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November 13, 2009
A New Cholesterol Study Puts Focus on Merck Drugs
By NATASHA SINGER
Some of Wall Street’s leading drug industry analysts are scheduled to fly to Orlando, Fla., on Sunday afternoon. A junket to SeaWorld it is not.
For top analysts from investment banks, including JPMorgan and Credit Suisse, or some of their minions, the destination is a cardiology conference where on Monday morning medical researchers are expected to present a study with potentially significant implications for multibillion-dollar cholesterol medications from the drug giant Merck.
The new study, to be released Monday at an annual meeting of the American Heart Association, is relatively small, involving only about 200 people. That could limit its significance.
But analysts are paying rapt attention to the report because two previous studies reduced sales of the drugs after indicating that they may not work any better than cholesterol drugs known as statins that are widely available as inexpensive generics.
Analysts are waiting to see whether the new study reinforces the earlier findings or, perhaps, makes matters even worse for Merck.
The study represents the first major news event, or catalyst in investor jargon, that could affect Merck earnings after the $41.1 billion merger the company completed last week with Schering-Plough.
At stake are sales of Vytorin and Zetia, two cholesterol-lowering drugs that, even with the coming study factored in, are projected to bring in $4.5 billion in revenue for Merck in 2012, according to estimates from Catherine J. Arnold, an analyst with Credit Suisse. She forecast that in 2012, the cholesterol drugs would represent about $3 billion in profits, or about 17 percent of Merck’s projected total pretax profits of $17.4 billion.
“This franchise is important from an earnings standpoint and a strategic standpoint,” Ms. Arnold said. “It wasn’t the crux of the merger of the two companies, but it was clearly a franchise both were interested in.”
After the previous two studies raised questions about the drugs, sales of Vytorin and Zetia decreased to about $4.56 billion in 2008, compared with about $5.19 billion in 2007, according to a company regulatory filing. The decline occurred primarily in United States sales of the drugs.
“It’s been such a controversial franchise that any bit of incremental data is going to get a lot of attention from the financial community,” said Chris Schott, an analyst with JPMorgan.
In a note sent to investors this week, Mr. Schott estimated that, if the forthcoming study were to cause a sales drop in the cholesterol drugs, for every 10 percent reduction in American sales, earnings would drop by roughly 5 cents a share.
http://www.nytimes.com/2009/11/13/he...l?ref=business
For top analysts from investment banks, including JPMorgan and Credit Suisse, or some of their minions, the destination is a cardiology conference where on Monday morning medical researchers are expected to present a study with potentially significant implications for multibillion-dollar cholesterol medications from the drug giant Merck.
The new study, to be released Monday at an annual meeting of the American Heart Association, is relatively small, involving only about 200 people. That could limit its significance.
But analysts are paying rapt attention to the report because two previous studies reduced sales of the drugs after indicating that they may not work any better than cholesterol drugs known as statins that are widely available as inexpensive generics.
Analysts are waiting to see whether the new study reinforces the earlier findings or, perhaps, makes matters even worse for Merck.
The study represents the first major news event, or catalyst in investor jargon, that could affect Merck earnings after the $41.1 billion merger the company completed last week with Schering-Plough.
At stake are sales of Vytorin and Zetia, two cholesterol-lowering drugs that, even with the coming study factored in, are projected to bring in $4.5 billion in revenue for Merck in 2012, according to estimates from Catherine J. Arnold, an analyst with Credit Suisse. She forecast that in 2012, the cholesterol drugs would represent about $3 billion in profits, or about 17 percent of Merck’s projected total pretax profits of $17.4 billion.
“This franchise is important from an earnings standpoint and a strategic standpoint,” Ms. Arnold said. “It wasn’t the crux of the merger of the two companies, but it was clearly a franchise both were interested in.”
After the previous two studies raised questions about the drugs, sales of Vytorin and Zetia decreased to about $4.56 billion in 2008, compared with about $5.19 billion in 2007, according to a company regulatory filing. The decline occurred primarily in United States sales of the drugs.
“It’s been such a controversial franchise that any bit of incremental data is going to get a lot of attention from the financial community,” said Chris Schott, an analyst with JPMorgan.
In a note sent to investors this week, Mr. Schott estimated that, if the forthcoming study were to cause a sales drop in the cholesterol drugs, for every 10 percent reduction in American sales, earnings would drop by roughly 5 cents a share.
“It was very unfortunate that this drug was introduced and became very popular without a large, well-designed study to look at whether it could reduce cardiovascular events,” said Dr. Steven Nissen, the chairman of cardiovascular medicine at the Cleveland Clinic.
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