4% Dividend + 12x Earnings = Blockbuster in the Making

Merck has long been a pillar of stability in the pharmaceutical world, thanks in large part to the staggering success of its cancer drug Keytruda. But behind that success lies a quietly growing concern of what happens when the patents expire?

In a move that could reshape its future, Merck just announced a $10 billion acquisition of Verona Pharma.

It’s a big bet, and one that might surprise investors who haven’t been paying close attention to what’s brewing in the pulmonary space.

Key Points

• Merck’s $10B buyout of Verona adds Ohtuvayre, a fast-growing COPD drug with billion-dollar potential and expansion into other diseases.

• New drugs like Winrevair and a next-gen Keytruda injection signal Merck’s pivot to broader revenue streams.

• Trading at 12x earnings with a 4%+ yield, Merck offers strong long-term value despite short-term headwinds.

Merck May Have Just Bought Its Next Billion-Dollar Blockbuster

In Q1 alone, Ohtuvayre brought in over $70 million, nearly double the prior period and Wall Street analysts believe it could surpass $1 billion in annual sales by 2029.

That kind of trajectory is rare for a relatively new drug, and it’s the kind of revenue stream Merck needs to complement Keytruda, which accounted for roughly 45% of the company’s pharmaceutical sales in 2024.

Ohtuvayre might just be getting started. Verona is actively running clinical trials to expand the drug’s use into other major respiratory conditions like asthma and cystic fibrosis.

If any of those trials succeed, Ohtuvayre could end up being not just a blockbuster—but a multi-indication juggernaut.

CEO Not Mincing Words

David Zaccardelli, Verona’s CEO, didn’t mince words about what Merck brings to the table. “We believe Merck’s commercial footprint and industry-leading clinical capabilities will help accelerate the potential of Ohtuvayre to reach more patients living with COPD,” he said.

He might be underselling it because Merck already has one of the most dominant sales teams in the respiratory and oncology space, and plugging Verona’s pipeline into that infrastructure could rapidly accelerate market penetration.

The Verona acquisition isn’t happening in a vacuum, either. Merck has been laying the groundwork for a second act.

Winrevair, a recently approved treatment for pulmonary arterial hypertension, just launched and may add another layer of revenue growth.

Meanwhile, Merck is also preparing to roll out an injectable formulation of Keytruda, which could make administration far easier and help fend off biosimilar erosion.

Beaten-Down Healthcare Giant Looks Ripe for a Rebound

Despite these catalysts, you wouldn’t know it by looking at the stock. Merck shares are down 18% this year, weighed down by concerns like tariffs and the broader rotation out of defensive healthcare names.

But the fundamentals tell a different story. The stock trades at just 12 times trailing earnings, well below its five-year average, and it offers a healthy dividend yield of 3.93%.

In other words, Merck might be exactly the kind of stealth opportunity long-term investors look for, being a beaten-down giant with new growth levers clicking into place.

For those worried about Merck’s over-reliance on Keytruda, this deal with Verona Pharma should be viewed as a well-timed counterpunch. The market may not be pricing it in yet but that’s often where the best opportunities lie.