Kenilworth, NJ based Merck & Co., Inc. (MRK - Free Report) is a research-driven pharmaceutical company and a global leader in the discovery and development of vaccines and pharmaceutical drugs. The company currently makes noteworthy treatments or vaccines for HPV, type 2 diabetes, cancer and HIV among others.
It looks like a great stock to buy now. Here are some reasons for the same.
Favorable Rank, Rising Estimates & Share Price: Merck carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Merck’s earnings estimates for 2018 and 2019 have increased 0.5% and 2%, respectively in the past 30 days. In fact, Merck’s earnings performance has been pretty impressive, with the company exceeding earnings expectations consistently. The average positive earnings surprise over the last four quarters is 5.25%.
So far this year, Merck’s shares have outperformed the industry, rising 26.2% compared with 7.2% increase for the industry.
Merck has done relatively well this year so far, coming up with strong quarterly results and positive pipeline and regulatory updates.
Strong First Half Results: Merck’s sales rose 6% while earnings per share rose around 12% in the first half of 2018. Merck’s Pharmaceutical segment revenues rose 6% year over year while Animal Health segment sales rose 14%. Merck also raised its full-year earnings guidance in both the first and second quarters of the year.
Strength in Keytruda, Bridion, Gardasil and Animal Health offset headwinds from loss of exclusivity (LOE) for some products, softness in the diabetes franchise and competitive pressure for Zostavax and Zepatier to drive the strong performance. The positive drivers should continue to support sales in the second half as well.
Keytruda Continues to be a Growth Catalyst: A significant part of Merck’s outperformance this year was driven by strong performance and positive regulatory updates related to its PD-1 inhibitor, Keytruda. In a very short span of time, Keytruda has become Merck’s largest product. It is already approved for use in 12 indications across eight different tumor types in the United States.
Keytruda is continuously growing and gaining approval for new indications and markets globally. Keytruda sales are gaining particularly from strong momentum in the indication of first-line lung cancer as it is the only anti-PD-1 approved in the setting both as a monotherapy as well as combination therapy.
In fact, the Keytruda development program is also progressing rapidly. Merck is conducting numerous studies to evaluate Keytruda for more than 30 types of cancer in more than 800 studies, including more than 400 combination studies. Merck is collaborating with several companies including Amgen (AMGN - Free Report) , Incyte (INCY - Free Report) , Glaxo and Pfizer separately for the evaluation of Keytruda in combination with other regimens.
Keytruda is being studied in phase III studies for breast, colorectal, esophageal, gastric, head and neck, hepatocellular, nasopharyngeal, renal and small-cell lung cancers. This year, Merck announced positive data from several late-stage studies on Keytruda for further line extensions.
Meanwhile, several regulatory decisions for new indications in the United States as well as in Europe are due in the fourth quarter and 2019, which if approved can further boost sales.
A key decision toward the end of October will be on its label expansion as a first-line treatment (in combination with chemotherapy) or metastatic squamous non-small cell lung cancer (NSCLC) — a difficult-to-treat lung cancer patient population — based on data from the phase 3 KEYNOTE-407 study.
A Solid Pipeline Beyond Keytruda: Merck has many pipeline candidates in advanced stages of development targeting multiple disease areas such as cardiovascular diseases, diabetes, infectious diseases, neurosciences, obesity, pain, respiratory diseases, and vaccines. Some of the important pipeline candidates include MK-7655A (relebactam+imipenem/cilastatin) (bacterial infections),MK-7264 (refractory, chronic cough), V920 (Ebola vaccine), V114 (pneumococcal vaccine) and MK-1242/vericiguat (chronic heart failure).Key recent approvalsfor Merckinclude that of Steglatro and its fixed-dose combinations for type II diabetes, two new HIV drugs — Pifeltro and Delstrigo — containing doravirine and Prevymis (letermovir) for cytomegalovirus (CVM) infection.
Merck also gained several label expansion approvals for Keytruda and another cancer drug Lynparza this year, which it markets in partnership with AstraZeneca (AZN - Free Report) . All these approvals can boost the company’s sales in future quarters.
Active on Licensing/Collaboration Front: Merck, in order to build its long-term portfolio, is tapping external sources through licensing deals since the past few years.
Among the more recent deals, in June 2018, Merck acquired an Australian company Viralytics Limited. In March 2018 and July 2017, it entered intoprofit sharing dealswith Japan’s Eisai(for Lenvima) and AstraZeneca(for Lynparza and selumetinib), respectively.
Merck has its share of challenges.Like many of its peers, Merck is facing headwinds in the form of generic competition for several key products. Pricing pressure and rising competition in the immuno-oncology market is also a significant concern
However, we believe the new drug approvals, a solid pipeline and aggressive savings will pave the way for growth in the remainder of the year.
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