UPDATING: CapitalHill Advisory Corrects Its Lobbying Disclosure Form: It Is “Our” Merck!

October 20, 2014 - Leave a Response

Well, the newly-amended form LD-1 removes all reference to the German company’s address, and cleans up the typos in what the lobbying is about.

The same lobbying firm represents others, including Pfizer and Astra-Zeneca and Abbvie on these issues, so the less than $5,000 paid by Whitehouse Station is truly tiny. Here it is, as corrected:

. . . .Australian Government policy on intellectual property and its impact on the Australian healthcare system. . . Impact of Australian Government Policy on the company’s local business environment. . . .

Now you know. Glad we were able to clear that up.

Very Little Is Actually New, In Merck’s Propecia® MDL Litigation: Update, Per Anon. Commenters’ Questions

October 19, 2014 - One Response

An erstwhile but anonymous commenter has asked if much had happened in this finasteride/ Proscar®/Propecia® federal MDL — since the August 20, 2014 status hearing.

In a word. . . no. There is, however, an ongoing skirmish — over how many attachments to its emails Merck may avoid disclosing — to the plaintiffs’ lawyers. The fight is over whether some, none or all of them are attorney client privileged communicaitons — here’s a bit of that last filing — from October 9, 2014:

. . . .We [plaintiffs' lawyers] have reviewed Merck’s new privilege log. Of the 1,800 e-mails originally withheld but neither authored nor received by a lawyer, Merck has produced all but 162. Accordingly, Plaintiffs withdraw their challenge to the assertion of privilege on those 1,800 e-mails.

However, Merck claimed attorney-client privilege on 1,191 attachments. No lawyer authored 586 of those documents, although a lawyer received or was copied on some of them. Of the documents received by a lawyer, none appear to be requests for legal advice. We respectfully renew our challenge to those 586 documents being withheld as privileged (see attached challenge log).

We believe that an in camera inspection of between sixty and one hundred of those attachments is warranted to confirm or deny Merck’s assertions. . . .

SO. . . there is a quite long road ahead, yet here, I’m afraid (at least a long road until checks are cut by Merck — if ever they are). Just for what it is worth.

Kudos To Commenters!: Will Patent Judges Be Concerned That Merck Called Idenix Deal “Project Invincible”?

October 18, 2014 - Leave a Response

Of course, the notion of a large company buying smaller companies, whole — in order to improve various aspects of the larger one’s patent estate is by no means a novel concept. It has been going on for many decades now, especially in the life sciences sector. So Merck’s purchase of Idenix is in many ways plain vanilla M&A.

Even so, this is what is wonderful about having an extremely well-versed, highly-expert, and soundly engaged readership, here: my anonymous helper(s) pointed out (on Thursday night) that the Whitehouse Station coined code-name for the project to acquire Idenix was. . . “Invincible“.

That may well be understood in the patent courts here, and in the U.K., as a suggestion that Merck was seeking to lock in a monopoly position, in its bargaining with Gilead over the en-vivo metabolite patents it (and Idenix) hold. That in turn could be called “patent trolling” (a frowned upon practice), albeit on a titanic scale, not yet seen anywhere on the planet — or, at least it could arguably seen that way. Idenix and Merck are asserting entitlements to 10 per cent of the world wide revenue from Sovaldi®. Sovaldi will likely book $6 billion in sales in this, its first year on market. Perhaps closer to $10 billion, next year. So, that 10 per cent could be worth $600 million to $1 billion a year to Merck, without having to supply any product (i.e., ramp any real ongoing expenses) — the whole truckload of cash would be just essentially pure profit to Merck, once the legal fees were paid. A pure-play margin and cash-flow enhancer, company wide — if ever there one was. And that’s powerful business motivation.

Interestingly, Merck is on trial right now, in the United Kingdom, but traveling mostly incognito, under the name Idenix, as it litigates with Gilead over this U.K. patent estate (seeking a largely similar royalty). Here is that bit, from Friday, London time (via Financier Worldwide — now be sure and do go read it all):

. . . .Last year, Idenix commenced a program of asserting its patent rights against Gilead, with infringement lawsuits filed in the US, then in France, Germany and the UK. The UK courts are well known as a venue for the speedy resolution of disputes. In particular, the English Patents Court will sometimes hear claims in relation to a granted patent well ahead of the courts of other countries, not least because an early decision can sometimes promote settlement between the litigating parties.

Idenix’s patent infringement claim in the UK court against Gilead started in early October, with the trial likely to last about three weeks and a decision likely to be made public in November 2014, or possibly in early December. A win by Idenix on the issue of patent infringement would entitle it to claim a significant chunk of royalties from the UK sales of Sovaldi, but such a win would be contingent upon Idenix’s patent surviving a validity challenge from Gilead, which is being aggressively pursued. This is a common tactic in patent litigation, for those accused of patent infringement. If the validity of the patent can be successfully challenged, i.e., if a challenger can prove that the patent monopoly should not have been granted, it may escape the consequences of a finding of infringement. . . .

Fascinatingly high stakes patent poker, on a truly global scale. Of course, we learned the code name via the SEC complaint filed about insider trading on the deal news (thanks go to Ed, Pharmalot!).

Often here it seems, some of the best information turns up. . . in unlikely government-supplied public sources. So it goes on a rainy Saturday. To be clear, taking normal action to enforce one’s patents is not a monopoly law violation in any country. But jury-rigging the give and take (where Idenix, the smaller company here might have accepted a lower royalty). . . well, that at least might draw an arched eye-brow expression, from the various patent courts’ able jurists. We shall see.

Very Odd New Lobbying Disclosure — Australia for Merck? Or, Is This The GERMAN Merck?

October 17, 2014 - Leave a Response

While it lists Merck Sharp Dohme as the client, CapitalHill Advisory (Sydney, Australia) shows a client address at 26 Talavera Road, Macquarie Park in NSW, Australia (wherever that might be — likely New South Wales, as a postal code, presumably). However, at the bottom of the LD-1 disclosure form dated September 1, 2014, one Ms. Cathy Duncan, the person responsible for filing the form, indicates that the client is controlled by a “foreign entity” — one residing at Frankfurter Strabe 250, but calling it Merck Sharp & Dohme, 64293 Darmstadt, Germany.

As my regular readers are quite well-aware, that would be. . . no relation to Merck (US). So the Merck Sharp Dohme name might likewise be. . . a case of mistaken identity. Ironic that a lobbyist would not know for “which” Merck it was conducting lobbying efforts, in DC. To add a little more mystery to the pre-Halloween mix, the claimed services are listed as “confidential”. Well, that just isn’t possible under US law. So, the form goes on to recite an Australian reimbursement practice which the client (whomever that might turn out to be!) would like altered — see below:

. . . .Privileged & Confidential: The Australian Government’s policy of initiating court proceedings to recovered [sic] damages from innovative pharmaceutical companies in cases where patents covering pharmaceutical benefits scheme (PBS)- listed medicines have been found invalid following an initial grant of an interlocutory injunction which delayed the launch of generic products. . . .

All quite. . . puzzling, no? I suspect this is not “our” Merck, at all. But as I type this, the third quarter reports of lobbying activity are trickling in. So expect a Merck Q3 total and analysis, in a few more days, here. Onward! Have a blast this weekend, one and all! I will with my last college kiddo, home for a short visit!

Merck Pays A “Waifish” $34 Million In Settled Whistleblower Suits — Regarding Legacy Organon’s Remeron® Marketing Tactics

October 16, 2014 - Leave a Response

I must note that this too is on Fred Hassan’s tab, even if completely immaterial to big Merck, here in 2014. You see, it was Mr. Hassan who acquired Organon in 2007, and folded it into what was then called Schering-Plough. [He, along with Whitehouse Station's Richard Clark, then renamed that company as Merck & Co., in a largely vain effort to avoid a J&J walk-away on Remicade® and later, Simponi®. But you regular readers know that story, already.]

So, in a very real sense, his bad night in the bar, just keeps costing Merck more and more. Here is the Corporate Crime Reporter story — and a bit:

. . . .Organon will pay $34 million to settle allegations that it underpaid rebates to state Medicaid programs, offered improper financial incentives to nursing home pharmacy companies, promoted its antidepressants for unapproved uses, and misrepresented its drug prices to New York’s Medicaid program.. . .

Have a great weekend away (if you can go) — I know I will too!

Never Say Never. . . But. . . “Pfinished” Is Pfizer’s Inversion (AstraZeneca) Gambit

October 16, 2014 - Leave a Response

With Abbvie pulling the plug on its $55 billion Shire inversion, it seems reasonable to infer that Pfizer’s inversion ploy for Astra-Zeneca is also. . . dead.

Without the (formerly-available) inversion-driven tax rate savings, the deal makes no sense, for Pfizer.

I’d say this one won’t revive. Anyone hoping for a November 26 surprise restart of talks. . . ought to just ladle up another helping of stuffing with turkey gravy, and relax. Pat your belly. Not happening.

Especially since Astra-Zeneca’s immuno-oncology program made such a nice showing at ASCO in June — AZ’s independence looks assured, for three to five more years, in my humble opinion. Or, at least its independence from Ian Read.

Merck Sees Only Tepid Response — To Its Euro Notes Tender Offer — A Light Response

October 15, 2014 - Leave a Response

Click here for the full table — it won’t format here properly.

This shows us that investors prefer the fatter coupons on the old notes, compared to the new ones. Citi and JP Morgan likely advised Merck of this probability. So, Merck may now run a mandatory redemption. We shall see.

Honestly, I haven’t bothered to check the SEC filings — to read and see whether/if the Noteholders may be forced into a redemption. But that would make sense, if Merck has that right. We will watch for it.

Even so, overall, none of this is material to Mothership Merck. Oh, and also, speaking of immaterialities — it seems an ex-Merck financial analyst was inside-tipping a fellow college alum from Rutgers, on the Idenix acquisition. Or so sayeth the SEC. Immaterial.Onward!

Jefferies & Co. Drops Merck’s 12 Month Target To $60 — From $62

October 13, 2014 - Leave a Response

Here is the SeekMoney investment wire update — the firm still has a “Hold” on Merck — but the 12 month price target is down.

This latest move, by a firm that has followed Merck for ages (it would seem) — really makes newcomer Deutsche Bank (and newcomer Guggenheim) look like a pair of outliers — at $65. Oh. Right. Deutsche got something like $15 million of fees and swap transactions payments from the euro debt underwriting at Merck, as recently as last week.

. . . .down, from $62 to $60. . .

So it goes. It was ever thus, at Wall and Broad. Slow news weeks for Whitehouse Station. Disclaimer: I do believe both Guggenheim and Deutsche Bank are complying with SEC Reg AC, here. As (obviously) is Jefferies & Co. Onward.

“Told Ya’!”, PART II — Legacy S-P’s Consumer Health Netted $6.9 (Okay, $5.9) Billion: Merck’s SEC Form 8-K Filing This Morning

October 6, 2014 - Leave a Response

Yesterday, I pointed out that Merck is paying “back” $1 billion to Bayer, in cash, in certain areas, post the close of the sale of the legacy Schering Plough Consumer Health businesses (on October 1, 2014). Today, we see the official net figure. And, just as I said. . . between $6 billion and $7 billion. see the early 2014 graphic, at right — and this link.

Per the last line of the last page — of Exhibit 99.2 to the Form 8-K:

. . . .Estimated gain net of taxes | $6.909 billion. . . .

So, from that $6.9 billion, we subtract the $1 billion cash payment. . . viola! right on $6 billion! And that’s a very far cry — from the $14.2 billion — as widely-advertised.

“This Is How Wall St. STILL Works” Dept.: I Told Ya’ Deutsche Was Angling For Merck Debt Underwriting Roles

October 6, 2014 - Leave a Response

This morning, Merck announced what is essentially a debt swap — buying back some of its higher coupon (around 6.3 per cent) debt, which will be replaced by an equal amount of new debt, which is indicated to price at around the relevant Treasury obligations (3 per cent), plus about 50 to 90 basis points, to reflect the increased default risk Merck presents, compared to the US Government’s risk of default. Got it? Good. Simple finance.

That is sensible, and expected, as the outstanding (since 2009) Merck euro coupon debt is now unduly expensive, compared to presently prevailing interest rates (as I said above — they are lower now, than they were back then). Very plain vanilla finance strategy is at work here.

What I enjoy, however, is “the story behind the story“. Note that DeutscheBank, back in August (see my graphic at right, from August 2014) “jumped the couch” when it placed an equity price target on Merck — at $65. That was a full two bucks over all others. What’s a couple of bucks, you might ask? Well Merck has 2.88 billion shares outstanding, so that is. . . $5.8 billion, in implied increased enterprise value. And, such a couch jumping prediction (especially by a major house, on a Fortune 100 company) is — more than occasionally — a self fufilling prophecy. Note here that Guggenheim joined DeutscheBank — just this past week, at the $65 target level. And since August, Merck has more or less risen steadily, from $56.80 to around $59 or $60 (occasionally to $61).

AND. . . SO, in a very real sense, the tout/analyst side of the Deutsche house was scratching Merck’s back, in August. Now here in the first full week of October, the “debt side” of the Deutsche house will reap commissions on over $4.7 billion of new debt sales, for Whitehouse Station. Su–w-w-w-e-e-e-e-e-e-t. That could well be a $15 to $30 million payday, with all the resultant stabilizing trades — and hedging activities, all in. Here’s the plain vanilla press release, from Whitehouse Station this morning:

. . . .Merck. . . announced today the commencement of a public offering of three series of Euro denominated senior unsecured notes due 2021, 2026 and 2034 (collectively, the “New Notes”). The exact terms and timing of the offering will depend upon market conditions and other factors.

The Company intends to use all or a substantial portion of the net proceeds from the offering of the New Notes to purchase notes and debentures that are validly tendered in connection with tender offers launched by the Company for its 6.30% Debentures due 2026, 6.40% Debentures due 2028, 5.95% Debentures due 2028, 6.50% Senior Notes due 2033, 5.75% Notes due 2036, 5.76% Notes due 2037, 6.55% Senior Notes due 2037, and 5.85% Notes due 2039 (collectively, the “Old Notes”). As of the date of the Offer to Purchase, the aggregate outstanding principal amount of the Old Notes is approximately $4.76 billion. If there are net proceeds remaining after the tender offers, the Company intends to redeem in whole or in part, its 4.00% Notes due 2015 and 6.00% Senior Notes due 2017. Any remaining net proceeds will be used for general corporate purposes. . . .

And who is a co-lead underwriter on this deal? Deutsche. Hilarious. To be clear, I am certain that the Deutsche stock analysts are complying with their various SEC Reg AC duties. That is, they genuinely believe in the analysis they made (and the price target they set for the name), back in August. But it had an incidental benefit, here for the debt side of the house — exactly as I said it might.


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