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 — 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. . .

Uncertainties Dept.: Will Union, NJ Facility Sale/Clean-Up Be An Echo Of Merced, CA, Or Of Flint River (Albany)?

I have been thinking about this sort of half-baked piece in, overnight. I was debating about whether I would mention it, at all.

I initially decided that I wasn’t going to comment on it, because it seems to be mostly an anonymously-sourced rumor piece. But oddly, I awoke a 4:40 — thinking about the legacy facility in Merced, California — now alleged to be contaminated (down to the water table) with Chromium 6. And I thought I should mention that connection, for posterity.

So, the gist of the present story — as local rumor would have it — is that Merck has apparently shifted strategy, and rather than offering a long diligence period to potential buyers of the Union (Morris Ave.) facility (a legacy Schering-Plough property), Whitehouse Station is now placing a premium on speedy bids. That leaves only a tiny bit of time for diligence. Including environmental due diligence.

The NJBiz piece goes on to connect this to talk of environmental contamination, at the site. Were that to turn out to be true, it would hardly be surprising. This is an old facility, manufacturing APIs since at least the late 1960s, if memory serves. And, as would be true with most older high-throughput pharmaceutical “raw materials” manufacturing sites of that era, many a now-shunned substance would have been used, and used in quantity, during that now largely by-gone era.

Let’s just hope it’s not contaminated with the Erin Brockovich style hexavalent chromium. [Even so, it is likely to have at least some Tulene, and DiChloroMethane resdiues — as the legacy Merck Flint River (Albany) site did/does.]

But a Chrome-6 water-table situation is what Merck is slowly litigating/working its way out of, in Merced, CA. [And Merced was also a legacy acquisition property for Merck, I believe, via the ancient Baltimore Aircoil operations.] In any event here is a bit of the NJBiz piece — do go read it all (and judge for yourself):

. . . .Merck & Co. appears to be changing course when it comes to marketing one of the many properties it hopes to unload in New Jersey, an industry source told Grapevine.

The 54-acre site, a former manufacturing complex in Union, is believed to have “a lot of environmental challenges,” the source said.

That led the drugmaker to initially offer a longer timeline for selling the property, giving would-be buyers a chance to gauge the scope of any contamination before making a decision.

But Merck recently accelerated that timeline and is looking for buyers who would close quickly, the person said. Such a move shifts “significant risk” to the purchaser when there is possible contamination at stake, and that could cut into the buyer pool. . . .

We will now wait and see. Of course, we will keep an eye on this facility’s sale process, and any ensuing environmental bits of litigation — especially anything like the Merced, California ones. “Now go get some coffee — and make it fresh, with cold water from the chromium 6 contaminated pipes there, okay?” Eek.

Forma Therapeutics Snags Former Founding Member of MRL’s Boston Hub

I don’t know him personally, but I have known of him, by reputation — for several years. And his reputation is well beyond excellent.

Forma has scored a coup here — and Merck’s Boston hub strategy now has a noticeable snag in the tapestry.

From the Forma Therapeutics presser, then, of earlier tonight:

. . . .FORMA Therapeutics announced today that Christopher Dinsmore, Ph.D., has been appointed to the position of Vice President, Medicinal and Computational Chemistry. Dr. Dinsmore joins FORMA after a distinguished 19 year career at Merck & Co. Inc., where he helped build the Merck Research Laboratory in Boston.

“Chris is an experienced chemist and team leader with a broad background in the identification and development of therapeutics for oncology and cardiovascular diseases, Alzheimer’s, asthma and rheumatoid arthritis,” said Kenneth W. Bair, Ph.D., Chief Scientific Officer and Head of Research and Development at FORMA Therapeutics. “As a founding member of Merck’s Boston site, he helped build highly integrated and collaborative new approaches to discovery research, which is precisely what FORMA strives to accomplish.”

“It is with enthusiasm that I join FORMA’s dynamic team, who are focused on innovative science and pioneering chemistry across extensive panels of protein target families,” said Chris Dinsmore. “I look forward to applying my expertise in medicinal chemistry to FORMA’s programs across several exciting areas of disease biology, as compounds advance toward optimization and clinical trials. . . .”

I am sure Merck eventually be just fine in Boston, but it should be looking now, to restock its talented bench. Guys like Dr. Dinsmore don’t come along every darn day.

Legacy Schering-Plough’s Vorapaxar: Even If FDA Advisory Committee Goes Well On January 15, Peak Sales Will Be “Very Modest”.

A little under three and a half years ago, this candidate, one of Schering-Plough ex-CEO Fred Hassan’s five stars, clanked — and clanked loudly — on a pivotal Phase II/IIb study. That forced Whitehouse Station to take a $1.7 billion write-off on the research, to that point, in early 2011.

In July 2013, with additional data showing a modest on-target effect, Merck submitted the candidate for standard FDA review, on a full New Drug Application (the slowest US path to approvability).

However, the off-target effects include brain bleeds. Remember, this was Fast Fred’s star new drug candidate, in early 2009 to late 2010. It is possible the Committee will vote against approval on 01.15.2014.

On balance though, I suspect the Advisory Committee will vote to recommend that the full FDA approve vorapaxar sulfate — proposed to be branded by Whitehouse Station as ZontivityTM. Even if the full FDA approves the Zontivity application, it will likely never sell over $100 million a year — at peak sales. That’s my (experienced, educated) bet. Read the backgrounder here, from almost two years ago — to learn why I’ve so long held this opinion.

From the just posted FDA Advisory Committee meeting agendas, and calendar pages, then:

. . . .The committee will discuss new drug application (NDA) 204886, vorapaxar sulfate, proposed trade name ZONTIVITY, 2.5 milligram tablets, submitted by Merck Sharp & Dohme Corp., Inc., for the proposed indication of reduction of atherothrombotic events in patients with a history of myocardial infarction (MI). . . .

I get it — Merck needs to try to salvage something from the nearly $2 billion investment in vorapaxar — to this point. That’s understandable. As I said above, Merck was forced to write off $1.7 billion of that, leaving only $300 million or so on the books, at this point.

I just don’t see the drug, even if approved, reaching the top tier of reimbursement in the US formularies. I don’t see Caremark/CVS, Express Scripts or Catamaran, just to name a few PBMs, suggesting that Zontivity should supplant the much cheaper (and many would argue, less risky) generics — in the space. Especially not so, post the full-rollout of Obamacare; not by a long shot.

[H/T to Daily Finance, for reminding me about vorapaxar’s upcoming meeting date.]

Merck’s Year End Earnings Call Is Just A Little Later, This Year: 02.05.2014 [With An A-Z/Nexium® Venture Update?]

I don’t expect anything other than a largely in-line Q4 — and year, come then. However, we all may get a newly refined glimpse into what AstraZeneca might do — about the Nexium®/Prilosec® jointly shared income streams — the “limited venture partnership” that has been around since 1998, in one form or another.

I think A-Z is still due to give Merck a notice near that date, about exercising an option to acquire the rights, for a cash payment (see page 103, of the last SEC Form 10-K). And, I think AstraZeneca has the option to purchase Merck’s interest in the entity holding the venture, based in part on the value of Merck’s interest in Nexium and Prilosec.

If memory serves, AstraZeneca’s option is exercisable between March 1, 2014 and April 30, 2014. AstraZeneca makes a payment to Merck of $327 million, if it exercises the option — an reflecting estimated value of Merck’s interest in Nexium and Prilosec. This portion of the exercise price is then subject to a true-up in 2018 — based on actual sales from July 2014 to June 2018. The payments to Merck also include a cash bonus, equal to a multiple of ten times Merck’s average 1% annual profit allocation in the venture — for the last three years. Merck has said that it is likely that AstraZeneca will exercise this option in 2014. So, we might get some more precise Kentucky Windage” — on how much that all might add up to — come February 5.

Look for the earnings webcast in the link, here — that’s from Merck’s presser:

. . . .[Merck] will hold its fourth-quarter 2013 sales and earnings conference call with institutional investors and analysts at 8:00 a.m. EST on Wednesday, Feb. 5. During the call, company executives will provide an overview of Merck’s performance for the quarter.

Investors, journalists and the general public may access a live audio webcast of the call on Merck’s website at Software needed to listen to the webcast is available on Merck’s website and should be downloaded prior to the beginning of the webcast. A replay of the webcast will be available at approximately 11:00 a.m. EST on Feb. 5 and will remain on the website for 12 months. The quarter’s sales and earnings news release and supplemental financial disclosures also will be available in the Newsroom and Investor sections of the company’s website at . . .

We will timely alert you to any material developments, including the above mentioned possibilities, come the morning of February 5, 2014. Stay indoors, out east, overnight, and throw some more logs on your fire. . . keep it burning through — to tomorrow!