Merck's Weakest Blockbuster?

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Merck's (NYSE: MRK  ) rheumatoid arthritis blockbuster Remicade provides a tricky entry in this series about the company's main products, now that Singulair is off-patent. Remicade had net sales of $2.1 billion last year, which seems minuscule compared with the more than $9 billion AbbVie (NYSE: ABBV  ) scored with Humira. But Merck shares Remicade with Johnson & Johnson (NYSE: JNJ  ) , which has the better side of the financial deal.

Here's a deeper look at this best-selling drug.

Remicade lowdown
Remicade accounted for 5% of Merck's pharmaceutical segment last year, which puts it above HPV vaccine Gardasil and the fast-growing diabetes combination drug Janumet.

Rheumatoid arthritis, or RA , is a chronic inflammatory joint condition that's often treated with the generic drug methotrexate. For patients needing further options, there's combination therapy pairing methotrexate with a class of biologics called tumor necrosis factor, or TNF, inhibitors. Remicade and Humira both belong to that class.

Humira dominates the market because it's well tolerated and effective. Patients can administer Humira at home with a pen-style injector. Remicade has the disadvantage of requiring intravenous administration at a doctor's office or hospital. But Remicade still holds on near the top of the TNF heap.

Remicade had net sales of $2.1 billion last year for Merck, down 22% from the previous year. The fall was partly due to the renegotiated terms with Johnson & Johnson, which went into effect during the summer of 2011. Johnson's 2012 Remicade revenues were $6.1 billion.

The new deal 
Johnson and Merck fought a legal battle over Remicade and another arthritis drug, called Simponi. Johnson alleged that the original deals weren't valid since Johnson struck them with Schering-Plough, which Merck acquired. The feud ended with a revised agreement.

Merck retained rights in overseas areas that had accounted for 70% of the company's prior-year Remicade revenues. But the profit arrangement changed to an even split, down from Merck's previous 58%. Merck had to give Johnson a $500 million one-time payment and the rights to a handful of territories that includes Canada, most of the Middle East, and Central and South America. Johnson kept U.S. rights.

The fact that Remicade's still a blockbuster drug for Merck underscores the size of the RA market. But could Merck see further losses in the near future?

New class
I previously detailed the recent entry of Pfizer's (NYSE: PFE  ) Xeljanz -- a first-in-class JAK inhibitor that may collect patients because it offers oral dosage. Humira doesn't need to fear Xeljanz. Doctors have more than a decade of experience with AbbVie's drug, and the self-injection is the most convenience an injectable can offer.

But Remicade might prove more exposed to Xeljanz. Pfizer's drug was approved as a second-line treatment, meaning customers can go directly to Xeljanz if methotrexate doesn't work. The patient routes could reroute so that those who fail methotrexate go to Xeljanz while those who fail both move on to Humira.

Remicade makes up a notable piece of Merck's pharmaceutical segment. But once the company has more pieces in place to offset Singulair's loss, Remicade's weight will fade somewhat. Pfizer's oral drug poses more of a threat to Remicade than do the direct competitors, but that could take years to materialize.

Dig deeper
Merck stumbled into 2013 and continues to battle patent expirations and pipeline problems. Is Merck still a solid dividend play, or should investors be looking elsewhere? In a new premium research report on Merck, the Fool tackles all of the company's moving parts, its major market opportunities, and reasons to both buy and sell. To find out more -- and get a full year of free updates -- click here to claim your copy today.

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