Pharmaceutical giant Merck (NYSE:MRK) has been relatively quiet during the COVID-19 pandemic. We saw a few of its peers, Johnson & Johnson and Pfizer, get their COVID-19 vaccines approved for mass manufacturing and commercial use, with governments from all over the world lining up to buy their jabs. However, Merck isn't out of the race yet; it, too, has COVID-19-related products in the pipeline. The combination of a booming pharmaceutical business and new products to help treat COVID-19 should tempt investors to pick up shares in this blue chip company

Two scientists in a lab examine a sample in a tube.

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A vaccine alternative

When the COVID-19 pandemic rocked the world, many major pharmaceutical companies scrambled to create a successful vaccine. Only a few have been successful thus far, and hundreds of millions of doses of COVID-19 vaccines have already been distributed. On Jan. 25, Merck discontinued the development of its COVID-19 vaccine. Instead, it plans to continue further development in its two investigational therapeutic candidates, including an antiviral pill that can treat patients with COVID-19.

The antiviral drug, molnupiravir, is still in clinical trials for early use in coronavirus disease progression. So far, it's failed to significantly help hospitalized patients. If further testing is done and the treatment is shown to be successful as an early treatment, it would give doctors an important new weapon against coronaviruses and future illnesses. Merck licensed the pill from Ridgeback Biotherapeutics last July. The company expects molnupiravir's clinical trials to end sometime between September and October of this year.

COVID outlook

In a press release on March 10, Merck announced a partnership with Johnson & Johnson to expand manufacturing capacity and help increase supply of Johnson & Johnson's COVID-19 vaccine. Merck will be upgrading their existing manufacturing plants to accelerate the production of the vaccine. 

On top of molnupiravir and vaccine partnerships, Merck spent $425 million to buy OncoImmune, a company that was developing treatments for immune modification that benefited patients hospitalized with COVID-19. As a part of that acquisition, which was completed in December 2020, Merck brought MK-7110, a potential treatment for COVID, into its portfolio.

On that front, however, there have been more setbacks for Merck. Its development of the MK-7110 came to a permanent halt this month, after the company weighed the costs and benefits of continuing trials for the treatment. This was in response to the U.S. Food and Drug Administration (FDA) requests for additional data as well as the need for increasing approvals for manufacturing this therapeutic at scale. In an April 15 press release, the company said it looked forward to focusing "its pandemic efforts on advancing molnupiravir and on producing Johnson & Johnson’s COVID-19 vaccine."

A booming business otherwise

Outside of COVID-19, Merck's business has been thriving in recent years. Earnings growth has been fueled by its flagship drug, Keytruda, which is approved to treat various cancer indications, and won over $14 billion in sales last year. Outside of Keytruda, the company has seen its other drugs growing in terms of revenue, including Gardasil, Bridion, and Pneumovax 23. These drugs have seen annual sales growth of 5.37%, 5.92%, and 14.8% respectively.

AbbVie's Humira still holds the spot for the best-selling drug in the world, but Keytruda is projected to claim its place in the not too distant future. Humira brought in over $20 billion in sales in 2020, but due to concerns over patents, which will begin to expire in 2023, I think that Keytruda is all set to shine.

A great time to buy

In the last few years, Merck has traded at a price-to-earnings (P/E) multiple around 15 or 16. However, Merck is now trading at a valuation of just under 12. If we were to apply a 15 P/E to the fiscal year 2020's earnings per share, we would get a stock price of around $98. This would represent a 27% potential upside from the current share price of $77. If molnupiravir is a success and emergency authorization or approval comes from the FDA, it will make the case even stronger for a Merck purchase at these levels. 

Merck is a quintessential blue-chip pharmaceutical company and currently offers a 3.25% dividend yield to investors. The company recently increased the dividend by 11%, and although it doesn't have a regular history of increases, Merck could be poised to make dividend boosts the new normal in order to reward shareholders. For all of these reasons, investors may want to consider this stock for the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.