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Merck Cashes In On Moderna Equity Investment As Stock Pops 631% YTD

Merck & Co. said it divested its direct equity investment in Moderna in the first half of the fourth quarter, after benefiting from this year’s 631% rally in the vaccine maker’s shares.

Merck (MRK) disclosed that as a result of the sale, it expects to record a small fourth-quarter gain. The gains or losses from such holdings are recorded on a one-quarter lag, the company added. Additional financial terms of the sale weren’t disclosed.  

Back in 2015, Merck made a $50 million equity investment in Moderna (MRNA) as part of a license and collaboration agreement to develop messenger RNA-based antiviral vaccines and passive immunity therapies. The US drugmaker made another $125 million investment in Moderna’s series H preferred equity in 2018.

Merck said that following the divestment, it still retains exposure to Moderna indirectly through its investment in venture funds.

“Merck achieved a substantial gain on its direct holding in MRNA over the life of the investment, particularly in 2020 given the substantial appreciation in MRNA’s stock price,” Merck stated. “Merck and Moderna continue to collaborate on the development of personalized cancer vaccines as well as a cancer vaccine that encodes the four most common KRAS mutations.”

Merck shares have dropped 10% so far this year. The stock scores a Moderate Buy analyst consensus based on 6 Buys versus 3 Holds. Meanwhile, the average analyst price target of $96.11 implies 17% upside potential over the coming year.

On Nov. 30, Mizuho Securities analyst Mara Goldstein reiterated a Buy rating on the stock with a price target of $100, following a company call with MRK’s soon-to-be-retired R&D chief Roger Perlmutter, and successor, Dean Li, regarding the transition of leadership.

“Our immediate takeaway is that the call was neutral, essentially signaling, in our view, a continuation of the current strategy of optimizing KEYTRUDA’s opportunity through combinations, advancing earlier-stage compounds in key strategic areas, selective M&A and licensing opportunities, as well as reinvigorating discovery, and thus we do not expect much change near-term,” Goldstein commented in a note to investors. “We remain comfortable with MRK’s evolving pipeline, particularly on the back of KEYTRUDA-based combinations and other immuno-oncology (IO) candidates, and we posit that concerns surrounding concentration risk in the near-term assume that MRK will not either be able to address this nor ultimately undertake a strategic option, which we believe is premature.” (See MRK stock analysis on TipRanks).

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