?? Merck & Co. UBS
Getting Its Mojo Back
Key things we learned on the conference call
(1) On M&A, mgt pointed to value-added bolt-on deals (eg, Idenix) and not large deals. (2) Regarding Pembro, mgt appeared confident about the upcoming Oct 28 PDUFA and indicated it was ready to launch. Merck also indicated that there will be more Pembro data at ESMO and ASH. (3) Mgt was also excited about the Suvorexant (low expectations from the Street) PDUFA in mid-August and expects to launch late this year or early 2015, depending on the timing of the DEA decision on product scheduling. (4) On IMPROVE-IT, the last patient visit will occur in September, and mgt expects to share top-line data in 4Q. (5) On anacetrapib, we could see the first interim analysis in 1H15. (6) Regarding HCV, mgt expects to share some C-SWIFT data at AASLD.
Additional items
(7) EMs grew +2%, with growth in China (+6% Y/Y), Brazil, and Turkey partially offset by tender timing and weakness in Ukraine, Egypt, and Mexico. For the full year, mgt continues to expect good EM growth. (8) In Japan, the 6% decline in sales was due primarily to price decreases and the negative impact from suspended HCV vaccines promotion. (9) Gardisil benefited from ~$30M of public sector orders. Mgt indicated that it is initiating its promotional efforts ahead of the fall flu vaccine season. (10) Isentress benefited from US buying patterns.
Thoughts on the stock: We still like it
It was good to see the stock respond to a solid quarter, and we think there is more to go. Merck has a play in both of the two key therapeutic areas of innovation (I\O and HCV) as well as a few low expectation late-stage, primary care products (Suvo, Bridion, Odanacatib). We think this pipeline combined with tight cost controls can drive high single-digit 5 year EPS growth and push the stock higher.
Valuation: We maintain our Buy rating and PT of $64
Our DCF analysis assumes $47 for the base business and $17 for the pipeline.
