How long can this top stock continue to defy the bear market?  |  The Motley Fool

How long can this top stock continue to defy the bear market? | The Motley Fool

Although the market is having the worst year investors have had in a long time, some companies are doing very well. One of them is Merck (MRK 0.33%). The pharmaceutical giant is currently defying gravity; its shares are up 31% since early January. The drugmaker has several things going on, and chances are it will continue to perform well no matter what happens to the stock market or the economy. Here’s why Merck is a great stock for long-term investors.

The gift that keeps on giving

Like most major pharmaceutical companies, Merck has a pipeline of drugs that continues to help it grow revenue and bottom line. During the third quarter, the company’s revenue increased 14% year over year to approximately $15 billion. Merck’s adjusted net profit for the period was $4.7 billion, 4% higher than the third quarter of 2021.

Merck’s key asset remains its cancer drug Keytruda, which has racked up numerous approvals. Keytruda’s sales rose 20% year-over-year in the third quarter to $5.4 billion, representing just over a third of the company’s total revenue. While over-reliance on a single product can be a red flag for drugmakers, Merck will be fine.

Keytruda will not lose patent exclusivity until 2028, giving Merck enough time to replace it. Meanwhile, the cancer drug is still making progress on the clinical and regulatory fronts. It’s undergoing several clinical trials that could help it win more label extensions, and it won four new approvals in Japan in the third quarter.

Additionally, Merck has a subcutaneous formulation of Keytruda in the works, which, if approved, would help the company extend its patent protection. The cancer drug will continue to increase in sales until 2028. In fact, it is expected to become the top-selling drug in the pharmaceutical industry by 2026, taking that title away from rheumatoid arthritis drug Humira.

In short, Keytruda will continue to be an important growth engine for Merck for at least half a decade.

Other avenues for growth

Merck’s business extends far beyond Keytruda. The company markets other oncology products and various vaccines, and is one of the leaders in animal health. Merck shares rights to cancer drug Lynparza with British company Astra Zeneca. In the third quarter, Merck’s revenue from the drug increased 16% year-over-year to $284 million.

The bulk of Merck’s pipeline programs are in oncology. The company expects to deliver more than 80 new approvals in this therapeutic area by 2028. Meanwhile, Merck’s HPV vaccines, Gardasil and Gardasil 9, continue to increase sales at a good pace. Combined revenue for these two products jumped 15% year-over-year to $2.3 billion in the third quarter.

Last year, Merck expanded its vaccine portfolio with the approval of the pneumococcal vaccine Vaxneuvance. Some analysts predict that this product could eventually generate over $1 billion in annual sales. Merck’s animal health business isn’t faring so well, with sales down 3% year-over-year to $1.4 billion in the third quarter, although they were up 4 % in constant currency terms.

However, as the number of pet owners increases, the animal health market will continue to grow, benefiting companies like Merck. Long-term trends such as the aging of the global population will also have a positive impact on Merck’s pharmaceuticals business. And beyond its strong oncology lineup, the drugmaker has many other candidates in various therapeutic areas, including diabetes, neuroscience and infectious disease.

Merck will likely continue to perform well even in a recession. Doctors don’t stop prescribing drugs during an economic downturn. And the company has the tools to perform well over the long term thanks to its strong lineup and pipeline. Merck has the tools to reward shareholders for the remainder of this market downturn and beyond.

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