Zacks: Neutral On Merck; And Probably Right


Overnight, Zacks Investment Research reiterated its analysis on Merck — neither bullish, nor bearish — but do go read it all, for much additional, and nuanced, detail:

. . . .Merck is currently facing issues such as patent expirations of key drugs, EU pricing pressure, US health care reform, and pipeline setbacks. We believe the company will have to resort to cost-cutting initiatives to drive the bottom-line. . . .

A big near-term overhang on the stock is the Remicade/Simponi arbitration situation. Johnson & Johnson discovered Remicade and Simponi and licensed ex-US rights to Schering-Plough (now a part of Merck). According to Johnson & Johnson, under the terms of the distribution agreement, the merger has triggered a change-of-control provision in the agreement allowing Johnson & Johnson to reclaim full rights to both drugs. . . . The loss of ex-US rights to both the compounds would be a major setback for Merck. A decision could be out in the first half of 2011.

Besides the Remicade/Simponi situation, we are also concerned about the impact of the challenging pricing environment in the EU. With several countries like Greece, Spain and Germany announcing price cuts in generic and branded drugs, we expect revenues to be impacted going forward. . . .

Indeed. Stay tuned.

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