Vioxx setback comes at bad time for Merck

No. 3 drugmaker has few new drugs

A blow: The withdrawal raises concerns about Merck's ability to find profitable successor drugs.

Outlook

October 01, 2004|By NEW YORK TIMES NEWS SERVICE

Merck & Co. Inc.'s decision to stop selling the painkiller Vioxx, one of its most profitable drugs, could hardly have come at a worse time for the company.

Even before its surprise announcement yesterday, experts said, Merck had lagged behind Pfizer Inc., the industry leader, in increasing its profit. The withdrawal of Vioxx is a big blow to a company that has long prided itself on its successes in developing new drugs.

Analysts said yesterday's news, coupled with concerns about Merck's ability to find successor drugs to its aging top sellers, could even force it into a merger.

Raymond V. Gilmartin, the company's chief executive, however, roundly rejected that possibility yesterday when he was challenged by a reporter, stressing that the company was financially strong "with a strong cash flow."

Shares of Merck plummeted 26.8 percent in heavy trading yesterday, dropping $12.07 to close at $33. Merck, a Dow component, dragged down the Dow Jones industrial average 55.97 points, to close at 10,080.27.

Pfizer, which makes Celebrex, a competing painkiller in the class known as COX-2 inhibitors, gained 42 cents, or 1.4 percent, to close at $30.60.

Vioxx had $2.5 billion in worldwide sales last year, about 11 percent of Merck's total revenue, and it contributed even more to profit. The company does not break out the share of earnings attributable to individual products, but analysts estimated that Vioxx accounted for about $1.2 billion in 2003, or 18 percent of Merck's $6.59 billion net income.

Sales of Vioxx, which is commonly used for arthritis pain, dropped $148 million in the second quarter to $653 million, down from $801 million in the same quarter last year.

Adding to its troubles, Merck, the world's third-largest drug maker, after Pfizer and Glaxo- SmithKline, faces the daunting challenge of replacing its top-selling drug Zocor, the cholesterol-lowering treatment, which will lose patent protection in 2006.

Gilmartin's own position at Merck has also been challenged. In announcing the Vioxx move, Gilmartin brushed aside a reporter's suggestion that he might have to resign. But Barbara Ryan, a drug securities analyst at Deutsche Bank AG, said Gilmartin would have to make a drastic change in strategy to survive.

After many years of creating some of the drug industry's biggest sellers, Merck's pipeline of new products has slowed, and Gilmartin has had to find alternative approaches to drug development. Merck has joined research partnerships in dozens of deals over the past two years, Gilmartin said yesterday.

The company told analysts in a conference call yesterday that it expected to take a charge of $700 million to $750 million in the second half of this year to cover the costs of withdrawing Vioxx. The charge covers customer returns of pills sold, lost future sales and writing off the value assigned to inventory.

The company, which had forecast earnings of $3.11 to $3.17 a share for 2004, said the withdrawal of Vioxx would reduce annual earnings by 50 cents to 60 cents a share.

The charges to be taken because of Vioxx do not include potential payouts in scores of personal injury lawsuits by former users who say the drug caused cardiovascular injuries.

Andy Birchfield, a plaintiffs' lawyer in Montgomery, Ala., said he had filed 58 individual cases, including more than 40 in state courts in New Jersey, where Merck has its headquarters in Whitehouse Station.

Birchfield said the case of William Cook, 50, a retired coal miner who had been using Vioxx for chronic joint pain and had a heart attack in October 2000, has been scheduled for trial in Birmingham, Ala., in December.

Ira S. Loss, a drug industry analyst with Washington Analysis, said that by taking Vioxx off the market, Merck was "trying to minimize its legal liability exposure" by acting promptly after receiving a report of safety risk. "I'm sure they anticipate numerous lawsuits," Loss said.

According to Gilmartin, 2 million patients around the world are using Vioxx, which was approved by the federal Food and Drug Administration in 1999. About 84 million people in 80 countries have used it over the years.

Kenneth C. Frazier, general counsel of Merck, said the lawsuits included two class-action suits seeking punitive damages. A company's liability insurance typically does not cover awards of punitive damages.

Frazier said one or more cases might proceed to trial in the first half of 2005. "The company," he said, "continues to believe that these lawsuits are without merit."

Merck said it first learned last week that a three-year study involving 2,600 patients had found that after 18 months, those taking Vioxx daily had twice the risk of heart attacks or strokes - 15 per thousand - compared with patients who were taking a placebo. There was no difference in the number of heart attacks and strokes for the two groups during the first 18 months of the study, the company said. Five patients died in each group over the three years.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.