It was a bad news-bad news sort of day for Merck KGaA. European regulators unexpectedly rejected the company's Erbitux cancer treatment as a remedy for non-small cell lung cancer. And the company reported that second-quarter profits plummeted by 48 percent. Then, Merck stock fell 16 percent, making it a bad news trifecta.
The Committee for Human Medicinal Products said the benefits of Erbitux to lung cancer patients didn't outweigh its risks. "[T]he benefits of adding Erbitux to standard platinum-based chemotherapy were modest in terms of survival times," the CHMP said in a statement. In addition, the two studies Merck submitted in support of the new indication didn't prove a clear improvement in how long patients lived without their cancer growing worse. Plus, the drug came with "severe side effects" for some patients.
In response to the CHMP ruling, analysts at UBS and J.P. Morgan slashed their ratings on Merck KGaA stock. UBS cut its EPS forecast by 7 percent for 2010 and 12 percent for 2011 and downgraded the stock to neutral. J.P. Morgan cut its rating to underweight from neutral. Merck said it was considering an appeal.
Meanwhile, despite an 18 percent increase in Erbitux sales for the second quarter, Merck KGaA reported that earnings dropped to $154 million, or 48 percent, on rising R&D costs and a charge related to its acquisition of Serono. Revenues, however, held steady at €1.9 billion, or $2.7 billion.
- see the CHMP release
- read the story from MarketWatch