Mortal Combat for the Painkillers


By David Shook Many of the nation's 43 million arthritis sufferers now take Merck's Vioxx or Pharmacia's Celebrex. In addition to providing pain relief and reduced joint swelling, these drugs are supposed to protect the stomach lining against bleeding ulcers better than traditional anti-inflammatory drugs. Indeed, in a nation of aging baby boomers, the demand for these super-aspirins is so strong that their makers are tangled in the highest-stakes battle in the pharmaceutical industry. "Vioxx and Celebrex are absolutely essential to these companies' profitability. They're battling it out like gladiators," says Robert Seidman, vice-president of pharmacy for WellPoint Health Networks (WLP), a large California-based insurer.

After two years, Vioxx and Celebrex have been splitting the market for this new class of pain pill 50-50. But with the U.S. Food & Drug Administration reviewing label changes for the drugs, Merck could soon pull ahead. The results of Merck's latest Vioxx trials appear to be more compelling to doctors and regulators than Pharmacia's Celebrex studies, also published recently.

New prescription data this year show Merck (MRK) with a slight lead. From January and March, Vioxx was consistently first by a tiny margin in new prescriptions tracked weekly by IMS Health, a health-care information company. Vioxx edged Celebrex in new scripts written in 12 of the first 13 weeks, the data show. Merck's heavier commitment to marketing could be the reason: The company spent nearly $300 million pitching Vioxx to doctors and promoting it direct to consumers last year. Pharmacia (PHA) and its partner Pfizer (PFE) spent about $235 million on Celebrex, IMS Health says. "Merck really went after the consumer," says IMS spokeswoman Katherine Friedman.

ALL EYES ON THE FDA. Looking down the road, a second-generation Vioxx from Merck is in the works, and it could prove to be the most effective painkiller of the bunch. Right now, the Merck's advantage is subtle, but ultimately, doctors will determine that one drug is better than the other because it's safer. Industry analysts say these are all reasons why Merck could be the smarter play in the market right now, too.

For now, all eyes are on the coming FDA drug-label rulings. When the drugs were introduced in 1999, they were considered pharmaceutical equals. So in 2000, the both drugmakers did further studies to gain a leg up in their pitch to consumers and prescribing physicians. Companies can't solicit doctors in the field with new trial data without first submitting them for FDA review, so both companies presented their study results in carefully worded presentations to the FDA in February.

Pharmacia contends that it did the better study, and the company is pouncing on a slight increase in the risk of heart attack seen in the Vioxx trial. "We have consistently not seen this kind of problem with Celebrex," says Pharmacia's Dr. Steven Geis. But experts point out that patients in the Celebrex trial took aspirin -- a known heart-attack deterrent. That makes interpretation of Celebrex' trial results more difficult, since Vioxx patients didn't take aspirin. An aspirin taken with Vioxx would reduce or eliminate the risk, says Dr. Richard Brasington, professor of medicine at Washington University in St. Louis.

Merck's Dr. Eve Slater calls the heart-attack risk seen in the Vioxx trial an aberration. "It doesn't appear to be anything above and beyond what you'd expect to see," she says. The company suggests that the Celebrex study contains "design flaws," and that Merck's own study did a better job proving its objectives: that Vioxx works better than traditional painkillers. "The most important thing is to be able to describe the benefits of this study to doctors," Slater says. "Right now, we're not allowed to volunteer the data," but if the FDA changes the Vioxx label, "then we're allowed to advertise it."

LOOKING AHEAD. The FDA hasn't exactly granted that right just yet. But Merck moved a step closer to that goal on Apr. 10, when it received a letter from the FDA suggesting it will give Merck the right to pitch doctors with the Vioxx trial results. Pharmacia hasn't received a similar letter regarding the latest Celebrex trials -- at least not yet. So chalk up a small victory for Merck.

"The downside for Vioxx is that more people had heart attacks in the Merck study," says Washington University's Brasington, an investigator in the Celebrex trial and a consultant for Merck. "But the downside for Celebrex is that its trial data was not as powerful or strong in saying that the drug is in fact safer than [traditional painkillers]."

Not surprisingly, Merck is looking beyond this battle to its second-generation Vioxx. Both companies have drugs in the labs that may do an even better job reducing pain without causing stomach bleeding. Some analysts say Merck can claim the advantage here, too. Etoricoxib, Merck's next painkiller in development, is "the most selective 'cox-2 inhibitor' known to be in development," Merck says of a recent laboratory study comparing etoricoxib to Vioxx, Celebrex, and Celebrex' annointed successor, valdecoxib.

All of these drugs are called cox-2 inhibitors, because they block a key inflammatory enzyme, cox-2, without affecting cox-1, an enzyme that lines the stomach. Early lab studies suggest Merck's etoricoxib might be the heavy hitter of the bunch.

From an investing perspective, Merck's sales and earnings are more diversified than Pharmacia's, which could explain why Merck stock looks expensive right now, analysts say. Less of Merck's stock valuation is tied up in the success of its painkiller, while Celebrex is Pharmacia's No. 1 product, with $2.6 billion in sales last year, or 21% of company revenues. Vioxx is Merck's No. 2 bestseller, raking in $2.2 billion, but only 12% of total sales.

BETTER ARMED. Both companies' shares have fallen sharply in the broader market decline. But Merck's premium can be seen in the price-to-earnings-growth (PEG) ratio, which compares the current year's price-to-earnings multiple to projected earnings over the next five years and gives investors a picture of how the stock is valued compared to future income growth. Merck trades at $77.65 a share, down from $95 on Jan. 1, and has a p-e of 24 using this year's earnings estimate of $3.21 a share. Merck's expected five-year earnings growth rate is 12.2%, so it has a PEG ratio of 1.96.

By contrast, Pharmacia has a stock price of $51.50 a share, down from $64 on Jan. 1, and a p-e of 29 using estimated earnings of $1.75 a share this year. Divide the p-e by a five-year estimated growth rate of 20%, and it puts Pharmacia's PEG at 1.45 -- highlighting the stock's weaker valuation in the market.

Certainly, both drugs play an important role in these valuations. And in the short-term, the arthritis market is big enough for both companies to thrive. But with Celebrex more heavily tied to Pharmacia's future growth, Merck's stock seems to carry less risk. Wellpoint's Seidman is right: Both companies look like gladiators, with Vioxx and Celebrex as their most powerful weapons. But Merck's arsenal appears to make it the stronger of the two adversaries. Shook covers financial markets for BW Online in New York


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