Folks seem to have gotten a lot more comfortable with Merck
All things considered, Merck didn't have an exceptionally strong quarter. Sales rose 6%, and although so-called one-time items impair comparisons, gross margins fell from last year (with or without the inclusion of items) and pre-tax profits climbed about 10%. That's not bad, mind you, but it's not top-notch, either.
As I've talked about a few times, the company made the controversial decision to price its soon-to-be generic Zocor quite aggressively for customers such as UnitedHealth
In other news, the company has seen things go its way on the human papillomavirus (HPV) vaccine front. Not only is Gardasil approved and ready to go, but the CDC also has endorsed it as a routine component of childhood vaccine regimens. So even though Merck will have to surrender a chunk of its profits in the form of royalties, it's still a sizable opportunity. So, too, is that for Januvia -- the company's diabetes drug that will compete with rival compounds marketed by the likes of Novartis
My objections toward buying Merck today don't rest solely on valuation matters. Rather, people seem pretty cheery about Merck again, and my investing instincts are often to sell into enthusiasm and buy into despair. And should Merck see a big Vioxx judgment go against it, as will probably happen at least once or twice, that would provide a psychological hit to the stock. In my mind, that's when you want to buy -- not when people are chipper, but when they send the shares through the chipper.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).