€ 1 Billion, Part II: The “Simplest Way” — To Return Euro-Earnings To USA, In A Tax Efficient Manner

October 27, 2016 - Leave a Response

Last night, we mentioned Merck’s new €1 billion unsecured debt issuance (full term sheet now on file, at the SEC). Now let’s discuss the most likely primary animating reason for it.

It is a simple strategy, really: Kenilworth has lots of local US debt — commercial paper and other unsecured obligations. With the $1.087 billion in proceeds in Europe, Merck will simply pay off the US debts, and thereby conserve both US earnings power, and cash flow — without paying any tax on the return. That’s a very simple “old school” way multinationals handle high finance. It works nicely, because under US law, cash is generally. . . fungible. Sweet.

And I think it is a fine capital allocation move. In the event that such returns are, in the future, subject to new or different US taxes, Merck may simply prepay the Notes — without premium or penalty. Nice. From the prospectus (page S-17), then:

. . . .Taxation Redemption

The notes may be redeemed at our option, in whole but not in part, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, together with interest accrued and unpaid to the date fixed for redemption, at any time, on giving not less than 30 nor more than 60 days’ notice in accordance with “Notices” below if:

(a) we have or will become obligated to pay Additional Amounts as a result of (i) any change in or amendment to the laws, regulations or rulings of the United States or any political subdivision or any taxing authority of or in the United States affecting taxation, or (ii) any change in or amendment to an official application, interpretation, administration or enforcement of such laws, regulations or rulings, which change or amendment is announced or becomes effective on or after the date of this Prospectus Supplement; provided we reasonably determine that such obligation cannot be avoided by our taking reasonable measures available to us without significant difficulty, cost or expense, or

(b) any action shall have been taken by a taxing authority, or any action has been brought in a court of competent jurisdiction, in the United States or any political subdivision or taxing authority of or in the United States, including any of those actions specified in (a) above, whether or not such action was taken or brought with respect to us, or any change, clarification, amendment, application or interpretation of such laws, regulations or rulings shall be officially proposed, in any such case on or after the date of this Prospectus Supplement, which results in a substantial likelihood that we will be required to pay Additional Amounts on the next interest payment date.

However, no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which we would be, in the case of a redemption for the reasons specified in (a) above, or there would be a substantial likelihood that we would be, in the case of a redemption for the reasons specified in (b) above, obligated to pay such Additional Amounts if a payment in respect of the notes were then due and, at the time such notification of redemption is given, such circumstance remains in effect.
Prior to the publication of any notice of redemption pursuant to this section, in the case of a redemption for the reasons specified in (a) or (b) above, we will deliver to the trustee:

(1) a certificate signed by one of our duly authorized officers stating that we are entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to our right so to redeem have occurred, and

(2) a written opinion of independent legal counsel of recognized standing to the effect that we have or will become obligated to pay such Additional Amounts as a result of such change or amendment or that there is a substantial likelihood that we will be required to pay such Additional Amounts as a result of such action or proposed change, clarification, amendment, application or interpretation, as the case may be. . . .

So. . . that’s the easy way — in a nutshell — to soak up some excess non-US cash flow: pay off US debt with low coupon €-denominated debt. And there you have it. Walking in — with the Cubs poised to make history in the friendly confines this weekend. That’s a huge grin!


€ 1 Billion: Probably Due As Much To Tax Planning Opportunities, As Very Low Coupons — Merck Prices About $1.087 Billion In Longer Term Euro-Notes

October 26, 2016 - Leave a Response

I’ve written many times before (that’s one example — just search “repatriation” in the search box in the bottom WordPress toolbar, for many more), about using unsecured euro denominated debt as part of a multi-step process to allow the return of capital to the US, at pretty attractive tax rates. If that is what is underway here, it will take a tick (or a tock) — to get the rest of the structure together. But I don’t think this is purely a play to capture the historically low coupon rate available in the EU.

Officially, in the so-called red herring SEC filing, it is for general corporate purposes, but I’d point out that even lower coupons prevail here, state-side, at the moment. No I think Merck’s Mr. Davis is thinking about a future repatriation, as he layers in this € 1 billion in debt, across the pond:

. . . .Based on Oct. 21, 2016, closing exchange rates the EUR 1.0 billion equates to approximately $1.087 billion. The notes include:

EUR 500 million of 0.500% notes due Nov. 2024EUR 500 million of 1.375% notes due Nov. 2036

Merck intends to use the net proceeds from the offering for general corporate purposes, including without limitation repayment of outstanding commercial paper borrowings and other indebtedness with upcoming maturities. The offering is expected to close on Nov. 2, 2016, subject to customary closing conditions. BNP Paribas, Citigroup Global Markets Limited, and Merrill Lynch International are acting as the active joint book-running managers for the offering. . . .

And now you know. But with my Cubbies playing as well as anyone could hope, tonight — I’ll sign off here — to enjoy Game 2’s back half. . . with a huge grin, and g’night, one and all. . . . The Cubs will come home all even — it is theirs, now.


ESA Schiaparelli Lander’s Martian Skid Mark — And A Probable Cause…

October 26, 2016 - Leave a Response

At the outset: there is no shame in daring mighty things, and then coming up just a little short. [The same could be said of my Cubs, last night — but watch tonight, right? It’s a seven game series — so there may be as many as six more runs of that science experiment. Smile. . . .] Afterall, the lander crossed the whole of that vast black ocean of frigid space, perfectly, dropped into orbit — but missed its landing telemetry (due, it seems, to a sensor-, or software- glitch).

No, in space science — as in life — we are more properly defined (and enlightened) by what we do, after we crash and burn, not by the crash, itself. And so, courageously, the ESA ExoMars mission team has begun the forensic analysis of the crash site — and skid-mark, at right.

It is in this way, that all of life — and science in particular — moves forward: trial, and error. No shame — just learning, for Seamus Haney’s “next time ’round.” Here’s the bit:

. . . .It seems that the problem was caused by a software glitch or a sensor-based issue, which may have estimated a much lower altitude of the probe than the real one, which would explain all the preparations to collect evidence as part of its mission, according to Andrea Accomazzo, ESA’s head of solar and planetary missions. . . .

So I am smiling about all that the Cubs. . . learned last night — and you know that our Zen skipper took it all in — and will have a new idea come tonight, in the cold rain. Even small moves — in science, baseball and love — will make big differences, longer term. That is grin-worthy, indeed. Onward — ever onward.


Of Those Grinning Gray Ghosts Of ’08. . . But Not 2008 — Nineteen-And-Ought-Eight(!). . .

October 25, 2016 - Leave a Response

life-tinker-1908-cubs-world-seriesFor those of you that know — you already know.

For those of you that don’t — see after the poem, below.

Baseball’s Sad Lexicon

These are the saddest of possible words:

“Tinker to Evers to Chance.”

Trio of bear cubs, and fleeter than birds,

Tinker and Evers and Chance.

Ruthlessly pricking our gonfalon bubble,

Making a Giant hit into a double —

Words that are heavy with nothing but trouble:

“Tinker to Evers to Chance”.

— Franklin Pierce Adams (c. 1910)

This was a New York Baseball Giants fan’s poetic lament — penned when last the Cubs were universally feared, nation-wide. Let it begin anew, this very evening, some 108 years later. Smile. Go. Cubs. Go.


[U] ‘Twas Expected — For The Night Before Christmas, 2016 — But It Arrived Tonight: Keytruda® NSCLC First Line Approval

October 24, 2016 - Leave a Response

UPDATED — 10.25.2016 @ 7 AM EDT: In early morning (wee hours) commentary, a smart anonymous viewer has pointed out that I am not giving enough credit here. This is materially good news. As is the overall “beat” on Q3 2016 results — just announced. I expect Merck will rise, on the NYSE this morning. And Dr. Tim Anderson of Sanford Bernstein concurs with my anonymous commenter — he thinks this shifts the entire map in immuno-oncology in Merck’s favor. I certainly think it makes the testing a non-issue — since all NSCLC patients will now have the test first. Thanks again go out to my smart, fair and balanced comment crew! [So, to celebrate (the season’s early arrival!), I’ve set those cute lil’ elves a-workin’, and they’ve given us an all new graphic, at right. And, speaking of early Christmases — go Cubs go, tonight! End, updated portion.]

Going into earnings in the morning, Kenilworth has an early Christmas present — very early, indeed.

The FDA’s expected “approve by” date was to be on or before December 24, for this indication. But it arrived after the NYSE close, this evening. Two full months early — which is a life saver for many many a cancer patient (as my commenter rightly points out). Good news for Merck — even if the label will only be for patients whose lung cancer masses expresses high levels of a certain protein. [I would expect some off-label use, though — truth be told.] It puts a real crimp in Roche’s plans to dominate in the space (as its offering will run in third place, in lung cancer, now). BMS will be fine, but this is decidedly good Merck news, per Reuters:

. . . .Merck & Co Inc on Monday said the U.S. Food and Drug Administration has approved its immunotherapy Keytruda for use in certain previously untreated lung cancer patients, making it the only approved first-line treatment.

The drug has been approved for treating metastatic non-small cell lung cancer (NSCLC) patients with high-levels of a protein known for suppressing the immune system called PD-L1. . . .

Even so, I do not think this single announcement fundamentally changes the game, in the wide azure ocean of immuno-oncology, overall — at least not in the ways that some pundits are claiming. Except, of course, in one quarter of first-line NSCLC patients. And that may well dissipate in time — with more data. But none of us have that data yet. So. . . we wait — for data from BMS and Roche. G’night, to all of good will. . . as I saw my own version of a toddling set of present(s), this morning. . . smile.


[U] Merck Q3 2016 Earnings Call — At 8 AM EDT Tomorrow

October 24, 2016 - Leave a Response

UPDATED — 10.25.2016 @ 7 AM EDT: Merck has soundly beaten Q3 expectations — and lifted full year guidance.

It is unlikely that we will live blog it, but you may tune in yourself.

I expect an in-line quarter Well, I was wrong. Smile. So, do click here. . . .

Be excellent to one another — and keep the Universe spinnin’ in good karma. . .


As Expected. Merck’s Lobby Spend Declined In Q3 2016 — Presidential Election Year

October 24, 2016 - Leave a Response

As we’ve mentioned before, the usual trend in “regular” lobby spending in pharma at least, is to see a decrease during the heart of each four year Presidential cycle. Things pending in Congress tend to go quiet — on the lobbying front — as the mad dash to the finish unfolds.

That pattern is holding again this cycle, as it did in 2008 and 2012. [And, overall, Merck’s lobby spend is on a downward trajectory, of late.] Three years’ worth of detailed Q3 trend-line is at right; here is what the decreased amount was spent upon:

. . . .340B (no specific bill), Hepatitis C (general education; no specific bill), Human papilloma virus and vaccine policies (general education), shingles vaccine policies (general education), antimicrobial resistance (general education and DISARM (H.R. 4187), biosimilars (no specific bill), 21st Century Cures (H.R.6), Senate Innovation Project (no bill number), cost and value of medicines (no specific bill), priority review voucher, biodefense and medical countermeasures (general education), women’s health (general education), Prescription Drug User Fee Act (PDUFA; general education), Affordable Care Act, S. 3056 (CREATES Act), risk evaluation and mitigation strategies (general education), general pharmaceutical issues. . . .

Animal health vaccines, FMD vaccine bank, USDA rule for categorical exclusions for animal health vaccines, FDA guidance 209-213, FDA rule regarding species-specific antibiotics data collection, Animal Drug User Fee Act. . . .

Comprehensive tax reform (no specific bill), House Republican tax blueprint, international tax proposals (no specific bill), orphan drug legislation (HR 3678). . . .

Trans-Pacific Partnership, data exclusivity for biologics. . . .

Patent settlements/pay for delay (general education). . . .

Now. . . when (not if) HRC wins the White House in a few weeks, I would expect Merck’s lobby spend to ramp up, as the next wave of health care delivery reforms rolls through the new Congress. Now you know. And. . . beginning a clear, gorgeous Monday, with hope — hope that a long and beautiful friendship has been revived. Smile.


[U] “Salmon, Rising” — Sarepta’s Exondys 51® [Eteplirsen]: For Duchenne MD

October 23, 2016 - Leave a Response

life-sarepta-salmon-2016 While we wait patiently for The mighty battleship rises(!), takes the fly and line, running free now — on this crisp cool clear fall Sunday morning. I’ll post the graphic I just finished — which gives a sense of the scale of this molecular entity. [Recent backgrounder of mine, here.]

That is one honkin’ big structure. Okay Salmon — the graphics are loaded; the FDA’s new meds science guy has weighed in on your side — and so now we await post your take (Parts I and II).

. . . .Salmon rising:

First a correction. As you noted the press is claiming the advisory committee voted 7-6 against approval. Actually the vote was 7-3 with 3 abstentions. Abstentions are often the made when people want to vote no but are afraid of the political fallout to their careers such as denial of future grants. So the advisory committee vote was clearly lopsided against approval.

The documents the FDA has released about this are also fascinating with regards to the internal politics.

Although the press has made it out as this was Ron Farkas, the team leader, who was holding up the approval this is not the case. First the team leader takes his cue from the primary reviewer.

Then not only was the primary reviewer and the team leader against approval, but so was the Neurology Division Director who writes the recommendation. It then goes to the Office Director, Ellis Unger, who makes the final decision and he was also against approval. Above the Office Director is the Director of the Office of New Drugs, John Jenkins, who was also against approval. It was at this point that Janet Woodcock was clearly pushing for approval as indicated by her statement at the advisory committee meeting.

Ellis Unger then took this to the Scientific Review Board. The Scientific Review Board then sided with Dr. Unger and said it shouldn’t be approved. As Dr. Woodcock was then going to abuse her authority and issue an approval anyway Dr. Unger then made an appeal to FDA Commissioner Califf who basically said you had your opportunity to be heard through channels but I’m leaving the decision up to Woodcock. (Since the FD&C Act actually gives the approval decision to the Secretary of HHS it’s delegated down. So Califf, by giving the decision to Woodcock, in fact made the actual decision.)

There have also been op-ed articles in the press and blogs on the internet that are clearly misleading. One such post from a former FDA official who is now an industry consultant claimed that the AC vote was rigged because the AC members were asked whether the study was adequate and well controlled. Yet this is the legal standard in the Food Drug and Cosmetics Act which requires it be determined by experts in the field. Thus he criticizes the FDA for simply asking the AC members if the drug met the legal standard for approval which the AC members (who are experts in Neurology who the law specifically says must make such a determination) essentially said it didn’t. Whereas (in actuality) the decision was made by a single non-expert Janet Woodcock.

In another post an industry front group claimed that an FDA insider told them that this was just people inside the FDA who were overly concerned about safety. Yet there were essentially no complaints about safety by anyone opposed to approval and it was all about that the drug simply hasn’t been shown to work. I’ve noticed that this is a meme that has been recently been put forth by industry in a lot of complaints about the FDA in attempts to decrease approval standards. While I don’t know who the FDA insider is we need to consider that it has to be someone who has knowledge of the review and has the connections to actually speak to this (small) industry front group and get their position out and who has a particular ax to grind. In my [Salmon’s] opinion the most likely candidate for this FDA insider (as someone who actually has knowledge of the situation) is Janet Woodcock. Clearly not someone who is impartial and who is someone who likely to leave the agency soon and move on to be on boards of directors.

As for costs: It’s being claimed that the costs will be $300,000 per year. However this will be after rebates of 50%. Now I don’t know what private insurer will allow payments for something that clearly all the experts have said hasn’t been shown to work. Thus it’s likely that the costs will fall on Medicaid and since Medicaid can’t negotiate prices I don’t know what rebates will actually be offered. Secondly this $300,000 (actually $600,000 per year) is based on a dosages for a kid weighing 25 kg (i.e. and 8 year old) with doses going up based on weight. Now an average adult male is 75 kg and assuming a linear dose relationship we could be talking closer to $2 million per year per adult patient. Plus have you seen the photos of some of the kids who testified and can barely walk around. They’re morbidly obese. So with a 1000 kids nationwide we could easily be talking a $1 Billion per year. Plus if the bill before the senate passes (which Obama has promised to sign) other indications can be approved based on anecdotal claims. So for the other 90% of people with other forms of Muscular Dystrophy we could be talking $10-$20 billion per year for a placebo. (Now the finances are not my forte so if rebates are bigger than I expect, it might not be this high.)

As for parents and anecdotal data: One mother who testified at the AC meeting has a blog and is claiming Exondys will allow her kid to function and hold a job and not be a financial drain on society. How? Even if it works as claimed were’ talking about slowing down a progressive decline and the kids will still barely be able to walk. Do we really believe that they won’t be so physically overwhelmed that they will be able to run around and hold a job and be independent. I don’t think so. In truth I think it would be cheaper to simply pay for round the clock care for these kids than to waste money on something that as of right now we don’t have any good evidence that it’s anything other than a placebo.

As for the claims that it’s safe: It’s only been tested in 12 kids! Since it takes at least 3 times as many people as the incidence that something occurs at to make sure you see at least one case of something, this means the only thing we can say is that the rates of various serious adverse reactions such as death likely occur in less than 1 in 4 people.

It this the kind of decision-making we want? “Well there’s no evidence it works — but it turns out to kill 1 out of every 5 kids who take it. . . .?” I’m not saying this will be the case for this drug, but that’s the standard we’re putting in place and it (or something similar) will occur eventually.

While my comments may seem harsh as to the families — I truly do want the best for their kids. But when you approve things that have not been shown to work but you believe it might no one is going to sign up for studies the confirmatory trials or for new drugs from a different company that might actually work and truly help their kids. So if they or others have kids in the future with this horrible disease they may very well be condemning them to not having any effective treatments when there might have been if they hadn’t insisted on an approval for a drug such as this before it had been shown that it actually works. . . .

There you have it. We will keep an eye on the law of small numbers effect, here — to see whether it dissipates, or worsens — in the ongoing larger clinical post-marketing studies. But I agree — up and down the line — with Dr. Salmon. Thank you once again, man.

And now, in truth, I Can’t. Stop. Smiling. My. Cubs. Are. Series-bound. [Sadly, I was in a box-seat, in the friendly confines, on the night of October 14, 2003 — the unlucky thirteen years ago, when they were just five outs away from the Series — and well. . . Bartman happened, to Moises Alou. The Marlins went on to win the NLCS series. And we waited. And waited.] But now, we have returned the doorstep of history, once more. . . smile. Onward, to Cleveland — Tuesday evening.


Last Appearance: 1945; Last World Series Championship: 1908

October 22, 2016 - Leave a Response

So it’s been since 1908:

Back when women
weren’t yet enfranchised,
Henry Ford had just
introduced the Model T,
and the Wright brothers
had only recently
flown at Kitty Hawk. . .
ball clubs traveled
almost solely by
overnight trains. . . .
The very first Gideon
Bible was placed
in a hotel room that summer.
William Howard Taft beat
William Jennings Bryan (an
earlier Trump-style
candidate); he was
elected our 27th President.

Cleveland — the pending opponent — last
won it in 1948; we last appeared in it
three years before that.

And. . . my grandfather was nine years old (World War I was still a long way off) when the Cubs last took a World Series pennant home — for the hog-butcher to the world. His father’s father had owned a tavern in Chicago, back then (and may have followed those Cubs, in his retirement, by newspaper reports) — but my grandad’s dad had moved to the Rockies, and become a miner, by the time my grandfather was born. . . .

I am silent. Dumbfounded — without words. Four wins to go. Joe Tinker (above) is grinnin’. Whoosh — g’night. . . .


Condor’s Conjecture Dept.: Did Shkreli Try (Impotently) To Influence KaloBios Chapter 11 Exit Valuations — In The Spring of 2016?

October 22, 2016 - Leave a Response

At the head — this is simply a Condor conjecture. Overnight, Mr. Shkreli announced via tweet that he is going to sue a company called AudioEye. Yawn.

It seems to be a perfectly fine company. But one of its current members of the smallish board of directors founded Batuta Advisors, a controlled/controlling affiliate of the entity that gave the independent financial advice, and oversaw the valuation work (wait for it!) — in the KaloBios Chapter 11 consensual workout.

Again, I am sure that director is an entirely ethical man.
But I am equally sure Mr. Shkreli is. . . the opposite of all that. Just my opinion.

So in some more non-Merck-ified fare. . . I wrote this last night elsewhere.

Since we are offering pure trivialities on this Friday evening, let me close with an ironic one: Mr. Shkreli claims he lost over $1 million that he says he invested in something called AudioEye, and so he is (wait for it!) filing a securities class action suit. Uh-huh. And “the class” is… one person — more of gnome if the truth be known, and less a fully formed human.

Martin Shkreli: “…I invested $1,050,000 in Audioeye and lost nearly all of it. I’m moving forward with a class action. RIP Audioeye…”

You see Mr. Shkreli, there have to be others similarly situated, for it to be even considered as a class action. But you go right on ahead, Perry Mason, Jr.!

It is fascinating, though that the founder of Batuta Advisors (remember that name from KaloBios’ bankruptcy!?) is/was on the board of AudioEye. Click image at right to embiggefy, again.

Small world. Small world, indeed.

I am sure — without doing any real diligence — that AudioEye is a perfectly fine company. To elaborate on my guesses here, though, I could easily imagine that Mr. Shkreli THOUGHT (incorrectly, of course) that by putting $1 million into AudioEye, he’d be able to subtly influence the valuations — and thus his ultimate payout — in the KaloBios Chapter 11 exit.

He was incorrect simply because most business people endeavor to be honest.

In topsy-turvy Shkreli world, then — being honest and doing one’s job on a board or as an advisor is. . . a fraud — at least as to Mr. Shkreli’s (allegedly) dishonest schemes. So he is suing AudioEye, in retribution. That’s the Condor guess.

Yep — that’s my thought. Now you know. And. . . Go Cubs Go!