While Merck faces the inevitable Keytruda patent cliff in 2028, the company is positioning itself for continued growth through strategic diversification and pipeline expansion. Earlier this month, we discussed how Keytruda is a ticking time bomb for Merck stock. In this analysis, we focus on the potential upside case for Merck despite its near-term challenges. That said, if you seek upside with lower volatility than individual stocks, the Trefis High-Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception. Separately, see – QuantumScape: What’s Happening With QS Stock?
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Pipeline Depth: $50 Billion in Potential
While oncology accounts for a significant portion of Merck’s revenue, its top-selling drug will face the biosimilar headwinds beyond 2028. Still, Merck is poised for significant growth, with 20 new “blockbuster” drugs in development that have a combined sales potential of $50 billion. This robust pipeline signifies a strategic shift away from the company’s reliance on Keytruda, aiming for diversified revenue streams across various therapeutic areas.
Several promising candidates are driving this potential:
- MK-1022 for non-small-cell lung cancer is a key pipeline asset, with estimated peak sales exceeding $5 billion.
- MK-0616, an investigational oral drug for lowering LDL cholesterol, is designed to be the first oral PCSK9 inhibitor. This offers a convenient alternative to currently available injectable PCSK9 inhibitors and is also projected to achieve over $5 billion in peak sales.
- Merck’s oncology portfolio is further strengthened by multiple oncology programs derived from strategic acquisitions.
Recently Launched Drugs and Vaccines:
Beyond the pipeline, Merck’s relatively new drugs and vaccines are already contributing significantly to revenue:
- Winrevair (sotatercept), acquired through Merck’s $11.5 billion acquisition of Acceleron, is the first disease-modifying treatment for pulmonary arterial hypertension. It generated $280 million in sales in Q1 2025 alone, building on $419 million in 2024 sales. Clinical data for Winrevair is highly promising, showing a 76% reduction in the risk of death, lung transplantation, and hospitalization. While Merck anticipates peak sales of $3 billion, this estimate appears conservative given its strong performance and significant clinical impact. Winrevair is expected to become a substantial revenue stream, helping to offset a significant portion of Keytruda’s eventual sales decline.
- Capvaxive generated $107 million in Q1 2025 sales and has a peak sales potential exceeding $2 billion.
This strategic focus on a broad and impactful pipeline, alongside strong performance from recent launches, positions Merck for sustained growth and reduced dependence on a single product. The numbers suggest Merck’s diversification strategy could work. If Winrevair reaches its peak sales target and the broader pipeline delivers on its potential, the company could significantly offset Keytruda’s decline and see sales growth. The timeline is tight—most growth drivers need to scale before 2028—but the foundation is in place.
Investment Implications
Merck’s potential for upside hinges on its ability to execute on several key fronts: successfully advancing its pipeline, expanding geographically, and making strategic acquisitions. The company has a proven track record of identifying and developing blockbuster drugs, and its current strategy directly addresses its past reliance on Keytruda.
Merck’s acquisition strategy clearly shows its intent to build a portfolio beyond oncology. For example, the recent $680 million acquisition of Harpoon Therapeutics bolsters its growing immunotherapy portfolio. Similarly, the Acceleron deal immediately boosted revenue with Winrevair. This approach of acquiring late-stage assets provides both near-term revenue and long-term growth potential. With a cash balance of over $9 billion, Merck is well-positioned to pursue further acquisitions that can fuel revenue growth.
For investors, this presents a compelling turnaround story: a company successfully transitioning from single-drug dependence to diversified growth. The next 12 to 18 months will be crucial in determining if Merck can deliver on its pipeline promises and maintain growth momentum beyond 2028.
Valuation and Upside Potential
Currently trading at around $80, MRK stock is valued at 3.2 times its trailing revenues. This is below its three-year average price-to-sales (P/S) ratio of 4.4 times, suggesting that investors have already factored in some of the challenges Merck might face beyond 2028, as well as near-term concerns surrounding its Gardasil vaccine. Our dashboard on Merck’s valuation ratios has more details.
While Gardasil is experiencing temporary headwinds in China, sales have increased in every other region. The market pause in China appears to be temporary, offering additional upside as demand normalizes. If MRK stock were to return to its historical P/S ratio, it would translate to a price of over $110, implying nearly 40% upside potential.
This scenario with Merck highlights the critical importance of building a resilient investment portfolio that effectively balances risk and reward. Merck’s situation serves as a potent reminder that even highly successful pharmaceutical companies inevitably face patent cliffs, which can dramatically alter their growth trajectories.
Merck’s reliance on Keytruda, while currently its greatest strength, also represents its most significant near-term vulnerability. Although Merck is strategically addressing this with a pipeline that holds a $50 billion potential, the inherent risks associated with such a transition are notable.
Investors must weigh the company’s current robust performance against the certainty of coming challenges, making diversification across multiple stocks crucial for managing this type of concentrated risk. Our Trefis High Quality (HQ) portfolio exemplifies this approach, having significantly outperformed the S&P 500, Nasdaq, and Russell 2000, clocking in over 91% returns since inception. Balancing risk and reward is precisely why diversifying across multiple stocks is crucial.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
