Keytruda Is Key To The Merck Thesis, Goldman Sachs Says In Upgrade

The Merck & Co., Inc. MRK story has slowly captivated analysts, and on Monday the pharmaceutical company corralled Goldman Sachs in its growing bullpen. 

The Rating

Analyst Jami Rubin upgraded Merck from Neutral to Buy and increased the price target from $63 to $73.

The Thesis

Rubin also raised estimates for sales of the immunotherapy drug Keytruda by $2 billion for 2021 and $4 billion for 2025 for bottom-line boosts of 10 percent and 24 percent, respectively. 

“We believe the narrative for this company is quickly changing with the success of Keytruda (a potential $16-billion asset by 2025E) driving a significant shift in product mix from a large primary care evolving into a specialty biopharma,” Rubin said in a Monday note. 

Higher-than-expected Keytruda sales could diminish the effects of an underperforming base business and drive significant margin upside, according to Goldman Sachs’ sum-of-the-parts analysis of Merck. 

An inflection point in total Keytruda prescriptions in the second half of the year, coupled with appreciation for Merck’s animal health unit, is seen to boost operating margins from 32.5 percent in 2017 to 40 percent in 2025.

Going forward, Merck could benefit from pipeline diversification and management’s steps to “address longer-term growth pos- Januvia to complement Keytruda,” Rubin said. 

Price Action

Merck shares were trading up 1.33 percent at $59.62 at the time of publication Monday.

Related Links:

One Up, One Down: Morgan Stanley Flips Merck, Bristol-Myers Ratings

The Alzheimer's Drug Pipeline: High Failure Rates In Research On An Increasingly Common Disease