Keytruda's Crossroads: How Merck's Patent Fight Could Shape $Billions in Biotech

The fate of Merck's $29.5 billion cancer blockbuster, Keytruda, hangs in the balance as the FDA prepares to decide its subcutaneous (SC) formulation's future on September 23, 2025. But this isn't just a regulatory milestone—it's the climax of a high-stakes patent war with Halozyme Therapeutics, whose MDASE hyaluronidase patents could either unlock billions in sales for Merck or trigger a devastating injunction. For investors, this is a moment to reassess exposure to both companies, as the outcome will ripple across biopharma's IP strategies and oncology market dynamics.

The FDA's Role: A Pivotal Launch Gatekeeper

Merck's subcutaneous Keytruda SC—administered in two minutes versus 30 for the IV version—is poised to extend the drug's dominance in metastatic cancer care. Clinical data from its phase 3 trial met non-inferiority endpoints, positioning it as a game-changer for patient convenience. However, Halozyme's lawsuit argues Merck's hyaluronidase enzyme (ALT-B4) infringes on patents for its MDASE technology, which enables rapid subcutaneous drug delivery.

The FDA's approval decision is a double-edged sword:
- Approval without an injunction would allow Merck to launch Keytruda SC by late 2025, capturing $3–4 billion in annual peak sales and shielding it from biosimilar competition until 2028.
- Approval with an injunction (if Halozyme wins its patent case) could block sales entirely, leaving Merck's oncology franchise vulnerable.

The Patent Battle: Invalidating Halozyme's Claims?

Halozyme's lawsuit, filed in April 2025, seeks damages and an immediate ban on Keytruda SC. Its patents (e.g., U.S. Patent No. 11,952,600) cover engineered hyaluronidase enzymes, which Merck claims its ALT-B4 avoids. The U.S. Patent and Trademark Office (USPTO) has already greenlit a post-grant review of Halozyme's core patent, with a ruling expected by mid-2025. If the USPTO invalidates Halozyme's claims, Merck's path to market clears—and Halozyme's valuation plummets.

The stakes for Halozyme are existential: its MDASE IP accounts for nearly 70% of its pipeline value. Analysts estimate a patent loss could erase $1.2–1.8 billion from its market cap, as its ENHANZE® licensing revenue (used in 10 drugs) remains unaffected. Meanwhile, Merck's legal team has petitioned to invalidate seven Halozyme patents, arguing they're overly broad.

Financial Risks & Rewards: A $4B Gamble

The litigation's outcome hinges on three scenarios:
1. Merck Wins (PTAB Invalidates Patents): Keytruda SC launches in Q4 2025, adding $3.5B annually to sales. Merck's stock rallies, while Halozyme's shares crater.
2. Settlement: Halozyme may demand 3–7% royalties on Keytruda SC sales—a $100–200M annual hit for Merck but preferable to an injunction.
3. Halozyme Wins (Injunction Issued): Keytruda SC is blocked indefinitely, slashing Merck's oncology revenue and emboldening biosimilar competitors.

Competitive Threats: A New Era of IP Battles

This case signals a broader shift in biotech's innovation wars. Competitors like AstraZeneca and Daiichi Sankyo are already leveraging Alteogen's non-infringing enzymes to bypass Halozyme's patents. The subcutaneous oncology market, projected to hit $12B by 2030, could see a land grab if Merck's strategy succeeds.

For investors, Halozyme's survival now depends on its ability to:
- Defend its patents in court,
- Negotiate licensing deals with Merck and others,
- Diversify its pipeline beyond MDASE.

Why Investors Must Act Now

The September FDA decision is a “binary event” for Merck's stock, but the USPTO's patent review is equally critical. Here's how to position your portfolio:
1. Buy MRK if...
- You believe the PTAB invalidates Halozyme's patents (currently a 60% probability per analysts).
- The FDA approves Keytruda SC with no injunction.
- Merck's oncology sales outperform biosimilar competitors.

1. Short HALO if...
2. PTAB invalidates key patents, collapsing Halozyme's IP moat.

3. Merck's settlement terms are unfavorable to Halozyme's margins.

4. Hedge with...

5. Biotech ETFs (e.g., XBI) to mitigate sector volatility.
6. Short-dated options on both stocks to capitalize on post-decision swings.

Final Analysis: A Crossroads for Biopharma IP

This isn't just a patent dispute—it's a referendum on how biotech guards innovation. If Merck prevails, companies will rush to copy its strategy of licensing alternative enzymes, destabilizing Halozyme's dominance. If Halozyme wins, it reinforces the power of aggressive patent enforcement.

For investors, the message is clear: the next 100 days will determine whether Merck retains its oncology crown or becomes a cautionary tale of overreach. With Keytruda SC's launch critical to Merck's post-2028 strategy, and Halozyme's IP portfolio hanging in the balance, this is no time to stay on the sidelines.

Act now—or risk missing the pivot point in one of biotech's most consequential showdowns.