Analyst Note| Damien Conover |
Following a review of Merck's pipeline, we are increasing our fair value estimate to $103 from $97 based on slightly increased projections for several pipeline drugs, including pulmonary arterial hypertension, or PAH, drug sotatercept, which has shown excellent efficacy and continues to look well-positioned versus the competitive landscape. Phase 3 data presented earlier in the year was exceptionally strong, with an 84% reduction in death or clinical worsening. With the current PAH market close to $6 billion annually, we believe sotatercept can complement current therapies well and expand the overall market. While current drugs are helpful in managing the disease, the five-year mortality rate is close to 40%, according to Reveal study data, showing the need for new therapies. We expect sotatercept will gain approval in 2024. Beyond sotatercept, we remain optimistic for several other pipeline drugs, including cancer drugs V940, favezelimab, vibostolimab, and quavonlimab, which should all post important additional clinical data over the next three years. The strong and growing late-stage pipeline reaffirms our view of Merck's wide moat.