“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.

Just As I Predicted, Merck Has Already Returned $1 Billion Of The Consumer Health Assets’ Price, To Bayer, Post Close

October 5, 2014 - Leave a Response

As I repeatedly said much earlier, the “effective price” received by Merck is significantly smaller, than that widely reported and disclosed — after all the ancillary “swapping” dust. . . has settled. There are many side deals, in which Bayer receives support in the US, including $1 billion in cash, in order to offset parts of the price Bayer paid — for legacy Schering-Plough’s Consumer Health assets. They just were not remotely worth $14 billion. Just not possible, in a rational world.

Take a look — from the October 1, 2014 Whitehouse Station press release — an exerpt:

. . . .Merck has also entered into the previously announced worldwide collaboration between the companies to develop and commercialize soluble guanylate cyclase (sGC) modulators. This collaboration, effective today, includes Bayer’s AdempasTM (riociguat), the first in a novel class of compounds and the only treatment approved for both pulmonary arterial hypertension (PAH) and chronic thromboembolic pulmonary hypertension (CTEPH), as well as the investigational compound vericiguat that is currently in Phase 2 development. The collaboration also includes opt-in rights for other early-stage sGC compounds in development by both companies. Merck will be making an upfront payment of $1 billion in connection with the sGC collaboration.

As previously communicated, the two companies will equally share certain costs and net sales for all products and candidates included in the collaboration, with additional milestone payments due upon the achievement of agreed-upon sales goals. For Adempas, Bayer will continue to lead commercialization in the Americas, while Merck will transition to lead commercialization in the rest of the world. In order to preserve business continuity in markets outside of the Americas where Adempas is launching, Bayer will continue to provide commercialization support on behalf of Merck for a period of time. . . .

We will keep you up to date, as other givebacks are announced, here.

Observation: Babies. . . are the Infinite’s opinion that the World should go on. . .

The Delaware federal Merck (via Idenix) v. Gilead Patent Spat Is In. . . Mediation: My Own “Overlooked Material News” Dept.

October 5, 2014 - Leave a Response

I apologize. I am very late with this bit of courthouse news. And it is a potentially material bit (to Merck).

Back in early August, in the Delaware federal District Court in Wilmington, three days after Merck’s acquisition of Idenix had closed, the East Coast version of the patent spat related to the human body metabolites of Sovaldi® was referred to mediation. Pretty shortly, we ought to start hearing about some potential outcomes of those mediation efforts. See order below, in blue pull-quote.

Do recall though, that on the West Coast, in San Jose, California federal District court many of the same patent claims are being litigated — and no order regarding mediation exists (yet) there. There, on April 3, 2015, the able District Court judge will be asked to decide what the terms “administering,” and “compound” mean, in the context of the two patents covering. . . the adminsistration of the compound, as a treatment for Hep C — a treatment that becomes the metabolite(s) of Sovaldi, inside the human body.

And, as long as we are updating, here — after the mediation order out east, Gilead has been completely successful in forcing Merck to get some new co-counsel — in all of these various pieces of litigation (including in Europe and Japan). It turns out that one of the former Idenix law firms had previously represented Gilead in an at least arguably substantially related matter. And that, a judge might rule, cannot continue, in favor of Merck. So, all the parties agreed to let that counsel withdraw quietly. Specifically, the firm’s “. . .withdrawal from its representation of Idenix/Merck encompasse[d] the pending Delaware cases as well as any other sofosbuvir related litigation or work for Idenix/Merck world-wide” according to a September 14, 2014 letter filed in open court in Delaware.

In any event, here is the mediation order:

. . . .SO ORDERED, ON August 8, 2014

CASE REFERRED to Christopher J. Burke for Mediation. Associated Cases: 1:13-cv-01987-LPS, 1:14-cv-00109-LPS, 1:14-cv-00846-LPS-CJB(dlk). . . .

It remains to be seen whether there will be agreed royalty payments, from Gilead to Merck — and if so, how much they will be — but we will keep an eye on these various courthouses for news. This might, at least in the wilder dreams of Merck’s counsel, run into tens of billions of dollars, in favor of Merck, over the lives of the affected patents. Now you know why it is being fought on both coasts, at once, and in the EU and Japan. Enjoy a hopefully sleepy Sunday, one and all.

Guggenheim Initiates Coverage On Merck — Joins Deutsche At Price Target Of $65; Neutral Rating

October 4, 2014 - Leave a Response

Time to sip the piping hot Saturday morning coffee, and fresh pulpy chilled orange juice. . . while I update where Whitehouse Station stands, in the eyes of the various and sundry Wall Street. . . touts.

Guggenheim (new to covering Merck) now co-leads the touts’ pack, with the highest 12 month price target — at $65. [To be fair, though, DeutscheBank claimed this high water mark, over a month ago.] Even so, it seems reasonably clear that most analysts believe Merck is essentially “fully valued,” now trading on the NYSE at over 31 times its 2013 GAAP earnings per share. I agree. There may be a little upside yet this year in the name, but only a little.

In my experienced view, the single biggest catalyst (at October 4, 2014 — looking forward 12 months) will be whether Merck’s Keytruda®, or BMS’s Opdivo® wins first approval in the “highest burden” cancers, in the US, and the EU (i.e., the deepest and widest markets). Thus the faded background images in the graphic at right. We continue to expect that will generally turn out to favor BMS (to the tune of an incremental perhaps $20 billion to $25 billion per year in peak sales) — but Merck will still likely garner annual peak sales of perhaps $7 billion to $10 billion, even if it is the second one to market in these “biggest burden” cancers. Here is Thursday’s Intercooler item — I am late with it, as I have been busy on other. . . forest trails, this week’s end. [Separately, Merck did close -- on the sale of the Consumer Health assets -- to Bayer.]

. . . .Several analysts have recently commented on the stock. Analysts at Guggenheim initiated coverage on shares of Merck & Co. in a research note on Thursday. They set a “neutral” rating and a $65.00 price target on the stock. Separately, analysts at Jefferies Group raised their price target on shares of Merck & Co. from $60.00 to $62.00 in a research note on Monday, September 15th. They now have a “hold” rating on the stock. Finally, analysts at BMO Capital Markets raised their price target on shares of Merck & Co. from $62.00 to $64.00 in a research note on Friday, September 5th. . . .

[In addition, the number of shares held short in Merck declined almost nine per cent in the first half of September, compared to end of August levels.] As of September 15th, there was short interest totalling 24,454,599 shares, a decline of 8.8% from the August 29th total of 26,803,576 shares. Approximately 0.8% of the shares of the company are short sold. Based on an average daily trading volume, of 8,434,560 shares, the days-to-cover ratio is currently 2.9 days. . . .

A trend line — of decreasing shares shorted (sold today, to be bought back at some future date, at a presumably lower price) — is almost always a bullish sign. We will keep an eye on it, to see whether it continues. Have a great Fall weekend, one and all.

Onglyza® (Saxagliptin) Claims/Cases To Be Separated From Larger Incretin Mimetics MDL — Merck’s Januvia®/Janumet®

October 1, 2014 - Leave a Response

If I had to guess, I ‘d say that the reason the Onglyza® claims are being set to the side is that — at least according to FDA — post February 2014, there is some hint that elevated risks of cardiac events may be associated with saxagliptin, but not necessarily the other incretin mimetics. At least not yet. All are DPP-4 inhibitors, but only saxagliptin seems to be in the FDA’s focus, on that score, post a New England Journal of Medicine report.

So it makes reasonably good sense to keep all the similar (pancreatitis) incretin mimetic claims in one place, and handle the alleged cardiac risk claims elsewhere — for efficiency. From the motions, then:

. . . .On September 13, 2013, Plaintiff Teresa Seufert filed Seufert v. Merck Sharp & Dohme Corp., et al., Case No. 13-cv-2169 AJB (MDD). Although that complaint included claims against Merck Sharp & Dohme Corp. that fall within the scope of claims assigned to MDL No. 2452, it also included claims against AstraZeneca Pharmaceuticals LP and Bristol-Myers Squibb Company as to Onglyza. Plaintiffs subsequently filed Gaines, Lara, and McDaniel, which like Seufert, involved claims against the MDL Defendants that fall within the scope of claims assigned to MDL No. 2452 and also contained Onglyza claims. Onglyza claims were not part of the JPML Order creating MDL No. 2452. . . .

[Merck and the other] Defendants filed the Motion [to remand] on September 16, 2014. . . .

In the Motion, Defendants seek to separate the claims against Defendants from the Onglyza cases in which they are included as parties. . . . Plaintiffs do not. . . oppose this motion. . . .

So it will almost certainly be that the saxagliptin claims portions (a January 2011 backgrounder, under that link) of these cases, some of which allege elevated risks of cardiac related event side effects (claims not generally present in the MDL for incretin mimetics), will be left out of this main Southern California federal District MDL, by a subsequent order — granting the motion. Enjoy your. . . hump day!

Roche, BMS And Merck Showing Good PD-1 Immuno Data — In Bladder Cancer Too

September 30, 2014 - Leave a Response

Again out of Madrid — and the big cancer confab — the Anti-PD-1 immuno-oncology candidates look promising.

Separately, BMS is in a tight race on lung cancer (graphic at right, from ASCO back in June) with AZ’s combo candidates (and AZ’s candidate looks a little better on the side effect profile there). We will watch that one closely. Merck is running third there, at the moment — and that is a massive burden cancer. Here’s the bladder studies update bit:

. . . .Merck & Co’s Keytruda and Roche’s experimental antibody MPDL3280A have both achieved durable responses in patients with advanced bladder cancer, raising hopes of the first new therapy for the aggressive disease in more than 30 years. . . .

Data from early stage trials reported at the European Society of Medical Oncology (ESMO) conference in Madrid this week reveal that Keytruda (pembrolizumab) and MPDL3280A – both of which act on the programmed death-1 (PD1/PDL1) pathway – have encouraging activity in advanced urothelial cancer.

A phase Ib trial of Keytruda revealed that as a monotherapy the drug achieved a 24% overall response rate in patients with PDL1-positive tumours, with three of the 29 patients in the small study achieved a complete response. At the time of analysis, patients had shown responses of between 16 and 40-plus weeks. . . .

Very encouraging! And the big picture here is that we are taking major strides — against largely intractable cancers. Heady stuff, indeed.

Another Cancer Shows Good Responses — To Merck’s Keytruda® (Pembrolizumab/Lambrolizumab)

September 28, 2014 - Leave a Response

This morning, yet another cancer has shown solid response rates, on pembrolizumab, in a very small study.

And that is good news for Whitehouse Station. We all wait on the bigger burden cancers, to see which of BMS’s Opdivo® or Merck’s Keytruda® reaches market first, but in the mean time, this is immaterially good news. At this same European oncology conference in Madrid, Spain, Merck expects to show some data on five other types of cancers, in the coming week — and some of that data might turn out to be material. We will watch for it. From a NASDAQ wire source, then:

. . . .The early findings presented showed an overall response rate of 31 percent with KEYTRUDA as monotherapy. In a small Phase I study involving 39 patients with PD-L1 positive, advanced stomach cancer, a total of 12 people showed tumor shrinkage after being given Keytruda. . . .

These data, from a cohort of the ongoing Phase 1b KEYNOTE-012 study, were presented today, as part of a late-breaking oral session, by Dr. Kei Muro, Aichi Cancer Center Hospital, Nagoya, Japan, at the European Society for Medical Oncology 2014 Congress in Madrid, Spain. Data investigating the use of KEYTRUDA monotherapy in five tumor types will be presented at ESMO 2014. . . .

It turns out that almost three quarters of all of these types of cases of stomach cancers appear in the developing world. And so, this won’t likely be as lucrative a market franchise as some of the others, for immuno-oncology treatments. Which may help explain why this program is still in Phase I, while lung cancer is much futher along — both at Merck, and at BMS. Enjoy the sunshine and cooler air. . . I will.

ENHANCE Vytorin® Securities Litigation Claimants Should See Checks Before Christmas — Thanks ($688 Million Worth!), Fred Hassan!

September 28, 2014 - Leave a Response

The sad thing is that a competent Chairman and CEO — any competent one — would have saved this $688 million, and might have avoided having to merge into Merck (under significant duress), altogether. [And, over $116 million in plaintiffs' attorneys' fees as well. Perhaps double that, in defense fees. Ugh.]

So in a very real sense, this $688 million is being taken from the Merck shareholders’ pockets (and their insurers), due to the acts and omissions of the ex-Schering-Plough top six executives (Hassan, Cox, Sabatino and Saunders, et al.), and board of directors — relative to the delays in releasing the (Vytorin®) ENHANCE study results.

Here’s a bit of the latest motion for a dispositive order, from Friday:

. . . .PLEASE TAKE NOTICE that on October 20, 2014, at 10:00 a.m. or as soon thereafter as counsel may be heard, the undersigned counsel for Lead Plaintiffs shall move before the Hon. Esther Salas, U.S.D.J. at the Martin Luther King Building & U.S. Courthouse, 50 Walnut Street, Newark, New Jersey 07101 for entry of the accompanying Order Approving Distribution Plan, which will, inter alia:

. . .direct the distribution of the Net Settlement Fund to Claimants whose Claims have been accepted as valid and approved by the Court, while maintaining a Reserve for any contingencies that may arise; (iii) direct that distribution checks state that the check must be cashed within 90 days after the issue date; (iv) direct that Authorized Claimants will forfeit all recovery from the Settlement if they fail to cash their distribution checks in a timely manner; (v) adopt the recommended plan for any funds remaining following the Initial Distribution; (vi) release claims related to the claims administration process; (vii) approve Epiq’s fees and expenses incurred from October 1, 2013 through May 31, 2014, and to be incurred in connection with the initial distribution of the Net Settlement Fund; (viii) authorize the destruction of Proofs of Claim and supporting documents after the second distribution of the Net Settlement Fund; and (ix) provide that the Court retains jurisdiction to consider any further applications concerning the administration of the Settlement, and such other and further relief as the Court deems appropriate. . . .

We will let you know what comes of the October 20 hearing. But I would expect checks before Thanksgiving, even, this year.

Scheduling Miscellany — Q3 2014 Results Call: Pre-Market Open, On October 27, 2014

September 27, 2014 - Leave a Response

It has been a very slow couple of weeks for Merck news — at least the US Merck. The German one has announced a mega merger. But too many news outlets have confused the two. No — “our” Merck & Co. has run sub-rosa for a bit.

So. . . its next big pre-scheduled event? The Q3 2014 earnings call, on the morning of October 27, 2014. On it, we may get a sense of the uptake on Keytruda® — even if for only the last few days, in the quarter:

. . . .Merck will hold its third-quarter 2014 sales and earnings conference call with institutional investors and analysts at 8:00 a.m. EDT on Monday, Oct. 27. During the call, company executives will provide an overview of Merck’s performance for the quarter.

Investors, journalists and the general public may access a live audio webcast of the call on Merck’s website. . . .

We will tune in on that morning.

We May Learn More — On Mediation Progress — By October 8, In Fosamax® Femur Fracture Cases

September 26, 2014 - Leave a Response

With motions to dismiss the largest bulk of these cases already pending, and mediation underway, the able Judge Joel Pisano, in the New Jersey federal District Courts of Trenton, has set an update conference, in person, for counsel, on the morning of October 8.

We may well learn about the progress — of the mediation — on that day. From the order then:

. . . .ATTENTION COUNSEL: An in-person status conference has been set for October 8, 2014 at 11:00 AM in Trenton – Courtroom 1, before Judge Joel A. Pisano.

The following parties are directed to be present: Steve Marshall, counsel for Merck, and Plaintiffs counsel who can speak to the mediation and Merck’s pending motion for an Order to Show Cause. . . . Matter has been confirmed. . . .

So it goes. Happy Friday, one and all! Enjoy the day’s sunshine — I know I will.


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