Merck: enduring value in big pharma
Branded drugs are set to lose over $100 billion in revenue in the next few years, and Merck, like other large pharma companies, will need to develop new drugs to offset these losses.
Merck is the No. 2 pharmaceutical company in the world, offering prescription medicines, vaccines, biologic therapies, animal health and consumer care products. It delivered nearly $46 billion in revenue in 2010 with a profit of $861 million, or 28 cents a share. On a non-GAAP basis, earnings were $3.42 a share.
Merck competes with other pharmaceutical companies, including Pfizer (PFE), Abbott Labs (ABT), Johnson & Johnson (JNJ), Glaxo SmithKline (GSK) and Roche.
We recently launched coverage on Merck with a $42 price estimate for the company's stock which is just over 10% higher than the market price.
We have broken down our analysis of Merck into nine major divisions:
Key trends in pharma
Merck has several, exciting new drug launches expected by the end of 2012. These include Odanacatib (osteoporosis), Tredative (cholesterol), Anacetrapib (cardiovascular) and the highly awaited MK-0524 series of compounds.
However, one mitigating factor is that over 10 of its blockbuster drugs, including Singulair, will lose patent exclusivity by the end of 2013. These branded drugs are set to lose over $100 billion in revenue in the next few years and thus Merck, like other large pharma companies, will need to develop new drugs to offset these losses.
The fast growing pharma market in emerging economies, sometimes referred to as the ‘Pharmerging' economies, have the capability to manufacture generic versions of blockbuster drugs and serve huge populations. These generic drugs are often sold at prices substantially cheaper than their their branded counterparts. Merck's inability to defend patents in some markets can limit growth of these products though it's working with local partners such as Sun Pharma in India to address these markets.
Anti-infective drugs global revenue
Anti-Infectives are substances that counteract infection and include antiseptics, disinfectants, antibiotics, antifungal and virucidal agents. We considered antivirals, cephalosporins (antibacterial) and vaccines to be part of this segment for the purpose of our analysis.
Vaccines are a rapidly growing area for research and development in pharmaceuticals. For Merck, we expect this segment to grow 4-5% annually over the Trefis forecast period and reach a market size close to $15 billion. Antivirals, especially to combat HIV, have seen tremendous growth in the past decade at nearly 12%. According to predictions by IMS Health, this segment could grow by 7-8% for the next 4-5 years and reach a market size in excess of $22 billion.
Merck's strength in anti-infectives segment
Merck commands a dominant position within the anti-infectives segment with a market share of nearly 28%.
This is due to well-established brands like Nasonex, an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms; Isentress, an anti-retroviral therapy for use in combination therapy for the treatment of HIV-1 infection in adult patients; Primaxin, an anti-bacterial product; and highly effective vaccines like Gardasil, the world's top-selling HPV (human papillomavirus) vaccine, and RotaTeq, a vaccine to help protect against rotavirus gastroenteritis in infants and children.
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