2 Reasons Why Citi Downgraded Merck (MRK) to Neutral Today, Opened a Negative Catalyst Watch

November 29, 2021 6:45 AM EST
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Price: $80.90 +0.40%

Rating Summary:
    16 Buy, 13 Hold, 0 Sell

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    Up: 30 | Down: 16 | New: 32
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Shares of Merck (NYSE: MRK) are down 1.7% in pre-open Monday after Citi analyst Andrew Baum downgraded to Neutral from Buy with a price target of $85.00 per share from the prior $105.00.

First, the analyst sees a “high probability” that Merck will terminate islatravir development in the coming months amid strong regulatory headwinds.

“Our long-standing investment thesis on MRK was based on under-appreciation of MRK’s pipeline, especially islatravir for HIV to help to offset the forthcoming Keytruda LOE. We have removed our $4bn risk adjusted 2030 estimate from our model, reducing our EPS estimates up to 10%,” Baum said in a client note.

Secondly, the analyst also sees risk to Lagevrio forecasts for COVID-19. Citi’s EPS projections are now down 7-17% compared to the consensus post 2028E.

“Lagevrio estimates at risk given (i) inferior efficacy vs monoclonals or PFE’s Paxlovid, (ii) anticipated REMS program due to risk of birth defects (iii) data from MOVe-OUT trial suggesting Lagevrio likely has no benefit in previously infected or vaccinated patients. In the absence of resistance to PFE’s Paxlovid, we anticipate risk to consensus 2022+ est.”

Overall, Baum opened a negative catalyst watch on the Merck stock today and reiterated Citi’s Buy ratings on AstraZeneca (NASDAQ: AZN), AbbVie (NYSE: ABBV), Eli Lilly And Co (NYSE: LLY), Novartis (OTC: NVSEF), Sanofi (OTC: SNYNF), and Bristol-Myers Squibb (NYSE: BMY).

Merck stock is up 2.5% YTD.

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