What’s Next For Merck Stock After FDA Advisors Back Its Covid-19 Pill?

MRK: Merck logo

[Updated: Dec 1, 2021] Merck Covid-19 Pill Update

Just a few days back we discussed that the stock price of Merck (NYSE: MRK) is being weighed down due to concerns around its Covid-19 antiviral pill – Molnupiravir – which has an efficacy of 30% against hospitalization and death in high-risk patients. Yesterday, a panel of advisors to the U.S. FDA voted in favor of Molnupiravir to be granted authorization. Assuming the FDA approves Molnupiravir following the panel’s decision, the antiviral pill may be available in the market later this month. The U.S. government has already placed a $2.2 billion order for Molnupiravir, and the drug’s sales are likely to be higher next year. [1]

Unlike Covid-19 vaccines which target the spike protein in the virus, Merck’s Covid-19 antiviral pill Molnupiravir works by targeting the genetic code of the virus so that it doesn’t replicate. With the new Omicron variant having dozens of mutations to the spike protein, there are growing concerns that it may be able to evade vaccines or treatment options that target spike protein. However, Molnupiravir may have better chances of dealing with Omicron – something Merck plans to study.

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Now, looking at the stock move, MRK is down a large 15% in a month. While it may not sound like a very large number to some, it is an extremely rare event, which has occurred just three times in the last ten years. And in each of those three instances, MRK stock saw positive returns over the subsequent month. Our dashboard on Merck Stock Chances of Rise has more details.

Other than the developments around Molnupiravir, concerns around Omicron has spooked the markets at large. If there is another large spike in Covid-19 cases from the new variant, it will disrupt economic recovery and impact sales as well as earnings growth of several companies. That said, the decline in MRK stock, in particular, appears to be overdone. MRK stock has fallen back to levels of around $75 seen in late September before the company announced positive data for Molnupiravir, which resulted in a rally in its stock to levels of over $90 in early November. Going by our Merck’s Valuation of $100 per share, based on $6.02 expected adjusted EPS and a 17x P/E multiple for 2021, there is an upside potential of over 30% from its current levels of $75. Also, with the recent backing by a panel to authorize Molnupiravir, MRK stock is likely to see some respite in the near term.


[Updated: Nov 29, 2021] Merck Covid-19 Pill Update

The stock price of Merck (NYSE: MRK) has seen an 8% fall in a month, while it was down nearly 4% on Friday, Nov 26. This can largely be attributed to the company’s recently shared data for its Covid-19 antiviral pill – Molnupiravir – which shows lower efficacy of 30% against hospitalization and death in high-risk patients. This data did not sit well with the investors, and all eyes will now be on the FDA’s emergency use authorization (EUA) decision on Molnupiravir. The FDA is slated to review the emergency use authorization for Molnupiravir tomorrow, Nov 30. Overall, the markets were looking forward to Molnupiravir, with peak sales estimate of over $7 billion in 2022, but now, there are looming concerns of its potential, given the lower efficacy rate.

But now that MRK stock has fallen 8% in a month, will it continue its downward trajectory, or is a rise imminent? Going by historical performance, there is a higher chance of a rise in MRK stock over the next month. Out of 78 instances in the last ten years that MRK stock saw a twenty-one day fall of 8.5% or more, 45 of them resulted in MRK stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 45 out of 78, or about a 58% chance of a rise in MRK stock over the coming month. See our analysis on Merck Stock Chances of Rise for more details. So, if this follows historical pattern, MRK stock is likely to see higher levels. That said, the move in MRK stock will also depend on the EUA decision by the U.S. FDA tomorrow.

Wondering how Merck’s peers stack up? Check out Merck Stock Comparison With Peers to see how MRK stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using last ten years data

  • After moving -1.9% or more over a five-day period, the stock rose in the next five days on 57% of the occasions.
  • After moving -5.8% or more over a ten-day period, the stock rose in the next ten days on 60% of the occasions
  • After moving -8.5% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 58% of the occasions.

Merck (MRK) Stock Return (Recent) Comparison With Peers

  • Five-Day Return: PFE highest at 6.3%; JNJ lowest at -2.3%
  • Ten-Day Return: PFE highest at 8.6%; BMY lowest at -4.9%
  • Twenty-One Days Return: PFE highest at 25.1%; MRK lowest at -8.5%

[Updated: Nov 3, 2021] MRK Stock Update

Merck (NYSE: MRK) recently reported its Q3 results, which were better than our estimates. The company reported sales of around $13.2 billion (up 20% y-o-y), compared to our estimate of $12.2 billion. While the Keytruda sales saw a 22% rise to $4.5 billion, Gardasil sales surged 68% to $2.0 billion. The company’s Animal Health business also saw a 16% growth in sales. Our dashboard on Merck Revenues offers more details on the company’s segments.

Looking at the bottom-line, the company reported adjusted earnings of $1.75 per share, up 28% y-o-y, driven by both an increase in revenue as well as margin expansion. The earnings were comfortably above our forecast of $1.48 per share and the $1.54 per share consensus estimate. The company managed to leverage sales growth, along with increased sales of high-margin products, which led to margin expansion. Lower R&D expenses also aided the margins.

Following a solid performance in Q3, Merck raised its full year outlook for sales to be in the range of $47.4 billion and $47.9 billion, compared to its earlier estimate of $46.4 billion to $47.4 billion. Looking at the bottom line, the company now expects its adjusted EPS to be in the range of $5.65 and $5.70, compared to its earlier guidance of $5.47 and $5.57. The company’s full-year outlook appears to be conservative, in our view.

Now, one important detail shared by the company’s management is around its Covid-19 treatment – Molnupiravir. Merck now expects Molnupiravir sales to be around $7 billion through 2022, including $0.5 billion to $1.0 billion sales in Q4 of this year. The sales estimate for Molnupiravir as well as an upbeat quarter cheered investors, and MRK stock is now up over 7% in a week (five trading days).

We have also updated our model following the Q3 release. We have revised the sales forecast to be around $51.8 billion, well above the company’s guidance, considering a strong sales growth for Keytruda, Gardasil, Animal Health, and a meaningful contribution from Molnupiravir in Q4. As such, we also expect adjusted EPS to be higher at $6.02, compared to our earlier estimate of $5.94. Given these changes to our revenues and earnings forecast, we have revised our Merck’s Valuation to $98 per share, based on $6.02 expected adjusted EPS and maintaining a 16x P/E multiple for 2021, implying an 11% upside from its current levels of $88.


[Updated: Oct 25, 2021] MRK Q3 Earnings Preview

Merck (NYSE: MRK) is scheduled to report its Q3 2021 results on Thursday, October 28. We expect the company to likely post revenue and earnings below the consensus estimates, as the spread of Covid-19 delta variant likely impacted the company’s overall vaccine sales growth, including that for Gardasil. That said, the opening up of economies and continued demand for animal health business, likely aided the overall sales growth for Merck. While we expect the revenue and earnings to fall below the consensus estimates, our forecast indicates that Merck’s valuation is $91 per share, which is 12% above the current market price of around $81, implying that MRK stock still has some room for growth. Our interactive dashboard analysis on Merck’s Pre-Earnings has additional details.

(1) Revenues expected to be below the consensus estimates

Trefis estimates Merck’s Q3 2021 revenues to be around $12.2 billion, compared to the $12.3 billion consensus estimate. With over half of the U.S. population fully vaccinated, and on the international front the vaccination rate is rising gradually, total procedure volume and hospital visits is on a rise and this should augur well for pharmaceutical companies, including Merck. Q3 also marked a quarter with a rise in Covid-19 cases in the U.S. due to the spread of the delta variant, and it may have impacted the vaccine sales for Merck. Gardasil sales were down in low double-digits (y-o-y) to $1.2 billion in Q3 2020, due to the impact of the pandemic. Gardasil sales stood at $0.9 billion in Q1, and $1.2 billion in Q2 of this year.

That said, Merck’s top-selling drug – Keytruda – continued to expand with 21% y-o-y growth to $8.1 billion in the first half of this year. Over the last year or so, Keytruda has continued to gain market share, and garner more regulatory approvals for expansion of its usage. The company’s animal health business has also been doing well with 25% y-o-y gains in H1, and the growth is likely to continue in the near term, given the rise in pet ownership in the U.S. to record highs of 70% of the U.S. households. Our dashboard on Merck Revenues offers more details on the company’s segments.

2) EPS likely to be slightly below the consensus estimates

Merck’s Q2 2021 adjusted earnings per share (EPS) is expected to be $1.48 per Trefis analysis, slightly above the consensus estimate of $1.54. Merck’s adjusted net income of $3.3 billion in Q2 2021 reflected a 28% rise from its $2.6 billion figure in the prior-year quarter led by higher revenues. For the full year 2021, we expect the adjusted EPS to be lower at $5.65 compared to $5.94 in 2020. Note that earnings will be lower in 2021, given the spin-off of Merck’s women’s health, biosimilars, and established brands businesses. Also, there can be near term margin pressure due to inflationary headwinds and supply chain constraints.

(3) Stock price estimate above the current market price

Going by our Merck’s Valuation, with an EPS estimate of $5.65 and a P/E multiple of 16x in 2021, this translates into a price of $91, which is nearly 12% above the current market price of around $81. The 16x figure compares with levels of over 17x seen in 2018 and 2019, and a 14x figure seen as recently as late 2020.

Earlier this month, Merck announced that its Molnupiravir pill reduces the risk of hospitalization and death by 50% for patients with mild to moderate Covid-19. The company is seeking regulatory approval for the oral pill, and once approved, it will aid the overall revenue growth for Merck in the quarters to come.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year.

While MRK stock is undervalued, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Johnson & Johnson vs. Regeneron Pharmaceuticals.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Nov 2021
MTD [1]
YTD [1]
Total [2]
MRK Return -3% -3% 34%
S&P 500 Return 1% 22% 105%
Trefis MS Portfolio Return -3% 46% 297%

[1] Month-to-date and year-to-date as of 11/29/2021
[2] Cumulative total returns since 2017

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  1. Merck’s Covid-19 Pill Backed by FDA Advisers, Jared S. Hopkins and Betsy McKay, The Wall Street Journal, Nov 30, 2021 []