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These Blockbusters Have Different Futures for Merck

Maxxwell A.R. Chatsko
March 27, 2013

The patent cliff has been dealing a slow but painful blow to big pharma over the last several years. It will hit especially hard for Merck (NYSE: MRK) this year as it loses major protection for its former mega-blockbuster Singulair in markets across the globe. That raises the stakes for the company's current product lineup and pending pipeline.

The type 2 diabetes franchise Januvia/Janumet will take over the top spot for Merck in 2013, but growth from those therapies alone won't be enough to make up for Singulair's fall. What other top drugs do investors need to watch? Isentress, a first-in-class HIV drug, and Gardasil, the leading HPV vaccine on the market, are two good places to start. However, they may be headed in opposite directions.

Does Isentress have a shot in HIV?
Let's be honest here. Gilead Sciences (NASDAQ: GILD) is the unquestioned leader in HIV and AIDS therapies, which is backed up by its $8 billion in segment sales last year. The company's Atripla and Truvada brought in $3.5 billion and $3.2 billion, respectively, in 2012 and are the top two drugs on the market.

The news gets worse for competitors such as Merck. Gilead had Stribild, a four-in-one pill, approved in late August. Sales for the new drug tallied $57.5 million in its first four months on the market, and some analysts think that figure will eventually reach $4.7 billion annually. While sales from Stribild will offset generic competition for its top therapies beginning in 2018, it also offers one huge advantage: convenience. That's a big, big deal for patients.  

Whereas Merck's Isentress requires two pills daily, Stribild requires patients to take only one, albeit twice the size. A study evaluating once-daily use of Isentress failed to prove the regimen as effective as the standard twice-daily dosage, effectively dousing hopes for expanded use. Failure aside, the drug is the third best-selling HIV drug behind Gilead's relentless attack.  

The verdict: Since 2010, Isentress has grown sales nearly 50% to $1.5 billion, which represents the peak sales originally expected when the drug launched. The drug hit the mark earlier than expected, so there may be more room to run, but it will never reach the swagger of Gilead's top products. Unfortunately for investors, the drug's best years are likely behind it.

Does anyone know how to gauge this market?
The market for HPV consists of just two therapies: Gardasil from Merck and Cervarix from GlaxoSmithKline (NYSE: GSK). Although it was once hailed as a major competitor to Gardasil, Cervarix netted just $350.54 million in sales in 2012. That is well below Gardasil's $1.63 billion last year and down markedly from $657 million in 2011. How were early expectations for a neck-and-neck race so off?

Several reasons. First, Gardasil has been shown to protect (primarily) against HPV types 6, 11, 16, and 18 whereas its competitor protects against only the latter two. The difference is in disease progression. For instance, HPV types 6 and