Other companies haven’t missed the diabetes market, however, and investors need to be wary of competition. AstraZeneca plc (ADR) (NYSE:AZN) and Bristol Myers Squibb Co. (NYSE:BMY)‘s recently approved Forxiga — a new, revolutionary type of diabetes treatment — could be one of the bigger threats to Merck abroad. While Forxiga couldn’t win FDA approval, it received European clearance in November and very well could cut into Januvia and Janumet’s sales across the Atlantic. Furthermore, Johnson & Johnson (NYSE:JNJ) presents another challenge for Merck’s top drug line with developmental drug Invokana, a therapy that proved more effective than Januvia in head-to-head clinical trials. Invokana’s PDUFA date of March 31 could signal the arrival of a major threat to Januvia and Janumet.
Furthermore, Merck’s drugs haven’t been free of controversy: A recent study linked Januvia to increasing risk of pancreatic inflammation and kidney failure. It’s not a deal-breaker for the drugs and not likely to slow down Merck’s sales, but the reported dangers are worth keeping tabs on. The company can’t afford to have safety trouble trip up its best seller.
Questionable growth ahead
Merck’s looking good in the here-and-now, but the future holds some concern for investors.
With the company delaying the FDA filing of promising osteoporosis candidate odanacatib until 2014, Merck investors will have to wait on the fate of one of the company’s potential stars of the future. The company has other pipeline hopefuls that should shore things up, however: Promising insomnia drug suvorexant, which could hit up to $1 billion in peak sales, should help ease the pain of patent-related losses.
The patent cliff isn’t over for Merck, however, as Nasonex, Zetia, and Vytorin — all blockbuster drugs — face patent expirations by 2017. Those three drugs alone put more than $5 billion in 2012 sales at risk, raising questions about the company’s future growth. Generic drugmakers have also pushed lawsuits against Merck recently, hoping to invalidate patents on several key drugs; if any of those are successful, investors could see sales falling sooner than expected.
Merck also sports some non-pharmaceutical divisions, such as consumer care and animal health, but don’t expect chart-topping growth from these. Other segments made up just around 11% of total sales in 2012 and saw a slight decline from 2011’s numbers. If Merck’s going to grow, it’ll have to find answers from pharmaceuticals.
In all, Merck’s future looks shaky. While Januvia and Janumet along with potential pipeline blockbusters like suvorexant and odanacatib could fuel years of strong sales, continued losses from Singulair — something that company leadership already predicted will hamper 2013 results — and patent expirations on other top sellers threaten Merck’s future. Are these problems enough to threaten Merck’s contention for the top health care stock in the Dow? They could be — keep reading the series to find out.
The article The Dow’s Best Health Care Stock: Merck originally appeared on Fool.com and is written by Dan Carroll.
Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.
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