Saturday, February 9, 2013

Matt Herper -- At Forbes -- Echoes My Themes Of This Past Week, On Merck

Certainly Mr. Herper is always a worthwhile, incisive read, on all things Merck -- and this is no exception. Do go read it all.

That said, I do think he was a little bit too enthralled by the torpid language the buy-side analysts at Morgan Stanley, among others, had been tossing about, this week. But I guess it sells magazines.

More specifically, as I said on Monday afternoon, I think a disappointing IMPROVE-IT outcome is already largely priced into the stock. So too, do most buy-side analysts, according to Mr. Herper's own article, yesterday: ". . .83% of respondents expect that the study will show no benefit in adding Zetia to Zocor to make a Vytorin pill. . . ." And that was an October 2012 poll. It is priced in.

But the concern over Merck's latest string of pipeline delays and outright failures is real. I just don't think it will cause a long spate of sub-$40 price quotes on the NYSE. In fact, Mr. Herper and I agree that much of the excitement about Merck's future was lost in the din over Peter Kim's "Cheshire Cat" routine this week. His description, then:

. . . .What really seems to be happening between Wall Street and Merck is that investors have completely lost faith in their ability to read the company’s “body language.” If Merck executives are confident about odanacatib, should investors believe them? The problem is that Merck was confident about vorapaxar, a new blood thinner, and then it ran into trouble. It was confident about Victrelis, a drug for hepatitis C. Victrelis sold, but not as well as the rival drug Incivek from Vertex Pharmaceuticals. Many observers thought that Merck’s Tredaptive cholesterol drug would succeed, but then it failed, too. . . .

All of the above is important -- but in my estimation, at least -- this will not define Merck's future. Why? Well, consider just one example (of several in Merck's pipeline, unmentioned this past week): Anacetrapib holds the promise to revolutionalize the cardio-vascular disease-care space (see image, lower right). It may be on-market in some geographies as early as 2015. Now, we all know what Lipitor did for Pfizer for nearly ten years (north of $12 billion a year), there, in revolutionizing CV risk management.

As ever, we shall see -- but like Mr. Herper implies, I'd not dash for the exits, just yet -- on Merck.

[Disclosure: I am neither long or short on any of the stocks mentioned on this blog.]


Matthew Herper said...

I generally agree that Improve-It is priced in. But you always have to remember that margins on a blockbuster are better than people think. And Wall Street expectations are a funny thing. Look at patent expirations -- they can still hurt stocks even though everybody expects them!

Thanks for the link, as always.

Condor said...

Thanks Matt -- let me asy that it's actually pretty cool to see you appear here!

Of course, you are right: novel branded medications carry eye-popping margins, and as they wane -- even a $50 billion a year behemoth will suffer from it.

On the other hand, I do think the fact that Merck actually closed up a few pennies on the NYSE today, after announcing the $688 million settlement of the ENHANCE securities class actions (significantly larger than many -- saving you and me, perhaps -- expected) would suggest that most of these events (to the extent that any of us have written repeatedly about them) are already largely priced into widely-followed public company stock prices.

Thanks again for stopping by my humble abode! Do stop back.