Merck & Co's decision to stop selling the painkiller Vioxx, one of its most profitable drugs, could hardly have come at a worse time for the company.
Even before its surprise announcement on Thursday, experts said, Merck had lagged behind Pfizer, the industry leader, in increasing its profits. The withdrawal of Vioxx is a big blow to a company that has long prided itself on its successes in developing new drugs.
PHOTO: AP
Analysts said Thursday's news, coupled with concerns about Merck's ability to find successor drugs to its aging top sellers could even force it into a merger. Raymond Gilmartin, the company's chief executive, however, roundly rejected that possibility on Thursday when he was challenged by a reporter, stressing that the company was financially strong "with a strong cash flow."
Shares of Merck plummeted 26.78 percent in heavy trading on Thursday, dropping US$12.07 to close at US$33. Merck, a Dow component, dragged down the Dow Jones industrial average 55.97 points, to close at 10,080.27.
Pfizer, which makes Celebrex, a competing painkiller in the class known as COX-2 inhibitors, gained US$0.42, or US$1.39 to close at US$30.60. Vioxx had US$2.5 billion in worldwide sales last year, about 11 percent of Merck's total revenues, and it contributed even more to profits. The company does not break out the share of earnings attributable to individual products, but analysts estimated that Vioxx accounted for about US$1.2 billion last year, or 18 percent of Merck's US$6.59 billion net income.
Sales of Vioxx, which is commonly used for arthritis pain, dropped US$148 million in the second quarter to US$653 million, down from US$801 million in the same quarter last year.
Adding to its troubles, Merck, the world's third-largest drug maker, after Pfizer and GlaxoSmithKline, faces the daunting challenge of replacing its top-selling drug Zocor, the cholesterol-lowering treatment, which will lose patent protection in 2006.
Gilmartin's own position at Merck has also been challenged. In announcing the Vioxx move, Gilmartin brushed aside a reporter's suggestion that he might have to resign. But Barbara Ryan, a drug securities analyst at Deutsche Bank, said Gilmartin would have to make a drastic change in strategy to survive.
After many years of creating some of the drug industry's biggest sellers, Merck's pipeline of new products has slowed and Gilmartin has had to find alternative approaches to drug development. Merck has joined research partnerships in dozens of deals over the last two years, Gilmartin said on Thursday.
The company told analysts on a conference call on Thursday that it expected to take a charge of US$700 million to US$750 million in the second half of this year to cover the costs of withdrawing Vioxx, including customer returns of pills sold, lost future sales and writing off the value assigned to inventory. The company, which had forecasted earnings of US$3.11 to US$3.17 a share for this year, said the withdrawal of Vioxx would reduce annual earnings by US$0.50 to US$0.60 a share.
The charges to be taken because of Vioxx do not include potential payouts in scores of personal injury lawsuits by former users who say the drug caused cardiovascular injuries. Andy Birchfield, a plaintiffs' lawyer in Montgomery, Alabama, said he had filed 58 individual cases, including more than 40 in state courts in New Jersey, where Merck has its headquarters in Whitehouse Station.
Birchfield said the case of William Cook, 50, a retired coal miner who had been using Vioxx for chronic joint pain and had a heart attack in October 2000, has been scheduled for trial in Birmingham, Alabama, in December.
Ira Loss, a drug industry analyst with Washington Analysis, said that by taking Vioxx off the market, Merck was "trying to minimize its legal liability exposure" by acting promptly after receiving a report of safety risk.
"I'm sure they anticipate numerous lawsuits," Loss said.
According to Gilmartin, 2 million patients around the world are currently using Vioxx, which was approved by the US Food and Drug Administration (FDA) in 1999. Some 84 million people in 80 countries have used it over the years.
Kenneth Frazier, general counsel of Merck, said the lawsuits included two class-action suits seeking punitive damages. A company's liability insurance typically does not cover awards of punitive damages. Frazier said one or more cases may proceed to trial in the first half of next year.
"The company," he said, "continues to believe that these lawsuits are without merit."
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