Merck Spikes After FDA Approval, Sends Competitors Reeling

Merck (MRK) received US FDA approval on Tuesday after the market’s close for Winrevair to treat pulmonary arterial hypertension (PAH), causing the stock to climb 4.6% pre-market. The company’s market cap is around $332.7 billion, indicating any notable movement is a result of a significant event, so the approval demonstrates a pretty big win for the medical giant. Let’s dive into the potential income the drug will bring in, the impact on other companies, and if the shift makes Merck worth a buy.

Roughly 40,000 Americans are impacted by pulmonary arterial hypertension, and according to sources, Merck plans to charge $14 thousand per vial of Winrevair. That would result in around $238 thousand in medical costs annually for regular patients, which is expected to be covered by insurance. Analysts are estimating that the drug could bring in around $7.5 billion for the company annually, hence why the stock moved up pre-market by 4.6%. Although the exact release date is currently anticipated, the $11.5 billion investment Merck (MRK) put into the drug looks like it will pay off. The markets were impacted, opening in the green, and an hour into the trading session, the Dow is up 245 basis points (+0.63%), and the S&P 500 is up 16.93 basis points (+0.32%) 

The drug’s implications go beyond just Merck, but impact competitors, market opportunities, and investor decisions.

Which Companies Are Impacted?

A significant drug approval like this will cause a shift amongst healthcare companies, both positively and negatively. With a multitude of major and minor companies working on similar drugs, approval can send one skyrocketing while the rest tumble. Here are the three companies most impacted pre-market by the US FDA drug approval. 

• Merck (MRK): Up 4.6% pre-market, motivated by the news of the approval, with a rating of BUY.
• United Therapeutics Corporation (UTHR): Down 4% pre-market, motivated by the news of the approval, with a rating of BUY. 
• Roch Holding (RHHBY): Down 2% pre-market, motivated by the news of the approval, with a rating of HOLD. 

Although United Therapeutics Corporation and Roche Holding initially dipped on the news, once the drug hits the market and competitors are creating similar products, the impact will fully be felt.

Does It Make Merck a Buy?

The FDA approval creates a significant portion of revenue for Merck, but the market’s reaction to reports isn’t the whole picture. A legitimate analysis considers several financial components that aren’t hinged on revenue that has not been brought in yet. VectorVest software generates three summary ratings: relative value (RV), relative safety (RS), and relative timing (RT), each scored from 0.00 to 2.00, with 1.00 representing the average; then the overall VST (Value-Safety-Timing) rating provides a decisive buy, sell, or hold suggestion for a specific stock. VectorVest’s three summary and overall ratings evaluated MRK and concluded with a Buy recommendation.

• Upside Potential: The Relative Value score for MRK is 1.09, making it above average on a scale of 0.00 to 2.00. It is undervalued, with a current price of $130.25 but a value of $146.49 because of the potential revenue that will come in through Winrevair. 
• Safety: MRK has a Relative Safety score of 1.09, rated as fair, which is above average on a scale of 0.00 to 2.00, related to its large market cap and ability to maintain stability throughout turbulent times.
• Relative Timing: The relative timing of MRK is 1.11, rated as good on a scale of 0.00 to 2.00. The metric considers the stock movements daily, weekly, quarterly, and yearly, so in high inflationary times, the overall fiscal movements of Merck are taken into account. 

The overall VST rating of MRK is 1.09, which is considered fair and is followed by a Buy recommendation in the VectorVest system. Buy indicates that if you own the stock, you should consider buying more for your portfolio, and if you’re not already invested, buy in. 

Although the initial reaction to MRK’s was positive, VectorVest took the company’s evaluation a step further by analyzing its performance as an overview. You can see the trajectory and risks associated with the company through the Good Relative Timing, and Fair Overall Rating. You can learn more about how the system works or the current opportunity with any given stock through a free stock analysis today!

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VectorVest advocates buying stocks with proper analysis, not just the market’s movements for that day. Merck’s success doesn’t mean an automatic buy, but further investigation with the help of VectorVest. The stock has fair upside potential, fair safety, and good relative timing, with a recommendation to Buy. Allowing you to see all the necessary components to make an informed decision.

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