We recently compiled a list of the 10 Best Pharma Stocks To Buy Right Now. In this article, we are going to take a look at where Merck & Co., Inc. (NYSE:MRK) stands against the other pharma stocks.
Healthcare takes the concept of ‘defensive’ further than almost any industry, encompassing many companies that provide patient care, engage in the research and development of new treatments, and design, manufacture, and market diagnostic equipment and tests. Breakthroughs in medical technology, pharmaceuticals, and treatment methods have transformed patient outcomes, with pharmaceutical companies, in particular, attracting significant attention as the demand for rapid results has increased. A report from Grand View Research estimates that the global pharmaceutical manufacturing market was valued at around $516.48 billion in 2022 and is projected to grow at a compound annual growth rate (CAGR) of 7.63% from 2023 to 2030.
Today, the biopharma sector boasts its largest and most diverse clinical pipeline to date—a result of decades of pioneering research. The number of unique drugs in development has nearly doubled, growing from 3,200 in 2012 to 6,100 in 2022. That said, only 14% of drugs in clinical trials make it to FDA approval, according to Research from MIT, pushing the average cost of developing a single drug to about $1 billion. AI could be the game-changer here. Generative AI, for example, lets researchers explore way more potential compounds than traditional methods can while helping spot disease patterns in massive data sets to find the best drug combinations. Moreover, PwC predicts that AI-driven automation and analytics could slash process timelines by 60–70% and reduce operational costs by over 30%.
See also: 10 Most Promising Gene Editing Stocks to Buy According to Hedge Funds.
Similarly, interest in weight-loss drugs like Ozempic and Wegovy has fueled huge growth in the industry. A recent study published in the scientific journal Addiction indicates that GLP-1 drugs could cut opioid and alcohol addiction rates by up to half. These drugs are also being tested for Alzheimer’s and other conditions commonly linked to obesity. For pharmaceutical companies aiming to lead in areas like cardiovascular and renal health, developing GLP-1s is becoming essential. The focus has shifted beyond competing with the top dogs in the anti-obesity market, which is projected to reach $130 billion by 2030. As the potential applications of GLP-1s grow, so does the opportunity for new players to enter the field. Swiss company Roche, for instance, rejoined the race for a weight-loss pill last year with its acquisition of California-based Carmot Therapeutics for up to $3.1 billion. The company is looking to “fast-track” its anti-obesity treatments, aiming to capture a chunk of the weight-loss market and restore confidence in its pipeline.
Headwinds in Pharmaceuticals
At first glance, the pharma industry might look like it’s thriving. But, like any industry, it faces its own set of challenges. Both biotech and pharmaceuticals faced a steep 48.6% decline in funding last year compared to 2021. The IPO market also dropped sharply in 2022, with proceeds plummeting amid market instability and volatility. The surge in drug-developer IPOs in 2020 and 2021, which raised approximately $46.5 billion—surpassing the total from the previous eight years combined—left many general investors wary. The biotech industry’s high-risk, high-reward nature, coupled with macroeconomic and geopolitical risks affecting broader markets, has put upcoming IPOs under close scrutiny. That said, drug developers have managed to raise $2 billion through IPOs this year as of September 3, reflecting a 24% increase compared to the same period in 2023. Though nearly two-thirds of these funds were secured in the initial two months amid a surge of new listings, according to BNN Bloomberg. However, with less than $800 million raised in the following six months, drug developers’ share of U.S. IPO proceeds has dropped from 17% in February to 6.5%.
In his welcome remarks at the October 7 conference, Tim Hunt, CEO of the Alliance for Regenerative Medicine (ARM), highlighted a rise in investment in cell and gene therapies in 2024. He noted that 13 of the world’s 15 largest pharma companies by market capitalization now have an “active presence” in this field. With numerous product patents set to expire, major pharmaceutical companies are increasingly looking to cell and gene therapies to bridge potential revenue gaps. Despite this interest, the number of cell and gene therapy deals in the pharma sector dropped by 38% in Q2 2024 compared to the same period in 2023, and there has been a decline in related patent applications. That said, the industry remains compelling and is one that potential investors shouldn’t ignore.
Our Methodology
We began by examining several U.S. pharmaceutical ETFs to identify stocks with the highest weightings. From these selections, we ranked each stock based on the total number of hedge fund holders as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here)
A close-up of a person’s hand holding a bottle of pharmaceuticals.
Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 96
Merck & Co., Inc. (NYSE:MRK), headquartered in Rahway, New Jersey, is a prominent American multinational pharmaceutical company with historical ties to the original Merck Group, founded in Germany in 1668. Known globally as Merck Sharp & Dohme (MSD), the company is highly regarded for its contributions to pharmaceuticals and vaccines.
Merck & Co., Inc. (NYSE:MRK) reported a 4% boost in third-quarter 2024 revenue, bringing in $16.7 billion, driven by strong sales of its cancer drug KEYTRUDA and the launch of Winrevair. While Gardasil sales declined by 10%, mainly due to lower demand in China, the company remains optimistic about future growth, targeting $11 billion in sales by 2030. Merck & Co., Inc. (NYSE:MRK) also shared positive clinical developments and new FDA approvals, further expanding its oncology portfolio.
On October 25, Barclays reaffirmed its Overweight rating and a $140 price target for Merck & Co., Inc. (NYSE:MRK) following new data from competitor Arcus Biosciences on its HIF-2α inhibitor, casdatifan. The data highlighted a 34% objective response rate (ORR), with a 25% confirmed ORR, presenting some competition for Merck’s cancer drug, Welireg. However, Barclays noted that the confirmed-to-unconfirmed response ratio did not represent as significant a competitive shift as initially expected.
As of Q2 2024, Insider Monkey data shows that 96 hedge funds held stakes in Merck & Co., Inc. (NYSE:MRK), with Millennium Management as one of the largest shareholders, holding shares valued at approximately $1.18 billion.
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.”
Overall MRK ranks 2nd on our list of the best pharma stocks to buy. While we acknowledge the potential of MRK as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MRK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
