After having endured a tough 2008, hit by a triple whammy of generic competition, declining sales and regulatory setbacks, Merck & Co. Inc. (MRK) embarked on a growth journey early in 2009 with its acquisition of Schering-Plough Corp.
Following the completion of Merck's merger with Schering-Plough, the combined company began its operations on November 4 under the Merck name. Through its broadened, diversified portfolio of innovative medicines and vaccines and products for consumer and animal health, Merck is geared up to meet the challenges and opportunities of the coming year. Merck shares have gained 81% from their intraday March low of $20.05 and currently trade around $36.
Let's take a look at some of Merck's headline news of 2009.
Mega deal raises hopes
In a move to assure sound, strategic positioning for the next decade and strengthen its pipeline, which has been hit by a string of disasters, Merck signed a definitive merger agreement with Schering-Plough on March 9 and the transaction was completed in November. The $41 billion cash-and-stock deal is a reverse merger, under which Merck technically became a wholly owned subsidiary of Schering even though it is Merck that acquired Schering-Plough. The combined company is headed by Merck CEO Richard Clark.
On a conference call last month, Merck's CFO Peter Kellogg said the combined company now has a powerful late-stage pipeline with 15 programs in phase III and a number of other programs that are currently under review and filed with regulatory agencies.
Merck now has five primary divisions - Global Human Health, Animal Health, Consumer Health Care, Merck Research Laboratories and Merck Manufacturing.
The merger will also reduce the dependence of Merck on the U.S. market for its revenue. In 2008, Merck derived 56% of its revenue from the U.S. Following the merger, there is going to be much less dependence on the U.S. market and a much bigger European position, as Schering-Plough has a very strong European business and a nice portfolio around the rest of the world, according to Merck.
The new Merck now has about 106,000 employees and operates in more than 140 countries around the world, including emerging markets. The company expects to generate more than 50% of its revenue outside the United States.
Some of Schering-Plough's top-selling drugs include rheumatoid arthritis Remicade, allergy spray Nasonex and chemotherapy drug Temodar. The combined sales of Merck and Schering-Plough totaled $46.9 billion last year.
With Merck's patent exposure problems not going away, as two of its blockbuster drugs are slated to lose patent protection over the next three years, the merger with Schering Plough will address some of the patent issues. Schering Plough's stable of drugs is less vulnerable to patent expiry in the above-mentioned period.
Merck's antihypertensive medicines, Cozaar and Hyzaar will lose patent protection in February 2010 while the company's asthma and allergy treatment Singulair will lose patent protection in August 2012.
Merck is confident that the deal, which has diversified and strengthened its portfolio as well as its balance sheet, is going to be a growth formula.
The transaction is anticipated to be modestly accretive in 2010 and result in substantial cost savings of about $3.5 billion annually beyond 2011.
Remicade Dispute
Seeking to reclaim rights to arthritis drugs Remicade and Simponi from Schering-Plough following its merger with Merck, on May 27, Johnson & Johnson (JNJ) filed a demand for arbitration to terminate an agreement over the full rights to the arthritis drugs.
Remicade was discovered by Johnson & Johnson subsidiary Centocor Inc. Under a development and commercialization agreement, which was initially signed in 1998 and then amended in 2007, Johnson & Johnson and Schering-Plough co-market Remicade. While Johnson & Johnson has exclusive marketing rights to Remicade in the United States, Schering-Plough markets the drug in all countries outside of the United States, except in Japan and parts of the Far East where Tanabe Seiyaku, Ltd., markets the product. The agreement, which extends beyond 2014, also covers Remicade's successor Simponi.
According to the termination clause in the development and commercialization agreement, Schering-Plough will lose the ex-US rights to Remicade and Simponi in the event of a change of control or ownership of Schering-Plough, and the full rights to the drugs will be restored to Johnson & Johnson.
In order to obviate Schering-Plough being stripped off its rights to Remicade and Simponi, the merger of Merck and Schering-Plough has been structured as a reverse merger, arguably satisfying the Remicade agreement.
However, Johnson & Johnson in its arbitration demand has stated that the merger constitutes a change of control and therefore has sought to terminate the agreements for Remicade and Simponi. According to reports, the arbitration verdict is not expected until the first quarter of next year.
Singulair Breathes Easy
Merck, which faced a patent challenge over its blockbuster asthma drug Singulair from Teva Pharmaceutical Industries Ltd. (TEVA), prevailed in the suit, as a federal court ruled in Merck's favor on August 19.
The judge who presided over the case upheld Merck's patent on Singulair and ruled that Teva committed infringement. The judge also issued an injunction blocking the approval of Teva's generic versions until the August 2012 expiration of Singulair's patent.
Last year, Singulair raked in $4.3 billion in global sales, up 2% from the prior year. For 2009, Merck expects the drug to generate sales of $4.4 billion to $4.7 billion.
Fosamax Lawsuits
Merck faces about 953 cases involving the company's osteoporosis drug Fosamax. The lawsuits allege that Fosamax side effects lead to osteonecrosis, or bone death in the jawbone.
The plaintiffs also claim that Merck failed to provide adequate warning to the public about the serious side effects despite being well aware of such information.
After doctors found a link between bisphosphonate drugs and osteonecrosis of the jaw in chemotherapy patients in 2004, the FDA asked manufacturers to amend drug labels, cautioning about reports of osteonecrosis of the jaw occurring in cancer patients.
Fosamax is also a bisphosphonate drug and has been taken by millions of men and women since its introduction in 1994. According to reports, over 2,400 patients taking bisphosphonate drugs like Fosamax have been diagnosed with osteonecrosis since 2001.
The first Fosamax case that went to trial in August of this year was declared a mistrial after several days of jury deliberations because the eight person jury could not reach a unanimous verdict.
In the second Fosamax case, the U.S. District court granted summary judgment in Merck's favor last month. The third case is currently scheduled to begin on April 19, 2010.
As of September 30, 2009, the company had a reserve of approximately $48 million solely for its future legal defense costs for the Fosamax litigation. The company has not established any reserves for any potential liability relating to the Fosamax litigation.
Fosamax was a blockbuster drug until it lost patent protection in February 2008. The sales of the drug (including Fosamax Plus D) totaled over $3 billion in 2007, accounting for 12% of Merck's total revenue that year. In 2008, worldwide sales of the drug were $1.6 billion, a 49% decrease compared to 2007. In the third-quarter of 2009, Fosamax sales were $276 million, down from $354 million in the comparable quarter last year.
Vioxx News
The Vioxx debacle will with no doubt go down in history as a high profile drug recall.
Merck recalled Vioxx from the market in September 2004 after the drug was linked to cardiovascular problems in patients taking the drug for over 18 months. A study revealed that users of the drug were more susceptible to heart attacks and strokes than people using other pain medications. Until its recall, Vioxx had been one of the best-selling drugs for Merck and it generated sales of $2.5 billion in 2003.
The Vioxx recall led to thousands of individual and putative class actions being filed against Merck in state and federal courts. In November 2007, Merck agreed to resolve most U.S. Vioxx claims for $4.85 billion. Interim payments have been made to certain plaintiffs who qualified for those payments. It is expected that the full $4.85 billion will be distributed before the end of the first half of 2010.
As of September 30, 2009, Merck had been named as a defendant in approximately 10,000 Vioxx lawsuits.
Last month, Texas District Court Judge Scott Jenkins granted Merck's motion for summary judgment, dismissing all claims in a Vioxx-related lawsuit filed on behalf of the State of Texas. By dismissing the claims, the court concluded that a trial of the state's claims was not necessary.
The Texas case was the first of twelve similar lawsuits filed by state attorneys general around the country to reach a final judgment at the trial court level. A trial in the case filed against Merck by the Louisiana Attorney General is scheduled to begin in federal court in New Orleans on April 12, 2010.
A shot at Gardasil
With sales growth of Gardasil having hit the wall, expanding the vaccine's indication is one sure-fire way to increase its sales. For the nine months ended September 30, 2009, sales of Gardasil declined to $841.5 million from $1.12 billion in the comparable period last year.
Gardasil was originally approved by the FDA in 2006 for use in females 9-26 years of age to prevent cervical cancer, precancerous genital lesions and genital warts due to HPV (human papillomavirus) types 6, 11, 16 and 18. About 70% of cervical cancers and 90% of genital warts are caused by the above-mentioned four HPV types.
Last September, the FDA approved Gardasil for the prevention of vaginal and vulvar cancer caused by HPV types 16 and 18 in girls and women aged 9 to 26. In October of this year, the FDA approved Gardasil for use in boys and young men. It remains to be seen if the expanding indications of Gardasil will result in an uptick in sales.
The vaccine's potential side effects have also been making headlines for quite sometime.
As of September 1, 2009, 15,037 cases of "adverse events" associated with Gardasil administration were reported in the United States, of which 93% were deemed non serious, and 7% were reports of events considered serious.
The non-serious events included injection site pain, headache, nausea, fever and fainting. The serious adverse events included 44 deaths. Other adverse side effects included blood clots and several cases of Guillain-Barre syndrome, an autoimmune disease that can lead to paralysis. However, experts have not found a common medical pattern to the reports of serious adverse events reported for Gardasil that would suggest that they were caused by the vaccine. The CDC (Centers for Disease Control and Prevention) and FDA have reviewed all safety information and have determined that Gardasil is safe to use.
Turnaround Mode - In Play
Following the Vioxx debacle in September 2004, which left the company in shambles, Merck commenced the initial phase of its cost reduction program in December 2005. The 2005 restructuring program, which was substantially complete at the end of the third quarter of 2008, eliminated 10,400 jobs.
The 2008 global restructuring program, which commenced last October, targets eliminating about 7,200 positions - 6,800 active employees and 400 vacancies - on a global basis by the end of 2011. About 40% of the job cuts will occur in the United States. As part of the 2008 restructuring program, the company is streamlining management layers by reducing its total number of senior and mid-level executives globally by approximately 25%. As of September 30, 2009, Merck has eliminated about 4,310 positions in connection with the 2005 restructuring program.
The 2008 restructuring program is expected to be completed by the end of 2011, with the total pretax costs estimated to be $1.6 billion to $2.0 billion.
Rolofylline - Breaks Heart
In June, Merck's heart-failure drug candidate Rolofylline failed to meet its primary and secondary goals in a late-stage trial. There was no significant difference between Rolofylline and placebo with respect to improvement of worsening renal function in patients with heart failure.
Rolofylline was added to Merck's quiver when it acquired NovaCardia for $350 million in 2007.
Vytorin Controversy
A new study published in the New England Journal of Medicine in November 2009, reported that Abbott Laboratories' (ABT) Niaspan (Niacin Extended-Release) worked significantly better than Merck's cholesterol drugs Vytorin and Zetia in reducing arterial blockages. The study dubbed ARBITER 6 - HALTS was a head-to-head comparison of Niaspan and Zetia conducted on 208 patients at high cardiovascular risk.
However, Merck says that the results of the study do not in any way change its view of Zetia and Vytorin as effective medicines for fighting high LDL cholesterol. According to Merck, patients in ARBITER-6 were extensively pre-treated with statins, and had well controlled LDL but relatively low HDL, which is a study design that strongly favors a drug with Niaspan's effects on HDL over an LDL-focused medicine such as Zetia. Moreover, the company is of the view that the study does not have the rigor or size to provide meaningful insight into the effect of either Niaspan or Zetia on clinical outcomes.
Vytorin is a one-pill combination of Merck's Zocor, a statin, which is now available in generic version, and a non-statin called Zetia, developed by Schering-Plough and co-marketed by Merck. Vytorin was approved by the FDA in 2004. Zocor lost exclusivity in June 2006.
The combined sales of Vytorin and Zetia, have taken a hit ever since the results of a study dubbed ENHANCE revealed in January 2008 that though Vytorin lowers bad LDL cholesterol, it did not provide any significant benefit over generic Zocor in reducing the risk of heart disease or stroke.
The combined global sales of Vytorin and Zetia were $1.0 billion for the third quarter of 2009, representing a 7% decline compared with the third quarter of 2008.
The ENHANCE study was completed in 2006, but the results were revealed only in 2008. The conduct of Merck and Schering-Plough in promoting Vytorin and delaying the release of trial results were probed by the U.S. Department of Justice.
In August of this year, Merck, Schering-Plough and the companies' cholesterol joint venture, Merck/Schering-Plough Pharmaceuticals, entered into agreements to resolve pending civil class action lawsuits related to cholesterol drugs Vytorin and Zetia for a fixed amount of $41.5 million. The charges were recorded by the joint venture, Merck/Schering-Plough Pharmaceuticals in the second quarter 2009.
The agreements are not an admission by the companies of any misconduct or liability in connection with the marketing or sale of Vytorin and Zetia or plaintiffs' allegations relating to the ENHANCE study.
Working towards new launches
In the next 18 months, Merck expects to execute new launches of the following drugs.
Schering-Plough's Bridion, a treatment to reverse muscle relaxation during general anesthesia. The drug was rejected by the FDA in August 2008, though an advisory panel recommended approval of the drug. Bridion is approved in 34 countries, including Europe.
In June, Merck began launching its cholesterol drug Tredaptive, also known by the trademark of Cordaptive. The drug is approved in 44 countries outside the U.S. Tredaptive, which is a combination of extended-release Niacin and Laropiprant, failed to pass muster with the FDA last April. Tredaptive has been long touted as a key addition to Merck's arsenal of cholesterol drugs with potential sales of $2 billion.
Though the FDA did not reveal the reasons for rejecting the drug, analysts believe the drug's modest test results and unknown long-term effects led to the rejection. However, Merck has not completely given up on Tredaptive and it remains optimistic of the results of a cardiovascular outcomes study called THRIVE (Treatment of HDL to Reduce the Incidence of Vascular Events), which is scheduled for completion in January 2013. The THRIVE study, which is evaluating MK-0524A, is being conducted by Oxford University and is funded through a grant from Merck.
Merck began launching glaucoma drug Saflutan in the E.U in June. The drug is in phase III testing in the U.S.
Schering-Plough's monthly injectable drug for arthritis Simponi was approved by the FDA in April. The drug was approved in the E.U. in October.
Schering-Plough's antipsychotic Saphris, which was recently launched in the U.S., is under review by the European Medicines Agency in Europe. Saphris represents Schering-Plough's first entry into the CNS therapeutic area.
The antidepressant drug Remeron was launched by Schering-Plough in Japan, a key growth market for antidepressant drugs, in September. The drug has been available in the U.S. since 1996.
Asmanex is yet another Schering-Plough's drug that was launched in Japan in September. The asthma medication was approved by the FDA in April 2005.
Januvia, a promising drug in Merck's roster, which is used to treat type II diabetes, was recently approved in China and Japan. The drug has been available in the U.S. since October 2006. The company expects Januvia to generate sales of $2.4 billion to $2.7 billion in 2009. Last year, sales of the drug totaled $1.4 billion.
Early this month, the FDA approved over-the-counter version of Santarus Inc. (SNTS)'s prescription heartburn drug Zegerid. Under a license agreement inked with Santarus in 2006, Schering-Plough has exclusive rights to commercialize Zegerid branded immediate-release omeprazole products for the over-the-counter market in the U.S. and Canada. The OTC heartburn market in the U.S. is estimated at $1.7 billion. Zegerid OTC is expected to be available in the U.S. in the first half of 2010.
Closing Thoughts
With a new growth formula in place, a complimentary product portfolio and greater geographical reach, it will be a fresh start for the new Merck in the New Year. Merck, which has a strong balance sheet with cash and investments of about $8 billion, has already hinted that it is not going to be complacent about acquisitions and that it will be eyeing pipeline candidates with the greatest probability of success as well as licensing opportunities. This may be a good formula to solidify the company's position at the forefront of innovation and enhance its scientific and technological leadership.
Related ReadingMerck's 2008: The Year That Wasn't
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.