shearlings got plowed

Vertex Is A 84-16 Split Winner Over Merck -- In Hep C: Q4 2011

2012-02-02T18:21:00.005-05:00

I'll do an updated graphic later tonight (the one at right is a projected 2011 -- we now have actuals), but Vertex also announced its Q4 2011 results this morning, and. . . Q4 2011 Incivek sales were $456.8 million. That's better than the 80-20 split, I earlier predicted.

Merck's Victrelis sold just $87 million in Q4 2011. That makes the share split for Q4 about 84 percent for Vertex; 16 percent for Merck. Ouch.

The Vertex presser:

. . . .Net Product Revenues from INCIVEK:

Net product revenues for INCIVEK for the fourth quarter of 2011 were $456.8 million. Vertex reported $419.6 million in net product revenues for INCIVEK in the third quarter of 2011. . . .

Recall that Merck reported only $53 million in Q3 2011 sales for Victrelis. Thus, life to date, the split is running at about 85 Vertex, 15 Merck. And that is a legacy Hassan "star"?! Oops.

Whitehouse Station Can't Save Its Way To Greatness

2012-02-02T13:35:00.024-05:00

An anonymous commenter just relayed this, after this morning's earnings announcement:

. . . .Anonymous said...

The lead story on our [Merck's] intranet site is how office trash pickup is going to two days a week. The cost cutting has gotten to absolute absurdity but I suppose it's one way to beat the street. . . .

February 2, 2012 12:53 PM . . .

Anonymous [also] said...

After speaking to coworkers in other sites (West Point, PA buildings) it turns out this has been the norm for them for at least two years! Further, their desk side trash is collected during office hours so they are treated to the rumbling of a large dumpster through the cube farm while on teleconferences or in meetings.

They have self-regulated to throw wet trash such as lunch leftovers into the break area bins but say it is not uncommon for empty drink containers to pile high in cube cans which are left outside the cube doorways because of an alleged rule about contractors entering cube or office spaces. I bet the bouquet near those break areas isn't very pleasant, either.

It is incredible.

February 2, 2012 2:00 PM. . . .

Oh. My. Goodness.

While it may seem small -- this sort of "nickel & diming" should be of concern to Wall Street.

I'd note that Merck is showing a 47 percent down-bubble in R&D spending in the fourth quarter of 2011. One other way to look at that, is to notice that corporate overhead was rising more than anticipated, in the same period -- so Merck delayed or deferred some R&D project expenditures (some of which are truly "mission critical"). Not really a great approach. More importantly, it simply will not be sustainable -- at least not in order to beat Street expectations at the EPS line, longer term.

Some have written about the "lightness" of Q4 2011 global consolidated sales revenue. Although not fully-determinable until the SEC Form 10-K files, it would appear that a large portion of the smaller Q4 sales revenue is actually the result of a strengthening US dollar. Jami Rubin, of Goldman Sachs (at about 38:20 in the webcast) asked pointedly about this -- and mostly got a dodge, from CFO Peter Kellogg. She went so far as to suggest that if the euro stays where it is today, the revenue and EPS would come in at the lower end of the range for 2012. CFO Kellogg did not disagree with this.

In fact, with about 60 percent of all of Merck's sales revenue (post the Schering-Plough bust-up) now coming from outside the US, the stronger dollar would have chewed away about half of the expected consensus sales growth, by my back-of-the-envelope estimate, in fourth quarter 2011. So, Peter Kellogg is no longer offering a currency-adjusted forward view on the sales-line, for 2012.

Interestingly, Pfizer reported much the same, just a few days ago. Peter Kellogg did say on the call that if currencies remain where they are, there will be a 2 percent headwind at the revenue line (and that, too, tracks the rough estimates Pfizer made, just a few days ago).

Finally, on the webcast, management mentioned that Merck expects pricing pressures to drive a negative mid-single digit percentage effect at the sales line in 2012. That, with 2012 patent expiries on Singulair, currency headwinds and the ongoing decline of Vytorin sales in the US, it is easy to understand why Wall Street is taking some of the recent run up in the shares back. Merck is now off about 1 percent -- near $38.15 on the NYSE, on pretty heavy volume.

[Post Scriptum: While essentially dodging the issue, management didn't offer a whole lot of uspside certainty, even if IMPROVE-IT were to show a strong benefit in outcomes. No surprise, but that affirms Jami Rubin's comment on January 7, 2012 -- that a good outcome won't help much, but a bad one. . . will hurt more.] Ouch.

Merck Guides Slightly Lower On 2012 EPS; Touts Long-Delayed Schering-Plough Drug Candidates

2012-02-02T09:12:00.025-05:00

We shall see, but the idea that Bridion and Tredaptive are going to be headlines for 2012 is a little disconcerting. ~~Both~~ One of these, Bridion, was among Fred's (Ex-Schering-Plough CEO Fred Hassan's, that is) "Five Stars", back in late 2008-2009; both were given "please do over" reviews at FDA -- Tredaptive was previously called Cordaptive, and was an old-Merck Frosst candidate, a commenter correctly notes. [More precisely, additional study data, as to efficacy and risk profiles was required.]

Now, New Merck expects to get them through FDA in 2012-2013. I just can't imagine that, even if approved, these two will move the needle much on EPS at Whitehouse Station. They just won't be big enough.

On the sunnier side, Merck did beat the Non-GAAP 2011 consensus EPS by two pennies.

However, of additional concern is that Merck has placed its EPS forecast range for full-year 2012 in the lower middle of the bracket, compared to consensus guesses. That is to say, Merck's plus-or-minus $0.05 range around 2012 EPS brackets two cents lower than consensus. This may be refined, and adjusted upward in coming quarters, but there is no promise of that. All in all, a ho-hum year-end 2011 announcement. Per Bloomberg

. . . .The company said it expects to seek approvals of five new medicines between 2012 and 2013. They include two products that have been delayed for years by regulators: Bridion, to reverse the effects of anesthesia, and Tredaptive, a form of niacin meant to raise "good" HDL cholesterol without causing facial flushing.

Merck said it expects full-year 2012 earnings of $3.75 to $3.85 per share, excluding special items. Analysts, on average, expect $3.83 per share. The forecast reflects earnings 0.5 percent lower to 2.1 percent higher than those seen in 2011. . . .

Merck has opened off ~~about 42 cents~~ -- now off $0.50, or almost 1.5 percent -- on the NYSE, this morning.

Merck: 65 Animal Health Jobs Leaving Boxmeer, NL -- Coming To Summit, NJ Facilities?

2012-02-01T09:13:00.016-05:00

Thanks to Pharmalot, we learned that the "other shoe" has now fallen on the Dutch animal health facilities previously operated by the legacy Schering-Plough Intervet unit.

Here is a bit -- do go read it all, at NJ.com:

. . . .The plan is expected to impact about 65 jobs at the animal health site in Boxmeer, a town in the southern Netherlands.

The Boxmeer site, which has a total of 1,700 employees, will continue to have research and manufacturing operations, Merck said.

Merck Animal Health formerly operated as Intervet. . . .

This may well be some additional fallout from the scrapping of the Merial/Intervet Sanofi-Aventis deal. Even so, it does appear to be a scaled-down sub-part of the overall 2010 New Merck Dutch Oss/Organon closure plans -- plans which resulted in "relay strikes" in front of the Oss governmental offices, by the affected legacy Organon workers -- for several months, back then. Even the Oss plan was ultimately scaled back -- due to local Dutch grassroots pressure.

It is entirely unclear whether the affected Dutch employees will uproot their families to come live in New Jersey. Should they do so, there will plainly be far less job security (and stepped-layoff protections, by a "works council" process), at law -- compared to the Dutch system (from which they would transition). In the end, my bet is that New Merck fills most of these jobs with local New Jersey people -- many likely previously laid off by legacy Schering-Plough Animal Health.

Time will tell.

"Answering One Question NOT Asked," Merck & JNJ End Up In L'Oreal Patent Suits

2012-01-31T08:25:00.031-05:00

I don't know whether to file this story under the law of "unintended consequences," or "collateral damage" -- but apparently, back when the three year-long sunscreen Lanham Act Battle Royale (between Neutrogena, a J&J brand, and Coppertone, a legacy Schering-Plough/Merck brand) was in high dungeon, an ex-Schering-Plough (now Merck) scientist, one Dr. Patricia Agin, submitted a sworn declaration, as part of Coppertone's case. I believe she was also deposed by the Neutrogena lawyers.

In her rather effusive declaration (quoted at the top of page 4 of the complaint), she explained that the process for stabilizing Coppertone sunscreen in ultraviolet radiation conditions (i.e., out in the sun) "is not, and was never patented by, exclusive to, or invented by, or created by Neutrogena. . . ."

True enough. It actually turns out that L'Oreal owns that patent.

It is in year 16 of its life, and it is a process patent, but L'Oreal of Paris owns it. And L'Oreal's patent lawyers allege that neither Coppertone, nor Neutrogena have a valid patent license from L'Oreal. Ouch. From the Bloomberg story -- a bit, and here is the complaint at law (link is a 7 page PDF file):

. . . .L’Oreal sued Merck & Co., the maker of Coppertone, and Johnson & Johnson, which owns Neutrogena Corp., for patent infringement in federal court in Wilmington, Delaware, on January 27, 2012. . . .

In dispute are parents 5,576,354, issued in November 1996, and 5,587,150, issued in December 1996. Both cover compounds used to block the skin’s exposure to ultraviolet-light damage. . . .

The "acts of infringement have caused and will continue to cause damage to L’Oreal," the Paris-based company said in court papers. L’Oreal claims it has patented a mixture of compounds that help stabilize its sunscreen. That mixture appears in so- called avobenzone sunscreens and uses the compound octocrylene, according to court papers.

Last year, L’Oreal earned 2.51 billion euros ($3.29 billion) on revenue of 20.3 billion euros, according to information compiled by Bloomberg. . . .

It may well turn out to be that both J&J and Merck have developed processes to stabilize their respective sunscreens with octocrylene, in ultraviolet conditions that do not in any way read on, or implicate the L'Oreal patents, but it is clear that the labels of each of their sunscreens list octocrylene as an ingredient.

And so -- let's call this one the "The Son of Sunscreen Battle Royale"! Should be entertaining.

We will keep you slathered in thick white gunk on this, no doubt.

21 CEOs Who Walked Away With More Than $100 MIllion: ABC News

2012-01-30T09:46:00.020-05:00

It is good to see that more and more main stream media outlets are making a more fullsome and realistic accounting of what Ex-CEO Fred Hassan's severance package was really worth, in equity values, to him. Recall that in late 2009, it was widely reported that he was "only getting" around $50 million to leave Schering-Plough, on merger day. [UPDATING NOTE FOR GRAPHIC, AT RIGHT: Add about $4.4 million for each additional dollar of Merck NYSE stock price, above the last SGP quoted NYSE price of $28.15, on merger day, November 3, 2009 -- and with Merck at around $38.50 on the NYSE this morning, the chart at right would yield. . . yep, about $220 to $225 million for Fred Hassan.]

While ABC still isn't fully valuing the equity (by my calcuations, Mr. Hassan carted off around $225 million -- which would place him at No. 4 or 5 on the list), it does peg his exit pay at just under $190 million -- which places him at No. 7, all-time.

Just a bit from the ABC article then -- do go read it all:

. . . .21 CEOs over $100 million

Company | CEO Name | Tenure | Total Payout

1. General Electric | John F. Welch Jr. | 1981-2001 | $417,361,902

2. Exxon Mobil Corp. | Lee R. Raymond | 1993-2005 | $320,599,861

3. UnitedHealth Group | William D. McGuire | 1991-2006 | $285,996,009

4. AT&T Edward E. Whitacre Jr. | 1990-2007 | $230,048,463

5. Home Depot Inc. | Robert L. Nardelli 2000-2007 | $223,290,123

6. North Fork Bank | John A. Kanas | 1977-2006 | $214,300,000

7. Merck & Co., Inc./Schering-Plough | Fred Hassan | 2003-2009 | $189,352,324

8. IBM | Louis V. Gerstner Jr. | 1993-2002 | $189,005,929

9. Pfizer Inc. | Hank A. McKinnell Jr. | 2001-2006 | $188,329,553

10. CVS Caremark Corp. | Thomas M. Ryan | 1998-2011 | $185,415,435

11. Gillette Co. | James M. Kilts | 2001-2005 | $164,532,192

12. Target Corp. | Robert J. Ulrich | 1994-2008 | $164,162,612

13. Merrill Lynch & Co. | E. Stanley O'Neal | 2002-2007 | $161,500,000

14. U.S. Bancorp | Jerry A. Grundhofer | 2001-2006 | $159,064,090

15. Omnicare, Inc. | Joel F. Gemunder | 2001-2010 | $146,001,476

16. Wachovia/South Trust | Wallace D. Malone Jr. | 1981-2004 | $125,292,818. . . .

Fred Hassan ahead of Louis Gerstner at IBM, and Stan O'Neal at Merrill Lynch? I am sorry, but that is. . . disgusting.

To be clear, I will never begrudge Jack Welch (No. 1) his walking pay -- for whatever else one might say about the man, he truly enhanced shareholder value at GE by orders of magnitude -- not just percentages. Hassan is precisely the opposite story -- a bridge troll, and one that required payment, to get a deal done -- i.e., to cross the bridge.

What Does Thursday Morning Portend? Merck's Q4 & Year-End 2011 Earnings Call

2012-01-30T09:03:00.014-05:00

Prior to market open this Thursday, Whitehouse Station will report fourth quarter 2011, and full-year 2011 financial results. Consensus estimates suggest Q4 EPS will come in at $0.95. Other large-cap pharmas reporting last week have just met expectations for 2011, and promised a slightly better 2012.

For his part, Chairman Ken Frazier -- at the Goldman Sachs unscripted event, in the first week of January 2012 -- suggested that 2012 would be a brighter year for Merck than 2011 was. Even so, I look for Mr. Frazier to tamp down expectations for the early part of 2012, at least until we get a sense of whether the nascent US recovery has legs, whether the euro crisis is pretty well on its way to ending, and whether the US Supreme Court upholds Mr. Obama's health care package, as an appropriate use of commerce clause, tax-levying and "necessary and proper" powers.

And so, I'd not look for any upside surprises near-term from Thursday's call.

Excellent Observation: From A Friend Of The Blog

2012-01-29T13:29:00.013-05:00

A close-follower of all things cholesterol management, Marilyn Mann (see her blog there), pointed out in my comment section that I missed an important sub-story this week, on the FDA-sanctioned label changes occasioned by the SHARP study. Whitehouse Station reported it as a net-positive, which I still think it is -- but there was no new indication for kidney disease sufferers. Here -- let's have Marilyn explain:

Marilyn Mann said. . . .

. . . .I was surprised that you didn't blog on the FDA's decision to turn down Merck's request for a new chronic kidney disease indication for Vytorin and for Zetia when prescribed with simvastatin.

The FDA did permit a revision to the Vytorin label (on pp. 27-28 of the label -- a large PDF file) that states the results of the SHARP trial, but without an indication, Merck won't be able to advertise the use of Vytorin for reducing the risk of cardiac events in CKD.

January 28, 2012 9:35 PM. . . .

Great point! My older background on the SHARP label application matters may be found here.

Merck's 2003 Medco Deal: Interesting (If Mistaken) "Short-Sighted" Divestiture Thesis

2012-01-27T09:42:00.024-05:00

While The Street's research (do go read it all -- beginning on page 3) is thoroughly-vetted, and well-sourced -- I don't buy the conclusion, primarily because the metrics examined, while accurately-reported, are. . . incomplete.

In short, I think Merck was right to divest Medco -- with my more complete explanation below the pull-quote:

. . . .It meant that by the time of the [Medco] spin, 63% of overall [Merck] revenue came from Medco. However, low Medco profit margins dragged on Merck's overall share pricess, leading to a radical shift in strategy.

After the spin, which gave shareholders one Medco share for every eight Merck shares, their stock prices and earnings abilities diverged. Medco's shares have gained over 500% since its Aug. 2003 initial public offering, while Merck's shares have fallen by nearly a quarter. As a result, even with Medco's subsequent stock gain, Merck shareholders have seen losses since the spin, when excluding dividend payments. . . .

Since the spin, Medco's sales are expected to have nearly doubled to $68.5 billion, while profits are expected to triple to $1.5 billion according to 2011 earnings estimates compiled by Bloomberg. Meanwhile, Merck sales have grown at the same rate, while profits have doubled, on the heels of big merger activity. . . .

[Then, for a variety of reasons,] Merck pulled the trigger on one of the biggest mergers in pharma history buying Schering-Plough for $41.3 billion in May 2009. . . .

However, with it came legal battles. In 2009, Merck and Schering-Plough settled a suit for cholesterol treatment Vytorin after allegations of withholding key clinical trial results. Merck also pleaded guilty to a criminal charge with the U.S. Department of Justice for its marketing of painkiller Vioxx before it was pulled in 2004.

In July 2011, Express Scripts announced a deal to buy Medco Health Solutions (MHS) for $29 billion in a deal to combine two of the largest pharmacy benefits managers in the U.S. However, the deal is facing antitrust scrutiny, which jeopardizes its outcome. . . .

All of the above is accurate, but the price performance disparity post-Merck's 2003 divestiture is, in my opinion, less a "short-sighted divestiture" example (the authors' thesis), and more a story about the overall decline of branded pharma margins, globally -- on the Merck side.

More directly, as the upper right graphic reminds us, and these stories (here, and here) document, the Medco relationship was fraught with conflicts of interest -- especially for a pure pharma with the visibility, scale and size of Merck. It ultimately put the company in the position of being a competitor to its customers. That will almost never work (longer term), and often leads to investigations, and scandals (as we've seen here).

A nice piece, just the same. Almost as if to undercut the authors' thesis, from their own concluding sentence on the topic (above), the ongoing anti-trust scrutiny of the pending Express Scripts/Medco tie-up would suggest that Merck was (again) right to hand this value package back to shareholders. Of course, "your mileage may vary" -- in fact, it probably does.

The Long-Delayed Daxas® News: Merck Drops EU And Canadian Rights

2012-01-26T22:56:00.015-05:00

As my erstwhile commenter once again notes, it wasn't likely to be a blockbuster for Whitehouse Station (as a legacy Schering-Plough candidate). . . but disappointing that UK's NICE doesn't see the cost/benefit for it, in any event.

So not one euro (or Canadian dollar) of net revenue -- from the rights to Daxas^® -- will ever reach the combined Merck bottom-line. Sigh. Here is a bit of an early January edition of the pharmaletter (do go read it all), on the topic:

. . . .Japan’s largest drugmaker, Takeda Pharmaceuticals says that it has reached a mutual agreement with US drug giant Merck & Co., which is known as MSD outside the USA and Canada, to terminate their co-promotion agreement for Daxas (roflumilast) in certain European countries and Canada as of December 31, 2011.

MSD will return the rights to Daxas, a once-daily tablet for patients with chronic obstructive pulmonary disease (COPD), to Takeda in all countries covered by the agreement. Under the terms of the original deal between Merck and then independent Swiss drugmaker Nycomed, Nycomed received an undisclosed upfront fee from Merck and became eligible for certain payments based on defined regulatory and commercialization milestones for Daxas. . . .

So it goes. [I am sorely tempted to say something about Ex-CEO Fred Hassan's non-discerning eye here, but I won't; you already know the drill if you've been following along these past few years.]

I'll try to keep these items more current, from here on. Apologies.

Will Supremes' Novartis Overtime Case Settlement Mean That New Merck Will Settle, Too?

2012-01-26T10:21:00.013-05:00

As Ed at Pharmalot reported earlier in the week, Novartis will pay $99 million to settle its long-running fight with sales reps -- over back overtime pay. Here's Ed, then -- on Novartis:

. . . .The move is significant because, until now, drugmakers have been fighting efforts by their current and former sales reps to win overtime pay. The topic has divided the courts and there have been so many conficting rulings that the US Supreme Court agreed last November to review the debate. A ruling is expected this summer. Ironically, the Supreme Court had earlier declined to review the decision in the Novartis case (here is the 2006 lawsuit filed by the Novartis reps).

At issue is whether sales reps are exempt from overtime provisions of the Fair Labor Standards Act. The FLSA overtime compensation requirement does not apply to employees who work as outside salespeople, but the law does require employers to pay overtime for hours worked beyond 40 hours a week, unless a FLSA exemption applies. . . .

Since the time of the original Schering-Plough complaints, Novartis, New Merck (the entity now responsible for the Schering-Plough overtime claims) and many other pharma concerns have restructured their sales reps' duties, hours and roles to bolster the case that at least the currently-serving US reps are not entitled to overtime. So, this would be only a "look-back" settlement (should it occur), not a "look forward" settlement amount.

Importantly, even at $150 million, would be decidedly immaterial to New Merck. I do think the $99 million Novartis legacy sales rep settlement suggests that many of these cases (including the legacy Schering-Plough ones) are ripe for any number of agreed settlements. And Chairman/CEO Frazier has shown he is looking to put past Schering-Plough troubles very-firmly in the rear-view mirror -- by settlements.

You read it here first, if it turns out this way, friends -- perhaps even as soon as the February 2, 2012 Merck year-end results earnings call.

Excellent Daxas® Follow-Up Analysis, From An Anonymous Commenter

2012-01-26T09:57:00.012-05:00

One of my favorite anonymous commenters offers us a great update -- and on a legacy Schering-Plough COPD candidate story that I completely missed. Of course, Pharmalot had it and I missed it there too. In any event, here it is:

. . . .I missed it too and was made aware of it today based on Pharmalot's news regarding the recent Daxas^® lack of approval in the UK.

Not a big player for Merck but I also noted that Merck has also taken their CXCR2 antagonist off their clinical pipeline chart (legacy S/P compound).

The only COPD drug left is the inhaled steroid/LABA (Dulera, Zenhale and Foradil). [Which is] just a retooling of the asthma medicine.

Interesting -- I wonder if they're giving up on COPD?

January 25, 2012 11:06 AM. . . .

While I doubt that Merck is giving up on COPD meds altogether, I do think this is quite a come-down from the COPD program's status at legacy Schering-Plough, as most recently outlined here in April of 2010. That former Merck Daxas^® distribution partner, Nycomed, is also where an ex-Schering-Plough GC has landed, as of November 2010 (see related graphic, at right -- I think Nycomed still handles Alvesco^® -- anyone know?).

Again -- thanks to our erstwhile readership, this place is always made a better (if opinionated) resource.

Merck's Dividend Is NOT At Risk: What Is Austin Smith Smoking? Oh. Right. He's A "Fool!"

2012-01-21T20:00:00.042-05:00

In a generally "clue-free" piece for the Motley Fool, one Mr. Austin Smith offers a headline today that blares "The Dow's Scariest Dividend?" -- and makes Merck Exhibit A.

That notion -- to coin a phrase -- is um. . . foolish. His argument, such as it is, is that Merck's earnings levels won't support the dividend payout, because the dividend is about 110 percent of Merck's trailing 12 months' GAAP net income. Of course, to get to GAAP net income, one must deduct even one-time, non-recurring, charges. Charges like transaction-driven (think Schering-Plough bust-up, here) intangibles-and-goodwill write-downs (entirely non-cash), and headcount reduction charges (only partially a cash charge). [The dividend-payment, of course, is a cash item -- so we need be primarily-concerned about Merck's ability to throw off cash here. And that ability seems safe, for now.] Indeed, last year, several one-time largely non-cash charges reduced GAAP net income below the dividend burden by about 10 percent.

Yawn.

What Mr. Smith also neglects to mention is that Merck is significantly under-levered (i.e., carries a lower debt burden), compared to what would be a truly risky dividend company. Merck's debt to equity is only 31 percent; its current ratio (coverage of its current debt) is over 2 to 1. Those are the most-relevant cash-deploying metrics. And these are generally solid, on a fundamental basis (as to dividend safety, at least). It is almost. . . boring. [I actually suspect that these pieces are largely auto-written, by a piece of software that simply churns through industry-groups, and looks for pre-set, brainless trip levels, on GAAP results -- then people like Mr. Smith review, edit and sign their name to them. Every so often, one sees one of these Fool pieces in other sectors -- usually just as clueless.]

In any event, here is a bit of Mr. Smith's poorly-researched take, from this morning:

. . . .The first thing that jumps out at me on this list is Merck. The company has a payout ratio of 111% and it's grown its payout ratio 70% over the past five years despite an 18% retraction in net income over the same period. This doesn't actually mean it grew its dividend, though. The biggest reason is that the company maintained a roughly $0.38 dividend for the past five years despite a decline in net income. Although it has an appealing 4.3% yield, I think it's fair to call it the shakiest dividend on the Dow. Its weak five-year performance isn't encouraging, either. . . .

For dividend investors eyeing the Dow right now, I'd steer clear of Merck. . . .

That's absurd. If you aren't too concerned about near term NYSE price appreciation, Merck will always throw off a solid dividend. That much is a near certainty.

As I say, this is simply a very poor piece of financial analysis pretending to be journalism. And I've made this observation before -- (about a year and a half ago). Merck is a safe, if unexciting dividend play, even in the now nearly unimaginable deflationary scenarios.

Let me say it one other way -- Merck's board would sooner think about an in-place, consensual bankruptcy reorg, before it would think about eliminating the dividend. There are a million other levers the board could pull, before it ever considered a dividend reduction. As a result of Merck's size and scale, the board would have tons of better options to right the ship -- even in a global depression; they'd be (how should I say this? um. . .) foolish to do otherwise.

Here endeth the lesson.

Whitehouse Station Proposes To Settle Canadian Vioxx® Cases

2012-01-19T19:20:00.011-05:00

Not terribly surprising -- it seems the Canadian Vioxx^® claims will likely settle shortly. It is consistent with the evolving approach under Chairman Frazier -- per Merck's presser, this evening:

. . . ."This agreement is structured to provide certainty and finality toward resolving Vioxx cases in Canada for a fixed amount," said Bruce N. Kuhlik, executive vice president and general counsel of Merck. "Under the agreement, there will be an orderly, documented and objective process to examine individual claims to determine qualification."

If the agreement is approved and specified conditions are met, Merck will pay a total amount of at least C$21,806,250 but not more than C$36,881,250. This would resolve all Vioxx certified class actions, putative class actions, other litigation and claims related to Vioxx in Canada.

The amount to be funded for Vioxx users in Canada will be between C$11,306,250 and $26,381,250 and will be determined by the final number of eligible claimants. Claims for myocardial infarction and sudden cardiac death will be evaluated on an individual basis by an independent administrator based on objective criteria related to various factors, including duration of Vioxx use, age and presence of risk factors. Individual awards for ischemic stroke claims will be a uniform amount not to exceed C$5,000. . . .

So -- looking pretty much like the evolving US approach -- in those later ENHANCE-era cases.

SOPA And PIPA: Crushed By The "Tubes" -- Yes Merck Schering-Plough, Your Corporate Logos Have Always Been Subject To "Fair Use" Rules

2012-01-19T09:08:00.020-05:00

I am fairly certain that, as most-recently drafted, both of these bills (SOPA, and PIPA -- see links in quoted text) would have ultimately been held unconstitutional insofar as they purported to prohibit citizens (i.e., natural persons -- especially those not deriving any profit therefrom) from making incidental use of a corporation's identity, marks, brands, logos or other intellectual property -- when factually criticizing them (especially for the purpose of accurately identifying the maker or owner), or commenting upon matters of public concern.

Clearly, that right belongs to the people -- in our first amendment jurisprudence. As you can see (with just a casual glance around the place), my commentary touches on matters of significant public concern, and in doing so, makes liberal use of carefully-modified -- but still plainly identifiable -- corporate identity intellectual property. That is plainly my first amendment right. Thus, for 24 hours through this morning, this site carried the masthead banner at right, in solidarity -- click to enlarge.

While I think the issue is largely decided, it is nice to know that no one will have to litigate the above issue, to establish this freeedom, for the rest of us -- after yesterday. Per The New York Times, this morning:

. . . .Wednesday [1.18.12], this formidable old guard was forced to make way for the new as Web powerhouses backed by Internet activists rallied opposition to the legislation through Internet blackouts and cascading criticism, sending an unmistakable message to lawmakers grappling with new media issues: Don’t mess with the Internet.

As a result, the legislative battle over two once-obscure bills to combat the piracy of American movies, music, books and writing on the World Wide Web may prove to be a turning point for the way business is done in Washington. It represented a moment when the new economy rose up against the old.. . . .

Legislation that just weeks ago had overwhelming bipartisan support and had provoked little scrutiny generated a grass-roots coalition on the left and the right. Wikipedia made its English-language content unavailable, replaced with a warning: “Right now, the U.S. Congress is considering legislation that could fatally damage the free and open Internet.” Visitors to Reddit found the site offline in protest. Google’s home page was scarred by a black swatch that covered the search engine’s label.

Phone calls and e-mail messages poured in to Congressional offices against the Stop Online Piracy Act in the House and the Protect I.P. Act in the Senate. One by one, prominent backers of the bills dropped off. . . .

One ancillary point I've not seen others make yet is this:

After Citizens United (the Super-PAC-enabling Supreme Court decision) was handed-down, and corporations were effectively handed affirmative, full-fledged first amendment political influencing rights, a logical and necessary implication will be that the same corporations must now also live by the limits of the first amendment jurisprudence, as well: these very-public "people" (business entities) must fairly be subject to commentary and criticism, even couched as fact rather than opinion -- without a right to complain at law -- except in the limited circumstance of "actual malice" falsity, or "reckless disregard" factual errors.

Buckle-up, and pucker-up, ole' Buttercup.

Mediation Scheduled -- In Cobb v. Merck, A Federal ENHANCE ERISA Suit

2012-01-18T09:58:00.021-05:00

It is becoming increasingly clear that New Merck no longer intends to fight it out (". . .until the last dog is hung"), as to these now nearly four-year old allegations.

All of the federal court proceedings have been temporarily stayed as of January 11, 2012, in Cobb v. Merck, et al., a federal ERISA would-be class action, to allow for a February 13, 2012 mediation session. Cobb is a case echoing the earlier Gradone v. Schering-Plough, et al. claims -- and thus pleading the ENHANCE disclosure delay facts, as ERISA violations. Cobb personally names Merck officers and directors as defendants (including Messrs. Clark, Kellogg and Frazier), while Gradone personally names legacy Schering-Plough ones, including Hassan, Bertolini, Cox, Sabatino and Becherer.

Recall that the legacy Schering-Plough version of this suit (Gradone), is now pending a final settlement order -- in fact, on January 13^th, Judge Cavanaugh signed an order granting another 60 days to finish the paperwork on that agreement in principle -- to settle the matter.

All of that said, I do think it a sign of emerging wisdom on Mr. Frazier's part -- that he no longer seeks to litigate these claims (recall his directly contrary stance, as General Counsel, on the Vioxx^® claims). First, in my estimation, there is arguable merit to each of them -- and second, even if one believes there is not -- it is high time to put the ENHANCE matter in Whitehouse Station's rear-view mirror, and permanently so. Little might be gained, even in a complete victory, here -- and each time a court date is scheduled, a rehash of the facts will likely run in the popular press. Just no longer worth it.

On an at least marginally-related note, Jami Rubin opined -- in the form of a leading question, to Ken Frazier, about ten days ago, at the Goldman conference -- that there could be no real stock upside to even a complete "win" in the IMPROVE-IT outcomes trial (see left side bar for background on that). While Mr. Frazier suggested that there might be some upside left, he also essentially conceded that anything short of a clear win would present new downside risk for the Vytorin^® franchise (now clocking about $3.8 billion in annual sales).

So it goes.

Goldman Keeps Merck At "Neutral", With Current NYSE-Quoted Prices Around $38

2012-01-17T09:51:00.009-05:00

Given that Chairman/CEO Frazier gave a very thoughtful, and yet candid presentation last week, it must be more than a little disappointing that Goldman kept its non-favored stance on the Whitehouse Station company:

. . . .Goldman, Sachs & Co. reiterates "Neutral" rating on Merck. . .

So it goes.

Merck Files Cain v. Hassan Settlement Notice With SEC

2012-01-13T20:39:00.010-05:00

Just as I said it would, tonight (dumped into the memory hole, after-hours on the beginning of a long King Day holiday weekend), Whitehouse Station filed the notice of settlement for Cain v. Hassan -- right here.

. . . .THE RIGHT TO APPEAR AND OBJECT

. . . .Any current New Merck shareholder who was a New Merck shareholder as of December 21, 2011 who objects to the Settlement, the judgment to be entered thereon, or the award of attorneys’ fees and expenses to Plaintiff’s Counsel, or who otherwise wishes to be heard, may appear in person or by his or her attorney at the Fairness Hearing and present any evidence or argument that may be proper and relevant, provided, however, that any shareholder who wishes to object or be heard must follow the following procedures: The shareholder must, by no later than February 8, 2012, file with the Court a written objection, stating all supporting bases and reasons for the objection, including the identification of all witnesses, documents or other evidence that are to be presented at the Fairness Hearing in connection with the objection and a summary of the substance of the testimony to be given by any such witnesses, and submit documentary evidence of the shareholder’s continuous ownership of New Merck common stock since December 21, 2011. This submission should be addressed as follows:

Clerk of the Court
United States District Court for the District of New Jersey
Martin Luther King, Jr. Federal Building and U.S. Courthouse
50 Walnut Street
Newark, New Jersey 07101. . . .

So it goes.

EXCLUSIVE: Court Sets Final Cain v. Hassan Settlement Hearing -- February 28, 2012

2012-01-11T09:42:00.018-05:00

The notices to all affected shareholders will be in the mail shortly; Merck will soon file an SEC Form 8-K (and post the notice on its external investor relations webpage). The deadline to file any objection in the New Jersey federal District courts is in the first week of February 2012 -- all according to an order signed by the very-able Judge Cavanaugh yesterday, and filed overnight in Newark.

So the shareholders' derivative suit is set to settle, in exchange for governance changes -- and $5.1 million in very well-earned plaintiffs' legal fees.

Still pending are several ENHANCE-era would-be federal class action securities suits, for monetary damages.

Not Much New -- From CEO Ken Frazier, At The JP Morgan Confab

2012-01-10T22:45:00.016-05:00

It was largely a rehash of all the same old Powerpoint slides -- save one (click to enlarge):

From his transcribed remarks (a PDF file), on this slide, then:

. . . .We've significantly decreased our field force in the US and in the European Union while, at the same time, rethinking what our sales representatives need to be doing for their customers.

At the same time, as you can see from this chart, we have sharply increased our investments in the emerging markets, especially in China where we've increased the size of our sales force 60% over the past few years. . . .

While the above looks backward, it certainly confirms what so many ex-Merckies felt most acutely, at Christmas this year: Merck was the "job cutting-est" major pharma, in 2011. This (touting the "savings" from job-cuts), coupled with this morning's off-the-cuff suggestion of looking to "buy" Hep C franchise leadership, could be some significant cause for concern.

As a general rule, very large multinational pharma concerns can neither "buy", nor "save" their way to long-term, sustainable greatness. No. . . they must invent it.

Merck Licensing Chief -- Off The Cuff, At JP Morgan Conference -- Too Optimistic, On Hep C Prospects?

2012-01-10T09:41:00.025-05:00

Roger Pomerantz, the guy in charge of in-licensing at Whitehouse Station, just told a Bloomberg reporter that he expects Merck will be a Hep C leader. And Merck's stock just opened -- up.

The wrinkle in the rosy statement is that Merck is still losing the current battle, at least 80%-20%, to the more effective Vertex treatment, anchored by its Incivek^® (see graphic, at right) combo-therapy. For what it's worth, here's the Bloomberg quote:

. . . ."Our goal is to be a leader in hepatitis C, and we will do what it takes to get there," Pomerantz said in an interview at the J.P. Morgan Healthcare Conference in San Francisco. "We would consider small deals to large deals, whatever is necessary to lead in hepatitis. . . ."

So Merck is clearly signaling that it might buy its way into a future leadership position. However, given the spate of recently very pricey Hep C candidate acquisitions, there is a reasonable probability Pomerantz will get caught. . . overpaying.

[Schering-Plough, anyone? Merck's Hep C treatment is anchored by a second-in-class legacy Schering-Plough candidate, boceprevir -- branded as Victrelis^®.

More to come, tonight, after CEO Frazier makes his formal JP Morgan presentation.] In any event, for at least the next three to four years, I think the lead is clearly Vertex's -- to lose. Again, it is my opinion that a price of $40 for Merck seems too high, given all that is presently known (and unknown).

Your mileage may vary. In fact, it probably does.

Merck Chairman & CEO Frazier -- At The JP Morgan-Chase Healthcare Conference

2012-01-10T00:27:00.012-05:00

He doesn't speak (at the Westin St. Francis, in San Francisco) until long after the markets close this afternoon, in New York, so don't expect any update here (should he say anything materially new and different), until pretty late this evening.

All of that said, if he does have some news, it will be right here. Alternatively, you may listen in, yourself, in real-time (after 6 pm EST, or 3 pm PST today), by simply supplying an email address to New Merck.

As If Dancing A Minuet, In Time -- Jefferies Drops Merck To "Hold". . .

2012-01-09T09:03:00.014-05:00

Ironic -- all I needed to do, to update my graphic of 15 months ago, now, was add one dollar to the target price -- since way back on September 16, 2010, Jefferies started Merck at "Hold", with a $39 price target.

I can't resist pointing out that on just this past Friday, I noted that Merck's NYSE price was approaching the post Schering-Plough apogee.

Coincidence? You decide.

Here is a bit of the latest Benzinga blurb -- do go read it all:

. . . .Jefferies & Co. has downgraded Merck & Co. from Buy to Hold. . . .

So it goes. It is, afterall, Merck's stock price that strikes the beat -- in 3/4^ths time.

UPDATED: Merck just announced that Kenneth C. Frazier, chairman and chief executive officer will present at the 30th Annual J.P. Morgan Healthcare Conference in San Francisco tomorrow (at 6:00 p.m. EST). Expect a re-tooling of his Goldman talk, of last week, i.e. ". . .Merck's 2012 will be better than its 2011 was."

Two Years Later, Merck's NYSE Share Price Approaches Immediate Post-Merger Euphoria

2012-01-06T10:00:00.010-05:00

The beginning of a new bull-run, or just a temporary (year-end bounce) high water mark? Who knows?

CEO Frazier says he expects 2012 will be better than 2011, but that doesn't imply a price above $40, in my estimation. So. . .

Will 2012 see an eclipse of the highest NYSE prices, set immediately post the Schering-Plough bust-up transaction? We shall see.

Merck Chairman Frazier, Live: On Legacy S-P Consumer Health And Animal Health Partnering Opportunities

2012-01-05T09:28:00.018-05:00

As predicted, Merck Chairman and CEO Ken Frazier didn't say much that was new on his webcast from Goldman Sachs' offices in Manhattan this morning, as his company is already in the self-imposed "quiet period", leading up to the annual earnings release, early next month.

That is to say -- on a nearly daily basis -- more and more 2011 financial reporting data (presently kept on a country by country, and business by business basis) is being aggregated from around the globe, and loaded into a set of consolidated financial statements, in Whitehouse Station. And so, with each passing day, the risk increases that anything the CEO might say, related to a financial matter might prove to be wrong, as the actual data rolls in, and is rolled up.

So, not much was said (of a "ground-breaking news" nature).

Evan so, toward the end of the webcast, Mr. Frazier did reiterate his support for the legacy Schering-Plough consumer health and animal health businesses, but took pains to mention the differing path Pfizer has taken related to Animal Health. . . and then repeat forcefully that he has a duty to look at partnering and other opportunities -- for consumer health and animal health, "on an ongoing basis," thus:

. . . .I will continue to look at [other opportunities to partner, or unlock value in] the Consumer Health and Animal Health businesses at Merck, given Pfizer's [prior decisions, and announcements]. . . .

Again, not new -- just an amplificaiton of statements last clearly made when the complex series of Merial-Sanofi joint-venture divestiture then re-acquisition deals cratered, primarily on US and EU antitrust concerns. There you have it.

Merck Chairman And CEO To Present At Goldman, Sachs Tomorrow Morning

2012-01-04T09:17:00.011-05:00

I don't really expect that he'll say much of materially-new substance (with Merck's regular year end earnings announcement just a little less than a month off), but I'll likely listen in, just the same.

From the presser, of last month -- you can go to Merck's investor relations page and listen to the webcast tomorrow morning at around 8:30 EST, to log in and listen for yourself:

. . . .Kenneth C. Frazier, Merck's chairman and chief executive officer is scheduled to speak at the Goldman Sachs' Healthcare CEO's Unscripted: A View from the Top event in New York Jan. 5, at 8:45 a.m. EDT. Investors, analysts, members of the media and the general public are invited to listen to a live audio webcast. . . .

We will report anything worthy of note -- perhaps he'll have a short update, on the proposed Cain v. Hassan settlement.

Of The "Liars' Discount" -- And The Settlement Value, In Merck's Cain v. Hassan Case

2012-01-02T11:50:00.031-05:00

About three years ago, the expert whose opinions accompany the proposed Cain v. Hassan, et al. settlement co-authored a very highly regarded law review article. The article, as it happens, was all about assessing whether the merits matter, in securities class action settlements.

The view that they do not lead in large part to the PSLRA (a retrenching of civil securities class action rules), which made bringing such cases more difficult. In the invervening years, that view has been essentially discredited by some pretty persuasive empirical evidence, and Sarbanes-Oxley, and more recently, Dodd-Frank represent (in part) the "returning swing" of the legislative pendulum.

Back to the central part of our narrative, though now. The expert, in his 2009-era law review article, speaks of the rough algorithm used (by both plaintiffs' lawyers, and D&O insurance claims staff) to assess the probable range of settlement values, in any given securities case.

Strictly speaking, this analysis applies more to the monetary damages cases that remain pending against New Merck, as the continuing party from the Merck/Schering-Plough merger. Remember here that Cain v. Hassan is more of a governance reform, not damages, case. So this bit of analysis will be most useful in assessing the fairness of the presumably coming settlements of Manson v. Schering-Plough, and the like.

Just the same, the expert estimates that the ENHANCE-delay loss -- to New Merck/legacy Schering-Plough shareholders, in a "plaintiffs' style" calculation -- was about $7.5 billion (an NYSE market-price-drop calculation, times the outstanding shares).

He tells us -- quite reliably, in my experience -- that the D&O insurers then take this market-drop number, and determine that only 2 percent to 6 percent of that is directly attributable to the (alleged) "lying" of senior management.

Said another way, the insurers expect that there is only an around 5 percent chance that the $7.5 billion would be awarded by a jury. The expert, in his law review article, quotes an insurer (anonymously, for obvious reasons), thus -- particularly apt, as it refers to another pharma securities fraud case:

. . . .Pfizer has — I’m talking off the top of my head — 3 billion shares outstanding, and the stock went down 10 bucks. That’s $30 billion of damages. 5% of that is $1.5 billion. Settlement.

And you go to a judge and say, “The damages are $30 billion. We are proposing a settlement that is 5%. How can you say that is unreasonable?” And we say, “It’s unreasonable because it doesn’t reflect the liability,” and they say, “Sure it does. It’s 5% of the total, but it could happen. So it is 5-to-95 chance to win. Yes, it’s a perfect discount. . . .”

And so sometimes the numbers will in and of themselves take over, and I have that on a number of the pharmaceutical companies or large, large, jumbo-cap companies. I have it with General Motors, General Electric. The stock ticks down $2, which isn’t enormous. It’s not a free fall[. It’s] based on some news that might be innocuous, and it’s enough because that creates a damage pool that is into the billions which immediately gets the plaintiffs’ lawyers out because there [are] damages, and the case has value irrespective of the merits. . . .

If you look at the numbers, the settlement compared to the damages, you are talking anywhere from 2% to 6% of [plaintiffs’-style damages]. . . .

So, applying this to the ENHANCE facts, at legacy Schering-Plough/New Merck, we multiply $7.5 billion times 2 percent to get $150 million. If it is 6 percent, we'd yield a settlement value of $450 million. So something between $200 million, and $500 million, is the likely rough value of the cases still pending, for damages -- according to the parties' own jointly selected settlement defense expert. And that's before approaching the involved lead underwriters, in the Schering-Plough convertible securities offerings, back in August of 2007 (some $4 billion worth, in the aggregate).

Are you paying attention, here, Fred Hassan? This is what poor management and lax oversight costs a company, and its owners.

One Expert's Opinion -- On The Cain v. Hassan Governance Reforms

2012-01-02T00:33:00.015-05:00

The Fordham Law professor whose opinion is made a part of the settlement proposal (I first mentioned last week) in Cain v. Hassan, et al., had this to say about what the MRL direct reporting -- to a committee of the Merck board would mean (from page 7 of his opinion, as filed with the court):

. . . .ensure that the most important information is relayed upward without burdening the Comapny wiht excessive bureaucracy. . . .

We will have to see -- if and when approved by the federal District Court in New Jersey -- whether it will be effective in practice, but I am fairly hopeful that it will be a meaningful change, while not slowing the progress of innovation at the company.

Daktari Secures $10 Million From Merck Fund -- For Developing-World HIV Diagnostic Test

2012-01-01T14:08:00.019-05:00

Showing an admirably-keen interest in more than just the post-industrial world markets, Merck Global Health Innovation Fund recently staked $10 million on a Boston area HIV diagnostic equipment maker. The novel concept of this HIV diagnostic kit is that it will work (it is said) in less-than pristine, optimal (high-end laboratory or clinical) conditions. In other words, it will work in rooms with little better than dirt floors. And that, frankly, is where the majority of the developig world still receives primary health-care services.

Using recent scientific innovations, including lysate impedance spectroscopy, the new device uses a simple sensor that counts the captured CD4 cells by measuring their internal contents electrically, unencumbered by the lenses, cameras, filters or complex optics needed in prior-generation machines. A handheld instrument interprets the electrical signal, and reports the CD4 count within minutes. Definitive diagnosis, without the sterile lab conditions. From the Daktari presser, then:

. . . .Daktari Diagnostics Inc., a developer of point-of-care diagnostic systems for global health applications, announces that it has secured $10 million in a staged financing round from a syndicate of private and venture investors. Merck Global Health Innovation Fund led the round, joined by the company’s current investor group, led by Norwich Ventures and the Partners Innovation Fund. . . .

The Daktari diagnostic system is designed to analyze small volumes of blood or other fluids, for use in any type of health care setting. The technology was initially developed at Massachusetts General Hospital in Boston. . . .

We will keep an eye on the investment's progress -- and that makes two recent non-drug (i.e., device) inestments.

Proposed Cain v. Hassan Settlement Terms: Governance Changes, and $5 Million In Legal Fees, To Plaintiffs' Law Firms?

2011-12-29T18:50:00.031-05:00

I'll confess that I've been sitting on this (a 19 page PDF file) one for a bit, as I reviewed the proposed settlement documents, thus far filed (last updated by the court clerk, electronically, as of December 21, 2011), in the federal District courthouse, in Newark, New Jersey.

Regular readers will recall that we've repeatedly reported, since mid-October 2011, that it seemed there was a deal in the works, though the Merck third quarter 2011 SEC Form 10-Q provided no details as to terms.

Well, now we have at least the proposed terms -- as submitted to Judge Cavanaugh -- for preliminary approval. The deal may still be scuttled, as "not enough" in recovery for the shareholders, or for "too much," for the plaintiffs' lawyers. In any event, the proposed terms, in large part, contemplate a new board committee -- each member independent of management, each with relevant life-science, and clinical trial, experience, being interposed between the science staff, and the executive management team -- to evaluate the timeliness of completion of each study, and promptly drive the full public disclosure of all clinical trial results registered by Merck (with clinicaltrials.gov).

Just such a delay -- related to the ENHANCE results -- was almost certainly the but-for cause of the between $13 and $5 per share loss that various shareholders suffered (and closer to $20 per share, if one measures from the last public underwritten stock sale -- at $32.50).

So -- on balance, after much thought, over the holidays -- and given that the securities class actions (for money damages) are still pending, and being contested -- I'd say the terms are fair to the aggrieved shareholders. This is so, even though the settlement only covers clinical trials for products already on the market in the US -- as those kinds of trials are most likely to most directly impact New Merck NYSE stock trading prices.

Not rich, by any means -- and certainly, the plaintiffs' lawyers have earned their $5 million in fees -- but probably fair. Here's a bit of the proposed notice:

. . . .In the settlement, New Merck agreed to make the following corporate governance change: Once a year, Merck Research Laboratories will provide a report to the Research Committee of the New Merck Board of Directors concerning any Covered Clinical Trial with Delayed Results (as defined below), including the reasons for the delay in the reporting of the results and any corrective action taken. New Merck agreed to retain this change to corporate governance for at least three (3) years, unless a majority of the independent directors, upon notification to shareholders, deem the change to no longer be in the best interest of the Company as a result of changed circumstances. . . .

"Covered Clinical Trial with Delayed Results" means any New Merck-sponsored clinical trial of marketed products in the United States for which New Merck is required to register and post results under the Food and Drug Administration Amendments Act of 2007 (“FDAAA”), where the Basic Results of the trial have not been submitted for publication or to clinicaltrials.gov within twelve (12) months of the Completion Date. “Basic Results” means the summary results information required to be reported on clinicaltrials.gov (a service of the U.S. National Institutes of Health) pursuant to Section 801 of the Food and Drug Administration Amendments Act (Sept. 27, 2007). “Completion Date” means the date that the final subject of a clinical trial was examined or received an intervention for the purposes of final collection of data for the primary outcome, whether the clinical trial concluded according to the prespecified protocol or was terminated. . . .

Yes -- I think, had this provision existed during Fred Hassan's tenure, it is likely that the 16 month delay would have been significantly shortened, due to the pressure of having to specifically explain to science savvy board-members any non-routine delays.

Finally, as a technical matter, because this was a shareholders' derivative suit, brought on behalf of the corporation itself, by the shareholders of the corporation, it was always less likely to result in monetary recoveries (and the performance-related remedies, of kicking Hassan et al., out -- were mooted by the closing of the bust-up, on the morning of November 3, 2009).

[A post script note: the new by-law provisions -- effective January 1, 2012 -- will insulate these science/research committee directors, from just about all liability, for good-faith, but wrong, decisions, while sitting on the committee.]

Merck Fund Leads $30 Million Venture Round -- In Aviir, A Cardiac Risk Tool Company

2011-12-28T23:51:00.010-05:00

Merck's Global Health Innovation Fund will invest (along with others), contingent (in part) on milestone acheivments, up to $30 million in Aviir, an Orange County, California company founded on research conducted up in Palo Alto, at Stanford. Here's a bit from a local paper:

. . . .Aviir, which was founded in 2005, has already received $10 million and could receive another $20 million if it meets certain milestones. Merck Global Health Innovation Fund led the round, which included existing investors Bay City Capital, Aberdare Ventures and New Leaf Venture Partners.

Aviir CEO Douglas Harrington said, "Most people believe that narrowing arteries cause heart attacks, but the truth is that more than 70% of heart attacks are caused by a blood clot in the artery resulting from rupture of unstable plaque, which stops blood flow to the heart. And, while cholesterol is implicated in the development of unstable plaque, more than 50% of people who have a heart attack have normal cholesterol levels. . . ."

We'll keep an eye on this one -- for the readership, but it is true that early detection is literally half the battle in fighting heart disease. So, this might well prove to be a prescient bet, by the team led by CEO Frazier.

An Undue Reticence To Cut Peers' Heads; Great Ease With Cutting Subordinates': That Defines Fred Hassan

2011-12-26T10:59:00.022-05:00

In his role as lead director of the Avon board -- and quite appropriatley, in my view -- Fred Hassan has come under very-significant fire, for setting up an arguably-flawed succession plan at Avon, now that CEO Jung is on her way out (per a December board decision).

The crux of Fred's problem (according to CEOs who spoke on the record to The Wall Street Jounral [$$$], here) appears to be too much loyalty to a woman executive he regards as a peer (hmmmm. . . think Carrie Cox, here), allowing her to essentially set the terms of her own departure. This will make it much tougher (the argument runs) to get a truly first rate new CEO -- as many of the best won't want to have to assauge the feelings (or worse, kow-tow to) the now ex-CEO -- sitting in a non-executive chairman's role -- for almost two years.

In short, Fred has been too protective of his fellow-executives' predilections, and too-quick to slash the jobs of his subordinates -- by the high-multiple tens of thousands, over the last decade [at AHP, Pharmacia, then Schering-Plough].

If nothing else, it is extremely unusual to see other Fortune 200 CEOs willing to go on the record, and in writing, to criticize lead director Hassan's strategy -- all at a company in which only a few of them still hold shares. One could more readily understand it -- as simple sour grapes -- if (for example) it were Mr. Buffett criticizing moves that hurt one of his investments. But this is different, and deadly, to Fred Hassan's reputation among his peers -- in my eye. Take a look, but do go read it all:

. . . .Former Avon CEO James Preston, once one of Ms. Jung's closest mentors, took the unusual step of writing a letter to the board two days after the shake-up. He criticized Ms. Jung's leadership, stressed that departing CEOs should step aside and called on the board to replace her with someone with deep experience in the direct-selling world. . . "I have long held the belief that once a CEO leaves that position, he or she should make a 'clean break' and not question or second-guess the actions of his successor. . . ."

Fred Hassan. . . defended having Ms. Jung remain executive chairman for two years after the new CEO arrives. "Given the specific nature of the company and the specific nature of the board, we have very strong confidence that we can make this transition work. . . ."

David Mitchell, Avon's chief executive from 1975 to 1983 and a current shareholder, said in an interview he was particularly perturbed over Ms. Jung's desire to stay for so long. Mr. Mitchell remained on Avon's board for a short time after leaving his post in 1983. He said he has met Ms. Jung only a handful of times.

He called the split CEO-chairman structure "a stupid arrangement" that will make the board's search for a quality successor nearly impossible. . . .

Ms. Jung doesn't plan to cede much power.

"I am not going anywhere," Ms. Jung wrote in an internal memo, reviewed by The Wall Street Journal, last week to all U.S. employees and global managers. "I will remain very close to the business, defining the company's strategy and brand positioning."

As executive chairman, she will earn a $1 million salary, a maximum annual bonus of $1 million and long-term incentives valued at as much as $4 million a year. . . .

Maybe the worm has finally turned -- and fellow CEOs are seeing Fred Hassan for who he is -- someone who appears to manage "up, and sideways" very well (telling everyone at his level, or above, exactly what they want to hear -- but doing none of it) -- while entirely failing to manage "down".

Time will tell.

Merck Is 2011's "Job-Cuttingest" Pharma Company: 13,000 In 2011 Alone

2011-12-23T09:11:00.020-05:00

And that follows some 25,000 to 30,000, over the last three years (between the now-combined companies).

So -- it is probably appropriate that this run as a latter-day Bob Cratchit story (for those that remain, at least), and right before the Ghost of Christmas to Come appears (for those that have departed).

Most of the layoffs announced in May 2011 actually occured in October of this year. Still, it makes for a tough holiday for those 13,000. Our thoughts are with them -- as we've "once been there"; all we can say is that "it will get better." In time. So try to be of good cheer -- being down about it won't change it. That much is certain.

This, is a bit from the FiercePharma story, this morning -- do go read it all:

. . . .Perhaps the most persistent trend in the drug business is one management would prefer to discuss only with analysts, and certainly not with the rank-and-file. Once again, a laundry list of pharma companies are laying off workers by the thousands. Companies. . . [including] Merck, which in May announced plans to cut up to 13,000 jobs.

Before Merck revealed its latest cost-cutting plans, it looked as if 2011 might be a relatively blood-free year. And it's true the numbers don't approach the layoffs announced in 2009, when Pfizer merged with Wyeth and Merck with Schering-Plough -- and both mega-mergers resulted in mega-job cuts. . . .

But saying it isn't as bad as 2009, is really cold comfort. And for that, I am truly sorry -- but it does need to be marked. Merck was the layoff champion in pharma, in 2011. In many ways, though, all current CEO Frazier was doing was cleaning up the mess Ex-Schering-Plough CEO Fred Hassan left him, as a coal-bin to ashes legacy. Unfortunate. So Hassan's Fortune "accolade", from last year, runs here -- at right.

Merck Adopts "Irrevocable" Retroactive Indemnity For Os And Ds -- Now Including Legislative Investigations, As Well As Litigation

2011-12-22T09:43:00.023-05:00

Last night, Whitehouse Station quietly amended its corporate by-laws (to take effect January 1, 2012), to take advantage of some changing (i.e., liberalized) aspects of New Jersey corporate law (as compared to current provisions of Delaware corporate law). The changes are filed with the SEC here, as required by law. The most salient clauses are bolded:

. . . .Subject to the terms and conditions of this Article V, each former, present or future Director, officer or employee of the Company or of any of the Company’s subsidiaries or the respective legal representatives of such individuals (each an “Indemnitee”) shall be indemnified by the Company, to the fullest extent permitted by the laws of the State of New Jersey as they exist as of the date hereof or as they may hereafter be amended, from and against any and all liabilities and expenses in connection with any civil, criminal, administrative, legislative, or arbitrative action, suit or other proceeding (each a “Proceeding”), or any inquiry or investigation that could lead to any such Proceeding or any appeal therein in which he or she is or was involved, or is or was threatened to become involved, by reason of being or having been a corporate agent; provided that in connection with any Proceeding by or in the right of the Company, no indemnification shall be provided as to any person adjudged by any court to be liable to the Company except as and to the extent determined by such court; and provided, further, that any indemnification pursuant to this Section 1(a) in connection with the settlement or other similar nonadjudicative disposition of any threatened or pending Proceeding shall only be granted to the extent permitted by law. . . .

[All new:] No Retroactive Repeal or Amendment. No amendment or repeal of this Article V, nor the adoption of any provision of the Certificate of Incorporation or these By-Laws inconsistent with this Article V, shall deprive any corporate agent of any rights under this Article V with respect to any act or omission of such corporate agent occurring prior to such amendment or repeal of this Article V or the adoption of such inconsistent provision. . . .

Remember that this provision grants Fred Hassan, Carrie Cox and the lot of former Schering-Plough officers and directors non-repealable new rights to reimbursment -- in all the ENHANCE matters, by way of example. Anything spent defending Senator Grassley's ENHANCE investigation (i.e., the Covington & Burling bills, for example), is now to be reimbursable from "New" Merck's corporate coffers. [There were two Congressional investigations, at the time, just to be clear.]

This Merck is, after all, the same entity that was once legacy Schering-Plough. Cozy. I don't think the change is primarily intended to benefit the Ex-Schering-Plough Ds & Os, but it clearly does just that.

More broadly, the narrative surrounding this change in law is part of what has been called "the race to the bottom", between Nevada, Delaware and New Jersey -- ostensibly to keep or retain corporate franchise tax rolls, in each state. And for my part, I don't see how the change is helpful to any affected shareholder. [~~Later, I'll~~ I've attached a PDF markup of the changes to Merck's Article V, here.]

Legacy Schering-Plough Company Incurs Largest "Single-Case" Medi-Fraud Fine In Massachusetts History

2011-12-21T12:33:00.020-05:00

And so, the legacy albuterol matter ends (in Massachusetts, at least -- but Wisconsin, and other states still retain their individual claims, here), leaving Ken Frazier holding yet another bad I.O.U. note, from Fred Hassan and crew. His band of merry elves (payout artists) escaped with some $400 to $500 million in change of control and separation benefits, as the top six busted up Schering-Plough, and sold it off (essentially in pieces) to Whitehouse Station, in Novemeber of 2009.

From this morning's online version of the Boston Globe, called Boston.com (with a gracious hat tip, to Ed, at Pharmalot), here's a bit:

. . . .Massachusetts recovers $24 million from Merck, in its largest Medicaid fraud settlement ever. . . .

The state previously recovered a total of $23.4 million from the other 12 companies involved, but Merck, the nation’s second-largest drug maker, appealed a US District Court ruling last year in favor of the state. Its decision to settle brings the entire case to a close. . . . The state could have accepted $1.5 million to $2 million two years ago as part of a settlement of a related federal case against Merck, but it chose to press its own case against the Whitehouse Station, N.J., company. . . . Initially, the suit named Warrick Pharmaceuticals Corp., a generic drug unit of the former Schering-Plough Corp.; it was bought by Merck for $41 billion in 2009. . . .

Since 2007, the attorney general’s office has returned more than $210 million to the state Medicaid program through fraud settlements. . . .

Yet another parting "White Elephant failed-bust-up gift", courtesy of that impish elf, and Ex-CEO, Fast Freddy Hassan. Sheesh. [Remember here that Hassan and Co. had proposed a highly structured animal health deal that ultimately had to be unwound, in early 2011 -- as it was almost universally found to be too likely to violate relevant US and EU antitrust laws.] Where were we? Oh yes.

Still it is true (on the main topic) that, at one point, the Massachusetts AG thought it could recover up to $250 million from Merck, for this (alleged) Warrick malfeasance. So, this isn't the top of the range, in settlement, by any means.

Good News! Zostavax® Status Update: Merck Has Finally Cleared All Backorders

2011-12-17T09:57:00.016-05:00

Last night, Merck updated its online "Vaccine Supply Status" page -- it seems that all the kinks in the live herpes zoster vaccine production facilities have been solved, and all back orders are being filled, in nearly real time, now (click to see full-size image of relevant page at right -- salmon-colored matter is new):

. . . .All backorders have shipped. Zostavax^®, 1 single-dose 0.65 mL vials have resumed standard shipping. . . .

Orders through 12/09/11 have shipped. Order Date: Estimated Delivery:

12/10/11 - 12/16/11 12/21/11
12/17/11 - 12/26/11 12/28/11

For orders 12/27/11 or later, Zostavax^®, 10 single-dose 0.65 mL vials will resume standard shipping. . . .

This is clearly good news. Still, it points to just how complicated vaccine manufacturing is -- as a uniquely biological process. It is not a simple powder-pill stamping endeavor, by any means. It is not even cooking a perfect soufflé -- it is far more difficult than that. And it has to be done by the hundred of thousands of doses, in a batch. Daunting bio-science, that.

This vaccine has faced manufacturing issues, and resulting short supplies, for almost two and one half years, straight. Still, good to see Merck get the process worked out, and back online, in scale. My hat's off -- 'ere's to 'em.

Ex-Merck Guy To Clear Path, For Ex-Abbott Guy -- At Vertex

2011-12-16T16:11:00.012-05:00

This is a much tighter circle than the first-glance "six degrees of Kevin Bacon" usual game might otherwise suggest, here -- especially given that Vertex's closest current competitor is Merck itself (well, okay -- technically, it's legacy Schering-Plough, but you know what I mean). [See, Incivek^® posts here.]

Here is more, per this morning's Boston Herald -- do go read it all, there -- this is a bit of it:

. . . .The front-office shuffle comes as the Cambridge-based company — now building a massive new waterfront headquarters in Boston’s Seaport District — prepares to bring its second drug to market. The Food and Drug Administration has agreed to expedite its review of the first potential treatment targeting the underlying cause of cystic fibrosis.

A board member since 2009, Leiden is a managing director at Clarus Ventures in Cambridge. He previously was president of Abbott Laboratories and has experience as a practicing cardiologist. . . .

Indeed. I still think Vertex has been oversold by Wall Street -- it has a clear path (leading the Hep C next-gen state of the art) until at least 2015, in my estimation.

Chairman and CEO Frazier -- WSJ Video: Vioxx® "Like Penn State's Sandusky Matter"?

2011-12-13T16:29:00.015-05:00

We all by now know that Merck Chairman and CEO Ken Frazier is leading the oversight of the investigation into "who knew what, and when?" -- at Penn State. Even so, this is pretty bold -- from this morning's Wall Street Journal breakfast -- do watch the middle portion (about two minutes in):

Per Mr. Frazier, this morning:

. . . .This does not define the institution [Penn State]. . . so, too with Merck -- Vioxx^® did not define us. . . .

Without knowing all the Sandusky facts (and given that he waived a preliminary hearing this morning), I'd be very careful about equating these two -- in any fashion (even along the Frazier-suggested lines). There can be no way to know whether the Sandusky matter will be more devastating to Penn State than Vioxx was -- to Merck. Time will tell, but this really caught me off guard.

Legacy Schering-Plough's Iconic Coppertone Sign: To Be Funded By Merck

2011-12-12T09:30:00.008-05:00

I note -- with a smile -- this "HuffPo" article, which largely reprints an earlier local Miami Herald story I read on the topic:

. . . .Pharmaceutical company Merck will fund maintenance of the Little Miss Coppertone sign, according to the Miami Herald. For the next five years, the parent company of Coppertone will donate $1,800 to cover insurance costs and any repair of the iconic billboard, which now sits at 73rd Street and Biscayne Boulevard. It was designated a historic landmark in 2008.

The pig-tailed tiny sunbather, with her backside partially revealed by a playful dog tugging at her bathing suit, was created in 1959 by pin-up artist Joyce Brand (nee Ballantyne). The same year, the ad became a 35-foot billboard on the side of the Parkleigh Building near the Freedom Tower on Biscayne Boulevard. . . . Little Miss Coppertone defined the Miami skyline for the next 30 years. . . .

Fascinating. [The graphic at right also commemorates the three year long battle Coppertone waged against J&J's Neutrogena -- about the relative veracity of SPF claims each made, in FTC regulated advertising in the USA.]

Credit Suisse Lowers Its Merck 2012 EPS Estimates; Keeps $44 Target

2011-12-08T09:28:00.018-05:00

The notion that Credit Suisse is still holding on to this relatively high price target (in light of looming patent cliffs, a thin pipeline and a still-very-tough global economy) might be hard to figure. It might be hard to figure, if we hadn't looked at the two recent allocations of Merck's December 7, 2010 debt offering, and (even more impressively, its) 2009 debt offering business -- these are very high margin, easy chunks of substantial business -- for the securities underwriting side of the Credit Suisse sprawling investment house.

And so, Credit Suisse has a note out, on Merck, and tersely summarized in Divdend Stocks this morning, thus:

Pharmaceuticals giant Merck & Co., Inc. on Thursday saw its earnings estimates lowered by analysts at Credit Suisse.

The firm said it cut its estimates for Merk through 2013, noting that AstraZeneca plc will likely exercise its call option on heartburn drugs Nexium and Prilosec. Under a previous agreement between the two drug giants, AstraZeneca retains the right to repurchase Merck’s interests in Prilosec and Nexium in the U.S. in 2012. . . .

But still Credit Suisse holds $44 as the Merck NYSE price target. I think a more realistic 12 month target (even in a recovering global economy) is closer to $38. Having said all of that, I still believe Credit Suisse's analysts have complied with their (rather meager) "honest opinion" duties, under SEC Reg AC.

As ever, we shall see.

From Pharma, To Gorilla Glass, I Guess: Mr. Clark Joins Corning Board

2011-12-07T00:01:00.011-05:00

I think Corning -- the maker of Gorilla Glass -- has done well for its shareholders, here. Mr. Clark is a fine executive, and will bring world-class manufacturing/operational insights to the Corning board. After all, chemicals and pharmaceuticals aren't even second cousins -- they're first cousins. From the Corning press release of this evening, then:

. . . .Corning Incorporated today appointed Richard T. Clark, retired chairman and chief executive officer of Merck, to Corning’s board of directors, effective immediately. . . .

He is a director of Automatic Data Processing, Inc. (ADP) and serves on the advisory board of American Securities. He is a trustee of PENN Medicine, which includes the University of Pennsylvania School of Medicine and the University of Pennsylvania Health System. Clark is chairman of the board for Project Hope, a global health education and humanitarian assistance organization. Clark serves as a trustee of Washington & Jefferson College and as a member of several other business, policy, and charitable organizations. . . .

Mr. Clark will serve on the Corning Board's Audit Committee, and its Compensation Committee. So, not such a quiet retirement, after all.

Merck To Put A Lot Of Meat On The Bones: $1.5 Billion China Investment

2011-12-06T09:09:00.011-05:00

I simply have to note that -- at least for the near term (the next seven to ten years) -- Merck's investment spend in China will likely exceed its return (in domestic Chinese net profits on its sales revenue), but the higher-end health care consumption market emerging there is simply so large, that Merck cannot afford not to make these investments. So it has plunked down $1.5 billion, to build an R&D complex there.

From Merck's press release of this morning, a bit:

. . . .Merck. . . known as MSD outside the United States and Canada, today announced the establishment of an Asia Research & Development (R&D) headquarters for innovative drug discovery and development located in Beijing, China. The new facility is part of a $1.5 billion commitment the company has made to invest in R&D in China over the next five years. . . .

Located in Wangjing Park, one of Beijing's rapidly expanding science and technology parks, the facility will consist of 47,000 square meters of office and laboratory space. The first phase of construction, scheduled to be completed by 2014, will provide capacity for approximately 600 employees working in the areas of drug discovery, translational research, clinical development, regulatory affairs and external scientific research programs. . . .

That's about $300 million per year for the next five years. To be clear, I am not being critical -- this is a smart Whitehouse Station strategy, primarily because it is likely the only way to really establish a sustainable selling effort in China: one must invest in China -- put down planted roots -- to grow in China, given that the state still owns (and/or largely influences) all of the significant health care expenditures made there.