Merck Faces Multiple Challenges: Will It Steer Through Successfully?

Core Insights - Merck (MRK) is anticipated to encounter significant challenges affecting its long-term growth, primarily due to the expected loss of exclusivity for its leading PD-L1 inhibitor, Keytruda, in 2028 [1][10] - Keytruda, which accounts for approximately 50% of Merck's sales, generated $7.21 billion in Q1 2025, reflecting a 6% year-over-year increase [2][10] - The company is also facing declining sales for its second-largest product, Gardasil, which saw a 40% drop in Q1 2025 due to weak demand in China [3][10] Revenue Drivers - Keytruda is projected to maintain strong sales until its patent expiration in 2028, with an estimated compound annual growth rate (CAGR) of 5.4% over the next three years [2] - Gardasil's sales have been declining, with a 3% decrease to $8.58 billion in 2024, and a negative CAGR of 6.4% expected over the next three years [4] Regulatory Impact - The redesign of Medicare Part D under the Inflation Reduction Act (IRA), effective in 2025, is expected to negatively impact sales of Merck's diabetes drug, Januvia/Janumet, in 2026, and Keytruda starting in 2028 [5][10] - Other pharmaceutical companies, including J&J, Pfizer, and Eli Lilly, are also anticipating adverse effects from the Medicare Part D changes [8] Future Growth Potential - Merck's new products, such as the 21-valent pneumococcal conjugate vaccine, Capvaxive, and the pulmonary arterial hypertension drug, Winrevair, are expected to support growth post-Keytruda exclusivity [6] - The company is actively seeking to diversify its product offerings, particularly in the non-oncology sector, to mitigate potential challenges [6] Market Performance - Year-to-date, Merck's shares have decreased by 18.2%, contrasting with a 1.1% decline in the industry [11] - Merck's current price/earnings ratio stands at 8.71, which is lower than the industry average of 14.93 and its own 5-year mean of 12.83, indicating an attractive valuation [12] Earnings Estimates - The Zacks Consensus Estimate for Merck's 2025 earnings has slightly decreased from $8.94 to $8.91 per share, while the estimate for 2026 has dropped from $9.77 to $9.73 over the past 60 days [13]