Into or out-of the Mercky

The segment that covers pharmaceuticals is a hard one to understand. The complexity of drug discovery, the limited patent coverage, and the vagaries of demographics and diseases layer on the usual problems of holes in economies and consumer trendings. Top it off: the drug names on which traders bet are myriad. No myriad is not a prescription laxative. I am talking about the names like Zetia, Vytorin and Zocar – all seeming creatures from Star Trek The New Generation.

Merck stands apart from competitors such as Roche, Novartis, AstraZeneca or Pfizer in its projections for Earnings Per Share Growth over 3 to 5 years. In dividends, and Net Profit Margins it is roughly comparable with the others. Its star drug is the oncology treatment Keyruda.

How does Merck compare with Eli Lilly? It’s YTD stock track shows a loss of 10.66%, while Lilly shows a positive move of 34.66%. Lilly’s new weight-loss wonderdrug is the kind of thing that moves a stock.

Lilly doesn’t quite outdo Merck in EPS Growth forecast 3-5 years out. But its Zepbound [for, “going to a Led Zeplin Tribute concert in my old leather jacket?] weight-loss pills are expected to be gaining greater profit for Lilly versus Merck once that third year comes around.

Merck has been down from its 52-week highs [$134] and re-testing its 52-week lows [$98]. What is the Bear argument against this stock?

Merck is facing generic competition for drugs such as Singulair, Naonex, Cubicin and Zetia. The drugs are seeing rapid and steep declines in revenues. Meanwhile, it has had pipeline and regulatory setbacks.

There are concerns about Merck’s ability to grow profit in its non-oncology business. The company is seeing declining sales in Januvia diabetes medicine as competitors vie. This, as governments of many ilk seek to reduce the high cost of drugs. In a way it mirrors the general malaise the pharmaceutical businesses encountered this year on the stock market. But, clearly, Lilly, has been exceptional. -BB