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Merck (MRK - Free Report) stock closed at $97.44 on Wednesday, which is close to its 52-week low of $94.48.
The company is facing several headwinds like declining sales of the second-largest product, the human papillomavirus (HPV) vaccine, Gardasil in China, weakness in the diabetes franchise and generic erosion of some drugs. There are concerns about the firm’s ability to grow its non-oncology business ahead of the loss of exclusivity of its largest drug, Keytruda, later in the decade.
To top that, the drug and biotech sector saw a major downturn in the past couple of months due to disappointing third-quarter sales and profits, guidance cuts, pipeline setbacks and the appointment of Robert F. Kennedy Jr., a vaccine skeptic, as the head of Health and Human Services. All these factors have significantly hurt shares of almost all large drugmakers.
Merck’s shares have lost 25.6% in the past six months compared with a decline of 11.7% for the industry. The stock has also underperformed the sector and the S&P 500 Index, as seen in the chart below. The stock is also trading well below its 200 and 50-day moving averages.
The stock’s poor price performance has left investors wondering whether to hold or sell it. Let’s understand the company’s strengths and weaknesses in detail to better analyze how to play the stock following the price decline.
Keytruda: Merck’s Biggest Strength
Merck boasts more than six blockbuster drugs in its portfolio, with blockbuster PD-L1 inhibitor Keytruda being the key top-line driver. Keytruda, approved for several types of cancer, alone accounts for around 50% of the company’s pharmaceutical sales. The drug has played an instrumental role in driving Merck’s steady revenue growth in the past few years.
Keytruda’s sales are gaining from rapid uptake across earlier-stage indications, mainly early-stage non-small cell lung cancer. Continued strong momentum in metastatic indications is also boosting sales growth. The company expects continued growth from Keytruda, particularly in early lung cancer.
Merck is working on different strategies to drive Keytruda's long-term growth. These include innovative immuno-oncology combinations, including Keytruda with TIGIT, LAG3 and CTLA-4 inhibitors. In partnership with Moderna (MRNA - Free Report) , Merck is developing a personalized mRNA therapeutic cancer vaccine (V940/mRNA-4157), in combination with Keytruda, for treating adjuvant melanoma and non-small cell lung cancer.
However, Merck is heavily reliant on Keytruda. Though Keytruda may be Merck’s biggest strength and a solid reason to own the stock, it can also be argued that the company is excessively dependent on the drug and should look for ways to diversify its product lineup.
MRK’s Pipeline Progress & Strategic M&A Deals
Merck made meaningful regulatory and clinical progress this year across areas like oncology (mainly Keytruda), vaccines and infectious diseases while also executing strategic business moves like the acquisitions of Eyebiotech Limited, Harpoon Therapeutics and Elanco’s aqua business. It also expanded its existing cancer deal with Japan’s Daiichi Sankyo and signed a collaboration with Exelixis (EXEL - Free Report) to advance the development of the latter’s cancer candidate, zanzalintinib.
Merck's phase III pipeline has almost tripled over the past three years, positioning it to launch several new vaccines and drugs over the next five years, with many having blockbuster potential. Merck’s new 21-valent pneumococcal conjugate vaccine, Capvaxive, and pulmonary arterial hypertension drug, Winrevair, have the potential to generate significant revenues for Merck over the long term. Both the products are witnessing a strong launch.
Merck has other promising candidates in its late-stage pipeline, such as MK-0616, an oral PCSK9 inhibitor for hypercholesterolemia, tulisokibart, a TL1A inhibitor for ulcerative colitis and Daiichi-Sankyo-partnered antibody drug conjugates (ADCs).
Declining Sales of MRK's Gardasil in China
Sales of Gardasil are declining in China due to a significant step down in shipments to Merck’s distributor and commercialization partner, Zhifei. Merck expects to continue to see a decline in shipments to China in the fourth quarter of 2024 and into 2025. Though the company is working to increase promotional resources and patient education efforts to increase demand, it will take time. However, Gardasil sales remain strong in almost every major region outside China, including the United States.
MRK Valuation & Estimates
From a valuation standpoint, Merck appears attractive relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 10.54 forward earnings, lower than 16.15 for the industry as well as its 5-year mean of 13.49.
MRK Stock Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2024 earnings has declined from $7.82 to $7.72 per share over the past 30 days. For 2025, earnings estimates have declined from $9.64 to $9.43 per share over the same timeframe.
MRK Estimate Movement
Image Source: Zacks Investment Research
Short-Term Investors May Sell MRK Shares
Though Merck’s problems are many, the company has one of the world’s best-selling drugs in its portfolio, generating billions of dollars in revenues. Though Keytruda will lose patent exclusivity in 2028, its sales are expected to remain strong until then. Though Merck does not have any new product or pipeline candidate that can replace Keytruda’s sales when it loses patent protection, it has $14.6 billion in cash and short-term investments on its balance sheet, which it can use to buy companies with promising R&D programs.
In 2025, Merck expects to deliver 6% to 7% growth in revenues, almost the same as its expectations for 2024. In 2024, it expects revenues to be in the range of $63.6-$64.1 billion, which indicates year-over-year growth of 6-7%.
It expects top-line growth in 2025 to be driven by Keytruda, especially in early-stage cancers, new products Welireg, Winrevair and Capvaxive, and the Animal Health segment, partially offset by declining sales of Gardasil in China. Also, the expiration of the agreement with J&J (JNJ - Free Report) for Remicade and Simponi is expected to hurt the top line.
We believe investors with a long-term horizon should stay invested in MRK stock, while short-term investors should consider selling the same as the company may take some time to show strong earnings growth.
Image: Shutterstock
Merck Stock Trades Near 52-Week Low: What's Next for Investors?
Key Takeaways
Merck (MRK - Free Report) stock closed at $97.44 on Wednesday, which is close to its 52-week low of $94.48.
The company is facing several headwinds like declining sales of the second-largest product, the human papillomavirus (HPV) vaccine, Gardasil in China, weakness in the diabetes franchise and generic erosion of some drugs. There are concerns about the firm’s ability to grow its non-oncology business ahead of the loss of exclusivity of its largest drug, Keytruda, later in the decade.
To top that, the drug and biotech sector saw a major downturn in the past couple of months due to disappointing third-quarter sales and profits, guidance cuts, pipeline setbacks and the appointment of Robert F. Kennedy Jr., a vaccine skeptic, as the head of Health and Human Services. All these factors have significantly hurt shares of almost all large drugmakers.
Merck’s shares have lost 25.6% in the past six months compared with a decline of 11.7% for the industry. The stock has also underperformed the sector and the S&P 500 Index, as seen in the chart below. The stock is also trading well below its 200 and 50-day moving averages.
Merck Stock Underperforms Industry, Sector & S&P 500
The stock’s poor price performance has left investors wondering whether to hold or sell it. Let’s understand the company’s strengths and weaknesses in detail to better analyze how to play the stock following the price decline.
Keytruda: Merck’s Biggest Strength
Merck boasts more than six blockbuster drugs in its portfolio, with blockbuster PD-L1 inhibitor Keytruda being the key top-line driver. Keytruda, approved for several types of cancer, alone accounts for around 50% of the company’s pharmaceutical sales. The drug has played an instrumental role in driving Merck’s steady revenue growth in the past few years.
Keytruda’s sales are gaining from rapid uptake across earlier-stage indications, mainly early-stage non-small cell lung cancer. Continued strong momentum in metastatic indications is also boosting sales growth. The company expects continued growth from Keytruda, particularly in early lung cancer.
Merck is working on different strategies to drive Keytruda's long-term growth. These include innovative immuno-oncology combinations, including Keytruda with TIGIT, LAG3 and CTLA-4 inhibitors. In partnership with Moderna (MRNA - Free Report) , Merck is developing a personalized mRNA therapeutic cancer vaccine (V940/mRNA-4157), in combination with Keytruda, for treating adjuvant melanoma and non-small cell lung cancer.
However, Merck is heavily reliant on Keytruda. Though Keytruda may be Merck’s biggest strength and a solid reason to own the stock, it can also be argued that the company is excessively dependent on the drug and should look for ways to diversify its product lineup.
MRK’s Pipeline Progress & Strategic M&A Deals
Merck made meaningful regulatory and clinical progress this year across areas like oncology (mainly Keytruda), vaccines and infectious diseases while also executing strategic business moves like the acquisitions of Eyebiotech Limited, Harpoon Therapeutics and Elanco’s aqua business. It also expanded its existing cancer deal with Japan’s Daiichi Sankyo and signed a collaboration with Exelixis (EXEL - Free Report) to advance the development of the latter’s cancer candidate, zanzalintinib.
Merck's phase III pipeline has almost tripled over the past three years, positioning it to launch several new vaccines and drugs over the next five years, with many having blockbuster potential. Merck’s new 21-valent pneumococcal conjugate vaccine, Capvaxive, and pulmonary arterial hypertension drug, Winrevair, have the potential to generate significant revenues for Merck over the long term. Both the products are witnessing a strong launch.
Merck has other promising candidates in its late-stage pipeline, such as MK-0616, an oral PCSK9 inhibitor for hypercholesterolemia, tulisokibart, a TL1A inhibitor for ulcerative colitis and Daiichi-Sankyo-partnered antibody drug conjugates (ADCs).
Declining Sales of MRK's Gardasil in China
Sales of Gardasil are declining in China due to a significant step down in shipments to Merck’s distributor and commercialization partner, Zhifei. Merck expects to continue to see a decline in shipments to China in the fourth quarter of 2024 and into 2025. Though the company is working to increase promotional resources and patient education efforts to increase demand, it will take time. However, Gardasil sales remain strong in almost every major region outside China, including the United States.
MRK Valuation & Estimates
From a valuation standpoint, Merck appears attractive relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 10.54 forward earnings, lower than 16.15 for the industry as well as its 5-year mean of 13.49.
MRK Stock Valuation
The Zacks Consensus Estimate for 2024 earnings has declined from $7.82 to $7.72 per share over the past 30 days. For 2025, earnings estimates have declined from $9.64 to $9.43 per share over the same timeframe.
MRK Estimate Movement
Short-Term Investors May Sell MRK Shares
Though Merck’s problems are many, the company has one of the world’s best-selling drugs in its portfolio, generating billions of dollars in revenues. Though Keytruda will lose patent exclusivity in 2028, its sales are expected to remain strong until then. Though Merck does not have any new product or pipeline candidate that can replace Keytruda’s sales when it loses patent protection, it has $14.6 billion in cash and short-term investments on its balance sheet, which it can use to buy companies with promising R&D programs.
In 2025, Merck expects to deliver 6% to 7% growth in revenues, almost the same as its expectations for 2024. In 2024, it expects revenues to be in the range of $63.6-$64.1 billion, which indicates year-over-year growth of 6-7%.
It expects top-line growth in 2025 to be driven by Keytruda, especially in early-stage cancers, new products Welireg, Winrevair and Capvaxive, and the Animal Health segment, partially offset by declining sales of Gardasil in China. Also, the expiration of the agreement with J&J (JNJ - Free Report) for Remicade and Simponi is expected to hurt the top line.
We believe investors with a long-term horizon should stay invested in MRK stock, while short-term investors should consider selling the same as the company may take some time to show strong earnings growth.
Merck has a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.