Magazine
#6 Merck
One Merck Dr. / P.O. Box 100, Whitehouse Station, NJ 08889-0100
Tel: (908) 423-1000 Fax: (908) 735-1253
www.merck.com
| Headcount | 55,200 | |
| Year Established | 1891 | |
| Pharma Revenues* | $25,901 | -2% |
| Total Revenues* | $26,131 | -2% |
| Net Income | $7,808 | +138% |
| R&D Budget | $4,805 | -2% |
* See note about revenues after Top Selling Drugs below
| 2008 Top Selling Drugs | |||
| Drug | Indication | Sales | (+/-%) |
| Singulair | asthma | $4,337 | +2% |
| Cozaar/Hyzaar | hypertension | $3,558 | +6% |
| Zetia/Vytorin* | cholesterol | $2,281 | -12% |
| Fosamax | postmenopausal osteoporosis | $1,553 | -49% |
| Gardasil | HPV vaccine | $1,403 | -5% |
| Januvia | diabetes | $1,397 | +109% |
| ProQuad/MMRII/Varivax | children's vaccine | $1,269 | -6% |
| Trusopt | ophthalmic | $781 | -1% |
| Primaxin | antibiotic | $760 | -1% |
| Rotateq | rotavirus vaccine | $665 | +27% |
| Zocor | cholesterol | $660 | -25% |
| Candidas | antifungal | $596 | +11% |
| Maxalt | migraine | $529 | +13% |
Account for 76% of total pharma sales, down from 78% in 2007.
* 2008 Pharma revenues include $2.3 billion in Zetia and Vytorin sales. This derives from a joint venture with Schering-Plough and are not counted as drug revenues by Merck. I have reported half of Vytorin/Zetia sales as Merck revenues to give a clearer idea of Merck’s pharma performance.
PROFILE
In all the years we’ve been publishing this report, Merck has always been the champione of smaller, ‘bolt-on’ acquisitions, eschewing the mega-mergers that have built some of its peers up to titanic, unwieldy scale. Who knew that this strategy would backfire? Who could imagine that Merck, holding firm to its small-acquisition strategy, would become a target for a merger itself? I tell you, it was a sad day when I learned that Merck was just another victim, snapped up by apharma company just looking to sneak past its patent cliff and —
— What?! You mean Merck is actually buying Schering-Plough? But it says right here in the announcement that SP is doing the acquiring, even though the combined company will have the name “Merck” and all of SP’s top executives plan to leave once the deal is complete!
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The Lowe Down
Merck’s merger announcement with Schering-Plough actually made me vaguely sad. (Let’s skip over, with a roll of the eyes, all the legal hand-waving that has it structured as though Schering-Plough is taking over Merck, shall we? That part’s not sad, it’s embarrassing.) Merck’s been such a proud go-it-alone company for all these years that watching them decide to become a poor man’s Pfizer is cause for worry. Well, OK, they’ll have to buy up two or three more big companies before we really can hang that tag on them, but the precedent has been set. This is something Merck’s never done before. And they’re not doing it from a position of strength. From the outside, it looks like the management decided that well, we’ve got to do something, so it might as well be this. Not exactly the blueprint for a happy marriage, is it? The pipelines are not that bad a fit, and the companies themselves have been working together for several years in cardiovascular disease (if not always amicably). On paper, the deal could work. But the culture of a company isn’t written on any paper, and this is a big, big change for Merck’s.—Derek Lowe |
Okay, so the M&A deal is a bit convoluted, in order to get around the “change of control” provision that would send SP’s rights to Remicade and Simponi back to J&J. (I’m waiting to hear about the convolutions that will allow SP’s execs to take giant payouts, even though there explicitly is no change of control, which is the standard trigger in those contracts.) The upshot is, after years of decrying mega-mergers, Merck proved desperate enough to pull the trigger on a $41 billion deal for Schering-Plough. That’s what a series of high-profile failures will do.
Last year, I wrote about how Merck was rocked by the FDA’s “not approvable” letter for Tredaptive, the niacin-laropiprant cholesterol treatment that was projected to be a multi-billion dollar product. Merck plans to launch it in international markets in 3Q09, but the FDA suggests Merck hold off on refiling it in the U.S. until data from a new trial is complete, in 2013.
The bad news kept coming in the past year, with a new migraine med getting delayed indefinitely (way beyond its expected 2009 filing), another heart treatment failing in Phase III, an attempt to broaden the patient base for its HPV vaccine getting rejected, its shingles vaccine suffering production delays, and its experimental obesity treatment falling into the same black hole as Sanofi’s Acomplia.
Meanwhile, Fosamax’s patent expiration led to a $1.5 billion shortfall in 2008 revenues (and its sales are down 44% in 1Q09), while Merck’s top two-products, Singulair and Cozaar, seem to have peaked (and face generic competition in 2012 and 2013, respectively). Except for GlaxoSmithKline, Merck posted the largest drop in sales of any of our Top 20 this year. And GSK’s shortfall was tied into the decline of its currency. Ouch. (Please note that Merck’s revenues for the purpose of this report include part of the Zetia/Vytorin franchise; in its own financial statements, those revenues are not reported as sales, but as equity income from a joint venture. I’ll be very happy when this merger goes through, so I can stop double-counting those dollars.)
Looking over the company’s top sellers, the lone bright spot is Januvia, the DPP-IV type 2 diabetes treatment. It more than doubled its sales in 2008, blowing up into blockbuster status, and 1Q09 revenues were up 51%. AZ and BMS seem to be closest to getting a competitor on the market, but the FDA’s risk aversion is slowing down that process, giving Januvia (and Janumet, its combo with metformin) time to lock up market share.
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Acquisition News
Target: Schering-Plough Price: $41 billion Announced: March 2009 What they said: “The combined company will benefit from a formidable research and development pipeline, a significantly broader portfolio of medicines and an expanded presence in key international markets, particularly in high-growth emerging markets.”—Richard T. Clark, president, chairman and CEO, Merck Target: Insmed (biologics portfolio) Price: $130 million Announced: February 2009 What they said: “Insmed’s pipeline of follow-on biologic candidates presents the opportunity to expedite Merck’s entry into the biologics marketplace as well as providing unique manufacturing resources and an experienced team of protein experts.”—Frank K. Clyburn, senior vice president and general manager, Merck BioVentures |
Meanwhile, one-time up-and-comer Gardasil dropped 5% in 2008 sales and 33% in 1Q09, which highlights part one of the problems with vaccines; once your main patient base has been vaccinated, you need to come up with more patients. Vytorin/Zetia sales fell by 12% in 2008 and 23% in 1Q09. Presumably, that’s going to bottom out soon, so at least Merck will have some idea of the value of that franchise once it’s the sole owner of it.
As with other companies in our ranks, Merck is targeting emerging markets and generics as part of its new identity. The pre-merger company expected to garner $2 billion from sales in emerging markets by the end of next year, but SP is already pulling in that amount in those regions, so we’ll see how much more Merck focuses on that area. And Merck’s February 2009 acquisition of Insmed’s bio-portfolio puts the company in position to get into follow-on biologics, once their U.S. pathway is clarified.
Along with those initiatives,Merck followed up its 2005 “Plan To Win” restructuring program with a new, unnamed cost-saving plan in October 2008. This new initiative involves 7,200 job losses by 2011, while promises savings of $3.8 to $4.2 billion by 2013. The Plan To Win included 10,000 job cuts. Between the two programs, Merck dropped 5,800 positions during 2008. Merck spent $1.3 billion on the new initiative in 2008 and the company estimates another $400 to $600 million will be incurred in 2009.
The new restructuring includes shutdowns of Merck’s basic research sites in Japan, Italy and Seattle. Also, a quarter of the layoffs will take place among senior and mid-level execs, and 40% of the total losses will be in the U.S. In its SEC filing, the company mentions that it will “make greater use of outside technology re-sources, centralize common sales and marketing activities, and consolidate and streamline its operations. Merck’s manufacturing division will further focus its capabilities on core products and outsource non-core manufacturing. Also, Merck is expanding its access to worldwide external science through a basic research global operating strategy, which is designed to provide a sustainable pipeline and is focused on translating basic research productivity into late-stage clinical success.”
Merck and SP haven’t made an official announcement of post-merger job cuts. At the time of the merger announcement in March, Merck indicated that its restructuring expenditure numbers are still valid, while Mr. Clark mentioned a 15% reduction in the overall workforce, which would mean that we’ll see 16,000 layoffs and eliminations.
That said, Merck chief executive officer Dick Clark mentioned in his annual letter to shareholders that “in a major pilot of our U.S. model, we achieved comparable sales performance with 20% fewer professional representatives.” Fewer reps, similar sales? Well, at least that’ll bring cost base down, I guess.
Last year, I wrote that I couldn’t tell if Merck was half full or half empty. Looks like I have my answer.
For the full Merck profile, including pipeline and patent information, download the PDF.
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