Merck ($MRK) has halted sales of livestock drug Zilmax to investigate some worrisome side-effect reports. It's bad news for cattle raisers, many of whom rely on Zilmax and similar products to forge their profits. And it's bad news for Merck, one of several companies that has looked to animal health for sales help in the face of patent-cliff losses.
After reports that cattle fed the growth supplement had problems walking or standing, Merck said it would temporarily suspend Zilmax sales in the U.S. and Canada to allow for an audit. The announcement followed Tyson's refusal last week to accept cattle treated with Zilmax. "This will allow sufficient time for the establishment of valid study protocols, identification of feeders and packers to participate in the audit, and creation of a third-party team to oversee this process and validate its results," the company said in a release.
Merck has stood by Zilmax, affirming its belief that the product is safe. K.J. Varma, senior vice president of global R&D in Merck's animal health unit, said in a statement that the move demonstrates the company's commitment to providing its partners with data that would "reaffirm confidence" in the drug. He apologized for the business challenges the sales halt would cause for Merck's customers, but they won't be the only ones feeling its effects.
According to the company, Zilmax sales in the U.S. and Canada amounted to $159 million last year. That's not a lot, compared with its drug blockbusters, but like many of its Big Pharma peers, Merck sees animal health as a way to help defend against patent-cliff revenue damage. In its most recent earnings release, Merck cut its sales forecast and posted a 50% drop in quarterly earnings largely due to generic competition for its one-time blockbuster Singulair.
Other companies like Sanofi ($SNY), Novartis ($NVS) and Eli Lilly ($LLY) have used similar strategies, but their animal health units have been struggling as of late. Earlier this month, Sanofi reported a 5.7% contraction in animal health for the quarter, and Novartis CEO Joe Jimenez recently said the company would spend the next few years looking for ways to expand its animal health business--and get out of the field if those efforts don't prove successful.
Sales aid from animal health is especially crucial right now for Eli Lilly, which has been slashing jobs and raising prices as it prepares for generic competition for its top seller, Cymbalta. But in April, the company announced sluggish growth for its animal health business of only 2%. Lilly also produces a drug, Optaflexx, in Zilmax's category of beta agonists. But a spokeswoman for its animal health unit told Businessweek the company has not been contacted by the FDA or had reports of an increase in cattle lameness.
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