Merck's Stock is Suddenly Soaring, but Is the Struggling Healthcare Giant a Buy?

Core Viewpoint - Merck's stock has experienced significant volatility, with a recent rebound raising questions about its investment potential, particularly in light of its reliance on the oncology drug Keytruda and upcoming patent expirations [1][4]. Company Overview - Merck is a major pharmaceutical company with over 40 products generating approximately $70 billion in annual revenue [2]. - Keytruda, an oncology drug, accounts for nearly half of Merck's revenue and is approved for 20 different types of cancer [3]. Patent Expiration Concerns - Keytruda's patent protection is set to expire in 2028, which poses a risk as competitors may produce cheaper alternatives [4]. - The stock's decline was largely due to investor concerns over how Merck would address this impending threat [5]. Recent Developments - The approval of Keytruda Qlex in September, a subcutaneous version of Keytruda, indirectly extends its patent protection [8]. - Positive results from a phase 3 trial of Winrevair, a treatment for pulmonary arterial hypertension, could lead to significant revenue growth, with projections of around $8 billion annually [10]. - Merck's development pipeline is expected to generate over $50 billion in annual revenue by the mid-2030s, compensating for Keytruda's eventual revenue loss [11]. Acquisitions and Growth Strategy - Merck has been active in acquisitions, including the purchase of Verona Pharma and Cidara Therapeutics, which will enhance its product offerings [12]. - The company has a history of successful acquisitions that have bolstered its portfolio, including the acquisition of Keytruda in 2009 [12]. Investment Perspective - Despite a 30% increase in stock price since September, Merck's shares are still considered undervalued, trading at less than 12 times projected earnings per share [13]. - The current dividend yield of 3.3% is competitive compared to other blue-chip stocks [13]. - Merck is expected to continue developing new products and profit centers, mitigating the impact of patent expirations [15].