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Key Factors Driving Merck's (MRK) Outperformance This Year

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Merck’s (MRK - Free Report) stock has risen 12.6% this year so far against a decrease of 1.3% for the industry.

Zacks Investment Research
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Merck’s first-half results were strong as it beat estimates for both earnings and sales in the first as well as the second quarters. Revenues rose 38% in the first half, driven by a significant contribution from Merck’s COVID-19 antiviral treatment, Lagevrio (molnupiravir), increased demand for cancer drugs and the HPV vaccine, Gardasil, and higher sales of Animal health products.

Merck’s blockbuster cancer medicine, Keytruda is growing continuously and expanding into markets globally. With continued label expansion into new indications & early-stage settings, Keytruda is expected to remain a key top-line driver. Keytruda is presently approved to treat six indications in earlier-stage cancers in the United States. Merck expects over half of Keytruda’s growth to come from indications in early-stage (neoadjuvant/adjuvant) treatment settings through 2025 and to represent roughly 25% of total global Keytruda sales by that time in the United States.

Alliance revenues from Lynparza and Lenvima are also boosting Merck’s oncology sales.

Please note that Merck markets Lynparza in partnership with AstraZeneca (AZN - Free Report) .

AstraZeneca and Merck had formed the profit-sharing deal to co-market Lynparza and Koselugo in July 2017.

AstraZeneca and Merck’s Lynparza is approved for four cancer types, namely, ovarian, breast, prostate and pancreatic. Lynparza is being evaluated in combination with Keytruda for colorectal cancer and lung cancer indications.

Beyond oncology, which is expected to drive durable growth into the next decade, Merck has important products in its portfolio including Gardasil vaccine to prevent HPV-related cancers. Sales of Gardasil vaccine grew 46% in the first half of 2022. Merck expects Gardasil growth to benefit from increased supply as it is investing in expanding manufacturing capacity. Merck expects Gardasil sales to potentially double by 2030.

Merck’s Animal Health business has been a key contributor to its top-line growth with the company recording above-market growth and the trend is expected to continue in the remainder of 2022.

Merck and partner Ridgeback Biotherapeutics’ COVID oral antiviral pill, Lagevrio has been a key top-line driver so far in 2022. Merck has a number of supply and purchase agreements in place for providing courses of the COVID therapy, which is expected to generate $5 billion to $5.5 billion in revenues in 2022.

Merck boasts a strong cancer pipeline, including Keytruda, which should help drive long-term growth.

Merck does have its share of problems like generic competition for several drugs and rising competitive pressure, mainly on the diabetes franchise. There are concerns about Merck’s ability to grow its non-oncology business ahead of Keytruda's loss of exclusivity later in the decade.

Nonetheless, strong sales of key products like Keytruda and Gardasil, a significant contribution from Lagevrio and positive pipeline/regulatory developments can keep the stock afloat in the remainder of 2022 and 2023.

Zacks Rank & Stocks to Consider

Merck currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector are Morphic (MORF - Free Report) and Agenus (AGEN - Free Report) , both carrying a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, estimates for Morphic’s 2022 loss per share have narrowed from $3.47 to $1.80. Loss estimates for 2023 have narrowed from $3.96 to $3.62 during the same period. Shares of Morphic have lost 40% in the year-to-date period.

Earnings of Morphic beat estimates in three of the last four quarters and missed the mark just once, witnessing a surprise of 48.29%, on average.

Estimates for Agenus’ 2022 bottom line have narrowed from a loss of 89 cents to 70 cents in the past 60 days. Loss estimates for 2023 have narrowed from 64 cents per share to 60 cents per share over the same time frame. Agenus’ stock is down 22.6% in the year-to-date period.

Earnings of Agenus beat estimates in three of the last four quarters while missing in one. The stock delivered a four-quarter average negative surprise of 12.02%.


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AstraZeneca PLC (AZN) - free report >>

Merck & Co., Inc. (MRK) - free report >>

Agenus Inc. (AGEN) - free report >>

Morphic Holding, Inc. (MORF) - free report >>

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