The New Year has been good to Merck & Co., Inc. (NYSE:MRK), as shares of the global giant rallied to their best level since October on the back of positive headlines this week. The stock is now up 15% from the 52-week low that was set in November.
Merck’s wild ride began in October, when the company reported earnings and missed revenue projections by 2%. Management pulling a European marketing application for its key drug Keytruda also added to the selling.
However, things have been turning around recently, and Tuesday’s announcement that Keynote-189 — a combination study using Keytruda — showed positive results sent the shares up nearly 6% while the overall market closed lower.
These latest results are promising, as they show that when Keytruda is mixed with two other chemotherapy drugs it has been shown to stop lung cancer from advancing. It also helped extend the lifespan of patients.
This news puts MRK ahead of its rivals in the race to develop first-line treatments for a common type of lung cancer.
Weighing Potential Against Risk in MRK Stock
Analysts estimate that sales of the blockbuster drug will rise from slightly more than $1 billion in the third quarter of 2017 to $8.2 billion by 2020. However, if for any reason Keytruda does not become the lead first-line treatment in the lung cancer space, it could lower those expectations and ultimately hurt the stock.
I do believe there is promise in the drug sector, but right now old, stodgy names like MRK do not excite me. I’d rather set my sights on the other biotech and junior biotech companies that will lead the charge into tomorrow.
While there is a lot of upside potential for Keytruda, I believe there is simply too much risk associated with relying so heavily on the outcome of Phase III drug trials for me to invest in MRK stock right now.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.