We came across a bullish thesis on Merck & Co., Inc. (MRK) on Disruptive analytics’s Substack by Magnus Ofstad. In this article, we will summarize the bulls’ thesis on MRK. Merck & Co., Inc. (MRK)’s share was trading at $103.73 as of Oct 29th. MRK’s trailing and forward P/E were 19.21 and 10.34 respectively according to Yahoo Finance.
A pharmaceutical sales rep holding a medicine pack, highlighting the drug candidate products.
Merck & Co., Inc. operates as a healthcare company worldwide it faces a significant patent cliff in 2028, as its blockbuster drugs Keytruda and Gardasil, which together represent half of the company’s revenue, are set to go off-patent. This raises the question of whether Merck has sufficient candidates in its pipeline to offset the impending revenue impact. Recently, the FDA approved Winrevair, a promising treatment for pulmonary arterial hypertension (PAH), which is expected to generate up to $8 billion in peak revenues if it proves effective across other pulmonary hypertension conditions. Winrevair is a game-changer, improving blood flow and heart function, and significantly reducing PAH-related mortality. Additionally, Merck’s pipeline includes Restoret, an investigational treatment for diabetic macular edema (DME) and neovascular age-related macular degeneration (NVAMD), which impact a large patient base with a combined market potential of $15 billion. Restoret is advancing to late-stage trials, showing promise for visual and anatomical benefits.
In oncology, Merck is targeting TROP2, a glycoprotein linked to various cancers, through antibody-drug conjugates in collaboration with Daiichi Sankyo. Phase III trials for TROP2 in metastatic triple-negative breast cancer and Phase II trials for small-cell lung cancer and solid tumors are underway, aiming to capitalize on a rapidly growing market. The company is also advancing treatments for cancers associated with the HER3 receptor, a pathway tied to lung and breast cancers. A Phase III trial showed that Merck’s HER3-directed therapy significantly improves progression-free survival compared to chemotherapy. If approved, HER3 treatments could generate approximately $20 billion in revenue by 2035, offering new options for patients with limited treatments.
Despite patent concerns, Merck’s resilience and history of innovation suggest it can successfully navigate this transition. The company’s culture of development and strong pipeline of treatments position it well to recover from the 2028 patent cliff, supporting a fair value estimate of $125 per share. Merck’s fundamentals, including a 3% dividend yield and 10% revenue growth in constant currency, make it attractively priced on cash flow and earnings metrics. While volatility may persist through the upcoming U.S. election, which could see bond yields spike if Republicans sweep, Merck remains a fundamentally undervalued investment, making it a compelling opportunity for long-term investors, particularly after any post-election market clarity.
Merck & Co., Inc. (MRK) is on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 96 hedge fund portfolios held MRK at the end of the second quarter which was 95 in the previous quarter. While we acknowledge the risk and potential of MRK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MRK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.