Amid the declining sales of Gilead Sciences Inc. (GILD) blockbuster Hepatitis C franchisee, Merck & Co. Inc. (MRK) has become the latest victim of the diminishing Hepatitis C drug market. (See also, Merck Halts Late-Stage Alzheimer's Trial.)

In a recent SEC filing, the company announced a write down for its experimental hepatitis C drug MK-3682 (uprifosbuvir) by $2.9 billion, a pre-tax impairment charge that will revise its full-year 2016 earnings per share (EPS) and toss over the fourth quarter EPS to a loss.

Hepatitis C was once considered an attractive therapeutic area, and many drug makers made a beeline to develop or acquire Hep C assets. Merck acquired the proming uprifosbuvir as a part of its $3.9 billion acquisition of Idenix Pharmaceuticals Inc. in 2014, and had then recognized the asset to be worth $3.2 billion. The drug tasted success in November 2015 during phase 2 trial, which led Merck to work on a triple combination therapy involving uprifosbuivr, grazoprevir, and MK-8408, for treating Hep C.

The dynamics of the Hep C market have changed rapidly since then owing to a rapidly reducing patient population and effective therapies from competitors. While there are no issues with efficacy and safety of Merck’s drug, the high value write down reflects the diminished market opportunity.

Impact on Earlier Earnings

The drug maker’s revised figures for uprifosbuvir will impact its full year and fourth quarter 2016 results announced earlier. (For more, see Merck Q4 Sales Slip, Promises Better 2017.)

Merck estimates that current fair value of the intangible asset related to uprifosbuvir was $240 million. Due to the pre-tax impairment charge of $2.9 billion (or $1.9 billion post-tax), the earlier reported GAAP diluted earnings per share (EPS) are decreased from 42 cents to a loss of 22 cents, while the full-year 2016 GAAP EPS is reduced from $2.04 to $1.41 per share. The earlier reported fourth quarter and full year non-GAAP EPS results remain unchanged.

The company has another approved Hep C drug Zepatier (elbasvir/grazoprevir) which recorded growth and brought in $229 million in revenues. Merck announced that Enrollment in ongoing clinical trials for uprifosbuvir will continue. (See also, Merck Antiviral Drug Reports Positive Data.)

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