Where will Merck be in five years?

No matter how well the stock market performs, investors can always find companies that aren’t keeping pace with broader stocks. This year pharmaceutical giant Merck (NYSE:MRK) it is: The drugmaker’s shares are down 2% in 2024, while the broader sector’s shares are down 2% in 2024 S&P500 has increased by 21%.

Even if we zoom out, Merck hasn’t performed particularly well in recent years. The company has significantly underperformed the S&P 500 over the past decade.

MRK data Ygraphs

Does this mean investors should stay away from Merck? Maybe not. Let’s see how it could perform over the next half decade.

The dreaded patent cliff

Merck’s lead product is Keytruda, a cancer drug that has received approval for the treatment of dozens of indications. Keytruda has been the world’s best-selling drug since last year, when it generated $25 billion in sales. Merck’s total sales for the year were $60.1 billion, so Keytruda accounted for about 41.5% of the company’s sales.

What will Keytruda’s trajectory look like until 2029? Sales of the drug should continue to grow through 2028, when some estimates suggest peak sales will top $30 billion. However, Merck will then lose patent exclusivity for its cash cow, causing Keytruda’s sales to plummet, likely dragging down all of Merck’s sales with it.

Fortunately, Merck has a plan. The company is developing a subcutaneous version of Keytruda, which its target market believes will account for approximately 50% of Keytruda’s total patient pool by 2028.

It remains to be seen how many of them would actually switch to the subcutaneous version, whose patent exclusivity would extend beyond 2028. But by the end of the decade, the company should be on its way to replacing Keytruda as it is now being sold by a new one. drug formulation.

And Merck’s activities extend beyond this one product. The company recently received approval for Winrevair, a therapy for pulmonary arterial hypertension with a novel mechanism of action. Some analysts say Winrevair could reach $3.9 billion in sales by 2029, so it should help Merck replace lost Keytruda sales. There are other products in the drugmaker’s portfolio that should continue to perform well at least through 2028, such as the pair of HPV vaccines, Gardasil and Gardasil 9.

In addition, the company has a deep pipeline, with more than 80 programs in Phase 2 studies and more than 30 in Phase 3 studies. Not everything will make it to market, but I expect many brand new approvals and label extensions through 2029.

Beware of the competition

There is one crucial headwind that Merck could face in the coming years: Summit Therapeuticsa clinical-stage biotech company is developing a cancer drug called ivonescimab. Summit has licensed ivonescimab from the drug’s original maker, China-based Akeso Biopharma.

Summit now owns the rights to the therapy in North America and many other regions around the world. Although ivonescimab is not yet approved in Summit’s licensed territories, it is in China.

Furthermore, Akeso recently reported positive phase 3 results for ivonescimab in the treatment of non-small cell lung cancer (NSCLC) patients overexpressing PD-L1 protein. The drug beat Keytruda in this study, marking the first time a cancer drug outperformed Merck’s superstar in late-stage NSCLC research, which is one of Keytruda’s leading indications.

Ivonescimab could pose a serious challenge for Merck. However, the drug has not yet begun phase 3 trials in the US. It may take a few years (or longer) before Summit is ready to launch ivonescimab. It will take even longer for the drug to be approved for the many indications it targets.

Ivonescimab could disrupt the progress of Keytruda (or its subcutaneous version) somewhat, but Merck’s much deeper pockets, larger footprint and broader sales power should help the company retain a decent share of the NSCLC market. Furthermore, the company will continue to develop new medicines that will limit this risk.

Are Merck shares a buy?

Merck has long been a leader in the pharmaceutical industry. The past five years hardly represent the company’s potential. The company’s strong underlying businesses, innovative capabilities and robust dividend program make it an excellent stock worth considering.

On that last point, Merck has increased its payout by a whopping 71% over the past five years and currently offers a dividend yield of 2.8%, which is above the S&P 500 average of 1.3%. With dividend reinvestment, Merck could deliver strong performance over the next five years and beyond. The stock is still an excellent option for long-term investors.

Should You Invest $1,000 in Merck Now?

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Good luck Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions at Merck and Summit Therapeutics. The Motley Fool has one disclosure policy.