Prescription growth for the Singulair drug, which is used to treat asthma and allergies, has hit a wall, according to Tim Anderson, an analyst at Sanford Bernstein. In an investor note, he writes the med posted negative year-over-year growth in new scrips for the last 13 weeks. For the week ending May 30th, new scrips were down 16 percent year-over-year, and total weekly scrips are down 4 percent year-to-date.
"At this rate, Merck's Singulair guidance which calls for worldwide year-over-year sales growth of 8 percent to 13 percent could be in jeopardy," he writes. "As Singulair is Merck's single biggest drug - with 2007 sales of $4.3 billion, up 19 percent year-over year, and representing 18 percent of total company sales - these trends are worrisome. Internationally, Singulair performance may well be better, but the US accounts for nearly three-quarters of total Singulair sales."
Why the drop? Singulair is a seasonal product, due to its allergy indication, and this year's season could have been light, although other allergy meds have performed better. There's also been new competition this year from an OTC version of Zyrtec. "This could be slightly more worrisome since market share could be permanently lost to this new competitor," Anderson writes.
"The third potential cause of weakness is that in March 2008, FDA flagged Singulair as having a potential link with suicide. This captured at least some headlines, which may have impacted prescribing. Merck continues to say that safety is not the reason for the slow down. Worth noting is that a safety review by FDA is continuing and could conclude towards the end of the year."
"If prescription growth were to stop dropping and instead hold flat from here, Singulair sales for the year would still likely fall shy of Merck's current guidance - holding flat may be viewed as unrealistically optimistic given the trends over the last 12 weeks," he continues. "Merck could, theoretically, take a second price increase in the US on Singulair to help make up the difference, but usually the company only takes one price increase a year (and Merck already took one in the first quarter..."
"Merck has consistently demonstrated that it has various financial 'levers' it can pull in times of need to keep its bottom line intact. That said, as a big product where incremental operating margins are likely as high as 98 percent, Singulair's current trajectory is something that investors need to monitor closely."