On Wednesday, BMO Capital maintained its Outperform rating on shares of Merck (NS:PROR) & Co. Inc. (NYSE:MRK) with a steady price target of $136.00. The firm's assessment follows Merck's strategic move to enter the competitive obesity treatment market by in-licensing a preclinical oral small molecule, GLP-1RA HS-10535, from Hansoh Pharma.
Merck has agreed to an upfront payment of $112 million to Hansoh Pharma for the rights to HS-10535, with additional milestone payments that could total up to $1.9 billion.
BMO Capital views today's transaction as a generally positive development for Merck, suggesting that it could be well-received by investors. The company's strong financial position is evident in its 6.5% revenue growth and attractive 3.24% dividend yield.
The analyst from BMO Capital raised questions regarding Merck's decision to acquire a preclinical asset, considering the company's strong financial position and the impending loss of exclusivity (LOE) for its cancer drug Keytruda.
The analyst expressed uncertainty about whether pursuing a company with a later-stage development product might have been a more advantageous strategy for Merck in light of the Keytruda LOE.
Merck's entry into the obesity drug market marks a significant step for the pharmaceutical giant as it diversifies its portfolio. The deal with Hansoh Pharma represents a proactive approach to expanding Merck's pipeline ahead of the potential challenges posed by the Keytruda LOE.
The transaction between Merck and Hansoh Pharma is part of a broader trend in the pharmaceutical industry where companies are actively seeking to expand their product offerings through acquisitions and licensing deals. Merck's latest move exemplifies this strategy as it aims to bolster its presence in a new therapeutic area.
According to InvestingPro's comprehensive analysis, Merck maintains a "GREAT" financial health score and is currently trading below its Fair Value. Investors can access detailed insights and the full Pro Research Report, available for Merck and 1,400+ other US stocks, through an InvestingPro subscription.
In other recent news, Merck entered into a licensing agreement with Hansoh Pharma to develop and commercialize HS-10535, a candidate for the treatment of metabolic disorders. The deal includes an upfront payment of $112 million from Merck to Hansoh Pharma, with potential milestone payments reaching up to $1.9 billion.
Hansoh Pharma also retains the option to co-promote or exclusively commercialize the product in China under certain conditions. This development introduces a potential competitor to Viking's metabolic disorder candidate, VK2735.
Merck also recently received approval in China for KEYTRUDA as a treatment for certain early-stage non-small cell lung cancer. This marks the fourth such indication for KEYTRUDA in the country. Bernstein SocGen Group maintained its Market Perform rating for Merck shares following the pharmaceutical giant's decision to halt two oncology programs, KeyVibe and KeyForm.
Lastly, Merck reported a 4% increase in third-quarter revenue for 2024, reaching $16.7 billion, driven by strong sales of its cancer drug KEYTRUDA and the introduction of WINREVAIR. These are the recent developments from Merck's operations.
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