MERCK + MODERNA: A GOOD MARRIAGE FOR BAD TIMES?

The best marriages occur when each party brings something to the table that the other partner lacks. In the tumultuous early days of the Trump Administration, Moderna still boasts exciting intellectual property, but probably doesn’t have the financial strength to weather the storm alone. Merck, established in 1891, has the fiscal resources and the political connections to survive almost anything, but it suffers from an aging new drug pipeline. 

Should these two companies become one? If the two companies merge, would this be beneficial for shareholders? 

By The Sick Economist 

Just as a marriage is cemented by the complementary assets that each partner brings to the table, the initial attraction is often sparked by what the two partners have in common. And both Merck and Moderna have one big thing in common: both are victims of their own success. 

Moderna burst on the scene in the panicky days of 2020 when a mysterious new virus was spreading around the world like wildfire, and both the general public and government health authorities desperately looked to science to stem the rising tide of discomfort and death. 

Moderna just happened to be in the right place, at the right time, with the right technology. Founded a decade earlier to explore Messenger RNA technology and its uses against cancer, Moderna’s scientific team realized that mRNA could also be used to rapidly craft a groundbreaking vaccine against Covid. Enjoying government support and a consumer market that was basically desperate for an effective anti-Covid agent, Moderna was able to create a new vaccine in record time. The rest, as they say, is history. Tsunamis of cash poured in for the formerly obscure and unprofitable start up, and the share price rocketed from $66 to over $400 in just one year’s time. Moderna had a future so bright, the C-Suite needed to wear shades. 

Merck has been an American household name for nearly one hundred years, but the early 21st century has been unusually kind to the pharmaceutical behemoth. Through a combination of grit, determination and more than a few happy accidents, Merck was able to launch Keytruda. Much like Moderna’s vaccine, Keytruda represented a technological breakthrough, and a whole new way of doing medicine. Instead of pumping the body full of toxic chemicals and hoping for the best, Keytruda was the very first agent to use a patient’s own body to fight cancer. Keytruda was a pioneer in the new science of anti-cancer immunotherapy, and eventually became the best selling drug in the world. Between 2013, when Keytruda was just about to launch, and the end of 2023, a $1,000 investment in the company tripled, averaging a 13% annual return; truly world beating returns for a stodgy American classic that had been in business since the 1800’s. 

By the early 2020’s, both companies seemed to be on a rocket ride to fame and glory. 

What Have You Done for Me…..Lately? 

But nothing lasts forever, and now both companies look like they have seen better days. 

It was obvious to everybody that Moderna’s covid bonanza couldn’t last forever. Yet, in the frenzied days of school closures and stimulus checks, the future was rendered hazy by a fog of war. Moderna generated billions and billions from Covid, and they wisely banked most of it. The stated goal was to return to developing their cancer pipeline, which was the original purpose for the company’s foundation altogether. And they did have a robust pipeline with some promising and novel methods of fighting cancer. They also hoped to score another vaccination hit by targeting new annual shots for RSV, the Flu, and even a Covid/Flu combination shot. The notion was that these more accessible vaccines for pulmonary diseases, which had a lot in common with Covid, would tide the company over until their oncology platform matured. 

But it wasn’t to be. As of May, 2025, the firm has lost money for four out of the five last quarters, as Covid sales have tanked and the promised revenue from new shots has yet to materialize. They have burned almost $8,000,000,000 over the last two years.  While they did a good job of stockpiling cash during the salad days of Covid, they are still a relatively small biotech firm that simply doesn’t have the financial reserves of a Big Pharma stalwart. In their latest quarterly report, they announced that they lost another billion dollars and expect to have just $6 billion in their bank account by the end of 2025.  You don’t have to be a mathematician to realize that Moderna faces the very realistic threat of running out of money before they can reap the rewards of the billions that they have invested into oncology. 

Meanwhile, Merck also faces dubious prospects. While the pharma giant is still robustly profitable, many analysts and investors fear what is to come once Keytruda’s golden patent finally expires. In 2024, almost half of the company’s revenue was derived from Keytruda. That makes 2028 seem like an awfully scary year. 2028 is the year the sun begins to set on the world beating drug’s patent estate (patent protection won’t expire all at once, but rather, in stages between 2028 and 2036). 

The company has an ample pipeline of promising new drugs that it hopes will help plug the gaping hole, but it’s not that easy to just replace Godzilla with the first oversized lizard that comes along. And the firm’s share price reflects these fears. Over the last year, one share of Merck has plummeted from $131 to $83. The company trades at just 11 times price to earnings, one of the lowest multiples in all of Big Pharma. If Merck has a credible plan to overcome Keytruda’s patent loss, the market simply isn’t buying it.

Peanut Butter Meets Jelly 

Sometimes the most serious of romances begins with a simple dalliance. That dalliance began several years ago when Merck agreed to test Keytruda in combination with one of Moderna’s novel mRNA vaccines. In this case, the new molecule in question is MRNA-4157, a vaccine to fight the skin cancer Melanoma. The idea is to hit this notoriously deadly cancer with a “1-2 punch,” enhancing the patient’s immune system with Keytruda, and then directly attacking the cancer with a personalized vaccine that would strike each patient’s particular tumor.

An initial flirtation intensified with the realization of powerful phase two data at the end of 2023. It turns out that combining the two agents produced dramatic results, greatly lowering the chance of Melanoma returning or spreading after initial treatment. 

These results were a big deal for both parties because it proved two investment theses at once. For Merck, the blockbuster results proved that good old Keytruda could realistically be repackaged, and repatented, with novel agents to squeeze more financial mileage out of what many believed an exhausted asset. For Moderna, it was the first definitive proof that messenger RNA does, in fact, hold tremendous promise to treat cancer. You will remember, that Moderna was founded 15 years ago as a cancer company. Covid was just a fluke. These data proved that Moderna’s vast oncology potential was still very real. 

At the time, these two companies were merely collaborating on this molecule as a 50/50 joint venture. Meaning they were only working together on this one, discrete project. But the case for integrating the two firms altogether was growing by the day. 

The Case for Union 

A quick glance at Moderna’s pipeline is like just peeking at DaVinci’s workshop. Filled with unfinished masterpieces, one can only look at all of the potential and wonder where it could go. Moderna has at least 10 different RNA oriented medicines in phase 2 and phase 3 testing, meaning that they could replicate their grandslam Melanoma results many times over the next three to five years. In fact, in light of the great results of combining Keytruda with MRNA-4157, Merck and Moderna are now testing similar approaches against lung cancer, renal cancer, bladder cancer, and a variety of other solid tumors. Just lately, Moderna has announced promising results for a combined FLU/COVID vaccine. 

Moderna finds itself rich with promising IP, but ever more poor in cash. Even with 10 advanced medicines, the firm would still need many billions to bring these new medicines to market. Not only do they have to finish costly global testing, but they would also need a substantial and skilled distribution and sales operation, and that also costs billions of dollars. Trailblazing approaches to medicine simply do not sell themselves without a lot of time, effort and money invested in educating medical professionals about new ways of doing things. 

Additionally, Moderna faces a much more hostile environment than when they started in the 2010’s. The Trump administration has appointed a range of medical officials who are openly hostile to the concepts of vaccines, and especially critical of anything related to Messenger RNA.  Although many of Moderna’s “vaccines” are really a whole new type of medicine, simply branded as vaccines back when that word had a more positive image, Moderna, in particular, is viewed as the “bad guy” of Covid by the MAGAVERSE. 

Even worse, the new administration’s open hostility to disfavored forms of science has sent a deep chill through the world of biotech fundraising. The whole healthcare sector has been an underperformer on the stock market of late, and, in particular, venture capital and fundraising professionals have had a hard time raising new funds due to the poisonous political environment. This means that it simply may not be realistic for Moderna to raise another multi billion dollar funding round when they run out of cash in the next few years. 

On the other side of the ledger, we have Merck. With a market value of roughly $200,000,000,000 and annual revenue of $64,000,000,000, it’s very likely that Merck would not have trouble funding a robust development program for Moderna’s stranded assets. With a sterling “A+” credit rating by the major rating agencies, it’s very likely that Merck has the financial firepower to push these promising, but nascent, medicines into the endzone.  

Additionally, Merck has credibility and muscle with Federal regulatory agencies, and an army of lobbyists to take on even the most fierce vaccine skeptics in the Trump Administration. Simply put, when you’ve been pumping out widely used medicines for more than a century, the FDA answers the phone when you call. The way it’s been going for Moderna in the Media lately, they would be lucky if anyone at the FDA would even return a voicemail. 

What about the Shareholders? 

For a lot of Moderna shareholders a buyout at today’s withered share price might seem like bitter medicine indeed. Afterall, Moderna today is valued at just $9 billion, a mere shadow of its once lofty $100 billion plus valuation.

How you would feel about a buyout probably would depend on two factors: When you became a Moderna shareholder, and how patient you are. 

If you bought Moderna shares during the heady days of Covid, a buyout would only lock in some pretty steep losses. However, if you bought Moderna shares in 2019, when Moderna was an obscure, experimental oncology company, you might be pleased by your tidy profit, and a chance to see those world changing medicines come to fruition, after all. 

Your outlook might also depend on your patience. Any buyout from Merck, or even another Big Pharma rival, is likely to involve at least some payment in the form of shares. So, most Moderna shareholders today will become Merck shareholders. In this case, the optimistic investor would be less concerned about today’s suboptimal buyout price, and more interested in Merck’s future prospects. 

Today, Merck is the most beaten down Big Pharma, trading at just 11 times annual earnings. But if they absorb the Moderna assets, and if they are able to get the public excited about the accompanying extension of their Keytruda patents and dramatically better patient outcomes across a wide range of cancers, then Merck’s stock could easily double or triple. (Some of the hottest Big Pharmas currently trade for 30 times annual profits, or more.) 

In that case you would see dramatic appreciation of your Merck stock, along with a hardy annual dividend (a form of steady cash flow you never would have enjoyed if Moderna had remained an independent biotechnology firm). 

Like any business deal, this corporate marriage would come with risks. Merck might fumble product launches. Mature data might not come out as sparkly as promised.  Competitors might come up with something even better. 

But Moderna shareholders would have little to lose through a buyout. The current political realities have crushed hopes of a vigorous, independent fundraising, and Moderna is simply running out of cash. Merck shareholders also have little to lose, as the current corporate pipeline is doing nothing to excite Wall Street, and many healthcare investors have eschewed the shares like the plague. It would seem that the downside risk is limited for both, and the upside is brighter together. 

Despite all of the trials and travails of the modern world, sometimes a marriage can still produce profound and lasting joy (for shareholders, that is).