Novice Investing - Merck's New Disease

Date: Tuesday 13th 2008f May 2008 06:54:27 AM

Merck's New Disease - 1/29/2008

By: Novice Investing Staff

Merck & Co Inc. (MRK) used to be part of sample portfolio and we sold it back in October of 2006 at around $ 45 per share. We have covered Merck's expected profit for 2007 and 2008 rather intensively back in October 2006. A year has passed and as with any other business, Merck experienced many ups and downs. After the vioxx debacle, Merck's shares has generally been up throughout the period. It reaches a high of $ 61.62 per share in early January 2008. O yes, we sold it back at $ 45.20 per share and missed the top. However, there are reasons Merck may not be reaching $ 61.00 per share anytime soon.

The main reason is the study of Merck's blockbuster drug, Vytorin. The so called 'Enhance' trial was released on January 14th and it showed that Vytorin is no better than its predecessor such as the generic version of Zocor to slow artery clogging. Merck was also the sole seller of Zocor before its patent expired in 2006. As a result, drug-data vendor Verispan estimated that prescription for Vytorin fell almost 10% last week. Meanwhile for 2007, Vytorin sales is expected to be $ 4.97 Billion, which already tops Merck's own Zocor sales. However, Vytorin is marketed evenly with partner Schering Plough (SGP) and thus, the net impact on revenue for Merck is: $ 2.49 Billion.

While Merck has experienced success with its diabetes Januvia drug and HPV gardasil drug, the fall in Vytorin prescription will dent earnings for quite some time. Back in 2004-2007 period, Vytorin has successfully replaced revenue loss derived from Zocor patent expiration. Now, if this 'Enhance' trial reduces Vytorin prescription, Merck would have no other way to replace this lost revenue. Anyway, we construct a pro forma income statement for Merck based on a 20% decline in Vytorin prescription compared to 2007. Others, we assume 5-10% growth from 2006 level other than a newer drugs such as Gardasil and Januvia.

Estimated earning per share for Merck is at $ 2.47 per share. With balance sheet loaded with positive net cash of $ 10.5 Billion ($ 4.82 per share), we estimate Merck's fair value is at $ 44.34 per share. If the Enhance trial result was not announced, we do believe that Merck will continue to trade above $ 50 and Vytorin would reach more than $ 3 Billion contribution to Merck's revenue. However, with this new trial result, it is safe to assume that Merck may not hit $ 60 per share anytime soon.


Revenue	Fiscal 2006	Fiscal 2008 (Estimated)
Singulair	$ 3,579 M	$ 4,000 M
Cozaar/Hyzaar	$ 3,163 M	$ 3,960 M
Fosamax	$ 3,134 M	$ 3,100 M
Zocor	$ 2,802 M	$ 550 M
Vytorin	$ 1,955 M	$ 1,922 M
Zetia	$ 1,928 M	$ 1,928 M
Gardasil	$ 255 M	$ 1,050 M
Zostavax	-	$ 300 M
Januvia	$ 42 M	$ 1,100 M
Vaccines/Biological	$ 1,604 M	$ 1,768 M
Others	$ 4,174 M	$ 4,602 M
TOTAL	$22,636 M	$24,280 M

Pro Forma Income Statement for MRK	Fiscal year 2006	Fiscal year 2008
Revenue	$ 22,636 M	$ 24,280 M
Cost of Goods Sold	$ 6,001 M	$ 5,827 M
Gross Profit	$ 16,635 M	$ 18,453 M
SG & A	$ 8,165 M	$ 8,200 M
R& D expense	$ 4,783 M	$ 5,100 M
Interest Expense	$ -	$ -
Other Incomes	$ 2,535 M	$ 2,535 M
Profit Before Tax	$ 6,222 M	$ 7,688 M
Income Tax Expense	$ 1,788 M	$ 2,306 M
Net Income	$ 4,434 M	$ 5,382 M
Shares Outstanding	2.18 Billion Shares	2.18 Billion Shares
EPS Estimate	$ 2.04	$ 2.47

END

Have questions or want to comment on this article? Proceed here

Distributing your own investing content is easy. Simply, click here.

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.

[Resources] [Forum] [Link Partner ] [Novice Investing Directory ] [ Submit Your Article Here ]