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Merck's New Products and Solid Pipeline As Growth Drivers


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We issued an updated research report on Merck & Co., Inc. (MRK - Analyst Report) on Oct 7.

The leading pharmaceutical company has made significant progress with its pipeline and is working on bringing new products to market. Merck has more than 10 candidates in phase III development. The company has prioritized its pipeline so that candidates with the highest potential get the required support. Some of its important pipeline candidates include MK-0859 (anacetrapib – cholesterol management), verubecestat (Alzheimer’s disease), Zinplava (bezlotoxumab) and MK-8835 (ertugliflozin, type II diabetes).

Meanwhile, Merck’s new products are performing well. Products that should contribute significantly to revenues include cancer drug Keytruda, fertility drug Elonva, Simponi (treatment of certain inflammatory diseases), Dulera (asthma), and Daxas (chronic obstructive pulmonary disease). Keytruda is the first anti-PD-1 therapy to gain FDA approval and is being studied for more than 30 types of cancer. Keytruda sales should receive a boost with approval for additional indications especially in the first-line lung cancer setting. Failure of Bristol-Myers Squibb Company’s BMY">BMY) Opdivo in the first-line lung cancer setting should give an advantage to Keytruda, if and when it is approved in this indication.

Merck has also been pursuing acquisitions and business development deals to boost its pipeline. Other than that, Merck is aiming to increase its presence in emerging markets. To fulfill its objective, the company plans to launch new products, successfully market its current portfolio of drugs and vaccines, and leverage the market for branded generics.

It is also looking at biosimilars to drive long-term growth. The biosimilar market represents huge commercial opportunity with more than $60 billion of biologic sales slated to lose patent protection through 2017. Merck has an agreement with Samsung Bioepis Co., Ltd. for the development and commercialization of several pre-specified and undisclosed biosimilar candidates. The companies are seeking U.S. and EU approval for their insulin glargine biosimilar (MK-1293), while the Remicade biosimilar (SB2) is currently under FDA review.

Merck will also undertake cost-cutting initiatives to drive the bottom line. The company has a global restructuring program in place aimed at trimming the cost structure and increasing efficiency. Merck intends to reduce the number of manufacturing sites, including animal health sites, and consolidate other facilities. The company expects annual savings of about $4.0 billion to $4.6 billion once the restructuring program is completed.

However, the top line will remain under pressure mainly due to increased competition and generic threats. Merck is facing generic threat for several drugs including Singulair, Maxalt, Propecia, Temodar, Cozaar/Hyzaar, Zocor and Fosamax. All these drugs have recorded rapid and steep declines in revenues due to generic entry. Earlier-than-expected entry of Nasonex generics will impact 2016 sales.

In addition to generic threats, its HIV drug Isentress, a key growth driver, is facing competitive pressure, hurt by sluggish growth of the integrase class. Isentress faces competition from Gilead Sciences Inc.’s (GILD - Analyst Report) once-daily combination pill, Stribild.

Meanwhile, biosimilar competition for its rheumatoid arthritis drug Remicade in the EU has intensified, leading to pricing pressure, and sales are expected to continue declining rapidly in the coming quarters. Merck’s partner for Remicade is Johnson & Johnson (JNJ - Analyst Report) which is solely responsible for marketing Remicade in markets such as Canada, Central and South America, the Middle East, Africa and Asia Pacific.

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