Merck's Caraway Deal: Analyst Says "Timely, Anchored By Novel Programs & Management Team"

BMO Capital Markets analyst Evan David Seigerman reiterated an Outperform rating on Merck & Company, Inc. MRK, with a price target of $132.

Merck's developing cardiovascular portfolio, advancements in I&I through the Prometheus transaction, and partnership with Daiichi are likely to position the company to grow through its Keytruda LOE, according to Seigerman.

These developments add to the company's top line for several years.

Merck plans to acquire Caraway Therapeutics, a private Cambridge-based biotech company with numerous preclinical small-molecule assets and novel approaches targeting genetically defined neurodegenerative and rare diseases.

Seigerman said he visited Caraway in Cambridge earlier this year and was "very impressed" by the science and management acumen. 

According to the analyst, Caraway's presence in the field, innovative techniques, and relatively fast internal development engine enhance its candidacy for an acquisition.

The analyst highlighted Caraway as "very early assets" but guided by competent scientific and managerial excellence. 

The analyst adds that this acquisition is a thoughtful way to deal with Merck's Keytruda LOE. 

Leadership at Caraway is focused on the right things, and it would be wise for Merck to support rather than hinder their impressive progress, Seigerman adds.

Merck's $610 million upfront payment for Caraway Therapeutics will be recognized in 4Q23 and included in non-GAAP results.

For FY23, the analyst expects MRK EPS of $1.38, with FY24 estimates at $8.64. 

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Price Action: MRK shares are trading lower by 0.92% to $101.27 on the last check Wednesday.

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