Merck Puts That Drug Back On The Shelf

Risky Business
Risky Business

"It's a risky business." I don't think I'll ever forget when a Chief Financial Officer said that at an investor conference last year in lieu of reading the whole boring boilerplate "Safe Harbor Statement."

It's the SEC-mandated preamble to public comments made by officials of publicly-traded companies basically warning people who are listening to take everything they say with a grain of salt. Instead, this guy just flashed the "Safe Harbor" legalese on the screen and said, "It's a risky business." Loved it.

But this morning drug giant Merck is living it.

The Dow component announcedthat a heart drug didn't work in a big, late-stage clinical trial and it won't be filing for FDA approval of the drug this year as it had previously forecast. A Phase 3 study is typically the last one before asking regulatory authorities for permission to sell a product. MRK paid $366 million for the drug and the private company that discovered it less than two years ago. Not a heckuva lot of cash for a company the size of Merck , but not peanuts either. Now, possibly money down the drain.

The stock is lower on the news, but as I write this it's well of its lows. In a research note to clients headlined, "Another Pipeline Drug (A Smaller One At Least) Bites The Dust," Bernstein pharma analyst Dr. Tim Anderson says he didn't even have the drug in his financial models, so maybe that explains why the market's reaction is a little more muted than you'd expect it to be when a Phase 3 clinical trial blows up. This pipeline setback comes on the heels of another one for a Merck migraine drug earlier this Spring. Dr. Anderson calls it a "psychological negative" and says it's a good thing MRK is acquiring Schering-Plough."The need for MRK to buy SGP is greater than ever," he writes. One of the guys on the Bernstein research team or someone in his family owns MRK stock and a part of the company owns more than one percent of the shares.

One of the things Merck has going for it is its relatively new diabetes pill franchise of Januvia and Janumet. The company will be presenting new test results on the drugs at the American Diabetes Association meeting in New Orleansthis weekend.

I'll be reporting live from there Monday morning starting with an exclusive interview with Amylin Pharmaceuticals CEO Dan Bradbury at approximately 9:40 ET on "Squawk On The Street."

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