Merck is a buy as strong cancer drug pipeline offsets Keytruda patent expiration, Morgan Stanley says
Merck is likely to climb, even as its patent for popular cancer drug Keytruda is getting closer to expiring, according to Morgan Stanley. The investment bank upgraded the stock to overweight from equal weight. It also raised its price target on shares to $179 from $116, implying 17% upside from Wednesday’s close “We are constructive that pipeline optionality (including intismeran autogene and sac-TMT for oncology and tulisokibart in [inflammatory bowel disease]) could enable growth for MRK beyond the Keytruda cliff,” analyst Terence Flynn said Wednesday in a note to clients. The patent for Keytruday is set to expire in 2028. Shares of Merck have jumped 45% year to date as clinical trials for its investigational and experimental drugs continue to produce positive results. On Wednesday, the company unveiled promising late-stage trial results alongside Moderna that sent the stock up 13% — its best day since March 13, 2009. MRNA YTD mountain MRNA year to date In addition, the firm’s popular immunotherapy treatment Keytruda saw more than $16 billion in sales in the first half of this year, bolstering its balance sheet. However, the main U.S. compound patent for Keytruda is set to expire at the end of 2028, raising some questions about whether Merck can continue to rally. But Flynn said that patent expiration is unlikely to be a major headwind for Merck. The health care company could develop Keytuda co-formulations that would extend the tail of the brand-name drug’s franchise, mitigating the impact of that patent expiration, according to the analyst. That, in turn, would support future share growth, he noted. Additionally, several pipeline drugs from Merck are showing signs of getting closer to launch, which should further boost the firm’s stock, according to Morgan Stanley. “We see scope for multiple expansion as the pipeline de-risks and new products are launched,” Flynn wrote. Morgan Stanley’s call falls in line with consensus on Wall Street. Of the 32 analysts covering Merck, 24 have a buy or strong buy rating on the stock.
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