Merck (Sorta’) Opens Up — Broad “Strategic Options” Possible — Year End 2014 Completion?

So — let’s be clear, here. The so-called Novartis $5 billion asset swap idea is STILL PURELY A SPECULATIVE RUMOR. Novartis may or may not be a counter party, to one or more of the potential deals Merck might do. I will say that — if Merck seriously expects the deals (if any) to be “completed” by year-end 2014, the $5 billion swap is all but ruled out. Afterall, it took Merck almost two full years to get to the crater point, on the pending Merial/Sanofi Animal Health JV/swap. . . and there was no “return swap” of the consumer health businesses contemplated then. That was 2009 to 2011. So — I’d be quite surprised if Mr. Frazier would state in public that he believes he could begin and finish, such a complicated — and potentially-anti-competitive deal — all in under an elapsed year. He has to clear the EU. and the US DoJ Antitrust reviews, as well as similar ones in Japan and Australia — just to name a few. Not likely, as to the swap, then.

However, this certainly means Mr. Frazier — after the NYSE close, tonight, in San Francisco — will likely (only?) repeat these same phrases, below, over and over, in response to what is now certain to be VERY ardent questioning. Notice that no proposed, or actual counter party — or parties — are named, nor deal structures (of any sort), are outlined, in the below.

Here is the Merck statement, in full, and a condensed MSM version, here:

. . . .Merck & Co said on Monday it is pursuing strategic options for its animal health and consumer businesses and expects to complete any action it takes this year.

The company could “determine the most value-creating option for each and could reach different decisions about the two businesses,” Merck said in a statement ahead of a presentation at an investor conference later in the day.

In November, Merck said it was looking at options for separating these businesses. Last week, Reuters and other outlets reported that bankers said Novartis AG was discussing swapping its animal health and human vaccines businesses for Merck’s over-the-counter products unit. . . .

So — by all means — do stop back tonight. We will update this — but as no less an authority than Chief Justice William Howard Taft intoned (by inference), now over 110 years ago — the Sherman Act, at §1, and the Clayton Act, at §7, present significant obstacles to the likely Goldman Sach sourced rumor of a $5 billion straight up swap deal.

The Last Scientist-Chairman At Merck — Dr. Roy Vagelos — And His Later Endeavors: Regeneron

There is a very nice — and very bouncily optimistic piece, in the Science section (and the online Health section) of this morning’s Gray Lady — highlighting what may be a future category killer drug, in cholesterol management. The story, and lead, belongs to Regeneron. And as various commenters have cogently reminded us in the past, Dr. Roy Vagelos is a moving force behind that company.

So — as my update to the last post suggested, this DNA 2.0 effort — in at least selected spaces — may yet turn out like Internet Bubble 2.0. Ooh — wait. . . I mean. . . Um. . . .

More seriously, I do think the Regeneron notion — to sequence the complete genome of over 100,000 otherwise diverse people — is a very smart, and likely very-important (i.e., ultimately fruit-bearing) scientific idea. Go read it all, here:

. . . .The new projects, by sequencing the entire exomes or genomes of huge populations, are looking for rarer variations that might have a bigger influence on disease risk.

“You want the low-frequency, high-impact variants because they are the ones that are going to have more impact on the biology,” said Dr. Jeffrey Gulcher, chief scientist at NextCODE Health, a deCODE spinoff that sells software and services for genomic studies.

Studies trying to link genes to diseases require information on the health of the people whose DNA is being studied. That is where Geisinger comes in. It has extensive electronic medical records on its patients and has already collected 45,000 DNA samples.

To protect patient privacy, the medical information and DNA samples given to Regeneron will be anonymous. But Geisinger will know who the patients are and can use that information in their care. . . .

And remember, later this evening, I’ll have an update on any CEO statements — in San Francisco — about the goofy rumor of a Merck from Novartis Animal Health (and Consumer Health: Merck to Novartis) $5 billion swap deal. So do stop back, tonight, after 8 Eastern — off to the office, now.

Merck Paid $1.1 Billion For It In 2006 — Now Sells Sirna For $25 Million Cash, Plus $150 Million In Alnylam Stock

UPDATED — 01.13.14 @ 8:19 AM EST: In just a few minutes, I’ll have a splashy NYT piece on Regeneron — to show it is not all a wash out, across the entire board — not yet at least — but in the mean-time, a very cogent anonymous comment (and commenter!) reminds us of the wider horizon here, thus.

By Anonymous:

Just an off-hand observation, isn’t this what all big Pharma is going through?

Look at what Glaxo did with Sirtris.

And I think, Roche also had a siRNA program that went ‘south.’ It seems to be the paradigm to jump on the bandwagon of some new target/platform (remember S+P with Pharmacopeia?). Then there’s the hype to the stock, the expert analysts on Wall Street pressure other purchases…… but in the end; only 1-2 become successful and the bulk fall on the wayside.

And Wall Street and the CEOs/BoD make a killing in $.

January 13, 2014 at 8:19 AM

[END, UPDATED PORTION.]

Well, we all now know that RNAi hasn’t turned into the near term gold-mine Dr. Peter Kim once imagined it might be. That much is clear. And even four years ago — halfway in to Merck’s ownership of Sirna, it turns out — we reminded that Dr. Alan Sachs was, on behalf of Whitehouse Station, trying to reduce the lofty expectations for the small molecule RNAi approach.

I’ll not belabor the point, unduly, but this “buy it for a billion — sell it for a tenth of that — only eight years later,” suggests just how difficult so-called platform R&D betting is. Here’s a bit from the WSJ reprint at the NASDAQ:

. . . .Alnylam, Cambridge, Mass., will pay Merck $175 million up front, with $25 million of that in cash and $150 million in Alnylam common stock. Merck could also receive up to $115 million in milestone payments and royalties. . . .

“We believe that the acquisition of Merck’s RNAi technologies and intellectual property will further our efforts to build a new class of medicines, advancing them to patients in need,” said Alnylam CEO John Maraganore.

Merck Research Laboratories Senior Vice President Iain D. Dukes said the sale “is consistent with our strategy to reduce emphasis on platform technologies and prioritize our R&D efforts. . . .”

Well, you are going to strike out — and do so, pretty often — if you really intend to swing for the fences, every time.

Merck’s Innovation Fund Pumps $20 Million Into WellDoc — A Med App Company

But first, a little back-story (or stories!) here: Merck’s incomparable Merck Manuals^® have been digitized, and available as apps — for purchase — since December 2009. We love them! That is digitized pharma at its very best. On the other side of the ledger, however, back in January of 2011, Merck quietly withdrew several “home grown” medical apps that were available — for a time — in the Apple App Store.

There never was an official Whitehouse Station explanation of the reason(s) for the voluntary withrawal, but I speculated then that the apps were seen running afoul of the United Kingdom’s ban on “DTC” related to prescription medications.

A bit more background, if I might: DTC is “direct to consumer” advertising — and has been lawful in the United States for over a decade, now. The withdrawn apps included a Temodar^® Dosing Calculator, a DAS28 Calculator for Healthcare Professionals, a Remicade^® Dosage Calculator for Healthcare Professionals, a Remicade^® RRP Matrix for Healthcare Professionals and a Bridion^® Dose Calculator [Bridion^® (sugammadex) is not FDA approved in the US (and may well never be), but it is, at present, in Europe].

Fascinatingly (to me, at least), the only post-industrial economies on Earth that allow DTC advertising for prescription medicines are. . . the United States, and New Zealand. And so, with a fully formed, borderless global digital economy — it is a rather ginger proposition to release such apps into the Apple App Store — at least ones that either directly or indirectly advertise behind-the-counter drugs, or help with diagnosis of conditions — and/or monitor subsequent dosing (and adherence) regimens — for prescription medications. This is so because Apps invariably downloaded in one geography make “appearances” all over the globe, as people travel, and devices are bought and sold, worldwide. [And one humorous additional background story, here — even if apocryphal!]

So, it is with some keen interest that I note this WellDoc investment, by Merck’s Innovation Fund. $20 million is less than a rounding error, to Whitehouse Station — so the money is irrelevant. What is significant, is that Merck may end up licensing in some of the tech that temporarily “bricks” the app outside of select geographies, at least as to viewers and would be users, other than patients (already under the care of a US or New Zealand licensed physician) who “fingerprint in,” for example, on their iPhone 5S.

I am given to understand that WellDoc’s first app has cleared FDA for use (with a doctor’s order), in the US. That, my friends, is likely the information pipeline Merck is after, with this investment — near real-time information on how patients are actually medicating themselves. The $20 large also gives Merck the inside track on access to the BlueStar related know-how, to get a specific med dosing and adherence app cleared, and keep it from raising the hackles of the EU authorities, where it is generally seen as interfering with the patient-physician interaction — unless it is downlodaed with, or after a prescription, from a doctor, just like the real-world med itself. I for one will keep a weather eye on the BlueStar app, to see when/if it crops up in the United Kingdom press. It seems the UK authorities are the most vigilant about policing these things.

So, will the app prefer (make recommendations toward) Merck branded diabetes medicines? I doubt it, actually. However, here is a bit of Friday’s story (as published in MobiHealth News, below) — do go read it all. And stay tuned!

. . . .“When you look at how active Merck GHI has been in investing in digital health, they have acquired a lot of knowledge about technology — consumer technology, digital health technology — you name it. For us, that blend of life sciences and consumer technology is really important for understanding WellDoc,” Sysko said. “We don’t really see that in a lot of other strategic investors.”

WellDoc’s flagship offering is BlueStar, an FDA-cleared mobile application and program for people with Type II diabetes that is prescribed by physicians and adjudicated through pharmacies just like pharmaceutical therapies. The program is supported by WellDoc’s Automated Expert Analytics System, which includes real-time motivational messages, behavioral coaching and educational content, delivered right to the patient’s mobile device. The program also provides patient’s physician with clinical decision support tools based on how they’re doing. . . .

“It’s about the information, Marty — the in-for-ma-tion!” — Cosmo (Ben Kingsley), to Marty Bishop (Robert Redford), in “Sneakers” (1992). Cheesy but fun techie flick. Enjoy your Saturday night NetFlicks date nights! (Me? I’m up early — and on the road north tomorrow. . .)

May 2013 “Interestingness” Dept.: Novartis Gave Bernstein’s Tim Anderson “A Solid No” As To The Merck Swap Rumor

Change of Weekend Plans Dept. — I’m not travelling until Sunday now, but in view of the below, I’ll hold off on writing up the more detailed legal analysis of the five factors that are relevant (see the bottom part of this post) in evaluating the lawfulness of asset swaps — under Clayton Act §7, and Sherman Act §1.

My newly-refined bet is that Mr. Frazier will be asked on Monday night in San Francisco, about the purported $5 billion rumor, and I bet he will say that Merck doesn’t coment on market rumors. “Of course, we always look at interesting ideas,” he’ll say. And that’s exactly what he said, at this very same conference, just last year, when a shill for Fred Hassan, Brent Saunders, asked whether Merck might buy up Bausch + Lomb, when the Hassan & Saunders duo were flogging that company as a “great bargain basement deal,” to anyone who would listen. Mr. Frazier politely said Merck always evaluates options. “Sorta worth thinking about. . .” And in the end, a Canadian company bought B + L (after Fast Fred and Brent were unable to get an IPO done at the stupidly-high valuations they wanted — circa $10 billion). So (I think) it will most likely go something like that one, last year, on Monday. [As irony would have it — yep! you guessed it — Goldman was the banker on the B + L deal, at the time. Hah! Some things “never, ever change. . . .”]

Here’s the quote — from Medical Marketing & Media — that has me more comfortable that this rumor is all about Goldman looking to recover a bunch of sunk costs, in a Novartis transaction fee — where the transaction may never materialize. And that means. . . no fee for the Goldman Sachs banksters (as a $5 billion deal of this complexity would generate perhaps a bit over $100 million in “all-in” fees, for the Goldman firm). Do go read the whole MM&M article (subs. req.):

. . . .Bernstein analyst Tim Anderson wrote in his January 9 research note that his team asked Novartis about this very scenario during a 2013 Strategic Decision conference, and was given a very solid “no. . . .”

[Dr. Timothy] Anderson writes that there are a lot of unknowns at play, such as how profitable each of these businesses is. He also reminded investors that branded pharmaceuticals are the “core focus and profit driver” of each of these companies and that rearranging assets would “tidy things up a bit but does not trigger any sort of major shift in fundamentals. . . .”

Anderson also expects financials for both companies will be flat for 2013. . . .

If, at some future point, a deal does get announced involving Merck’s Consumer Health and Novartis’ Animal Health businesses — a la in a straight up swap — I’ll explain why those five factors likely mean that the regulators will completely rework the deal (blunting the anti-competitive effects), via required divestitures, and inclusion of third party competitors, like Lilly, Ceva, Lohmann or J&J, or any of the smaller animal health operators. [Finally, note that these same Clayton Act §7, and Sherman Act §1 problems will plague any acquiror of size, to some degree.] Until then, be excellent to one another — I’m out.

An Opportunity For The CEO To Put Some Rumors To Rest — On Monday Afternoon?

Mr. Frazier always speaks at the JP Morgan Chase conference, live.

He will be there Monday afternoon, for the 32^nd Annual Healthcare Conference, in the City by the Bay.

Will he deny the likely Goldman-generated rumors?

Will he even mention them, beyond the ongoing “we are always evaluating options” mantra?

Who knows? I’ll listen in, just in case. From the wires today, then:

. . . .Merck, known as MSD outside the United States and Canada, announced today that Kenneth C. Frazier, Merck’s chairman and chief executive officer, is scheduled to present at the 32ndAnnual J.P. Morgan Healthcare Conference in San Francisco on January 13 at 4:00 p.m. PST (7:00 p.m. EST). Investors, analysts, members of the media and the general public are invited to listen to a live audio webcast of the presentation. . . .

Do stay tuned — but as I’ve said — even if a big, splashy $5 billion multi-step swap deal gets announced, it will be a dickens to get closed. No. 2 can’t easily add assets of this size, in these highly concentrated markets, without a lot of regulators (and competitors!) taking notice — and squawking.

Merck Does Another Diagnostic Oncology Test Kit Partnering/Outsourcing Deal

This is, if memory serves, the fourth recent deal Merck has signed — related to “companion” diagnostic test kits production. And I think only one other one was for oncology related new drug candiates. [The other two sought the largely the same sorts of diagnostic tests, albeit in the HIV, and Hep C spaces, respectively.]

In any event, there is now an overall master framework agreement between Dako, an EU based unit of Agilent Technologies, and Merck, under which Dako will create diagnostic test kits for Whitehouse Station. It is likely that there will be a new diagnostic test for each of Merck’s newer oncology candidate therapies. The goal of using an early diagnostic kit to screen trial participants is to select the oncology patients who are most likely to benefit from the drug candidate being studied. This is, in some ways, a form of “stacking the deck,” for better trial results — and yet, in many other ways, it is excellent and humane medical practice — getting the best match to the best patient, for hopefully the best outcome, in fighting cancers that haven’t responded to current generation, on-market, therapies.

Here’s a bit from the Fool’s version of the Dako announcement, of late Thursday:

. . . .The agreement with Merck calls for Dako to develop “companion diagnostic tests” for cancer-fighting drugs. The companion tests developed will be for oncology drugs in Merck’s development pipeline, Dako said. Companion diagnostics, according to Dako, are especially useful in determining the appropriate oncology therapy based on an individual patient’s needs. . . .

We will keep you posted, but this is not likely to have any material impact for quite a long time. So do sleep well, now.

The Jefferies & Co. Near Term Merck Price Target “See-Saw” Continues

Jefferies last had Merck as a $54 target, back in May of 2013. But back then it had Merck as a “buy” rating.

Then, in October of 2013, Jefferies reduced the target to $50, and moved the rating to “neutral“. That rating stands this morning, but the target is back up to $54. Here’s this morning’s bit:

. . . .Jefferies Group increased their price objective on shares of Merck & Co from $50.00 to $54.00 in a note issued to investors on Thursday, American Banking & Market News reports. Jefferies Group’s price objective points to a potential upside of 8.46% from the company’s current price. . . .

Yawn. I like the Jefferies analysts, but like most, they see only incremental moves ahead for Whitehouse Station. So, they move the price target up (and down) only marginally, it seems. So it goes.

That Goofy (Now Apparently Monthly) $5 Billion “Novartis Swap” Rumor Resurfaces Tonight. . .

Back in early December 2013, Bloomberg was breathlessly reporting this same rumor piece.

Tonight it is SFGate’s turn to swoon. . . largely reality- and clue-free.

As ever, we never say “never” — but this one seems. . . particularly unlikely. Merck recently spent almost two years and hundreds of millions of dollars, likely, trying to make a similar deal work — and satisfy US and EU Antitrust regulators. Need some MORE granularity? Do recall that the Merial Sanofi Animal Health JV series of deals of 2009 to 2010 vintage — they ultimately foundered on antitrust concerns.

In the end, the Sanofi Merial deal had to be unwound. With Merck at No. 2 in Animal Health, it is hard to find a deal that doesn’t raise monopoly flags. Doubly true when the No. 2 Consumer Health maker is looking to acquire Merck’s smaller position — in Consumer Health, via a swap.

Stripped of the niceties, that is two giants, agreeing to carve up two markets, and doling dominant positions in one, to each co-venturer. That’s not been cricket — since 1890. Here’s a bit from SFGate.com — but read it side by side with my longer piece, debunking the December version of this same rumor.

. . . .A swap with Merck would follow a trend in the industry in which Pfizer Inc., Bristol-Myers Squibb Co. and Abbott Laboratories have all in the last two years sold, spun off or split apart non-core businesses. Pfizer divested its animal health and nutrition units to focus on new brand-name drugs. Bristol-Myers last month sold its stake in a diabetes joint venture so it could put more bets on cancer, and Abbott last year split its drug unit into a new company, AbbVie Inc.

Merck says its animal-health business is the second-biggest in the industry, with $3.40 billion in sales in 2012. It’s consumer buiness, meanwhile, doesn’t have enough size. . . .

Could it still be done in a much smaller series of chunks, modified to be a three-, four- or five-way series of stepped trades? Maybe. Just maybe. But that will likely take five years to engineer. To that I say: “Good luck, Goldman Sachs!”

The Old Days At Schering Plough — “Open Pit Pharming”? An Environmental Nightmare. . .

This is a new post, simply to highlight (and thank!) a commenter — for the contribution — to the last post:

. . . .Anonymous said:

It was common knowledge within S+P that in the ‘old days’ there were open retention pits where the company was allowed to dump manufacturing spillage/waste. These eventually were capped and allowed to overgrow with grass and trees. This was a common practice in NJ for many of the pharma companies. Look up the history for Ciba-Geigy, Roche and Merck.

For a more interesting story, go check out the history of Westinghouse in Bloomfield NJ. It dumped spillage of the uranium processing for the bomb during WWII in a local landfill and down the drain.

January 8, 2014 at 7:55 AM. . . .

Based on my experiences, I’d say Anon. is largely right — as to that by-gone era. . .