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Biotech / Medical : Merck -- Ignore unavailable to you. Want to Upgrade?

To: John A. Stoops who wrote (1157)	3/9/1999 7:52:00 PM
From: William F. Wager, Jr.	Respond to of 1580

Here's a hit piece from tonight's Barron's..they do eat a little crow. March 9, 1999 Is Merck's Medicine Chest Getting Bare? By Lawrence Strauss The stock of pharmaceutical powerhouse Merck & Co. has sizzled lately, part of a long-term, upward trajectory this great blue-chip growth company has enjoyed in recent years. Merck stock has risen some 420% since 1994, more than double the S&P's gain over the same period according to Baseline. Well-managed and equipped with strong research and development, Merck has rolled out many hit drugs, from ulcer medicine Pepcid to cholesterol drug Zocor. The stock's recent runup may be due to the promising initial success of Celebrex, Monsanto and Pfizer's jointly launched antiarthritis "Cox-2 inhibitor" drug. The drug's early sales have exceeded even those of Pfizer's Viagra over the same time. Merck hopes to introduce its own Cox-2 product, Vioxx, by May, depending on FDA approval. On Tuesday, Merck's stock hit 83 5/8, its 52-week high, before closing at 83 1/8, and the company has plenty of fans who believe its stable of newer drugs and its research pipeline will compensate for a flurry of upcoming patent expirations. But another camp disagrees. Even on Wall Street, where criticisms of major blue-chip stocks are as rare as jokes about Stalin's mustache in the old Soviet Union, some analysts are questioning the strength of Merck's product pipeline in the years ahead. Such weakness, they argue, may slow profit growth, predicts J.P. Morgan pharmaceutical analyst Carl Seiden. That could mean earnings disappointments -- and ultimately hurt the stock price. "I think nothing matters more for drug stocks than relative earnings momentum," says Seiden. He thinks that Merck, especially in 2001 and 2002, faces "a couple of years where. . . significant deceleration in earnings growth is likely." Seiden expects Merck's earnings growth to slip to 12% next year, from 14% this year. Then comes a sharp drop, to only around 7% in 2001 and 2002, in an industry accustomed to reeling off annual earnings growth in the mid-teens without batting an eyelash. That slowing growth is why he rates the stock a Market Performer, with a 12-month price target of 78 - 6% below Tuesday's closing price. "I don't see anything significant for Merck besides Vioxx for at least the next two years," cautions Brown Brothers Harriman analyst Michael Krensavage, who rates the stock Neutral in the near term and Buy in the long term. "So for them to maintain their earnings growth, they need to pull a rabbit out of a hat basically." Krensavage says Merck is counting on Vioxx to boost sales; it hopes to position the drug as an antidote to arthritic pain and other kinds of chronic pain -- a broader application than the one Monsanto got from the FDA. Yet, he warns, "any time that you bet on one big drug to carry a company, you're asking for trouble." But for Merck to grow earnings by 11% in 2000 -- down from First Call's consensus estimate of 14% for 1999 -- it needs to sell $1.3 billion worth of Vioxx next year, estimates ABN AMRO pharmaceutical analyst James Keeney. While Merck has a chance of hitting that target, Keeney questions why "a company growing earnings 11% next year" should command such a high valuation. As of Tuesday's close, the shares were changing hands at nearly 34 times the consensus 1999 earnings estimate of $2.46 a share, according to First Call. That's almost 2 ½ times Merck's projected 1999 earnings growth and a 25% premium to the S&P 500's 1999 P/E. Another worry: patent expirations. Among others, there's Pepcid, which generated about $1.1 billion in sales in 1998. But Pepcid's patent expires in October 2000, and sales will drop to a mere $115 million in 2002, Seiden projects. There are also some jitters about MK-869, an antidepressant whose development was slowed after the announcement of disappointing test results in January. The drug is now set for Phase III clinical testing to treat chemotherapy patients for nausea, a much smaller market than the one for antidepression drugs. (Merck is also trying to develop an as-yet- unnamed, but more powerful, drug that's similar to MK-869.) Partly because of the uncertainty about MK-869, CIBC Oppenheimer downgraded Merck to Buy from Strong Buy in late January. The generally bullish report notes that the disappointing results of the tests "cast a shadow" over Merck's earnings growth after 2002. The many bulls on Merck stock insist that any earnings deceleration in 2001 and 2002 is already factored into the share price. They point out that the company, armed with a strong balance sheet and joint ventures with biotech companies, has a fine record of successful product launches -- about a dozen new drugs since 1995. It also has a promising antiasthma drug, Singulair, which Seiden of J.P. Morgan projects will generate more than $1 billion in annual sales in 2001. Also, at about 34x 1999 earnings, Merck trades at a lower multiple than do other U.S. pharmaceutical giants like Pfizer and Eli Lilly. Large-cap U.S. pharmaceutical companies trade at around 37x 1999 earnings estimates, according to ABN AMRO. By comparison, Pfizer trades at a whopping 55.7x 1999 earnings estimates, while Eli Lilly is at more than 41x, according to First Call. Merck stock currently trades at about a 10% discount to its peer group, compared with a 10% premium historically, according to J.P. Morgan. But that doesn't make the valuation compelling, argues Keeney of ABN AMRO: "If you're buying peak earnings growth for the next couple of years, how cheap is the stock?" We've noted before that Merck's stock looked pricey, only to watch the shares rise. (See Weekday Trader, "Has the Market OD'd On Drug Stocks?" January 20.) But if Vioxx fails to shoulder the heavy load expected of it during the next couple of years, Merck's stock could be in for a dose of bad medicine. --Bill

To: John A. Stoops who wrote (1157)	3/13/1999 12:31:00 PM
From: William F. Wager, Jr.	Read Replies (1) \| Respond to of 1580

Insider Selling...03/12 12:39 Four Merck <MRK.N> senior executives sold shares WASHINGTON, March 12 (Reuters) - Four senior executives at Merck and Co. Inc. recently sold a total of more than 300,000 common shares of the leading pharmaceutical concern, a spokeswoman said Friday. But she declined to comment on why the executives were selling, saying it was a personal matter. All of the executives filed documents within the last several weeks with the Securities and Exchange Commission showing an intention to sell stock. Chief Financial Officer Judy Lewent filed to sell 30,450 shares worth about $2.4 million, and Edward Scolnick, a director and executive vice president, planned to unload 220,000 shares for about $17 million. Per Wold-Olsen, Merck's chief for Europe, Middle East and Africa, filed to sell 7,300 share worth about $690,000; and chief legal counsel Mary McDonald filed to unload 61,000 shares for about $4.7 million. "It looks like they did make the trades," Merck spokeswoman Maggie Beute said. When asked why they were selling, she said: "We view it as kind of a personal decision why they chose at this time to trade. Beyond that the company feels that it shouldn't get involved in personal matters." Beute pointed out that it is company policy for all senior executives who wish to sell shares to first contact the company's legal department. She added that Merck's latest proxy with updated executive ownership figures will be filed in a few weeks. --Bill