A Very Solid Q2 2014: Revenue And EPS Both Slightly Higher Than Expected; Merck’s Full Year Hints At Slight Upside (Nice Contrast With Pfizer, Here!)

July 29, 2014 - Leave a Response

To be sure, these are not the heady days of yore, in big pharma. [Exhibit A? Pfizer just reduced its full-year 2014 global revenue guidance.] Just the same, between expense management, and some reduced currency headwinds, Merck is making nice headway. And to be sure, Whitehouse Station is “getting there” — in no small part — by aggressively reducing headcounts, especially in US salesforces.

Even so — I take my hat off to Mr. Frazier. He’s done a very good job — of piloting this massive enterprise, toward a more nimble future incarnation. That’s his vision. Surprisingly, at least in the Remicade®/Simponi® franchises, currencies added a five percent tailwind. Overall, currencies were a net-neutral. [Even with the Venezuelan devaluation. . . fascinating -- must be some smart hedging underway.] Okay — let’s get to it, then — from the presser:

. . . .Worldwide sales were $10.9 billion for the second quarter of 2014, a decrease of 1 percent compared with the second quarter of 2013, with no net impact from foreign exchange. . . .

Second-quarter pharmaceutical sales declined 2 percent to $9.1 billion. Expected declines occurred due to the ongoing impact of the loss of market exclusivity for TEMODAR (temozolomide) and NASONEX (mometasone furoate monohydrate). Additionally, sales from the hepatitis franchise of VICTRELIS (boceprevir) and PEGINTRON (peginterferon alfa-2b) declined as a result of increased competition. These declines were partially offset by growth in REMICADE (infliximab), SIMPONI (golimumab) and ISENTRESS (raltegravir), as well as the cardiovascular franchise of ZETIA (ezetimibe)/VYTORIN (ezetimibe/simvastatin) and the diabetes franchise of JANUVIA (sitagliptin)/JANUMET (sitagliptin and metformin HCI).

Combined sales of JANUVIA and JANUMET, medicines that help lower blood sugar levels in adults with type 2 diabetes, grew 2 percent to $1.6 billion in the second quarter. The growth reflects higher sales in Europe and the emerging markets, which were partially offset by declines in Japan. Sales in the United States decreased 1 percent.

Combined sales of ZETIA and VYTORIN, medicines for lowering LDL cholesterol, increased 6 percent to $1.1 billion in the second quarter, including a 1 percent positive impact from foreign exchange. The growth was driven by higher sales of ZETIA in the United States, reflecting wholesaler purchases and price increases.

Combined sales of REMICADE and SIMPONI, treatments for inflammatory diseases, grew 21 percent to $781 million in the second quarter, including a 6 percent positive impact from foreign exchange. . . .

Other (income) expense, net, was $558 million of income in the second quarter of 2014, compared to $201 million of expense in the second quarter of 2013. The second quarter of 2014 includes a $741 million gain recorded in connection with AZ’s option exercise.

The GAAP effective tax rate of (7.5) percent for the second quarter of 2014 reflects the impacts of acquisition- and divestiture-related costs and restructuring costs, as well as a net benefit of $517 million associated with AZ’s option exercise. The non-GAAP effective tax rate, which excludes these items, was 24.2 percent for the quarter. . . .

All of that said, it puzzles me that Vytorin®/Zetia® sales rose slightly (1 per cent), even inside the US (more precisely, Zetia was up 4 per cent, while Vytorin was off 4 per cent). . By later in Q4 2014 — I expect to see IMPROVE-IT data which will likely declare the drugs. . . non-meaningful, as to outcomes. Apparently, some US formularies are restocking the drug, accounting for the bulk of the uptick. But, as ever, we shall see. Overall, a solid performance in the quarter. Onward!

$100 Million NuvaRing® Settlement Proceeding, Right On Schedule — Next Status Hearing On October 23, 2014

July 28, 2014 - Leave a Response

It would seem that receipts, accepting the claimants’ completed claims notice packages, should be in the mail in just a very few weeks, now.

And starting at the beginning of August, plaintiffs NOT accepting the global settlement will need to comply with individual deadlines in their cases — a tall order. So I expect there will be very few who will decline the NuvaRing® settlement. We shall, as ever, see — but Merck did engineer a nice bargain here, in settling. From last Friday’s order, then — entered by Judge Rodney W. Sippel in the Kansas City federal District courthouse:

. . . .Pursuant to the status conference held this day, the Court is advised by the parties that the NuvaRing Resolution Program is proceeding as planned. Claims packages have been submitted and are being processed by the parties and the claims administrator.

The Court advises all parties that as of July 31, 2014, the stay in this litigation will expire and will no longer be in effect, and the time for compliance with all pre-trial deadlines set forth in the Court’s Order Regarding Preservation of Records and Prima Facie Evidence of Usage, Injury and Causation Requirements for Pending Cases Not Participating in the NuvaRing Resolution Program and Newly Filed or Transferred Cases, entered February 7, 2014 (Doc. #[1680]) will begin to run as of that date for cases not participating in the NuvaRing Resolution Program.

Signed by District Judge Rodney W. Sippel on 7/25/14. . . .

We will be up early — for the earnings call, tomorrow. Sleep well!

Merck Reports Q2 2014 Earnings Tomorrow. . . What To Expect?

July 28, 2014 - Leave a Response

I’ll guess that revenue will be a little light; bottom line will be on target for the year — and currencies will have taken about 1.7 per cent to 1.9 per cent from global sales. Per Forbes reporting, then:

. . . .Despite not changing over the past month, the consensus estimate is down (to 81 cents) from three months ago when it was 84 cents. For the fiscal year, analysts are expecting earnings of $3.49 per share.

After being $11.01 billion a year ago, analysts project revenue to drop 4% year-over-year to $10.61 billion for the quarter. For the year, revenue is projected to roll in at $42.57 billion. . . .

See you an hour before NYSE open, tomorrow, then.

Sunday Reflections: Whither The “Pharma Rep” (Or Detailer) Old-School Sales Career?

July 27, 2014 - Leave a Response

With local Philly-area media noting that some 5,000 more positions are yet to be eliminated — during 2015 — at Merck (and we all have likely surmised that the bulk of those are likely to be detailer jobs), I decided to take a moment to ask whether the position should exist, at all. [And I won't belabor the point, but those 5,000 are on top of perhaps 35,000 over the last four years -- at Merck and legacy Schering-Plough, in the aggregate -- reflected industry wide, too.]

Right at the top, let me say that I mean no disrespect to the smart, creative, hard working and honest men and women who presently perform this role, at various pharmaceutical and biotech companies around the United States. I simply know that — even in the last seven years — with the advent of a more universal system of health care reimbursement coverage (and especially in the last two years), we are witnessing a vast consolidation of purchasing power — consolidation, into the hands of an acceleratingly small number of payers — each of which is increasingly weilding more price negotiating power. So, I must ask (but not too-quickly suggest an answer), is it even wise to try to influence the doctors’ decisions by direct visits, from often fresh faced, well-informed (albeit with a pro-drug perspective) mostly young people? [Tell me what you think, in comments.]

It would seem that in hundreds of cases, if one were to read CafePharma, at least — the “sales” people themselves believe that job has largely become a lunch or breakfast catering-to-the-clinic-staff role. Literally getting them Starbucks, or Chipotle, on an every other week basis — in the hopes of being able to schedule a few minutes every three or four months — to chat up the doctor. And to get signatures for the samples delivered, as formerly just required by HQ (and now required by regulatory imperatives). Given that so many doctors now will write primarily the ‘scrip the payer is willing to reimburse most completley (for the resource constrained patient), should Merck even be spending on what may amount to a “nation-wide catering and delivery” operation?

To be clear, we all know that industry-sponsored CME events, and opinion leader talks — even if digitized, with doctors talking to other doctors — remain effective in influencing prescribing patterns. What I am increasingly skeptical about, however, is whether the detailers’ calls, made mostly upon staff and nurses, and in many cases, to deliver donuts, coffee, or lunch, really adds enough to Whitehouse Station’s US revenue — to be continued. Sure, some offices will complain when the free food stops arriving — but will a doctor really decrease (or increase?) his/her prescribing patterns, with- or without the free Subways? I have no idea. But I’d bet that the data is driving these remaning 5,000 job cuts. And it is industry-wide.

Have an easy breezy Sunday! My hot fresh coffee — and the quiet, luminous beach-front, at dawn — chants to me now. I’m out.

Sad Late Friday News: Merck To Lay Off 600 People — In Montgomery County PA

July 25, 2014 - Leave a Response

Of course — and naturally, as ever Ed Silverman at Pharmalot/WSJ had the item, and reaction from Merck first, while I was off the grid, yesterday.

Updated: 07.26.14 – per an erstwhile anonymous commenter, below: “. . . .Unfortunately, a local story also calls out that 60% of the 8,500 cuts lie ahead in 2015, and hints that the 40% of that figure are not complete yet. . . .

The fact that CafePharma has been abuzz about just such a sales force headcount reduction for weeks is decidedly cold comfort to the affected workers, and their families. Here’s all the sad news, known to the moment, at least — from Philly.com:

. . . .Merck & Co., which is reorganizing to slash $2.5 billion in costs and 8,500 workers, has informed Pennsylvania officials it will cut 600 jobs at facilities in North Wales and Lansdale.

The cuts were disclosed in an official notice posted on the state Department of Labor and Industry website. According to the notice, the effective date is Aug. 26. . . .

Our thoughts, prayers and meditations go with the affected families.

Goofy Idenix Shareholder’s “Inadequate Value” Delaware Suit Likely Settled; Formal Court Approval Next

July 24, 2014 - Leave a Response

As we had earlier predicted, this suit is a dead letter.

It is highly likely that the memorandum settling it requires essentially nothing of Merck or Idenix, other than a report. And (just perhaps) a small payment to defray attorneys’ fees — but none of that is certain — or public yet. That is my conjecture, solely. So we shall see. The deal is still on target for a Q3 2014 closing. From the amended SEC filing tonight:

. . . .On July 24, 2014, Idenix, its directors and certain officers, Parent and Purchaser entered into a memorandum of understanding (the “MOU”) with the plaintiffs in the above-captioned actions reflecting an agreement in principle to settle the actions based on the agreement to include certain additional disclosures relating to the Offer and the Merger in Amendment No. 6 to the Schedule 14D-9 to be filed by Idenix with the SEC. Idenix, its directors and certain officers, Parent and Purchaser each have denied, and continue to deny, that they have committed, or aided or abetted the commission of, any breach of fiduciary duty or any law, or engaged in any of the wrongful acts alleged in such actions, and expressly maintain that they diligently and scrupulously complied with their fiduciary and other legal duties. The defendants in the actions, to eliminate the burden, expense, distraction and uncertainties inherent in further litigation, and without admitting the validity of any allegation made in such actions, or any liability with respect thereto, have concluded that it is desirable that the claims against them be settled on the terms reflected in the MOU. The terms of the settlement reflected in the MOU are subject to customary conditions including completion of appropriate settlement documentation, court approval and consummation of the Offer and the Merger.

The MOU provides that all actions will be dismissed with prejudice as to all defendants. Pursuant to the terms of the MOU, the parties expect to execute a stipulation of settlement, which will be subject to approval by the court, following notice to holders of Shares. There can be no assurance that the settlement will be finalized or that the court will approve the settlement. . . .

So it goes — have a great Friday, one and all. I’m largely off grid, tomorrow.

Federal Funds Can — And Will — Be Used To Subsidize Federal Exchanges: Condor’s Unsurprising Predictions Dept.

July 23, 2014 - Leave a Response

Of course, the marginalia — the drafting oversight — ought to be corrected, and of course, the Supremes will likely issue an opinion to that effect. But the black letter law in almost all analogous situations is pretty clear: the IRS may interpret federal revenue and expenditure laws, and issue regulations reasonably implementing the will of our Congress. That it has done.

With the Fourth Circuit (upholding — with mostly Democrat appointees on the panel), and the DC Circuit (nullifying — in an all Bush 41 and 43 appointed panel) issuing directly contradictory opinions within hours of one another yesterday, I predict (unsurprisingly) the Supremes will have to take the case.

Also unsurprisingly, the Supremes will — I predict — take the Fourth Circuit’s opinion, nearly verbatim, as black letter law. The IRS plainly possesses the regulatory and rule-making power to make the laws of Congress work in what it sees as a reasonable way. Once a court concludes that “Congress’s intent in enacting [a specific provision] was not so clear as to foreclose any other interpretation“, then the IRS’s interpretation is to be given a wide berth.

The IRS has determined that it was an oversight in Congressional drafting, to suggest that federal money could not be used to fund subsidies for federal health exchange participants. And that determination is plainly a reasonable one — one which furthers Congress’s stated intent, in passing the ACA of 2010. Game — effectively over (but it will be late 2015, before the Supremes offer a published opinion, here).

A bit of the New York Times on it, this morning — do go read it all:

. . . .”You don’t need a fancy legal degree to understand that Congress intended for every eligible American to have access to tax credits that would lower their health care costs, regardless of whether it was state officials or federal officials who were running the marketplace,” said Josh Earnest, the White House press secretary. “I think that is a pretty clear intent of the congressional law. . . .”

[Fourth Circuit] Judge Gregory said, the administration’s position helps achieve “the broad policy goals” of the Affordable Care Act. “The economic framework supporting the act would crumble if the credits were unavailable on federal exchanges,” he said. . . .

In a concurring opinion, Judge Andre M. Davis, a senior judge on the appeals court, said the plaintiffs’ argument “would effectively destroy the statute.” It would, he said, “deny to millions of Americans desperately needed health insurance through a tortured, nonsensical construction” of the law. Judge Davis and the other judge on the panel, Stephanie D. Thacker, were appointed by Mr. Obama.

The health law authorized subsidies specifically for insurance bought “through an exchange established by the state.”
When the law was adopted, Mr. Obama and congressional Democrats assumed that states would set up their own exchanges. But many Republican governors and state legislators balked, and opposition to the law became a rallying cry for the party.

The lawsuit in Washington, championed by conservative and libertarian groups, was filed by people in states that use the federal exchange: Tennessee, Texas, Virginia and West Virginia. They objected to being required to buy insurance, even with subsidies to help defray the cost. . . .

I run — again — the graphic of that goof-in-chief, Ted Cruz (R), as he is among the named amici submitting briefs to overrule the IRS’s interpretation of this provision of the ACA of 2010. He is one lost soul. And what to make of Governors Perry and Haslam, among otehrs? They tell the poorest people in their state — as your leader, I will not allow you to receive federal funds, to defray 95 per cent of your health costs — and as your leader, I will provide almost no state coverage for you. There used to be a term for that, on fuedal Europe — it was aristocratic robber-king. And we know what the peasants’ next move was. Right? Right. But here in the colonies, beheadings are now frowned upon. So, vote these jokers — out of office. They have betrayed their own people. Just my $0.02.

Merck’s Idenix Cash Tender Offer Clears US Antitrust Review: Hart Scott Waiting Period Popped July 18, 2014

July 22, 2014 - Leave a Response

Still very-likely a Q3 2014 closing — on time, and on target, for this all cash offer for all the shares of Idenix.

From the as amended SEC tender-offer filing (formerly called a Williams Act filing, by old schoolers!), then — a bit:

. . . .At 11:59 p.m., Eastern time, on July 18, 2014, the waiting period applicable to the Offer and the Merger under the HSR Act expired. Accordingly, the condition of the Offer relating to the expiration or termination of the HSR Act waiting period has been satisfied. . . .

Just like that, the potential (and negotiating strategy) for a Gilead patent royalty payment on Sovaldi® — its multi-billion dollar titan Hep C drug (the most successful drug launch in history, even adjusted for inflation) is now. . . (as of the closing of the Idenix deal) pretty well consolidated into the very capable hands of Merck’s lawyer-chairman. Smart move.

[Preliminary] Merck Spent $1.33 Million On Lobbying, In Q2 2014 — $3.75 Million Through First Half Of 2014 — 50 Percent Off, Compared To 2013

July 22, 2014 - Leave a Response

I’ll update this when the final tally is in (likely later this week), but through 2 pm EDT today, Merck is at $1.33 million. Moreover, just as was true in the first quarter of 2014 — this year is running at about half of what the 2013 lobby spend levels were.

Merck had lobbying underway on (among other matters):

. . . .Alzheimer’s education (no specific bill); 340B (no specific bill); National Diabetes Clinical Care Commission Act (H.R. 1074, S. 539); Eliminating Disparities in Diabetes Prevention, Access and Care Act (H.R. 3322); Hepatitis C education (no specific bill); adult vaccine policies (no specific bill); medication adherence (no specific bill); DISARM (H.R. 4187). . . .

Comprehensive tax reform (no specific bill); transfer pricing of intangibles (no specific bill); territorial tax system (no specific bill); deferral of taxation of foreign earned income (no specific bill); tax base erosion (no specific bill); R&D tax credit (no specific bill). . . .

Non-interference in Medicare Part D (no specific bill); Medicaid-style rebates in Medicare Part D (no specific bill); Low Income Subsidy Copays in Part D (no specific bill); Independent Payment Advisory Board (S. 351, H.R. 351); sustainable growth rate (H.R. 4302). . . .

Trans-Pacific Partnership (no specific bill); biologic data exclusivity (no specific bill); trade promotion authority (no specific bill); treatment of intellectual property in India (no specific bill); Playing Fair on Trade and Innovation Act (HR 3167); additives in beef cattle (no specific bill); trade adjustment assistance (no specific bill); international trade barriers for beta-agonists (no specific bill). . . .

Deficit reduction (no specific bill); ADAP funding (no specific bill); omnibus appropriations; Patent reform (H.R. 3309, S. 1720 ); education on beta agonists (no specific bill). . . .

Now you know. More on the final numbers, soon.

Scholl Non-Americas Rights “Mystery”, Clarified: Thanks To A Commenter!

July 21, 2014 - Leave a Response

It is truly. . . a gift that so many smart, well-informed, long tenured insiders read this goofy little corner of the pharma/life sciences sector chronicle. Within minutes of my mentioning the Scholl/Reckitt deal, a commenter had provided the whole back-story.

I just couldn’t get to it until now, due to other responsibilities. [And, perhaps immodestly, I wanted to honor the commenter's effort, with a custom graphic. Check!] So, the Scholl ex-Americas shoe rights went out of Schering-Plough in the 1980s, per the commenter. Nice catch!

Specifically, per my truly-enlightened help: The Reckitt purchase was not recent. Bob Luciano, Chairman of SPG at the time, divested the Scholl business outside North America in 1987 to Seton Healthcare which became Seton Scholl Ltd and the SSL International. Schering-Plough later bought back a small piece of the international footcare (non shoe) business in Latin America and maybe another market. Reckitt bought SSL International in 2010. I had thought their Scholl international business and desire to globalize it might have been a significant driver in their chase of the Merck Consumer Care business at the higher prices. — /s/ Anonymous @ July 21, 2014 at 11:45 AM. . . .

That fills in all the gaps, nicely! Thanks so much. I had no idea — just started following SGP around 2007. From a July 2010 Wall Street Journal blog posting then — that Reckitt 2010 deal — acquiring SSL International PLC:

. . . .It’s no secret that consumer health care is hot, but Reckitt Benckiser Group PLC’s proposed £2.5 billion offer for SSL International PLC has just slapped a massive 18.6x Ebitda multiple on the sector. . . .

So, now you know. Thanks Anon.! G’night, all.

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