Hepatitis C and Merck [Merck & Co., Inc., Gilead Sciences, Inc.]

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May 6, 2014 2:49pm NYSE:FDL NYSE:IHE

drugsHepatitis C news is all over the headlines. That’s because the Hep C market is huge – $100 billion huge. And while Gilead Sciences, Inc.(NASDAQ:GILD) has been grabbing all the headlines in that area, Merck & Co., Inc.(NYSE:MRK) is right on

its heels.

This is shaping up to be a two-horse race for the best and most affordable one-pill-a-day regimen to treat what is a horrible disease that affects 2.7 million people in the U.S. alone.

Gilead is expected to take the lion’s share of this market, 60% to 75%. That means there is 25% to 40% of the market up for grabs. This is where Merck expects to make its money.

The other players here are Bristol-Myers Squibb Co(NYSE:BMY) and AbbVie Inc(NYSE:ABBV), but their systems require multiple drugs and pills. The market sees that as a negative.

And despite the lower market share from the Hep C race, Merck has lots of other reasons to own it.

It has initiated what has been described as an aggressive two-year restructuring plan. It also has several skin cancer drugs in the pipeline, as well as a much broader and stronger overall pipeline than Gilead. And a 3.1% dividend that will work very well while investors wait for the numbers to roll in on the Hep C situation.

The stock is trading slightly below the market at about 15.5 times 2015 earnings. Gilead is at about 16 times.

The dividend and its pipeline put it over the top for me. Take a look at Merck.

by Steve McDonald, Bond Strategist

Investment U provides cutting-edge research and strategic financial recommendations for all levels of investors through its morning publication Investment U Daily and its related publications.

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