We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Merck Unveils Cost-Cutting Plan: Can it Create Long-Term Value?
Read MoreHide Full Article
Key Takeaways
MRK launched a restructuring plan to cut $3B in annual costs by 2027 through job and real estate reductions.
Savings will be reinvested into high-growth pipeline areas as MRK seeks to diversify beyond Keytruda.
MRK plans to launch ~20 new drugs, backed by M&A deals like the $10B Verona buyout and Chinese biotech pacts .
Along with its second-quarter results on July 29, Merck (MRK - Free Report) announced a new multi-year optimization initiative, which is expected to save $3 billion in annual costs by the end of 2027.
As part of this restructuring initiative, the company is looking to cut certain administrative, sales, and research and development (R&D) jobs and reduce its global real estate footprint. Merck plans to reinvest these savings into higher-growth areas of its pipeline development and broaden its long-term product portfolio.
The re-investments from the restructuring savings can be viewed as part of Merck’s ongoing effort to diversify its business and grow its revenue base, which currently remains heavily dependent on its blockbuster PD-L1 inhibitor, Keytruda. Importantly, the restructuring will be completed by the end of 2027, a year before Keytruda loses patent exclusivity in the United States.
Keytruda alone accounts for around 50% of MRK’s pharmaceutical sales. The drug generated sales worth $7.96 billion in the second quarter of 2025, up 9% year over year.
Merck is also seeing a decline in sales of Gardasil, its second-largest product, a vaccine designed to prevent certain cancers caused by human papillomavirus (HPV). Gardasil sales plunged 55% in the second quarter of 2025 to $1.13 billion, mainly due to lower demand in China as well as the timing of public-sector purchases in certain international markets.
To counter the ongoing challenges and the upcoming patent loss for Keytruda, Merck is also actively seeking mergers and acquisitions (M&A) deals in recent times. Merck’s phase III pipeline has almost tripled since 2021, supported by in-house pipeline progress as well as the addition of candidates through M&A deals. The company is now positioned to launch around 20 new vaccines and drugs over the next few years, with many having blockbuster potential.
MRK Pins Hopes on Recent M&A Deals & New Drug Approvals
In early July, Merck announced a definitive agreement to acquire Verona Pharma (VRNA - Free Report) for approximately $10 billion. The transaction is expected to be closed in the fourth quarter of 2025.
The deal will add Verona’s Ohtuvayre, approved for the maintenance treatment of chronic obstructive pulmonary disease, to MRK’s portfolio. The addition of VRNA’s Ohtuvayre is likely to strengthen Merck’s cardio-pulmonary pipeline and portfolio as the drug’s differentiated profile provides a significant edge over its competitors.
Merck also struck several multi-billion-dollar deals with Chinese biotechs such as Hansoh Pharma, LaNova Medicines and Hengrui Pharma in late 2024 to diversify its business and build a product portfolio across multiple therapeutic areas.
Merck is also pinning hopes on its new 21-valent pneumococcal conjugate vaccine, Capvaxive, and pulmonary arterial hypertension (PAH) drug, Winrevair, to boost its top line and drive long-term growth, especially after Keytruda loses exclusivity.
Capvaxive generated sales worth $129 million in the second quarter of 2025, up 20.6% on a sequential basis, while Winrevair generated sales of $336 million, up 20% sequentially. Per management, cumulative net sales of Winrevair have already reached the $1 billion mark since its approval, reflecting strong uptake already.
Given Merck’s robust pipeline and promising product portfolio, bolstered by recent M&A deals, it remains to be seen whether the cost-cutting initiative will support a sustainable turnaround or merely serve as a short-term fix.
We note that Merck is not the only company to undertake a significant cost-cutting effort in recent times.
Earlier this year, drug giant Pfizer (PFE - Free Report) undertook a cost-cutting measure and internal restructuring aimed at delivering savings of $7.7 billion by the end of 2027. PFE’s significant cost reduction and efforts to improve R&D productivity measures are likely to drive profit and long-term growth.
Previously, Bristol Myers (BMY - Free Report) undertook a strategic productivity initiative to drive around $1.5 billion in cost savings by the end of 2025 (a majority of which has already been achieved). In addition, BMY identified an additional $2 billion in savings (approximately $1 billion to be realized in 2025 and the remainder by the end of 2027).
MRK's Price Performance, Valuation and Estimates
Year to date, shares of Merck have lost 16.9% against the industry’s increase of 1%.
Image Source: Zacks Investment Research
From a valuation standpoint, Merck appears attractive relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 8.87 forward earnings, lower than 15.11 for the industry and its 5-year mean of 12.80.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2025 earnings has declined from $8.93 per share to $8.87, while the same for 2026 has decreased from $9.74 to $9.64 over the past 60 days.
Image: Bigstock
Merck Unveils Cost-Cutting Plan: Can it Create Long-Term Value?
Key Takeaways
Along with its second-quarter results on July 29, Merck (MRK - Free Report) announced a new multi-year optimization initiative, which is expected to save $3 billion in annual costs by the end of 2027.
As part of this restructuring initiative, the company is looking to cut certain administrative, sales, and research and development (R&D) jobs and reduce its global real estate footprint. Merck plans to reinvest these savings into higher-growth areas of its pipeline development and broaden its long-term product portfolio.
The re-investments from the restructuring savings can be viewed as part of Merck’s ongoing effort to diversify its business and grow its revenue base, which currently remains heavily dependent on its blockbuster PD-L1 inhibitor, Keytruda. Importantly, the restructuring will be completed by the end of 2027, a year before Keytruda loses patent exclusivity in the United States.
Keytruda alone accounts for around 50% of MRK’s pharmaceutical sales. The drug generated sales worth $7.96 billion in the second quarter of 2025, up 9% year over year.
Merck is also seeing a decline in sales of Gardasil, its second-largest product, a vaccine designed to prevent certain cancers caused by human papillomavirus (HPV). Gardasil sales plunged 55% in the second quarter of 2025 to $1.13 billion, mainly due to lower demand in China as well as the timing of public-sector purchases in certain international markets.
To counter the ongoing challenges and the upcoming patent loss for Keytruda, Merck is also actively seeking mergers and acquisitions (M&A) deals in recent times. Merck’s phase III pipeline has almost tripled since 2021, supported by in-house pipeline progress as well as the addition of candidates through M&A deals. The company is now positioned to launch around 20 new vaccines and drugs over the next few years, with many having blockbuster potential.
MRK Pins Hopes on Recent M&A Deals & New Drug Approvals
In early July, Merck announced a definitive agreement to acquire Verona Pharma (VRNA - Free Report) for approximately $10 billion. The transaction is expected to be closed in the fourth quarter of 2025.
The deal will add Verona’s Ohtuvayre, approved for the maintenance treatment of chronic obstructive pulmonary disease, to MRK’s portfolio. The addition of VRNA’s Ohtuvayre is likely to strengthen Merck’s cardio-pulmonary pipeline and portfolio as the drug’s differentiated profile provides a significant edge over its competitors.
Merck also struck several multi-billion-dollar deals with Chinese biotechs such as Hansoh Pharma, LaNova Medicines and Hengrui Pharma in late 2024 to diversify its business and build a product portfolio across multiple therapeutic areas.
Merck is also pinning hopes on its new 21-valent pneumococcal conjugate vaccine, Capvaxive, and pulmonary arterial hypertension (PAH) drug, Winrevair, to boost its top line and drive long-term growth, especially after Keytruda loses exclusivity.
Capvaxive generated sales worth $129 million in the second quarter of 2025, up 20.6% on a sequential basis, while Winrevair generated sales of $336 million, up 20% sequentially. Per management, cumulative net sales of Winrevair have already reached the $1 billion mark since its approval, reflecting strong uptake already.
Given Merck’s robust pipeline and promising product portfolio, bolstered by recent M&A deals, it remains to be seen whether the cost-cutting initiative will support a sustainable turnaround or merely serve as a short-term fix.
We note that Merck is not the only company to undertake a significant cost-cutting effort in recent times.
Earlier this year, drug giant Pfizer (PFE - Free Report) undertook a cost-cutting measure and internal restructuring aimed at delivering savings of $7.7 billion by the end of 2027. PFE’s significant cost reduction and efforts to improve R&D productivity measures are likely to drive profit and long-term growth.
Previously, Bristol Myers (BMY - Free Report) undertook a strategic productivity initiative to drive around $1.5 billion in cost savings by the end of 2025 (a majority of which has already been achieved). In addition, BMY identified an additional $2 billion in savings (approximately $1 billion to be realized in 2025 and the remainder by the end of 2027).
MRK's Price Performance, Valuation and Estimates
Year to date, shares of Merck have lost 16.9% against the industry’s increase of 1%.
Image Source: Zacks Investment Research
From a valuation standpoint, Merck appears attractive relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 8.87 forward earnings, lower than 15.11 for the industry and its 5-year mean of 12.80.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2025 earnings has declined from $8.93 per share to $8.87, while the same for 2026 has decreased from $9.74 to $9.64 over the past 60 days.
Image Source: Zacks Investment Research
MRK's Zacks Rank
Merck currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.