Merck Takes $1.9B Writedown as Hepatitis C Market Shrinks

  • Company bought experimental drug in 2014 for $3.9 billion
  • Gilead surprised with low hepatitis C forecast this month

Merck & Co., one of the U.S.’s biggest drugmakers, will write down most of what it paid for a promising, experimental hepatitis C drug in 2014, partly because of the extreme success of other new therapies has left a shrinking market.

In a filing Thursday, Merck said it would take a $2.9 billion charge, or $1.9 billion after taxes, on uprifosbuvir, which it bought in 2014 in its $3.9 billion acquisition of Idenix Pharmaceuticals Inc. and is still in clinical trials. Merck said it now values the drug at $240 million.

The market for treatments for hepatitis C, a virus that attacks the liver and can lead to cirrhosis or liver cancer, has been declining recently, with fewer patients to treat following major breakthroughs in science that brought to market highly effective, fast-working cures.

Gilead Sciences Inc., the leader with three main hepatitis C treatments, earlier this month took investors by surprise when it forecast 2017 sales for the drugs that were well below analysts’ projections, saying its franchise was fading faster than it would have predicted last year as the pool of new patients dried up.

“They are either seeing that the value of the hepatitis C market, when they are able to launch their product, isn’t worth the further investment, or they are seeing safety or efficacy signals that doesn’t make this as compelling,” Asthika Goonewardene, an analyst with Bloomberg Intelligence, said of Merck. The company said in a separate e-mailed statement that the drug’s safety and efficacy didn’t play a role.

Changing Market

Abbvie Inc. and Merck’s own Zepatier franchise have crowded the market and driven down pricing. Zepatier was approved by the U.S. Food and Drug Administration in 2016.

Merck said in the filing that it “determined that recent changes to the product profile, as well as changes to its expectations for pricing and the market opportunity, taken together constituted a triggering event that required the Company to evaluate the uprifosbuvir intangible asset for impairment.” It also cut its fourth-quarter earnings to a loss of 22 cents a share from a profit of 42 cents.

In the e-mailed statement, Merck said it remains committed to current trials for uprifosbuvir. “We also remain encouraged by our progress with the launch of Zepatier, including our ability to gain access across public and private payers in the U.S. and initial uptake in the European Union and Japan.”

Merck shares fell 0.5 percent to $65.52 in U.S. trading after the markets closed.

The Idenix acquisition isn’t a total loss, Goonewardene said. The company’s intellectual property was the basis of Merck’s $2.54 billion patent win against Gilead in December, the biggest patent-infringement verdict in U.S. history. Gilead has pledged to appeal.

“It’s a saving grace,” Goonewardene said.

Hepatitis C affects 130 million to 150 million globally, according to the World Health Organization, and the Centers for Disease Control has said as many as 4 million Americans may have chronic hepatitis C infections.

    Before it's here, it's on the Bloomberg Terminal.