Merck & Co Inc (NYSE: MRK) is in focus this morning after announcing a $2.0 billion deal with Hansoh Pharma.
The said agreement wins it rights to HS-10535 – an experimental weight-loss pill (oral) developed by the Chinese drugmaker.
Hansoh will receive an upfront payment of $112 million from Merck and the remaining in milestone payments and royalties, as per a press release on Wednesday.
Merck stock is currently down some 25% versus its high in late June.
What Merck’s news means for its peer Eli Lilly
Merck is a pharmaceutical behemoth known for its groundbreaking medical innovations and contributions to healthcare since 1891.
Still, its entry into the obesity drug market may not be significant for space leaders like Eli Lilly and Novo Nordisk.
That’s because Merck is only in the early stages of experimenting with weight-loss treatments at writing.
HS-10535 is yet to begin human trials. Merck has not even named the diseases it will be tested on first.
In comparison, Lilly’s Zepbound has already hit the shelves.
In fact, Zepbound contributed more than $1.2 billion to the company’s overall revenue growth of 42% in the third quarter of 2024.
Some experts even expect Eli Lilly to be the world’s first healthcare company to hit $1.00 trillion valuation on the back of its weight-loss initiative.
What the licensing deal means for Merck shares
Nonetheless, Merck’s announcement involving Hansoh Pharma on Wednesday could mean long-term tailwinds for the multinational based out of Rahway, NJ.
The new licensing agreement has secured it exposure to the obesity drug market that analysts forecast will be worth over $100 billion by the end of this decade.
If Merck is successful with its anti-obesity venture, it could unlock significant upside in its share price just as the weight-loss treatments did for Eli Lilly and Novo Nordisk.
It’s also worth mentioning that Merck is focusing on an oral pill – one that neither Lilly nor Novo have launched so far.
Although, the former’s Orforglipron has shown promising results and is currently in late-stage trials.
So, Lilly, nonetheless, is ahead of Merck in introducing an oral obesity drug.
Should you invest in Merck stock today?
All in all, today’s announcement may have turned Merck stock a bit more attractive.
Even without it, analysts at Cantor Fitzgerald saw upside in the company’s share price to $155 that indicates potential for a more than 50% gain from current levels.
And the optimism surrounding its entry into the weight-loss drug market could make it that much easier for MRK to hit that price in 2025.
Plus, Merck shares currently pay a healthy dividend yield of 3.24% as well that makes them all more exciting to own for the long term.
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