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Keytruda & 4 Other Reasons to Invest in Merck's (MRK) Stock

Large-cap drug stocks have done well this year so far after a dismal run toward the end of 2018. The recovery was aided by a spate of pharma M&A deal announcements, successful innovations and clinical studies' results, frequent FDA approvals and new product sales ramp up as a result of rising demand.

Among the bigshots, Merck & Co., Inc. MRK is well poised with products like Remicade, Zetia, Januvia Keytruda, Gardasil and others.

Here are five reasons to invest in the stock this year.

Favorable Rank, Rising Share Price and Earnings Estimates: Merck currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Merck have risen 9.5% this year so far compared with the industry’s increase of 1.9%.

 

Merck’s earnings estimates for 2019 and 2020 have gone up 1.7% and 0.6%, respectively in the past 60 days.

Its earnings surpassed expectations in each of the last four quarters, with the average being 5.67%. The company is expected to record earnings and sales growth of 9% and 4.9%, respectively in 2019.

A Star in Keytruda: PD-L1 inhibitor Keytruda, Merck’s biggest product, is approved for use in 15 cancer indications across 10 different tumor types in the United States.

Keytruda generated sales of $2.27 billion in the first quarter of 2019, up around 5.6% sequentially and 55% year over year. Sales were driven by the launch of indications globally. Keytruda sales are gaining particularly from strong momentum in first-line lung cancer indication both as monotherapy and with the rollout of the chemo combo in both non-squamous and squamous NSCLC.

Several regulatory decisions for new indications in the United States as well as in Europe are pending in 2019. If approved, the drugs can further boost sales. Earlier this week, Keytruda was approved by the FDA for first-line treatment of recurrent or metastatic HNSCC while another FDA decision is expected this month for label expansion of Keytruda for previously treated advanced small-cell lung cancer (SCLC)

The Keytruda development program is also progressing well and the drug is being studied for more than 30 types of cancer in more than 1000 studies, including more than 600 combination studies. Merck is collaborating with several companies including Amgen AMGN, Incyte INCY, Glaxo and Pfizer separately for the evaluation of Keytruda in combination with other regimens.

Undoubtedly, Keytruda has strong future growth prospects based on increased utilization, approval for new indications and expectation of additional approvals worldwide

Deals & Acquisitions This Year: Merck has also been on a strong footing in terms of collaborations and M&A activity this year. It bought small cancer focused biotech, Immune Design and privately held Europe’s animal health technology provider, Antelliq Group. Merck also recently announced definitive agreements to buy small private cancer biotechs, Peloton Therapeutic and Tilos Therapeutics.

New Products Support the Top Line: Keytruda Lynparza, Gardasil and Bridion are supporting the company’s top line. Key recent approvals for Merck include Steglatro and its fixed-dose combinations for type II diabetes, two new HIV drugs — Pifeltro and Delstrigo — containing doravirine and Prevymis (letermovir) for cytomegalovirus (CVM) infection. These new products coupled with successful and regular label expansions for Keytruda and PARP inhibitor, Lynparza (markets in partnership with AstraZeneca AZN) provide incremental sales growth opportunities.

A Strong Pipeline: Merck has many pipeline candidates in advanced stages of development targeting multiple disease areas such as oncology, cardiovascular diseases, diabetes, infectious diseases, neurosciences, respiratory and immunology diseases and vaccines. Merck can gain approval for two new products this year, a vaccine for Ebola Zaire, V920 and an anti-bacterial medicine, MK-7655A, which is a fixed combination of relebactam with imipenem/cilastatin.

Meanwhile, Keytruda is being studied in phase III studies for breast, cervical, colorectal, esophageal, gastric, hepatocellular, nasopharyngeal, mesothelioma, ovarian, renal and small-cell lung cancers while Lynparza is being evaluated for pancreatic and prostate cancer. Lenvima is being studied in combination with Keytruda for endometrial cancer.

Conclusion

Merck has its share of challenges in the form of generic competition for several drugs, pricing pressure, rising competitive pressure on the diabetes franchise and products like Isentress (HIV), Zepatier (HCV) and Zostavax (vaccine). However, we believe that strong sales performance of pharmaceutical products like Keytruda Lynparza, Gardasil and Bridion, and animal health and vaccine products, and cost savings should drive profits.

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