4. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 96
Share Price Performance Year-to-Date: -6.09%
Merck & Co., Inc. (NYSE:MRK) is an international healthcare company that offers advanced health solutions through prescription drugs, vaccines, biological therapies, and animal health products. The company emphasizes research and development, aiming to address various health conditions, such as cancer, infections, and cardiovascular diseases. It takes the 4th spot on our list of worst performing Dow stocks.
One of the main reasons for Merck’s (NYSE:MRK) declining performance has been concerns about Keytruda’s U.S. patent expiring in 2028, which have led to lower stock prices. Moreover, the company stock was performing relatively well before its Q2 earnings (still slightly below the broader market). The stock declined significantly after it cuts its earnings forecasts for 2024.
While the company posted strong earnings, beating the revenue and EPS estimates, it narrowed its non-GAAP EPS to the range of $7.94 and $8.04, compared to the prior $8.53 to $8.65 per share. Between July 29 and 31, the company stock dropped nearly 11.5%.
However, Merck (NYSE:MRK) is still a strong company and it is strengthening its pipeline significantly. The company’s significant achievements include the successful launch of WINREVAIR, a new treatment for pulmonary arterial hypertension, and the FDA approval of CAPVAXIVE, the first pneumococcal conjugate vaccine specifically for adults.
While the acquisition of EyeBio is one of the reasons for its narrowed earnings forecasts, the impact seems to be a one-time thing according to the company management and improves the company’s ophthalmology portfolio for the future. The company’s management believes that its pipeline is ready for substantial growth, with a potential for launching as many new drugs in the next five years as in the previous decade.
Oakmark Equity and Income Fund stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its Q3 2024 investor letter:
“Merck & Co., Inc. (NYSE:MRK) is a global pharmaceutical firm with leading oncology, vaccine and animal health franchises. Premier products in Merck’s portfolio include Keytruda, Gardasil, Winrevair and Bravecto. Outsized contributor Keytruda is an immuno-oncology drug that treats several cancers and tumors. Keytruda is an astounding clinical and commercial success that is on track to become one of the best-selling prescription drugs to date. Investor angst surrounding Keytruda’s pending U.S. patent expiration in 2028 presented a chance to buy shares at a discounted valuation. We believe opportunities to extend Keytruda’s duration through life cycle management are underappreciated. More importantly, discounted cash flows from products already on market cover today’s entire stock price, meaning there is minimal value ascribed to a promising pipeline with strong sales potential. We believe Merck is led by a capable management team that looks to reinvest these cash flows in an accretive manner.”
