Merck & Co. (MRK) has been making many strides in Immuno-Oncology (I-O) by continually expanding the indications for its blockbuster drug KEYTRUDA but investors want to know what is next. The stock is at the same price level from April 2016 and KEYTRUDA is on the cusp of overtaking Bristol-Myers Squibb's (BMY) drug OPDIVO and becoming the new leader in I-O. Investor enthusiasm has been waning and the most likely cause of this depression has been the pipeline. With only 1% annual top line growth in the past year, something has to change. Its top selling drug Januvia/Jaumet for diabetes is under global pricing pressure after the insulin price fixing scandals broke out early last year. Its number two drug KEYTRUDA has had massive growth but advances in the I-O market could threaten its dominance. Its pipeline needs a boost and acquisitions seem to be the only path forward because 50% of its phase 3 drugs are simply expanding the number of indications for KEYTRUDA. The good news is that at the end of 2017, it was sitting on $8.4 billion in cash and short-term investments. The recent acquisition of Viralytics on February 21 for $394 million suggests the start of a buying binge in I-O as it looks for combination therapies.
Author Slide from Quarterly Reports
