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3 Winners on the Way From Merck

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Who's going to fill their shoes? That's the question facing big pharmaceutical firms these days. Many of the biggest blockbuster drugs have lost patent exclusivity, forcing companies to scramble to replace the revenue streams generated by these drugs.

Merck (NYSE: MRK  ) is no exception. The company saw sales for its leading drug, Singulair, drop by 16% in the first nine months of 2012 compared to the same period in the previous year. Sales for its third-biggest selling drug, Remicade, fell by 29%.

Some of Merck's drugs currently on the market are gaining ground. For example, diabetes drugs Januvia and Janumet increased sales by 25% and 23%, respectively. But what about the prospects for drugs in Merck's pipeline? Let's look at three potential winners that are on the way.

Merck placed a big bet earlier this year on cancer drug vintafolide. The company paid Endocyte (NASDAQ: ECYT  ) $120 million up front with the potential for $880 million more if things go well.

Vintafolid is currently in a phase 3 study for use in treating ovarian cancer and in a phase 2 study for non-small-cell lung cancer. Should it gain approval for treating ovarian cancer, vintafolid will face competition from existing drugs including Eli Lilly's (NYSE: LLY  ) Gemzar and Bristol-Myers Squibb's (NYSE: BMY  ) Taxol.

According to industry observers, the ovarian cancer drug market is projected to be around $2.3 billion by 2020, while the non-small-cell lung cancer drug market should reach $6.9 billion by 2019. Merck's bet on vintafolid might be big, but the pay-off potential could be even bigger.

Often when a drug company stops its testing of a drug early, it means bad news. That's not the case with odanacatib, though. The Data Monitoring Committee told Merck in July that it could stop phase 3 trials for the osteoporosis drug. Why? It worked so well that the committee didn't think more studying was needed to prove efficacy.

Merck plans to file for regulatory approval for the drug in the U.S. and Europe in the first half of 2013, with Japan to follow in the latter part of the year. The company is likely hoping to repeat its success achieved with its earlier blockbuster osteoporosis drug Fosamax. Before going off patent in 2008, Fosamax pulled in annual sales around $3 billion.

Assuming odanacatib gains approval, it will go head-to-head against generic versions of Fosamax plus other drugs such as Reclast from Novartis (NYSE: NVS  ) and Warner Chilcott's (UNKNOWN: WCRX.DL  ) Actonel and Atelvia. Transparency Market Research estimates that the global market for osteoporosis drugs could hit $11.4 billion by 2015. That level should give plenty of room for new entrants like odanacatib.

Another potential winner in the pipeline for Merck is V503, a new vaccine for human papillomavirus. In 2011, Merck generated $1.2 billion in sales from its existing HPV vaccine, Gardasil.

Gardasil sales are still strong, so why create another vaccine? The main reason is that V503 expands upon what Gardasil does by addressing five other HPV types that cause cancer. According to a report by the Financial Times, V503 will likely be given instead of Gardasil if it gains approval.

Merck probably hopes to gain additional market share from rival GlaxoSmithKline's (NYSE: GSK  ) Cervarix. Cervarix garnered $812 million in sales last year. With its expanded capabilities, V503 might be able to chip away at that total.

And then some
The one glaring omission from the list above is suvorexant, Merck's insomnia drug. The omission was intentional, though. Suvorexant holds enough promise that I recently wrote solely about its potential.

And there are plenty of other drugs in Merck's pipeline that could prove to be winners. Tredaptive and Bridion are just two drugs that the company expects to be approved in the not-too-distant future.

Is Merck a buy with these potential winners on the way? To find out the full story, you really need to read our brand new premium research report. In this report, our senior biotech analyst Brian Orelli, Ph.D., walks you through both the opportunities and threats facing Merck. The report comes with a full 12 months of updates so you can stay abreast of any twists and turns. Get your copy now by clicking here.

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