Merck – Increase our TP from $45 to $50

Date: 2015-07

We maintain our outperform rating on MRK and increase our Price target from $45 to $50, as we make the following changes in our model. Increased peak sales forecast for MRK’s DPP-IV franchise (including sales for once weekly DPP-IV inhibitor – MK3102) from $9billion to $13 billion. We model a 50% probability adjusted peak sales of $1.5b for Tredaptive and 50% probability adjusted peak sales of $1.5 billion for Odanacatib. In the worst case, we see a clear role for Odanacatib in patients who are contraindicated to bisphosphonates (25%), which should at least ensure $1billion in peak sales. While a clean safety profile (no osteonecrosis of Jaw) should allow megablockbuster sales ($3b). Completion of Mega- CV outcome trials should ensure R&D cost savings to the tune of $1billion.


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