Merck & Co., Inc.: Global healthcare group focused on pharmaceuticals and animal health

Brief summary for investors: Merck & Co. is an established, globally leading pharmaceutical company with a diversified portfolio in oncology, immunology, and vaccines, as well as an animal health business. The company generates stable cash flows and demonstrates solid operating profitability.

Development The share price showed a clear upward trend from the end of 2020 (~€65) to the end of 2022, reaching an all-time high of over €120 in April 2024. Since then, however, the share price has come under considerable pressure, more than halving (June 2025: ~€66). This recent weakness correlates with a significant decline in profitability metrics in fiscal year 2023 (EPS: USD 0.14), suggesting exceptional items or write-downs. The current quarters of 2024/25 show a recovery in profitability (EPS Q1 2025: 2.01), albeit with declining sales compared to the peak levels in mid-2024. The high debt ratio (debt-to-equity: 1.38) represents considerable financial leverage.

Opportunities:

• Strong operational recovery: The latest quarterly figures again show robust profitability (EBITDA margin of ~47% in Q1 2025) and high free cash flow generation.
• Diversified portfolio: The business model is broadly positioned, with blockbusters in oncology (Keytruda) and a stable animal health business, which mitigates company-specific risk.
• Partnerships: Collaborations with other pharmaceutical companies (e.g., AstraZeneca, Gilead) can strengthen the R&D pipeline and expand market reach.

Risks:

• Patent Protection: The biggest risk is the imminent expiration of patent protection for Keytruda, the company's top-selling product, which could result in significant revenue shortfalls.
• Cyclical Dependence: The recent price correction could be due to macroeconomic concerns (interest rates, recession risk) that are slowing investments in the healthcare sector.
• Regulatory Risks: The company is exposed to regulatory changes in the healthcare sector (price regulation) and political interventions.

Additional Notes: Political transactions do not present a consistent picture, with both purchases and sales by various members of parliament recently. This is not a strong indicator in itself.

Conclusion: Merck is in a transition phase. While short-term operating performance is strong, the share price is dominated by long-term concerns about the patent expiration of its flagship product and macroeconomic factors. The current valuation (a decline in share price while earnings have recovered) could represent an entry point for long-term investors who believe the pipeline and animal health business can absorb the loss of Keytruda. However, the extent of the patent cliff remains the key unresolved risk.

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