Merck has partnered with Hansoh, a Chinese biopharmaceutical company, for a global licensing deal to develop an oral GLP-1 receptor agonist for the treatment of conditions related to metabolism and obesity. With this development, the New Jersey-based pharma company has now joined a race that has so far been dominated by the likes of Eli Lily and Novo Nordisk.
Merck & Co. is the U.S. division of Merck (the other being Merck KGaA which is based in Germany). In the U.S., the entity combines three specialty areas: Healthcare, Life Sciences, and Electronics. The uniqueness of Merck & Co. arises from its business model which focuses on using scientific knowledge to address complex problems. Sustainability and innovation are the guiding principles of its operations in the market.
The company’s leading products are classified into three categories. The first group comprises pharmaceutical products such as Keytruda and Gardasil which are used for cancer immunotherapy and human papillomavirus vaccination. The second class of products includes life science solutions, for instance, laboratory and bioscience products. The final category of products provides materials for the production of semiconductors.
Merck & Co.’s top clients are pharmaceutical companies, academic institutions, technology firms, and healthcare organizations. They depend on the business for biotechnology, drug development, research, semiconductor, and therapeutic solutions. Therefore, the company’s end markets are firms in the healthcare, electronics manufacturing, and biotechnology sectors. The targeting of different industries has enabled Merck & Co. to build and maintain its competitiveness.
The company’s stock is down over 20% in the last 6 months despite solid fundamentals. It grew by 9% in the last quarter with strong performances in the oncology and vaccine segments. It also has a solid product pipeline, with 60% of its upcoming drugs in phase 2 already. The slump in stock price has brought the stock down to attractive levels and the entry into the weight loss drugs business could well be the trigger that catapults it to the next bull run.
The oral medication that the company intends to work on has the same mechanism as the injectables currently being made by both Eli Lily and Novo Nordisk. Hansoh will receive $112 million upfront as part of the licensing deal. Royalties on future sales as well as milestones to the tune of $1.9 billion in total are also part of the deal. It remains to be seen how this will add to the company’s top line in the future. For now, it will book a pre-tax charge of $112 million for the licensing deal.
Merck is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 86 hedge fund portfolios held MRK at the end of the third quarter which was 96 in the previous quarter. While we acknowledge the potential of MRK as a leading investment, our conviction lies in the belief that some 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 as promising as 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 was originally published at Insider Monkey.
