Merck Just Made a Big Bet on a New Cancer Growth Engine

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.

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 broad market with a more than 12% gain. 

The drugmaker’s stock recently got a shot in the arm on the news of it acquiring Terns Pharmaceutical—a move that will not only bolster its cancer treatment pipeline but also reinforce Merck’s role as a top-tier serial acquirer. 

That type of mergers and acquisitions (M&A) activity has played a big part in the pharmaceutical firm’s ability to continue its steady growth and market cap expansion, the latter of which is currently more than $296 billion, second only to Eli Lilly NYSE: LLY and AbbVie NYSE: ABBV at around $830 billion and $370 billion, respectively. 

Merck’s Terns Acquisition Is a Pivotal Oncology Play

On March 25, Merck announced that it had come to terms with Terns, a clinical-stage oncology company focused on developing therapies, including TERN-701, an oral allosteric BCR–ABL1 inhibitor used in the treatment of 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, further building upon the company’s growing presence in hematology treatment with a “potential best-in-class candidate for the treatment of certain patients with chronic myeloid leukemia.”

The definitive agreement of Terns marks the third multi-billion-dollar acquisition for Merck over the past year. And while still clinical-stage, TERN-701 has shown promising activity with “encouraging rates of molecular response and deep molecular response,” importantly including responses in patients with high disease burden who have previously received multiple lines of therapy.

M&A Activity Has Helped Support Merck’s Earnings and Dividend Profile

Merck’s ability to secure the Terns’ agreement highlights its central role in the pharmaceutical industry, which has translated into an incredibly strong earnings track record. The company has only missed on analyst estimates once in the past 19 quarters, dating back to Q2 2021. 

When the company reported Q4 2025 financials on Feb. 3, it announced earnings per share (EPS) of $2.04, surpassing expectations of $2.01, and revenue of $16.40 billion, surpassing 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 comments, 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.

While those revenue forecasts are alluring to current shareholders and potential investors, the big takeaway lies in the rapid scale the company has routinely seen through its acquisitions strategy. 

That M&A activity—in addition to the recent news about Terns—have become a hallmark for the company. The Verona Pharma and Cidara Therapeutics agreements, which were valued at $10 billion and $9.2 billion, respectively, were followed by the Terns announcement, valued at $6.7 billion. 

Merck continues to demonstrate its focus on a bolt-on acquisition strategy in order to diversify its oncology, immunology, and infectious disease drug pipeline.

Seamlessly integrating these biotech companies into its portfolio is accelerating growth and expanding Merck’s market share while minimizing hurdles as it enters new markets. 

In turn, the Big Pharma mainstay has been able to maintain a five-year average gross margin of more than 73%.

Those high and expanding margins indicate superior pricing power and operational efficiency, which together allow Merck to sustain and grow its dividend, yielding 2.84%, or $3.40 per share annually. 

While dividends have become a distinct feature of mature health care companies—specifically for large pharmaceutical firms and firmly rooted managed care companies, Merck stands out.

The company has increased its payout for 14 consecutive years and boasts a five-year dividend growth rate of 5.75%.

How Wall Street Feels About Merck

Based on the 18 analysts currently covering the stock, Merck receives a consensus Moderate Buy rating, with 11 analysts assigning MRK a Buy rating. With an average one-year price target of $127.13, Wall Street sees 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. Meanwhile, current short interest of just 1.18% of the float—or 29 million of the 2.47 billion shares outstanding—suggests that Wall Street’s bears are keeping their distance. 

Merck has found itself in the green zone, according to TradeSmith’s financial health indicator for more than six months, and the Big Pharma firm scores higher than 93% of the companies evaluated by MarketBeat, ranking 39th out of 858 stocks in the medical sector.