It hasn't been a good few days for Merck (NYSE: MRK). Earlier in the week, it got a letter from Congress asking for information about why a clinical trial was taking so long. Then, yesterday, it announced that it was recalling 11 lots of vaccines that immunize children against Hib (which causes meningitis, pneumonia, and other serious infections), as well as two lots that combine Hib vaccine with a hepatitis B vaccine.
Approximately 1.2 million doses of the vaccine have to be recalled because of potential bacterial contamination. No bacteria were found in the vials, but some was found on equipment used to make the vaccine. Merck certainly doesn't need another lawsuit on its hands, so it's better to be safe than sorry -- not to mention that the FDA wouldn't be too happy with the company leaving the doses on the shelves.
No word on how much it's going to cost Merck, but it'll definitely be more than the cost of the 1.2 million vaccines. The company won't be able to supply any vaccine for at least nine months, since it has to get the problem fixed and then get the FDA to sign off on the new sterilization procedure.
Merck doesn't break out sales of individual vaccines, but the vaccine division as a whole is expected to nearly double revenue this year, thanks in large part to sales of the company's human papillomavirus vaccine, Gardasil. The loss of Hib vaccine sales, plus new competition from GlaxoSmithKline's (NYSE: GSK) Cervarix, might make it hard for the company to reach its goal of a 14% revenue increase for the division next year.
You would think that having its only other U.S. competitor out of the running would leave Sanofi-Aventis (NYSE: SNY) frothing at the mouth, but unfortunately, pharmaceutical production doesn't work like that. In order to save money, most pharmaceutical companies try to run their plants at near capacity. It's unlikely that Sanofi will be able to double U.S. sales without taking the vials from another country, but it might be able to grab some of the market share from Merck if customers don't switch back once Merck comes back online.
In the grand scheme of things, the recall and time offline won't be a major hit to a drugmaker as large as Merck. But combined with last year's manufacturing problem with its chickenpox vaccine, which involved the same plant that produced the recalled Hib vaccines, the situation doesn't give investors much confidence in Merck's manufacturing process.
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