Merck as comeback kid? Wall Street reacts
A greater emphasis on technology to cut drug development times and a focus on under-treated diseases are key components of Merck's comeback plan unveiled earlier this week, but some Wall Street analysts seem guarded about the company's aggressive optimism for the future.
The embattled company's comeback strategy features key pipeline products like cervical-cancer vaccine Gardasil, shingles vaccine Zostavax and Type 2 diabetes drug Januvia -- all of which the firm is banking on to reclaim its glory days at the pinnacle of Big Pharma.
Merck's new CEO Dick Clark said at an investor meeting this week that the plan was aimed at reducing Merck's spending per brand by 15 to 20 percent; spurring 4 percent to 6 percent adjusted revenue growth; and catapulting its earnings growth back into the double digits over the next three to five years.
Merck also said it would use technology to trim nine months from in late-stage drug development times by 2007.
While market analysts were generally skeptical whether the plan was the right antidote to Merck's Vioxx woes, some seemed to feel that Merck -- faced with nearly 7,000 lawsuits related to the fallen blockbuster drug -- has nowhere to go but up.
"While we agree that management's growth forecasts seem ambitious, expectations for Merck are so low that, even if its targets fall short, the stock could still handsomely outperform," said Morgan Stanley market analysts Jami Rubin, Nancy Yu and Carlos Garcia-Tunon in a note issued this week. Commenting on Merck's strategy, the analysts said, "To call the plan aggressive is an understatement, given that it implies 2010 (earnings per share) of $4.00 to $4.20, while consensus expectations prior to (Merck's investor meeting) suggest a 2010 forecast range of $2.60 to $2.90."
While the analysts said parts of Merck's plan could merit a raised earnings estimate, they stressed that they "will not give Merck the full benefit of the doubt from day one, particularly on the revenue front, given the development, regulatory, and commercial risks."
However, Morgan Stanley seemed encouraged by Merck's news that it has three new products advancing to Phase 3 clinical trials -- including drugs to treat diabetes, heart disease and AIDS -- and by Merck's stated plans to trim $1 billion from its SGA budget.
"We believe it will take some time for the consensus to embrace Merck's view of the next five years, but (we) view many elements of management's target as credible," the analysts said.
As Merck -- which not so long ago was at home on the Fortune 500's "Most Admired Companies" list -- struggles to reclaim its place at the top, what about its Albatross pain reliever?
Some experts think Vioxx could stage a comeback of its own.
Gregory K. Frykman, senior policy analyst at the Stanford-Washington Research Group and former medical reviewer at the Food and Drug Administration, wouldn't rule out the possibility. "Vioxx is, in my view, being substantially over-criticized. Yes, it's got its problems, but it's been vilified, and it's not worse than the other stuff out there," he told United Press International.
Frykman predicted that the Pfizer-funded study of the company's arthritis drug Celebrex -- the only Cox 2 inhibitor drug still on the market -- Vioxx and other pain relievers, which he estimated would take about two years to complete, would resolve the Cox 2 puzzle "once and for all."
Frykman also forecast that Vioxx would likely emerge from the study looking not much worse than the pain reliever ibuprofen in terms of risks.
"I think there is no unreachable regulatory barrier in place for that drug coming back on the market in some form," Frykman said, whether at a low dose or with labeling for very restrictive use.
So why hasn't Merck acted? "They probably know that Pfizer was going to do this trial and it would be embarrassing to put a drug back on the market only to find out it's worse and then yank it off again," Frykman said. Plus, Merck "wants to see how the court cases go," he added.
Although he stressed that policy, not corporate strategy, is his area of expertise, Frykman said that if Vioxx's image is rehabilitated, Merck still might opt to wash its hands of the drug altogether. A small company might approach Merck with a deal to buy the Vioxx division, sans liability, and pay Merck royalties on sales.
Even 1 percent of the drug's former market share -- which was roughly $25 million a year -- would be a "pretty decent" return, he said.
At Merck's investor meeting, Clark told investors, "Merck will remain a research-driven pharmaceutical company, but we need to change our approach to virtually every aspect of our business, and we must act with a sense of urgency," said the company's new CEO Dick Clark as Merck held an investor meeting on its new strategy Thursday.
The embattled company's comeback strategy features key pipeline products like cervical-cancer vaccine Gardasil, shingles vaccine Zostavax and Type 2 diabetes drug Januvia -- all of which the firm is banking on to reclaim its glory days at the pinnacle of Big Pharma.
Merck's new CEO Dick Clark said at an investor meeting this week that the plan was aimed at reducing Merck's spending per brand by 15 to 20 percent; spurring 4 percent to 6 percent adjusted revenue growth; and catapulting its earnings growth back into the double digits over the next three to five years.
Merck also said it would use technology to trim nine months from in late-stage drug development times by 2007.
While market analysts were generally skeptical whether the plan was the right antidote to Merck's Vioxx woes, some seemed to feel that Merck -- faced with nearly 7,000 lawsuits related to the fallen blockbuster drug -- has nowhere to go but up.
"While we agree that management's growth forecasts seem ambitious, expectations for Merck are so low that, even if its targets fall short, the stock could still handsomely outperform," said Morgan Stanley market analysts Jami Rubin, Nancy Yu and Carlos Garcia-Tunon in a note issued this week. Commenting on Merck's strategy, the analysts said, "To call the plan aggressive is an understatement, given that it implies 2010 (earnings per share) of $4.00 to $4.20, while consensus expectations prior to (Merck's investor meeting) suggest a 2010 forecast range of $2.60 to $2.90."
While the analysts said parts of Merck's plan could merit a raised earnings estimate, they stressed that they "will not give Merck the full benefit of the doubt from day one, particularly on the revenue front, given the development, regulatory, and commercial risks."
However, Morgan Stanley seemed encouraged by Merck's news that it has three new products advancing to Phase 3 clinical trials -- including drugs to treat diabetes, heart disease and AIDS -- and by Merck's stated plans to trim $1 billion from its SGA budget.
"We believe it will take some time for the consensus to embrace Merck's view of the next five years, but (we) view many elements of management's target as credible," the analysts said.
As Merck -- which not so long ago was at home on the Fortune 500's "Most Admired Companies" list -- struggles to reclaim its place at the top, what about its Albatross pain reliever?
Some experts think Vioxx could stage a comeback of its own.
Gregory K. Frykman, senior policy analyst at the Stanford-Washington Research Group and former medical reviewer at the Food and Drug Administration, wouldn't rule out the possibility. "Vioxx is, in my view, being substantially over-criticized. Yes, it's got its problems, but it's been vilified, and it's not worse than the other stuff out there," he told United Press International.
Frykman predicted that the Pfizer-funded study of the company's arthritis drug Celebrex -- the only Cox 2 inhibitor drug still on the market -- Vioxx and other pain relievers, which he estimated would take about two years to complete, would resolve the Cox 2 puzzle "once and for all."
Frykman also forecast that Vioxx would likely emerge from the study looking not much worse than the pain reliever ibuprofen in terms of risks.
"I think there is no unreachable regulatory barrier in place for that drug coming back on the market in some form," Frykman said, whether at a low dose or with labeling for very restrictive use.
So why hasn't Merck acted? "They probably know that Pfizer was going to do this trial and it would be embarrassing to put a drug back on the market only to find out it's worse and then yank it off again," Frykman said. Plus, Merck "wants to see how the court cases go," he added.
Although he stressed that policy, not corporate strategy, is his area of expertise, Frykman said that if Vioxx's image is rehabilitated, Merck still might opt to wash its hands of the drug altogether. A small company might approach Merck with a deal to buy the Vioxx division, sans liability, and pay Merck royalties on sales.
Even 1 percent of the drug's former market share -- which was roughly $25 million a year -- would be a "pretty decent" return, he said.
At Merck's investor meeting, Clark told investors, "Merck will remain a research-driven pharmaceutical company, but we need to change our approach to virtually every aspect of our business, and we must act with a sense of urgency," said the company's new CEO Dick Clark as Merck held an investor meeting on its new strategy Thursday.
posted by Chris Placitella at 8:07 AM
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