Can MRK's New Drugs Drive Long-Term Growth Amid Looming Keytruda LOE?

Merck (MRK) is strategically addressing the impending 2028 loss of exclusivity for its blockbuster drug Keytruda, which comprises over 50% of its pharmaceutical sales. The company is banking on strong early uptake from new launches like Capvaxive ($236 million H1 2025 sales) and Winrevair ($615 million H1 2025 sales), alongside other pipeline advancements, to drive long-term growth. However, these new products face significant competitive pressures in their target markets, creating uncertainty around their ability to fully compensate for Keytruda's eventual revenue decline, even as MRK shares trade at an attractive 8.67x forward P/E relative to the industry despite an 18% YTD decline.

Analysis

Merck faces a significant long-term growth challenge centered on the 2028 loss of exclusivity for its blockbuster drug, Keytruda, which accounts for over half of its pharmaceutical sales and generated $15.16 billion in the first half of 2025. The company's strategy to mitigate this revenue cliff involves extending Keytruda's life via a new subcutaneous formulation and, more critically, scaling a portfolio of new products. Early commercial results for these new assets are strong, with the PAH drug Winrevair and the vaccine Capvaxive generating $615 million and $236 million, respectively, in H1 2025, while Welireg sales grew 42%. However, this nascent growth is challenged by intense competition. Winrevair enters a crowded PAH market dominated by J&J ($2.14 billion in H1 2025 PAH franchise revenue) and United Therapeutics (with its drug Tyvaso alone posting $935.9 million in H1 2025 sales). Similarly, the new RSV antibody Enflonsia will compete with the established AZN/Sanofi antibody Beyfortus. This fundamental uncertainty is reflected in the market's pricing of MRK stock, which has declined 18% year-to-date, leading to a forward P/E multiple of 8.67, substantially below both the industry average of 14.83 and its own 5-year mean of 12.70.

Key Decisions for Investors

• Investors should weigh the attractive valuation, with the stock trading at a significant discount to its peers and historical average, against the substantial execution risk of replacing Keytruda's revenue post-2028.
• Monitor the quarterly sales growth of new launches, particularly Winrevair and Capvaxive, as their ability to scale rapidly is the primary determinant of the company's long-term outlook and the key catalyst for a potential re-rating of the stock.
• Closely track market share developments for Winrevair against competitors like United Therapeutics and J&J, and for Enflonsia against AstraZeneca/Sanofi, as competitive dynamics will dictate the ultimate revenue potential of these crucial new products.