If it fails, analysts and experts said, Pfizer will corner the market on anti-arthritis drugs and Merck could be forced to merge with another drug maker, such as Schering-Plough Corp., to remain competitive.
Merck pulled the plug on Vioxx-which accounted for 11% of its sales last year-after data from a three-year clinical trial on colon cancer showed an increased risk of heart attack and strokes in cancer patients taking the drug. It is likely the biggest recall of a drug since the Food and Drug Administration banned "fen-phen"-a diet cocktail of two American Home Products drugs-from the market in 1997, which later resulted in AHP agreeing to a $3.75 billion class-action settlement.
Possible litigation aside, the Vioxx decision will cost Merck upwards of $3 billion in sales. Vioxx was a $2.5 billion drug last year, second to Pfizer's Celebrex in the category known as COX-2 inhibitors, and estimates were that it would earn between $2.8 billion and $3 billion this year.
The move will also cost Omnicom Group's DDB Worldwide, New York. The creative agency of record for Vioxx, DDB earned an estimated $5 million to $6 million in revenue on the $78 million Merck spent advertising Vioxx last year. DDB referred calls to the marketer.
On top of this, the world's third-largest pharmaceutical maker will lose patent protection on anti-cholesterol drug Zocor, its biggest selling drug, in 2006. Independent healthcare analyst Hemant Shah of HKS & Co., Warren, N.J., called it a "disaster" in timing for Merck and said it makes it "inevitable for the company to find a merger partner in order for them to grow."
An analyst report from Merrill Lynch agreed. "We view this as positive for investor perception about Schering-Plough," the report stated. "This is because corporate pain often is a trigger for strategic action, and the pain [Merck] is experiencing may make it more likely that it attempts to acquire" Schering-Plough.
strong cash flow
Merck Chairman-CEO Raymond V. Gilmartin said the company is "very strong financially with very strong cash flow."
Merck is already a marketing partner with Schering-Plough on a key entry in the cholesterol-drug market with the statin Vytorin. A combination of Merck's Zocor and Schering-Plough's Zetia, the drug hit the market last month and will be backed with an aggressive marketing campaign.
Moreover, Merck does have a successor drug to Vioxx with Arcoxia, waiting for a possible Oct. 29 approval from the FDA.
"In our opinion, [the Vioxx] news could put additional pressure on the company to prove that Arcoxia would be safe for long-term use," the Merrill Lynch report noted. "We have been modeling $300 million in Arcoxia sales in `05. If it is approved, its launch could be stronger than expected as it takes up [Vioxx] slack."
Pfizer is likely to be a beneficiary of Merck's woes. The company's Celebrex already does $5 billion a year in sales to lead the anti-arthritis category, and its successor drug Bextra is already on the market. When Merck's stock dropped 26% on the day of the Sept. 30 announcement, Pfizer's rose slightly. One analyst said Pfizer could potentially pick up two-thirds of Vioxx's sales.
A Pfizer spokeswoman said the company has no plans to alter its marketing for Celebrex. There was no further comment from the world's largest drug maker, but Joe Feczko, Pfizer's president-worldwide development, said "Pfizer is confident in the long-term cardiovascular safety of Celebrex." He added that a government-sponsored study of 1.4 million patients showed "no increased risk of cardiac events" linked to Celebrex.