Possible Impact on Merck (NYSE:MRK) from New Statin Guidelines
New treatment guidelines released by the American Heart Association in collaboration with the American College of Cardiology will impact how doctors treat high cholesterol. These guidelines could also affect the huge profits that drug companies make selling cholesterol-lowering drugs.
The New Guidelines
This enormous policy shift may determine who ought to be treated for high cholesterol. In the battle against cholesterol, the old guidelines asked physicians and patients to track health improvements by the change in cholesterol level numbers. Now the new guidelines are suggesting just the opposite: ignore the reliance on numbers. The focus has now shifted to looking elsewhere for answers to indicate patient progress, namely looking at the patients
risk factors rather than simply targeting cholesterol levels.
For a number of years now, the game was to lower LDL levels, the bad cholesterol. The goal was to drop it below 100. Now, in the new guidelines, these targets are no longer relevant. This eliminates the threshold for treatments.
Four Fundamental Questions
The new guidelines for physicians is to ask four fundamental questions to decide who will benefit from cholesterol-reducing statin drugs and who will benefit from lifestyle changes like regular exercise, better nutrition, and less stressful habits.
Patients will be asked if they have heart disease, if they have either type 1 or 2 diabetes, if their LDL is more than 190, or if their risk of a heart attack in the next ten years is likely to be more than 7.5%. Those who have a positive response to all four questions may be prescribed a statin drug while those who can say no to one or more will be asked to consider lifestyle changes.
Naturally, the answers to these questions will be answered by evaluating statistical markers like race, age, and sex; habits like substance abuse, fast food diets, and smoking; and medical factors like HDL levels, blood pressure, and diabetes.
How the Guidelines will Affect Pharmaceuticals
Under the old guidelines, where numbers made a huge difference, cholesterol-lowering drugs were immensely profitable. While the new guidelines may actually increase the number of prescriptions for statin drugs, manufacturing these drugs is not a profitable route for big healthcare companies. This is because statin drugs are not protected by a patent and are now generic. In fact, it's possible to pay as little as ten dollars for a three-month supply. There is no money to be made by big pharmaceuticals from these types of drugs because competition is high, manufacturing is inexpensive, and profits from sales are low.
How the Guidelines will Affect Merck
Under the new guidelines, a $137 billion pharmaceutical company like Merck & Co., Inc. will find that the sale of cholesterol-lowering drugs will no longer be profitable.
Under the old guidelines, Merck was making money with drugs like Zetia to reduce cholesterol. Now it may lose millions in lost sales because the criterion for prescribing drugs like Zetia has changed. Not only has the emphasis been placed on inexpensive statin drugs, but there is also an emphasis on no drugs at all. Research has shown that lifestyle and behavior modification changes are significant enough to improve overall heart health. For instance, simply reducing the intake of sodium, saturated fats, and trans fatty acids will show a marked improvement in heart health.
Year after year, Merck has found it difficult to increase sales. In fact, their 2013 revenues are expected to be similar to their 2012 performance.
Merck has been adversely impacted by two factors: one, a large number of patent expirations; and two, the reduced national employment has resulted in fewer people being able to afford health care, visit their doctors or stay on their prescriptions. Consequently, the new treatment guidelines will be one more blow to a company struggling with stagnant growth but still able to pay a good dividend.
Investors should consider eliminating Merck from their growth oriented portfolios.
Disclosure: I am long MRK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.