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Merck Stock Isn't Worth It

http://www.fool.com/investing/general/2013/04/18/merck-stock-isnt-worth-it.aspx

Maxx Chatsko
April 18, 2013

Big pharma companies are massive, complicated beasts. Each year, they generate billions in revenue from drugs that target dozens of diseases, spend billions more on R&D budgets, and can have dozens of ongoing trials at various levels of completion and success. Additionally, each company has been or will be challenged by the patent cliff.

One company that is about to face the brunt of its patent cliff exposure is Merck (NYSE: MRK), which is set to lose exclusivity for its former megablockbuster Singulair in its last major worldwide markets this year. There are still some interesting molecules in the pipeline and several major approvals pending. However, I don't think Merck stock is worth owning. Here are a few reasons why.

Safety and efficacy risks for approved therapies
Aside from losing billions of dollars in sales from generic competition to Singulair, Merck should raise several red flags for investors for current products. The company's cholesterol therapy Vytorin, a combination of Zetia and Zocor, is currently being evaluated in a long-term study to determine its safety effectiveness in preventing heart attacks. Although Zetia and Zocor are effective stand-alone treatments, several smaller studies have showed that combining the two yields no significant benefits.

The IMPROVE-IT study I mentioned above began in 2005 and is scheduled for completion in 2014. Despite passing the final safety checkpoint in March, any final results questioning Vytorin's worth could slam sales, which have already been in decline since questions first arose several years ago. A total of $1.7 billion in 2012 sales are still at risk. That could be bad news for investors, but it gets worse.   

A recent study found that GLP-1 atagonists for type 2 diabetes -- such as the company's new best-selling franchise Januvia/Janumet and Bristol-Myers Squibb's Byetta -- double a patient's chances of developing pancreatitis. That could make the growth of the franchise, which brought in $5.75 billion in 2012, a little more uncertain.

It doesn't help that a new therapy from Johnson & Johnson (NYSE: JNJ) recently gained approval from the Food and Drug Administration. Invokana works by a completely different mechanism than Januvia. Although it's not without risks itself, Invokana beat Januvia head-to-head in a phase 3 trial. Things could get dicey for Merck in the next few months and quarters as investors get their first glimpse into the effect, if any, on sales.

Investing wildcards
Wielding a first-in-class therapy such as Invokana doesn't always pan out. Merck is learning that the hard way with first-in-class HIV treatment Isentress. Gilead Sciences (NASDAQ: GILD), the leader in HIV and AIDS therapies, recently launched a four