Merck KGaA's Erbitux Disappoints

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Merck KGaA (MKGAY) recently announced that Erbitux failed to achieve its primary endpoint in the phase III EXPAND trial, conducted in patients with advanced gastric cancer. Results showed that Erbitux plus cisplatin and capecitabine failed to significantly increase progression-free survival (PFS) in patients with advanced gastric cancer.

Earlier in May 2012, Merck KGaA had presented disappointing interim results on Erbitux from a phase III study - PETACC-81. Results from the study revealed that Erbitux, when given in combination with standard chemotherapy (FOLFOX 4), did not prolong disease-free survival in patients, as compared to those treated with FOLFOX 4 alone.

Erbitux is currently marketed in the US and EU for colorectal cancer and squamous cell cancer of the head and neck. The product is under review in the EU for the first-line treatment of non-small cell lung cancer.

Merck KGaA develops and commercializes Erbitux outside the US and Canada under an exclusive agreement with ImClone LLC, a subsidiary of Eli Lilly & Co. (LLY). In North America the product is marketed by Bristol-Myers Squibb Company (BMY), under another agreement with ImClone LLC. ImClone LLC., Bristol-Myers and Merck KGaA co-promote the product in Japan.

Merck KGaA recorded Erbitux sales of €214 million in the first quarter of 2012. The company expects Erbitux sales to be around €865–€890 million this year.

Our Recommendation

Erbitux is one of the leading revenue contributors at Merck KGaA. However, the oncology market is heavily crowded with players like Roche Holdings Ltd. (RHHBY), Pfizer Inc. (PFE), Sanofi (SNY), AstraZeneca (AZN) and Amgen Inc. (AMGN).

Merck KGaA currently retains a Zacks #4 Rank (short-term Sell rating).

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