Merck stock plunges after FDA rejects drug

April 29, 2008 12:03:09 PM PDT
Stock in drugmaker Merck & Co. plunged as analysts warned investors to expect lower revenues and share prices on Tuesday, a day after the Food & Drug Administration rejected an experimental Merck drug for the second time in four days. Monday's rejection of Cordaptive, which Merck had touted as a key drug to energize its cholesterol franchise, was unexpected and the reasons remained unclear, analysts said. Merck gave little detail, but said it plans to submit additional data on the drug to the FDA.

"We're trying to get a better understanding from the FDA about what we would need to do to respond to the issues that they raised," Merck spokesman Ron Rogers said.

The FDA has become increasingly cautious about approving drugs with possible safety problems since the 2004 withdrawal of Merck's former blockbuster painkiller Vioxx due to increased heart attack and stroke risks, a trend analysts noted Tuesday.

Shares of Whitehouse Station, N.J.-based Merck were down $4.50, or 9.8 percent, at $37.39 in afternoon trading; shares fell 5 percent in after-hours trade after Merck announced the FDA decision Monday evening.

Lehman Brothers cut its Merck price target, the level it expects shares to reach in 12 months, from $58 to $53, and Citigroup lowered its target from $49 to $44. Goldman Sachs cut its target from $50 to $48, and lowered its earnings per share forecast by increasing amounts the next few years, reaching a 23-cent reduction in 2012.

"We believe that the headwinds of the cholesterol franchise slowdown, vaccine (sales) weakness in the last two quarters and this pipeline disappointment are significant," Goldman Sachs analyst James Kelly wrote to investors.

Merck's former cholesterol blockbuster, Zocor, lost billions in annual sales after it faced generic competition in 2006. The company and partner Schering-Plough of Kenilworth, N.J., jointly sell two other cholesterol drugs, Vytorin and Zetia; Vytorin combines Zetia and Zocor.

Sales of Vytorin and Zetia have fallen somewhat amid Congressional probes and accusations that, to protect their revenues, the companies delayed results of a study that showed Vytorin worked no better than much-cheaper Zocor.

Cowan & Co. analyst Steve Scala wrote that the FDA likely turned down Cordaptive over safety concerns with laropiprant, an agent in the drug to inhibit facial flushing - redness, burning and tingling. Laropiprant is used to counter that unpleasant, sometimes temporary side effect of the main ingredient, an extended-release form of B vitamin niacin.

"It is possible that a larger safety database will be necessary," Scala wrote. In the worst case, Scala said the FDA could require results from a 20,000-patient study of whether the drug prevents heart attacks and strokes. That data is not likely to be available until 2012.

WBB Securities analyst Steve Brozak said the rejection will cost Merck possibly years and probably tens of millions of dollars to try to get the drug approved.

Brozak said Cordaptive's rejection is "much, much, more problematic" than FDA's rejection Friday evening of an allergy drug developed jointly by Merck and Schering-Plough Corp. That drug combines prescription allergy and asthma pill Singulair - a top-selling Merck product that could face generic competition in 2012 - and Schering-Plough's Claritin, a former prescription drug now sold over-the-counter.

"We only recommend (Merck) for long-term investors," Leerink Swann analyst Seamus Fernandez wrote, noting that the Cordaptive rejection throws in doubt Merck's plans to ask FDA later this year to approve another drug that combines Cordaptive's active ingredient with generic Zocor.

Rogers, the Merck spokesman, said it still intends to seek approval for that drug.

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