Competitive Pressure And Lower Demand Will Likely Weigh On Merck’s Anti-Infective Drug Portfolio

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MRK: Merck logo
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Merck

Merck’s (NYSE:MRK) Anti-Infective drugs account for over 25% of the company’s value, according to our estimates. This can be attributed to a large portfolio of around a dozen drugs within this segment. The key drugs are Isentress, Gardasil, Proquad, and Zepatier, which together account for 60% of the segment revenues. While we forecast a steady growth for some of these drugs in the near term, the overall segment revenues are expected to decline in the coming years amid competition from other pharmaceutical companies, and loss of patent exclusivity for some of the drugs. We have created an interactive dashboard on Merck’s Anti-Infective segment. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, profits, and price estimate.

Expect Anti-Infective Drug Revenues To Decline In The Coming Years

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We forecast a low single digit decline in Merck’s Anti-Infective drug sales in the coming years. However, we forecast Gardasil and Proquad to see growth in the near term. Gardasil is used for prevention against HPV (human papillomavirus). This virus has been linked to certain types of cancers, which makes Gardasil an important vaccine. The drug’s revenues have increased from $1.1 billion in 2009 to $2.3 billion in 2017. We expect sales to peak around $2.75 billion. However, the sales may be impacted by one of the vaccine candidates in development phase, which may cannibalize some of Gardasil sales, if approved.

Looking at Proquad, the sales are trending higher led by an uptick in demand in the U.S. as well as in Europe. This has led to an increase in pricing, as well. However, we don’t expect much growth from the current levels of $1.7 billion, and expect the sales to peak at $1.8 billion.

Zepatier, a combination therapy for Hepatitis C (grazoprevir and elbasvir) was approved by the FDA in early 2016 for the treatment of genotypes 1 and 4 of the disease. This puts it in direct competition with Harvoni, which is an oral interferon and ribavarin free drug developed by Gilead Sciences. The drug saw sales of nearly $555 million in the first year of its launch and $1.67 billion in sales in 2017. However, the sales dropped by 65% (y-o-y) in Q1 2018. This can be attributed to the increasing competition and declining patient volumes. Accordingly, we expect the drug to witness continued decline in the near term.

Similarly, Isentress, an HIV integrase inhibitor for use in combination with other anti-retroviral agents for the treatment of HIV-1 infection in treatment-naive and treatment-experienced adults, is also facing some pressure, primarily due to lower demand in the U.S. and competitive pressure in other markets.

Among other drugs, Cancidas, Primaxin, Cubicin, Ivanz, and Zostavax have already lost patent, and we expect their sales to continue to decline going forward. In addition, 2 more drugs, Noxafil and Rota Teq, will lose their patent exclusivity in 2019. Accordingly, we expect the sales of these drugs to decline due to biosimilar competition.

On the positive side, Merck currently has 3 new drugs and 3 vaccines in its phase 3 pipeline, and one of them is under regulatory review. We expect the combined annual peak sales (attributable to Merck) of these compounds to reach $6 billion, by conservative estimates. New compounds include Relebactum, MK-8228, and Doravirine. These new drugs will help offset most of the revenue losses from the existing drug portfolio, according to our estimates.

 

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