Earlier this month, Merck (MRK 0.75%) announced that in a phase 3 clinical trial its drug candidate, sotatercept, demonstrated significant improvement in patients with a life-threatening disease known as pulmonary arterial hypertension (PAH).

Specific results from the trial will be announced in the coming months at a scientific congress. But in the meantime, let's take a look at what effect an approval of this drug would have on PAH patient outcomes and on the pharma company's financial prospects. 

A potentially life-saving treatment

PAH is a rare and progressive blood vessel disorder that constricts small pulmonary arteries and results in elevated blood pressure. The symptoms of the disease include severe shortness of breath after exertion, weakness, and fainting episodes. 

Advanced cases of PAH can lead to right heart failure and a patient being completely bedridden by their symptoms. As a result of this condition's serious nature, it isn't surprising that the five-year mortality rate of PAH is a staggering 43%.

Fortunately, Merck's sotatercept looks like a drug that could be another treatment option to greatly benefit PAH patients. The company noted that the drug candidate helped patients to achieve a significant improvement in six-minute walk distance compared to patients in the placebo group. The six-minute walk distance is a clinical measure of how far patients can walk in six minutes.

Patients receiving sotatercept also benefited from an increase in time until death or a clinical-worsening event, which proves that the drug is improving patients' quality and duration of life.

Once the company presents its full phase 3 clinical trial results at a scientific congress, observers will be able to better discern the groundbreaking nature of sotatercept.

A patient and doctor meeting for an appointment.

Image source: Getty Images.

Peak sales potential is immense

Based upon what Merck has shared thus far, sotatercept has helped PAH patients in clinical trials to live longer and fuller lives. This is why the drug is on its way to approval in the United States and the European Union, where the respective patient pools are estimated to be 30,000 and 40,000. So, how much of a lift could this provide to Merck's revenue? 

The market research firm Grand View Research anticipates that the global PAH drug market will compound at 5.2% annually, from $7 billion in 2021 to $11 billion in 2030. With GlaxoSmithKline's (GSK 1.40%) Flolan as the first drug specifically approved to treat PAH, and several other treatment options on the market, pharma companies are all jockeying for share in the industry.

Based on Merck's marketing might and the expectation that sotatercept will be a game-changing treatment for PAH, I will assume that the drug will seize 15% of the market. That equates to nearly $1.7 billion in annual sales potential for sotatercept. Considering that analysts are projecting $58.5 billion in total revenue in 2022 from Merck, this 2.8% lift to revenue would be a strong growth catalyst for the company. 

Merck is a no-brainer buy

With another 100-plus projects in different stages of clinical development, Merck's future will be much more than just sotatercept. This is precisely why analysts are forecasting 10.8% annual earnings growth from the company through the next five years. For context, this is much higher than the general drug manufacturer industry average growth consensus of 6.2%. 

And Merck's above-average growth prospects are topped off by a forward price-to-earnings (P/E) ratio of 12.8. Accounting for its superior growth prospects, this is a modest premium against the general drug manufacturer industry average of 11.2. These elements make Merck a buy for investors seeking to outperform the broader market