Buyers Remorse: Merck & Co. Takes $2.9 Billion Charge on Hepatitis C Drug Inherited From $3.9 Billion Idenix Buy
February 24, 2017
By Alex Keown, BioSpace.com Breaking News Staff
NEW YORK – Ouch. Merck took a pre-tax $2.9 billion hit from its flagging hepatitis C drug candidate uprifosbuvir due to flagging sales in the market, in part due to the success of drugs already available, which would include Gilead Sciences’ Harvoni and Sovaldi treatments.
In a filing with the U.S. Securities and Exchange Commission earlier this month, Merck said it will record a pre-tax impairment charge of $2.9 billion for MK-3682, uprifosbuvir, a nucleotide prodrug in clinical development for HCV. Merck acquired the drug in 2014 with its $3.9 billion acquisition of Idenix Pharmaceuticals, Inc. After taxes, Merck said the company’s charge related to the drug will be $1.9 billion. In its filing, Merck said the drug is now valued at $240 million.
The company said it will continue to evaluate options for uprifosbuvir and will also “monitor the remaining $240 million intangible asset for further impairment.”
“The company determined that recent changes to the product profile, as well as changes to its expectations for pricing and the market opportunity, taken together constituted a triggering event that required the company to evaluate the uprifosbuvir intangible asset for impairment,” Merck said in its filing.
Asthika Goonewardene, an analyst with Bloomberg Intelligence, told Bloomberg that there are two likely reasons Merck made the announcement. Either the company is seeing the value of the HCV market isn’t worth additional investment in uprifosbuvir or “they are seeing safety or efficacy signals that doesn’t make this as compelling.” However, Merck later told Bloomberg that the uprifosbuvir decision had nothing to do with safety and efficacy, which supports that the decision was based on conditions within the HCV market.
Merck’s loss on uprifosbuvir highlights the problems with the HCV market, primarily due to the efficacy of available drugs. Gilead, which built its fortune and reputation on its HCV therapies, has seen its fortunes actually turn for the worse due the high response rate of patients to the company’s HCV lines. Earlier this month, Gilead announced that its fourth quarter revenue had dropped by 15 percent, which caused company stock to plummet. Gilead has seen sales of its HCV drugs drop dramatically. In 2016, the company’s three main HCV drugs, Harvoni, Sovaldi and Epclusa, generated $14.8 billion. That was down from 2015’s earnings of nearly $20 billion. And the company has projected them to fall even more this year. During the earnings call, the company forecast revenue predictions from its HCV drugs at $9 billion.
In addition to Gilead, other companies such as AbbVie and Merck, which has the recently approved Zepatier, have carved out their own portions of the HCV market, which has given doctors a wide variety of options to choose from when prescribing treatments—which means competition for the lowest prices.
Despite the financial impairment report for uprifosbuvir, Merck told Endpoints that enrollments in current trials for uprifosbuvir will continue. The company said it also remains encouraged by Zepatier’s infiltration into U.S., European and Japanese markets.