This year has been one to forget for these pharmaceutical giants.Pfizer (PFE +1.20%) and Merck (MRK +0.71%) are two pharmaceutical giants that have lagged broader equities this year. Both have delivered unimpressive financial results recently, and are facing a somewhat uncertain medium-term outlook as they seek ways to navigate upcoming patent cliffs.Both could make significant progress toward that goal in 2026, but which one is the better option for investors heading into the new year? Let's find out. The ...

Merck & Co., Inc. (NYSE:MRK) is included among the 12 Best Dogs of the Dow to Invest in. BofA Turns More Positive on Merck (MRK) Pipeline Photo by Dan Dennis on Unsplash On December 15, BofA raised its price target on Merck & Co., Inc. (NYSE:MRK) to $120 from $105 and kept a Buy rating. The analyst said the stock is starting to look more appealing as the pipeline has “rounded out,” and noted that the firm is now basing its valuation on a new FY27 EPS estimate. That optimism comes against a mixed backd ...

Group 1 - Broader equities have performed well in 2025, with the S&P 500 up 14% since the beginning of the year, despite earlier concerns about bear-market territory [1] - Merck and Fiverr International are highlighted as potential long-term winners despite their respective declines of 13% and 34% this year [2] Group 2 - Merck's Keytruda, a leading cancer therapy, is facing increased competition and a patent cliff in 2028, but it still generated third-quarter sales of $8.1 billion, up 10% year over year [4][5] - Merck's HPV vaccine sales are declining due to lower demand in China and Japan, but the company is well-equipped to handle these challenges [4] - Newer products like Winrevair and Capvaxive are showing promising sales, with Winrevair achieving $360 million in the third quarter and Capvaxive reporting $244 million [6] - Overall sales for Merck increased by 4% to $17.3 million, indicating resilience despite challenges in its HPV vaccine franchise [7] - The company's evolving core franchise and new product launches are expected to mitigate risks and drive future growth [8]

Core Insights - Merck (MRK) reported Q3 2025 adjusted EPS of $2.58, exceeding the Zacks Consensus Estimate of $2.36, with a year-over-year increase of 64% on a reported basis and 65% excluding foreign exchange [1][10] - Revenues for Q3 increased by 4% year-over-year to $17.28 billion, surpassing the Zacks Consensus Estimate of $17.06 billion [1][10] Sales Performance of Key Products - Keytruda, Merck's leading oncology drug, generated sales of $8.14 billion, an 8% increase year-over-year, but fell short of the Zacks Consensus Estimate of $8.40 billion [3] - Alliance revenues from Lynparza and Lenvima contributed positively, with Lynparza sales rising 12% to $379 million and Lenvima revenues totaling $258 million, up 2% [4] - Welireg recorded sales of $196 million, reflecting a 41% increase due to higher demand in the U.S. and early uptake in Europe [5] - HPV vaccines, Gardasil and Gardasil 9, saw a 25% decline in sales to $1.75 billion, primarily due to lower demand in China and Japan [6] - Capvaxive, a new pneumococcal vaccine, generated $244 million in sales, up from $129 million in the previous quarter [7] - The diabetes drug franchise, Januvia/Janumet, saw a 29% increase in sales to $624 million, driven by higher net pricing in the U.S. [8] Animal Health Segment - The animal health segment generated revenues of $1.62 billion, a 9% increase year-over-year, driven by higher demand for livestock products [11] 2025 Guidance - Merck narrowed its 2025 sales guidance to $64.5-$65.0 billion, reflecting a slight adjustment from the previous range [12] - Adjusted EPS guidance for 2025 was raised to a range of $8.93 to $8.98, incorporating a revised negative impact from foreign exchange [13] - The updated EPS outlook includes benefits from a revised AstraZeneca deal and improved operations, partially offset by costs from the acquisition of Verona Pharma [14][15] Market Reaction - Despite strong Q3 results, Merck's shares fell over 2% in pre-market trading due to Keytruda's weaker-than-expected sales and the narrowed sales guidance [19]

Core Viewpoint - Merck faces significant challenges in achieving a compound annual growth rate (CAGR) of 38% needed to turn $10,000 into $50,000 in five years, primarily due to impending patent cliffs and declining sales in key products [1][6]. Group 1: Growth Drivers - Merck's primary growth drivers are the cancer drug Keytruda and the HPV vaccine franchise, Gardasil and Gardasil 9, both of which are currently facing challenges [2]. - Keytruda is expected to encounter a patent cliff by 2028, leading to potential biosimilar competition that could significantly impact its sales [2]. - Sales of Gardasil and Gardasil 9 have declined this year, largely attributed to reduced demand in China [2]. Group 2: Financial Performance - In the second quarter, Merck's revenue decreased by 2% year over year to $15.8 billion, reflecting the challenges faced by the company [3]. - The stock performance has lagged behind the market this year due to these headwinds [3]. Group 3: Strategic Developments - Merck has received approval for a subcutaneous version of Keytruda, which will benefit from patent protection beyond 2028 and is expected to be a more efficient option for patients and physicians [4][5]. - The company is addressing the issues with Gardasil and Gardasil 9 and anticipates a rebound in vaccine sales over the next few years [5]. Group 4: Future Outlook - Despite new approvals, including Winrevair for treating pulmonary arterial hypertension, the challenges facing Merck are likely to hinder its ability to outperform the market through 2030 [6]. - For long-term, dividend-seeking investors, Merck remains an attractive option, but it is not suitable for those seeking a CAGR of 38% by 2030 [6].

Core Viewpoint - The healthcare sector, particularly dividend-paying stocks like Amgen and Merck, presents solid investment opportunities due to their non-cyclical nature and consistent revenue generation even in challenging economic conditions [1][2]. Group 1: Amgen - Amgen is a leading biotech company with a diverse portfolio of over two dozen products, many of which are blockbuster drugs generating over $1 billion in annual sales [4]. - The company reported a 9% year-over-year revenue growth in Q2, reaching $9.2 billion, with non-GAAP earnings per share at $6.02, a 21% increase from the previous year [6]. - Amgen faces patent cliffs and biosimilar competition but has strong growth drivers, including Tezspire for asthma, which saw a 46% year-over-year sales increase to $342 million [7][8]. - The company has a robust dividend profile with a forward yield of 3.4%, having increased its payouts annually since 2011 [9]. Group 2: Merck - Merck is experiencing increased competition for its cancer drug Keytruda, with patent exclusivity expiring in 2028, and has faced declining sales in its vaccine franchise due to paused shipments in China [10][11]. - In Q2, Merck's revenue declined by 2% year-over-year to $15.8 billion [11]. - The company is developing a subcutaneous version of Keytruda to extend its patent life and has received approval for new products like Winrevair for pulmonary arterial hypertension [12][13]. - Merck's forward yield is currently at 3.9%, with an 88.8% increase in dividends over the past decade, making it an attractive option for dividend investors despite current challenges [15].

Core Insights - Merck (MRK) reported Q2 2025 adjusted EPS of $2.13, exceeding estimates, but a 7% decline year-over-year on a reported basis due to a $200 million upfront payment for a license agreement with Hengrui Pharma [2][9][17] - Revenues decreased 2% year-over-year to $15.81 billion, aligning with consensus estimates [3][9] Sales Performance of Oncology Drugs - Keytruda sales reached $7.96 billion, a 9% increase, driven by strong uptake in various cancer indications, surpassing estimates [4][9] - Alliance revenues from Lynparza and Lenvima contributed positively, with Lynparza sales up 15% to $370 million and Lenvima revenues totaling $265 million, up 5% [5] Sales Performance of Other Key Products - HPV vaccine sales (Gardasil and Gardasil 9) fell 55% to $1.13 billion due to reduced demand in China, missing estimates [7] - Sales of other vaccines showed mixed results, with Vaxneuvance increasing 20% to $229 million, while Rotateq and Pneumovax 23 saw significant declines [8][10] Animal Health Segment - The Animal Health segment generated $1.65 billion in revenues, an 11% increase year-over-year, driven by higher demand and the inclusion of Elanco aqua business sales [12] Cost and Margin Discussion - Adjusted gross margin improved to 82.2%, up 130 basis points year-over-year, attributed to a favorable product mix [13] - Adjusted R&D spending rose 15% to $3.99 billion, influenced by the upfront payment to Hengrui Pharma and increased compensation costs [14] 2025 Guidance - Merck narrowed its 2025 revenue guidance to $64.3-$65.3 billion, reflecting a less negative currency impact [15] - Adjusted EPS guidance is now between $8.87 and $8.97, accounting for a revised negative impact from foreign exchange [16] Acquisition Plans - Merck announced plans to acquire Verona Pharma for approximately $10 billion, expected to close in Q4 2025, which will enhance its portfolio in chronic obstructive pulmonary disease [19]