What Makes Merck & Co. (MRK) an Investment Bet?

Baron Capital, an investment management company, released its Q1 2026 investor letter for the “Baron Health Care Fund”. A copy of the letter is available to download here. Baron Health Care Fund (the Fund) declined 6.97% (Institutional Shares) in the quarter, compared to the 4.88% decline for the Russell 3000 Health Care Index (the Benchmark) and the 3.96% decline for the Russell 3000 Index (the Index). The Fund appreciated 9.39% on an annualized basis since its inception, compared to the 8.97% gain for the Benchmark and the 13.26% gain for the Index. The disappointing stock selection drove the Fund’s underperformance in the quarter. Despite recent challenges, the Fund believes the long-term outlook for health care remains positive due to factors including an aging population, rising chronic disease rates, advances in biotechnology, and increased health care spending. In addition, please check the Fund’s top five holdings to know its best picks in 2026.

In its first-quarter 2026 investor letter, Baron Health Care Fund highlighted Merck & Co., Inc. (NYSE:MRK) as a new addition to the portfolio. Merck & Co., Inc. (NYSE:MRK) is a leading pharmaceutical company that offers human health pharmaceuticals for various areas. On May 1, 2026, Merck & Co., Inc. (NYSE:MRK) closed at $112.16 per share. One-month return of Merck & Co., Inc. (NYSE:MRK) was -7.19%, and its shares gained 35.39% over the past 52 weeks. Merck & Co., Inc. (NYSE:MRK) has a market capitalization of $277.02 billion.

Baron Health Care Fund stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its Q1 2026 investor letter:

“We bought shares of Merck & Co., Inc. (NYSE:MRK), Inc., a large-cap pharmaceutical company. Merck’s largest product in terms of revenue is Keytruda, a cancer therapy which generated over $31 billion of revenue in 2025, representing close to 50% of the company’s revenue. Keytruda loses patent protection in 2028 which will result in biosimilar competition. Merck has been preparing to manage the impact of the Keytruda patent cliff through aggressive business development and pipeline investment. We think management has done a good job particularly with acquisitions and can effectively manage through this period. In fact, over the past five years Merck has acquired five companies which at the time the acquisition was announced the Fund owned, including Acceleron Pharma Inc. (in 2021), Prometheus Biosciences, Inc. (in 2023), Verona Pharma plc (in 2025), Cidara Therapeutics, Inc. (in 2025), and most recently, Merck announced its intent to acquire Terns Pharmaceuticals, Inc. (in March 2026). In addition, Merck also in-licensed ex-China rights to a portfolio of antibody-drug conjugates from Kelun Biotech in 2022, which includes sac-TMT, a very promising TROP2 targeting drug. Including internally developed drugs (such as the oral PCSK9), Merck is launching over 20 new growth drivers which represent a potential commercial opportunity of over $70 billion by the mid-2030s on a non-risk-adjusted basis. Over the next 12 to 18 months, the company will have multiple clinical data readouts across its portfolio, which should add visibility to the company’s ability to fill the sales and earnings gap when Keytruda loses patent protection. Merck trades at a valuation of 12 times trough 2029 EPS and we think the multiple will expand as visibility on earnings growth beyond 2029 increases.”