Pharmaceuticals: Major · #94 in the Retail 100

Merck

MRK

Our rating: hold
12-month target: $163.69 +10.3%
Expected vs. S&P 500: -5.9 ptsSee the math
Next earnings: Feb 2In 89 days

In the U.S., infused Keytruda sales fell 7% while Qlex added $693M, so the two together grew about 7%: Qlex has been a switch, not new demand.

Summary

Merck's cancer drug Keytruda brought in about half of its $65B in 2025 sales, and key U.S. patents start expiring in 2028, opening the door to cheaper copies. Merck's main defense is Keytruda Qlex, an under-the-skin injection that copies of the infused drug cannot automatically replace; it sold $830M last quarter. Newer drugs such as Winrevair must fill the rest, because Gardasil and animal health are each about a tenth of sales. The stock now depends on Qlex keeping its patients and price.

$144.68

+$62.19 (+75.39%)Past year

What Merck does

Merck is one of the largest drugmakers in the world. Nearly half its sales come from one cancer drug, Keytruda, so the company's profits rise and fall with that single product.^3,2,1,25

What it sells

Keytruda49% of revenue, 2025
An immunotherapy that helps the immune system attack tumors, approved in many cancers and given by IV infusion or, now, as an injection.
Other medicines33% of revenue, 2025
Newer drugs such as Winrevair for lung blood pressure, plus older diabetes, antibiotic and cancer-partnership products. This is where replacement growth must come from.
Animal Health10% of revenue, 2025
Vaccines and medicines for farm animals and pets. Sales grew 8% in 2025, but it earns only about 5% of Merck's segment profit.
Gardasil8% of revenue, 2025
The vaccine against HPV, the virus behind cervical and other cancers. Sales fell 39% in 2025, mainly because Merck stopped shipping it to China.

Who buys it

Hospitals, cancer clinics and pharmacies, paid mostly by insurers and governments. In the U.S., Medicare covers many cancer patients, so government pricing rules matter more for Merck than for most drugmakers.

Where you've seen it

Gardasil, the HPV shot many teenagers get, and Bravecto, Merck's flea and tick treatment for dogs and cats.

The backstory

Keytruda carried Merck for a decade and reached $31.7B of sales in 2025, but its core U.S. patent protection starts ending in 2028. Gardasil, the second pillar, fell 39% after Merck stopped shipping it to China in February 2025. Merck's answer has three parts: move Keytruda patients to the injectable Qlex, buy and launch replacement drugs, and save $3B a year in costs by the end of 2027 to reinvest in them.

How the business makes money

Why Merck's future depends on one injection^1,2,3,4,5,6

Step 1
Keytruda brings in about half of Merck's sales, at high margins, and that cash pays for everything else.
Step 2
Cheaper copies of the IV drug can launch once core U.S. patents expire in 2028.
Step 3
Merck is moving patients to Qlex, an injection the copies cannot directly replace, aiming for 30% to 40% by the end of 2027.
Step 4
If Medicare applies Keytruda's negotiated price to Qlex from 2029, as a June proposal would, that defense protects less revenue.
What shareholders get
Keytruda's cash is buying replacement drugs now, and the stock is priced as if they arrive in time.

Advantages

Keytruda's reach across cancers

Major advantage

The biggest advantage, and the one under threat. Keytruda is approved across most solid tumors, and growth now comes from early-stage cancers such as breast, cervical and bladder, where patients stay on it longer. Sales still rose 6% last quarter, two years before patents start expiring.^29,4

An injection that copies cannot swap in

Strong advantage

Important, but contested. Qlex is a quick injection under the skin rather than an infusion. Biosimilar copies of the IV drug are a different product, so a clinic that has moved a patient to Qlex would have to switch back to use a copy.^4,5

Cash to buy replacements

Supporting

Helpful, not decisive. Keytruda's cash let Merck spend $16B on Cidara and Terns in the first half of 2026 while still paying its dividend. Buying drugs is easy; whether they replace Keytruda's sales is the open question.²

What's changing

Buying growth before the 2028 deadline

Merck is spending heavily before Keytruda's patents expire. It bought Verona in October 2025, Cidara for $9.2B in January and Terns for $6.8B in May, and one-time charges cut 2026 reported earnings by more than half. In the third quarter it added a $400M licensing charge. On Aug. 19, the Moderna melanoma vaccine succeeded in a large trial and the stock rose 12.6%.^{1,2,9,10,27,29}

Competitors

Who else an investor would consider, and how they compare.

Company	Market value	What it does	Compared with Merck
Merckthis stock	$356.95B	Merck is one of the largest drugmakers in the world. Nearly half its sales come from one cancer drug, Keytruda, so the company's profits rise and fall with that single product.
Bristol Myers SquibbBMY	$125.85B	Sells Opdivo, Keytruda's closest rival, plus an injectable version Medicare's proposal also targets.	Opdivo is about a fifth of Bristol's sales; Keytruda is half of Merck's.^22,23
Summit TherapeuticsSMMT	—	Developing ivonescimab, which blocks Keytruda's target and also cuts tumors' blood supply.	Summit wants to replace Keytruda as the standard; Merck is defending it.¹⁸
AstraZenecaAZN	—	Broad cancer drugmaker whose immunotherapy, Imfinzi, is growing on new approvals such as bladder cancer.	Imfinzi is about a tenth of AstraZeneca's sales; Keytruda is about half of Merck's.²⁴
Samsung Bioepis (Samsung Biologics)private	—	Makes cheaper biosimilar copies of big biologic drugs, including a Keytruda copy in late trials.	Samsung sells copies of the IV drug; Merck is moving patients to the injection.¹⁹

Bull vs. bear: two bets on the same stock

1
A share is a small slice of the company. Its value comes from the profits the company will make in the future.
2
Nobody knows those profits yet. Buyers (bulls) pay today's price betting they'll beat what most people expect. Sellers (bears) bet they'll fall short.
3
When results come in, the price moves toward whichever side was right, and that side makes money.

The question they disagree on

Will Keytruda Qlex reach Merck's goal of 30% to 40% U.S. adoption by the end of 2027, and keep its own price after 2028?^{6,7,10,29,30,33}

Bull case: why buyers buy

If doctors switch to Qlex on schedule and Medicare does not tie its price to the infused drug, Keytruda's decline after 2028 is a hill, as Merck says.

Doctors keep switching to Qlex. Its sales rose to $830M from $463M the quarter before, and Keytruda plus Qlex still grew 6% worldwide.
New drugs are growing fast. Winrevair sales rose 93% from a year earlier, and Merck raised its 2026 sales and earnings forecasts.
The pipeline keeps delivering. The FDA accepted Merck's sac-TMT application for endometrial cancer, with a decision due June 15, 2027.
The melanoma vaccine worked. Added to Keytruda, it cut the risk of the cancer coming back or death by 42%, and sales are split equally with Moderna.

Bear case: why sellers sell

If Medicare's price cut covers Qlex too, moving patients to it protects little, Keytruda revenue falls faster after 2028, and a stock that has already risen looks expensive.

Medicare may price Qlex like the infused drug. A June proposal, not yet final, would negotiate injectable versions together with their originals; Merck's release did not address it.
Switching is still early. Qlex was about 13% of U.S. Keytruda dollar sales last quarter by our math, against a 30% to 40% adoption goal for end-2027.
A patent fight blocks Qlex in Europe. Courts have barred it in Germany and eight other European countries over a Halozyme patent, and a U.S. case is pending.
Estimates are drifting down. Analysts cut their 2027 earnings estimates from $9.68 to $9.15 a share over 90 days.

Where Delphi landsholdWe think today's price already weighs both sides fairly.See why

What to watch

The numbers that will settle the debate.

Qlex share of U.S. Keytruda sales▲ improving

About 13% of U.S. Keytruda dollar sales in Q3 2026 ($693M of $5.2B, our math), up from about 8% in Q2^30,2

Shows how much Keytruda revenue is moving out of copies' reach. Merck targets 30% to 40% U.S. adoption by end-2027.

Keytruda plus Qlex sales growth■ flat

$8.60B in Q3 2026, up 6% from a year earlier²⁹

Shows how much the core drug still grows before copies arrive. A slowdown would shrink the cash for replacements.

Winrevair quarterly sales▲ improving

$694M in Q3 2026, up 93% from a year earlier²⁹

The largest new drug so far. Replacement products must grow fast enough to offset Keytruda after 2028.

Next earnings report

Feb 2

In 89 days

Expected earnings per share: $1.87
Expected revenue: —

What to listen for: Whether Qlex's U.S. share keeps climbing once the purchase timing reverses, and anything management says about the Medicare rule and Keytruda's price after 2028.³³

What would prove this wrong

✕Qlex stalls well below 30% of U.S. Keytruda use by end-2027.
✕CMS drops the proposal, so Qlex keeps its own price after 2029.
✕A U.S. court blocks Qlex on Halozyme's patents.
✕Winrevair, Lipfendra and the melanoma vaccine sell far more than expected.

Our ratingHoldas of Nov 2 close, $148.36 · what ratings mean

Qlex and Winrevair beat expectations, but estimates are still being cut and the stock trades above its five-year typical valuation, so returns should trail or match the S&P 500.

12-month target: $163.69 (+10.3%)
Plus dividend: +2.3%
S&P 500, same method, with dividends: +18.5%
Expected vs the market: -5.9 points

The math behind the recommendation

Three 12-month price scenarios, weighted by probability, compared with the S&P 500 under the same method.

Now $148.36

Target $163.69

bull case25% likely

$201.14 +36%

Qlex reaches the top of its 30% to 40% goal, CMS drops or narrows the rule, and new drugs lift 2028 earnings toward the high estimate.

$10.28 earnings per share × 19.6 = $201.14

base case50% likely

$159.71 +8%

Qlex reaches about a third of use, Medicare pricing hits from 2029 as Merck expects, and 2028 earnings land at the consensus.

$9.94 earnings per share × 16.1 = $159.71

bear case25% likely

$134.19 -10%

Qlex adoption stalls or its price is tied to IV Keytruda, estimates keep falling, and the valuation drops back toward its five-year norm.

$9.58 earnings per share × 14 = $134.19

Why these odds: Merck beat estimates again and raised its forecast, but analysts cut 2027 estimates from $9.68 to $9.15 over 90 days, with 10 cuts and 1 raise last month, and part of the beat was purchase timing and tax. 2028 is extended from 2027, not a published consensus.

How the prices are built: Wall Street expects earnings per share of $9.94 for the year starting a year from now (analysts range from $9.22 to $10.62). Today the stock trades at 17 times next year's earnings per share; its five-year middle is 13.23.^{33,34,36,37,35,31}

What tests the call: Q4 2026 earnings and Qlex update (Feb 1)

Buy means expected to beat the S&P 500 by 10+ points over 12 months; Sell means expected to trail it by 10+. Inputs gathered Oct 30; the recommendation updates with the price every day. Model-generated, not personalized investment advice. How ratings work · Track record

What the price assumes

At $148.36, investors pay less for each dollar of Merck's earnings than for the average stock's

Merck trades at 17 times the earnings analysts expect over the next 12 months. That ratio is the multiple: what investors pay today for each dollar of a year's earnings. That is pricier than it has been 80% of the time over the past five years, when the middle was 13.

Analysts expect earnings to grow about 14% the year after, against about 16% for the S&P 500. The S&P 500 trades at 19 times. At the market's multiple, today's price would only make sense if Merck earned about 9% less than forecast over the next year.

Merck multiple: 17×
S&P 500 multiple: 19×
Base case: +8%
Bear case: −10%

The skewOur bear case loses about $1.25 for every $1 our base case makes. That ratio, how much you stand to lose against how much you stand to make, is the skew.

Last earnings

Q3 2026 results, reported Oct 29

Merck beat profit and sales estimates, Qlex sales reached $830M, and Merck raised its 2026 earnings forecast.^29,30,31,32

Reported Oct 29	Expected	Actual	Difference
Earnings per share	$2.10	$2.49	+18.6%
Revenue	—	—	—

Beat expectations in 6 of the last 7 quarters

Stock reaction: Up 3.8% on Oct. 29, the day of the report (before the open), closing at $146.33; up another 2.2% on Oct. 30

Why the stock moved

Up: adjusted earnings per share of $2.49 beat the $2.09 estimate, and sales of $18.09B beat $17.33B.
Up: Qlex sales rose to $830M from $463M last quarter; Winrevair grew 93% to $694M.
Up: the 2026 earnings forecast rose to $2.77 to $2.82 a share, helped by a lower tax rate and currency.
Caution: about $550M of sales were customers buying early, per the release. No call transcript or coverage was found.

What it means for the stock: Strengthened the Qlex defense: sales nearly doubled from the prior quarter. Purchase timing and tax flattered the beat, and the release did not address Medicare's Qlex pricing plan.