Merck Patent Cliff: A Look At The Cardiovascular Drugs Division

The pharmaceutical industry is staring at a revenue loss of around $300 billion due to patent expirations this decade. ^[1] After the patent on a drug expires, generic manufacturers can replicate and sell the product at much cheaper prices, generally leading to a steep decline in the original drug’s revenues. As we continue to analyze the impact of patent expiries on pharmaceutical companies in our coverage universe, below we discuss the impending patent cliff and the prospects of Merck‘s (NYSE:MRK) cardiovascular drugs division.

Our price estimate for Merck stands at $50, about a 15% premium to the current market price.

See our complete analysis for Merck

Patent Cliff Hurts In Near Term

Merck has had a decent presence in the cardiovascular drugs market through 2010-11, with drugs like Zetia, Vytorin, Zocor and Cozaar/Hyzaar in its portfolio. However, its major drugs Cozaar/Hyzaar, which garnered over $2 billion in 2010, the most in the cardiovascular franchise at that time, lost patent exclusivity in large markets including the U.S. and Europe in late 2010. However, the segment doesn’t have another major patent expiry in next 2-3 years outside of Integrilin, which is set to lose patent protection in 2015.  The fact that Integrilin clocked nearly $250 million in sales last year, or a meager 3% of total revenues from this division in 2011, signifies no major threat.

Nonetheless, we expect total cardiovascular sales (excluding pipeline drugs) to decline going forward due to a number of factors. Questions around the efficacy of Zetia and Vytorin (a combination of Merck’s own Zocor and Zetia) have been raised a numerous times. While both of these drugs have proven to be effective in lowering cholesterol, there is little statistically significant evidence that they reduce chances of heart attacks, strokes and other cardiovascular problems and may not add major benefits to statins like Pfizer‘s (NYSE:PFE) Lipitor, a conventional treatment for reducing cholesterol. ^[2]

Merck has not able to answer these questions yet, though it is conducting a large study called IMPROVE-IT to restore confidence, which should be concluded by June 2013. ^[3] These concerns led to a decline in prescriptions of Vytorin in the U.S. The company is heavily dependent on Zetia and Vytorin, which together bring nearly 8% of its total sales and 50% of its revenues from cardiovascular division. Without a positive outcome of the ongoing study, we expect sales to keep declining at a gradual rate. Further, Zocor, which already went generic in 2006-07, will likely be further affected by the launch of generic versions of Lipitor, which was the world’s largest selling statin until last year.

New Drugs To Offset Declines In Long Term

The drug maker is planning to seek FDA approval for its investigational cardiovascular drug Tredaptive early next year as much anticipated results of a large clinical trial “HPS2-Thrive” could be announced anytime soon. ^[4] Tredaptive lowers LDL-cholesterol – or “bad” cholesterol – and raises HDL-cholesterol, or  “good” cholesterol. The study is being conducted to see the drug’s efficacy in reducing the risk of heart attacks and strokes. Merck had earlier unsuccessfully applied for U.S. FDA approval back in 2007, and despite impressive results in earlier trials ^[5], the FDA asked it to wait for the outcome of HSP2-Thrive.

The drug, if approved in the U.S., could contribute more than $500 million in revenues in peak sales. While we expect Tredaptive to eventually receive FDA approval, the fact that Abbott Labs‘ (NYSE:ABT) Niaspan, a competing drug, is going off-patent in September 2013 could cap the revenue potential of the drug as patent expiry will lead to the launch of cheap generic versions. We have, accordingly, forecast the drug’s expected sales on the lower side in our model.

Another investigational drug, Vorapaxar, a blood thinner, could also see the light of the day in 2013.  At this point it is unclear whether it will receive approval or not due to some concerns raised by clinical studies. ^[6] Merck will now seek approval for use of the drug to prevent cardiovascular events instead of a broader use, including patients with a history of stroke. This has capped the revenue potential from the drug. Still, an approval would bring in much needed revenues the cardiovascular division.

In the drug maker’s pipeline, Anacetrapib is the most promising candidate. Anacetrapib is one of the few CETP inhibitors (a new type of treatment targeting coronary heart diseases) currently undergoing clinical trials and has produced impressive results in early stage results of phase III DEFINE trial, which is determining the safety and efficacy of the drug. ^[7] A separate phase III study, called REVEAL, will soon begin to see if it reduces the risk of major coronary events in patients with a history of heart and vascular diseases. ^[8]
The recent termination of Roche Holdings‘ (PINK:RHHBY) cholesterol drug Dalcetrapib gives Anacetrapib the opportunity to grab a larger share of the addressable market. ^[9] While the drug is not likely to receive FDA approval anytime soon, it could be launched just before Zetia and Vytorin lose their patent exclusivity in 2017, and we expect the drug to see a strong uptake soon after the launch.

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1. BIO 2012: Implications of the ‘Patent Cliff’, The Life Science Report, June 19 2012 [↩]
2. Study questions Vytorin and Zetia in heart disease treatment, The Washington Post, Nov 16 2009 [↩]
3. No Answers Yet From Key Trial Of Merck Cholesterol Drugs, Forbes, March 28 2012 [↩]
4. Results for Merck’s Tredaptive seen in early 2013, MarketWatch, Nov 19 2012 [↩]
5. ‘Tredaptive’® (Nicotinic Acid/Laropiprant) Authorised In The European Union: New Lipid-Modifying Therapy To Treat LDL-C, HDL-C And Triglycerides, Medical News Today, July 23 2008 [↩]
6. Merck will seek approval of 2 heart drugs in 2013, Businessweek, August 2012 [↩]
7. Safety of Anacetrapib in Patients with or at High Risk for Coronary Heart Disease, the New England Journal of Medicine, Dec 16 2010 [↩]
8. REVEAL: Randomized EValuation of the Effects of Anacetrapib Through Lipid-modification, Clinicaltrials.gov [↩]
9. Roche abandons potential blockbuster cholesterol drug, fiercebiotech.com, May 7, 2012 [↩]