Merck (MRK) is currently one of the worst-performing stocks in the Dow Jones Industrial Average (DJIA) due to new details released by the Centers for Medicare & Medicaid Services regarding drug negotiations. The US government announced a new process for pharmaceutical pricing negotiations, which could potentially impact Merck’s margins in the coming years. This news has contributed to the overall market pullback, with concerns over potential hostilities between Israel and Iran causing further market uncertainty. Oil prices surged by 4.5% amid fears of possible disruptions to shipping in the Middle East.
The Centers for Medicare & Medicaid Services (CMS) revealed that up to 15 new drugs will be targeted for lower prices during negotiations in 2027. As a major purchaser of pharmaceuticals, CMS will have until February 1, 2025, to select the drugs for negotiation. Meetings with manufacturers will be held prior to the negotiation process, allowing for input and discussions before any initial offers are made. This approach, initiated under President Joe Biden’s legislation, has raised concerns among US pharmaceutical investors due to the potential impact on drug pricing.
For Merck, the implications of these negotiations are significant, with a projected decrease in revenue for its Januvia drug, used in the treatment of diabetes. The price of a 30-day supply of Januvia is expected to decrease from $527 to $113 by 2026 based on the initial negotiations that started in 2023. Additionally, competition for Merck’s cancer drug Keytruda is expected from other medications, which could impact the company’s market share in the future.
In terms of stock performance, Merck’s share price has broken key support levels and is currently in a downtrend. The stock price has fallen below the $112 support level from early August, as well as the range low of $110.72. With the 50-day Simple Moving Average (SMA) below the 100-day and 200-day SMAs, the stock is facing further downside potential. A breach of the $100 psychological level could result in a further decline to the mid-$80s, where the stock found support in September 2022.
Overall, the outlook for Merck’s stock remains uncertain as it navigates the challenges posed by the CMS negotiations and increased competition in the pharmaceutical market. Investors will be closely monitoring developments in drug pricing and market dynamics to assess the potential impact on Merck’s financial performance in the coming years.
