Merck & Co (NYSE:MRK): Its a top 5 healthcare company, but needs to figure out its post-Keytruda future

Merck & Co (NYSE:MRK) is one of the world’s most prominent healthcare companies. The healthcare industry is perceived by many investors to be one of the best industries to invest in because it is resilient to adverse economic conditions, but also offers substantial growth opportunities as new innovations can quickly take off given the impact they can have on people’s lives.

But shares are down 30% in the last year. This is for a few reasons, some of which are hitting all stocks, led by Trump’s tariffs. But there are also concerns only this company is grappling with. Namely, what’ll happen when Keytruda’s patents expire?

History of Merck

Merck traces its history back longer than most other Western companies. Merck & Co was named for a German company called Merck Group, founded by pharmacist Friedrich Jacob Merck in 1668 and is still around today (often confusing many investors given it too is a major listed company) and owned by the 13th generation of the Merck family.

The Merck we are talking about was founded in 1891 as the German company’s American affiliate – German employee Theodore Weicker was sent to the United States to found it. During World War One, the US government seized 80% of the company’s shares, only for the family to buy it back after the war – although the companies have been separate entities ever since. The American company is headquartered in Rahway, New Jersey which is 15 miles away from Downtown Net York City.

During the wars, Merck delved into R&D through a number of M&A deals, and the rest is history. Key achievements have been the introduction of the first effective treatment for tuberculosis in the 1940s, the Measles-Mumps-Rubella (M-M-R) vaccine in 1971, the first pneumonia vaccine in 1977, a Hepatitis B vaccine in 1986 and Crixivan in 1996 (the first treatment for HIV/AIDs). It is always buying smaller cap companies with drugs that show potential to be game changers.

Overview of Merck and its products

Today, Merck has a very diverse portfolio of products. Consider that in 2024 it got over 2 dozen regulatory approvals – albeit including existing drugs for new applications.

There are a few products responsible for a high proportion of its revenue. The key product, accounting for US$29bn of the company’s total US$64bn revenue is Keytruda, or pembrolizumab. It is a cancer therapy that is the first anti-PD-1 (programmed death receptor-1) therapy used to treat cancers, particularly head and neck squamous cell cancer.

Gardasil, a HPV vaccine, is next with over US$8.5bn in revenues along with the aforementioned M-M-R II vaccine. Bridion is a treatment for the reversal of neuromuscular blockade that can occur in patients under general anesthesia.

Lynparaza is worth mentioning because it was only FDA approved in mid-2023 but made $2.3bn in CY24. The prostate cancer treatment was jointly developed and commercialised with AstraZeneca, hence it has to share profits. Lenvima was developed with Ensai and is another cancer treatment, although investor excitement hit a dead end after a clinical trial was run to see if a combination of it and Keytruda could be effective, but was shut down before it ended due to poor efficacy data.

Being a big company is a blessing and a curse

It is not all smooth sailing for Merck. Many of its drugs do so well because they are subject to patents and market exclusivity periods, but neither last forever. Keytruda comes off patent in 2028 and there could be competition from biosimilar versions. Analysts predict sales could fall by up to 20% in the year after.

You can see this is why big pharma loves buying out little pharma. Merck does have to be cautious with over US$33bn in long-term debt. Don’t be surprised to see this company act in the coming months in that regard. It is also important to note that it is not in denial there’s a problem, working ont strategies to drive Keytruda’s growth such as developing innovative immuno-oncology combinations, a vaccine with Moderna that combines with Keytruda and a subcutaneous formulation – all of these could extend the patent life. And in July 2025, it bought London-based Verona Pharma which has COPD drug Ohtuvayre.

Regulatory crackdowns can (and do) hurt the company. For example, there was decrease in sales of Gardasil in China during 2024, even surprising the company. Yes, sales still rose overall but far slower than the pace that enabled sales to double from 2020 to 2024. In the past year, Beijing’s anti-corruption crackdown hit the medical sector and has led to hospitals being more hesitant to do deals with international pharmaceutical companies.

The next 5 years should be good, but it is anyone’s guess after that.

Merck & Co is one of those stocks that might be good for the short-term, but not for the long-term. Analysts’ target price is US$100.41, 20% ahead of its current price (US$80.69). In CY25, they expect $67.7bn revenue and $7.68 EPS (vs $64.2bn and $6.74 in CY24). Then $68bn revenue and $8.65 EPS in 2026, $71.4bn revenue and $9.61 EPS in 2027 and $72.7bn revenue and $10.14 EPS in 2028. After Keytruda’s patent expires, both the top and bottom lines are expected to stagnate.

But all this being said, Merck is trading at cheap multiples for CY27 – 7.1x EV/EBITDA, 8.3x P/E and just 0.9x PEG right now. Many of its peers are higher, Novo Nordisk is 11x, Eli Lilly is over 20x and AstraZaneca is 16x.

Investors can make some money out of this one in the next year or two, but we still think it needs to work on a plan for a post-Keytruda world.

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