QS Research · Michael Burry's Scion Capital analyst template · 2006
Merck & Co., Inc. (MRK)
As of 2026-11-06 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction low · base case -7% · downside -58% · upside +43%
This is a cycle-normalized call: FY2020-FY2025 average net income is $11.73B and average FCF $13.58B versus TTM net income $2.45B and TTM FCF $14.75B, so the 147.5x TTM P/E is distorted by one-off acquisition charges while the cash-flow picture is far better. On section 13's base, $11.73B x 28.6x midpoint = $136.08/share (-7.3% vs $146.73); low peer 13.1x = $62.33 (-57.5%) and high peer 44.1x = $209.84 (+43.0%), so reward/risk is only about 0.75:1. The market is not missing the cash generation; it is discounting the 2028-29 Keytruda cliff, IRA/Germany pricing and generic erosion, and the price already reflects much of the good news (+71.1% 1-year, only 6.5% below the high). Base is below today's price but not -30%, and downside is far worse than -25%, so neither long nor short rule is met: watch, low conviction, until price or post-Keytruda evidence gives a margin of safety.
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 is a two-segment prescription-medicine and animal-health company (Pharmaceutical, Animal Health) selling through wholesalers, hospitals, government entities and PBMs; FY2025 total sales were $65,011M versus $64,168M in FY2024 and $60,115M in FY2023, with Pharmaceutical at $58,142M in FY2025. Growth is almost entirely one product: Keytruda/Keytruda Qlex sales went from $14,380M in FY2020 to $31,680M in FY2025, while Gardasil/Gardasil 9 fell from $8,583M (FY2024) to $5,233M (FY2025) and Januvia/Janumet was cut from $5,276M (FY2020) to $2,544M (FY2025). The portfolio was re-cut over the period (Organon spin-off of women's health, biosimilars and established brands announced February 2020; Healthcare Services divested in Q1 2020), so only FY2020-FY2025 is comparable on cash flow: operating cash flow ran $10.25B (FY2020), $19.09B (FY2022), $13.01B (FY2023), $21.47B (FY2024), $16.47B (FY2025), with FY2023 pre-tax income of $1.89B a clear trough against $21.07B in FY2025. The single largest documented forward risk is price setting: IRA prices hit Januvia from January 1, 2026 and Janumet/Janumet XR from January 1, 2027, and the company expects Keytruda to be selected in 2027 for prices effective January 1, 2029, with U.S. Keytruda sales declining materially thereafter.
- ✓ 2. Competitive advantage
MRK's advantage is a patent- and R&D-based product franchise, not a durable competitive moat: Keytruda alone was 49% of 2025 sales, and named U.S. patent losses run from 2026 through the 2028-2029 Keytruda biosimilar window. Competition is broad and pricing is constrained by governments and third-party payers, so the 10-K frames patents as material but vulnerable. The six-year XBRL shows large revenue and cash flow but highly uneven pre-tax and net income, with no TTM data in the sources.
- ✓ 3. 10-Q takeaways
Q3 2026 worldwide sales were $18,085M (+5%, +4% ex-FX) and first-nine-month sales $50,978M (+5%), but U.S. sales in both periods were flattered by roughly $550M of purchase timing. Keytruda/Keytruda Qlex carried the quarter ($8,601M, +6%), while vaccines and infectious diseases fell on generic competition (Bridion -67%, Dificid -68%, Lagevrio -88%). Reported earnings are distorted by asset-acquisition IPR&D charges — Cidara $9.0B ($3.62/share), Terns $5.7B ($2.31/share), SciBrunch $400M ($0.12/share) — which are not operating results. New risks in the 10-Q: IRA price setting, the German GKV-BStabG from January 1 2027, and Halozyme injunctions blocking Keytruda SC in five EU markets.
- ✓ 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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