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Merck & Co., Inc. (MRK)’s Crash of a Titan

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Merck & Co., Inc. (NYSE:MRK)‘s blockbuster asthma and allergy treatment Singulair fell off patent last year — wiping more than 60% of revenue off the company’s top line. With another expiration around the bend, the company needs to rely on a small group of growing drugs.

How will Merck recover from the crash of its titan?

Catalyst to watch
Consider this month Singulair’s last hurrah. European protection against generics will lapse and leave Japan as the drug’s last remaining market.

Merck & Co., Inc. (NYSE:MRK)Annual sales of Singulair had spent five years over $4 billion before the U.S. expiry hit last summer. The FDA approved 10 generics that began launching right after the patent fell, causing an instantaneous sales drop that led to a rough fourth quarter. Domestic sales plummeted 97% year over year. Global sales dropped 67%, but that figure will look worse by the next quarter’s report.

Europe accounted for only about 7% of Singulair’s annual sales in 2011, but the loss will essentially spell the end for Singulair’s earning potential. Patent protection in Japan will stay in place until 2016, but that market’s even smaller than Europe.

Merck can no longer rely on Singulair’s blockbuster status — but the company has some other rising drugs to help patch that hole.

Pharmaceutical spackle
Merck’s fourth quarter showed double-digit growth for the Type 2 diabetes treatments Januvia and Janumet and the HPV vaccine Gardasil.

Januvia and Janumet together brought in nearly $6 billion last year, but Januvia’s the drug achieving Singulair levels of sales. But the drug could run into growing pains. Johnson & Johnson (NYSE:JNJ) pipeline project Invokana beat Januvia in clinical trials and could receive approval in the first quarter.

Gardasil sales rose 35% last year because of patient base growth, as the CDC recommended Gardasil for men in late 2011. Merck’s developing another vaccine called V503 that covers more forms of HPV. If V503 receives approval, the drug could cannibalize Gardasil’s sales.

The approved drugs might help offset Singulair’s loss for the time being, but Merck needs to bring some strong pipeline projects to market. But the pipeline has investors concerned about the company’s future.

Leaky pipes
Merck recently disappointed investors with a delay for osteoporosis hopeful Odanacatib. A late-stage trial had ended early because the drug had already proved effective. But Merck wants to wait out another trial’s results before it pushes for approval, bumping Odanacatib’s timeline back to 2014.

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