July 7, 2006

Merck is likely the "big winner" in the second quarter of 2006, having outperformed Wall Street's expectations, a financial analyst says. But the company faces some potentially dangerous challenges in 2007.

Merck will likely have better earnings last quarter than anticipated, as its sales of Zocor have remained strong despite the expiration of its patent, David Moskowitz of investment bank Friedman Billings Ramsey (FBR) said in a July 6 report. The drug went off patent June 23.

Prescription sales of the company's cholesterol drug Zocor (simvastatin) are "significantly stronger" than expected this year and the trend is likely to continue during the second quarter. The company's share of the cholesterol drug market actually rose from late last year, reversing a declining trend seen at the end of 2005, he added.

But the company faces challenges not only from the generic market, but also from a tide of litigation concerning its arthritis drug Vioxx (rofecoxib). Overall, FBR predicts a 2 to 5 percent drop from last year's 5.5 percent growth. Merck is expected to release its second quarter numbers July 24. The company predicts $2.3 billion to $2.6 billion in revenue in 2006 from Zocor.

While Zocor is doing better than expected, that is likely due to heavy discounting, Moskowitz said. The drug's future success will depend on generic competition, he added. Teva Pharmaceutical began shipping a generic equivalent to Zocor on June 25.

Once Teva's exclusivity runs out in 2007, as many as 15 new generic versions of the drug should be introduced, Moskowitz said. This additional competition will "slaughter the pricing," causing a drop of up to 90 percent off the brand price and a significant decrease in revenue, he added.

However, the overall generic market should level off in 2007, Moskowitz said. Generics should offer less competition for brands because fewer and less profitable brands will go off patent in 2007. Where $17 billion in brand patents were subject to expiration in 2006, that figure will drop to between $7 billion to $8 billion in 2007. (http://www.fdanews.com/did/5_132/)