COMPANY DESCRIPTION

Merck & Co. is a health care company that provides prescription medicines, vaccines, biologic therapies, animal health, and consumer care products, which it markets directly and through its joint ventures. Co.'s operations are comprised of four operating segments: pharmaceutical, which includes human health pharmaceutical and vaccine products marketed either directly by Co. or through joint ventures; animal health, which discovers, develops, manufactures and markets animal health products, including vaccines; consumer care, which develops, manufactures and markets over-the-counter, foot care and sun care products; and alliances, which includes Co.'s relationship with AstraZeneca LP.

 

ECONOMIC MOAT

Patents, economies of scale, and a powerful intellectual base buoy Merck's business and keep it well-shielded from the competition MRK’s enormous cash flows support a powerful salesforce. The cash flows also put the company in the rare position of supporting the approximately $800 million in R&D needed on average to bring each new drug to the market

 

OUTLOOK

Management issued a somewhat disappointing 2015 outlook. The negative impact from foreign exchange was the primary reason for the downward revision. This is a big year for the pipeline. With several of Merck's top franchises facing increased competition in 2015. MRK received U.S. approval of six new drugs in 2014, all of which are expected to debut at some point this year. A few to keep an eye on include Keytruda , for the treatment of advanced melanoma, and Belsomra , for the treatment of insomnia. Januvia/Janumet franchise remains the cornerstone of the pharmaceutical portfolio. The diabetes drug has been a steady top-line contributor for Merck over the past several quarters.

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STRENGTHS

  • Strong performance of launch products driving growth

  • Strong research and development programs Leadership position in global vaccine market 

WEAKNESSES

  • Vioxx litigation affecting the company's brand image

  • Loss of market exclusivity affecting the company’s top-line growth 

THREATS

  • Major branded pharmaceutical products exposed to generic competition

  • Healthcare reform in the US could negatively impact the company’s profitability 

OPPORTUNITIES

  • Strong late stage pipeline likely to drive growth

  • Cubist would strengthen Merck & Co’s presence in antibiotics sector

  • Continued cost savings from internal restructuring initiatives

  • Divesting consumer care business to Bayer Acquisition of Idenix would bolster Merck & Co's HCV pipeline

     

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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