After seven years of waiting Merck (NYSE:MRK) has finally landed the FDA's approval on a cancer treatment drug. The pharmaceutical giant's homerun came in the form of Pembrolizumab or Keytruda as it will be commonly known which indulges the patient's own immune system to counter cancer cells - a process known in the biotech world as Immunology.
Though Immunology is not exactly a radical new concept, what Merck has done on the backbone of the promising science is most certainly groundbreaking. In layman terms, the drug stops cancer cells from attaching themselves to a protein and make diseased cells appear normal and healthy to the antibodies present in the immune system. Keytruda will allow better detection of the camouflaged cells - a process that will prove extremely beneficial to treat the deadly disease.
While Wall Street remained relatively unaffected by Merck's latest invention, it does not take away the drug's enormous upside potential. Another noteworthy fact is that the company built the product from scratch from the ground up instead of acquiring it from another pharmaceutical company during the latter stages of development.
Roger Perlmutter Takes Charge
Merck's breakthrough is far from being a simple case of good fortune. The company can owe is paradigm shifting achievement to its newly appointed R&D Director Roger Perlmutter. Though the drug showed promise way before Perlmutter was hired, it was under his supervision that the creative folk at Merck made accelerated progress. Using his industry experience Perlmutter restructured Merck's R&D wing by slashing jobs and diverting resources towards high-potential projects - an exercise which eventually led to Keytruda's "FDA Approved" status.
It is also worth mentioning that with Perlmutter at the helm Keytruda made the biggest strides and went directly from Phase 1 of development to the drug approval stage essentially skipping Phase 2 and Phase 3 of the development process.
The New Merck
Keytruda's lifesaving potential is not the only thing that has renewed stakeholder faith in the fledgling pharmaceutical giant. The drug's arrival hints that the company is capable and willing to market its own drugs. That alone is a remarkable achievement considering Merck's revenues had been in a downward spiral since 2011 after peaking at $48 million.
After losing big guns like Clarinex, Singulair, Propecia and Cozaar to patent protection, the company was unable to recover from the setback. The seven year gap is a direct indication of the NJ-based corporation's recession as far as innovation is concerned. As a result of the dry spell Merck's sales are predicted to fall to a four year low of $42.7 billion in the current fiscal. However, now that the company has hit a homerun in the form of a blockbuster new drug investors are anticipating revenue growth to begin as early as the next fiscal - something Merck hadn't experienced in a while.
Speaking about the company's new achievement CEO Kenneth Frasier stated, "Keytruda embodies Merck's unwavering commitment to pursue breakthrough science to help people who are facing the most challenging diseases."
MERCK is a "Buy"
When Merck acquired Idenix Pharmaceuticals specifically for their pipeline Hepatitis C drugs this past June for a whopping $3.85 billion investors suggested that the company's valuation could take a hit. However, after witnessing that the Gilead Sciences (NASDAQ:GILD) acquisition of Pharmasset for $11 billion - over 3 times the amount of Merck's acquisition - for their clinical-stage Hepatitis C medications yielded an enormously successful drug called Sovaldi, all concerns were put to rest. The FDA approved Keytruda has not only renewed investor confidence but has also placed Merck among pharmaceutical companies likely to come up with a permanent solution to countering Hepatitis C.
The company's worth with investors is also evident by the fact that the Whitehouse Station pharmaceutical giant has demonstrated a solid stock performance, firm financial position and an elevated net income in the last quarter.
Compared to the same quarter a year ago Merck's stock is being traded at a much higher level which indicates that the company's EPS has been solid. The corporation's net income has also grown from the same quarter one year ago and visibly exceeds the S&P 500. Net income has risen from $906 million to over $2 billion - an increment of 121.2%.
Merck's DOE of 0.48 indicates the company's successful handling of debt levels. In addition to a DOE that is below the industry average the company's quick ratio of 1.14 outlines its ability to manage short-term cash needs. EPS is expected to rise to $3.50 come next quarter - a significant increase from $2 in the year prior.
Considering the company's new momentum the stock is expected to show upside potential in the upcoming quarters, regardless of the fact that it has been steadily rising since the past year.
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