Key Points

• Merck is seeking ways to prepare for a significant upcoming patent cliff.

• The company has just announced another acquisition that will help it achieve that goal.

• With its newer products, strong dividend, and reasonable valuation, Merck still looks attractive.

• 10 stocks we like better than Merck ›

Merck (NYSE: MRK), a leading pharmaceutical company, generates consistent revenue and profits. However, the stock has been under pressure over the past year due to its reliance on Keytruda, its famous cancer medicine. It might be the best-selling drug in the world, but Keytruda will experience a patent cliff by the end of the decade -- a significant risk investors have to take into consideration.

Merck has been looking for ways to mitigate the risk of competition, and the drugmaker just made a move that could help along those lines. Should investors consider buying the stock?

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Merck dishes $10 billion to expand its lineup

On July 9, Merck announced that it would acquire Verona Pharma, a U.K.-based biotechnology company specializing in the development of medicines for respiratory diseases. Merck will pay $10 billion in cash for this transaction, allowing it to add Ohtuvayre -- which treats chronic obstructive pulmonary disease (COPD) -- to its portfolio.

First approved by the U.S. Food and Drug Administration (FDA) last year, Ohtuvayre is a treatment for COPD that looks highly promising. It has so far had a successful launch, and it is still being investigated across other conditions, which could later lead to label expansions.

Though estimates vary (as always), some analysts think Ohtuvayre sales could peak at around $4 billion. So, it seems the company has yet another blockbuster on its hands. But will that be enough to replace Keytruda?

Merck's multipronged approach

Merck has entered into several such agreements in recent years. In 2021, it acquired Acceleron Pharma for $11.5 billion. This deal eventually allowed it to launch Winrevair, a medicine for pulmonary arterial tension. Winrevair is yet another promising therapy, with projected peak sales at around $3 billion.

Between Ohtuvayre and Winrevair, that's at most $7 billion in peak annual revenue, though, much lower than the $29.5 billion in sales Keytruda generated last year. Merck will need far more than that, but the company does have a plan.

Some of its acquisitions have yet to yield approved products with blockbuster potential. In 2023, the company paid $10.8 billion for Prometheus Biosciences and its promising candidate for ulcerative colitis, MK-7240. That could be another great addition to the company's portfolio, provided it aces enough clinical trials to land regulatory approval from the FDA.

Merck isn't just relying on buyouts to plan for its post-Keytruda life, though. One of the company's most important internally developed projects is a subcutaneous (SC) version of its crown jewel. SC Keytruda recently aced a phase 3 clinical trial in which it proved noninferiority compared to the original, intravenous version of the medicine in treating patients with non-small cell lung cancer, one of Keytruda's most important markets.

The newer version of the cancer therapy does have some advantages over the old, though, including significantly cutting the time patients spend in the treatment room and the time physicians spend preparing the therapy, administering it, and monitoring patients afterward.

SC Keytruda should attract plenty of business across many of the original's indications once all is said and done. And, together with the newer therapies Merck now has under its banner, should allow the company to smooth out the losses once biosimilar competition for Keytruda enters the market.

The stock could perform well post-Keytruda

Merck currently has more than 80 programs across its phase 2 and phase 3 pipeline. So, even beyond the candidates mentioned, the company should be able to find new gems.

Putting aside label expansions for existing medicines, even a 25% success rate on brand-new clinical compounds should translate to several novel launches over the next five years. Not all will be blockbusters, but Merck's deep pipeline and recent moves show that it is capable of moving beyond Keytruda.

Additionally, there are other reasons to consider buying the stock. First, Merck's shares look incredibly cheap right now. The company is trading at 9.3 times forward earnings estimates. The average for the healthcare sector is 16.2.

Second, Merck is a solid dividend stock. The company's forward yield sits around 4%, and it has increased its payouts by 88.8% in the past decade.

Merck's shares have lagged the market over the past year, but the company's prospects are still strong, at least for those willing to hold onto the stock for a while.

Should you invest $1,000 in Merck right now?

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool has a disclosure policy.

Key Points

• Pfizer stands as one of the largest pharmaceutical companies in the world.

• Although it has an attractive 7.1% yield, it has a big blemish in its dividend past.

• Investors looking at drug stocks would be better off with this lower-yielding competitor.

• 10 stocks we like better than Pfizer ›

One of the big reasons to like Pfizer (NYSE: PFE) today is its huge 7.1% dividend yield. To put that yield into context, the S&P 500 index is yielding roughly 1.3% and the average healthcare stock a bit over 1.7%. Pfizer competitor Merck (NYSE: MRK) is yielding a little more than 4%, yet dividend investors will probably be better off with Merck. Here's why.

Pfizer and Merck have similar business models

While Pfizer's dividend yield is clearly much higher than Merck's, both have relatively attractive yields today. And you could easily make the argument that the two pharmaceutical companies basically do the same thing. Thus, you might as well buy the higher-yielding stock here. That isn't an unreasonable position to take.

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Essentially, these two industry giants make drugs. They make different drugs, of course, but both are focused on conducting research intended to create new blockbuster drugs that they can sell exclusively until the patents run out. Both have massive and well-funded research and development teams. Both have global distribution systems and strong marketing groups. And both have the scale to buy smaller competitors with promising drugs, if they need to.

In the short term, there will be differences between the two with regard to the drugs they have. So at times Pfizer will be better positioned than Merck, and vice versa. Given their vastly different yields, it is pretty clear that Wall Street believes Merck is better positioned right now.

The problem with Pfizer is the dividend, not the yield

Right now, Pfizer has a streak of 15 consecutive dividend increases. Merck's streak is also 15 years long. The issue is what happened roughly 15 years ago. As the chart below shows, Pfizer cut its dividend and Merck did not.

PFE Dividend data by YCharts

That was a long time ago, of course, and the business environment was much different. The cut came in the middle of the Great Recession, when there were very real concerns that global financial systems would collapse. Notably, Pfizer cut the dividend at the same time it made a large acquisition.

And yet Merck didn't cut its dividend; it has also made large acquisitions in the past, including its own sizable merger in 2009. To be fair, Merck's dividend was static for a long period of time, but going without a dividend increase is much more attractive for an income investor than suffering through a dividend cut.

Why investors buy Pfizer and Merck

If you are like me, you are not a healthcare specialist. Buying small drugmakers with novel products that are still in the testing phase is likely a non-starter. I just don't know enough to understand what is going on at such companies. And I certainly don't know how to analyze the likelihood that a new drug will get approved.

Pfizer and Merck both have portfolios of already approved drugs. So there's a core business supporting their research efforts. On that front, they have both proven over time that they can successfully perform the R&D needed to find new drugs. And if their drug pipeline is soft, they have proven that they will go out and buy smaller companies to bolster it. In essence, Pfizer and Merck let you own a pharmaceutical company without having to spend a huge amount of time and effort trying to dig deeply into the drug business.

But if you are trusting a company in this way, which is perfectly fine to do, you need to make sure you can trust it in other ways, too. If you are a dividend investor, Pfizer's dividend cut during the deep 2007 to 2009 recession just doesn't provide the same level of trust that Merck's steadily, though not annually, growing dividend does. Most investors will probably be better off erring on the side of caution here and buying Merck over Pfizer.

Should you invest $1,000 in Pfizer right now?

Before you buy stock in Pfizer, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Pfizer wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $652,133!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,056,790!*

Now, it’s worth noting Stock Advisor’s total average return is 1,048% — a market-crushing outperformance compared to 180% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of July 15, 2025

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck and Pfizer. The Motley Fool has a disclosure policy.