Merck: A Worthy Investment?

Should people invest in Merck? This is a question that investors have been asking themselves, and the answer is not a straightforward one. Merck's top-selling medicine, Keytruda, has been a significant driver of the company's growth, and its sales are projected to exceed $30 billion by 2028. However, Keytruda will lose its patent protection in 2028, which could impact the company's performance. Merck has been working on a subcutaneous version of Keytruda to help extend its patent exclusivity. In addition to Keytruda, Merck has other promising products in its pipeline, including sotatercept, a potential therapy for pulmonary arterial hypertension. The company has also been actively diversifying its sources of sales through acquisitions and mergers. Merck's stock has delivered excellent returns to its shareholders over the past 12 months, but its performance in the stock market this year has been poor, with its shares down by 5%. While Merck's business looks solid, with a strong dividend program and a bright future for its medicines, the decision to invest depends on an individual's risk appetite and investment goals.

Merck's promising new products

Merck has several promising new products in its pipeline, including:

Sotatercept

Sotatercept is a potential therapy for pulmonary arterial hypertension (PAH), a form of high blood pressure in the lungs that can be life-threatening. In clinical trials, sotatercept improved the distance patients with PAH could walk by more than 40 meters after 24 weeks. The drug is currently under review for approval in the US and is deemed the most promising R&D project in the pharmaceutical industry by research company Evaluate Pharma, with projected annual sales of $2.6 billion by 2028.

Experimental treatment for high blood pressure

Merck is also developing an experimental treatment for high blood pressure that has shown promising results in reducing LDL cholesterol levels by 41%-61%. The company's cardiovascular business could add $10 billion in annual sales by the mid-2030s, with up to eight approvals expected over the next decade.

Cancer vaccine in partnership with Moderna

Merck and Moderna are developing a cancer vaccine in partnership. Adding the vaccine to Keytruda in surgically treated melanoma patients reduced the risk of relapse or death by 44%. The combination has received a breakthrough designation from the Food and Drug Administration to expedite the review process, and the companies are planning a Phase 3 study for 2023.

Imago Biosciences acquisition

Merck completed its acquisition of Imago Biosciences, which is working on treatments for bone marrow diseases. Imago's lead drug is in five studies, testing it alone or in combinations for diseases and cancers of the bone marrow and blood.

Kelun-Biotech licensing deal

Merck signed a licensing deal with Kelun-Biotech for seven potential cancer treatments, further expanding its oncology pipeline.

Other drugs in the pipeline

Merck is also working on a subcutaneous version of Keytruda to stave off generic competition and has several dozen programs in its pipeline, with some brand-new approvals expected before Keytruda's anticipated patent cliff.

The company's dividend prospects

Merck & Co., Inc. (MRK) pays dividends on a quarterly basis and has increased its dividends for 14 consecutive years. This is a positive sign of the company's financial stability and its ability to pay consistent dividends in the future. The company's dividend yield is 2.37%, which means that for every $100 invested in the company's stock, investors would receive $2.37 in dividends per year. Merck's annual dividend is $3.08 per share.

The company's payout ratio is 327.06%, which means that 327.06% of the company's earnings are paid out as dividends. A low payout ratio may indicate that the company has a strong financial position and can invest in growth opportunities, while a high payout ratio may indicate that the company is returning most of its earnings to shareholders. Merck's payout ratio is on the high side and may leave the company with limited retained earnings, which could impact its ability to reinvest in the business.

Despite this, Merck's dividend program is considered secure, supported by its resilient business. In the past 10 years, Merck has increased its payouts by nearly 66%, a respectable level of growth. The stock's current yield tops 2.70%, compared to the S&P 500's average of 1.54%.

Merck's business extends beyond its top-selling drugs, Keytruda and sotatercept. The company has other products that should perform well in the midterm, including its HPV vaccines, Gardasil and Gardasil 9, and one of the largest animal health businesses in the world. Merck's pipeline also features several dozen programs, some of which could yield brand-new approvals before Keytruda's anticipated patent cliff in 2028.

Overall, Merck's dividend prospects appear strong, with a history of consistent dividend payments and increases, a secure business, and a high yield compared to the S&P 500 average. However, the company's high payout ratio may be a potential concern for its ability to reinvest in future growth.

The performance of Keytruda

Keytruda is Merck's top-selling medicine and cancer drug. It has been a key player in the company's short- and long-term pipeline. In the third quarter of 2020, Keytruda sales grew 21% to $3.7 billion. In the third quarter of 2019, sales of the drug soared 62% to $3.1 billion. Keytruda's sales accounted for 41.6% of Merck's revenue in 2023 and 45% of its sales in the fourth quarter.

Keytruda's performance has been driven by its continued success in multiple clinical trials and its ability to establish itself in the lung cancer market. It was the first PD-1/PD-L1 inhibitor to be approved by the FDA for previously untreated non-small cell lung cancer (NSCLC). At the 2020 American Society of Clinical Oncology (ASCO) annual meeting, Merck revealed data showing that 23% of previously untreated NSCLC patients taking Keytruda were still alive after five years.

However, analysts have expressed concerns about Keytruda's future growth prospects, particularly in competition with other treatments for lung and breast cancer. Nevertheless, Keytruda's sales continued to grow, reaching $5.8 billion in the first quarter of 2023, $6.3 billion in the second and third quarters, and $6.6 billion in the fourth quarter.

In 2023, Keytruda is projected to become the best-selling drug in the world, with sales exceeding $25 billion. This would surpass Pfizer and BioNTech's Comirnaty, which held the top spot in the previous two years. Keytruda's momentum is expected to continue, with projected sales of $30 billion in 2024.

Keytruda's success is crucial for Merck, and it will need to find ways to maintain its performance before its patents begin to expire in 2028, opening up the drug to generic competition.

The impact of acquisitions

Merck's acquisition strategy has been focused on expanding its product pipeline and research capabilities, particularly in the field of immunology and neurodegenerative diseases. In June 2023, Merck completed the acquisition of Prometheus Biosciences, a move that strengthened its presence in immunology and added a novel candidate for the treatment of ulcerative colitis, Crohn's disease, and other autoimmune conditions. This acquisition aligns with Merck's strategy of investing in science and value, with the potential to transform treatment for patients with immune-mediated diseases.

Another notable acquisition was that of Acceleron Pharma in November 2021 for $11.5 billion. This deal brought sotatercept, a potential therapy for pulmonary arterial hypertension (PAH), into Merck's pipeline. Sotatercept has shown promising results in clinical trials, and its sales are projected to reach $2.6 billion by 2028. Merck's interest in cardiovascular treatments was further emphasised by its acquisition of Imago Biosciences and its signing of a licensing deal with Kelun-Biotech for seven potential cancer treatments.

In November 2023, Merck announced its acquisition of Caraway Therapeutics, a preclinical biopharmaceutical company focused on treating neurodegenerative and rare diseases. This acquisition underscores Merck's commitment to developing treatments for neurodegenerative conditions and leveraging its research and development capabilities to advance Caraway's discovery and preclinical programs. The deal included an undisclosed upfront payment and contingent milestone payments, with a total potential consideration of up to $610 million.

These acquisitions demonstrate Merck's proactive approach to expanding its product pipeline, enhancing its research capabilities, and addressing unmet medical needs. By investing in a diverse range of therapeutic areas, Merck is positioning itself for long-term growth and market competitiveness.

Merck's animal health business

Merck Animal Health is a division of Merck & Co., Inc. (known as MSD outside the US and Canada) that is dedicated to the health and well-being of animals. It is a trusted global leader in veterinary medicine, with a team of scientists and researchers committed to advancing the state of veterinary medicine.

Merck Animal Health offers a range of vaccines, medicines, and technology solutions to maintain and improve animal health. They have recently launched new products, such as Nobivac® Intra-Trac® Oral BbPi, a dual prevention treatment for two major canine respiratory pathogens, and Bravecto® and Bravecto® Plus for Cats, the first US-labelled products for treating and controlling Asian longhorned tick infestations.

The company has also been recognised for its contributions to the field, with its Circumvent® CML vaccine taking the top S&P Global Award for 2023. This marks the 6th consecutive year that Merck Animal Health has been acknowledged in the Best New Food Animal Product category.

Merck Animal Health's team is based on trust and focused on innovation. They aim to bring critical awareness and solutions to veterinary needs, providing technical knowledge and quality education to veterinary professionals. Their territory representatives interact directly with customers to understand their needs and offer tailored solutions. The marketing team uses customer feedback and market intelligence data to design and deploy products that improve animal health worldwide.

In addition, Merck Animal Health has research laboratories where scientists work to invent solutions and create breakthrough science to address animal health challenges. They are committed to responsibility and preserving the health, well-being, and performance of animals through science.

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