Can Merck Defeat Biotech Leaders? (MRK, RDY, DNA, GILD, GENZ, CELG, AMGN, BIIB)
This morning was an interesting bit of pre-release data on Merck & Co. Inc. where the company gave its full financial forecasts the same as last week and where the company laid out its full pipeline and R&D plans for 2009 and into the next decade. There are a few key observations here and you can see the full summary to the company’s pipleline. The first observation is that it may be a wonder how Merck thinks it can actually be a major competitor to biotech companies. We have long argued that biotech companies are just future drug and pharmaceutical companies. But it is very difficult to argue that entrenched drug companies can become biotech leaders in the same manner.
Merck is launching Merck BioVentures, a new division to make both new, follow-on, or generic biotech drugs. Some generic biologic drugs have been in Europe but have for the most part absent to outlawed in the U.S. Generally speaking, these have longer patent exclusivity and in many cases are allowed to exist without competition.
This issue is not just one of humane aspects. It also has political aspects that could come full circle in the coming months. With a new administration and a new regime, it is unknown just how much competition these biotech operators will have. They have well over a decade of established case law in their favor, so any changes may require legal maneuvering on top of just the regular lobbying efforts.
But, back to Merck. Its BioVentures unit is supposed to utilize new science to speed up drug development. Merck acquired a technology called glycoengineering to more rapidly create antibodies and proteins for drugs in yeast rather than the traditional mammal cells used by many other companies.
What is interesting is that Merck said the unit will build a commercial factory by 2012 and will invest some $1.5 billion in research by 2015. The unit’s goal is to launch six or more generic biotech drugs between 2012 through 2017. The company’s dates are somewhat targeted at patent expiration dates for several big biotech drugs.
Merck has a market cap of roughly $56 billion and is expected to have somewhere around $24 billion in 2009 sales according to research estimates. Below are the major biotech players whose market capitalization rates are greater than $10 billion. We have also included the Thomson Reuters (First Call) estimate (rounded down) for the next fiscal year (2009). Here is that list:
COMPANY (TICKER) Mkt Cap 2009R~
Genentech (NYSE: DNA) $81.6 B $14.4 B
Amgen Inc. (NASDAQ: AMGN) $61.6 B $15.4 B
Gilead Sciences, Inc. (NASDAQ: GILD) $43.0 B $6.3 B
Celgene Corporation (NASDAQ: CELG) $24.1 B $2.9 B
Genzyme Corporation (NASDAQ: GENZ) $17.3 B $5.2 B
Biogen Idec Inc (NASDAQ: BIIB) $14.1 B $4.4 B
Merck may be able to pull a rabbit out of the hat at the magic show. And it might not. The company is slashing and burning right now as it gears for a slower and more competitive 2009. Dr. Reddys (NYSE: RDY) has been able to make some biotech copies and many AIDS drug patents have just been outright stolen or broken in some countries. This is an argument over “patent law” and “intellectual property” versus what is humane or what many consider as a God-given right under the humanitarian front. Regardless of any personal positions in that argument, there are many who argue that generic biotech drugs will by and large be failures and far less effective than their base-biotech.
Wall Street gave it a thumbs-down vote. Shares closed down about 2% today with a weak market. Having big blockbuster plans is one thing, but he time frame seems to be a reach based upon the cuts it has been making. This sales pitch also requires a bit more meat to it.
If Merck wants to be the biotech leapfrog shop, it might have to go do it the old fashioned way. It might have to acquire companies. It has before.
Jon C. Ogg
December 9, 2008
Can Dynavax Survive In A Post-Merck World (DVAX, MRK)
Dynavax Technologies Corp. (NASDAQ: DVAX) is in serious trouble and is now just looking like the latest biotech implosion. The company gave an update on an FDA clinical hold on its investigational vaccine HEPLISAV for a Hepatitis B vaccine with partner Merck & Co. (NYSE: MRK), and the outlook is grim. There is also the belief here that the company doesn’t have the financial strength to survive or thrive.
Dynavax and Merck have received communication from the FDA regarding their response to the agency’s request for safety information pertaining to the clinical hold on the two Investigational New Drug Applications for HEPLISAV. The FDA advised that the balance of risk versus potential benefit no longer favors continued clinical evaluation of HEPLISAV in healthy adults and children, which might as well be the kiss of death for a trial program.
The FDA did advise that there may be potential for an acceptable risk versus benefit profile for HEPLISAV in patients with renal failure. For that effort the FDA has requested additional information from the companies before considering further pursuit of clinical studies in those patients.
Dynavax and Merck are going to evaluate the FDA’s response in considering the next steps, but the clinical hold on the two U.S. IND Applications for HEPLISAV remains in effect.
At the last quarter-end, Dynavax had almost $64 milion in cash and equivalents and its total assets were $96.9 million after adding in $5 million for goodwill and intangibles. Its total liabilities were listed as $83.1 million. It has also been burning about $15 million in R&D per quarter on average for the last year. Remove the liabilities and deduct the cash and the intangible assets. What is left?
One major reason this looks so bad is that Merck has been reviewing all of its clinical trial relationships to focus on those which will have the greatest upside and the greatest chance for broad acceptance. Even if this would be able to be a profitable product for Dynavax, the fear is that Merck may determine it isn’t worth its efforts.
Oppenheimer downgraded the rating here to “Perform” from “Outperform” but you wonder if that is even a fair rating after tallying everything up.
At the start of 2007 this was above $8.00 in share price. That appears to be ancient history at this point.
Jon C. Ogg
October 22, 2008
SurModics: Investors Looking Under The Hood (SRDX, MRK, JNJ)
SurModics Inc. (NASDAQ: SRDX) is seeing a sharp drop after recent news. Its partner Merck & Co. (NYSE: MRK) is still under an agreement with the SurModics in Phase IIb I-vation trials, but Merck has suspended enrollment in the study as it is studies the design. This follows a recently published study comparing laser treatment and intravitreal injections of triamcinolone acetonide in patients with diabetic macular edema. The one downgrade we have seen today is from Barrington Research.
SurModics also makes the coatings for the Johnson & Johnson (NYSE: JNJ) Cypher dreg-eluting stents. As drug-eluting stents went through a two-year controversy, that part of SurModics’ business has not grown as much as some were hoping. This company still has many applications not yet on the market, so neither situation takes the “call option” out of this company as far as evaluating its potential worth which you can see on its applicable uses on its site.
The company now has a market cap of $710 million and its most recent tangible book value after backing out goodwill and other intangibles was about $108 million. The 52-week trading range is $38.17 to $56.75, and shares this morning went as low as $38.51.
This company is actually lucky that it has only traded 360,000 shares as of 12:55 PM EST, as that is still well over double an average day but is not indicative of institutional holders throwing in the towel all over again.
Jon C. Ogg
August 11, 2008
Is Fish Oil & Red Yeast Rice Better Than Statins in Cholesterol Treatment?
University studies and private hospital studies are frequently deemed as difficult for Joe Q. Public to get in on from an investment or financial angle. But sometimes there is an opportunity to go against other established drug companies with blockbuster or mega-blockbuster drugs.
What if you were absolutely convinced scientifically that Red Rice Yeast & Fish Oil administered in certain controlled doses combined with education and regular habit reviews was as effective or more effective than traditional statins and pharmaceutical grade cholesterol treatments. While this is likely going to depend heavily on genetics and depend heavily upon the trial groups, a study is out that showed some phenomenal results that compared this head to head with patients taking Zocor, the statin from Merck & Co. (NYSE: MRK).
We want to stipulate that this is a small group and that it really looks like the results may be skewed because of behavior. But the results area start and in an extreme could lead to many forms of alternative treatments.
The Mayo Clinic has issued some data that will at worst lead to much broader study comparisons. The extreme case could be catastrophic for major pharmaceutical drug makers of statins as these are billions of dollars per year in the U.S. alone.
In the July issue of Mayo Clinic Proceedings, a group of researchers from Pennsylvania examine whether an alternative approach to treating high blood cholesterol may provide an effective treatment option for patients who are unable or unwilling to take statins.
Researchers followed 74 patients with high blood cholesterol who met standard criteria for using statin therapy, and they were then randomly assigned to either the alternative treatment group or the statin group and followed for three months.
The alternative treatment group participants received daily fish oil and red yeast rice supplements, AND they were enrolled in a 12-week multidisciplinary lifestyle program that involved weekly 3.5-hour educational meetings led by a cardiologist, dietitian, exercise physiologist and several alternative or relaxation practitioners. The statin group received 40 milligrams of Zocor daily, as well as printed materials about diet and exercise recommendations.
At the end of the three-month period, participants from both groups underwent blood cholesterol testing to determine the percentage change in LDL cholesterol. There was a reduction in LDL cholesterol levels in both groups, but here is the breakdown of the results:
- The alternative treatment group saw a 42.4% reduction, and the statin group saw a 39.6% reduction.
- Members of the alternative therapy group also had a substantial reduction in triglycerides, another form of fat found in the blood, and lost more weight.
The doctor quoted acknowledged that a larger, multi-center trial with longer follow-up is necessary to determine long-term compliance with the alternative regimen. It noted that previous studies involving diet and exercise have found a high rate of patients are either unable to or unwilling to follow lifestyle recommendations. This study also noted that the “excellent adherence” in the alternative group was undoubtedly related to the intensive follow-up, education and support provided for this group.
This is an interesting finding when you consider the behavioral aspect. Those who have to attend meetings and those who stick to a regimen do well. But giving prescription drugs and just some educational material might not be the best bets here. How many of us are lazy? Many. How many of us get around to reading everything we are supposed to read? How many of us don’t want to bother? Many, on both counts.
I am no doctor but there are certain things that become evident if you have gotten the chance to deal with doctors and medicine. Without trying to damn an entire nation’s habits, it has grown more and more obvious that Americans would rather just take a magic pill rather than get to the heart of the matter (no pun intended). Diet and exercise alone unfortunately doesn’t work for everyone. Some are just pre-disposed to high cholesterol, high blood pressure, or heart and arterial problems.
What percentage of those with high cholesterol and other physical diseases or issues would be helped with diet and exercise? The answer is many, albeit an undefined amount. Those will vary greatly depending on many factors from your race, your weight, your family history, your occupation, your general health levels, your activity, and your diet.
Regardless of how effective fish oil and red rice yeast combined with follow-on education and monitoring works, it is highly unlikely that Joe Public in America is going to make such a huge jump where everyone becomes fit and where everyone actually does what they are supposed to do (even what the KNOW they should do).
But this leaves a real opening here, and one that isn’t good for Big Pharma. Zocor is off of its exclusivity, but Merck recorded $876.5 million in 2007 sales from it (down from $2.8 Billion in 2006 when it had exclusivity). Merck’s Cozaar/Hyzaar to treat blood pressure saw $3.35 Billion in 2007 sales, and while that isn’t part of this study you know that many of the benefits in other regimens can further aid in this fight as well. Guess how much Pfizer (NYSE: PFE) shows Lipitor’s 2007 sales to lower LDL cholesterol. The answer is $12.675 Billion. Over at AstraZeneca (NYSE: AZN), Crestor counted for nearly $2.8 Billion in 2007 sales.
It would be highly unlikely that such a study, even of broadened out significantly and even if results continued to show superiority, would kill drugs in the statin class to lower LDL cholesterol. We are a nation addicted to prescriptions. But the key here seems to be the rigorous “behavior modification” on top of the use of “alternative regimens” or traditional prescription medicines is key.
Now imagine if we could apply the same theory over to Type II diabetes. OK, time to get off the soapbox.
Jon Ogg
July 8, 2008
Cervical Cancer Vaccine Developments Altering Big Pharma (MRK, SNY, GSK)
The new cervicval cancer vaccine market has been a boon for Big Pharma as a revenue stream that had not previously been there. Merck’s (NYSE: MRK) Gardasil, developed with Sanofi-Aventis (NYSE: SNY), is now apparently set to keep its lead position in the cervical cancer vaccine market. This lead should be maintained in principal but now its secondary competition is going to be pushed out even farther.
GlaxoSmithKline PLC (NYSE: GSK) has said today that it does not expect the FDA to approve its Cervarix, Glaxo’s cervical cancer vaccine. It believes that it will now not see FDA approval until 2009. Many analysts had modelled revenues reaching in the low-hundreds of millions as soon as 2008. This additional delay is going to assist Merck in keeping its leadership role in cervical cancer vaccines.
Gardasil is estimated at $2.5 Billion sales annually with 2007 sales being listed as $1.5 Billion for the first full year.
Jon C. Ogg
June 30, 2008
Merck Migraine Study Looks Solid (MRK)
Big Pharma hasn’t been able to catch much of a break lately. Maybe the results from a migraine study will help Merck & Co. (NYSE: MRK) get off the floor today after it presented data at the American Headache Society (AHS) annual meeting.
Merck noted that results in a Phase III clinical trial for telcagepant (formerly MK-0974), its investigational oral calcitonin gene-related peptide (CGRP) receptor antagonist, significantly improved relief of migraine pain and migraine-associated symptoms two hours after dosing compared to placebo.
In addition, the efficacy results for telcagepant 300 mg were similar to the highest recommended dose of zolmitriptan,(1) an approved migraine therapy, with a lower incidence of adverse events associated with telcagepant in this study. The new data were
Merck continues to anticipate filing a New Drug Application for telcagepant with the FDA in 2009. Merck shares are up 2% today at $36.94, down from a 52-week high of $61.62.
Jon Ogg
June 27, 2008
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