A Citi Investment Research analyst started coverage of Merck & Co. with a "Buy" rating on Friday, but he said expiring patents and weak sales growth will put pressure on shares of rival drugmakers.
John Boris gave Merck a positive rating because he expects strong sales growth for the Whitehouse Station, N.J., company. He said Wall Street is underestimating the competitive advantages possessed by Merck's HPV drug Gardasil and its diabetes treatment Januvia. That will lead to stronger-than average profit growth for Merck, he said.
The stock gained 29 cents to $37.25 in premarket trading, up from Thursday's final price of $36.96.
Boris set "Hold" ratings on Wyeth, Bristol-Myers Squibb Co., Schering-Plough Corp., Eli Lilly & Co. and Allergan Inc. He said Lilly and Bristol-Myers will face big challenges as the patents on key drugs expire _ although Bristol-Myers doesn't have any major patent expirations until 2012 _ while Wyeth's growth outlook is weak.
He said investors are overlooking Wyeth's forecast because of the strong potential for its Alzheimer's drug candidate bapineuzumab. But he said the stock is at risk if clinical trial results or sales of the drug don't live up to expectations.
The analyst added the biggest issue for Schering-Plough is revenue from its joint venture with Merck, through which the companies sell cholesterol drugs. Sales slumped after trials challenged the effectiveness of the drug Vytorin. The company has started new aftermarket clinical trials to bolster sales, but Boris said they could pressure the stock.
He wrote that weakness in the U.S. economy is hurting sales of Allergan's wrinkle treatments, including Botox, and those problems could spread to other markets.
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