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This Week's Bonus Article
Merck Just Made a Big Bet on a New Cancer Growth EngineWritten by Jessica Mitacek. First Published: 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: The Biggest IPO Ever: Claim Your Stake Today
While the health care sector has struggled this year, that hasn’t been the case 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 recently got a boost from the news that it will acquire Terns Pharmaceuticals — a move that not only strengthens its cancer-treatment pipeline but also reinforces Merck’s reputation as a top-tier serial acquirer. That type of mergers-and-acquisitions (M&A) activity has helped the company sustain steady growth and expand market cap, which now tops $296 billion — behind only Eli Lilly (NYSE: LLY) and AbbVie (NYSE: ABBV), at roughly $830 billion and $370 billion, respectively. Merck’s Terns Acquisition Is a Pivotal Oncology PlayOn March 25, Merck announced that it had reached an agreement to acquire Terns, a clinical-stage oncology company focused on 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, for an approximate equity value of $6.7 billion. The company says TERN-701 could be a “potential best-in-class candidate for the treatment of certain patients with chronic myeloid leukemia.” The Terns deal is Merck’s third multi-billion-dollar acquisition in the past year. While still in clinical stages, TERN-701 has shown promising activity, with “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 ability to close the Terns deal underscores its central role in the pharmaceutical industry and has contributed to an impressive earnings record. The company has missed analyst estimates only once in the past 19 quarters (since Q2 2021). When Merck reported Q4 2025 financials on Feb. 3, it posted EPS of $2.04, beating expectations of $2.01, and revenue of $16.40 billion, above forecasts of $16.19 billion. With a forward price-to-earnings multiple of 16.45, Merck’s EPS is projected to grow by nearly 10% over the next year, from $9.01 to $9.90. In the earnings call, CEO Rob Davis attributed the company’s 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. While those revenue forecasts are attractive to shareholders and potential investors, the key takeaway is the rapid scale Merck has achieved through its acquisition strategy. M&A activity — including the Verona Pharma and Cidara Therapeutics deals, valued at $10 billion and $9.2 billion respectively — has repeatedly expanded Merck’s capabilities. The recently announced Terns acquisition is valued at $6.7 billion. Merck continues to pursue a bolt-on acquisition approach to diversify its oncology, immunology, and infectious-disease pipeline. Integrating these biotech companies into its portfolio is accelerating growth and expanding 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 indicate strong 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). Although dividends are now a common feature among mature health-care companies—especially large pharmaceutical and established managed-care firms—Merck still stands out. 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 MerckBased on 18 analysts covering the stock, Merck carries a consensus Moderate Buy rating, with 11 analysts assigning a Buy rating. The average one-year price target of $127.13 implies potential upside of more than 7%. Institutional ownership remains above average at more than 76%, with inflows of nearly $37 billion exceeding outflows of around $19 billion over the past 12 months. Current short interest of just 1.18% of the float — roughly 29 million of 2.47 billion shares outstanding — suggests Wall Street 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. |
