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Friday, October 29, 2021 6:21:32 PM
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Merck ‘s new Covid-19 antiviral therapy molnupiravir won’t just provide a short-term revenue boost to the big pharma firm, according to an emerging consensus among analysts in the wake of the company’s earnings call on Thursday.
It could lift revenue over the long term, helping wean Merck (ticker: MRK) off its reliance on its cancer therapy Keytruda. Sales of the megablockbuster, which loses patent protection late this decade, accounted for 34% of its third-quarter earnings.
Exuberance over molnupiravir has driven shares of Merck up 15.2% since the company announced data from a Phase 3 trial of the drug that was so positive that an independent data-monitoring committee recommended that recruitment into the trial be halted.
On Thursday, Merck provided numbers that underpin that exuberance. On an investor call, the company’s chief financial officer, Caroline Litchfield, said that the company expects between $5 billion and $7 billion in sales through the end of next year, including between $500 million and $1 billion this year.
That assumes that the Food and Drug Administration issues an emergency-use authorization for the drug this December. An advisory-committee meeting is scheduled for Nov. 30.
In a note out Thursday, Bernstein analyst Ronny Gal wrote that he expects $8.5 billion in molnupiravir sales through 2022, well above Merck’s estimate.
Other analysts said their expectations were in line with Merck’s call. J.P. Morgan’s Chris Schott wrote that while he expects $500 million in sales this year and $6 billion next year, that the estimate “could prove conservative.” And SVB Leerink analyst Daina Graybosch wrote that she expects $685 million this year and $4.9 billion next year.
Graybosch said that there was also an “upside scenario” where sales hit $10.3 billion if there is broad-scale stockpiling of the drug by governments.
Merck will split profits on the sales of molnupiravir with its partner, Ridgeback Biotherapeutics.
It is the discussion of molnupiravir as a long-term contributor to Merck’s revenue picture, however, that seems particularly new. In a note out Thursday, Mizuho analyst Mara Goldstein wrote that, assuming Covid-19 cases over the long term drop to a rate consistent with flu, she sees “molnupiravir as a solid contributor to revenue diversification.”
Bernstein’s Gal, in his note, said that he expects the Covid treatment market beyond 2022 to be $5 billion a year, and that he believes Merck will “end up with a solid share.” His financial model points to $2 billion in annual revenue from the drug for Merck.
That could be helpful for Merck, which faces the loss of patent protections on Keytruda in 2028. That deadline is driving Merck to find new revenue streams, and was behind the company’s big bet on the biotech Acceleron Pharma (XLRN) announced last month.
Evidence from other drugmakers suggests that the demand for Covid-19 therapeutics continues to blow past expectations. Gilead Sciences (GILD) reported $1.9 billion in sales of its Covid-19 antiviral Veklury for the third quarter late on Thursday night, three times the FactSet consensus estimate of $647 million.
Still, the FDA must still weigh in on molnupiravir before it hits the market. As Barron’s reported early this month, some scientists have warned that it could pose safety risks. Studies run by scientists at the University of North Carolina showed that the drug could cause mutations in animal cell cultures in a lab test designed to detect such mutations.
SVB Leerink’s Graybosch asked about those concerns on the investor call on Thursday.
“I would just emphasize, we are very confident in the safety profile of molnupiravir based on our preclinical and clinical data,” said Dr. Dean Li, president of Merck Research Laboratories, in response. Li noted that the company had run tests in rodents, and none had shown that the drug induces mutations.
“In these studies, we’re administering molnupiravir for longer and higher doses than those employed in the human clinical trial,” Li said. “And the totality of the data from these studies indicate that molnupiravir is not mutagenic or genotoxic in these in vivo mammalian systems. Now we have shared these results throughout with the regulatory agencies worldwide, and we’ll continue to provide additional data as this process continues.”
How Merck appears to be pricing molnupiravir has also raised questions among some critics. Merck announced a deal with the U.S. government in June by which it will sell 1.7 million courses of molnupiravir for about $700 each. In his Thursday note, Bernstein’s Gal estimated that Merck is charging $300 per course outside of the U.S.
Merck announced earlier this week that it had licensed molnupiravir to a United Nations-backed group called the Medicines Patent Pool, which in turn licenses the drug to manufacturers in low and middle income countries. Merck will receive no royalties through the agreement.
Merck shares rose 6.1% on Thursday, and were down 0.4% in premarket trading on Friday. The stock is up 11% this year.
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