Can Keytruda Sustain Merck's Growth Through the Rest of 2025?

Merck's oncology segment remains heavily reliant on Keytruda, which generated $15.16 billion in H1 2025 sales, comprising over 50% of pharmaceutical revenue, and is projected to reach $32.2 billion for FY2025. To mitigate the drug's impending 2028 patent loss, Merck is advancing immuno-oncology combinations, developing a personalized mRNA cancer vaccine with Moderna, and pursuing a subcutaneous Keytruda formulation with an FDA decision expected in September. However, the company's significant dependence on Keytruda, coupled with rising competitive pressure from candidates like Summit Therapeutics' ivonescimab which outperformed Keytruda in a Phase III NSCLC study, poses a challenge, reflected in Merck's 15.3% YTD stock underperformance despite an attractive valuation.

Analysis

Merck's financial health is acutely dependent on its oncology drug, Keytruda, which constituted over 50% of its pharmaceutical sales in the first half of 2025. The drug's sales reached $15.16 billion in H1, a 7% year-over-year increase, with full-year 2025 revenue projected to grow 9.2% to $32.2 billion, driven by uptake in early-stage lung cancer indications. However, this concentration presents a significant risk ahead of Keytruda's patent expiration in 2028. Management's strategy to mitigate this cliff involves developing a subcutaneous formulation of Keytruda, with a pivotal FDA decision expected in September, and advancing its pipeline through immuno-oncology combinations and a partnership with Moderna on an mRNA cancer vaccine. A notable competitive threat has emerged from Summit Therapeutics, whose candidate, ivonescimab, outperformed Keytruda in a Phase III study for NSCLC. This uncertainty is reflected in Merck's stock, which has underperformed its industry and the S&P 500 with a 15.3% year-to-date loss. Despite the performance lag, the stock appears undervalued, trading at a forward P/E of 9.01, well below the industry's 14.45 and its own 5-year average of 12.76. Mixed analyst revisions, with a slight increase in the 2025 EPS estimate to $8.92 and a decrease in the 2026 estimate to $9.59, underscore the market's cautious outlook on long-term growth.

Key Decisions for Investors

• Investors should weigh Keytruda's robust near-term growth, projected at 9.2% for 2025, against the substantial concentration risk posed by its 2028 patent expiration.
• Monitor the FDA's decision in September regarding the subcutaneous formulation of Keytruda, as an approval would be a critical catalyst for extending the product's life cycle.
• Closely track clinical data and market adoption of competing drugs, particularly Summit Therapeutics' ivonescimab, which has already demonstrated superior performance in a Phase III study and poses a direct threat to Keytruda's market share in NSCLC.
• Consider the current valuation discount, with a forward P/E of 9.01, as a potential entry point, but be aware that realizing this value is contingent on successful execution of the company's pipeline and life-cycle management strategy.