Hear what our experts say for this weeks top trades.
Merck (MRK US)
Merck is a global pharmaceutical company that researches and develops prescription medicines, vaccines, biologic therapies, animal health, and consumer care products, which it markets directly and through its joint ventures. With a market capitalisation of US$193,390 Bn, Merck is one of the largest pharmaceutical companies in the world. Merck’s major products include diabetes drugs Januvia and Janumet, cancer drug Keytruda, HPV vaccine Gardasil, cholesterol combatants Vytorin and Zetia, and hypertension fighters Cozaar and Hyzaar. In 2017, Keytruda was the first immunotherapy cancer drug based on tumor genetics to be approved by the FDA; it has been approved for metastatic lung cancer, melanoma and for several other indications.
We believe the investment case for Merck is compelling and two-fold:
The first revolves around its efforts to gain approval for new indications on existing drugs particularly Keytruda. In 2017 it received several such approvals, such as expanded indications for (currently its top seller) and continues to have some very positive results in a number of cancers. MRK expects 11 mid- to late-stage Keytruda trials to readout this year, including first-line studies in colorectal, gastric and triple negative breast cancers. There are also more than 700 clinical trials underway for the drug, which is being tested for more than 30 types of cancer overall. Keytruda is an PD-1 inhibitor. It stimulates the body's immune system to fight cancer cells by targeting and blocking a protein called PD-1 on the surface of certain immune cells called T-cells. Blocking PD-1 triggers the T-cells to find and kill cancer cells. For Q4 2018, Merck reported Keytruda generated US$2.15Bn in revenues. Industry estimates have Keytruda generating over US$10.7Bn for 2019 and growing to US$17.5Bn by 2022 for a 3-year CAGR of 17.5%. Given the potential for Keytruda globally and for multiple types of cancer it is likely that these estimates are far too low.
The second is based on Merck’s strong late stage pharmaceuticals pipeline, which could be worth as much as US$13-15 billion according to analyst’s estimates. Several drugs in the pipeline are capable of generating more than $1 billion in peak sales. Merck’s drug pipeline value can primarily be attributed to its vaccines, and anti-infectious drugs as well as its broad internal pipeline of assets across oncology (Lenvima (lenvatinib) and Lynparza (olaparib), vaccines (Gardasil and Gardasil 9- sales of those vaccines rose 37% in 2018 to reach US$3.15 billion) as well as HIV (MK-8591 / EFdA) and neuroscience.
Pfizer (PFE US)
Pfizer Inc. is a global biopharmaceutical company, which manufactures vaccines and injectable biologic medicines. It is among the world's largest pharmaceutical companies with a market capitalization of US$186,660 Bn. The company has key franchises in cardiovascular, infectious diseases, inflammatory conditions and vaccines. Pfizer is best known for two famous products- Viagra (for erectile dysfunction) and Lipitor (used to lower LDL cholesterol) It operates through the following segments: The Global Innovative Pharmaceutical segment focuses on developing, registering and commercialising novel, value creating medicines that significantly improve patient’s lives. The Global Vaccines, Oncology and Consumer Healthcare segment engages in the development and commercialisation of vaccines and products for oncology and consumer healthcare. The Global Established Pharmaceutical segment is undergoing a portfolio shift to emerging markets and injectables/biosimilars with the acquisition of Hospira.
Industry analysts expect Pfizer to generate revenues of some US$55 billion in 2020. The company has quite a few growth drivers working in its favour over the next few years – Ibrance, Eliquis and Xejianz. Analysts continue to see the company’s core business positioned for solid top- and bottom-line growth outlook through the mid-2020s with multiple pending pipeline catalysts this year and an emerging early- to mid-stage pipeline. At the same time, we see the Pfizer story focused on the balance between Pfizer’s strong near-term growth prospects and pipeline outlook versus a major patent cycle on the horizon in 2026+. That said currently Pfizer is a s highly defensive in the current uncertain environment and with shares trading at 12.3 X 2020 EPS and a dividend yield of 4.5%.
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