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Merck & Co Inc MRK

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Large-Cap Biopharma Capital Allocation Supports Primarily Wide-Moat Industry

Damien Conover, CFA Sector Director

Analyst Note

| Damien Conover, CFA |

The majority of the large-cap biopharma firms have moats, but almost all the drugs currently sold by the group will face generic competition over the next two decades, making successful capital allocation (evaluated by our capital allocation methodology) critically important in securing the current strong moat ratings within the group. We believe the patent life of drugs (typically 20 years, but with many years used during development) makes the biopharma group particularly reliant on successful redeployment of capital because of the need to constantly reinvent drug portfolios. We view a key part of successful capital allocation at big biopharma companies as a combination of (1) sound internal research and development (both in magnitude of investment and strategically focused in innovative therapeutic areas) and (2) successful external acquisitions and partnerships. The combination of successful internal development and external deals allows the big biopharma industry to consistently reinvent product portfolios and secure economic moats, protecting high returns on invested capital.

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Company Profile

Business Description

Merck makes pharmaceutical products to treat several conditions in a number of therapeutic areas, including cardiometabolic disease, cancer, and infections. Within cancer, the firm's immuno-oncology platform is growing as a major contributor to overall sales. The company also has a substantial vaccine business, with treatments to prevent hepatitis B and pediatric diseases as well as HPV and shingles. Additionally, Merck sells animal health-related drugs. From a geographical perspective, close to half of the firm's sales are generated in the United States.

Contact
2000 Galloping Hill Road
Kenilworth, NJ, 07033
T +1 908 740-4000
Sector Healthcare
Industry Drug Manufacturers - General
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type High Yield
Employees 74,000

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