NEW YORK (Reuters) - Confidence in Merck & Co’s (MRK.N) earnings prospects withered on Tuesday, along with its stock price, after U.S. regulators surprisingly rejected the drugmaker’s treatment to raise levels of “good” HDL cholesterol.
Shares of Merck, already battered by this year’s failed trial of its blockbuster Vytorin cholesterol drug, were swept as much as 10.8 percent lower in Tuesday trading. They are down 36 percent for the year.
Merck for years has touted the drug, which it had planned to call Cordaptive, as one of its most important experimental medicines and a major new weapon to prevent heart attacks and stroke. But the Food and Drug Administration late on Monday slapped the product down with a so-called not-approvable letter.
“The issuance of a not-approvable letter suggests a serious deficiency in the new drug application” by Merck for the medicine, Leerink Swann analyst Seamus Fernandez said in a research note, calling the rejection surprising and disappointing.
Merck did not explain why the FDA spurned Cordaptive, other than to say the agency wants additional information on the drug. It is an extended release form of niacin that is combined with a chemical meant to reduce flushing — uncomfortable redness and burning of the face and neck that is a side effect of niacin.
Sanford Bernstein analyst Tim Anderson speculated the FDA rejection was due to the same type of blood-clot risk that had sparked the withdrawal of Merck’s arthritis drug Vioxx, although no such risk has been reported from the medicine’s clinical trial data.
“A rejection by the FDA would either seem to mean that in the full dataset there was a signal that just was not presented, or that the FDA was worried instead about a theoretical safety issue that would only be seen with more widespread use of the product,” Anderson said in a research note.
Anderson lowered by 7 percent his 2012 profit forecast, to $3.64 per share.
Other analysts speculated that the FDA, seen as increasingly cautious after the 2004 withdrawal of Vioxx and controversy over the failed Vytorin study, won’t clear Cordaptive until long-term trials establish it can prevent heart attacks and improve other health-related outcomes.
Nomura Code analyst Mike Ward noted that the FDA, in a recent draft of recommendations for the drug industry, calls for such outcomes studies where side effects are an issue.
“We should clarify our position” for makers of cholesterol drugs, Janet Woodcock, head of the FDA’s Center for Drug Evaluation and Research, told Reuters, adding that formal agency guidelines were a possibility.
But Woodcock declined to discuss specific cholesterol products, including Cordaptive.
Other analysts said the rejection raises doubts whether the FDA would be willing to approve another potentially lucrative Merck drug, now in development, that combines Cordaptive with Merck’s older Zocor cholesterol fighter.
Citibank analyst George Grofik had predicted $1.4 billion in U.S. sales for Merck’s experimental niacin-based cholesterol treatments, but on Tuesday stripped all the potential sales from his Merck forecast.
Consequently, Grofik cut his Merck per-share profit forecast to $3.59 in 2009 and $4.01 in 2010, from his earlier projections of $3.62 and $4.12, respectively.
Although Grofik noted it was “still theoretically possible” Cordaptive could be approved before data from long-term trials, now expected in 2011, he said Merck’s attractiveness is now “less compelling.”
Even so, he maintained his “buy” rating on the company, citing its lowered share valuation, 4 percent dividend yield and favorable sales-growth prospects for existing products — including its Gardasil vaccine against the virus that causes cervical cancer.
The setback for Merck spelled good news for rival Abbott Laboratories Inc (ABT.N), whose Niaspan drug is the leading niacin HDL-booster on the market. Abbott shares closed up $1.87, or 3.6 percent, at $53.48 on the New York Stock Exchange.
Merck fell $4.30, or 10.4 percent, to $37.14, also on the NYSE, after trading as low as $36.97 earlier.
Additional reporting by Susan Heavey in Washington; Editing by Gerald E. McCormick and Braden Reddall