Over the past two years, pharmaceutical companies such as Merck (MRK 0.96%) have been developing investigational drugs to combat the impact of the COVID-19 virus. The results could be lifesaving while leading investors to big gains. But after a recent FDA approval under emergency use authorization (EUA), is Merck's antiviral COVID-19 pill enough to propel its stock price skyward while fighting off not only the virus but also competition?
An FDA approval finally arrives
In October, Merck moved swiftly to apply for emergency use authorization by the FDA of its antiviral medication pill, Molnupiravir, just 10 days after receiving final data from successful phase 3 clinical trials. At the time, the company stated that the projection for sales in 2022 could hit $7 billion through 2022 and upwards of nearly $15 billion through 2025, according to a forecast from GlobalData Healthcare, and the company made plans to produce 30 million courses of the drug by the end of the year.
This may have led some Merck investors to think they finally had the ticket to riches they've been waiting for since early 2021. The stock price jumped 13% over the next two weeks, hitting a 52-week high of $91 on Nov. 4. A few weeks later, Molnupiravir became the first approved oral antiviral to fight COVID-19 when the U.K. did so through an EUA. But there was still no word from the FDA, and amid an overall market tailspin, Merck's stock fell hard, losing the previous 13% gain and then some, for an 18% decline.
On Dec. 23, Merck got the FDA approval it was waiting to receive. The EUA allows for treatment of adults diagnosed with mild to moderate COVID-19 disease who are at high risk for progression of the disease which could result in hospitalization or death. News of the FDA approval provided investors the confidence they needed, giving the stock a shot of adrenaline and resulting in a 10% increase by Jan. 10. The company wasted no time in signing a supply agreement with UNICEF, under which Merck is to provide 3 million courses of the pill to be distributed by UNICEF to over 100 low- and middle-income countries.
But stiff competition has shown up too
But the fun run in the stock price took a pause as a competitive -- and potentially more effective -- product from Pfizer (PFE -5.12%) caught investors' attention. Pfizer's Paxlovid received FDA approval under an EUA one day before Merck received its approval.
Pfizer also has a few advantages. First, Paxlovid is approved to treat pediatric patients 12 and older in addition to adults. By contrast, Molnupiravir has only been approved for those 18 and older. Second, subsequent data has been published about Molnupiravir's ability to reduce risk of hospitalization, and it shows that number to be 30% vs. the 50% that was initially thought. Meanwhile, Paxlovid has been shown to be 89% effective.
In the face of competition, Merck may face stiff challenges, but worldwide demand and low supply of Paxlovid should keep Molnupiravir relevant. Merck also released additional data from six pre-clinical studies supporting the use of Molnupiravir to fight the omicron variant, which bodes well for future demand.
Pfizer's Paxlovid appears to be the medicine of choice by doctors, but limited supply has been made available to pharmacies and so it's being used as fast as it's being provided. Molnupiravir is being distributed in many of the same pharmacies as Paxlovid -- and a greater supply is available because Merck took proactive measures on its own tab to produce a large quantity of pills prior to FDA approval.
The stock climb is not what it seems
The recent rebound in Merck's stock price is a culmination of several factors, including a declared second-quarter dividend as well as expanded use and new clinical trials for the company's key cancer treatment drug, Keytruda. What's left of the hype from Molnupiravir may have helped as well.
Next up is the company's fourth-quarter earnings release on Feb. 3. The company will be looking to go back to back on an earnings beat following Q3's 13% surprise to the upside. Consensus is calling for $1.54 per share. If the company can match or top that and provide a positive outlook, the upward trending stock price should have more room to run, supported by its pipeline, including Molnupiravir. But if earnings come in lower, it will be interesting to see what the company's outlook entails.
Long-term investors in Merck probably have enough support from recent news to be patient. For those looking to jump in, it might be worth waiting until after Q4 results before making a move. Even if the stock spikes a bit, your goal is long term and an entry point that provides confidence for future growth.