Merck Q3: Zostavax Nears Part D Hurdles, Gardasil Sales On Fast Track

Merck will seek to drive continued growth of its shingles vaccine Zostavax through promotional activity and efforts to facilitate reimbursement, the firm said.

"Zostavax in my opinion is a key vaccine for our future," Merck CEO Dick Clark commented during an Oct. 22 third quarter earnings call.

The product launched in mid-2006 as the first vaccine indicated to prevent the reactivation of varicella zoster virus in patients age 60 and older (¹ (Also see "Merck Zostavax Gets Mid-Range Price, Loses Younger Age Group" - Pink Sheet, 5 Jun, 2006.), p. 9).

Growth of Zostavax has been steady, but uptake has perhaps not been as rapid as expected by Wall Street. With $61 million in sales in the third quarter, up from $47 million in the second quarter, Zostavax is among the smaller vaccines in Merck's portfolio.

In the fourth quarter, the company intends to ramp up promotional activity behind the product, according to Chief Financial Officer Peter Kellogg.

When questioned about the vaccine's sales trajectory, Clark assured analysts that Merck is addressing any growing pains Zostavax is facing.

"We are back in production again for the varicella component," he noted, adding, "as that continues to move forward from a production standpoint it will put us in the refrigerated Zostavax versus the frozen Zostavax, which you need globally."

In February, the firm reported it was experiencing problems in the production of bulk varicella-zoster virus vaccine (² (Also see "Merck Faces Varicella-Zoster Virus Supply Shortage For Vaccine Production" - Pink Sheet, 26 Feb, 2007.), p. 10).

As the first new vaccine to be covered under Medicare Part D, Zostavax has been viewed as a reimbursement test case.

Physician administration of Part D vaccines is covered under Medicare Part B in 2007 and under Part D in 2008 and thereafter under a broad tax and health care legislation package signed into law in December (³ (Also see "Part D Vaccine Administration Payment Conundrum Addressed In Tax Bill" - Pink Sheet, 1 Jan, 2007.), p. 12).

Merck has been seeking CMS support for a Web-based billing system that would facilitate coverage, an effort that continues (⁴ (Also see "Zostavax Coverage Under Part D Sets Precedent For New Vaccines" - Pink Sheet, 4 Sep, 2006.), p. 20).

"We are working with our customers and with physicians and with CMS to try to come up with a process in place that makes it less onerous from a reimbursement standpoint for the physician, as well as for the client and patient to overcome that, and we haven't been able to come up with the right process yet, but I think we're making progress on it," Clark stated.

"I am very happy with where we're moving forward, as long as we can solve that, and particularly with the volume that we're moving forward."

The vaccine coverage by more than 90 percent of Medicare plans and by private insurers accounts for approximately 93 percent of covered lives, according to Merck.

Merck's total vaccine sales roughly doubled to $1.2 billion in the quarter, with the company's newly minted blockbuster HPV vaccine Gardasil contributing $418 million in the period.

Approved in June 2006, Gardasil has surpassed the blockbuster mark in its first year on the market.

"Year-to-date revenue exceeds $1.1 billion," Clark told analysts during the call.

Gardasil was approved last year for vaccination of women and girls ages 9 to 26 to prevent cervical cancer, cervical pre-cancers, vulvar pre-cancers and vaginal pre-cancers caused by HPV types 16 and 18, as well as genital warts and low-grade cervical lesions caused by HPV types 6, 11, 16 and 18 (⁵ (Also see "Gardasil Clears FDA, But Dosing May Pose Administrative Challenges" - Pink Sheet, 12 Jun, 2006.), p. 3).

Growth has come from the approved population overall, but certain demographics in particular have begun to pick up, the firm said.

"With regard to the age range that is currently indicated, we've begun to see a little more use in the 12- through 18-year-old range" due to the company's efforts to target college-age women more, Investor Relations Director Graeme Bell noted.

Regarding Gardasil uptake, "particularly with the initial dose, one of the key[s] is to make sure that the young women get in for the second and third dose, and so we have put in place substantial reminder programs that allow them to improve the ability to remember to go back for the second and third dose," Clark explained.

The initiative includes mail, e-mail and text message reminders to improve compliance, he noted.

There is still room to grow the product in its current indication, according to Merck.

"In the United States alone, there are 36 million females who are eligible to receive this vaccine, and the intent here is to ensure that all of them, obviously, receive all three doses from a compliance perspective," Bell said.

Since its June approval, "we have shipped and sold 13 million doses, so there is certainly a long way to go and we continue to gather the intelligence."

Merck is seeking to expand its indications for the vaccine on several fronts. The firm filed an sBLA for protection against vaginal and vulvar cancers earlier this year.

In addition, the company is conducting studies to evaluate Gardasil in women up to the age of 45 and 16- to 26-year-old men.

"Based on data available at this time, a presentation of the mid-adult women data are expected this quarter," Clark said.

The company also will continue to support Gardasil with direct-to-consumer ads in the fourth quarter, according to Merck.

The firm launched the first national Gardasil-specific DTC campaign last fall, featuring a marketing message designed to empower teens and young women to become "one less" woman who will battle cervical cancer.

The rotavirus vaccine RotaTeq achieved worldwide sales of $171 million for the quarter.

The company's other pediatric vaccines, Proquad , Varivax and M-M-R II , generated $428 million in sales for the third quarter. Merck noted that orders for the no longer available Proquad are being transitioned to Varivax and M-M-R II.

- Brooke McManus ([email protected])