Merck (NYSE:MRK) recently won two patent lawsuits for cholesterol drugs, Zetia and Vytorin against Mylan Pharmaceuticals on account of patent infringement.  With the help of these two drugs, which form nearly 50% of it cardiovascular sales, Merck hold a 10% market share in cardiovascular drug market.
Separately, the company is already worried about patent expiry of Singulair in August, 2012 because of the absence of a successful pipeline of drugs to make up for revenue loses of Singulair. Merck is one of the largest big pharma companies with operations in 4 segments namely, pharmaceutical, animal health, consumer care and alliance segment. It has a market cap of $115 billion and competes with other healthcare companies like Pfizer (NYSE:PFE), Johnson & Johnson (NYSE:JNJ) and Abbott Labs (NYSE:ABT).
Zetia and Vytorin
Zetia and Vytorin are two crucial drugs for Merck as they together bring nearly 8% of the total sales and 50% of the cardiovascular sales. Sales figures are expected to be nearly flat for both drugs combined together till their patents expire in 2017. The cardiovascular market is projected to decline for the next 7-8 years and Merck is looking for other therapeutic markets to stay afloat. However, the strong position in the existing cardiovascular market will remain with the expected gain in market share in this segment in next 2-3 years.
On the other hand, the failure of Roche’s cholesterol drug Dalcetrapib, gives similar drug by Merck and Eli Lily (NYSE:LLY) Anacetrapib an opportunity to grab a larger share of the addressable market. 
Heavy R&D spending, yet weak drug pipeline till 2013
A few years ago, Merck introduced blockbuster medicines like Januvia for treating diabetes, Isentress for HIV and Gardasil for preventing cervical cancer. This was possible with relentless focus towards R&D over the years. According to a recent report, Merck is among the largest R&D spenders and show no signs of curtailing their R&D expenses.  However, the R&D spending hasn’t reduced, but the drug trial successes has dried up significantly for Merck. The drug pipeline has only two promising drugs – Suvorexant and Odanacatib under discussion to be launched in next two years.  Nevertheless, it has several Phase II and III trials under discussion and given its past record of rolling out ground breaking medications, we don’t rule out Merck launching successful drugs in future.
We have a $41 price estimate for Merck, nearly 5% above current market price due to its presence in diverse therapeutic segments with formidable product portfolio in Anti-infective, Animal health, Consumer health and Metabolism drug segments and strong R&D capabilities.Notes:
- Merck Wins U.S. ZETIA® (ezetimibe) / VYTORIN® (ezetimibe/simvastatin) Patent Infringement Lawsuit, Merck Newsroom, April 27, 2012 [↩]
- Roche abandons potential blockbuster cholesterol drug, fiercebiotech.com, May 7, 2012 [↩]
- The Biggest R&D Spenders in Biopharma, fiercebiotech.com, April 25, 2012 [↩]
- Merck’s Weak Pipeline Will Sink Stock By 2013, Seekingalpha.com, May 4, 2012 [↩]