) legacy pharmaceutical and consumer business revenues have
declined from roughly $13.5 billion in 2010 to $12.7 billion in
2013. This trend continued in the first half of 2014 as well and
the company expects its overall revenues to fall by approximately
2.5% (mid-point of guidance) this year, owing to pressure from
generics. To mitigate this risk, it is developing some promising
drugs to treat cancer and hepatitis C. The market for both these
diseases is significant and the industry is witnessing strong
R&D efforts from big pharma companies in this area at present.
While Merck saw some support from immunology and diabetes drugs in
Q2 2014, its long term growth is likely to come from potential
success of Pembrolizumab and Hepatitis C .
Our price estimate for Merck stands at $56.80,
roughly in line with the market price.
See our complete analysis for Merck
Pembrolizumab Development Overview
Merck has channeled some of its funds for developing
immuno-oncology drugs. MK-3475 (pembrolizumab) is Merck's
investigational PD-1 specific monoclonal antibody for the treatment
of advanced malignancy.
The drug essentially enables a patient's immune system to detect
cancerous cells that are otherwise extremely hard to identify. T
cells can then target and kill these exposed tumor cells. In June
2013, Merck reported that 38% of cancer patients under trial
responded positively to this drug. Investors have welcomed the
company's decision to investigate the drug's effectiveness in
combination with other investigational agents. The drug is
currently being studied in 17 clinical trials involving over 4,000
patients across more than 30 types of cancer. MK-3475 is a new
class of drugs and could well be the future of cancer treatment.
The company is nearing the drug launch and anticipates some
regulatory action by end of October this year. It has also filed
for approval of the drug for treatment of advanced Melanoma in
Bristol-Myers Squibb has a similar drug in clinical trial under
the name Nivolumab and is expected to garner $6 billion in peak
Currently these drugs are being tested for melanoma (skin cancer),
and if their usage expands to other cancer types, it could open a
much bigger market for these pharmaceutical companies. Merck has
already initiated a study to identify other cancer types where the
drug can have a therapeutic effect. The company could revive its
oncology division if MK-3475 is successful.
Hepatitis C Opportunity
Merck is in the process of completing the acquisition of Idenix.
The move will strengthen its Hepatits C portfolio and help it stem
the revenue decline resulting from patent expiry of major drugs.
The company will be conducting phase 3 trials for a combination
treatment for Hepatitis C, which could potentially rejuvenate the
pharmaceutical giant's revenue growth. The clinical data for a
combination of drugs MK-5172 and MK-8742 has shown high cure rates
among patients with genotype 1 of the disease, and this has
encouraged Merck to move to phase 3 trials. Acquisition of Idenix
could be a game changer considering the possibility that a
combination treatment leveraging Idenix's drugs could potentially
reduce the treatment window to
four to six
weeks. Gilead Sciences is currently the market leader in Hepatits C
treatment, and is on its way to make a fortune selling its
breakthrough drug Sovaldi. The drug's sales for 2014 may amount to
anywhere between $7 billion to $12 billion, according to ISI
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