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Special Report
Merck Just Made a Big Bet on a New Cancer Growth EngineAuthored by Jessica Mitacek. Date Posted: 3/31/2026. 
Key Points
- Merck is set to acquire Terns Pharmaceutical for $6.7 billion, adding its promising leukemia treatment to its growing hematology and cancer pipeline.
- This is Merck’s third multi-billion dollar deal in a year, a bolt-on strategy projected to drive a $70 billion commercial opportunity by the mid-2030s.
- With an average five-year gross margin of 73% and 14 consecutive years of dividend increases, Merck remains a top-tier performer with a Moderate Buy rating.
- Special Report: Elon Musk already made me a “wealthy man”
While the health care sector has struggled this year, not all of Big Pharma has. Shares of New Jersey-based Merck & Co. (NYSE: MRK) have outperformed both the sector and the broad market, rising more than 12%.
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The drugmaker’s stock recently got a lift after news of its agreement to acquire Terns Pharmaceuticals—a move that will bolster Merck’s cancer-treatment pipeline and reinforce its reputation as a serial acquirer. That mergers-and-acquisitions (M&A) activity has been a major driver of the company’s steady growth and market-cap expansion, giving it a market value of more than $296 billion — behind Eli Lilly (NYSE: LLY) and AbbVie (NYSE: ABBV), which sit at roughly $830 billion and $370 billion, respectively. Merck’s Terns Acquisition Is a Pivotal Oncology PlayOn March 25, Merck announced a deal to acquire Terns, a clinical-stage oncology company developing therapies including TERN-701, an oral allosteric BCR–ABL1 inhibitor for chronic myeloid leukemia. According to the press release, Merck will acquire Terns for $53 per share in cash — an approximate equity value of $6.7 billion — further expanding the company’s hematology pipeline with what Merck described as a “potential best-in-class candidate” for certain patients with chronic myeloid leukemia. The Terns agreement marks Merck’s third multi-billion-dollar acquisition in the past year. Although still clinical-stage, TERN-701 has shown promising activity, with “encouraging rates of molecular response and deep molecular response,” including responses in patients with high disease burden who had received multiple prior lines of therapy. M&A Activity Has Helped Support Merck’s Earnings and Dividend ProfileMerck’s ability to close deals like Terns underscores its central role in the pharmaceutical industry and contributes to an impressive earnings track record. The company has missed analyst estimates only once in the past 19 quarters, dating back to Q2 2021. When Merck reported Q4 2025 results on Feb. 3, it posted earnings per share (EPS) of $2.04, beating expectations of $2.01, and revenue of $16.40 billion, topping forecasts of $16.19 billion. With a forward price-to-earnings multiple of 16.45, Merck’s EPS is forecast to grow nearly 10% over the next year, from $9.01 to $9.90. In the earnings call, CEO Rob Davis attributed the company’s steady growth to new product launches, progress in key clinical programs, and added scale in respiratory and infectious diseases from the Verona Pharma and Cidara Therapeutics acquisitions. "As a result of this progress, we now have line of sight to over $70 billion of potential commercial opportunity by the mid-2030s, $20 billion more than just a year ago and more than double consensus 2028 peak Keytruda revenue of $35 billion," Davis said. Beyond those revenue forecasts, the bigger takeaway is the rapid scale Merck has routinely achieved through its acquisition strategy. That M&A activity — including the Verona Pharma and Cidara Therapeutics deals (valued at $10 billion and $9.2 billion, respectively) and now Terns (valued at $6.7 billion) — has been a hallmark of the company’s recent growth. Merck continues to pursue bolt-on acquisitions to diversify and deepen its oncology, immunology, and infectious-disease pipeline. Seamlessly integrating these biotech companies into its portfolio is accelerating growth and expanding market share while minimizing hurdles as Merck enters new markets. As a result, the company has maintained a five-year average gross margin of more than 73%. Those high and expanding margins reflect pricing power and operational efficiency, which together allow Merck to sustain and grow its dividend, currently yielding 2.84% (about $3.40 per share annually). Dividends are common among mature health care companies—especially large pharmaceutical firms and established managed-care companies—and Merck stands out among them. The company has increased its payout for 14 consecutive years and has a five-year dividend growth rate of 5.75%. How Wall Street Feels About MerckOf the 18 analysts currently covering the stock, Merck receives a consensus Moderate Buy rating, with 11 analysts assigning MRK a Buy. The average one-year price target of $127.13 implies more than 7% upside. Institutional ownership remains above average at over 76%, with inflows of nearly $37 billion outpacing outflows of roughly $19 billion over the past 12 months. Current short interest of just 1.18% of the float—about 29 million of the 2.47 billion shares outstanding—suggests bears are keeping their distance. Merck has been in the green zone on TradeSmith’s financial-health indicator for more than six months, and the company scores higher than 93% of the firms evaluated by MarketBeat, ranking 39th out of 858 stocks in the medical sector. |
