggested, Merck has about $70 billion parked in Europe (and to a lesser extent, Japan), which it would like to re-deploy in a tax-efficient manner.

Last year, Merck structured several undrawn debt traunches which I suggested were laying the groundwork for a tax-advantaged repatriation strategy.

So -- just imagine for a moment that Merck will announce that it has agreed to sell the Consumer Health businesses to either Bayer AG or Reckitts on Tuesday morning. I predict that Whitehouse Station will also send some form of debt out with the package. And while it would be foolish, indeed, for me to guess at the exact structural nuances (there are just so, so many ways to do this!) -- I do think Merck may well be able to repatriate cash to the US, from Europe quite efficiently -- as it sheds the Consumer Health businesses. That might well explain the latest highly inflated price rumors: Merck is transferring debt -- non-parent backstopped debt (I am guessing) -- and in turn letting the payback flow to the US, but not as a "deemed dividend". . . thus it is a withdrawal (nearly US tax free!) from Merck's Euro cash vault. . . just as I've been saying for over a year, now. That is entirely a guess -- but we shall see -- come Tuesday.

Now do go enjoy all your own forms of Sunday deliciousness -- tonight is fresh sushi, edamami, miso soup and. . . icy Cherry Coke® -- with real cane sugar! Heh.

Saturday, April 26, 2014

Bold Predictions, Part Deux: If the Consumer Health Biz Sells To An EU Bidder At $14 B, It Will INCLUDE Merck-Provided Financing


I am running out to see "Captain America"(!), literally right now -- but I just noticed (post-workout) that Reuters has a new Consumer Health rumor (involving as we predicted -- either Bayer AG, or Reckitts).

I'll explain this in more detail tomorrow morning, over piping hot coffee & cream, fresh squeezed OJ, bananas and buttery croissants, but if these Merck businesses sell at around $14 billion, we will (I predict) see that the buyer receives some form of financing from (or assumes some of the debt of) the seller (Merck) -- at around $5 billion, to $7 billion. There is just no way anyone -- even with a currency tailwind from the UK/EU -- would pay around eight times sales for these properties, not on a net basis. So -- you read it here first -- if on Tuesday, Merck announces the sale, as part of its Q1 2014 results conference call, pre NYSE market open, do go look to see how much financing the buyer is assuming in the transaction, directly or indirectly from Merck. It is the NET number -- not the gross -- that matters. Here is the Reuters piece:

. . . .Merck & Co Inc is in the final stages of selling its consumer healthcare unit for close to $14 billion, with Bayer AG and Reckitt Benckiser Group Plc among final contenders to clinch a deal as soon as next week, people familiar with the matter said.

Germany's Bayer and British consumer products giant Reckitt have emerged as frontrunners to win the auction after each offering roughly $13.5 billion for the Merck consumer unit, best known for Coppertone sunscreen and Claritin allergy medicine, the sources said. . . .


Off to see some mindless Marvel Comics big screen fun! G'night, one and all! Keep it "on the train tracks"!

More On Solvadi® -- And "Sustainable" Pricing: Thanks Go To My Anon. Commenter(s)


My readership (as a group) may well be the smartest, most well-informed bunch of health care policy followers (and, based on my stat-logs -- to no small extent, policy-makers) around. It is a privilege to hear from them. This is exhibit A for that idea. But I'll lay out my punch-line first: Gilead must voluntarily reduce prices on its wonderful Hep C cure called Solvadi®. If it does not, Congress will do so, for CEO Martin. Now to the story.

An series of anonymous commenters -- in response to my post on the record breaking Solvadi® Hep C launch -- pointed us all to the subsequent Bloomberg/BusinessWeek item more generally on the topic of pharma and device pricing in the US.

While I may not agree with all of the good doctor's analysis -- in this BusinessWeek perspective -- the vast bulk of it rings true. Especially the part of it in which he considers that Gilead paid $11 billion to acquire Pharmasset in 2011 -- which in turn, led to the launch of Solvadi. We do know that the original drug candidate mentioned as a primary impetus for the Pharmasset deal -- clanked. That is, it failed to meet expectations. However, Gilead's CEO John C. Martin (now a billionaire!) was wise enough to buy the whole company, rather than license rights to a specific project. And that is why his company now has a product that -- in its first full quarter on market -- shattered the previous best ever launch numbers -- for a first full year (that record belonged to Vertex's Incivek®, BTW). [As a side note -- I will happily admit that it turns out that I was just dead wrong -- back in November 2011 -- when I wondered aloud whether Gilead was overpaying for Pharmasset -- at three times projected five years out (2016) sales; or ten times current sales. Those projections were for a different pipeline candidate -- the one that clanked.]

No, it is now likely that Gilead will have received not just cash net revenues -- but pure after tax profits (also in cash) -- equal to the entire 2011 $11 billion purchase price it laid out for Pharmasset, within 20 months, from Solvadi sales alone, at this clip. So sometime in September of 2015, Gilead will (if nothing changes) have recouped every bit of all the development costs on Solvadi -- and all the OTHER candidates Pharmasset held at merger time. That alone suggests the good doctor, Robert Pearl, MD, is spot on -- with this bit of snark:

. . . .How does drug pricing work? It’s hard to say. Pharmaceutical pricing is opaque. Drug manufacturers aren’t asked to quantify their costs or compare them to projected sales and profits. Business school students learn that the price of a product isn’t determined by what’s reasonable but what the market will bear. A wide array of drug pricing examples would indicate that pharmaceutical and medical device companies hire a lot of business school graduates. . . .

Compounding the high price of many medications is the reality that patients in others countries don’t pay nearly as much as those in the United States. The reason is that most governments across the globe regulate drug prices. To date, the U.S. Congress has prohibited the practice here.

The result is that drug sales in the U.S. subsidize a disproportionate share of a drug company’s research costs and contribute to much of the company’s margin, regardless of where in the world it is headquartered. If we want our businesses to be globally competitive, this needs to change. . . .


Quite so. And the continuing implementation of the ACA of 2010 is doing so. With UnitedHealth, the insurer, saying it paid out $100 million in Q1 2014 alone -- just for covering Solvadi -- it is clear that the pricing of Gilead's wonder drug will have to come down. If not, pretty soon, system wide in the US -- Solvadi will represent something like 10 per cent of all covered payouts, from government and private insurer payors.

That model cannot work -- even if there are four million people with Hep C covered by various plans. What of all the cancer patients? What of the AIDS/HIV patients? In the not too distant future, and in a very real, non-metaphorical sense -- what Gilead's Solvadi "eats," from the US payor universe -- will literally have been "taken from the mouths" of these other diseased patients. And that is a result we should not countenace. Hep C is no more worthy a disease-state than cancer or HIV/AIDS. Said the other way, a cure for Hep C should not push HIV/AIDS sufferers, or cancer survivors, down -- on the food chain, of reimbursement.

It is time for Gilead to voluntarily cut price on Solvadi. This, from a dyed-in-the-wool free market capitalist: me. Sometimes pigs get slaughtered, right? Bulls and bears are fine -- but pigs? They get slaughtered. And all the gleaming long blades being brandished -- on Capitol Hill, and in the halls of Congress -- are now being diligently sharpened -- by the insurance company lobbyists. Pay heed, CEO Martin. [The connection to Merck here is that it too will have a next gen Hep C candidate in the space by mid 2016.]

Friday, April 25, 2014

Appeals On The Attorneys' Fees Portion Of The Settled ENHANCE Vytorin® Securities Litigation May Well Be Dying


You may recall that the ENHANCE-Era Vytorin® federal securities fraud class action settlement is now complete -- except for paying out the funds due to the lawyers.

That fee payout was appealed in the federal courts, last fall. And the appellate court has ruled that people opposing the fee payout will need to post a 10 per cent bond, in order to have the appeal heard. Afterall, the trial court has ruled that the fees are fair. Merck does not oppose the payment -- it thinks that they are (impliedly) fair. And the plaintiffs' various lawyers have been waiting almost five and a half years to get paid, here. So, the fees amount to $116 million -- which means a bond of $11.6 million is needed from anyone challenging the fairness of the legal fees award. Wow. A few days ago, the appellate panel dismissed two of the appellants for failure to post the bond. It has given the only remaining person, one Franklin DeJulius, until this coming Monday, at 4:30 PM Eastern Daylight time, to post the required bond. I predict that will not happen. So this should all end shortly.

. . . .The appeal of Dr. Marshall J. Orloff and the Orloff Family Trust DTD 12/13/01, No. 13-4328, is dismissed for failure to pay the appeal bond.

Appellant Franklin DeJulius, No. 13-4253, is directed to pay the appeal bond by April 28, 2014. Failure to pay the appeal bond by that date will result in dismissal. We recognize that a motion for reconsideration is pending before the District Court. We request that the Court expedite its consideration of the motion.

Whether it reduces the amount of the appeal bond before April 28, 2014, DeJulius is directed to pay the amount due by that date or face dismissal.

By the Court,

/s/ Thomas L. Ambro, Circuit Judge

April 17, 2014. . .


So it goes. And that, my friends, feels. . . entirely. . . just. Have a great weekend, one and all!

Thursday, April 24, 2014

A "Conflicted" B of A/Merrill Reiterates "Buy" Rating On Merck; Target Upped To $62


First, good news, to be sure. [Link to Wall Street affiliated news source this morning.] But from a bank that seeks -- and regularly wins -- a lot of business from Whitehouse Station. Truth told.

I do believe the B of A analysts are all complying with their SEC Reg AC duties, to be clear (i.e., I do believe they actually do "believe in" the rating and target they assign). But the conflicts here are palpable. Even so, the latest target represents only about a 7 per cent bump -- from last night's NYSE closing price. So, we may fairly infer, factoring in this "embedded plus factor" -- a bank-wide desire to win and keep bond underwriting business -- that B of A sees Merck as essentially fully valued here. Or at least fairly valued.

Merck will have a solid 2014, with a strong buyback program still in place, and the groundwork laid for tax efficient repatriations. . . Merck essentially has a cash vault open, from the EU to the US, this year. So, I do think a $62 handle is solidly believable -- over the next 12 months.

But not tomorrow morning; and not this month. Let's see Q1 results. And let's see what currency headwinds are doing to the sales line -- and get a bead on whether Merck is aggressively hedging that exposure -- at the sales line. Have a great day, one and all -- my daylight duties call.

Wednesday, April 23, 2014

All The Fosmax® ONJ Lawyers Get "Taken To The Woodshed" By New Jersey Appellate Panel! ON THE RECORD! Ouch!


This is DEEPLY embarrassing for Merck's counsel -- and the plaintiffs' counsel, as well. But mostly for Merck's lawyers. They drove the settlement. Here is the full PDF -- this is a rare, rare judicial bird. [Counsel for Merck included Hughes Hubbard & Reed, L.L.P., Fox Rothschild, L.L.P., and Paul F. Strain of Venable, L.L.P.]

It has apparently been more than a decade since the last time one of these public scoldings has been issued on the record in New Jersey, for this sort of a fact pattern. It is doubtless true that incarcerated peoples' right to freedom may have been delayed by the inconsiderate actions of the involved lawyers -- and that appeals regarding the safety and welfare of children may well have been delayed, hereby as well. Yikes. From the online version of North Jersey.com -- do go read it all:

. . . .“We have decided not to file our opinion on the merits and now write to dismiss the appeal with the emphatic reminder that counsel must advise this court in a far more timely manner of a settlement or serious settlement discussions so that scarce judicial resources are not needlessly wasted,” the court wrote in its first paragraph. . . .

“In the last Court Term more than 6,200 appeals and 8,400 motions were filed. Some of the appellants are incarcerated and a favorable result could result in their freedom. In other cases the welfare of children is at stake. For attorneys in a civil case in an appeal with a voluminous record to neglect to notify us of a settlement for four months is unconscionable,” the three judge appellate court opinion said. . . .


Ouch. That will leave a distinct mark! [An earlier version incorrectly suggested this was in the federal courts. It was not. It was in New Jersey state court.]

The Goofy $100B Pfizer/AstraZeneca Rumor -- How It Came To Be -- A "Novella" Involving Ian Read's "Unpringing" Here


Okay -- it's a slow Merck news morning so. . . this one was inspired by the musings of a very cogent commenter, right here on the site, asking after whether I thought Pfizer -- given the splash Novartis made yesterday -- would actually become a net "buyer" (i.e., get bulkier) in the near future.

I really doubt it. Pfizer is still officially considering a three way split -- or getting skinnier, on all fronts. The newly emergent trend (see WSJ pull quote below) in pharma is toward leaner, faster and sharply-focused offerings (being No. 1 or No. 2 in a few select high margin markets). So, the rumor would be -- at best -- strongly counter the trend, and Pfizer's own announced strategic review.

Now. . . let us consider why Mr. Read might have (however fleetingly) entertained the rumored deal -- about six months back. This is all pure speculation -- but recall that Ian C. Read grew up as an operations accountant, in internal audit, at Pfizer -- ever since 1978. Operations. Operations. That is to say his seminal experience base, at the big blue "P" pill, was to see -- first hand -- how Pfizer creatively used US GAAP rules to maximize overall enterprise profiability -- and, in the lowest tax jurisdictions, to boot.

So -- I am willing to bet that Mr. Read was initially attracted to the idea of buying AstraZeneca in order to cut Pfizer's overall global consolidated tax rates, by re-domiciling the resulting behemoth in the UK -- such a transaction is called an inversion. [He also would have loved to be able to efficiently redeploy the $70 billion or so, in parked foreign earnings Pfizer holds, without paying US "deemed dividend" taxes on it.] So -- the idea was likely floated by a banker (pitched over dinner in mid-town Manhattan(?) -- to Mr. Read) to buy AstraZeneca, invert Pfizer's domicile in the UK, and then. . . begin lopping off huge chunks of the resulting leviathan, and dumping them over the side. In the end though, once some capable antitrust lawyers raised their hands -- to point out that it would be rather a lot of dumping, and a lot of that comprising the core assets of both, all as required by the relevant authorities. . . well, the discussions likely quickly cooled off. I bet. Of course, all of this could be dead-wrong -- but I bet it is pretty close to the truth. At least in the broad outlines. So, don't bet on the rumor coming true -- not without some very significant accompanying divestitures, pre-close.

Here is this morning's Wall Street Journal ($$$ Subs. Req.) -- confirming much the same as I mention in the second paragraph above:

. . . .A new flurry of drug deals shows how the global pharmaceutical industry is reversing course, as companies narrow their focus after decades of diversifying their drug portfolios.

Swiss drug giant Novartis AG and the U.K.'s GlaxoSmithKline PLC on Tuesday were the latest to illustrate that about-face, announcing more than $20 billion in deals. Novartis will sell its animal-drugs business to Eli Lilly. . . .



So while anything is possible, I think a $100 billion acquisition by Pfizer is. . . remote. Said another way, the germ of the idea to do it, was likely more "financial engineering" than actual, organic operational "value creation". [Mr. Reed is smarter than that, now.] But if Ian Read were to make a buy of that size, he'd immediately (pre-close, even) shed large chunks of the constituent companies -- pruning the bush, as it were. And the EU and US antitrust authorities would likely require him to cut off major branches -- ones that he'd rather. . . not. Just my $0.02 -- that deal never gets announced, let alone closed. So, be very careful out there, oh you "merger arbitrage" bettors. Smile. . .

Tuesday, April 22, 2014

Gilead's Solvadi® Hep C Cure Sold $2.27 Billion In First Full Quarter On Market -- In US. WOW!


This easily eclipses Vertex's launch of Incivek® (telaprevir) -- a prior gen Hep C treatment -- as the richest launch of all time, in the history of the pharmaceutical business world wide. Q1 2014 sales were just about double what Wall Street expected. Amazing -- that doesn't happen every day.

I am certain no other drug ever sold near $2 billion in its first full quarter on-market. But that's what Gilead just pulled off with Solvadi®. At $1,000 per pill -- $84,000 for a full 12 week course. Wow. From the Gilead's Q1 WSJ release-reprint then:

. . . .The higher-than-expected sales reflect Sovaldi's use by about 30,000 patients with the liver disease since the drug was introduced in December, and a price tag of $1,000 per pill, or $84,000 per patient for a standard 12-week treatment.

Analysts said they believed it was the highest sales total ever for the first full quarter of a new drug. In comparison, the most recent fourth-quarter sales for the top-selling drug in the world— AbbVie's Humira® arthritis treatment, on the market since 2002 — were $3.04 billion. . . .


I guess the question may turn out to be whether Merck's MK-5172 will have multiple millions of insured people, erh. . . left to treat by the time it reaches market, given this roaring start for Gilead.

Trivial, But "No Surprises Here" Department: Ex-CEO "Fast Fred" Hassan (Or His Family) Backed Later Ventures By Former Notorious Hedge Fund Bio-Science Short Seller.


Far be it from me to throw rocks at Fred Hassan's all glass houses. Hah. R-i-i-i-i-i-ght.

It is trivial, I grant you that. But this one deserves mention, just the same. Do go read the BusinessWeek article. Start to finish -- truly. This young man is apparently trying to convert from the dark side -- to the innovator role, in branded bio-science. I wish him well. But the company he has kept, since 2004, apparently -- is rather telling. Do go read -- here's a bit:

. . . .In 2011, Shkreli used $3 million raised from MSMB investors to start Retrophin. In addition to Blanton, Retrophin’s initial financial backers included the family of Fred Hassan, former CEO of pharmaceutical giant Schering-Plough, to whom Shkreli introduced himself at a pharmaceutical conference in 2004.

To realize his aspirations with Retrophin, Shkreli had to grow up in more ways than one. . . .


Just read the article. I think the two were cut from the same cloth. I'll stop there. Have a great evening, one and all!

In Q1 2014, Merck Cut Its Lobbying Spend In Half -- Will Decrease Persist?


Here it is, fresh from the Senate's public Forms LD-2 database, overnight.

Even at this surprisingly reduced spend level (off election cycle?) -- it is notable that Merck is still lobbying on biologic exclusivity periods, and patent "pay for delay" policies, as well as the more robust extra- territorial enforcement of its patents -- primarily, in India. Still, the decrease is rather remarkable. So I am. . . remarking. With a spruced up graphic ,too. [Heh.] Here is some more detail from the form -- just filed overnight:

. . . .Alzheimer's education (no specific bill); 340B (no specific bill); National Diabetes Clinical Care Commission Act (H.R. 1074, S. 539); Eliminating Disparities in Diabetes Prevention, Access and Care Act (H.R. 3322); Hepatitis C education (no specific bill); adult vaccine policies (no specific bill); medication adherence (no specific bill); DISARM (H.R. 4187). . . .

Comprehensive tax reform (no specific bill); transfer pricing of intangibles (no specific bill); territorial tax system (no specific bill); deferral of taxation of foreign earned income (no specific bill); tax base erosion (no specific bill); R&D tax credit (no specific bill). . . .

Non-interference in Medicare Part D (no specific bill); Medicaid-style rebates in Medicare Part D (no specific bill); Low Income Subsidy Copays in Part D (no specific bill); Independent Payment Advisory Board (S. 351, H.R. 351); sustainable growth rate (H.R. 4302). . . .

Trans-Pacific Partnership (no specific bill); biologic data exclusivity (no specific bill); trade promotion authority (no specific bill); treatment of intellectual property in India (no specific bill); Playing Fair on Trade and Innovation Act (HR 3167); additives in beef cattle (no specific bill); trade adjustment assistance (no specific bill); international trade barriers for beta-agonists (no specific bill). . . .

Deficit reduction (no specific bill); ADAP funding (no specific bill); omnibus appropriations; Patent reform (H.R. 3309, S. 1720 ); education on beta agonists (no specific bill). . . .


That last little bit, bolded, on beta agonists is lobbying to reintroduce Zilmax® (the cattle feed additive is a beta agonist, just like Merck's Foradil® inhaler contains -- but I strongly suspect this is not about people breathing easy!) in the US. Now you know. But I'd not bet that the overall Merck lobby-spend will be at half of last year, when the full year is tallied.

Suddenly, Merck's Animal Health Businesses May Be. . . UNDER-Sized (Too). . .


A quick follow-up, then -- to this. The Pfizer spinoff Zoetis is still clearly No. 1.

But if Lilly, Glaxo and Novartis can pull all this transactional conjuring off, Lilly holds the No. 2 spot in Animal Health. That puts Merck at No. 4 or worse (unless Whitehouse Station acts -- in turn). Of course, it will be mid-2015 before all of this is closed -- but Merck will, in all probability, do something dramatic between now and then.

I think that which was luminous, pre dawn -- just became clear(er) -- with the Novartis early morning announcements. Despite my running the graphic anew, at right -- I do not expect a revival of the 2009- to 2011 era Merial Sanofi JV discussions. But could Merck or Sanofi do something (collaboratively) to ensure robust competition persists -- in Animal Health, globally? I now think the EU Competition Commission might be more open to the idea, given how much more incrementally concentrated the Lilly-Novartis AH deal will make these markets. [US FTC/DoJ Hart Scott analysis -- in a separate post -- at day's end.]

Will Merck add to its Animal Health core, bulking up? Or will it effectively exit, via a spin-off or sale? We shall see. More later -- daylight duties are now calling yours truly. [It is absolutely true now that the GSK-Novartis JV will control the No. 2 spot in Consumer Health world-wide (behind only J&J) -- Merck's legacy Schering-Plough Consumer Health operations are waifish, and in need of some real help -- or an exit plan.]

Much As Expected, Novartis In Three Party Deal With GSK & Lilly; Not A Merck "Straight Swap"


UPDATED -- for a few thoughts, on what the Lilly part of it means to Merck. More -- including graphics -- in a bit. So, a straight swap with any one player of size was always going to be DOA, due to antitrust concerns -- just as I repeatedly said. But today's announcements add a little pressure, narrowing (if slightly) some of Whitehouse Station's options -- and amplifying the urgency -- under Merck's ongoing strategic business review.

More to the point, this series of deals makes Lilly No. 2 in Animal Health behind only Zoetis, the Pfizer spinoff. And including three parties makes the antitrust analysis/compliance plan a more manageable set of equations. From the London papers then -- a bit:

. . . .Basel-headquartered Novartis said separately that it will sell its animal health division to U.S. firm Eli Lilly for $5.4 billion.

Glaxo called the linked deals a "major 3-part transaction" while Novartis revealed that the multibillion-dollar deal may affect up to 15,000 of its employees globally. . . .

The two drugmakers [Novartis and GSK] also are creating a new consumer health care business through a joint venture. It combines Novartis' over-the-counter drug business with GSK's consumer business to create a new entity that would generate $10 billion a year in revenue. Novartis would own 36.5 percent of the new business, focusing on pain management, coughs and colds and dermatology. . . .


So this also affirms the notion that more modest (post-2008 meltdown) valuations I've been suggesting will be the norm -- for Merck -- as well. Told 'ya so. Now we see if Reckitts has bid enough to get Merck's Consumer Health businesses, or whether it will be spun-off to shareholders -- or kept. I do think this (on balance, albeit marginally) leaves Merck with fewer options related to its two units under review. New post in a second, on what the post Novartis/GSK/Lilly deal landscape may mean to Whitehouse Station -- assuming Novartis can get all of this closed pretty much intact, after European Competition Commission, and FTC/DoJ Antitrust Hart Scott reviews, and requests.

Monday, April 21, 2014

Before We Completely Abandon The Topic Of The "Pfizer Buys AZ For $100 Billion" Rumor. . .


I made only a passing shorthand mention yesterday, as I ran out to brunch, of the magnitude of the likely antitrust impediments, should such a rumored deal ever actually get announced. I'll not dissect the deal market by market, or geography by geography -- but the overlaps are fairly. . . staggering. At least inside the EU.

Thus, the primary driver of the antitrust required divestitures (or JVs or outlicensings) -- in any such a deal -- would be the European Competition Commission, not the US FTC/DoJ Antitrust Divisions (though these too, would have to have a Hart-Scott say). In Europe, AstraZeneca and Pfizer compete head to head in many markets and therapies. And untangling these potentials for monopolist power, by geography, and by therapy -- is no small notion, in a mythical $100 billion deal that gives No. One or No. Two (or No. Four, depending on how you measure Pfizer) control of No. Seven (or No. Nine), in Europe.

Suffice it to say that should such a presently-mythical deal get annouced, it would be tough to close. And it would, with near certainty, result within a few years in a combined entity that scantly resembled the constituent companies. The number of required divestitures, joint ventures and licenses to preserve "robust competition," in the view of the relevant EU authorities, at least, would take several years to complete, and might end up gutting the best of the two companies, as stand-alones -- leaving only the weaker parts of the then combined new "whole".

So, on balance, never say never -- but even Ian C. Read isn't so mindlessly patrician as to try to unilaterally impose his whims on the EU Competition Commission. As I said yesterday, this deal never gets done as a hostile -- and thus very likely never gets done -- at all. AZ has declined to acquiesce -- and no additional talks are scheduled or are contemplated.

Here effectively endeth the rumor. Or at least our dissection of it. Have a great Monday, one and all!

Sunday, April 20, 2014

Interesting, Yes. . . But I'd Not Bet On A +$100 Billion Pfizer Takeover Of AstraZeneca


UPDATED -- for Monday morning musings. This will likely be one Easter Egg hunt that turns up. . . nothing. It is purely a rumor piece -- and an outdated one -- at that.

While it is true that such a deal would allow Pfizer to deploy most of that parked unrepatriated earnings, in a UK asset, to boot -- creating nice natural foreign exchange hedges in the process, such thinking cannot overcome the obvious and persistent downramp in AstraZeneca's sales (nor Pfizer's, either -- truth be told). [It is a lead-pipe cinch/certainty that since AZ rebuffed the reputed overture of a few weeks back, a hostile deal would simply not be possible -- not finance-able -- not on this scale, post 2009. . . .]

And we haven't even looked at antitrust. But that would be a bearcat. Here is a bit of Reuters, repeating the two-week old rumor -- do go read it all, just the same:

. . . .In the past Swiss drug firm Novartis and larger British peer GlaxoSmithKline have been mentioned as potential suitors, although GSK has publicly said it is not interested in making a large acquisition in recent years.

AstraZeneca, which announces first quarter results on Thursday, has a market valuation of around $80 billion, compared with Pfizer - valued at $193 billion, according to Thomson Reuters data.

Earnings at AstraZeneca fell 6 percent in the fourth quarter of 2013, and the drugmaker has said it expects them to keep falling in 2014 as generic competition to Nexium, its popular heartburn and ulcer drug, takes a big bite out of U.S. profits from late May.

AstraZeneca has suffered a dry period in drug discovery in recent years and badly needs to find new medicines to replace blockbusters such as Nexium and Crestor, a treatment for high cholesterol that will lose patent protection in a few years. . . .


All in, then -- this rumor has only scant meaning -- for the fortunes of Merck, and her Whitehouse Station/Kenilworth denizens. Separately, do recall that it is a near certainty AZ will announce Thursday it will take Nexium rights back in 2014 from the Merck joint venture. Happy Easter to one and all -- I'm off grid for the balance of the holiday (yep, egregiously over-eating).

Friday, April 18, 2014

I'll Stick With My Guess On Peak Sales Of $250 Million. . . But Stallergenes Update, Via Comments


But first, some of what was going on at St. Pete's, this afternoon:



I love crowd-sourced knowledge. So efficient!

Here is exhibit A -- from my readership. Do read it all.

. . . .Anonymous said. . .

I don't believe that Stallergenes has a ragweed product at the FDA right now. Checking the FDA site only turns up a grass tablet.

Yes, the current Stallergenes approved product for SLIT is a multi-perennial grass extracts (Sweet Vernal, Orchard, Perennial Rye, Timothy and Kentucky Blue Grass Mixed Pollens Allergenic Extracts).

However, these grasses share immuno-crossreactivity. It is not clear that you need to do all or that 1 will cover for all.

Either way, neither cover ragweed. Hence, the development of the Merck product.

Both companies are working on house dust mite therapies. And Stallergenes is also pursuing tree pollen.

April 18, 2014 at 1:56 PM

Condor said. . .

I now bow before you!

Fabulous! Thank you Anon.!

Love my readership. . . .

This is likely a new post, when I catch a breather -- likely Saturday. . .

Even so, I stick by the idea that Ragwitek will max out around $250M a year in peak sales. . . as there are already injections on market.

Just my gut -- but as I was wrong about Stallergenes -- I could be wrong here too. . . So there is no sub-lingual ragweed product approved anywhere in the world? Wild!

Thank you so much -- as ever,

Namaste

April 18, 2014 at 2:21 PM. . . .


Here is a link to the remainder of this comment thread. . . as it evolves. Peace -- during this season of renewal, repair and rebirth -- to all.

Ragwitek® Gains FDA Nod; Peak (2016) Annual Sales: ~ $250 Million?


This is good news to be sure for Whitehouse Station -- but immaterial, especially given Stallergenes' market lead (background here). Now, let's get some church up in here:



. . . .have a meaningful Good Friday, one and all -- as "this too shall pass away". . . .

That is Kirk Franklin's "Hosannah" -- from Men of Gospo. . . .


Enjoy.

Wednesday, April 16, 2014

Merck Will Oppose Small Claims (Under $25,000 Each) Process -- In Federal Fosamax® ONJ NYSD Settlement.


Sad -- but it seems that Merck will fight over even the smallest ONJ claims payouts. Unfortunate. It will slow down the payouts to these tiniest claimants. Backgrounder here.

Here is a bit of the plaintiffs' lead counsel's letter -- explaining the briefing schedule to Judge Keenan:

. . . .I am writing for permission to file the PSC's Motion to Establish Small Estate Procedure for those settlements at or under $25,000.00. I have conferred with Steve Marshall, counsel for Merck, who has advised Merck will oppose the motion.

I have also conferred with Mr. Marshall about a proposed briefing schedule, and we propose the following: April 4, 2014: PSC Motion to Establish Small Estate Procedure Due April 18, 2014: Merck Opposition Brief Due In order to expedite the ruling on this motion, the PSC will waive reply briefing and oral argument. If this is acceptable to the Court, I would appreciate the entry of the Court's memo endorsement of this letter.

ENDORSEMENT: The application is granted. ( Motions due by 4/4/2014. Responses due by 4/18/2014) (Signed by Judge John F. Keenan on 4/4/2014). . . .


We will keep you posted -- and I will bite my tongue about the small-minded pettiness, and mean spirits I see here -- as the Easter weekend approaches.

Tuesday, April 15, 2014

On Market In EU Since 2006, Grastek® Wins US Approval -- [Plus O/T Side Car: "Blood Moon" Edition]


This melt-in-your-mouth pill -- called Grazax® in Europe, and Grastek® here and in Canada (where it won approval in March of 2012) -- is finally going to be available in the US with a prescription, beginning around Mothers' Day 2014. It enters a crowded field, likely to be dominated by Stallergenes -- a French pharma concern. [Thanks to my anonymous commenters for that insight!] And still it is good news. [See the anthropological implications of a "missing" blood moon (full lunar eclipse overnight), in all of this -- below the pull-quote.]

Here is a bit from Reuters overnight. Do go read it all:

. . . .The company, which developed the tablet with Denmark's ALK Abello, said it expects to launch the drug, approved for patients age 5 to 65, in the United States by late April. . . .

An advisory committee to the FDA unanimously recommended approval of the drug in December. Panelists also called for post-approval studies to test the product's safety in children, citing side effects such as lip swelling, throat irritation and oral blistering.

Earlier this month, the FDA approved Stallergenes' immunotherapy treatment for five types of grass pollen.

The French company has said it sees a potential U.S. market of nearly 3 million patients that will eventually be worth $1 billion in annual sales for these types of drugs.

Merck's pollen treatment received regulatory approval in Canada in February and has been available in Europe since 2006 under the name Grazax. . . .


As an anonymous commenter noted two weeks back, the Stallergenes prescription-only product is likely to garner the lion's share of this market. In fact, it already is. But this is still incrementally good news for Merck. Immaterial, but incremental. I'd guess around $300 million globally in peak annual sales in 2016 -- off-grid all morning; tending to other duties.

[On the O/T paleontologist in me: The blood moon was -- among our ancient forebears -- long associated with heightened spiritual-, sexual- and hunting- prowess. Here -- very, very late last night. . . it brought only. . . snow. Yep, the lunar eclispe was obscured by heavy snow clouds overnight, so there was no blood moon in the city of big shoulders. Even so, I guess a cleansing is. . . somehow auspicious. Heh -- a bath indeed, for mother Earth.] So it goes.