Merck's CEO Kenneth Frazier advised investors that Merck had reduced its EPS estimate for 2011 to $3.64 to $3.76 per share versus analysts expectatins for $3.82 per share. The revised forecast came with news that Merck had stopped development of vorapaxar and took a $1.7 B write down of intangible assets related to the drug.
Vorapaxar was one of the prime reasons Merck acquired Schering-Plough as analysts had pegged it as a potential megablockbuster with estimated peak revenues in the $3-$5 B per year range. Now it is dead. Merck shares are down 6% YTD and fell 3.3% on the revised forecast news.
Merck also faces the prospect of losing perhaps more revenue relative to the S-P deal as it is currently embroiled in an arbitration dispute with J&J over the fate of its Remicade and Simponi drugs. These represent multi-billion dollar sales for Merck and are growing in low double digits. One consequence of the arbitration decision could be that J&J gains all rights to these drugs. A decision is expected this year.
Despite all the gloomy news, Merck also announced that it will not cut its R&D staff further -- unlike its rival Pfizer did in order to maintain its EPS forecast for 2012. Merck's Frazier said deeper R&D cuts would result in "significant underinvestment" for the company's future. Frazier intends to keep spending on the company's late stage pipeline -- including its potential blockbuster hepatitis C drug boceprevir which is receiving expedited FDA review right now. Merck is willing to take the EPS hit now for the potential gain in the future. See WSJ.
Posted by Bruce Lehr Feb 3rd 2011.