In July, Merck & Co., Inc (NYSE: MRK) announced a major deal with AstraZeneca plc (ADR) ( AZN) to jointly develop and commercialize cancer drug Lynparza. According to Argus analyst David Toung, the addition of Lynparza is just one of a number of reasons long-term investors should be excited about Merck stock.
On Tuesday, Argus reiterated its “buy” rating for MRK stock, and Toung said Lynparza has sweetened the deal. Pharmaceutical giant Merck already has a major growth driver in its Keytruda cancer treatment, and Toung sees even more potential from combinations with Lynparza. In the second quarter, Merck’s Keytruda sales were up 180 percent year-over-year to $881 million.
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At the same time, Keytruda’s market is expanding dramatically. In the second quarter, the drug was approved for five additional cancer indications and was approved in Japan for the first time.
Thanks to Keytruda’s growth, Merck reported better-than-expected earnings per share in the most recent quarter, despite paying $1.6 billion of its $6.1 billion deal with AstraZeneca up front. The solid quarter also eased investor fears over the financial impact of a cyberattack on the company in June that briefly halted drug production. In addition to Keytruda sales, Merck’s second-quarter sales were driven by hepatitis C drug Zepatier, HPV vaccine Gardasil and neuromuscular blockade reversal agent Bridion.
Toung says Lenparza has potential to be a “blockbuster” drug for Merck, and that the MRK stock price doesn’t fully reflect the company’s long-term growth prospects.
“MRK shares trade at 14.8 times our 2018 EPS estimate, close to the average multiple of 14.7 for our coverage universe of pharmaceutical stocks,” Toung wrote. “We believe that a higher multiple is warranted based on continued strong prospects for Keytruda, as well as the company’s portfolio of anti-infective, diabetes and animal health products and formidable new drug pipeline.”
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Argus has an $80 price target for Merck stock.
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Merck (MRK) Investors Have High Hopes for Lynparza originally appeared on usnews.com
