What happened

Shares of the pharma giant Merck (NYSE:MRK) rose by 17.2% over the course of October, according to data from S&P Global Market Intelligence. The drugmaker's stock caught fire last month for two interrelated reasons.

  1. On Oct. 1, Merck reported that its oral antiviral medication molnupiravir, developed with privately held Ridgeback Biotherapeutics, slashed the risk hospitalization from COVID-19 by 50% in patients at risk for severe illness. The drug has since won regulatory approval in the United Kingdom and the Food and Drug Administration (FDA) is currently considering an Emergency Use Authorization pathway for molnupiravir in the United States.
  2. On Oct. 19, Merck caught another break when a key rival to its oral COVID-19 medication flopped in a phase 2 trial. Specifically, Atea Pharmaceuticals and Roche's AT-527 failed to significantly lower the circulating levels of the virus in patients with mild or moderate forms of the disease, when pitted against individuals who received a placebo. In the wake of this clinical failure, Wall Street upped its forecast regarding molnupiravir's peak sales to an eye-catching $7 billion per year.  
A pill smashing the novel coronavirus.

Image source: Getty Images.

So what

Since the start of November, Merck's shares have reversed course in a big way. Specifically, the drugmaker's stock is presently down by 7.3% during just the first week of trading this month.

What's going on? Merck's shares took a big hit last Friday in response to breaking news about Pfizer's (NYSE:PFE) competing oral COVID-19 medication called Paxlovid. In a pivotal trial among adults at risk of developing severe disease, Paxlovid reportedly reduced the risk of hospitalization or death by an impressive 89%.

Pfizer's oral COVID-19 therapy thus appears destined to become the dominant player in this high-value space. Merck's molnupiravir, on the other hand, seems more suitable for the far less profitable second-line setting following these outstanding trial results for Paxlovid.  

Now what

Is Merck's stock a buy after all these wild price fluctuations during the past five weeks? Even though Merck is likely to play second fiddle to Pfizer in the oral COVID-19 medication space, the drugmaker does offer investors a top-notch shareholder rewards program, healthy levels of top-line growth thanks to its cancer drug Keytruda, and an attractive valuation. Its shares, in fact, are trading at less than 12 times forward-looking earnings after last week's pullback.

All things considered, this recent weakness in the biopharma's shares does come across as a compelling buying opportunity for either income or value-oriented investors. 

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.