MRK Chart

Shares of global pharmaceutical giant Merck (NYSE:MRK) shot higher by 11% in October, based on data from S&P Capital IQ, thanks to three big catalysts.

The first came early in the month, with the Food and Drug Administration granting Merck its expected label expansion for cancer immunotherapy Keytruda for advanced non-small cell lung cancer. Keytruda's main rival, Bristol-Myers Squibb's Opdivo, gained the indication months prior with similar efficacy data in clinical studies, so an approval appeared likely. Merck followed the approval up a few weeks later with additional data on Keytruda in advanced NSCLC patients with high PD-L1 expression. Merck noted that Keytruda led to a statistically significant improvement in progression-free survival and was associated with an overall survival increase relative to the docetaxel group.

Secondly, Merck announced via an abstract at the American Association for the Study of Liver Diseases that its hepatitis C combo therapy of grazoprevir and elbasvir was effective in a midstage study for genotype 1 and 3 patients. What's interesting is the study focused on ridding patients of detectable levels of HCV in just eight weeks, and it delivered a better than 90% effectiveness at doing so. Perhaps the only way Gilead Sciences (NASDAQ:GILD), the company behind Harvoni and Sovaldi, can be unseated as the king of HCV treatments is if an equally effectively treatment comes along that works in less than 12 weeks (the standard treatment time for most HCV patients). Harovni, Gilead's leading genotype 1 therapy (the most common form of HCV), can treat some patients in as little as eight weeks, but the majority of patients taking Gilead's therapies are looking at a 12-week treatment timeframe. Merck could be onto something here if it can undercut Gilead's treatment timeframe.

Finally, Merck delivered better-than-expected third-quarter results toward the end of the month. For the quarter, Merck delivered $10.1 billion in sales, a drop from the $10.6 billion reported in Q3 2014, although this included a 7% negative impact from foreign currency translation. Adjusted EPS rose by 7% to $0.96, topping expectations by $0.04 per share, and allowing Merck to boost its full-year EPS guidance to a fresh range of $3.55 to $3.50 on an adjusted basis.

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Image source: Merck.

The $64,000 question now is whether or not Merck has the tools to push even higher. I believe the answer to that question is "Yes," but you'll need to be a patient investors to reap the rewards.

Even though Merck is delivering operational growth, it could be contending with serious competition to its bread and butter diabetes drug Januvia. Sales for the latest quarter shot higher by 17% excluding currency movements, relaxing some investors' fears that Januvia sales may be slowing. However, the emergence of SGLT-2 inhibitors such as Jardiance, which was shown to actually reduce the chances of a cardiovascular event in patients at high risk for such an event, could slowly push Januvia's demand lower.

On the flipside, sales growth for Keytruda and the potential for its hepatitis C combo therapy look intriguing. Keytruda is well on its way to blockbuster status, and assuming it garners plenty of additional opportunities to expand its label could generate as much as $5 billion in annual sales within a decade. If you're a patient long-term investor who enjoys receiving 3%-plus in dividends annually, then Merck may be the stock for you.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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