Several More Stock Analysts Seem Puzzled By Arbiter 6 – HALTS Early Termination

I now firmly suspect this will be a fruitful line of questioning on both the Merck, and Schering-Plough second quarter earnings conference calls — on the morning of July 21, 2009. In any event, I’ll live-blog it all:

Per Peter Loftus, once again — do go read it all, over at The Wall Street Journal:

. . . .But some analysts and investors interpreted the trial’s early halt to mean that Niaspan clearly outperformed Zetia in the trial. Natixis Bleichroeder analyst Jon LeCroy downgraded Merck shares Thursday to hold from buy, saying a Zetia “loss” in the trial would be the “third blow” against the drug, following two trials released in 2008 that raised questions about its efficacy and safety.

Shares of Merck, Whitehouse Station, N.J., dropped $1.14, or 4%, to $26.90. Schering-Plough, Kenilworth, N.J., fell 63 cents, or 2.5%, to $24.66. . . .

LeCroy reduced his estimates of Zetia sales in coming years, dropping it to $1.9 billion from $2.1 billion in 2010, for example. He also reduced his sales estimates for Vytorin, which is a single-pill combination of Zetia and the cholesterol drug simvastatin. . . .

Morgan Stanley analyst David Lewis said in a note that he wouldn’t be surprised if [Abbott's] Niaspan was superior to Zetia in the study, but it was difficult to quantify how much this would help sales of Niaspan, given the limited information released so far. . . .

Deutsche Bank AG analyst Barbara Ryan believes it’s “very unlikely” that Niaspan showed superiority. She said it was likely that “investigative futility” or enrollment problems, or both, were the reasons for the termination. She suggested that if Niaspan had shown superiority, that outcome would have been communicated by now. . . .

[Later,] she added she expects sales of Zetia and Vytorin “to continue to bleed market share, from currently already very low levels. . . .”

Several of these analysts’ thoughts echo mine, below, overnight.

Merck Makes A Longer Term — Perhaps Half-Billion Dollar — Bet, on Anti-Coagulant Factor Xa

Schering-Plough’s common stock is falling (about 2.5 percent, so far, on solid volume, while Merck is off more — about 4 percent, on lighter volume) on the NYSE this morning, and I think it is due largely to the fact that Merck has signed yet another rather expensive mid-stage development deal — this time, agreeing to pay about a half a billion for a potentially new clot-buster candidate, to be used in atrial fibrillation patients. It would be a daily med, if it clears FDA — and would, it is hoped, start to supplant the older standard, wafarin, but it is yet another longer term project, with significant upfront cash-flow impact to Merck, as Merck has agreed to fund all the costs of development for Portola.

According to Reuters’ now updated story:

. . . .Under the terms of the deal, Merck will pay Portola an initial fee of $50 million. Portola is eligible for additional cash payments of up to $420 million upon achievement of certain milestones. Portola is also eligible to receive double-digit royalties on worldwide sales.

Merck will assume all development and commercialization costs, including the costs of Phase III clinical trials.

Portola has an option to co-fund Phase III clinical trials in return for additional royalties. . . .

That is a lot of near-term cash cost — and perhaps, if the bet pays off, Portola may choose to soak up the lion’s share of the margins, by paying the Phase III costs itself, and thus dropping Merck’s “on launch” take, after commercialization begins, in earnest. Net, net — this does not seem like a particularly good deal for Merck (soon to be merged with Schering-Plough — thus it belongs here).