Merck KGaA: MS drug failure is a sour note for growth hopes

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It was good until it wasn’t. US singer Kehlani’s 2020 album could apply to the pharmaceutical industry. Merck KGaA chief Belén Garijo will be all too aware of the highs and sudden crushing lows of drug trials.

The flop of its experimental multiple sclerosis medicine in late-stage trials drained 12 per cent from the German drugmaker’s share price on Wednesday. Merck had hoped evobrutinib would be a blockbuster. Garijo must think again.

Evobrutinib failed to reduce annualised relapse rates in MS patients in two phase 3 trials. It belonged to a class of drugs that regulate the function of cells that drive the autoimmune reaction behind MS. Analysts had estimated the approved version could have delivered sales of €1.6bn in 2031.

That represents 5 per cent of forecast group 2031 revenues. Nevertheless, on the Lex abacus, a €4.5bn drop in market value on the day is multiple times the future value of this drug.

Healthcare has provided a much-needed bright spot for Merck. The lengthy slump in the semiconductor materials market has hurt its electronics business. Falling demand for pandemic-related products affects its life sciences unit, its largest by sales.

Evobrutinib would have more than compensated for falling sales from existing medicines. Patent protections will start to expire from 2026. In particular, revenues from Merck’s existing MS drug Mavenclad are forecast to drop from €1.1bn in 2024 to €310.5mn in 2031, according to Visible Alpha estimates. Attention will now turn to another possible blockbuster drug, xevinapant, which could be used in the treatment of head and neck cancer. More data is expected early next year. 

Garijo has already indicated she will look beyond organic growth. She has said this year that Merck potentially has up to €20bn for acquisitions. That would require debt funding. Garijo may have to dig deep into her wallet if she wants to alter the prevailing mood music.