Merck (MRK) Valuation in Focus After FDA Breakthrough Therapy Designation for Lung Cancer Drug

If you have Merck (MRK) on your watchlist, the latest FDA decision might prompt you to reconsider what is already reflected in the stock’s price. Merck’s antibody drug ifinatamab deruxtecan was just awarded Breakthrough Therapy Designation for extensive-stage small cell lung cancer. This signals the potential for a meaningful new revenue stream. For investors, FDA breakthrough status is not just another regulatory milestone; it suggests the possibility of faster pathways to market and places Merck’s research and development efforts at the forefront of attention regarding future growth. This headline shifts the focus back to Merck’s transformation initiatives as momentum builds in its product pipeline. Over the past year, the shares have fallen around 23 percent, with a modest recovery taking place this month after a challenging start to 2025. Recent KEYTRUDA trial results and international approvals, such as in Canada for head and neck cancer, have contributed to ongoing news flow. However, the stock’s medium-term outlook continues to reflect investor debate about pipeline prospects and valuation. Short-term trading activity has increased following the drug designation announcement, but there remains a visible gap compared to multi-year highs. With recent turbulence and this new regulatory development, some may question whether Merck is underappreciated given its potential, or if the market has already factored in any future acceleration in growth.

Most Popular Narrative: 13% Undervalued

According to community narrative, Merck is currently seen as undervalued relative to its fundamental prospects. The consensus analyst view suggests that the stock’s true value is higher than where it trades today.

With its acquisition and licensing strategy, Merck has nearly tripled its late-phase pipeline since 2021. This pipeline is expected to present a potential commercial opportunity of over $50 billion by the mid-2030s, which could drive earnings growth.

What exactly is pushing this undervalued narrative? A key part of the calculation lies in the company’s future revenue and margin growth expectations, along with significant assumptions on profit multiples. Want to discover which financial factors analysts are focusing on, and what market shifts could justify such a gap to fair value? Explore the numbers behind this projection; the details may surprise you.

Result: Fair Value of $100.41 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, GARDASIL sales pressures in China or any surprise impact from new tariffs could influence Merck’s earnings outlook and challenge this current undervalued narrative.

Find out about the key risks to this Merck narrative.

Another View: What Does the SWS DCF Model Say?

Looking at Merck through our DCF model offers a different angle. This method suggests the stock could be trading far below its actual worth. Is the real opportunity hiding in plain sight?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Merck for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Merck Narrative

If you see things differently or want to dig into the numbers on your own terms, you can easily assemble your own view in just minutes. So why not do it your way?

A great starting point for your Merck research is our analysis highlighting 5 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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