The Trouble With Merck: One Analyst Turns Sour
29 CommentsBy Ed Silverman // September 10th, 2008 // 10:06 am
There are at least four - count ‘em, four - issues that are plaguing Merck and prompting Sanford Bernstein analyst Tim Anderson to downgrade the shares. In an investor note this morning, he writes the stock has already hit his $36 price target and has little upside. Why? Let’s see…
Reasons To Be Doubtful, Number One: The Singular allergy med. Prescription trends are lagging, there is an ongoing FDA safety review that could report out at year’s end (look here), and the potential that Teva does an ‘at risk launch of a generic next year;
Reasons To Be Doubtful, Number Two: Sales trends for the Gardasil HPV vaccine have been weak for the last few quarters in the three territories reported by Merck (background here and here.
Reasons To Be Doubtful, Number Three: The lack of a meaningful pipeline, with at least one Phase 3 drug - taranabant for obesity - likely to not see the light of day. Why? Psychiatric side effects (back story);
Reasons To Be Doubtful, Number Four: The “jolt” to Vytorin and Zetia from Enhance trial data earlier in the year and the more recent SEAS trial data “only compounds the situation,” he writes.
“Over the longer-term, given the slow-down in various franchises along with the scheduled expiration of several big products through 2012, the biggest being Singulair in 2012, Merck’s growth profile appears lackluster.
“The consensus view – and probably the correct one - is that Merck has “best in class” R&D capabilities, meaning they should have the best “optionality” for new product flow in future years, but the visibility on this today is low.
“When Merck reported second quarter results, it suspended guidance, claiming that the recent SEAS data with Vytorin caused too much uncertainty. We think it was probably more than just SEAS led to MRK’s actions…
“Perhaps the most meaningful catalyst through the end of the year will be Merck’s December analyst meeting where the company will give an R&D update. Merck has previously pulled rabbits out of hats when it comes to products advancing to Phase 3. If history is any predictor, the stock will rise as the meeting draws closer, and performance from there will depend on what R&D surprises emerge (or don’t).”
Condor
As I’ve indicated — I have trouble understanding how Sanford C. Bernstein — as a firm — can defend its continued “Outperform” rating on Scheirng, if Tim Anderson really believes (and I think he does — really believe) what he has written, overnight, about Merck and Vytorin/Zetia. Afterall, that cholesterol franchise is over 50 percent of Schering’s 2008 profitability — and the consensus analyst opinions would clearly so state:
http://shearlingsplowed.blogspot.com/2008/09/bernstein-analyst-tim-anderson-cuts.html
Where’s the Schering downgrade, then, Mr. Anderson, given today’s Merck action?
I am truly puzzled.
Nathan
Is there ANY pharma company looking good these days? (from an analyst perspective)
It seems so ironic to me that we constantly hear on this site about pharma making buckets of and buckets of money. Yet, the fundamental financial prospects for pharma are quite grim. This is a slowly dying industry. Increased regulation, increased scrutiny of new drugs, past successes now gone generic, and massive liability lawsuits are just hastening the inevitable death of big pharma. For those of you who constantly bash pharma: Be careful what you wish for. It might just happen.
Monica
I for one don’t wish to see the death of big pharma. Not as it will likely happen, after this week’s news of Fannie Mae and Freddie Mac, do you think the gov would let pharma die?
But, if it does continue in this downward spiral, it will be of it’s own merit.
Merck has screwed the pooch for far too long, and now is getting bit in the ass.
Justice in Michigan
I don’t think anyone wants to see the “death” of pharma. Most of those called “bashers” would like to see some changes, yes, as would many of those on the inside and those who used to be (Roy Vagelos, et. al.).
I know that Nathan’s message is sincere, and I agree that the industry in serious trouble (although our list of reasons would vary, not by as much as some might guess).
LILLI
To Nathan
You seem to be more interested in Big Pharma and not the about horrible adverse side effects from medications that doctors are not rporting. Medications may be needed at times, but it should not be a source of greed, power and control. There should be a system and more ethical reporting of doctors monitoring their patients medications and not hiding the true facts. Human life should come first. But that it is not true in the medical profession—because the medical profession is protecting the pharmaceuticals that are influencing and running America.
Educated citizen
Lilli you are wrong and misinformed. Doctors and pharmaceutical companies )well at lease Merck) I know first hand are very concerned about patients and human life, it is outside of profit…because lets face it R&D is not free. Improving patient life is the #1 focus. If you think some $8 lunch from a rep or some chintzy made in china gadget is going to sway a doc other than efficacy you are mistaken. Talk about greed, power and control…I would like to see how much you are whining when and IF universal health care comes along and you have to wait, and wait and wait for care and meds.
Monica
Educated citizen. It is comments like these-
“I would like to see how much you are whining when and IF universal health care comes along and you have to wait, and wait and wait for care and meds.”
that fuel the public’s hate for pharma. Nowhere did Lilli mention universal healthcare, yet you vehemently attacked her, calling her wrong and misinformed.
Merck at the very least puts patient life #1. Have you even paid attention to Vytorin? They are pushing this product, and squeezing every penny they can out of it, yet we still don’t know if it does, or does not increase your risk of cancer.
Doctors may be concerned with patients and human life, but Merck sure as hell is not.
Educated citizen
Vytorin is one drug, one…it’s not just Merck that is a JV, Schering is just as accountable and in my opinion is much less moral of a company.
EVERY drug has side effects…there are numerous other companies that have had drugs pulled or pulled the drugs themselves before being told to(Merck) I could make a VERY long list of companies not just Merck.
What I am saying is that every medication no matter how safe you think it may be has risks there is always a chance SOMETHING COULD GO WRONG, even asprin would not be approved today if it had to go through the fda. Clinical trials are a controlled atmosphere you cannot predict these things. I know plenty about the industry and the companies, I work in it day in and day out.
That is not what fuels the publics hate for pharma…what fuels it is that people think drugs are too expensive and want something for FREE. But what they don’t realize is that one drug takes $802 MILLION just to make it to market…and it is not even gauranteed to make that back. The public want drugs that are safe but don’t want to pay for them, they want healthcare but don’t want to pay for it…and when it comes down to it pharma is to blame for everything…it is this entitled attitude that fuels it, oh yeah and UNEDUCATION!
LILLI
To Educated Guess
I am not worried about the price of medications! I am more concerned with the quality of the medication and if the pharmaceuticals and doctors are reporting the truth. I am constantly promoting for ethical values and integerity with medications and doctors and pharmaceutical telling the truth. Like Statin medications was a farce and has caused many harmful serious side effects that has led to uncessary fatalities. Yet, the guilty do not get discipined because of the power and infulence of the pharmaceuticals and the medical porofession influencing our elected and appointed officals.
To Lilli white a**
Yes drugs have side effects but UNLIKE SATAN they also save lives, irradicate disease, and improve quality of life for millions of people WORLDWIDE!
Discipline the guilty…!?!? If you would listen to what I have been saying all along is that ALL MEDICATIONS COME WITH RISK! YOU ARE ALTERING THE CHEMICAL MAKEUP OF YOUR BODY. This has nothing to do with medical professionals and elected officials…not ALL AE’s can be detected in the clinical trial and yes some people die, it is a tragedy when someone dies but think of all the people they save and help…
Pharmaceutical companies are not pumping out unsafe drugs just for a profit, and if you think that you’re crazy. Why don’t you blame the FDA as well as pharma THEY ARE THE ONES WHO APPROVE THE DRUGS. See the funny thing is that the FDA is SERIOUSLY UNDERFUNDED from the government…how can they be as effective as needed when they don’t have the $…?!? Where is your government there?
Jack2
I agree that the number one reason that pharma reputation has declined is due to pricing or at least the public perception of pricing.
Currently insurance companies pay about 97.5% of the doctor or hospital bill, but only about 67% of the drug bill. So the public perceives that drugs drive healthcare costs, when, compared to hospitalization, they’re a small fraction (consistently weighing in at 7-10% of total healthcare costs from 1960-present).
I know this site draws some vehement pharma-haters (LVS) or motivated pharma-reformers (JIM). But when I think about the people I meet in my day-to-day life they know nothing about most of the articles that come across this site - good or bad. They just know the price.
Educated Citizen
Bravo Jack you sound like you know what is going on.
harpy
I agree that the number one reason that pharma reputation has declined is due to pricing or at least the public perception of pricing.
Really? Pricing? Because it couldn’t possibly be the big, gaudy scandals make headlines nearly every day? The ones where the pharma companies lie and lie and lie and get caught lying and pay out lots and lots of money? I don’t mind them making money, not at all - it makes the world go ’round, but I mind them selling me shite and calling it shinola. That’s why I think pharma is in the hole, and until they realize it, that’s where they’ll stay.
All we do is complain
complain complain complain. Oh big bad pharma this and that. I agree with ed. cit…pharma though it may have it’s problems is necessary, c’mon people it is not just pharma look at other big business accounting firms, enron, etc the list goes on and on. I came from canada and let me tell you the system sucks! I was put on a wait list for treatment for breast cancer, now I am here in the US paying for it out of pocket but I am getting the life saving treatment and pharmaceuticals I need. Just like was posted above, there are conseqences for taking drugs but nobody wants to be accountable for it. It is NOT SOLEY the drug companies fault for this…they do what is necessary for these drugs to be deemed safe. NOHTING IS 100% SAFE…the FDA A FEDERAL GOVERNMENT AGENCY is just as much to blame.
Justice in Michigan
Well, we’ve been around this tree more than once. Folks with insurance are generally unaware of price issues; obviously, not for others. The key difference between enron, etc.., and pharma is that the latter is directly about lives (yeah, I know we depend on and oil too). But the response to scandals in the industry - when they happen - is not unlike what happens to the church and major pols when things are unmasked. We depend on these people and institutions in a different way. As I’ve said before, nobody cares when a sociologist messes up.
Jack2
JIM and Harpy:
I certainly don’t think the scandals help, but I still think the cost of drugs hurt the reputation the most. Even if you have insurance, you’re paying a higher percentage of the drug cost than the percent you pay for any other medical service I can think of.
When I think about my family (all college graduates but no one but me working in anything to do with healthcare) I don’t think they even know what Vytorin, Paxil, or Chantix (or any of the other drugs that come up on here) even are, let alone know there’s a controversy surrounding them*.
I think Pharmalot draws a very bimodal distribution of people who strongly support (and usually work for) the industry and those who strongly dislike the industry. There’s a few exceptions, but even those people tend to have a strong opinion about something related to the industry. What doesn’t get represented here is the average opinion.
Likewise, it’s just my opinion, but I’ll stick with it until someone proves me wrong.
*I don’t want to imply guilt here, just the names that come up on Pharmalot.
Justice in Michigan
Jack2 - Re: the overall healthcare dollars issue, the following from a June 2006 issue of Chemical & Engineering News (which Nathan was surprised I ever saw!)
“Meanwhile, according to the federal Centers for Medicare & Medicaid Services, total U.S. expenditures on health care were nearly $1.9 trillion in 2004, or 16% of gross domestic product, and more than two-and-a-half times the $717 billion spent in 1990. In the same period, 1990 to 2004, retail sales of prescription drugs increased from $40.2 billion, or 5.6% of total health care spending, to $190 billion, or 10.0% of the total.
“The 10% number is based on old data and does not include drugs dispensed in hospitals, clinics, and other nonretail settings,” says Stephen W. Schondelmeyer, an economics professor at the University of Minnesota who studies drug pricing. “The data today show that prescription drugs in all settings account for about 19% of total health care dollars.”
Agree about bimodal distribution. Maybe Ed needs to put up a badminton net for the lawn party. Or bring out the martinis.
harpy
Jack2 - you’re right about this site and the type of people it draws. That’s why I also look at what’s being said on CNN, Fox, MSNBC, Yahoo, etc. because that is where the average person is getting their information. Talk about pricing tends to center around health insurance, especially Medicare Part D and the doughnut hole and chronic diseases, but the telling thing is that ordinary people aren’t complaining about prices, governments are. Whether it is county, state, or federal almost all pricing complaints I see are government based (except for seniors).
What average, non-pharma affiliated people like to read about are the scandals(!). Vioxx! The company lied! Chantix makes you crazy and they didn’t warn you! Spree killers are taking anti-psychotics! Those are the stories your average person is reading. Pricing is boring unless you’re a senator or a senior, even if it proves to be a bigger issue.
I really don’t think pharma can re-earn trust until there is some honest admission that they are at fault. Antagonizing one’s client base is not the way to earn business. Threatening to take your ball and go home does not win you friends - even if you get your way. And while the probelms pharma faces may not be entirely of their own making, they are the only ones who can fix it. I mean, even Billy Tauzin said “your house is on fire and you’re still smoking in bed.” When the head of YOUR lobbying group says that, what’s the rest of the world supposed to think?
Justice in Michigan
I always enjoy reading Harpy, among others!
My sense is that there are some really good analyses from within pharma which cover a wide range of reasons for the “image” issues. Also, some polls of pharma execs (wish I had references) which do so. Along with pricing, ambivalence re: DTC seems to come up most often.
Insider
It is interesting to see people debating several issues at once, and missing each other with their salvos. To a certain extent, most of the opinions expressed here have some truth content to them.
(1) Pharmaceuticals (and other core health services) are considered by the public to be a right, not a privilege. However, in economic terms, they behave more like luxury goods: Ever increasing quality gains can command ever-increasing prices, and the market is theoretically limited only by society’s ability to pay (like a Gucci handbag), which eventually narrows the field of those able to pay for them. There are no natural constraints on this process, because we collectively believe in ever-improving care.
(2) The flaws in the US system are glaring and getting bigger. As mentioned, much of these spiraling costs are borne by a smaller segment of the population (who can afford care). The US consumer truly does fund a massively disproportionate share of the R&D costs mentioned in this thread, due to the way in which the marketplace is structured.
(3) MRK always competed in the marketplace on having the best science (as opposed to price, e.g., when PFE kicked their ass in the statin space). When a company gets broadsided, as when the conclusive Vioxx study emerged, they returned to their roots, and attempted to replay the success of the Tylenol recall (among others), when a massive action aimed squarely at public safety negated the ill reputational effects relatively quickly. But in a post-Enron corporate environment, this strategy played out particularly badly ($4.8B badly).
It is surely possible to pull out individual acts of selfishnessness by companies who put profit over patient health, and the reverse is also true. But those who claim a systemic bias against patient health have obviously never had any contact with these organizations or the people who run them.
Supremacy Claus
Insider: There is no conclusive proof of cardiac harm from Vioxx.
The real aim of this blog, of government attacks on drug companies, of media and left wing ideologue bashing of drug companies?
Racism.
They do not want dark skinned Medicaid patients to receive brand name medication. No dispute if dark people get generics unfit for animals. No dispute about white people getting brand medication.
Grassley is supported financially by health insurance groups. Ed will not provide the ad revenue of the newspaper owner of this blog from health insurance company ads. I bet his ad department has, at the click of a mouse, all data down to the penny, and to the minute. Nor do we know the funding sources of the alleged victims repeatedly commenting here, in support of Ed’s biased propaganda.
truthman30
“The real aim of this blog, of government attacks on drug companies, of media and left wing ideologue bashing of drug companies?”
So is bringing awareness to corruption, fraud, patient harm and conflict of interest in the pharmaceutical industry purely in the interest of “left wing” ideals? I would have thought safe drugs, effective medications and an ethical healthcare-pharmaceutical industry was in everyones interest regardless of their political leanings?..
I must have been mistaken..
Supremacy Claus
Truthman: If those were the aims, they would apply to whites, and to the private pay patient. The attack is on the promotion of brand medication to doctors who prescribe it to dark skinned people on Medicaid, just as they prescribe it to their private patients. Whether the biased blog links to stories on off label use in children, industry promotion of brand names, reported adverse effects, race is the hidden agenda.
There are serious health racial disparities. This is a potential cause.
Insider
Supremacy Claus:
I do not believe your comments are worth commenting on, save one:
There is statistically-significant evidence that Vioxx, as a selective COX-2 inhibitor, does in fact act negatively upon some as-yet-unknown mechanism that is cardio-protective.
It is likely, but undemonstrated in a clinical setting, that this is a class effect of all NSAIDs. The fact that the effect only shows up over the longer-term (e.g., 18mos) is key. If you took most other NSAIDs that long (like Advil), you would have already died from the GI bleeding before attaining a higher risk of cardiac events.
That’s the truth, regardless of the source of one’s advertising revenue. You may be right about people’s motivations here (I really don’t know); but if you know enough, you can see through whatever propaganda comes your way.
Supremacy Claus
Insider: No mystery. Aspirin (ASA) prevents polyps from turning into cancer. It had to be stopped to demonstrate any such effect in an NSAID. These do not block thromboxane, as ASA does.
Take old people off aspirin and cardiac events increase. There were no deaths in the trial.
The other mystery easily solved?
The difference between the rates of cardiac complaints in Vioxx and placebo is not clinically meaningful. It is statistically significant only until a correction is made for the effect of the large sample size. The president of Merck did not have 11th grade statistics.
Lastly, this may have been a ruse to promote, son of Vioxx. If it was, the president should go to jail for what he did to the stock price, and the disruption of good care of millions of people on Vioxx.
Insider
Claus,
BTW - if there are racial disparaties, as you claim (and I would tend to believe it), it’s because the “dark-skinned people” you refer to are poor and Medicaid drives cost containment. And not because they are dark-skinned. You can’t reason from the effect back to the cause.
It is doubtful that racism is the underlying issue. Poverty is. And the reason why a disproportionate number of “dark-skinned people” are poor in the US is the root cause, and is not (I seriously doubt) the result of some racist conspiracy within the health care system. The system discriminates against the poor, plain & simple. And the underlying reasons (I mentioned earlier) are economic.
But something tells me you won’t be open to this kind of rational argument… Regardless, peace and health to you and your family.
Supremacy Claus
Insider: I am not trying to read minds. I see statistics. People on Medicaid are darker skinned. The war is on to contain costs, by forcing generics on doctors who want the same for their dark skinned patients, as for their private white patients. These doctors are doing what most other docs are doing, in applying the standard of care to everyone regardless of color or payment, in accordance with their oath.
Take the records of a doctor for a single condition. What would you think if his private pay patients got brand medication, and his Medicaid patients got generics, and there were differences in the outcomes and in the rates of adverse effects? Is that cool with you?
Insider
Claus: No, not cool with me at all.
Just don’t take that extra step into conspiracy theory-land. It could be that the majority of medicaid recipients are women: Does that prove to you an underlying misogynistic bias in the health-care system? In a given town, maybe most medicaid recipients have a stutter. Does that mean the system discriminates against stutterers?
Final note: As for Vioxx, it’s really too bad they didn’t have you in the room when the recall decision was made. When the investigators presented to the corporate executives, some board members, the heads of the musculo-skeletal franchise as well as the Nobel-calibre scientists from the research labs, you could have been there to correct their grade 11 math.
truthman30
“Truthman: If those were the aims, they would apply to whites, and to the private pay patient. The attack is on the promotion of brand medication to doctors who prescribe it to dark skinned people on Medicaid, just as they prescribe it to their private patients. Whether the biased blog links to stories on off label use in children, industry promotion of brand names, reported adverse effects, race is the hidden agenda.
There are serious health racial disparities. This is a potential cause.”
pffffffffffffffffffff……
And people have the gall to call me a conspiracy theorist? …
Hilarious..