Merck's Bad News Nothing to Sneeze At

The U.S. Patent and Trademark Office reexamination of Merck's (NYSE:MRK) patent on allergy medication, Singulair, is nothing to sneeze at. The $2.8 billion worth of Singulair that Merck sold in the U.S. last year made up 12% of its total pharmaceutical sales.

The actual review might not be that bad for Merck. Singulair's patent expires in 2012, and it can take about two years for the PTO office to review a patent, and then there's an appeals process. By the time a final decision is made, the patent might be close to expiring, anyway.

However, Teva Pharmaceuticals (NASDAQ:TEVA) is also challenging the patent in court, but in a separate action. With a ruling from a February court date imminent, the information about why the PTO agreed to reexamine the patent -- there's a possibility that the molecule was described publicly before the patent was filed -- could sway the case in favor of Teva. And that would hurt. Big time.

Sales of other allergy drugs could also be hurt if Teva gets the patent overturned. Patients taking sanofi-aventis' (NYSE:SNY) Allegra, Johnson & Johnson's (NYSE:JNJ) Zyrtec, and Schering-Plough's (NYSE:SGP) Nasonex, among others, might be willing to switch if cheap generic versions of Singulair are available.

It hasn't been a good week for Merck and the possible loss of drugs. On Wednesday, Johnson & Johnson officially asked for arbitration in its dispute with Schering-Plough, which Merck is in the process of buying. The two are fighting over their marketing agreement for anti-inflammatory drugs Remicade and Simponi. It wasn't a big surprise; last week, Schering-Plough said in Securities and Exchange Commission documents that Johnson & Johnson had told Schering-Plough that it planned to arbitrate.

The useful life of all drugs eventually comes to an end. But today, Merck's investors hope Singulair's life isn't cut short.

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