Merck is enjoying a nice ride. After jumping 3.7% on Wednesday, Merck & Co. (MRK) shares continued their climb higher, up about 2.7% at the end of trading Thursday. On Wednesday, investors reacted to an analyst's upgrade. On Thursday, they reacted to news that Merck is trying to broaden the market for its cervical cancer vaccine, Gardasil. Also, it certainly didn't hurt that Merck CEO Richard Clark said at an investor conference on Tuesday that 10 of the company's products were on track to generate at least $1 billion each in sales for 2009.When Merck and Schering-Plough reported second quarter earnings back in July, I saw signs that theirs might be a growth story. The two were about to complete a $41.1 billion merger, Merck's restructuring was in full swing and the cost savings from the acquisition was expected to be large. Since then, Merck's shares have soared over 45%.
So it wasn't surprising to hear on Wednesday that Credit Suisse analyst Catherine Arnold had upgraded Merck to outperform from neutral and boosted the target price on its stock from $35 to $47, for a possible 18% return from Thursday's price.
Arnold expects "new interest to come from the pipeline," which she says offers "upside relative to investor expectations." She mentions the company's anti-clotting drug candidate TRA as one of the reasons for her upbeat view, and says three other experimental drugs could create more optimism: boceprevir for hepatitis C; staph infection vaccine V710; and heart drug candidate betrixaban. Also, interim results of a key Vytorin study will likely suggest the study should continue, Arnold says.
Another positive Arnold sees is possible greater-than-expected savings as Merck combines its operations with the recently acquired Schering-Plough, and finds more synergies and cost-cutting opportunities.
Arnold therefore raised her 2009 profit estimate to $3.27 per share from $3.23, and trimmed her 2010 expectation to $3.60 per share from $3.69. These expectations are definitely higher than the average estimate.
Making the Case for Wider Use of HPV Vaccine
All of this was followed by Merck's statement that, in response to a request from the U.S. Food and Drug Administration, it had submitted end-of-study data related to the use of Gardasil in women ages 27 to 45. Merck noted it will submit the data to a scientific meeting and/or peer-reviewed journal, and said this kind of response usually carries a six-month review at the FDA.
Because Gardasil is one of Merck's biggest-selling and most significant products, the possibility of its broader use is definitely something investors can cheer about. Gardasil was expected to have between $1.1 billion and $1.3 billion in sales in 2009 as of the end of the third quarter.
In June 2006, Gardasil was approved for females aged 9 to 26 to protect against human papillomavirus, which causes cervical cancer and genital warts. Since then, Merck has been trying to get those approvals expanded. In September 2009, Merck received approval to market Gardasil for males aged 9 to 26. But earlier, the FDA withheld approval for its use by women from 27 to 45, asking Merck to submit data when a 48-month study is completed. However, according to a shorter study published in June, Gardasil was 90% effective in preventing infection in women from 24 to 45.
While sales of Gardasil quickly rose following its initial approval, they have been declining lately, with global sales falling 22% to $311 million in the third quarter, hurt by competition from GlaxoSmithKline's (GSK) rival Cervarix vaccine and delays in winning expanded approval for the product. More questions about Gardasil published in medical journals surely didn't help.
Both Cervarix and Gardasil target some strains of human papillomavirus, commonly called HPV, which spreads through sexual contact. HPV infects about 6 million people in the U.S. each year. It usually causes no symptoms and goes away, but in some cases, it can cause penile and anal cancer in men, and cervical cancer in women.
Take the first steps to building your portfolio.View Course »