Forbes·2025-07-11 11:10Core Viewpoint - Merck's acquisition of Verona Pharma for $10 billion signals its urgency to address the impending Keytruda patent cliff, with the addition of a potential blockbuster drug to its portfolio [2][3]. Group 1: Acquisition Details - Verona Pharma's key asset, Ohtuvayre, is an inhaled medication for COPD, expected to generate peak annual sales of $4 billion, enhancing Merck's revenue diversification strategy [3]. - The acquisition aligns with Merck's strategy to mitigate the anticipated $15-20 billion decline in Keytruda's sales due to biosimilar competition [4]. Group 2: Financial Implications - Ohtuvayre's projected revenue contribution of $3-4 billion annually would only cover approximately 20% of the expected decline from Keytruda [4]. - Merck's stock has decreased by 16% year-to-date, underperforming the S&P 500 index, which has risen by 7% [6]. Group 3: Strategic Context - The acquisition is part of a broader diversification strategy, which includes other promising drugs and a pipeline of 20 potential blockbusters with a combined potential of $50 billion [5]. - Merck's current stock price of around $85 reflects a price-to-earnings ratio of under 11 times, lower than its historical average of roughly 15 times [8]. Group 4: Future Outlook - Merck's management recognizes the challenges posed by the Keytruda patent cliff and will need further acquisitions and effective pipeline execution to fully offset Keytruda's revenue loss [8]. - The company's heavy reliance on Keytruda, which accounts for nearly half of its total sales, raises concerns about its growth narrative [9].