Is Merck A Drug Bellwether?


Earlier this week UBS pharmaceutical analyst Roopesh Patel put out a big 2009 sector outlook research note claiming, "So far, the global economic slowdown has had no noticeable impact — a) U.S. weekly and monthly U.S. prescription trends are stable; b) there also is no meaningfully cautionary commentary from any of the companies...."

Well, he might have spoken too soon.

After putting out its disappointing 2009 earnings guidance, Merck Chairman and CEO Dick Clark wrapped up the conference call this morning by saying, "We are in the midst of extraordinary times. There is uncertainty in all areas of the market and the pharmaceutical markets are no exception."

That comment was preceded by more detailed remarks from MRK's Chief Financial Officer Peter Kellogg, who said that inside and outside the U.S., unit volume (prescription numbers) has slowed "as we've come through the second half of this year." But he added the caveat that he couldn't tell yet whether that issue is product specific to Merck or a sector-wide problem.

In his research note to clients, though, UBS' Patel also pointed out, "During the last 6 recessions since 1960, there wasn't a single year when either overall drug spend or out-of-pocket drug spend has declined. Note, out of pocket drug spend was 96 percent of total drug spend in 1960; it has fallen to 22 percent in 2006." Could this recession be an anomaly?

Merck puts out its financial guidance a week ahead of its annual research and development update meeting (Dec. 9). Eli Lilly is also holding an analyst meeting next week (Dec. 11), so we could get additional color there about whether the slower prescription trend Merck says it's seeing is company specific or more widespread. I'll be at both meetings, where I'll be doing live interviews with the CEOs.

Questions? Comments?