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Merck & Co Inc MRK [NYSE] | QQQQ
TM
Last Price Fair Value Consider Buy Consider Sell Uncertainty Economic Moat Stewardship Morningstar Credit Rating Industry
38.56 USD 46.00 USD 32.20 USD 62.10 USD Medium Wide C AA Drug Manufacturers - Major
Merck Reports In-Line 4Q as Steady Growth From Key Drugs sales, operating costs fell about 100 basis points year over
year. We expect operating efficiencies will improve
Offsets Remicade and Vytorin Declines through 2012, but the loss of high-margin Singulair this
year is likely to cause overall operating margins to decline
by Damien Conover, CFA
Analyst Note Feb. 02, 2012 for the full year.
Associate Director
Analysts covering this company do not Merck reported fourth-quarter results that largely
own its stock.
matched our expectations, and we don’t expect any
Thesis Oct. 19, 2011
Pricing data through February 17, 2012. changes to our fair value estimate. Total sales increased
Rating updated as of
2% from the prior-year period with strength across the Facing increased competition, patent losses, and a
February 17, 2012.
majority of Merck’s key products, excluding weakness pipeline of late-stage drugs with poor chances of
Currency amounts expressed with "$" from cardiovascular drug Vytorin and lower sales from approval, Merck greatly improved its long-term outlook by
are in U.S. dollars (USD) unless
immunology drug Remicade because of partial drug rights acquiring Schering-Plough. Without Schering, Merck’s
otherwise denoted.
returned to Johnson & Johnson. Earnings per share prospects were muddled, despite its recent success
Stock Price increased 10% year over year as lower research and launching several new blockbusters. Now, with the
44.0 addition of Schering, we believe Merck is favorably
development costs helped fuel growth. Merck issued 2012
EPS guidance of $3.75-$3.85, which we believe it will positioned for long-term growth.
meet, but likely on the low end of the range.
34.0 Merck’s new products during the last few years have
The majority of Merck’s products posted steady gains in helped to offset recent patent losses. Januvia for
the quarter, which helped to offset declines in Remicade diabetes, Isentress for HIV, and the Gardasil vaccine
and Vytorin. This trend should continue through the first against human papillomavirus represent new
24.0
half of the year, but the August U.S. patent loss on blockbusters. All the drugs enjoyed monopoly positions at
08 09 10 11 12
respiratory drug Singulair will create a major headwind as the time of launch. However, current and expected
the drug represents more than 10% of the company’s total competition from other big drug firms likely will create a
sales. Rapidly growing drugs such as diabetes medicines drag on these drugs’ growth during the next few years.
Januvia and Janumet along with HIV drug Isentress
should help mitigate the loss of Singulair, but we expect a Still reeling from the patent loss on hypertension drugs
single-digit negative growth rate in 2012. Over the longer Cozaar/Hyzaar in early 2010, Merck faces the loss of its
term, we expect Merck to return to growth as patent next top drug in terms of revenue generation: Singulair for
losses are less significant after 2012 and the company is respiratory ailments in 2012. Singulair represents more
poised to launch several new pipeline products. We than 10% of the combined sales of Merck and Schering.
believe the most underappreciated pipeline products While losses in international markets should not fade as
include sugammadex for anesthesia and an mTor inhibitor fast as in U.S. markets, the patent expirations create
for cancer. Additionally, while off to a relatively slow major roadblocks to Merck’s growth.
start, recently launched hepatitis C drug Victrelis
generated $87 million in the quarter. Based on solid Merck’s efforts to develop a reliable late-stage pipeline
efficacy and a likely willingness to price competitively in have yielded questionable results. The Food and Drug
cost-sensitive markets, we expect the drug will develop Administration denied Merck approval for cholesterol drug
into a blockbuster. Tredaptive (formerly Cordaptive) in early 2008.
Subsequently, Merck reported poor clinical data on
Lower research and development expenses offset late-stage drugs Rolofylline for heart disease and
increased marketing and administrate costs, lifting EPS Telcagepant for migraines. Further, key late-stage drug
growth faster than sales growth. As percentage of total anacetrapib for atherosclerosis is chemically extremely