Merck‘s (NYSE:MRK) blockbuster asthma drug Singulair has seen its prescriptions decline by nearly 90% in barely a month after the drug lost its U.S. patent exclusivity in August.  The decline is significantly higher than many had originally anticipated. Patent expiration has been a matter of concern for pharmaceutical companies, and 2012 will be no better for Merck due to the patent expiration of Singulair. Singulair has been a blockbuster drug for asthma and brought in sales of nearly $5.5 billion in 2011.
If the decline in Singulair sales continue at the same pace that could mean some downside to our price estimate for Merck. However, the company’s long-term prospects look sound with a robust drug pipeline and positive trial results for its osteoporosis drug Odanacatib. We are in the process of updating our model and revising our $41 price estimate for Merck to reflect the recent developments.
Short Term Concerns Offset by Long Term Prospects
The company continues to face near-term headwinds due to patents expiring and a strong U.S. Dollar. Further, the company lost a patent infringement lawsuit against Apotex over the latter’s plan to launch a generic version of Nasonex. Rising costs and pricing pressure coupled with government austerity measures pose additional challenges. We believe most of the bad news is reflected in the current stock price.
Less than 20% of the company’s 2011 revenues are subject to generic competition over the next two years. Further, we expect the pharmaceutical business to continue with its stellar performance on better performing drugs like Januvia, Janumet, Isentress and Gardasil.
The long-term return lies in the company’s drug pipeline which remains strong. Merck recently closed trials for osteoporosis drug Odanacatib early after release of encouraging data and is well on track to receive approval for the drug. Odanacatib could bring in more than a billion dollar each year to Merck’s coffers. Insomnia drug Suvorexant could become a potential blockbuster drug as well. In addition, the company has several Phase II and III trials underway, and, given its past record of rolling out ground-breaking medications, we wouldn’t rule out Merck from launching successful blockbuster drugs in the near future.Notes: