After watching its stock price steadily decline since the beginning of 2008, Merck (NYSE:MRK) is beginning to reverse its course. An analyst upgrade and a couple of positive developments for its existing pharmaceuticals have provided added momentum for this stock in recent days. Now, shareholders have reason to believe that smooth sailing is ahead.
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Protecting the Pipeline
Since hitting a new 52-week low on March 9, shares of Merck have surged 55.4%. The stock is now catching the attention of analysts. A couple of weeks ago, a Goldman Sachs analyst tagged Merck with a "buy" rating. The stock's valuation and Merck's promising pipeline of drug candidates were two major factors in this decision. (For more on analyst expectations, be sure to read Analyst Recommendations: Do Sell Ratings Exist?)
In July, the company reported a Q2 in which EPS and sales were down slightly from its year-ago quarter. The company noted that, once complete, its merger with Schering-Plough (NYSE:SGP) will further strengthen Merck's drug pipeline. The company is certainly looking to the future as it spent $37 million in restructuring costs during Q2 and ramped up its R&D expenditures by 19%.
One source of apprehension for Merck shareholders was concerns that were recently brought to light surrounding the firm's cervical cancer vaccine, Gardasil. On Thursday however, the Food and Drug Administration and the Center for Disease Control Prevention noted that the treatment continues to be safe and effective and that its benefits outweigh associated risks. The drug generated $1.4 billion in sales in 2008, but is facing competition from Cervarix, a similar therapy made by GlaxoSmithKline (NYSE:GSK).
Breathing Easier
On Thursday, Merck was granted a temporary sigh of relief as a federal judge's ruling upheld a patent for Merck's blockbuster drug Singulair. The ruling will prevent Teva Pharmaceuticals (Nasdaq:TEVA) from marketing a generic version of Singulair prior to 2012. According to IMS Health, Singulair was the ninth best-selling prescription drug worldwide last year.
This was a major victory for Merck. Not only has Singulair been a huge success globally, but it also accounted for 22.0% of Merck's Q2 revenue with sales of $1.3 billion. This battle between Merck and Teva is probably not over yet though. Teva has vowed to appeal the ruling so that it can forge ahead with a generic version of Singulair. (Read Patents Are Assets, So Learn How To Value Them to figure out how much innovative ideas are worth.)
The Bottom Line
It has been a good summer for Merck thus far. The company's victory over Teva will buy Merck more time to bring additional products to market before its franchise drug begins to face generic competition. An added bonus for income investors is this stock's 4.9% dividend yield.
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