Swings and Roundabouts In the Pharma Industry

European regulators have dealt a blow to Merck over its MS drug that looks likely to benefit competitor Novartis

Damien Conover, CFA 27 September, 2010 | 10:06AM
Facebook Twitter LinkedIn

The European regulatory agency has rejected Merck KGaA's multiple sclerosis drug cladribine due to cancer and immune system side effects. As a result of the European rejection, we plan to slightly lower our fair value estimate for Merck KGaA. Based on a strong efficacy profile and convenient oral dosing, we had projected a 60% chance of approval and $1 billion in cladribine sales by 2019 (4% of total sales). However, we now plan to lower our cladribine projections close to zero as we expect that the Food & Drug Administration will likely follow the European regulator's lead and reject the drug as the FDA tends to be more risk averse than their European counterparts.

While a major setback for Merck KGaA, cladribine's rejection likely means Novartis' Gilenya will initially have the oral MS treatment market to itself. While Novartis' drug also caused a few cases of cancer, Gilenya doesn't last as long in the body, which makes side effects less concerning. We expect Gilenya's strong efficacy, reasonable side effect profile (no black box warning on side effects), and convenient oral dosing will translate into more than 10% share of the MS market or more than $1 billion annually.

Damien Conover, CFA is a senior equities analyst with Morningstar.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Damien Conover, CFA  is an equity analyst and associate director at Morningstar.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures