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Not sure if you’ve noticed, but Merck (MRK) – one of those huge giant pharma companies that normally no trader cares about – has been all over the news this morning.

And for a good reason:

That’s right – Merck is the latest pharma company to hop aboard the COVID-19 train and I think it has every chance to have a spectacular run at it.

Personally, their announcement gets me pretty darn excited!

Let’s have a closer look at what exactly happened and see what we may expect next.

But that’s not all, I will be examining just what wild action we saw play out this last week.

You won’t want to miss out on this Sunday night Livestream of Connect the Dots at 7 PM ET.

What Did Merck Do?

In short – something major.

Merck has just announced that it’s halting further patient enrollment into its Phase 3 trial of “molnupiravir” – the company’s drug candidate for the treatment of COVID-19 patients.

Now, if that doesn’t sound so great – you’re right. Normally, trial halts are no good news – more often than not they are a result of serious safety issues identified either by the FDA, or by a pharma company itself, hence, a trial is stopped to avoid hurting other patients.

Well, here I’m very happy to report that Merck is one great exception to this rule!

In this case, early results from a Phase 3 trial showed that the drug can reduce the risk of death or hospitalizations in COVID-19 patients by nearly 50% vs those on placebo.

Then, the company, independent trial monitors, and the FDA have all decided that the data is in fact so ENCOURAGING, that they see no point in wasting any more time with the trial and would rather work on the regulatory process to bring the life-saving drug to the market sooner.

And if you think 50% is not good enough compared to 77-97% delivered by the vaccines currently on the market, wait till you hear the next part…  

 

What Is Molnupiravir and Why The Hype?

Now that’s the part that gets me super excited, both as a human and a trader/investor.

Molnupiravir is a pill.

That’s right, it’s just a pill! Much like your Advil or Aspirin, or Vitamin D!

It’s meant to be administered to the potentially vulnerable populations diagnosed with the COVID-19, who are showing mild-to-no symptoms – and it’s shown to be 50% effective in reducing hospitalizations and deaths in those.

Obviously, the drug doesn’t offer as strong a protection as traditional vaccines or the monoclonal antibody therapies – but that’s not the point! Let me reiterate… it’s just a pill!

For the first time ever, we’re getting an actual traditional yet effective COVID-19 treatment – exactly the kind that we’re all used to.

No more jabs, no complex in-hospital therapies with serious side effects on critical or almost critical patients – just a pill, with very solid efficiency.

Now, I don’t know about you folks, but in my world, that’s huge news!

 

The Numbers

For those in the field, this isn’t exactly news – early data was encouraging enough that back in June the Biden Administration placed a conditional order (that is, if the drug is eventually approved) for $1.2B worth of Molnupiravir – or, for approximately 1.7M courses of the drug.

Separately, the company also identified it intends to produce about 10M courses by the year-end, and significantly ramp the figure up in 2022.

Where does that put us?

Simple math on the Biden Admin’s order prices one course of the drug at about $700.

There are still serious shortages of vaccines, as both Pfizer and Moderna are running at max capacity – and of any effective treatment for that matter.

Thus, there’s no doubt in my mind that the company will sell all the 10M doses it is capable of producing this year – an addition of ~$7B to this year’s top line.

I’m not going to speculate about next year, but I think we can all agree the figure is likely to grow exponentially.

In 2020, MRK did about $47B in revenues. The average analyst estimate for pre-molnupiravir 2021 was ~$46.8B. Adding $7B on top of that this year alone is definitely a major change in fundamentals!

MRK Stock and What To Expect

I pulled up MRK’s chart and realized I’m not alone in my optimism:

Shares have been trading over 9% higher virtually all of today while doing some major volume.

The longer-term chart looks even better. If we look at 10-Yr, MRK has truly been the definition of “boring” name:

This is the first move of its kind and, given the magnitude of the news, I wouldn’t be surprised to see some continuation.

Personally, I’d be watching for $80 level to hold up – if it does, I think we can easily see a run to $100+ in a short order.

MRK’s eternal boredness is also what makes it exciting – most of the names with hyped up are storylines are aggressively priced, making it really hard to build a meaningful position.

With MRK, I can still see some reasonably priced Calls expiring as far as 4 months, all right around my target range:

This is definitely a stock I’ll be watching closely over the next few days and weeks – if the broader market pick it up, I truly believe we can get some great traders out of this one.

 

Author:
Jason Bond

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