Merck (NYSE:MRK) has had its fair share of bad news recently. Shares have pulled back around 5% in June. Could this bad news actually present a good time to buy Merck stock? Let's take a look.
The Food and Drug Administration hinted at potential bad news for Merck and other companies earlier in June. Some type 2 diabetes drugmakers could be required to collect more data to determine if their products could result in pancreatic cancer. Merck's Januvia, Novo Nordisk's (NYSE:NVO) Victoza, and Bristol-Myers Squibb's (NYSE:BMY) Byetta are included among the drugs that could require more study.
All three companies have undertaken efforts to demonstrate the safety of their drugs. Merck presented updated information about Januvia's safety using data from 25 different clinical trials during a meeting of the National Institutes for Health. The company also issued a statement confirming its willingness to be part of an independent review of data that has been urged by the American Diabetes Association.
Novo also presented interim safety data at the NIH meeting for Victoza. The company is roughly halfway through a five-year epidemiological review of health claims looking for incidence of pancreatitis, thyroid cancer, and other cancers.
Bristol has two studies under way exploring pancreatic risks of Byetta. The first results are expected to be announced later this year. Bristol, like Merck and Novo, also has studies in progress related to the heart safety of its diabetes drug.
On a different note, Merck's new research head announced job cuts as part of a turnaround effort. Roger Perlmutter came on board in April. Some of his first moves included eliminating several senior management positions and implementing a new structure. The company said that further cuts could be on the way. All of this comes after a few big setbacks for Merck's pipeline over the past couple of years, including disappointing clinical results for Tredaptive and vorapaxar.
Add to those woes a distracting lawsuit. One of the company's senior sales representatives has sued Merck for alleged discrimination against female employees. The lawsuit seeks $100 million in damages for what was referred to as Merck's "systematic, companywide discriminatory treatment of its female employees on the basis of their gender and their taking federal and state-protected pregnancy leave."
With all of this and other challenges facing Merck, short interest has grown considerably. Shares sold short as of June 15 are 250% higher than levels from just a month before that point.
The big picture
Is everything bleak for Merck these days? Not at all.
An FDA panel in May voted 13-3 to recommend approval of the company's insomnia drug, Suvorexant. However, even that positive news wasn't as good as hoped. The panel only recommended approval of lower doses of Suvorexant and deemed higher doses that Merck wanted to market as unsafe.
Merck announced encouraging results in June from an early-stage study of lambrolizumab. The drug helped shrink tumors in 38% of patients with advanced melanoma. Merck is proceeding to late-stage studies of lambrolizumab in the third quarter. The FDA gave breakthrough therapy designation to the drug in May. Many expect lambrolizumab could be a major blockbuster for Merck down the road.
The company also claims several other drugs under review by the FDA and in late-stage studies. An FDA advisory panel makes a decision on sugammedex, Merck's neuromuscular blockade reversal drug, in July. Another important drug for Merck, vintafolide, which targets ovarian cancer, is already under review by European regulators and is in phase 3 in the United States.
Keep in mind also that even with some bad news, Merck stock is still ahead by almost 14% for the year. That's better than the S&P 500 as a whole. And Merck's dividend yield of 3.7% looks quite attractive.The company also announced a share buyback in May of almost $5 billion. These all add up to definite good news for Merck shareholders.
With the bigger picture in mind, is now a good time to buy Merck stock? There are better picks overall among pharmaceutical stocks, but I think investors who buy shares in Merck will do well over the long run.
Fool contributor Keith Speights and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.