Does This Pipeline Promise Tomorrow's Blockbuster Sales?

Nearly every big pharma player has been hit with patent expirations that have hit hard on sales lately, and Merck is no exception. Merck's one of the industry's biggest giants, but the loss of patent protection on former top blockbuster drug Singulair and other leading medications has threatened this company's future. While leading drugs such as Januvia are holding up Merck's foundation, the company's pipeline will make or break its long-term success.

Just how strong is Merck's pipeline? Let's take a look at this firm's portfolio of developmental drugs and see what investors should think of Merck's potential.

No shortage of drug candidates
Merck's pipeline isn't lacking for quantity. The company currently has six drugs and indications under review for regulatory approval, with 15 more therapies undergoing phase 3 trials as of May 6. Those 21 drugs in total match up well with some of the top pipelines in the business. As a comparison, Pfizer , whose pipeline I've singled out for praise in the past, currently has six drugs undergoing regulatory review and 16 therapies in phase 3 trials as of May 9. Pfizer's future looks strong with its robust pipeline that boasts 74 total drugs in development, and at least in late-stage candidates, Merck looks strong as well, with another 23 therapies in phase 2 development.

However, it's the quality, not the quantity, of the pipeline that matters.

Insomnia aid suvorexant and osteoporosis drug odanacatib remain two of Merck's most promising drugs in its late-stage pipeline. Suvorexant's on track for approval soon, particularly after a Food and Drug Administration panel gave a thumbs-up to the drug's safety and efficacy in May. Still, don't get too carried away with this drug's potential. Suvorexant might not even hit blockbuster potential, as average analyst estimates peg its peak sales at just $650 million by 2018. That won't be enough to replace the more thanthe $1.6 billion Singulair alone lost in 2012.

Analysts give more weight to odanacatib's potential, but this drug has hit hurdles of its own recently. Merck earlier delayed its expected filing for odanacatib's approval until 2014, and while peak sales estimates are optimistic -- analysts say the drug could hit up to $3 billion in peak sales -- investors will have to be patient with this therapy.

Odanacatib has competition as well. Amgen has its own bone therapy drugs, Prolia and Xgeva, each of which are expected to succeed. Morningstar in May said that it expects Amgen's osteoporosis and fracture-preventing drugs, respectively, to generate more than $3 billion in peak sales. There's an opportunity for odanacatib to thrive alongside Amgen's two drugs, but competition for the top spot in this niche will be a battle to watch.

Singulair and odanacatib aren't Merck's only drugs in the pipeline. Hepatitis-C therapy vaneprevir is an early phase 3 candidate to watch, and the drug performed well in its phase 2 trial efficacy. Considering that hep-C affects more than 150 million people across the globe, with a market for new medications estimated at $20 billion by Bloomberg, an approval here could be a big win for Merck. Don't expect vaneprevir to reach the regulatory approval stage any time soon, however.

Atherosclerosis treatment and cardiovascular therapy anacetrapib is another promising candidate to watch. The drug's a successor in a long line of developmental drugs to promote HDL cholesterol -- many of which have flamed out -- but Merck pushes on. Anacetrapib's a long shot, but if the drug pans out, it could be a multibillion-dollar blockbuster for Merck. It's currently in phase 3 trials, and Merck investors will likely have a long time to wait on this candidate.

Even this faces competition, however. Sanofi and Regeneron's competing LDL cholesterol-reducing therapy REGN727 launched phase 3 trials last year, and while the drug likely will see a long wait for results, some analysts are optimistic about its potential. Peak sales estimates range from $2.5 billion to $6 billion -- no chump change for sure -- and Sanofi's hoping the drug can clear regulators by 2015 in time to beat Merck's and other competing therapies to the market.

Is all this enough for Merck to beat back patent loss-related sales? Current leading drugs should help, as diabetes-fighting Januvia and Janumet continue to fortify Merck's revenue, and other leaders such as Gardasil have grown strongly in recent years despite exceeding blockbuster status. Still, you'll need to keep an eye on Merck's pipeline. While this company has plenty of drugs and indications under development, it'll have to hit on promising potential blockbusters like odanacatib and anacetrapib in order to stabilize Merck's future. Anything less, and the patent cliff could be a much bigger worry than expected.

Can Merck beat the patent cliff?
This titan of the pharmaceutical industry stumbled into 2013 and continues to battle patent expirations and pipeline problems. Is Merck still a solid dividend play, or should investors be looking elsewhere? In a new premium research report on Merck, The Fool tackles all of the company's moving parts, its major market opportunities, and reasons to both buy and sell. To find out more click here to claim your copy today.

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