Merck Navigates Patent Expiry with New Drug Pipeline as Keytruda Approaches 2028 LOE
Merck's Strategy to Offset Keytruda Patent Expiry in Focus
Merck & Co. (MRK) is actively working to diversify its revenue streams as its flagship oncology drug, Keytruda, approaches its loss of exclusivity (LOE) in 2028. Keytruda, a pivotal immunotherapy, continues to be a dominant force within Merck's pharmaceutical portfolio, contributing over 50% of its pharmaceutical sales. However, the impending patent expiration necessitates a robust pipeline of new products to sustain long-term growth and mitigate potential revenue erosion.
Keytruda's Enduring Contribution and Impending Expiration
Keytruda generated substantial sales of $15.16 billion in the first half of 2025, marking a nearly 7% year-over-year increase. This performance underscores the drug's significant contribution, which accounted for 46% of Merck's total sales in 2024 and is projected to reach $32.2 billion for the full year 2025. Despite its current strength, the patent expiration in 2028 presents a substantial challenge, with analysts projecting a 30-60% sales erosion post-2028 due to biosimilar competition.
In response, Merck is pursuing a subcutaneous (SC) Keytruda formulation, designed to reduce administration time from 30 minutes to one minute, thereby enhancing patient access and adherence. This SC version is nearing EU and U.S. regulatory approvals, with the FDA PDUFA date set for September 23, 2025. While analysts estimate the SC formulation could capture $5-7 billion annually by 2030, its commercialization timeline is complicated by an ongoing patent dispute with Halozyme Therapeutics, which alleges infringement of its hyaluronidase enzyme patents. A favorable outcome for Merck in this litigation is critical for a smooth SC launch, as a potential injunction could delay commercialization by 6-12 months and lead to market share erosion.
New Product Portfolio Gains Traction Amidst Competition
Merck's strategy hinges significantly on the successful launch and market penetration of its new drug candidates. Capvaxive, a 21-valent pneumococcal conjugate vaccine, received U.S. approval in June 2024 and EU approval in March 2025, recording H1 2025 sales of $236 million. Similarly, Winrevair, a pulmonary arterial hypertension (PAH) drug, approved in the U.S. and EU in 2024, generated $615 million in sales during the first half of 2025.
Another key addition to Merck's growing portfolio is Enflonsia (clesrovimab), a new respiratory syncytial virus (RSV) antibody approved in the U.S. in June 2025. Enflonsia offers a single-dose, weight-independent design, potentially providing an advantage in a competitive RSV market. However, it faces stiff competition from AstraZeneca/Sanofi's Beyfortus (which reported $393.4 million in H1 2025 sales) and other vaccines from Pfizer, GSK, and Moderna.
The PAH market is also intensely competitive, with Winrevair contending with established players. Johnson & Johnson's PAH franchise generated $2.14 billion in H1 2025, while United Therapeutics reported significant sales from its Remodulin ($272.9 million), Orenitram ($244.6 million), and Tyvaso ($935.9 million) during the same period. Additionally, Welireg, a novel HIF-2α inhibitor, saw its sales increase by approximately 42% in H1 2025.
Market Reaction and Valuation Context
Merck's (MRK) shares have experienced an 18% decline year-to-date, significantly underperforming the industry, which saw a 0.5% rise, and the broader S&P 500 during the same period. This underperformance reflects investor caution and the significant uncertainty surrounding the post-Keytruda revenue landscape.
From a valuation perspective, Merck currently trades at 8.67x forward earnings, which is notably lower than the industry average of 14.83x and its own five-year mean of 12.70x. This relatively attractive valuation suggests that the market has already factored in much of the risk associated with the Keytruda patent cliff. Analyst estimates for 2025 earnings per share have seen a slight increase from $8.85 to $8.93, while the 2026 estimates have marginally decreased from $9.63 to $9.59 over the past 60 days, indicating a nuanced outlook with short-term optimism tempered by longer-term concerns.
Merck's second-quarter 2025 financial results included revenues of $15.8 billion, representing a 1.9% year-over-year decrease, and Non-GAAP EPS of $2.13. While Keytruda sales climbed 9% in Q2, GARDASIL vaccine revenue sharply declined by 55% due to reduced demand in China, prompting the withdrawal of its long-term target.
Broader Implications and Forward Outlook
The ability of Merck's new drug portfolio to scale rapidly and effectively compensate for the projected decline in Keytruda revenue post-2028 remains the most critical factor for its future growth trajectory. The outcome of the Halozyme patent litigation regarding subcutaneous Keytruda will significantly influence the near-term commercial success and market penetration of this crucial formulation.
Merck is also implementing a $3.0 billion cost-optimization initiative, targeting annual savings by 2027, with the aim of reinvesting these funds into new product launches and its pipeline. The company's active acquisition strategy, exemplified by the $10 billion Verona Pharma agreement for Ohtuvayre, further underscores its commitment to pipeline diversification. However, the broader pharmaceutical landscape continues to be shaped by regulatory shifts and pricing pressures, notably from the Inflation Reduction Act in the U.S., which could impact top-line growth and cost forecasts.
Investors will closely monitor the market adoption rates of Capvaxive, Winrevair, and Enflonsia, alongside the resolution of the SC Keytruda patent dispute, as key indicators of Merck's success in navigating this pivotal period of patent expiry and strategic transformation. The company's long-term performance will hinge on its capacity to innovate and maintain a competitive edge in rapidly evolving therapeutic markets.
