Merck (NYSE:MRK) is one of the oldest pharmaceutical companies on the planet -- but history counts for little in an industry perennially fueled by new innovations and scientific breakthroughs. This pharma titan is confronting a number of challenges as the patents for its major drugs expire and new blockbusters become increasingly difficult to discover.
In our brand new premium report on Merck, our senior biotech analyst walks you through the opportunities, threats, and compelling reasons to both buy and sell this stock. Here is just a small excerpt from the full research report:
The biggest risks facing Merck today
- Vioxx 2.0
Drug candidates failing while in clinical trials is painful, but discovering that something is wrong after the drug is already on the market is much worse. Not only do you lose a blockbuster (versus just a theoretical blockbuster for a pipeline failure), but getting pulled off the market for safety reasons will inevitably lead to lawsuits. Merck settled Vioxx patient lawsuits for $4.85 billion and settled a lawsuit with the government for $950 million.
In general, there's little that investors can do to predict major blowups after drugs are on the market. Phase 3 trials are designed to catch most issues, but they're not large enough to illuminate issues that might only show up when a large number of patients start taking the drug.
The only thing investors can do is realize it's a possibility, reduce their risk by not making any one drugmaker a major part of their portfolio, and make sure that the potential returns justify the risk.
- Early generic competition
Drug sales fall off a cliff after generic drugs come on the market. That's just a fact of life for drug developers. But at least when generics enter the market after a patent expires, investors can see it coming and adjust their valuations accordingly. The bigger risk is when generic-drug makers are able to invalidate patents, shortening the life of a drug unexpectedly.
Merck is in various stages of litigation over patents covering AzaSite, Cancidas, Emend for Injection, Nasonex, Nexium, Noxafil, Vytorin, and Zetia.
The last two are clearly the most troublesome since they're the third and fifth best-selling drugs, respectively, and will soon move up the ranks as Singulair sales fade. A couple of generic-drug makers have sued Merck over the patents on Vytorin and Zetia: Teva Pharmaceuticals (NYSE:TEVA), Impax Laboratories (NASDAQ:IPXL), Glenmark Pharmaceuticals, and Actavis.
The Mylan (NASDAQ:MYL) lawsuit is the most advanced at this point and will likely determine whether generic drugs enter the market before December 2016. Mylan lost its first decision, but is appealing the decision to a higher court.
The problem for investors is that it's really hard to predict how these lawsuits will end. The same caveats in the section about post-approval safety issues also apply.
Fool contributor Brian Orelli has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.