Healthy Skepticism Library item: 7112

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Publication type: news

Johnson LA.
Merck Reports Progress on Overhaul: Merck Says Its Plans to Cut Costs, Boost Revenue Show Results
Yahoo Finance 2006 Dec 12
http://biz.yahoo.com/ap/061212/merck_outlook.html?.v=6

Abstract:

TRENTON, N.J. (AP) — Drug maker Merck & Co. is off to a strong start in its year-old program to cut costs, boost revenues and transform company operations, Chief Executive Officer Richard T. Clark said Tuesday.

The company this year launched five new vaccines and medicines, all well received, without expanding its sales force, Clark told analysts at Merck’s annual business briefing at headquarters in Whitehouse Station, N.J.

Merck is speeding up the time it takes to get experimental drugs through testing and onto the market, which boosts revenues by giving those drugs more years on sale without generic competition. This year’s launch of diabetes drug Januvia, for example, was about four years earlier than under a traditional development schedule.

Merck said it is ahead of schedule in some areas of its effort to cut costs by $4.5 billion to $5 billion through 2010, including reducing supply chain costs by $1 billion.

The company has completed 3,900 of 7,000 planned job cuts, closed or sold three of the five manufacturing plants slated for elimination and retooled its manufacturing network, Clark said.

“We are on our way to becoming a high-performance organization,” Clark said, adding, “We still have much to do to truly transform Merck.”

Clark said eight potential products are on the horizon: three under review by U.S. regulators, three ready to be submitted for regulatory review and two others well into the final phase of human testing.

However, analyst Steve Brozak of WBB Securities said he’s not convinced any of those new drugs will be a blockbuster, adding he is disappointed Merck isn’t consummating more partnerships to acquire promising drug candidates.

“It was a big yawn,” Brozak said of the briefing, adding Wall Street confirmed his reaction because Merck stock didn’t move up.

Shares fell 39 cents to close at $43.62 in trading on the New York Stock Exchange.

Peter S. Kim, president of Merck Research Laboratories, said the company expects the Food and Drug Administration this year to decide whether to approve painkiller Arcoxia, the successor drug to withdrawn blockbuster Vioxx, and Janumet, which combines Merck’s Januvia with an older diabetes treatment called metformin. FDA also is to rule on an intravenous version of Merck’s antinausea pill Emend.

Merck expects next year to file for FDA approval for a new type of HIV drug, an insomnia treatment and a niacin-based drug that raises good cholesterol, Kim said. Following those drugs are four others in final human testing: another cholesterol drug that combines the niacin-based one with Zocor, which had been Merck’s No. 1 drug until generic competition began in June; a weight-loss drug, a migraine treatment and an osteoporosis drug.

Kim also noted two other promising drugs in mid-stage testing, one for cancer and the other a cholesterol drug from the same class as torcetrapib. That’s the highly anticipated drug for which rival Pfizer halted development this month due to unexpected heart problems and deaths among patients.

“No cardiovascular events were observed” in mid-stage testing, and the drug increased good cholesterol by more than 50 percent and decreased bad cholesterol about 20 percent, Kim said.

But analyst Tony Butler of Lehman Brothers wrote in a research report that the concerns raised by the Pfizer drug show long-term studies are needed on the Merck drug, still known as MK-0859.

Merck disclosed that it now faces about 27,200 personal injury lawsuits over Vioxx, some representing multiple plaintiffs, plus 265 potential class-action suits. The company pulled the former blockbuster from the market on Sept. 30, 2004, after its own research showed Vioxx doubled the risk of heart attacks and strokes. Another 14,000 plaintiffs have entered agreements with Merck suspending the time limit for lawsuits.

So far, Merck has reserved nearly $1.6 billion for its legal defense costs.

Merck also reaffirmed the 2006 profit forecast it gave last week: from $2.18 to $2.25 per share, or $2.48 to $2.52 excluding charges for the ongoing restructuring program. Next year, the company expects higher earnings per share, between $2.36 and $2.49 per share, or $2.51 to $2.59 excluding restructuring charges.

“We believe FY07 guidance was conservative,” wrote Butler at Lehman Brothers, which does business with Merck. “In a bullish scenario, (earnings per share) could be as much as $2.70.”