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Here's Why Merck Lost Nearly $40 Billion in Value During November

What happened

Shares of pharma giant Merck (NYSE: MRK) fell by 14.9% during the month of November, according to data from S&P Global Market Intelligence. As a result, the company's market cap dropped by $39.2 billion from its intra-month high relative to its closing price on Nov. 30.

Although the drugmaker did take a hit from a clinical setback for its once-weekly oral treatment, MK-8507, for HIV-1 infection last month, the main reason Merck's stock slumped in November is the evolving situation surrounding its oral coronavirus pill molnupiravir. In brief, this COVID-19 pill, which is being jointly developed with privately held Ridgeback Biotherapeutics, exhibited a significant drop in efficacy following the final analysis of the full data set, compared to a prior interim data readout.

Image source: Getty Images.

So what

Specifically, molnupiravir previously exhibited a 48% relative risk reduction in hospitalization or death in COVID-19 patients with mild or moderate forms of the disease, per a planned interim data analysis. Once the full data set became available toward the end of November, however, the pill's relative risk reduction dropped to just 30% in this patient population.

By contrast, Pfizer's (NYSE: PFE) rival pill, known as Paxlovid, sports a relative risk reduction of hospitalization or death from COVID-19 of a whopping 89%. Although there are no head-to-head data to properly compare the efficacy of these two oral antiviral pills, Pfizer's drug appears to have a leg up on Merck and Ridgeback Therapeutics' molnupiravir.

Merck, in turn, may end up losing out on several billion in future coronavirus drug sales. Underscoring this point, Wall Street now thinks that Pfizer's Paxlovid could haul in around $20 billion in sales next year following this significant decline in molnupiravir's efficacy.

Now what

Is Merck's stock a bad news buy? Even though Merck won't take home the lion's share of the oral antiviral pill market for COVID-19, the drugmaker will still rake in several billion in molnupiravir sales next year. Moreover, the pharma giant's shares are currently trading at under 11 times forward-looking earnings after this sharp pullback. That's a rock-bottom valuation for a big pharma stock, especially for one that comes with a massive 3.74% dividend yield on an annualized basis. Bargain hunters, therefore, might want to take advantage of this hefty sell-off in the big pharma's shares during the month of November.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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