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.

By Trefis Dec 23, 2011 4:23PM
Image: Pills (© Sean Justice/Corbis)Merck (MRK) is heading for big changes in the next several years, particularly as more than 10 of its blockbuster drugs lose patent exclusivity by the end of 2013.

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.

Merck analysis

We have broken down our analysis of Merck into nine major divisions:

1. Nasonex & Other Anti-Infectives

2. Dr. Scholl's, Claritin & Others

3. Alimentary & Metabolism Drugs

4. Zocor & Other Cardiovascular Drugs

5. Remicade & Other Musculoskeletal Drugs

6. NuvaRing & Other Contraceptives

7. Singulair & Other Respiratory Drugs

8. Temodar & Other Oncologic Drugs

9. Central Nervous System Drugs

See our complete analysis of Merck here

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.

Merck Anti Infective drugs Global Revenue

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 Market Share of Anti Infective Drugs

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.

Dec 25, 2011 3:18PM
The fact that you are making a big deal about big pharmaceutical companies needing to develop new name brand drugs, shows how sick this country is, you talk about health care costs and yet you want to drive them up with useless new drugs.  It would be best for the consumer if all drugs were legal, so they could skip going to the doctor, requiring insurance which then pays huge medical costs for substandard medical care and high priced pharmaceuticals that don't even work and often have life threatening side effects(e.g. The use of this medication may cause side effects such as suicidal thoughts, internal bleeding which could lead to death, etc.).  If people have to pay out all that money for bad results, they would be better off using all the natural growing drugs they used for centuries.  Investors and Wall Street are destroying the lives of average everyday people with their greed.
Dec 25, 2011 3:35PM
If women can use the right to choose what is done to their own body to get abortions, shouldn't the general public be able to use the same legal precedent as to how to treat their own medical issues including using natural growing drugs to treat pain, depression, anxiety, or any other medical issue they have without going to a doctor?  I'm not just saying they could use pot, opiates are naturally growing, coca leaves are naturally growing and there are many other naturally growing medications that have been used throughout all of human history, those people did fine with those natural medications, that's why there is a human history.  Do all people in this country have,"The right to choose what is done with their own body or just women having abortions?"
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