Biotech Values

[DewDiligence]

Vytorin update (the other big pharma story today):

Worldwide 2Q08 Vytorin sales were down 14% year-
over-year, but things could get even worse as Vytorin
missed its primary endpoint in the SEAS study (see
below) and also showed a possible cancer link. MRK
and SGP shares were hammered again (during regular
trading and again in the AH session) and MRK has taken
the unusual step of revoking all earnings guidance.

http://online.wsj.com/article/SB121662823157969873.html

›Vytorin Hits Another Bump

By PETER LOFTUS and LAUREN POLLOCK
July 21, 2008 7:00 p.m.

In the latest setback for cholesterol drugs marketed by Merck & Co. and Schering-Plough Corp., a new study suggested Vytorin failed to show a benefit in people with a heart-valve problem.

It was the first study to show what effect the companies' jointly marketed cholesterol drugs had on clinical outcomes such as heart attacks. Previous studies have primarily measured the drugs' effects on cholesterol levels and artery thickness.

The outcome could put further pressure on sales of Vytorin and sister drug Zetia, which already have taken a hit this year because a previous study raised questions about their effectiveness.

The study, known as "SEAS," found no significant difference between treatment groups for cardiovascular events associated with aortic valve disease and heart disease, which was the primary endpoint of the study. In addition, there was no significant difference for the secondary endpoint of the prevalence [sic] of aortic valve disease events. The drug combination did produce a statistically significant 22% reduction in atherosclerotic events alone.

The study also found the drug combination appeared to reduce the risk of coronary artery disease events in patients with mild to moderate aortic stenosis, but not the rate of progression of aortic valve disease. The use of the drug combination in patients was generally well tolerated and safe.

The researchers found a higher rate of cancer cases in people taking the combination of simvastatin and Zetia, versus the placebo group, but that the difference could have been due to chance. Researchers also said an analysis of other, ongoing trials of Vytorin or Zetia do not suggest an inreased [sic] risk of cancer.

Merck shares were off 6.2% at $35.33 in 4 p.m. composite trading on the New York Stock Exchange, while Schering-Plough dropped nearly 12% to $18.95.

After the market close, both Schering-Plough and Merck reported second-quarter results.

Schering-Plough's profit dropped 19%, hurt in part by results from its cholesterol-drug joint venture with Merck. Net income for the quarter was $436 million, or 24 cents a share, compared with $539 million, or 34 cents a share, a year earlier.

Excluding $1 billion in accounting charges related to the company's purchase of Organon BioSciences and other items, per-share earnings rose to 45 cents from 41 cents. Net sales rose 55% to $4.92 billion, including sales from Organon, which Schering-Plough purchased in November.

In the company's statement, Schering-Plough Chief Executive Fred Hassan said the company remains "confident in Vytorin" as a treatment for high cholesterol levels.

Merck reported net income of $1.77 billion, or 82 cents a share, up from $1.68 billion, or 77 cents a share, a year earlier. Revenue fell a 1% to $6.1 billion. Combined world-wide sales of Zetia and Vytorin, as reported by the joint venture, were $1.2 billion, down 9% from a year earlier. [Standalone Zetia sales were down 3%, and Vytorin sales were down 14%.]

Addressing the study results, Merck Chief Executive Richard Clark said: "We are moving quickly to fully assess the potential implications of the data for our cholesterol joint venture." The company said that in the meantime it is suspending its 2008 financial outlook.

U.S. Prescriptions for Vytorin Sag

Vytorin is a combination of the drugs Zetia and simvastatin, which use different mechanisms to reduce levels of bad cholesterol. Both Vytorin and stand-alone Zetia are marketed by a joint venture of Merck and Schering-Plough; they had combined sales of more than $5 billion in 2007. Simvastatin, which belongs to an older class of cholesterol drugs known as statins, is marketed under the brand Zocor by Merck but since its 2006 patent expiration has been available as a cheap generic pill from several manufacturers.

U.S. prescription volumes for both Vytorin and Zetia have declined since January when Merck and Schering-Plough released results of the "Enhance" study, which showed Vytorin was no better than simvastatin alone at slowing clogging of the arteries, despite producing a greater drop in levels of bad cholesterol. Generic simvastatin sales have surged.

Several prominent U.S. cardiologists have called for curtailed use of Vytorin and Zetia in the wake of the Enhance study, citing the lack of definitive proof that the drugs' effect on cholesterol translates into reduced risk of heart attacks and stroke, versus simvastatin alone.

Merck and Schering-Plough have countered that Vytorin and Zetia are effective for the primary use approved by U.S. regulators -- to lower levels of bad cholesterol. They note that the concept of lowering bad cholesterol is generally accepted as a way to reduce risk of heart attacks and related disease.

The Enhance study also sparked probes by members of Congress and federal and state investigators partly because the companies waited nearly two years to release the results after the study's completion in 2006. The companies have said it took awhile to analyze the results due to data-quality problems.

The SEAS study tested Zetia and simvastatin in about 1,870 Europeans with a heart-valve problem called aortic stenosis. The condition, which involves narrowing of the heart's aortic valve, affects about 3% of people older than age 75. The study measured whether the combination of Zetia and simvastatin -- the equivalent of Vytorin -- reduced the need for aortic-valve replacement and cut the risk for heart attacks and related disease, versus a fake pill, or placebo.

History wasn't on the side of Vytorin and Zetia in this patient population. A previous study, published in The New England Journal of Medicine in 2005, showed that Pfizer Inc.'s Lipitor statin drug didn't halt the progression of aortic stenosis or induce its regression.

A larger study, "Improve-It," is under way to test whether Vytorin reduces the risk for heart attack and related disease in a broader patient population, but results aren't expected until about 2012.

Merck and Schering-Plough had been scheduled to report second-quarter results Monday morning, but they postponed the announcement until after the market close because of the impending announcement of the SEAS study results.‹