Two questions dominated Merck KGaA's earnings call on Feb. 23 - how was the company addressing last December's refuse-to-file notice from the U.S. FDA for oral cladribine in multiple sclerosis? And why was the company cutting its dividend?
But neither question was answered completely to analysts' satisfaction. Meanwhile, the German company's stock fell by 10 percent on the day to €58, a six-month low.
Merck KGaA's executives were tight-lipped about oral cladribine, saying the company didn't comment on talks with regulatory authorities. So, it is still not known whether a further clinical trial will be necessary to confirm the results of the CLARITY trial. That study showed there were sustained clinical benefits for using oral cladribine in MS, but also yielded side effects, such as lymphocytopenia and herpes zoster ("The Pink Sheet DAILY', Jan. 25, 2010).
The execs also declined to comment on whether the same issues that are worrying the FDA might come up in the EU filing, which has, in contrast, been accepted, and on which a CHMP opinion is expected in the third quarter of this year.
Pharmaceuticals head Elmar Schnee conceded that experience with Erbitux (cetuximab) had taught him that you can't predict what regulatory authorities will do, referring to the way the EU's CHMP last year unexpectedly turned down Erbitux for use in lung cancer, which would have been an additional indication.
He said he was "confident that oral cladribine would make it to the market on both sides of the Atlantic." Unfortunately, that was not the question the analysts were asking. But Schnee did confirm that Pfizer's option to license oral cladribine was still open.
To compound the agony, Novartis announced only a day earlier that its oral multiple sclerosis therapy, Gilenia (fingolimod, FTY720), had been accepted for review by the U.S FDA, and granted a priority review. That puts the Swiss company ahead of Merck KGaA in the race to market an oral MS therapy in the U.S.
The German company also made heavy weather of explaining why it was cutting its dividend to one euro, compared with €1.50 the year before. Other big pharma companies, like AstraZeneca, have made a point of maintaining their dividend ("The Pink Sheet', Jan. 29, 2010).
Chief Financial Officer Michael Becker said the company's dividend policy was to pay, "as a long-term average," an amount equivalent to 30 percent to 40 percent of profits after tax. However, he failed to explain clearly the time period over which this was calculated. Last year's payout was much higher than normal, making this year's dividend look poor, he added. Cash flow, however, was not a problem - Becker noted that €200 million had been put to one side as pension provisions.
Diversified Model
Other Big Pharma companies considering following a diversified business model may pause for thought when seeing how Merck KGaA's pharmaceuticals business propped up its non-pharma business last year, rather than the other way round.
Chairman Karl-Ludwig Kley conceded that 2009 had been a difficult year, with the financial crisis hitting revenues hard in its liquid crystal and specialty chemicals business early in the year. These two non-pharma divisions have recovered since.
During 2009, total revenues at Merck KGaA increased by 2.1 percent to reach €7.7 billion. Revenue from the Merck Serono pharmaceutical business rose by 6.5 percent to €5.3 billion, compensating for the 17 percent fall in liquid crystal sales, to €733 million.
Merck Serono's top five pharmaceutical products accounted for 65 percent of its business, led by the MS therapy, Rebif (interferon beta-1a), with sales of €1.5 billion (up 15 percent) and Erbitux, with sales of €697 million (up 23 percent).
Sales within Merck KGaA's consumer health care division increased by 5.7 percent to €467 million; the division is continuing to focus on seven international brands, including Bion/Multibionta and Femibion .
Net income was essentially flat, totaling €366.3 million in 2009 compared with €367.1 million the previous year. Exceptional items included a €40 million provision for withdrawing Raptiva (efalizumab), which was "less than expected," Becker said.
Merck KGaA now has 10 products in its late-stage product pipeline, more than ever before, Kley said. The drug maker also is aiming to strengthen its presence in the U.S., China, India and Japan. He forecast revenues would grow between 2 percent and 5 percent at Merck Serono in 2010, and its operating profits would grow by 30 to 40 percent.
Kley highlighted the expanded Phase III clinical trial program with the potential cancer vaccine, Stimuvax - a trial in Asia, called INSPIRE, in non- small-cell lung cancer started in December; the START trial in other countries in NSCLC is ongoing; and a trial in breast cancer, called STRIDE, started last June. In Phase II studies, patients with stage 3 lung cancer are still alive after three to five years, he noted.
A Phase II trial, CENTRIC, is under way with cilengitide in glioblastoma multiforme. A recombinant fibroblast growth factor is in Phase I and is showing potential for treating cartilage tears - over the age of 25, cartilage no longer repairs itself, he noted. Also, a marketing application for tesamorelinfor reducing excess abdominal fat in HIV patients with lipodystrophy has been filed at the U.S. FDA.
- John Davis (j.davis@elsevier.com)
This article is reprinted from "The Pink Sheet" DAILY –Feb 24, 2010
Click here to start your 30-day, risk-free trial of "The Pink Sheet" DAILY – Immediate business intelligence from the company and product level up.
