QS Research · Michael Burry's Scion Capital analyst template · 2006
Merck & Co., Inc. (MRK)
As of 2026-11-08 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction low · base case -16% · downside -72% · upside +49%
The market is capitalizing TTM earnings distorted by the $9.0B Cidara, $5.7B Terns and $0.4B SciBrunch charges, so P/E 147.5x and EV/EBITDA 40.1x are not the right lens; normalized FY2020-FY2025 EBITDA is $17.30B and TTM EBITDA is $10.12B, while normalized net income is $11.73B versus TTM $2.45B. At PFE's 20.1x on normalized EBITDA, EV is $348B, less $44.15B net debt gives $304B equity, or $123/share (-16.1% vs $146.73); GSK's 8.5x gives $42 (-71.6%) and LLY's 33.7x gives $219 (+49.0%). The cheapness is not a bargain: Keytruda is 49% of sales, biosimilars arrive 2028-2029, and IRA price setting hits U.S. Keytruda from January 1, 2029, so a multiple below today's 40.1x is justified. But the short rule is not met because the base case is only -16.1% and the upside case is +49.0%, so the risk/reward is skewed down without enough edge for a short. This is a watch: normalized arithmetic says the stock is above base-case value, but the rule does not permit a short at $146.73.
Key numbers
- Share price: $146.73
- Market cap: $361.73B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $67.38B
- EV / EBITDA (TTM): 40.1x
- P/E (TTM): 147.5x
- Price / book: 8.06x
The 15 boxes
- ✓ 1. Long-form business notes
Merck makes money in two reportable segments: Pharmaceutical ($58,142M of $65,011M FY2025 sales) and Animal Health ($6,354M), with one product, Keytruda/Keytruda Qlex at $31,680M, contributing just under half of FY2025 sales. Between the FY2020 10-K and the FY2025 10-K the portfolio was reshaped by the announced Organon spin-off of women's health, biosimilars and established brands, while Animal Health grew from $4,703M to $6,354M and new launches (Winrevair, Capvaxive, Welireg) started scaling, with Gardasil/Gardasil 9 sliding from $8,886M (FY2023) to $5,233M (FY2025). The dominant business risk in the latest filing is that concentration plus IRA government price setting, which the company says will make U.S. Keytruda sales decline materially after January 1, 2029.
- ✓ 2. Competitive advantage
Merck has scale and a patent-protected portfolio, but the 10-K itself shows the advantage is not durable: Keytruda was 49% of 2025 total sales and biosimilar competition is expected between 2028 and 2029, while Bridion, Januvia and Janumet lose U.S. market exclusivity in 2026. The six-year XBRL record shows real operating scale (revenue $41.52B in FY2020 rising to $65.01B in FY2025; operating cash flow $16.47B in FY2025) but volatile earnings (pre-tax income $1.89B in FY2023 versus $21.07B in FY2025). It competes with other research-based pharmaceutical companies, generic and biosimilar manufacturers and animal health companies, and faces government price setting (IRA) and most-favored-nation pricing on top of ordinary generic erosion.
- ✓ 3. 10-Q takeaways
Q3 2026 sales rose 5% to $18.1B (4% ex-FX) and nine-month sales rose 5% to $51.0B, with U.S. sales helped by about $550M of purchase timing; GAAP EPS was $2.04 and non-GAAP EPS $2.49, both including a $0.12 SciBrunch charge. Gross margin was 72.9% vs 77.7%, R&D rose 7% on a $400M SciBrunch charge, and FY2026 guidance is $66.8–67.3B sales and $2.77–2.82 non-GAAP EPS. The supplied excerpts do not include cash, inventory, or buyback figures.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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