Merck's COVID Treatment Posts Strong Data

Merck's MRK strong data for COVID-19 treatment molnupiravir offers patients a needed oral treatment but doesn't significantly affect our fair value estimate or moat rating for the firm. While we project the drug should post sales over $3 billion in 2022, we expect sales to fall rapidly by 2024 when the pandemic will likely be under better control due to higher vaccine utilization. The lack of a long duration of sales for molnupiravir (as well as profit sharing with Ridgeback Biotherapeutics) limits the drug's valuation gains for Merck. Molnupiravir posted strong efficacy and safety data in mild to moderate disease while offering the important convenience of oral administration. At an interim look into the key clinical study (MOVe-OUT), molnupiravir reduced the risk of death or hospitalization by 50%, which is slightly worse than antibody treatment efficacy of over 80% in some studies. However, the oral administration is a major advance over intravenously infused antibody treatment (infusions generally occur at hospitals and outpatient centers). Additionally, the excellent safety data, with fewer adverse events than placebo, suggests molnupiravir will be used widely versus the more limited antibody treatment uptake. We expect over $3 billion in molnupiravir sales in 2022. We expect developed-market pricing to hold up similarly to the implied price of close to $700 per course of therapy based on the U.S. contract order for 1.7 million courses at $1.2 billion. Further, we expect the drug will penetrate over 25% of the market due to its strong efficacy, limited side effects, and convenient delivery. While competitive drugs are under development, we believe molnupiravir has set a high bar for them. Further upside could exist for molnupiravir if the post-exposure prophylaxis in the MOVe-AHEAD study is successful (data likely by April 2022), but the drug's failure in hospitalized patients limits sales in the setting where Gilead's Veklury is used.

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