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Here's Why Merck (MRK) Stock Has Outperformed Industry YTD

Merck MRK boasts more than six blockbuster drugs in its portfolio, with PD-L1 inhibitor Keytruda approved for several types of cancer and alone accounting for around 40% of the company’s pharmaceutical sales. The drug has played an instrumental role in driving Merck’s steady revenue growth in the past few years. Though Keytruda may be Merck’s biggest strength and a solid reason to own the stock, it can also be argued that the company is excessively dependent on the drug and should look for ways to diversify its product lineup.

Merck’s first-quarter results were better than expected as it beat estimates for earnings as well as sales.

Strong sales of key products, Keytruda and Gardasil vaccine drove the top line in the quarter. Merck also raised its full-year sales profit outlook, citing strong global underlying demand for its key products.

Merck’s strong first-quarter performance and the guidance increase have been one of the factors driving the stock up this year. Merck’s stock has risen 3.4% this year so far, outperforming an increase of 2.3% for the industry.


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Zacks Investment Research

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Another factor that is consistently driving the stock price is the strong sales performance of Keytruda. The drug’s sales are gaining from continued strong momentum in metastatic indications, including in some types of NSCLC, renal cell carcinoma, head and neck squamous cell carcinoma, TNBC and MSI-H cancers and rapid uptake across recent earlier-stage launches.

With continued label expansion into new indications & early-stage settings, Keytruda is expected to remain a key top-line driver. The drug is presently approved to treat seven indications in earlier-stage cancers in the United States. Merck expects over half of Keytruda’s growth to come from indications in early-stage (neoadjuvant/adjuvant) treatment settings in the United States through 2025 and to represent roughly 25% of total global Keytruda sales by that time.

Merck is working on different strategies to drive the long-term growth of Keytruda. These include innovative immuno-oncology combinations, including Keytruda with TIGIT, LAG3 and CTLA-4 inhibitors. In partnership with Moderna, Merck is developing a personalized mRNA therapeutic cancer vaccine (V940/mRNA-4157) in combination with Keytruda for the treatment of adjuvant melanoma. Merck and Moderna MRNA plan to initiate a phase III study in adjuvant melanoma in 2023.

Alliance revenues from Lynparza and Lenvima are also boosting Merck’s oncology sales.

In oncology, Merck expects more than 90 potential new indications by 2028, including Keytruda, Lynparza and Lenvima. Between 2025 and 2030, the company expects eight potential approvals.

Last month, Merck announced a definitive agreement to acquire Prometheus Biosciences RXDX for $200 per share in cash for a total equity value of approximately $10.8 billion. The deal will add Prometheus’ lead product candidate, PRA023, a humanized monoclonal antibody (mAb) to Merck’s pipeline. PRA023 is currently being developed in mid-stage studies for the treatment of immune-mediated diseases, including ulcerative colitis, Crohn’s disease and other autoimmune conditions.

Per the agreement, Merck will acquire all outstanding shares of Prometheus, subject to its shareholders’ approval. Merck and Prometheus expect to close the acquisition deal in the third quarter of 2023.

Other than these, regular positive pipeline and regulatory updates also pulled up the stock price.

Merck does have its share of problems like generic competition for several drugs and rising competitive pressure, mainly on the diabetes franchise. There are concerns about the firm’s ability to grow its non-oncology business ahead of Keytruda's loss of exclusivity later in the decade. Declining revenues from the oral antiviral pill, Lagevrio (molnupiravir), for COVID should also put pressure on the top line in 2023.

Nonetheless, strong sales of key products like Keytruda and Gardasil, a significant contribution from the Animal Health franchise and positive pipeline/regulatory developments can keep the stock afloat in 2023.

Zacks Rank & Stocks to Consider

Merck currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked large drugmaker is Novo Nordisk NVO, which has a Zacks Rank of 1.

Estimates for Novo Nordisk’s 2023 earnings per share have increased from $4.43 to $4.95 over the past 30 days. Estimates for 2024 have jumped from $5.19 per share to $5.74 in the same timeframe. Novo Nordisk’s stock has surged 60.6% in the past year.

Novo Nordisk beat earnings expectations in two of the trailing four quarters while missing in one and delivering in-line results in one. The company delivered a four-quarter earnings surprise of 0.35%, on average.

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