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Merck (MRK - Analyst Report) recently announced that the U.S. Food and Drug Administration (FDA) has approved its site at Durham, N.C. for the manufacture of bulk varicella for use in Merck’s chickenpox and shingles vaccines.

Merck intends to get the site approved in future for the production of bulk and finished product for other childhood and shingles vaccines as well. Earlier in 2010, the Durham site had gained approval for the production of finished chickenpox vaccines.

With the latest approval, Merck will be able to boost its vaccine supply and meet the growing demand for its shingles vaccine, Zostavax. Zostavax sales have been increasing with Merck reporting first half 2013 sales of $309 million, up 37.9% from the year-ago period. Zostavax is a key growth driver for Merck. According to the company, a little more than 20% of the targeted U.S. population (age ≥ 60 years) has been vaccinated – this means that there is still a major part of the targeted population that needs vaccination thereby representing huge opportunity for growth.

Demand should increase further with the UK recommending Zostavax for the routine vaccination of individuals aged 70 (and 79 years catch-up cohort) for the prevention of shingles and shingles-related post-herpetic neuralgia from Sep 1, 2013.

Meanwhile, Merck has started launching Zostavax in some Asian markets like Korea and expects to launch in additional markets next year.

Merck’s other varicella-containing vaccine, Varivax, should also benefit from the increased supply. Previously, Merck’s varicella-containing vaccines were being produced at its West Point, Pa., facility.

We note that Merck has been working on expanding its vaccines manufacturing capabilities over the last several years during which the company invested more than $1 billion on the same. In addition to modernizing and expanding vaccine operations at its West Point and Elkton, Va. facilities, Merck has also set up a new facility in Carlow, Ireland. The Carlow facility is slated to get a license next year.

Merck currently carries a Zacks Rank #3 (Hold). Currently, companies like Biogen Idec (BIIB - Analyst Report), Gilead Sciences Inc. (GILD - Analyst Report) and Actelion Ltd. (ALIOF) look well-positioned with all three being Zacks Rank #1 (Strong Buy) stocks.

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