Back in 2005, Merck (MRK) was largely written off, with slowing innovation and a legal battle over Vioxx, one of its biggest drugs, suggests Genia Turanova, editor of Curzio Research's Unlimited Income

The arthritis drug was linked to heart attacks and strokes. Merck then embraced a turnaround plan, including manufacturing plant closures, staff cuts and research streamlining, all with the goal to save money. 

As the Vioxx fallout was playing out, Merck continued developing and launching new drugs, including some in the brand-new area of immuno-oncology. Using the body’s own defenses to kill cancerous cells, immuno-oncology is now a mainstream cancer treatment. 

In August 2016, the U.S. FDA granted accelerated approval for Merck's Keytruda as a treatment for patients with recurrent or metastatic head and neck squamous cell carcinoma. From delivering zero in revenue a few years ago, Keytruda generated $14.38 billion in 2020 and $4.2 billion in Q2 2021, a 20% jump over the same quarter a year ago. 

And now, Merck’s COVID-19 antiviral pill, molnupiravir, is the talk of the town. Molnupiravir was a clinical trial success — cutting the risk of hospitalization or death for high-risk people in half. More specifically, only 7.3% of those patients treated with molnupiravir were either hospitalized or died versus 14.1% of patients on placebo.

This drug could vastly improve MRK’s growth outlook. Already, the U.S. government is buying $1.2 billion worth of molnupiravir and Merck expects to produce at least 10 million doses by the end of 2021. 

Merck will report its latest quarterly results on October 27th and I expect guidance to be relatively conservative, but to still include higher future revenue for the rest of the year and into 2022. 

For this upcoming quarter, expectations call for earnings per share of about $1.55 and revenue of $12.3 billion. While this is a decline vs. the same quarter in 2020, selling molnupiravir will translate into earnings reaccelerating over the next year.  

I like Merck’s cancer franchise, as well as the boost to growth it will likely get from its new COVID treatment and I really like the growing (and market-beating) 3.1% dividend yield. 

Yes, the future of Merck has changed for the better and its shares are still a bargain. However, its share price could pull back from this latest jump following the molnupiravir news. That’s why I recommend starting with a 1/2 position, with an eye for adding more in the near future. 

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