Merck's Q2 2025 Earnings and Strategic Outlook: Can Diversification Sustain Growth Beyond Keytruda's Patent Expiry?

Merck & Co. (MRK) stands at a critical juncture as it prepares to report its Q2 2025 earnings on July 29, 2025. With analysts forecasting $15.77 billion in revenue and $1.99 in earnings per share, the spotlight remains firmly on Keytruda, the company's $7.9 billion-per-quarter oncology blockbuster. Yet, the true test for Merck lies beyond these numbers: Can its recent diversification efforts and R&D pipeline sustain long-term growth as Keytruda's patent expires in 2028?

Keytruda's Dominance and Limitations

Keytruda remains the cornerstone of Merck's revenue, accounting for roughly 50% of pharmaceutical sales. Its growth in Q2 2025 is expected to be driven by expanded use in earlier-stage non-small cell lung cancer and new indications like head and neck squamous cell carcinoma, approved in June 2025. However, these tailwinds mask deeper vulnerabilities. Analysts warn that Keytruda's dominance is a double-edged sword: while it fuels current earnings, its impending patent expiry could create a $20+ billion annual revenue gap by 2030.

The subcutaneous formulation of Keytruda, currently under regulatory review, offers a short-term reprieve. Merck estimates that 30–40% of U.S. patients could adopt the SC version, which is more convenient for administration and may delay biosimilar adoption. Yet, this is a temporary fix. The real question is whether Merck's pipeline and strategic acquisitions can fill the void.

Diversification: A Multi-Front Push

Merck's 2025 R&D pipeline and M&A activity suggest a deliberate pivot toward a balanced portfolio. Three areas stand out:

1. Oncology Innovation
2. Ifinatamab Deruxtecan (I-DXD): Merck's Phase 3 trial for this B7-H3-targeted ADC in metastatic castration-resistant prostate cancer (mCRPC) could yield a $1.5+ billion revenue stream by 2030. The drug's potential to become a first-line treatment for advanced prostate cancer underscores Merck's ambition to expand beyond Keytruda's shadow.

3. KRAS G12C Inhibitor (MK-1084): With a projected 2025 launch, this drug targets a long-untapped mutation in non-small cell lung cancer. Early data suggest it could capture a 10–15% market share in a $2 billion segment.

4. Respiratory Therapeutics
   Merck's $10 billion acquisition of Verona Pharma in 2025 added Ohtuvayre, a COPD drug that reduced severe exacerbations by 76% in trials. This move into respiratory care is a strategic counterbalance to oncology risks. Ohtuvayre's U.S. launch in 2025 is expected to generate $300 million in annual sales by 2026, with global expansion potential.

5. Vaccine Expansion

6. RSV Vaccine: Positive Phase 2 data in older adults position Merck's RSV vaccine for Phase 3 trials in 2026. With a $2.5 billion market opportunity in the U.S. alone, this asset could become a mid-single-digit percentage of revenue by 2030.
7. Next-Gen HPV Vaccines: Building on Gardasil's $1.3 billion Q2 2025 sales, Merck is developing a 9-valent HPV vaccine targeting additional cancer strains. This could expand Gardasil's market in China and other underserved regions, offsetting current declines.

Financials and Risks: A Mixed Picture

Merck's Q2 2025 earnings will reflect both strengths and weaknesses. While Keytruda, Lynparza, and Welireg drive growth, challenges persist:
- Diabetes Franchise (Januvia/Janumet): Generics and shifting demand in Europe and Asia-Pacific could erode sales by 5–7% annually.
- Gardasil in China: Elevated inventory and declining demand are expected to reduce ex-U.S. vaccine revenue by 10–15% in 2025.
- Bridion and Other Generics: Competition in neuromuscular blockade drugs will pressure hospital specialty sales.

Despite these headwinds, Merck's forward P/E ratio of 9.05 (vs. industry average of 15.25) suggests undervaluation. Analysts project 2025 revenue growth of +5.2% and EPS of $6.75, assuming successful execution of its diversification strategy.

Strategic Acquisitions and Global Health Partnerships

Merck's $3 billion+ discussions with MoonLake Immunotherapeutics and its partnership with Gavi (a $6 billion pledge in 2025) further strengthen its long-term outlook. These moves not only diversify its pipeline but also align with global health goals, ensuring access to underserved markets.

Investment Thesis: A Buy for the Long-Term

Merck's Q2 2025 earnings report will confirm its ability to outperform estimates, but the true test is its capacity to sustain growth beyond Keytruda. The company's R&D pipeline—anchored by I-DXD, Ohtuvayre, and the RSV vaccine—provides a credible path to replace Keytruda's revenue. Additionally, its strategic acquisitions and global health partnerships mitigate near-term risks.

For investors, Merck offers a compelling risk-rebalance: a low forward P/E, a robust pipeline, and a history of exceeding earnings expectations. While short-term volatility is likely (e.g., Gardasil declines, COPD drug uptake delays), the long-term picture is optimistic.

Recommendation: Investors with a 5+ year horizon should consider Merck a core holding. Those wary of near-term risks may opt for a smaller position, but should monitor the July 29 earnings call for clarity on pipeline progress and guidance.

In conclusion, Merck's strategic pivot from a Keytruda-dependent model to a diversified, innovation-driven portfolio positions it to navigate the 2028 patent cliff. While challenges remain, the company's R&D focus and M&A discipline suggest it is not merely defending its legacy but building a sustainable future.