Novice Investing - Patent Expiration, so What?

Date: Monday 01st 2008f December 2008 05:30:51 PM

Patent Expiration, so What? - 07/24/2006

By: Novice Investing Staff

The expected demise of Zocor, one of the largest cholesterol drug, has been widely known. As early as 2003, many observers has noticed that when Zocor loses patent in June 2006, it will drain valuable revenue source from its parent company, Merck Co & Inc. (MRK). They are not wrong. But they forgot one thing. Merck too, has long known that Zocor will lose patent protection in June 2006.

Ahead of the patent expiration, Merck had prepared another cholesterol blockbuster. Vyotorin and Zetia, which accounts for $ 973 Million in one quarter!. That is slightly less than the sales of Zocor before its expiration. With new means of absorbing LDL cholesterol, Vyotorin and Zetia has a chance of booking a combined revenue of $ 10 Billion annually. They were just launched in 2003.

Sales of Zocor fell 14% from a year ago. It lost patent protection last June and revenues will be expected to plummet 50% or more. That is a given but Merck did not go down without a fight. It already had several agreements to several insurers to offer Zocor at a price lower than its generic. As a result, unit sales of Zocor is expected to have a slight decline and revenue decline would be expected to be far less than 50% plummet.

Elsewhere, Merck's share price will be primarily determined by the outcome of Vioxx's trial. It currently has 11,500 pending lawsuits against it. While this event might drain the company's coffer, it is not expected to be settled anytime soon, if ever. So far, the company has had a decent record of defending itself against the Vioxx liability trial. Meanwhile, the company is still earning about $ 5 Billion per year, enough to reward shareholders and paying occasional punitive damages.

Meanwhile, Merck's balance sheet is no laughing matter. It has a positive net cash of $ 10 Billion, or about 13% of its market capitalization. That, coupled with expected robust growth of its cholesterol drug, Zetia and Vyotorin, will provide the company with decent profit for years to come.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Merck Co & Inc. (MRK) or any other securities.

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