Merck’s Covid-19 Drug Is a Boon for Wall Street

By revealing strong data for its experimental Covid-19 antiviral treatment, Merck MRK 9.14% & Co. and its partner Ridgeback Biotherapeutics have apparently struck a major blow against the pandemic. The news also has rejuvenated Merck’s stock price and could jump-start the moribund biotech sector.

Merck and closely held Ridgeback Biotherapeutics said Friday their oral drug molnupiravir reduced the risk of hospitalization or death by about 50% in patients with mild to moderate Covid-19. The companies plan to ask the Food and Drug Administration for emergency use authorization in the coming weeks. Merck expects to produce enough medicine to treat 10 million patients by the end of this year and more in 2022.

That is great news for anyone hoping to enter a crowded office or school any time soon, and should give a boost to beleaguered industries such as travel and hospitality. After all, vaccination rates have slowed to a trickle in the U.S., and it has become clear that the virus won’t go away soon.

Medication to treat new infections before patients reach the hospital are therefore badly needed. And although hospitalizations are rare among vaccinated people, prescriptions could still be needed for the elderly and other high-risk groups who get breakthrough infections.

There could be more on the way. Other companies such as Pfizer, as well as Roche Holding in partnership with Atea Pharmaceuticals, are expected to reveal data for their own outpatient treatments in the near future.

As a result, Covid-19 antivirals are likely to be a winner on Wall Street as well. Merck shares rose about 10% Friday morning, while Atea gained 27%. That reaction isn’t a mere sugar high from giddy investors. More than a third of Merck’s $11.4 billion in second-quarter revenue came from its blockbuster cancer drug Keytruda, and investors are typically wary of drug companies with too high a share of sales from one product. Should U.S. regulators authorize the drug, the government has agreed to pay Merck $1.2 billion for 1.7 million courses of treatment, or about $700 each.

With molnupiravir and its $11.5 billion acquisition of Acceleron Pharma, announced Thursday, Merck suddenly has likely blockbuster drugs in waiting to treat Covid-19, as well as rare diseases such as pulmonary arterial hypertension. At about 15 times this year’s adjusted profit forecast, Merck shares are hardly expensive.

The antiviral news just might give biotech stocks of all types a badly needed jolt. A broad index of biotechnology stocks has shed 12% so far this year and fell yet again Friday morning, as shares in other drugmakers with Covid-19 treatments sold off sharply. But in this corner of the stock market, a dose of positive sentiment can have major benefits. The same index rallied about 50% in the three months after drugmakers first shared positive late-stage trial data about Covid-19 vaccines last fall. A rally will look even more likely if recent efforts in Washington, D.C. to rein in drug prices fizzle out.

In fact, now is an opportune time for drugmakers to remind the public of the key role they have played in combating the pandemic. Drug pricing aside, when it comes to antiviral development, what is good for Merck can also be good for America.

Write to Charley Grant at charles.grant@wsj.com

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