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Monday's Featured Article
Merck Just Made a Big Bet on a New Cancer Growth EngineBy Jessica Mitacek. 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’s “Hidden” Company
While the health care sector has struggled this year, that hasn’t been true for all of Big Pharma. Shares of New Jersey-based Merck & Co. (NYSE: MRK) have outperformed the sector and the broader market, rising by more than 12%.
The drugmaker’s stock jumped after news it would acquire Terns Pharmaceuticals—a move that bolsters its cancer-treatment pipeline and reinforces Merck’s reputation as a top-tier serial acquirer. That kind of mergers and acquisitions (M&A) activity has helped drive Merck’s steady growth and market-cap expansion. Merck’s market value is currently more than $296 billion, behind only Eli Lilly (NYSE: LLY) and AbbVie (NYSE: ABBV), which sit around $830 billion and $370 billion, respectively. Merck’s Terns Acquisition Is a Pivotal Oncology PlayOn March 25, Merck announced it had agreed to acquire Terns, a clinical-stage oncology company developing therapies that include TERN-701, an oral allosteric BCR–ABL1 inhibitor for the treatment of chronic myeloid leukemia (CML). According to the press release, Merck will acquire Terns for $53 per share in cash, implying an equity value of approximately $6.7 billion. Merck said the deal builds on its hematology presence and adds a "potential best-in-class candidate for the treatment of certain patients with chronic myeloid leukemia." The Terns agreement is Merck’s third multi-billion-dollar acquisition in the past year. Although TERN-701 is still in clinical stages, it has shown promising activity, producing "encouraging rates of molecular response and deep molecular response," including in patients with high disease burden who have received multiple prior lines of therapy. M&A Activity Has Helped Support Merck’s Earnings and Dividend ProfileMerck’s acquisition of Terns underscores its central role in the pharmaceutical industry and complements 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 financials on Feb. 3, it posted earnings per share (EPS) of $2.04 versus expectations of $2.01, and revenue of $16.40 billion versus expectations of $16.19 billion. With a forward price-to-earnings multiple of 16.45, Merck’s EPS is forecast to grow by nearly 10% over the next year, from $9.01 to $9.90. In his 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 following 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. Those revenue projections are attractive to shareholders and prospective investors, but the larger takeaway is how rapidly Merck has scaled through acquisitions. That M&A strategy has become a hallmark for the company. The Verona Pharma and Cidara Therapeutics deals—valued at about $10 billion and $9.2 billion, respectively—were followed by the Terns announcement, valued at $6.7 billion. Merck continues to pursue a bolt-on acquisition strategy to diversify its oncology, immunology, and infectious-disease pipeline. Integrating these biotech companies into its portfolio accelerates growth and expands Merck’s market share while reducing barriers as it enters new markets. As a result, the company has maintained a five-year average gross margin above 73%. Those high and expanding margins reflect pricing power and operational efficiency, enabling Merck to sustain and grow its dividend, which yields 2.84% and amounts to $3.40 per share annually. While dividends are common among mature health care companies—particularly large pharmaceutical firms and established managed-care companies—Merck still stands out. The company has raised its payout for 14 consecutive years and posts a five-year dividend growth rate of 5.75%. How Wall Street Feels About MerckBased on the 18 analysts covering the stock, Merck has a consensus Moderate Buy rating, with 11 analysts assigning MRK a Buy rating. The average one-year price target of $127.13 implies upside of more than 7%. Institutional ownership remains above average at more than 76%, with inflows of nearly $37 billion exceeding outflows of about $19 billion over the past 12 months. Current short interest of just 1.18% of the float—roughly 29 million of the 2.47 billion shares outstanding—suggests bears are relatively scarce. 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 those evaluated by MarketBeat, ranking 39th out of 858 stocks in the medical sector. |
