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Analyzing Merck’s General Medicine and Women’s Health Segment

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NuvaRing generic threat

Merck’s (MRK) NuvaRing, a hormonal vaginal contraceptive product, has a patent delivery system set to expire in April 2018. In December 2013, the company had to take legal action against Allergan (AGN). The latter approached the FDA to seek approval for commercializing a generic version of NuvaRing before its patent expiry. The trial, which commenced in January 2016, led to an unfavorable result for Merck in August 2016. The US District Court declared that NuvaRing’s delivery system patent is invalid.

While Merck appealed the decision, there’s uncertainty related to generic erosion of NuvaRing’s revenues before April 2018. NuvaRing also faces competition from alternative contraceptive products marketed by peers such as Pfizer (PFE) and Johnson & Johnson (JNJ).

If generic competition is introduced for NuvaRing, it might have a negative impact on Merck’s share prices as well as the Vanguard S&P 500 ETF (VOO). Merck accounts for ~0.84% of VOO’s total portfolio holdings.

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General Medicine and Women’s Health segment

The above chart shows revenue trends for the four prominent drugs belonging to Merck’s General Medicine and Women’s Health portfolio.

In the first nine months of 2016, NuvaRing’s revenues benefited from higher prices in the US market. However, they were impacted negatively by lower volumes in the European market.

According to WebMD, Implanon/Nexplanon is “a small, thin plastic rod that is inserted under the skin to prevent pregnancy.” Implanon sales in the first nine months of 2016 remained almost stable on YoY (year-over-year) basis due to solid demand in the US market. It was partly offset by a reduction in operations in Venezuela’s market.

Asthma therapy, Dulera inhalation aerosol, witnessed lower revenues in the first nine months of 2016 on a YoY basis. While the demand for the product continued to be strong in the US market, revenues were impacted negatively by more pricing pressures in the segment. Follistim AQ, a fertility therapy, also witnessed lower revenues in the first nine months of 2016 on a YoY basis due to reduced demand in Europe and few emerging markets.

In the next part, we’ll analyze the growth prospects for Merck’s hepatitis portfolio.

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