Merck (NYSE:MRK) closed at $145.45 on October 12. In the first quarter it booked an acquired research charge of roughly $9.00 billion tied to the Cidara acquisition, and a further charge for Terns in the second quarter. These went through R&D expense with no tax benefit, which pushes the operating margin below zero. The article argues they are one-time purchase-price write-offs rather than recurring cash costs, since free cash flow came in at several times net income, so the 266.67% payout ratio is distorted; revenue still grew 5.10% in the latest quarter. The bigger question is whether the well over ten billion dollars spent on pipeline assets that have yet to produce revenue can replace sales from its largest product once it loses exclusivity later this decade, with debt at $53.91 billion. The 15.62 forward multiple assumes that bet pays off.
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