Merck Jumps As IMPROVE-IT Study Will Continue

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Merck's ( MRK ) stock jumped Tuesday as investors cheered the Data Safety Monitoring Board's recommendation that the "IMPROVE-IT" trial, which is being conducted to prove the efficacy and safety of Merck's blockbuster drug Vytorin, should continue until its projected deadline of September 2014. Vyotrin, which garnered $1.7 billion in revenues in 2012, is seeing dwindling sales following concerns around its safety and efficacy (Read Singulair Patent Loss Hits Merck's Earnings But International Growth Helps ). Many expected potential safety issues to emerge in the interim review. However, the recommendation is expected to help ease these concerns and should put a stop to the continued decline in the drug's sales. Below we discuss the impact of the event in conjunction with other trends on Merck's cardiovascular drugs franchise.

See our complete analysis for Merck

The Cardiovascular Division: Growth Under Pressure

Merck has had a decent presence in the cardiovascular drugs market through 2010-11, with drugs like Zetia, Vytorin, Zocor and Cozaar/Hyzaar in its portfolio. However, the division has been hurt by the patent cliff as its once largest selling drugs Cozaar/Hyzaar, which garnered over $2 billion in revenue in 2010, lost patent exclusivity in large markets including the U.S. and Europe in late 2010. Further, the sales of Vyotrin (a combination of Merck's own drugs, Zocor and Zetia) have come under pressure after questions were raised around its efficacy and safety, which we will discuss later in this note.

No Reprieve From Pipeline In The Near Term

The drug maker was earlier banking on FDA approval for Tredaptive to boost near-term growth in the division after putting the development of MK-0524B on hold. However, the failure of Tredaptive has deprived the drug maker of over $500 million in potential peak revenues (Read Merck Faces Setback As Tredaptive Fails In Large Clinical Study ). At this point it is unclear whether Vorapaxar, a blood thinner, will receive approval or not due to safety concerns raised by clinical studies. Even if it receives approval, it will mostly be for prevention of cardiovascular events instead of a broader use, including use in patients with a history of strokes. This will cap the drug's revenue potential.

How The Extension Of "IMPROVE-IT" Matters

Several smaller studies claimed that while Vyotrin has proven to be effective in lowering cholesterol, there is little statistically significant evidence that it reduces chances of heart attacks, strokes, and other cardiovascular problems. Further, it may not add major benefits to statins like Pfizer's ( PFE ) Lipitor, a conventional treatment for reducing cholesterol. In addition, some studies showed several major side-effects, prompting many physicians to avoid prescribing the drug. Merck has been conducting the much larger "IMPROVE-IT" trial since 2005 to match the results exhibited in earlier smaller trials on the basis of which the drug was approved initially.

The recommendation to continue the trial implies that no major safety issues have emerged until now as against investor expectations. This will help Vyotrin win back confidence of some physicians, which could help drive the drug's sales. We are updating our model to reflect these developments on Vyotrin and MK-0524B.

However, the extension of the trial also means that not enough positive data has been found to close the trial at this stage, which would have put Vyotrin back on high growth trajectory in 2013 itself. Investors will now have to wait for final results until next year, which will give the drug less time to gather steam as its patent is scheduled to expire in early 2017. The division's current largest selling drug, Zetia, will also lose patent protection during same period.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: ABT , JNJ , MRK , PFE , RHHBY

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