Merck & Company (MRK) gained over 8% to close at $81.40 on October 1.
Merck is a biopharmaceutical firm whose main product is the PD-L1 inhibitor Keytruda, which treats melanoma. Keytruda accounts for a significant portion of the company’s sales, but Merck is looking for ways to diversify its product portfolio and decrease its reliance on the drug.
Merck’s share price has increased by only 11% in the last six months, but the latest statement regarding the new COVID-19 pill might be a game-changer for the business. (See Merck stock charts on TipRanks)
Why the Euphoria?
Merck announced positive Phase 3 results for a novel COVID-19 antiviral treatment on October 1.
Merck’s new antiviral therapy isn’t a COVID-19 vaccination. It’s a drug called Molnupiravir, which could be the first oral therapy for Covid, if authorized by regulatory bodies. The results showed that the drug can lower COVID-infected patients’ hospitalizations and deaths by 50%.
Based on the positive findings of its clinical trials, the healthcare behemoth plans to obtain Emergency Use Authorization for Molnupiravir from the Food and Drug Administration.
The development of a new oral medicine is unquestionably a turning moment in the fight against COVID-19, since the newer COVID variants have been a persistent source of concern among health professionals.
Furthermore, these new variants might boost Monupilavir demand in the future, possibly propelling Merck’s stock to new highs.
What Does This Mean for Other Biotech Stocks?
Merck’s news did not bode well for other vaccination stocks, like Moderna (MRNA), BioNTech (BNTX), and Novavax (NVAX).
Vaccine stocks fell while Merck’s stock price increased. Moderna’s stock fell over 11%, BioNTech was down almost 7%, and Novavax shares slid over 12% on Friday.
Investors are concerned that a successful new antiviral therapy would lower demand for vaccinations in the coming months, affecting vaccine makers as well as biotech firms that are developing their own COVID-19 therapies, as seen by the steep drop in pricing.
However, investors could be wrong here. While Merck’s oral tablet may not entirely remove the possibility of COVID-19 infection, vaccines may eventually result in the virus’s complete elimination.
In fact, health practitioners will need both choices to combat COVID-19 as effectively as possible; thus the price drop in vaccine stocks are likely temporary.
Analysts Weigh In
According to experts, oral therapy should be able to generate larger sales, which should benefit both the pharmaceutical company’s revenue and stock price.
Commenting bullishly on the trial results, Mizuho Securities analyst Mara Goldstein maintained a Buy rating on the stock and a price target of $100 (22.85% upside potential).
The trial results, according to the analyst, are noteworthy for MRK, since they may assist the firm to lessen its reliance on KEYTRUDA and diversify its revenue base.
Echoing a similar sentiment, Citigroup analyst Andrew Baum believes molnupiravir revenues “deserve a reasonable multiple,” given its effectiveness across known variations and prospective usage beyond COVID, into respiratory syncytial virus.
Furthermore, Baum expects worldwide orders of effective antivirals to surpass $20 billion globally, despite “consensus estimates currently approximating zero.”
The three-star analyst maintained a Buy rating on the stock and a price target of $105 (29% upside potential).
Wall Street’s Take
On TipRanks, Merck stock is a Moderate Buy. Out of 8 ratings, there are five Buy and three Hold recommendations.
The average MRK price target of $92 implies 13% upside potential to current levels.
Disclosure: On the date of publication, Shalu Saraf had no position in any of the companies discussed in this article.
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