BMO Capital Cuts Price Target on Merck (MRK) Following FDA's Zepatier Approval

BMO Capital maintained an Outperform rating on Merck (NYSE: MRK), and cut the price target to $60.00 (from $66.00), following the FDA's approval of the Hep-C doublet Zepatier. BMO lowered their Hep-C forecasts to reflect the label and intensifying competitive landscape. 2016-2017 Hep-C forecasts are now in line with consensus, but are higher in 2018 and beyond, as in BMO's view, the Street seems to be underestimating Merck’s Nuke (MK-3682).

Analyst Alex Arfaei commented, "Zepatier is mostly on par with Harvoni in GT1b patients, where we estimate it could gain up to 15% market share. Merck also has solid data in special subgroups including patients with CKD, and those who inject drugs, and we think this should allow it to gain at least 5-7% in GT1a patient despite the recommendation for RAV testing. We’ve lowered our Hep-C forecasts to reflect the label and intensifying competitive landscape. Our 2016-2017 Hep-C forecasts are in line with consensus, but we are higher in 2018 and beyond as the Street seems to be underestimating Merck’s Nuke (MK-3682), in our view. Merck should meet or slightly exceed 4Q15 expectations by ~2%: Januvia may be ~2% light in part because of an inventory adjustment from 3Q15, but Keytruda should be in line (~$205MM). We expect 2016 guidance to be in line with our forecast and consensus: revenues ~$40Bn, EPS: ~$3.75. The focus in 2016 will be on the first-line NSCLC opportunity, where we expect Keytruda to be more competitive with Opdivo. The Keytruda Keynote-024 study could read out earlier than expected (April/May as opposed to June 2016), and we argue that Keytruda will be more competitive in 1L-NSCLC partly because more treatments will be based on PD-L1 screening, and -024 is more enriched than Opdivo’s Checkmate-026 study, thus, it could produce a seemingly better OS benefit vs. chemo. Nonetheless, we are lowering our Keytruda forecasts to reflect the slower launch in 2L+ NSCLC. Finally, we believe the BACEinhibitor and Anacetrapib remain underappreciated."

For an analyst ratings summary and ratings history on Merck click here. For more ratings news on Merck click here.

Shares of Merck closed at $49.20 yesterday.

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