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FDA Delivers One-Two Punch To Merck & Lilly

Wednesday, 25 Jun 2008 | 11:11 AM ET
FDA
CNBC.com
FDA

For the second time in three days the Food and Drug Administration has delayed making a decision on drugs that it had put on a fast track.

First, the agency put off a ruling on Lilly's bloodthinner Effient and then this morning Merck announced the FDA is not ready to approve its cervical cancer vaccine Gardasil for older women.

In a press release the company says the FDA has "issues" that stand in the way of approving the shots for 27-45-year-old females. MRK says it'll respond to the FDA's concerns next month. Gardasil is already on the market for 9-26-year-old girls/young women.

And the drugmaker is hoping to eventually market the vaccine for males who can be carriers of the sexually-transmitted virus that is the leading cause of cervical cancer. Gardasil, along with the relatively new diabetes pill Januvia, is an important growth driver for Merck. But in the same press release the company reiterates its "confidence" in meeting its goals of a compounded annual revenue growth rate of four to six percent from 2005-2010 and double-digit earnings CAGR over the same period.

Merck is the third-worst performer in the Dow so far this year . The shares have fallen 37 percent in large part due to concerns over declining sales of the cholesterol drugs Vytorin and Zetia which it shares with Schering-Plough . But Leerink Swann analyst Seamus Fernandez says a catalyst for the stock could be just around the corner. In a research note to clients this morning he points out that detailed, late-stage clinical trial test results on a promising Merck drug for migraines are coming out at a scientific conference this Friday at 11:15 ET.

Fernandez says feedback from the physician consultants his firm works with "continues to suggest that it (the MRK migraine drug) is one of the most interesting Phase 3 pharmaceutical pipeline products in development with multibillion dollar sales potential." Leerink Swann may trade MRK shares.

By the way, Chris Schott, who used to be at Bank of America, initiated coverage of big pharma today for JPMorganwith an "Overweight" (Buy) rating on MRK. Calling the company "the best new product story in pharma and best-in-class R&D (research and development) organization," it's his top pick in the sector based in part on his growth forecast for Gardasil and Januvia sales. The research report was done before the Gardasil news broke this morning. But Schott points out that one major reason big pharma isn't the traditional weak economy defensive haven is the cautious FDA. JPM has done and wants to do more investment banking for Merck.

But other analysts continue to point out that it's more than just cautiousness that's slowing things down at the FDA. In a research note to clients this morning FBR's James Kumpel writes, "FDA hiring blitz (is) underway. The FDA has been severely understaffed, with new safety initiatives...exacerbating the agency's personnel shortfall. The agency intends to hire 1,300 medical professionals by September, nearly triple the number of people hired in 2005-2007. This should be a positive for pharmaceutical and biotech companies next year...." But investors, so far, appear to be taking a "show me" stance on that.

Update:Deutsche Bank's Barbara Ryan is just out with a research note saying that if Merck doesn't win FDA approval of Gardasil for older women that it'll knock $300 million off her 2012 sales estimate. DB makes a market in MRK, owns at least one percent of the shares and wants to do investment banking for the company.

Eli Lilly Shares Tanking
A significant drug development setback is pushing shares of drug giant Eli Lilly to a ten-year low, and that is also sparking a relief rally in the stocks of two other drug makers, reports CNBC's Mike Huckman.

Questions? Comments? Pharma@cnbc.com

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