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Streak of trouble with FDA, other problems, hits Merck

By LINDA A. JOHNSON | AP Business Writer

May 4, 2008

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TRENTON, N.J. - The roller coaster ride for Merck & Co. shareholders and employees is on another speedy downhill run.

In barely a week, Merck has suffered a stunning streak of setbacks, including federal regulators rejecting two experimental drugs and publicly demanding the drugmaker clean up significant problems at its main vaccine plant.

Safety questions cropped up about two other drugs made by Whitehouse Station, N.J.-based Merck. Share prices fell more than $2 last week, and are down 35 percent since controversy struck its key cholesterol franchise in mid-January.

Even its $4.85 billion settlement of tens of thousands of lawsuits over withdrawn painkiller Vioxx is dragging on, with the company saying Thursday it is extending the enrollment deadline for U.S. claimants by two months, to June 30.

"This is probably the silver medal in worst weeks for them," WBB Securities analyst Steve Brozak said Friday.

The gold goes to the week in September 2004 when Merck pulled then-blockbuster Vioxx off the market because it doubled risk of heart attacks and strokes _ triggering an avalanche of lawsuits and bad press and wiping out more than $30 billion of its stock market capitalization.

Other analysts said while Merck is in a rough patch, the company has the resources to withstand it.

Merck's strong business and its restructuring program, which has eliminated more than 7,000 jobs, "have enabled them to weather these blows and deliver on their earnings forecasts," said Deutsche Bank analyst Barbara Ryan.

The downturn comes after a streak in which the company got an impressive eight medicines and vaccines approved in just 24 months _ five of them the first in their category and all selling well now. Those new drugs boosted revenue and net income, overcame sales lost to generic competition, helped share prices recover and even rise above their pre-Vioxx level, and enabled Chief Executive Officer Richard Clark, who took over in spring 2005, to deliver the profits he's promised investors.

Clark even got an 80 percent raise last year, to a total of $14.5 million in compensation. Shareholders for the most part seemed content at the annual meeting on April 22, although one complained about the stock's low price _ which was at $39.37 at the close on Friday, near its 52-week low.

Shares were approaching $61 in January, right before Merck and partner Schering-Plough of Kenilworth, N.J., first disclosed partial results of a long-delayed study. The results indicated one of their cholesterol drugs, Vytorin, works no better at preventing artery clogging than a much-cheaper generic, Zocor. Sales of the partners' cholesterol drugs have slumped amid probes by multiple congressional committees and state attorneys general into whether the companies deliberately delayed the results to protect the drugs' sales.

But that controversy had simmered to a low boil by April, with Clark blaming the media for "confusion" about the drugs' effectiveness.

Then the FDA on April 25 rejected a combination allergy drug developed by Merck and Schering-Plough. Last Monday, FDA said it couldn't approve a new cholesterol drug, Cordaptive, highly touted by Merck. On Wednesday, FDA released a warning letter ordering Merck to fix many violations of manufacturing rules at its main vaccine plant, in West Point, Pa., saying the company had responded inadequately to its questions about serious problems there.

Many of the violations weren't unusual, said Cowan & Co. analyst Steve Scala, but the number was "eyebrow-raising," as is the fact that some problems go back several years and that the FDA has demanded a meeting with Merck officials, a sign the problems aren't easily resolved.

Meanwhile, Merck agreed with the FDA on Wednesday that it would note on the package insert for its vaccine against rotavirus, RotaTeq, that a child had died after getting the vaccine.

More than 100 new lawsuits blaming Fosamax for destroying jawbone were filed on Thursday, bringing the total of plaintiffs so far near 1,000, and a small study linked the same osteoporosis treatment to irregular heartbeats.

"It wasn't a good week for Merck, that's for sure, especially for a company whose approval record is as pristine as Merck's," said analyst Michael Krensavage of Krensavage Partners.

Until recent years, he said, Merck had never had a drug complete human testing and not win approval from the FDA.

Clark, speaking at an investor conference Thursday, acknowledged the company has to work harder to restore its damaged reputation, and end want he's been terming a "credibility deficit."

"We're putting a new strategy together around branding and reputation and communications and transparency as a company," he said. "I can't blame the media. I have to blame us. And we've got to do a better job of it. Merck's an important company, it's a special company, and we've got to save it."

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On the Net: http://www.merck.com