Merck's dance with the religious right
Drug giant close to approval for controversial anti-cancer vaccine for youngsters.
By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - Merck needs a hit, and it just might be on the verge of getting one, thanks to some delicate footwork with the religious right.

Merck is eagerly awaiting news from the Food and Drug Administration, which is due to make a decision on two key experimental vaccines in the next few weeks. One of those is Gardasil, a controversial vaccine for the prevention of cervical cancer.

If approved Gardasil could be a multi-billion blockbuster for Merck. However the vaccine is used to inoculate young girls from contracting a sexually transmitted cancer virus later in life. Conservative religious groups worry that use of the vaccine may send the wrong message about premarital sex.

Through a carefully orchestrated "informational" campaign, Merck has managed to overcome that resistance. And now it may be about to win the government's okay as well.

An advisory committee for the FDA will vote on greenlighting Gardasil on May 18. A "yes" vote will clear the way for ultimate FDA approval, since the agency usually follows the lead of its panels. The FDA is scheduled to complete its review of Gardasil on June 8.

The experimental vaccine is backed by strong clinical data and has been hailed as a bright light for Merck (up $0.60 to $35.29, Research), a drug giant that is losing billions of dollars in annual sales to impending patent expirations, as well as the withdrawal of its blockbuster Vioxx.

"It shows that there's life after Vioxx," said Les Funtleyder, analyst for Miller Tabak, referring to the vaccine.

About Gardasil

Gardasil is most effective, as a preventative, when used in children. The vaccine has been tested in boys and girls as young as 10, with the intention of inoculating them years before they become sexually active.

The data from Gardasil late-stage studies has been strong. Gardasil has shown 100 percent efficacy in preventing the sexually transmitted human papillomavirus, which causes 70 percent of cervical cancer cases, according to Merck. This type of cancer kills nearly 4,000 women in the U.S. annually and nearly 300,000 worldwide, according to the National Cervical Cancer Coalition.

Gardasil has also shown 100 percent efficacy in preventing the sexually-transmitted viruses that cause 90 percent of vaginal and vulvar lesions in young women, including genital warts, according to Merck.

If the FDA approves Gardasil, it would help fill part of the sales vacuum left by Vioxx, an arthritis painkiller that Merck pulled off the market in 2004 after a study showed an increased the risk of heart attacks and strokes. Not only did this erase $2.5 billion in annual sales, but about 11,500 lawsuits have been filed against Merck by former patients and their families.

Analysts put a wide range on the potential Vioxx fallout. While Barbara Ryan of Deutsche Bank North America projects that damages could total $30 billion for Merck, David Moskowitz of Friedman, Billings, Friedman projects $50 billion, the highest projection in the industry.

In addition to the Vioxx troubles, Merck's patent on its top-selling drug, the cholesterol-cutting Zocor, expires on June 23, taking away $4.4 billion in annual sales.

Gardasil sales could reach $1.6 billion annually by 2009, said Ryan of Deutsche Bank North America. Jami Rubin, analyst for J.P. Morgan, projects annual sales of $2 billion.

All about the age

But Funtleyder of Miller Tabak said sales are dependant on whether the vaccine is approved for all ages.

"What's the age range?" said Funtleyder. "Are they going to make people in the religious right freak out?"

Girls as young as 11 could be approved to use the vaccine. But the idea of children that young being inoculated against a sexually transmitted disease is upsetting to many parents and parental groups.

So Merck's recent educational campaign has focused on prevention of HPV and cervical cancer, and de-emphasized sexuality.

"Merck continues to work with all organizations to understand diverse positions and make people feel comfortable about broad use of Gardasil," said Merck spokeswoman Kelley Dougherty.

And that has apparently been a winning strategy. Dougherty the company has managed to win growing support for Gardasil over the last year.

"How could anyone be against vaccination against a common virus that causes cervical cancer?" asked Ryan. "I think, in that way, [Merck] is successfully walking down the path that will minimize complications along those lines."

Focus on the Family and the Family Research Council, both faith-based conservative policy organizations, recently have spoken in support of HPV vaccines from Merck and GlaxoSmithKline because of their life-saving potential. But the organizations still promote abstinence before marriage as the best way to prevent infection.

"The HPV vaccine does not, in any circumstances, negate or substitute God's plan for sexuality, which is sexual abstinence until marriage and sexual faithfulness within marriage," said Focus on the Family spokeswoman Linda Klepacki in a statement on the organization's Web site.

J.P. Morgan's Rubin observed the FDA will be closely watched to make sure it doesn't reject Gardasil based on morality instead of science, as the agency is accused of doing in its failure to approve birth control pill Plan B for over-the-counter availability. The FDA said it did not approve Plan B for OTC use because there was not enough data involving girls under the age of 16, even though its advisory committee had recommended approval.

"I think the FDA's failure to approve Plan B [as an over-the-counter drug] despite the FDA advisory committee's support on this probably backfired on them," said Rubin.

Funtleyder of Miller Tabak said that Gardasil won't be as politically difficult to get past the FDA as Plan B, because Plan B is a birth control drug and Gardasil is not.

"Certainly the same political forces that were in operation then are in operation now," said Funtleyder. "But [Gardasil] is a different product. [Plan B] was closer to contraception [than Gardasil.]"

Merck's Gardasil could eventually face competition from GlaxoSmithKline's (up $1.20 to $58.28, Research) Cervarix, which is also being tested for the prevention of human papillomavirus but is at least one year behind Merck's drug. Rubin of J.P. Morgan projects that Cervarix sales could reach $1.6 billion annually.

Zostavax, the shingles vaccine

In another positive development for Merck, although not as big dollar-wise, the FDA is expected to make a decision on Zostavax, Merck's shingles vaccine, on May 25.

Annual sales projections for Zostavax tend to peak at around $200 million, a drop in the bucket compared to the company's $22 billion sales total for 2005.

Zostavax was developed as a vaccine against shingles, a blistering rash caused by the latent varicella virus, which also causes chicken pox. Merck published the findings of late-stage studies last year in The New England Journal of Medicine, showing that the vaccine reduced the incidence of shingles by 51 percent. Merck also said that, in those not successfully inoculated, the vaccine reduced pain and discomfort in shingles patients by 61 percent and reduced persistent nerve pain, the most common symptom, by 67 percent.

There seems to be little doubt that Zostavax will be approved by the FDA. Back in December, an FDA advisory committee recommended approval of Zostavax. On its Web site, the National Institutes of Health seemed to give Zostavax an endorsement, because if approved by the FDA it "has the potential to prevent hundreds of thousands of cases of shingles in the U.S. in a single year."

The analysts interviewed for this story do not own shares of Merck stock.

To read about Merck's first quarter earnings, click hereTop of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.