Can Merck Successfully Steer Through the Upcoming Headwinds?

Merck MRK is expected to face some notable headwinds over the next few years that could affect its long-term growth outlook, the most significant being the upcoming loss of exclusivity (“LOE”) for its blockbuster PD-L1 inhibitor, Keytruda, in 2028. The company’s biggest revenue driver, Keytruda, recorded sales of $23.3 billion in the first nine months of 2025, up 8% year over year.Keytruda, which is approved for several types of cancer, alone accounts for more than 50% of Merck’s pharmaceutical sales. The drug has played a key role in driving the company’s steady revenue growth over the past few years.As Keytruda's intravenous (“IV”) formulation is set to lose patent exclusivity in 2028, Merck is already working on various strategies to navigate the potential challenges. Notably, in September 2025, the FDA approved a subcutaneous (“SC”) formulation of Keytruda, known as Keytruda Qlex. Though Keytruda’s IV formulation is set to lose exclusivity in 2028, the newly approved SC version comes with its own set of patents that extend protection well beyond that date. However, it remains to be seen whether Keytruda Qlex can help MRK lower the negative impact of Keytruda's IV LOE.In addition, Merck faces a significant challenge with the declining sales of its second-largest product, Gardasil, which is a vaccine for the prevention of certain cancers caused by human papillomavirus. Gardasil recorded sales of $4.20 billion, reflecting a 40% decline year over year during the first nine months of 2025.Sales of Gardasil are declining due to weak performance in China, which resulted from sluggish demand trends amid an economic slowdown. Merck is also seeing lower demand for the vaccine in Japan. Management expects Gardasil sales to remain weak in China as well as Japan heading into 2026.Sales of some other vaccines, like Proquad, M-M-R II, Varivax, Rotateq and Pneumovax 23, also declined in the first nine months of 2025.The third key headwind, which is likely to impact Merck, is the unfavorable impact from the Medicare Part D redesign under the Inflation Reduction Act, which took effect in 2025. In August 2023, the U.S. Department of Health and Human Services (“HHS”) selected Januvia as one of the first 10 medicines subject to government-set prices effective in 2026.In January 2025, HHS selected Janumet and Janumet XR for government price setting, which will become effective in 2027. Sales of Januvia/Janumet are expected to decline steeply from 2026 onward due to the government price setting in 2026 and 2027, the anticipated patent expiry in 2026 and ongoing competitive pressure. Keytruda is expected to be selected in 2027 for government price setting, which will become effective from 2029. This can result in a decline in U.S. sales after that.Despite the ongoing headwinds and the upcoming challenges, Merck is pinning hopes on its new 21-valent pneumococcal conjugate vaccine, Capvaxive, and pulmonary arterial hypertension drug, Winrevair, to boost its top line once Keytruda loses exclusivity. Both products have witnessed a strong launch so far.Moreover, Merck’s Animal Health business is a key contributor to the top-line growth, as it is recording above-market growth. Merck is also planning to save $3 billion in annual costs by the end of 2027 through its multi-year optimization initiative.This remains to be seen whether Merck’s growing portfolio, deep pipeline and strategic cost cuts help it navigate future challenges and sustain long-term growth.Other PD-L1 Inhibitors Competing With MRK’s KeytrudaKeytruda faces competition from other PD-L1 inhibitors, including Bristol Myers’ BMY Opdivo, Roche’s RHHBY Tecentriq and AstraZeneca’s AZN Imfinzi.BMY’s Opdivo is approved across multiple cancer types, including lung, melanoma and kidney cancers. Bristol Myers recorded $7.35 billion in Opdivo sales during the first nine months of 2025, up 8% year over year.Tecentriq is Roche’s leading immuno-oncology drug approved for multiple cancer indications. RHHBY recorded CHF 2.61 billion in Tecentriq sales in the first nine months of 2025.AZN’s Imfinzi generated sales of $4.32 billion in the first nine months of 2025, up 25%, driven by demand growth in lung and liver cancer indications. Imfinzi has strategically expanded its use across multiple cancer indications, strengthening AstraZeneca’s oncology portfolio.MRK's Price Performance, Valuation and EstimatesOver the past six months, shares of Merck have rallied 27.5%, compared with the industry’s 19% rise. The stock has also outperformed the sector and the S&P 500 during the same time frame, as seen in the chart below.Image Source: Zacks Investment ResearchFrom a valuation standpoint, Merck appears attractive relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 11.56 forward earnings, lower than 17.11 for the industry and its 5-year mean of 12.49.Image Source: Zacks Investment ResearchThe Zacks Consensus Estimate for 2025 earnings per share has increased from $8.92 to $8.98, while the same for 2026 has decreased from $9.44 to $8.37 over the past 60 days.Image Source: Zacks Investment ResearchMRK's Zacks RankMerck currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks' Research Chief Picks Stock Most Likely to "At Least Double"Our experts have revealed their Top 5 recommendations with money-doubling potential – and Director of Research Sheraz Mian believes one is superior to the others. Of course, all our picks aren’t winners but this one could far surpass earlier recommendations like Hims & Hers Health, which shot up +209%.See Our Top Stock to Double (Plus 4 Runners Up) >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report AstraZeneca PLC (AZN): Free Stock Analysis Report Roche Holding AG (RHHBY): Free Stock Analysis Report Bristol Myers Squibb Company (BMY): Free Stock Analysis Report Merck & Co., Inc. (MRK): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks