Merck & Co. (NYSE: MRK) is the archetypal pharma stock, providing solid returns over the long term, and is a real veteran of the industry, having survived a number of patent cliffs. Despite steady revenue growth and consistently growing dividend increases, Merck & Co.’s share price has been relatively flat this year and not entirely representative of all the good things the company has to offer in my opinion as a shareholder. The immuno-oncology (IO) treatment Keytruda is the company’s lynch-pin, bringing in 30% of annual revenue, and is an integral component of a multitude of pipeline regimens under investigation. Much like other similarly diversified companies, Merck & Co. is looking to improve its operating margin, in this case by spinning out the company’s women’s health and biosimilar divisions –historically slower growing than the core business.
Positive outlook, but things need to keep going right
AbbVie (NYSE: ABBV) has and continues to be heavily reliant on Humira, which was responsible for 40% of 2020 revenue, and competes against biosimilars in Europe. Biosimilar entry in the US is anticipated in 2023, and the expectation is that Humira sales will take a further substantial hit. So why is the outlook positive for this pharma stock?
AbbVie’s $63 billion acquisition of Allergan in May 2020 was met by the market with a degree of concern, but there is little doubt that it offered AbbVie some much needed diversification. More notably, however, AbbVie has developed two products that look set to secure its leadership position in immunology in a post-Humira world. Skyrizi and Rinvoq have shown strong uptake in their initial approved indications (psoriasis and rheumatoid arthritis, respectively), and AbbVie is vigorously pursuing additional indications, which should come through in the next 24 months. However, Rinvoq’s approvals for psoriatic arthritis and atopic dermatitis have each been pushed back by a quarter this year, owing to regulatory delays as the FDA investigates safety concerns related to the JAK-inhibitor class.
A high-risk bet that should pay off in the short term (unless it doesn’t)
Over a decade ago, plucky upstart Amarin (NASDAQ: AMRN) gained FDA-approval for Vascepa, to treat patients with severely elevated triglycerides – a form of cholesterol that contributes to cardiometabolic disease. So far, so uneventful. Fast-forward to December 2019, and the label for Vascepa was expanded to include patients at high cardiovascular risk – effectively growing the potential market for the drug many-fold. Amarin’s share price sky-rocketed, at a rate rarely seen in mature pharma stocks. However, a court ruling in March 2020 in favour of generics challengers caused Amarin’s share price to plummet to a level it has never recovered from.
With the US market for Vascepa no longer the cake-walk it should have been, all eyes are now on Europe. Vascepa received EMA approval for the expanded indication in March of this year, and is set to launch first in Germany. The absence of generic competition, Vascepa’s first-in-class approval for a demonstrably large patient pool, and robust clinical outcomes data all paint a rosy picture. The risk lies in Amarin’s ability to pull it off, as a relatively small, US-based company with no other in-line products, and a handful of generics challengers snapping at its heels in its home-market of the US.
