As I predicted the sales of vytorin and zetia would fall off a cliff after the release of the ENHANCE trial showing no additional benefit of adding ezetimibe to simvastatin. I suggested taking a short position in MRK and SGP the day after the news came out. I hope some people followed my advice- the trade has been very good to me so far- making 20% in 10 market days. So what should we do now. Take the money off the table, let it ride or double down. Certainly the easy money has been made. Still, I suspect that the MRK and SGP will continue to grind down.
1- The trial showed no clear evidence of harm for using ezetimibe. As a result, we are generally not calling all patients on the drug to stop it. In general, we are waiting until we see the patient, or patients call to make the switch. So scripts will fall fast at first ( driven mainly by patient requests) and then slowly for a period of months- with each week being a little worse than the week before
2- IMS numbers which are released tomorrow. They will be very bad. My guess is for a 65% fall in new Rxs.
3- The ACC meeting in March- when the data will be officially presented- will provide another leg down in terms of sentiment.
4- In addition to all of this, Merck will be stopping their successful advertising related to vytorin and zetia. Look for PFE and AZN to ramp up their ad-spend on Lipitor and Crestor.
5- While I don’t see much rational behind the lawsuits that are starting to build- I would expect that these suits will cost MRK and SGP a lot of money. Merck’s vioxx strategy of defending all cases to the death seems to work, but lawyers don’t come cheap.
SGP took a “Cramer bounce” after hours on Friday. I plan to take advantage of it and short the stock in the premarket on Monday.
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