Drug Roundup – June 19, 2012

There have been several noteworthy developments in the drug space recently, which will likely have a material impact on the companies in this sector and the markets they serve. Companies mentioned in this review include Pfizer Inc. (PFE - Free Pfizer Stock Report), Bristol-Myers Squibb (BMY), Johnson & Johnson (JNJ - Free J&J Stock Report), and Merck & Co. (MRK - Free Merck & Co. Stock Report).

Pfizer Announces Animal Health IPO

In a move that was widely expected on Wall Street, Pfizer confirmed speculation that it will be taking its animal health business public, rather than selling it to a potential buyer. According to management, preparations are currently under way for a public offering of a minority stake in the new animal health company (which would be called Zoetis). Further details will be provided when Pfizer reports second-quarter earnings in late July or early August. With recent estimates pegging the unit’s valuation at about $15 billion, Pfizer could receive as much as $3 billion in cash by spinning off 20% of the business through the IPO. Animal Health operations generated about $4.2 billion in revenues for Pfizer in 2011, selling medicines, vaccines, and various other wellness-related products for pets and livestock. It employs 9,000 people and markets products in more than 120 countries.

Bristol-Myers Squibb Reports Positive Diabetes Drug Data

On June 11th, the company provided encouraging Phase III data in regard to its Type II diabetes candidate, Dapagliflozin, when comparing the efficacy of the drug to a placebo. The study concentrated on adults whose disease was inadequately controlled by Merck’s Januvia product by itself, or in combination with metformin. Results revealed that patients treated with a Dapagliflozin/Januvia combination experienced a significant reduction in blood sugar levels versus the Januvia/placebo combination at the end of 24 weeks, with similar results obtained after 48 weeks, as well. While this is undoubtedly a step in the right direction for Bristol-Myers Squibb and the health of its pipeline, much of the upcoming investor focus will likely be heavily targeted on the company’s recent loss of U.S. exclusivity for Plavix, its blockbuster blood-thinning medication. Plavix has been one of BMY’s top-selling drugs for several years and its loss is expected to result in substantial revenue declines in the coming quarters.

Johnson & Johnson Completes Blockbuster Synthes Acquisition

On June 14th, J&J announced it had completed its $19.7 billion cash-and-stock acquisition of Synthes Inc., a leading global manufacturer of orthopedic devices. Synthes will be integrated with Johnson & Johnson’s existing Dupuy franchise to create one of most innovative and comprehensive orthopedics businesses in the world. The deal represents the largest acquisition in Johnson & Johnson’s 126-year history and should provide a nice boost to earnings during the second half of 2012.

Merck Loses Patent Case For Nasonex

On June 15th, leading drugmaker Merck & Co. lost its patent infringement lawsuit against Apotex Inc. regarding Apotex’s plans to market a generic version of Nasonex, Merck’s nasal allergy spray. A U.S. District Court in Trenton, New Jersey dismissed Merck’s complaint, citing insufficient evidence in its April trial. Apotex contended its nasal spray was different than Merck’s because it did not contain water. While management indicated an appeal of the case is likely, it also warned that an unfavorable decision would result in significant sales losses in the U.S. market if generics become available. Global sales of Nasonex totaled $1.3 billion in 2011.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.