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Merck execs struggle with growing uncertainty over late-stage R&D

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Merck is in a world of hurt. The pharma giant managed to spook several analysts with the news that its osteoporosis drug odanacatib would be held back from regulators until more data could be obtained in a trial extension, raising fears that the badly needed drug may be about to jump the tracks. 

Partly as a result, Morgan Stanley analyst David Risinger downgraded the stock along with Leerink Swann analyst Seamus Fernandez, sending Merck's shares down yesterday.

What's the issue? Look past odana and there's plenty more to worry about at slow-moving Merck ($MRK), where an $8 billion R&D budget has purchased little worth cheering about. An 18,000-patient study now under way--called IMPROVE-IT--is in the spotlight as a monitoring committee prepares to review interim data to determine whether the cholesterol drug Vytorin reduces the risk of heart attack, stroke and death in heart disease patients. The study is a head-to-head trial with Zocor. And as Merck execs sweated out questions about the study, analysts began to wonder if a major foul-up is on the way soon.

You can add ongoing questions about anacetrapib, a high-profile CETP inhibitor that follows two major flops at Pfizer ($PFE) and Roche ($RHHBY), to the red flags on analysts' radar. That's helped create the impression that Merck's late-stage pipeline is burdened by heavy risks. About the only bright spot is the sleep drug Suvorexant. But the sleep drug, now at the FDA, would tackle a shrinking market, which could prove resistant to any new blockbusters.  

The embarrassing recent failure of Tredaptive, marketed in Europe, just made matters worse. Then there's the growing competition for Merck's mainstays, adding to the impression that fresh failures will undercut the company's performance at a critical time. A year ago Merck also cited Bridion (sugammadex), an anesthesia-reversing treatment obtained in the Schering-Plough buyout, as one of its top 5 late-stage drugs. Bridion was originally rejected by the FDA in 2008.

Analysts' fears may prove wrong, of course. But the impression that Merck is not in control of its future is raising the stakes considerably for the Merck executive team. Without some home runs on the R&D side of the business soon, its massive drug research operation--supported by Merck's CEO--is likely to come under huge pressure to deliver or face the ax.   

- here's the AP report

Special Report: Merck - The Biggest R&D Spenders In Biopharma

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