Merck (MRK) recently announced the temporary suspension of sales of its Animal Health product, Zilmax, in the U.S. and Canada. Zilmax is a supplement approved by the FDA for use in beef cattle.
Earlier this month, animal well-being related issues that could be linked to the use of Zilmax cropped up at a National Cattlemen’s Beef Association (NCBA) meeting. At the meeting, several packers discussed situations which they believed could be linked to Zilmax though there were no scientific studies supporting the same.
Although Merck has temporarily suspended sales of the product, the company remains confident about Zilmax’s safety and performance. Merck said that it has strengthened its commitment to its Five-Step Approach to Ensuring Responsible Beef.
Merck Animal Health, along with independent experts, intends to conduct a scientific audit, where the process of feeding of Zilmax will be monitored. Moreover, identified cattle will be followed from the feed yard to the packing plant to establish the reasons behind lameness and other mobility issues during feeding, transportation, offloading and staging at the processing facility.
Meanwhile, the temporary suspension of sales will give Merck enough time to establish valid study protocols, identify feeders and packers to participate in a scientific audit and create a third-party team to oversee this process and validate its results.
Although Zilmax sales in the U.S. and Canada were just $159 million in 2012, the temporary suspension of sales is, nevertheless, a setback for Merck. Several large-cap pharma companies like Merck and Eli Lilly (LLY) among others have been looking towards their Animal Health businesses to help lessen the impact of the genericization of key products.
Merck currently carries a Zacks Rank #3 (Hold). With Singulair and a few other products facing generic competition, we expect the top- and bottom-line to remain under pressure. Other headwinds remain in the form of unfavorable currency movement and pipeline setbacks.
Companies that currently look well-positioned include Actelion Ltd. (ALIOF) and Questcor Pharmaceuticals (QCOR) among others with both being Zacks Rank #1 (Strong Buy) stocks.
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