After lagging the market over the past couple of years, Merck (MRK 2.51%) has experienced a slight rebound in the last month, thanks to several positive developments. The stock has increased by 20% over this period.
One catalyst happened a couple of weeks ago, when Merck's stock popped by nearly 4% on encouraging clinical data. Let's look more into that and determine whether now is a good time to buy shares.
When acquisitions pay off
Pharmaceutical giants often rely on acquisitions, sometimes at considerable expense, to replenish their pipelines. There's a logic to this strategy. Developing novel medicines from scratch is expensive, risky, and time-consuming. It's often much easier to buy out a company that already has promising candidates in clinical trials -- or even a drug that's already approved.
The downside is that sometimes a mid- or late-stage asset being developed by a smaller biotech fails, no matter how promising it seemed initially.
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Fortunately, Merck seems to be avoiding that worst-case scenario with its 2021 acquisition of Acceleron Pharmaceuticals, which cost $11.5 billion. The key asset from this transaction was sotatercept, a medicine being developed to treat pulmonary hypertension (PH). Sotatercept has since earned the green light. It is marketed as Winrevair and indicated for a specific type of PH called pulmonary arterial hypertension (PAH).
Since being launched last year, it has made steady commercial progress. In the third quarter alone, Winrevair generated sales of $360 million, so it's already well on its way to blockbuster status. The best part is that Winrevair should earn some key label expansions, and that's what recent results from a phase 2 study suggested. Merck reported that Winrevair met its primary endpoint in patients with a rare but underdiagnosed type of PH called combined post- and precapillary pulmonary hypertension (CpcPH) due to heart failure with preserved ejection fraction (HFpEF).
As the pharmaceutical leader pointed out, there is no treatment approved for this very specific indication. What's more, patients in this niche have worse outcomes than those in the broader population of patients with PH due to left heart disease. So, even if it has a target population of fewer than 200,000 patients -- which is the definition of a rare disease in the U.S. -- Winrevair could fill an unmet need and generate substantial revenue from this indication. That's if it can close the deal; it still has to pass phase 3 studies.
NYSE: MRK
Key Data Points
Is the stock a buy?
This isn't the only notable clinical trial win Merck has experienced in recent months. The company also reported positive phase 2/3 results for raludotatug deruxtecan, a medicine being investigated in ovarian cancer that could be another meaningful addition to Merck's lineup.
It has received the Breakthrough Therapy Designation from the U.S. Food and Drug Administration, which is granted to medicines that target serious, life-threatening diseases and for which clinical evidence shows they have the potential to be more effective than existing standards of care.
Elsewhere, the drugmaker is awaiting approval for a brand-new combo treatment for HIV. And Merck has also recently announced the acquisition of Cidara Therapeutics, a smaller biotech working on a highly promising influenza candidate. In other words, Merck is actively replenishing its lineup and pipeline.
It's no wonder. The company will lose U.S. patent exclusivity for its biggest growth driver, cancer medicine Keytruda, in 2028. This will be one of the most important patent cliffs in the industry's history. Keytruda generated $29.5 billion in sales last year -- about 46% of Merck's total revenue.
Still, Merck has been planning for life after Keytruda for years, and it has made significant progress. It received approval for both Winrevair and Capvaxive, a pneumonia vaccine that it also launched last year, and there are newer approvals on the way. And a long list of mid- and late-stage assets should eventually lead to even more brand-new medicines.
Merck's most important asset might be a newer, subcutaneous formulation of Keytruda that will retain patent exclusivity for longer while taking on many of the older formulation's indications. The company's long-term prospects still look intact despite the Keytruda-related headwinds in the medium term.
And on top of a solid underlying business powered by impeccable innovative capabilities, Merck has a terrific dividend program. All of that makes the stock a buy, especially for dividend investors focused on the long game.
