Ahead of the Bell: Merck price target cut after FDA denial
NEW YORK—An analyst cut a price target on Merck & Co. Tuesday, the day after the Food & Drug Administration rejected an experimental drug that would have boosted the company's cholesterol franchise.
Lehman Brothers analyst Charles Butler cut his price target to $53 from $58 and kept an "Overweight" rating on the Whitehouse Station, N.J., company. The new target implies he expects the stock to rise about 28 percent over Monday's $41.44 close.
Merck said Monday the FDA issued a "not approvable" letter on Cordaptive, and said it needed more information on the drug.
The cholesterol drug, also known as MK-0524A, can both lower LDL, or bad cholesterol, and raise HDL, or good cholesterol, according to Merck.
"We understand this also comes not only as a surprise to us but a surprise to Merck given the discussions that had been on going between Merck and the (FDA)," Butler said in a note to clients.
It is likely the rejection may be due to the small number of patients in clinical trials -- just over 6,000 -- making it difficult to study potential side effects, he said.
Butler raised his 2008 earnings outlook by a penny to $3.33 per share to account for a likely drop in market costs due to the drug's delay. Analysts polled by Thomson Financial expect, on average, earnings of $3.30 for the year.
Merck expects to post 2008 profit of $3.28 to $3.38 per share.
Citi Investment Research analyst George Grofik said Cordaptive's rejection is "another example of FDA's conservatism in approving new drugs."
Grofik cut his price target to $44 from $49, but kept a "Buy" rating.
"All considered, with meaningful negativity discounted in the stock, the upside potential seems to outweigh the downside risks," Lehman's Butler said in a note to clients.
