It seems Merck (NYSE:MRK) is getting active in its HIV franchise and has inked two separate licensing agreements in a bid to strengthen its foothold in lucrative HIV drug market. The company also announced its plans to for a study the efficacy of its own developed HIV drug candidate.  The company already has a presence in HIV drug market with its HIV integrase inhibitor Isentress. Below we take a look at how these events could impact Merck, one of the largest pharmaceutical companies with operations in four segments: pharmaceutical, animal health, consumer care and alliance segment.
HIV Drug Market: Huge Unmet Demand Presents a Huge Opportunity
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Many pharmaceutical companies including Merck have been conducting research to find an effective drug for HIV as there is no complete cure available for the disease. In addition, these companies are facing threats from generic competition as patents expiry are looming over several of their blockbuster. Merck itself will see two of its top drugs including Singulair going off-patent this August. The HIV market has a huge unmet demand with the market size estimated to reach $15 billion by 2014.  Any successful drug could prove to be more than a blockbuster drug for its producer and help it fend off revenue losses from patents expiry.
One can notice the growth potential HIV drug could witness from the success of Isentress, Merck’s current HIV integrase inhibitor. The drug generated nearly $1.4 billion in 2011, $1.1 billion in 2010, $752 million in 2009 and $361 million in 2008 post getting approval from the U.S. FDA in 2007. The drug is used in combination with other anti-retroviral agents for the treatment of HIV-1 infection in treatment-naive and treatment-experienced adults. You can see from the chart below as to how a small change in market share (which directly affects the company revenue) impacts the price estimate of the company.
The company is also developing an HIV drug called MK-1439 for HIV-positive, treatment-naive patients and expects to launch a Phase II clinical trial in September.
Details of the Deals
Under a deal with Chimerix Inc, the company will receive an exclusive worldwide license and will be responsible for development and commercialization of CMX157, an inhibitor currently in Phase I clinical development.
In a separate deal with Yamasa Corp, a Japanese firm, to company will pay an upfront amount and future milestone payments to develop EFdA, an inhibitor candidate currently under preclinical studies. The company will get exclusive worldwide license rights of the drug in return.
The financial details of aforementioned deals are not disclosed. ((Merck inks two pacts for investigational HIV drug, MarketWatch, July 24 2012))
We have a $41 price estimate for Merck, nearly 10% below current market price. We are in process of updating our models to reflect the earnings and other developments.