The European regulatory agency has rejected Merck
KGaA's multiple sclerosis drug cladribine due to cancer and immune
system side effects. As a result of the European rejection, we plan to
slightly lower our fair value estimate for Merck KGaA. Based on a strong
efficacy profile and convenient oral dosing, we had projected a 60%
chance of approval and $1 billion in cladribine sales by 2019 (4% of
total sales). However, we now plan to lower our cladribine projections
close to zero as we expect that the Food & Drug Administration will
likely follow the European regulator's lead and reject the drug as the
FDA tends to be more risk averse than their European counterparts.
While a major setback for Merck KGaA, cladribine's rejection likely
means Novartis'
Gilenya will initially have the oral MS treatment market to itself.
While Novartis' drug also caused a few cases of cancer, Gilenya doesn't
last as long in the body, which makes side effects less concerning. We
expect Gilenya's strong efficacy, reasonable side effect profile (no
black box warning on side effects), and convenient oral dosing will
translate into more than 10% share of the MS market or more than $1
billion annually.
Damien Conover, CFA is a senior equities analyst with Morningstar.
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