Merck’s SWOT analysis: stock faces keytruda patent cliff, gardasil challenges

Merck (NSE:PROR) & Co., Inc. (NYSE:MRK), a global healthcare giant known for its prescription medicines, vaccines, and biologic therapies, finds itself at a critical juncture as it navigates challenges to its key products while working to secure its long-term growth prospects. The company’s stock has been the subject of intense scrutiny by analysts, who are closely monitoring Merck’s strategies to overcome upcoming patent expirations and capitalize on its pipeline potential.

Recent Financial Performance and Market Position

Merck has demonstrated resilience in its recent financial results, generating $63.9 billion in revenue over the last twelve months with a robust gross profit margin of 77%, while surpassing expectations in both revenue and earnings per share (EPS) for the fourth quarter of 2024. According to InvestingPro analysis, the stock currently appears undervalued based on its Fair Value calculation. For detailed valuation metrics and additional insights, visit our undervalued stocks list. The company reported a 1% beat on revenue and a 7% beat on EPS, showcasing its ability to deliver strong performance in the face of market challenges.

However, the company’s guidance for 2025 has raised concerns among investors. Merck has projected revenue of $64.85 billion and EPS of $8.96 for the year, which falls 3% and 2.2% below Street expectations, respectively. This downward adjustment is primarily attributed to the company’s decision to pause sales of its Gardasil vaccine in China from February through mid-2025, a move that has significantly impacted revenue forecasts.

Key Products and Pipeline

Merck’s product portfolio is anchored by its blockbuster cancer drug Keytruda, which continues to show impressive growth. In the fourth quarter of 2024, Keytruda sales beat consensus estimates by 3%, generating $7.84 billion in revenue. The drug’s sustained performance underscores its importance to Merck’s current financial health.

Gardasil, Merck’s human papillomavirus (HPV) vaccine, has been a focal point for analysts due to its significant contribution to the company’s top line. However, recent challenges in the Chinese market have led to a reevaluation of Gardasil’s revenue potential. Analysts have reduced their forecasts for Gardasil sales in China from $2 billion to a range of $0 to $1 billion for 2025, reflecting concerns over financial working capital and high inventory levels at Zhifei, Merck’s distribution partner in the region.

Winrevair, a treatment for pulmonary arterial hypertension (PAH), has shown promise but underperformed relative to market expectations in recent quarters. Analysts attribute this to increased market expectations rather than poor demand, suggesting potential for future growth as the product gains traction.

Gardasil Focus and Challenges

The decision to pause Gardasil sales in China has become a significant concern for investors and analysts alike. This move is expected to exert pressure on Merck’s shares, particularly as it impacts one of the company’s stable revenue streams at a time when the loss of exclusivity for Keytruda is on the horizon.

Analysts anticipate that investors will closely scrutinize the Gardasil situation during upcoming conference calls, seeking clarity on the company’s strategy to address inventory issues and restore growth in this crucial market. The ability of Merck’s management to navigate these challenges and provide a clear path forward for the Gardasil franchise will be critical in rebuilding investor confidence.

Keytruda and Future Growth

While Keytruda continues to be a powerhouse for Merck, the looming loss of exclusivity in 2028 casts a shadow over the company’s long-term revenue prospects. Analysts project that Keytruda sales could decline by 10-20% post-LOE, creating a significant revenue gap that Merck must address.

To counter this anticipated decline, Merck is focusing on developing its pipeline and pursuing strategic acquisitions. The company’s recent acquisition of Verona for approximately $10 billion is seen as a positive step towards bolstering its post-2028 revenue profile. The addition of Ohtuvayre (ensifentrine) for COPD maintenance is expected to be a growth driver with a peak sales potential of $3-4 billion and longevity into the mid-2030s.

Business Development and Acquisition Strategy

Analysts emphasize that Merck needs to engage in significant business development activities to fully address its long-term revenue profile. The company has indicated that it is looking for acquisitions in the $1-15 billion range, with flexibility for the right opportunity.

Merck’s pipeline includes promising candidates such as enlicitide (oral-PCSK9), clesrovimab, MK-2870 (TROP2), and subcutaneous pembro. However, many of these assets are not expected to scale commercially until after 2025, underscoring the need for additional near-term growth drivers.

Market Position and Competition

Merck faces intense competition in the oncology space, particularly as it seeks to expand its portfolio beyond Keytruda. The company’s recent deal with Hansoh Pharma for combination therapies has been noted, although some analysts consider Merck to be late to the game in this area.

The company’s ADC (antibody-drug conjugate) programs have shown mixed results, with some assets demonstrating promise while others have failed to differentiate from existing treatments. The HER3 ADC, for instance, did not show significant improvement over chemotherapy in a Phase 3 study for later-line EGFRm NSCLC, leading to the withdrawal of its BLA submission.

Bear Case

How will Merck address the revenue gap after Keytruda’s LOE in 2028?

Merck faces a significant challenge in replacing the revenue that will be lost when Keytruda loses exclusivity in 2028. Analysts project that Keytruda sales could decline by 10-20% post-LOE, creating a substantial gap in the company’s top line. While Merck has been investing in its pipeline and pursuing acquisitions, there are concerns that these efforts may not be sufficient to fully offset the anticipated decline in Keytruda revenue.

The company’s current pipeline assets, including promising candidates like enlicitide and clesrovimab, are not expected to reach their full commercial potential until after 2025. This timing leaves a narrow window for these products to ramp up sales before the Keytruda patent cliff. Additionally, the recent setbacks in some of Merck’s ADC programs highlight the inherent risks in drug development and the difficulty in replicating Keytruda’s success.

Can Merck overcome the challenges in its Gardasil business, particularly in China?

The decision to pause Gardasil sales in China from February through mid-2025 has significantly impacted Merck’s near-term revenue outlook. This pause, coupled with inventory issues at the company’s Chinese distribution partner, Zhifei, has led analysts to drastically reduce their revenue forecasts for Gardasil in China.

The challenges in the Chinese market are particularly concerning as they affect one of Merck’s key growth drivers at a time when the company needs to be building momentum to counter the future Keytruda LOE. There are questions about whether Merck can effectively resolve the inventory issues and restore growth in the Chinese market, as well as concerns about potential long-term impacts on market share and pricing power once sales resume.

Bull Case

How might Merck’s pipeline assets and recent acquisitions drive future growth?

Despite the challenges, Merck’s pipeline and recent acquisitions present opportunities for future growth. The acquisition of Verona for $10 billion, which brings Ohtuvayre (ensifentrine) for COPD maintenance into Merck’s portfolio, is expected to be a significant growth driver with peak sales potential of $3-4 billion. This acquisition demonstrates Merck’s commitment to addressing its post-2028 revenue profile through strategic M&A.

Additionally, Merck’s pipeline includes several promising candidates. The TROP2 targeting ADC, sacituzumab tirumotecan (sac-TMT), has shown impressive results in PD-L1 CPS

These pipeline assets, combined with Merck’s strong track record in drug development and commercialization, could potentially yield multiple new revenue streams to support growth beyond Keytruda’s LOE.

Could Merck’s strong balance sheet and M&A potential lead to significant value creation?

Merck’s robust balance sheet provides the company with significant flexibility to pursue additional acquisitions and licensing deals. The company has indicated that it is looking for acquisitions in the $1-15 billion range, with the potential for larger deals if the right opportunity arises.

This financial strength positions Merck to be opportunistic in the current market environment, potentially allowing the company to acquire promising assets or entire companies at attractive valuations. Successful M&A activity could not only help fill the revenue gap left by Keytruda’s LOE but also diversify Merck’s portfolio and reduce its dependence on any single product.

Furthermore, Merck’s experience in integrating acquisitions and its global commercial infrastructure could enable the company to extract maximum value from any acquired assets, potentially leading to significant value creation for shareholders in the long term. The company’s strong dividend history, having maintained payments for 55 consecutive years with a current yield of 4%, demonstrates its commitment to shareholder returns. Want deeper insights? InvestingPro offers 8 additional key tips and comprehensive analysis in our Pro Research Report, helping investors make smarter decisions with expert data and actionable intelligence.

SWOT Analysis

Strengths:

• Strong market position with blockbuster drug Keytruda
• Robust pipeline with promising oncology and vaccine candidates
• Solid balance sheet providing flexibility for M&A and R&D investments
• Global commercial infrastructure and expertise in drug development

Weaknesses:

• Heavy reliance on Keytruda for revenue growth
• Challenges in Gardasil business, particularly in China
• Some pipeline setbacks, including withdrawn BLA for HER3 ADC

Opportunities:

• Potential for strategic acquisitions to bolster long-term growth prospects
• Expansion of Keytruda into new indications and combination therapies
• Growing demand for innovative cancer treatments and vaccines globally

Threats:

• Upcoming loss of exclusivity for Keytruda in 2028
• Increasing competition in oncology and other key therapeutic areas
• Regulatory and pricing pressures in major markets
• Potential for further disruptions in the Chinese market

Analysts Targets

• Cantor Fitzgerald: Neutral, $83.00 (July 10th, 2025)
• Citi Research: Neutral, $84.00 (May 14th, 2025)
• BMO Capital Markets: Market Perform, $96.00 (February 5th, 2025)
• J.P. Morgan: Overweight, $145.00 (January 24th, 2025)

Merck & Co., Inc. faces a complex landscape as it navigates the challenges of maintaining growth in its key franchises while preparing for the loss of exclusivity of its flagship product, Keytruda. The company’s ability to successfully execute its pipeline development and M&A strategy will be crucial in determining its long-term success and shareholder value creation. As of July 18, 2025, analysts maintain a cautious to optimistic outlook on Merck’s stock, reflecting the mix of challenges and opportunities facing the company in the coming years.

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