Merck & Co., Inc. (MRK)’s Latest Drug and Strategy Concoctions

Merck & Co., Inc. (NYSE:MRK) reported a 7% decline in fourth-quarter profit after the patent expiry of Singulair on August 13, 2012, in the United States. Singulair is a drug used to treat asthma and allergies. It had revenue of $1.34 billion in the first quarter. Several drug companies are losing patent exclusivity, and generics companies have been eagerly awaiting this patent cliff to launch cheaper concoctions of the original drugs.

Given the rising costs of healthcare all over the world, and the increase in chronic diseases, patients and healthcare providers have been increasingly pressuring regulatory bodies to allow the prescription of generics, and have achieved considerable progress, especially in some European countries.

Along with Merck, companies such as Pfizer Inc. (NYSE:PFE), AstraZeneca, Sanofi, Forest Laboratories, Bristol-Myers Squibb, and Eli Lilly & Co. (NYSE:LLY) recently lost patent exclusivity on their drugs.

Source: Economic Times

Drugs in the pipeline

Merck & Co., Inc. (NYSE:MRK) lacks transparency compared to its competitors in releasing information about drugs prior to Phase II trials. There are two drugs under discussion that have the potential to serve large markets if they succeed. FDA has accepted Suvorexant, a novel compound that assists in sleep onset, as well as sleep maintenance, for standard review.

Merck & Co., Inc. (NYSE:MRK) is also taking a novel approach to osteoporosis treatment through its drug Odanacatib, a weekly treatment to increase bone density. It would be up for possible registration in 2014, after additional data on safety and efficacy has been obtained from a clinical trial.

Odanacatib will be used to treat osteoporosis. This affects roughly 200 million women worldwide, of whom approximately 20% are receiving treatment as of now. Of those, about 25% cannot tolerate bisphosphonates, which is a major alternate treatment.

Pfizer , by comparison, has 90 projects in its drug pipeline right now. 35 of these projects are in Phase 2 trials, 18 in Phase 3 trials, and 11 in the registration phase. Like Pfizer, Merck is exploring drugs with the potential to treat Alzheimer’s disease. Given that it has a strong competitor like Pfizer pursuing the active development of a treatment for the same disease, Merck needs to ensure that its product has a superior differentiating quality in terms of safety, efficacy, cost, and/or treatment approach.

Additionally, it must carefully monitor the drug through the various stages of development to check that it is not wasting resources on a drug that might not be able to successfully compete against the treatment approaches developing in the laboratories of competitors.

In March 2012, Merck & Co., Inc. (NYSE:MRK) announced that the FDA issued a Complete Response Letter regarding their NDA for Atozet, an investigational medicine for high cholesterol. They were asked for additional data, which they submitted earlier in January this year.

In 2008, the FDA had turned down Merck’s original filing for Bridion (sugammadex), on concerns related to allergic reactions and bleeding events, however, the company filed new data on these side effects, and the FDA has accepted the new filing for the neuromuscular reversal agent.

Tredaptive, a cardiovascular disease management drug, which would have catered to a large market recently, failed to clear a Phase III trial. Results showed that adding Tredaptive to statin therapy did not lead to a significant reduction in the risk of major vascular events compared to statin therapy.

Rather, some types of non-fatal serious adverse events increased significantly. This failure was a major disappointment, as Tredaptive was one of the candidates in Merck’s pipeline slated for a U.S. regulatory filing in 2013.

Some comments and updates on Merck’s strategy

If a big pharmaceutical firm wants to profit from the orphan drug market, one of the ways to do that is to get into deals with smaller companies with products in the advanced pipeline. Merck wisely took this path a year ago when it decided to partner with Endocyte.

Merck & Co., Inc. (NYSE:MRK) paid $120 million upfront, and could pay an additional $880 million when certain milestones are met by vintafolide, which is currently in a phase III clinical trial targeting platinum-resistant ovarian cancer, and is in a phase 2 trial focusing on non-small-cell lung cancer. It received orphan drug status in March 2012 in Europe.

This focus on orphan drugs makes sense at a time when there is a need for greater number of products and diverse business approaches. Indeed, patent expirations are leading to decline in the sales of blockbuster drugs. In such a scenario, taking on a new approach which involves selling high-cost drugs to a smaller number of customers for a less prevalent disease makes sense.

In fact, some companies like Eli Lilly had started this process years ago. Eli Lilly & Co. (NYSE:LLY) received approval from the FDA for Alimta, the first drug approved in the U.S. for treating malignant pleural mesothelioma, in 2004. This disease is a rare form of cancer, with only about 2000 new diagnoses each year. Lilly has experienced huge success with this product, which generated $2.6 billion in sales in 2012.

A few years back, when I was working at Merck, it was also focusing on expanding the global reach of its products. For instance, its antibiotic and antifungal drugs Invanz and Cancidas are being marketed in other nations like India. With antibiotics and antifungals, it is very important to keep in mind the type of micro-organism prevalence in different parts of the world, and the types of drugs required for treatment.

Additionally, doctors’ previous experience with other drugs and the type of data they need (especially data that is relevant with respect to the population they are treating) must be kept in mind while planning marketing strategies. As Merck markets its drugs across the globe, it must gauge local needs and past prescription behavior to ensure it can sell its products persuasively to customers.

Finally, the results of the IMPROVE-IT study are being awaited eagerly to understand the efficacy of the Vytorin-Zetia combination versus simvastatin. Vytorin is the combination of Merck’s statin and simvastatin with Zetia, Merck’s cholesterol absorption inhibitor. Both drugs, when administered singularly, lower LDL cholesterol.

But, Merck & Co., Inc. (NYSE:MRK) considered combining both the drugs into one pill to lower LDL levels even further in patients. Since this new drug would be attacking LDL levels in two different ways, perhaps greater LDL lowering could be achieved than before.

Earlier studies on Vytorin revealed that the drug lowered LDL to levels about 7%-10% lower than that achieved by atorvastatin. However, the significance of this level of lowering is questionable. In order to study whether Vytorin would reduce cardiovascular attacks, Merck launched IMPROVE-IT, an 18,000 patient trial comparing Vytorin to simvastatin.

In my opinion, it would have made more sense to have launched a trial showing the efficacy of Vytorin versus atorvastatin, which is a more powerful statin compared to simvastatin.

In case IMPROVE-IT shows that Vytorin provides better outcomes than simvastatin alone, nothing quite substantial is established. This is because simvastatin is known to be a weaker statin than atorvastatin or rosuvastatin. Physicians are unlikely to use the more expensive Vytorin instead of the cheaper, generic atorvastatin, unless substantial efficacy is established.

Additionally, Zetia will be off-patent in 2016, which will make it available for much cheaper prices as a generic. Despite the inconvenience of taking two pills, patients might prefer going for the two generic molecules rather than the more expensive Vytorin.

On the other hand, if IMPROVE-IT shows Vytorin to be not much different from simvastatin, both Vytorin and Zetia would lose out because simastatin alone would be considered good enough for treatment, as Zetia’s cardiovascular benefits would be considered negligible or non-existent.

IMPROVE-IT results will add to our basic understanding of LDL cholesterol and heart disease treatments, but it is not clear how these results will immediately benefit Merck commercially. Merck should have conducted a study that would clearly show the benefits of Vytorin, or not done one at all, because carrying out a study like IMPROVE-IT can also suggest that Merck does not have the confidence to pit Vytorin against atorvastatin in a large-scale clinical trial.

Conclusion

While paying a good dividend of about 4% and being a well established company (with a market cap of $141.57 billion), operating internationally helps boost investor confidence. Merck & Co., Inc. (NYSE:MRK)’s drug pipeline shows uncertainty at this stage in my opinion, and I would wait and watch a bit longer before considering an investment in the company.

Additionally, operating income has now steadily started increasing (about 20% increase was achieved last year), but its sustainability is uncertain. The company’s stock has started performing better than Dow Jones and the S&P 500 of late, probably owing to the positive news from FDA’s review of the pill form of Merck’s drug, Noxafil, which is used to treat fungal infections.

Let us see whether the pill form gets approved and how much of a valuable addition it is considered by physicians. Singulair’s sales have dropped, but Januvia and Janumet (used to treat type 2 diabetes) are doing well. Tredaptive has failed a Phase III trial, but Suvorexant and Vintafolide may have a brighter future. As of now, I wouldn’t say sell, but rather hold, for those already invested in Merck.

Shas Dey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.