Merck Plans $10 Billion Buyback as Cancer Drug Tops Views

(Bloomberg) -- Merck & Co. is buying back $10 billion of its stock and raising its dividend after beating Wall Street’s third-quarter earnings forecast and raising its full-year guidance, a result that’s likely to add to investors’ bullish sentiments about the company.

  • Cancer drug Keytruda is Merck’s top product and sold $1.89 billion in the third quarter -- up 80 percent from a year ago.

Key Insights

  • The drugmaker is betting on itself instead of on takeovers at the moment. Merck said plans to invest $16 billion on new capital projects through 2022, a 33 percent increase over what it said was its planned spending in February. It’s also boosting its dividend by 15 percent.
  • Its plans to give back capital to shareholders and spend it inside the company mean any investors who’ve been waiting on Merck to use its cash to do a deal will likely be waiting awhile longer. The company’s move follows a trend of big drugmakers giving more cash back to investors.
  • Chief Executive Officer Ken Frazier told investors not to rule out deals. “Even with these actions, we continue to have ample capacity for business development which remains a major priority,” he said on a call with analysts.
  • While Merck’s cancer drug gets much of the attention, other key products are performing well: HPV vaccine Gardasil’s sales were up 55 percent from a year prior, and diabetes pills Januvia and Janumet brought in $1.49 billion.

Market Reaction

The stock is up 25 percent this year as of Wednesday’s close, while the S&P 500 index is down less than 1 percent after markets have given back their gains for the year in recent weeks. On Thursday, Merck’s shares fell 2.5 percent to $68.77 as of 10:29 a.m. in New York.

Merck Plans $10 Billion Buyback as Cancer Drug Tops Views

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  • For a summary of the results, click here.
  • To read Merck’s earnings press release, click here.

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