If Merck’s stock increase on Oct. 1 was due molnupiravir exceeding expectations for its effectiveness,
That doesn’t seem quite right. I’ll guess that the news was near the middle of the expected range, and the stock rose because of the increased chances of FDA approval, while not causing much change in expected effectiveness conditional on FDA approval.
I actually came up with one more explanation, which is added to the main body of the post but reproduced here for your convenience:
A fourth explanation is that Merck’s 50% effectiveness result on Oct. 1 updated the market on two points:
A treatment in this class was going to be more profitable and easier to make than the market originally thought. This increases the price of both Merck and Pfizer.
Merck seemed more likely than before to beat Pfizer. This increases the price of Merck and decreases the price of Pfizer.
If the first factor cancels out the second factor for Pfizer, we’d obtain the result of no motion in the stock price.
That doesn’t seem quite right. I’ll guess that the news was near the middle of the expected range, and the stock rose because of the increased chances of FDA approval, while not causing much change in expected effectiveness conditional on FDA approval.
I actually came up with one more explanation, which is added to the main body of the post but reproduced here for your convenience: