Merck stock is shrugging off seven months of underperformance, shooting more than 7% higher in the first week of 2024 on growing excitement for its post-Keytruda life.
And, in the second week of 2024, Merck announced the $680 million takeover of Harpoon Therapeutics. Harpoon is working in a bread-and-butter area for Merck: immuno-oncology. Its drugs are designed to direct the body's own immune system to kill cancer cells. Harpoon stock ran up by triple digits on Monday, while Merck shares rose a fraction.
In a recent report, Mizuho Securities analyst Mara Goldstein noted a key data point: The drugs Merck has in late-stage testing could reap $13.6 billion in 2029 sales. That's the year after blockbuster cancer drug Keytruda — which currently accounts for about 40% of Merck's sales — will lose patent protection. This will open the door to a battle with lower-cost generic copycats.
"Our thesis on Merck has been that the company would be able to maintain itself through a combination of internal development, licensing and acquisitions," Goldstein said in a report on Friday. "We see the current pipeline having that critical mass where investors can begin to visualize Merck's (profit and loss statement) through crucial years."
Today, Merck stock has a middle-of-the-road Relative Strength Rating of 63, according to IBD Digital. This puts shares in the top 37% of all stocks when it comes to 12-month performance. But that's a big swing from an RS Rating of 34 just a week ago.
Merck Stock: Building Off Keytruda's Success
Keytruda is Merck's bread-and-butter drug. It blocks a protein tumors use to camouflage themselves in the body, allowing the immune system to find and destroy cancer. Merck has leveraged Keytruda into numerous combinations, tackling dozens of cancers.
But analysts expect generics to ultimately eat into Keytruda's U.S. sales. This year, Keytruda is expected to bring in $27.45 billion in sales. Merck stock analysts currently forecast a sales peak in 2027 at $32.62 billion. In 2028, sales will pull back slightly to $32.39 billion, according to FactSet.
Mizuho's Goldstein is upbeat, however.
Merck is testing several antibody drug conjugates. These drugs deliver toxic chemicals directly to tumor cells, limiting their damage to surrounding healthy tissue. Merck recently inked a deal with Daiichi Sankyo to study an ADC for lung cancer. It's developing another ADC with Sichuan Kelun-Biotech.
In addition, Merck is testing an under-the-skin shot — or subcutaneous — version of Keytruda and a drug called sotatercept as a treatment for a form of high blood pressure in the lungs. Together, these four drugs could bring in $12.3 billion in sales in 2029, Goldstein estimates.
Both sotatercept and the Daiichi Sankyo-partnered ADC are expected to hit the market in 2024. Those two drugs could generate $2.4 billion in combined sales by 2028, she said.
"Our Keytruda subcutaneous forecast does not replace Keytruda revenues one-for-one through the loss of exclusivity, and thus we could see upside to our revenue forecast," she said.
Goldstein has a buy rating on Merck stock and, on Friday, raised her price target to 138 from 130.
Diversifying Outside Of Oncology
Notably, Merck is diversifying beyond its cancer, virology and vaccine focus. Of the drugs Goldstein is watching, 40% aren't being tested in cancer treatment.
Merck is also flexing its "financial muscle" to purchase, license or collaborate to build up its pipeline, she said. The ADC deal with Daiichi Sankyo was the most recent piece to fall into place. But there could be others in the future.
"We believe Merck's business development activities have been undervalued, as the deals completed in the past five years have added over 20 pipeline candidates," she said.
Goldstein lists Merck stock as a top pick for 2024.
After hitting a high point at 119.65 last May, Merck stock pulled back almost 17% to hit a recent low at 99.80 in December. Since then, shares have bounded roughly 18% higher. Shares are currently forming a cup base with a buy point at 119.65, according to MarketSmith.com.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
