Reviewing Mercks’ Volatile Year And What’s To Come

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As 2012 nears its end, we take a look at developments for the pharmaceutical companies under our coverage and what 2013 holds in store. Last year was a good one for drug makers as they saw a sharp run up in their stock prices as anticipated patent expiries were heavily discounted by the market in 2011 and so hopes for new drug approvals spurred the rally. Being one of the largest pharma companies, Merck (NYSE:MRK) has not been an exception, and its share price soared 25% during 2012 before slipping in the last quarter of the year.

Check out our complete analysis of Merck

2012 At A Glance

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The first half of the year was mixed bag for the drug maker. In January, the FDA approved Isentress for use in children older than two years for HIV therapy. In February, Janumet, a once-daily treatment to control blood sugar, received FDA approval for type 2 diabetes treatment. However, in March, the FDA rejected its experimental rare cancer drug, Ridaforolimus, co-developed with Ariad Pharmaceuticals (NASDAQ:ARIA).

In addition, the FDA delayed approval for its new investigational cholesterol-lowering pill combing Atorvastatin and Ezetimibe, seeking more data to prove the efficacy. Following the delay was bad news about Merck’s baldness drugs, Proscar and Propecia, which were found to cause sexual side effects. However, in the period, the drug maker struck a $1 billion deal with Endocyte, which is developing Vintafolide, a promising drug for late stage ovarian cancer.

But, Merck’s stock jumped beginning in the second half of 2012 when it completed trials for osteoporosis drug Odanacatib early, after encouraging results. The drug, which could garner $1 billion in peak sales, is well on track to receive FDA approval. Another billion dollar potential insomnia drug Suvorexant, exhibited strong efficacy in phase III clinical trials in helping insomnia patients fall asleep faster and stay asleep longer. Also, about 90% of the patients didn’t feel sleepy/ fatigued the day after they took the drug, which could bring a difference over other drugs. In addition, Merck signed a number of deals including two separate licensing agreements in the lucrative HIV drug.

But, the period was marred by some concerns as well. The drug maker lost a patent infringement lawsuit against Apotex over the latter’s plan to launch a generic version of Nasonex, a blockbuster drug. In addition, patent cliff has been a matter of concern for the healthcare companies, including Merck, and 2012 was no better because of the company’s patent expiration of Singulair in August 2012. Singulair, an asthma drug, was the largest selling drug for Merck and brought in sales of nearly $5.5 billion in 2011. Merck’s stock came under pressure after it reported Singulair prescription declined by a steep 90% in just one quarter.

The last quarter of the year brought further concerns. In November, Europe followed FDA footsteps and rejected Ridaforolimus. Also a few days back, Merck reported that its much anticipated cholesterol drug Tredeptive failed to meet desired goal in a long-term study, called HSP2-Thrive. The drug maker will now not be applying for FDA approval.

What To Expect In 2013?

We expect 2013 earnings to decline on account of lost sales due to the patent expiry for Singulair. Further, Temodar and Propecia, which collectively bring around $1 billion in sales, are set to see generic competition from 2013. However, our eyes are on much awaited FDA approval for Odanacatib and Suvorexant, which should be on its way in 2013. These drugs have the potential to fend off revenue losses to some extent though we estimate their peak sales on the lower side (around $400-$500 millions) due to generic competition.

The efficacy of Suvorexant over well-established competitors like Sanofi’s Ambien and its generics has  yet to be proven. Further, Odanacatib will hit the market with two of its major competitors – Eli Lily’s Evista and GSK and Roche’s Boniva – going off patent. These drugs garnered close to $2 billion in sales. However, this provides opportunity to tap the osteoporosis market.

After getting delayed in 2012, we expect Atorvastatin/Ezetimibe combo to also receive approval by late next year. As the global economy improves, an expected weakening of the U.S. dollar should also make things comfortable for Merck.

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