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Merck & Co Inc

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Morningstar Rating for Stocks Fair Value Economic Moat Capital Allocation

Merck: Prometheus Acquisition Adds Important Pipeline Drug at a Reasonable Value

Merck’s $10.8 billion acquisition of Prometheus Biosciences adds the well-positioned late-stage immunology drug PRA023 at largely a fair price, in our view. We don’t expect any major changes to our fair value estimate based on the deal, but strategically, this helps position Merck to cope with the eventual patent loss (starting in 2028) on cancer drug Keytruda. This deal combined with the 2021 Acceleron acquisition shows solid redeployment of cash flows (heavily supported by Keytruda sales) to augment internal research and development efforts and mitigate biosimilar Keytruda threats over the longer term. While we don’t see this purchase as significantly affecting Merck’s wide moat, it does help diversify the company's late-stage pipeline.

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