Pharmas Market with Mike Huckman

Merck's Lucky Friday


Superstition be darned. Shares of Dow component Merck are trading above $50 intra-day. That's the first time they've crossed 50 since October 9, 2003--nearly one year before the company pulled Vioxx off the market.

So, what's going on?

Well, yesterday afternoon an FDA Advisory Committee essentially slammed the door shut on Merck's hoped-for successor to Vioxx called Arcoxia. The panel voted 20-1 against recommending approval of the pain pill. NBC's Chief Science Correspondent, Robert Bazell, says it's one of the most lopsided, negative AdCom votes ever. The committee members had problems with insufficient data and heart and blood pressure safety. Merck says it still believes in Arcoxia which is already on the market in 63 countries and that it plans to work with the FDA to try to figure out how to move Arcoxia forward, but even if it's successful the drug is probably years away from getting another stab at being approved in the U.S.

Then, last night--just two hours or so after that setback--Merck puts out a press release boosting its financial guidance for the first quarter and for the full year. And we're not just talkin' about a few pennies. The company raised Q1 EPS by as much as 21 cents and 2007 EPS by 20 cents. Merck attributes the upside to "strong revenue performance across the Company's range of products." Detusche Bank's Barbara Ryan, who's raising her price target five bucks to $56 today, says the results are being driven by new products including Januvia for diabetes and Gardasil for cervical cancer. Deutsche owns at least one percent of MRK shares.

But that's not the most remarkable upgrade of the day. That distinction has to go to James Kelly at Goldman Sachs. He's upgrading MRK today from Sell to Neutral. And in the first paragraph of his research note he has to eat a huge crow writing, "Since we initiated our Sell rating, the shares are up 40%...." Oops. In his defense, Kelly writes that he put a sell on Merck because he thought it'd have trouble bouncing back from drug patent expirations. Now he says, "Merck has handled this in a superior manner...."

Goldman makes a market in MRK and has done and wants to do more investment banking for the company. And to give credit where credit is due, Barbara Ryan turned bullish on Merck (she'd been a longtime bear) around the end of 2005 after the company's annual analyst meeting where she said the company's new management made a huge impression.

And on top of all that, a federal judge has thrown out a class-action lawsuit brought by investors over Vioxx because it was filed past the statute of limitations. And "The Wall Street Journal" reports today that next week a Texas judge could issue a favorable ruling for Merck that could affect about 1,000 Vioxx patient lawsuits.

Finally, I have it on good authority that three main media communications people (not all of whom we're sad to see go) at Merck are leaving the company today. They walk out having managed a news cycle that turned their last day--Friday the 13th--into a very lucky day for Merck investors.

Big pharma earnings season gets into full swing next week.

Questions?  Comments?