Merck (NYSE:MRK) received a major setback as a U.S. District court rejected its patent infringement lawsuit against Apotex Inc. over the latter’s plan to launch a generic version of Nasonex, one of Merck’s major drugs. However, the court rejected Apcotex’s claim of Merck’s patent being invalid. The litigation was initiated by Merck back in 2009 when Apotex filed an application with the FDA to approve the marketing of a generic version of Merck’s Nasonex prior to its patent expiration in 2018.  Below we take a look at how this could impact the healthcare giant even as it contemplates to appeal against the ruling.
Our price estimate for Merck Labs stands at $41, implying a premium of about 10% to the current market price.
Merck commands a dominant position within the anti-infectives segment with market share of nearly 28%. This is due to its well established brands like Nasonex – an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms.
Apotex has not yet received the FDA approval. If Apotex is allowed to market the cheap generic version, it will certainly lead to a significant loss of sales for Nasonex than we anticipate. Revenue from Nasonex topped $1.3 billion in 2011. Consequently, it could significantly affect the the company’s overall value as the anti-infectives segment accounts for nearly 25% of our $41 price estimate for Merck.
It is also possible that to maintain its market share, the company may opt for significant price cuts, which will squeeze the EBITDA margins.Notes: