The global pharmaceutical sector is under increasing pressure as rising trade tensions drive countries to introduce new tariffs on drug exports. These policy shifts are straining international supply chains and pushing operating costs sharply higher.
At the center of this global shake-up stands Merck & Co. (MRK), a name synonymous with blue-chip dividends. With patent protection for Keytruda, which accounts for about 40% of Merck’s pharma sales, set to expire in 2028, the clock is ticking for the company to chart its next growth chapter.
In response, Merck has launched a bold $3 billion cost-cutting plan, even as it braces for potential tariff-driven headwinds. Can Merck’s focus on cost discipline and innovation sustain its dividend legacy amid tariff shocks and patent cliffs? Let’s find out.
Merck & Co. (MRK) is a pharmaceutical powerhouse with a market capitalization of approximately $196.1 billion, anchored by an industry-defining oncology portfolio and expanding animal health business. Merck’s $3.24 annualized dividend per share and robust 4.15% yield remain highly attractive, underpinned by a disciplined 40.41% dividend payout ratio. Backed by over a decade of growth, MRK has been a reliable choice for income investors.
Shares trade down 20.3% year-to-date and 30% over the past 52 weeks. Merck is cheap at current levels, with a forward price/earnings (P/E) ratio of 8.75x, a 48% discount to the sector median, while its price-to-sales ratio of 3.03 also looks appealing.
The latest earnings report, released on July 29, gave a granular snapshot of the crosscurrents facing MRK. Total worldwide sales clocked in at $15.8 billion, a 2% dip year-over-year, with CEO Robert Davis acknowledging that “performance was in-line with our expectations,” and highlighting the company’s resilience in oncology and animal health. On the bottom line, GAAP EPS came in at $1.76, with non-GAAP EPS at $2.13, including a $0.07 per share charge tied to the closure of the Hengrui Pharma license agreement.
Keytruda again proved its centrality, contributing $8.0 billion in quarterly sales, up 9% year-over-year, and comprising nearly half of total pharmaceutical revenues. That strength countered dramatic weakness from Gardasil/Gardasil 9, which plunged 55% due to suspended China shipments amid soft demand, amplifying the impact of international trade volatility on results.
