Markets

The New Merck, Day 1: a Catalog of Impending Doom

By Jim Edwards

Updated on: November 4, 2009 / 12:02 PM EST / MoneyWatch

Today is the first official day of the new Merck -- a result of its combination with Schering-Plough. A note to investors from analysts at Leerink Swann says "the combined MRK/SGP entity has one of the most robust late-stage pipelines in all of big pharma."

But before you pop the champage to celebrate the new baby, consider that the rest of the note is a catalog of impending doom at the company, which needs to lay off 15 percent of its employees to make the merger work. Here are the challenges that the new Merck faces:

Cholesterol Franchise in Freefall

In two weeks the results of the Arbiter-6 study of Merck's cholesterol pill Vytorin v. Abbott Labs' Niaspan will be unveiled at the American Heart Association meeting in Orlando. A different study out today found that Niaspan was effective in reducing artery thickness. BNET previously noted that no one expects Vytorin to win the Arbiter-6 study. If Arbiter 6 becomes the third study in which Zetia and Vytorin fail to demonstrate superiority on a primary endpoint, that could wipe 20 percent off those drugs' sales, according to Bernstein analyst Tim Anderson.

Remicade Deal Hangs on a Technicality ...

The Remicade/Simponi arbitration with Johnson & Johnson is still ongoing. J&J claims the merger is a "change of control" that triggers its right to take Remicade back -- that could cost Merck up to $2.1 billion in lost Remicade sales. Leerink's Seamus Fernandez and Kathryn C. Alexander say that Merck could prevail in the fight -- on a technicality!

MRK/SGP is well-positioned to win based on their view of poor draftsmanship by JNJ/Centocor. Specifically, legal consultants cite that most arbitrators should rule by the letter of the law, and because the agreement did not specifically contemplate a reverse merger as triggering a change of control, SGP's international rights to Remicade/Simponi should be unaffected by the merger.

... As Does the Temodar Patent

Finally, the company awaits a ruling on its Temodar patent, which is under challenge from Teva. $278 million in revenues per quarter are on the line. As explained by Shearlings Got Plowed, Schering's foot-dragging on the Temodar patent lasted nine years, giving Temodar a theoretical 32 years of patent exclusivity. Leerink believes Teva may have a case:

Teva/Barr's prosecution laches argument warrants serious consideration and could invalidate the Temodar patent, allowing generics to enter the market in January 2010, approximately 3 years ahead of our current forecasts.

Despite the "robust" pipeline, Merck's patent cliff totals $16.8 billion in threatened revenues through 2014.

So, three cheers for the new Merck! Or, perhaps, two cheers would suffice ...

Image: Cassandra, the ancient Greek foreteller of doom.