Why Merck (MRK) is a Strong Long-Term Value Play Despite Its Keytruda Dependency

Merck & Co. (MRK) has long been a cornerstone of the pharmaceutical sector, balancing robust financial performance with a forward-looking pipeline. While its blockbuster oncology drug Keytruda remains a dominant revenue driver, concerns about its patent expiration in 2028 (U.S.) and 2031 (Europe) have prompted scrutiny. However, a closer examination of Merck's financial metrics, strategic acquisitions, and pipeline advancements reveals a compelling case for its long-term value proposition. This analysis argues that Merck's disciplined capital allocation, diversified revenue streams, and innovative pipeline position it as a resilient investment, even amid Keytruda's looming "patent cliff."

Financial Resilience: A Value Investor's Foundation

Merck's financials underscore its appeal as a value play. As of Q3 2025, the company reported total sales of $17.3 billion, a 4% year-over-year increase, driven by oncology, cardiovascular, and diabetes therapies. Keytruda alone generated $8.1 billion in sales, reflecting 10% growth. Despite this reliance, Merck's balance sheet remains strong: a debt-to-equity ratio of 0.80 and a price-to-book (P/B) ratio of 5.09 suggest a conservative capital structure and a market valuation that, while premium, aligns with its industry-leading R&D output.

The company's dividend yield of 3.21%, supported by a net income of $17.12 billion in 2024, further enhances its attractiveness for income-focused investors. Merck's ability to sustain dividends while reinvesting in innovation-such as its $10.8 billion acquisition of Verona Pharma in October 2025-demonstrates a balanced approach to capital allocation. This acquisition added OHTUVAYRE, a first-in-class COPD treatment, to Merck's cardio-pulmonary portfolio, diversifying revenue streams beyond oncology.

Pipeline Diversification: Mitigating Keytruda's Patent Risks

Critics often highlight Keytruda's projected revenue erosion post-2028, but Merck's pipeline advancements suggest a proactive strategy to offset this risk. The company's non-Keytruda pipeline includes several high-potential candidates in late-stage development:

1. Enlicitide Decanoate: An oral PCSK9 inhibitor for hypercholesterolemia, enlicitide decanoate demonstrated 56% LDL-C reduction in Phase 3 trials. With the FDA's National Priority Voucher program fast-tracking its approval, this drug could become a blockbuster, offering a first-in-class oral alternative to injectable PCSK9 inhibitors.

1. Sacituzumab Tirumotecan (sac-TMT): This TROP2-directed antibody-drug conjugate (ADC) is in Phase 3 trials for HR+/HER2- breast cancer. Preliminary data from the OptiTROP-Breast02 study showed efficacy, and Merck plans to submit an FDA application in late 2026. If approved, sac-TMT could capture significant market share in the $10 billion+ breast cancer treatment space.

2. KRAS G12C Inhibitor (MK-1084): Targeting colorectal and non-small cell lung cancers, this oral therapy is in Phase 1 trials. Given the unmet need in KRAS-driven cancers, MK-1084 has blockbuster potential, particularly if combined with Keytruda in earlier-stage treatments.

Merck's collaboration with Moderna to develop intismeran autogene, a personalized mRNA cancer vaccine, further underscores its commitment to innovation. This partnership, targeting adjuvant NSCLC and melanoma, could unlock new revenue streams while leveraging Keytruda's existing infrastructure.

Strategic Acquisitions and Revenue Projections

Merck's 2025 full-year revenue guidance of $64.5–$65.0 billion reflects confidence in its diversified portfolio. While Keytruda accounts for ~40% of sales, the Animal Health division and new product launches like Winrevair are expected to drive growth. The acquisition of Verona Pharma not only added OHTUVAYRE but also expanded Merck's presence in respiratory diseases, a $50 billion market.

Moreover, Merck's pipeline of 20 potential blockbuster drugs-including ADCs, oral therapies, and vaccines-positions it to maintain revenue momentum. Even if Keytruda faces biosimilar competition, the company's non-Keytruda candidates are projected to offset declines. For instance, enlicitide decanoate and sac-TMT alone could generate combined annual sales exceeding $5 billion within a decade, assuming regulatory approvals and market adoption.

Addressing Risks: A Prudent Outlook

While Merck's strategy is compelling, risks remain. The Gardasil vaccine's temporary slowdown in China and potential pricing pressures in mature markets could impact short-term growth. However, Merck's focus on high-margin oncology and cardio-pulmonary therapies, coupled with its strong R&D pipeline, mitigates these concerns. The company's debt-to-equity ratio, which has trended downward from 1.16 in 2021 to 0.66–0.87 in 2022–2023, also suggests financial flexibility to navigate challenges.

Conclusion: A Compelling Long-Term Bet

Merck's combination of financial discipline, dividend reliability, and a robust pipeline of innovative therapies makes it a standout value play. While Keytruda's dominance is undeniable, the company's proactive diversification-through acquisitions, partnerships, and late-stage candidates-ensures it is well-positioned to thrive beyond 2028. For investors seeking a balance of income and growth, Merck offers a rare blend of stability and innovation, making it a cornerstone of a resilient long-term portfolio.