Go Long on This Big Pharma
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While Merck's (NYSE: MRK) Singulair will still retain exclusivity in Japan until 2016, other new products could help to replace lost revenue from Singulair, including the insomnia drug Suvorexant, the neuromuscular reversal agent Bridion, the drug titled V503 that is used in the prevention of HPV associated cancers, the cholesterol drug Tredaptive, and Vintafolide, a late stage oncology drug. I will discuss each specifically to see what they could contribute to Merck's bottom line and if they can fill the void created by the Singulair exclusivity.
Suvorexant, the company's investigational insomnia drug candidate, was recently accepted for standard review by the FDA, and if the drug is approved, it will be the first in a new class of medications that are referred to as orexin receptor antagonists that will be used with patients who have difficulty either falling asleep or staying asleep. Merck is also continuing to seek approval for this medication in other countries as well as the U.S. Provided that the drug gains marketing approval, it would enter the United States market sector that was valued in 2010 at approximately $2.7 billion.
Bridion & Tredaptive
Another candidate to help replace lost revenue from Singulair is Bridion, a medicine used to reverse the effects of anesthesia. Although the approval for this med has been held up for several years by regulatory concerns, so any profits remain to be seen. Merck is also currently conducting Phase lll trials of Tredaptive, a drug used for the treatment of atherosclerosis. While expectations for Tredaptive are low, the results of the study won't likely be available until early 2013.
Merck's cancer drug Vintafolide, purchased from Endocyte, is presently in the Phase lll study for its use in the treatment of ovarian cancer. It is also in a Phase ll study for non-small-cell lung cancer. Upon its anticipated approval, this drug will likely face some competition from Eli Lilly's (NYSE: LLY) Gemzar and Taxol from Bristol-Myers Squibb (BMY). Yet, the payoff to Merck could still be quite high, as the ovarian cancer drug market is expected to reach roughly $2.3 billion by 2020, and the non-small-cell lung cancer market is predicted to be approximately $7 billion.
One of the other potential big winners for Merck is V503, a vaccine that is used for human papillomavirus. Based on the $1.2 billion that was generated from Gardasil, Merck's existing HPV vaccine, sales of V503 could be equally as strong or even better. While the sales of Gardasil are still positive, V503 actually expands upon Gardasil by addressing five other HPV types that cause cancer. Should V503 gain approval, it is likely that it may replace Gardasil.
Some of the other big pharma companies have had their ups and downs. One recent issue for Pfizer (NYSE: PFE), for example, is Canada's Supreme Court ruling that its patent for Viagra is invalid. The court's reasoning behind this is that it stated Pfizer had failed to specify the drug's active ingredient sildenafil - although the company states that it will continue to defend against the challenges to its intellectual property. Similar to Merck some other hurdles that Pfizer anticipates include an increased amount of competition due to generic drugs.
Here, too, the P/E ratio may be somewhat high at a tad under 19. Pfizer offers its investors a yearly dividend of $0.88 per share, which equates to an annual dividend yield of 3.7%, and despite some of the firm's hurdles, the company's shares are still expected to rise by over 15% over the next year.
GlaxoSmithKline (NYSE: GSK) has been making strides with its GLP-1 agonists, a diabetes medication that offers less risk to patients than other similar newly emerging classes of medications. One reason for potential forward momentum is the company's recent FDA acceptance of its drug application for fluticasone furoate, an investigational drug that is used by patients in managing COPD.
With an annual $2.32 per share dividend - equating to a yearly dividend yield of 5.5% - GlaxoSmithKline shares could definitely be a nice compliment to income seeking investors' portfolios. In addition, the company's share price is expected to rise over the next 12 months by nearly 18%.
Yet one more of the key players in big pharma is Eli Lilly. Over the past year, Lilly has seen its sales grow by roughly 5%, which has in turn increased the company's profit margin into the double digits. And, should the company receive FDA acceptance for Sola, a drug designed to slow down the progression of Alzheimer's disease in patients, Lilly could see a huge spike in revenue - possibly as high as $7,000 per U.S. patient per year and as much as $5,000 annually per patient in Europe. This could present a real value opportunity for investors. Lilly currently provides investors with a 4.3% dividend yield, with shares expected to grow by approximately 10% over the next year.
The Bottom Line
Merck already has many of the positive qualities that investors look for - including a higher than average dividend yield, a low beta of 0.39, an earnings growth estimate of over 3.5%, and an extremely strong brand name. Even with the loss of its Singular patent, Merck still reported better than expected earnings for the third quarter of 2012.
Merck has continued to raise its dividend payment to shareholders, resulting in a steady income over time. When coupled with its anticipated rise in share price, Merck may be the answer to both growth and income over the short and long-term.
jordobivona has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!