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Merck (MRK) Outperforms Industry This Year So Far: Here's Why

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·4-min read
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Merck’s MRK stock has risen 19.7% this year so far compared with an increase of 4.2% for the industry.

Zacks Investment Research
Zacks Investment Research

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Merck’s first-quarter results, announced last month, were better than expected as it beat estimates for both earnings and sales. Revenues rose 50% year over year 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. An ongoing recovery from the pandemic and strong global underlying demand across its business led to improved sales in the quarter.

Merck’s blockbuster cancer medicine, Keytruda is growing continuously and expanding into new indications and markets globally. With continued label expansion into new indications & early-stage settings, Keytruda is expected to remain a key top-line driver. Alliance revenues from Lynparza and Lenvima are also boosting Merck’s oncology sales.

Please note that Merck markets Lynparza in partnership with AstraZeneca AZN.

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 40% in 2021. 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 will be a key top-line driver in 2022. Merck has a number of supply and purchase agreements in place for providing approximately 10 million courses of the COVID therapy, which is expected to generate $5 billion to $5.5 billion in revenues in 2022. Merck has already delivered approximately 6.4 million courses to more than 30 countries.

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 2022.

Zacks Rank & Stocks to Consider

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

Some better-ranked biotech stocks are Alkermes ALKS and Sesen Bio SESN. While Sesen has a Zacks Rank #1 (Strong Buy), Alkermes has a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Sesen Bio’s2022 loss has declined from 33 cents to 32 cents per share in the past 30 days. Shares of SESN have declined 37.1% in the year-to-date period.

Earnings of Sesen Bio beat estimates in three of the last four quarters and missed the mark on one occasion, the average surprise being 69.9%.

The Zacks Consensus Estimate for Alkermes’ 2022 loss per share has narrowed from 13 cents to 3 cents in the past 30 days. Shares of ALKS have risen 24.1% year to date.

Earnings of Alkermes beat estimates in each of the last four quarters, the average being 350.5%.

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