Navigating the Patent Cliff: Why Merck's Long-Term Strategy Positions It for Post-2028 Growth

The looming 2028 patent expiration of Merck's blockbuster cancer drug Keytruda (pembrolizumab) has sparked investor anxiety. With biosimilars poised to erode its $33.7 billion annual sales by 19% in 2029, Merck faces a critical inflection point. Yet beneath the surface, the company has been methodically executing a multi-pronged strategy to transform this “patent cliff” into a sustainable growth runway. For investors willing to look beyond near-term volatility, Merck (MRK) emerges as a Hold with Long-Term Buy Potential, anchored by a diversified pipeline, resilient dividend, and strategic pivots to non-oncology markets. Here's why patience could pay dividends after 2028.

The Subcutaneous Edge: Prolonging Keytruda's Lifeline

While Keytruda's patent cliff is inevitable, Merck's subcutaneous (SC) formulation—a faster, more convenient alternative to IV infusions—could buy critical time. Phase 3 trials confirmed comparable efficacy and safety, positioning it to retain 60-70% of pre-biosimilar market share. Though subject to Inflation Reduction Act (IRA) price negotiations post-2026, Merck aims to price the SC version affordably to maintain adoption. This “bridge” strategy, combined with new indications (e.g., adjuvant bladder cancer approved in April 2025), buys Merck time to solidify its post-2028 pipeline.

Pipeline Diversification: Beyond Oncology's Horizon

Merck's Phase 3 pipeline has tripled since 2021, now projected to deliver $50 billion in mid-2030s revenue, with oncology contributing $25 billion and non-oncology therapies like cardiometabolic and immunology assets adding $20 billion. Key drivers include:
- PD-1/VEGF Bispecific: A dual-action molecule targeting tumor microenvironment suppression, with trials underway in combination with chemotherapy.
- TROP-2 ADC (AVANZAR Trial): A collaboration with AstraZeneca targeting HER2-negative breast cancer, with results expected by late 2025.
- Gardasil: Despite reduced Chinese shipments, U.S. sales grew 10% in Q1 2025. A potential one-dose regimen could further expand its $7.5 billion addressable market.

This diversification reduces reliance on oncology (now 46% of sales) and positions Merck to thrive in a post-Keytruda era. Even with biosimilars, the pipeline's momentum could offset declines, making 2028 a transition rather than a collapse.

GLP-1 Partnerships: Capturing the Metabolic Market

Merck's most promising non-oncology thrust lies in its GLP-1 receptor agonist partnerships, addressing the $45 billion obesity/diabetes market. Key assets include:
- HS-10535 (Hansoh Pharma): An oral small-molecule GLP-1 agonist in preclinical stages, targeting cardiometabolic benefits beyond weight loss. The $1.9 billion potential milestone payments underscore its strategic value.
- Efinopegdutide (Hanmi Pharma): A dual GLP-1/glucagon agonist in NASH trials, with Phase 2 data showing 35% histological improvement.

These therapies aim to capitalize on Merck's incretin biology expertise, expanding into liver disease and cardiovascular indications. With oral formulations reducing injection barriers, GLP-1 assets could contribute $15 billion annually by the mid-2030s—a critical hedge against oncology headwinds.

Dividend Resilience: Stability Amid Transition

Merck's 3.4% dividend yield—a 20% premium to the S&P 500—reflects its financial discipline. Despite Keytruda's decline, free cash flow remains robust ($14.3 billion in 2023), and net debt/EBITDA is a conservative 0.8x. Management has prioritized returns over aggressive acquisitions, ensuring payouts remain sustainable even under biosimilar pressure.

This stability provides a cushion for investors during the transition phase, while the stock's $124–$138 analyst consensus (median $131) implies 15% upside from current levels. With shares down 12% YTD due to near-term concerns, the risk-reward tilt favors accumulation now.

The Case for Patience: 2028 as a New Launchpad

While 2025 volatility tests nerves, Merck's strategy is designed for the long game. Post-2028, the company expects:
- Biosimilar Impact Mitigation: Subcutaneous Keytruda and expanded indications delay peak biosimilar erosion.
- Pipeline Validation: Phase 3 readouts for bispecifics, TROP-2 ADC, and GLP-1 therapies (2025–2027) will solidify growth trajectories.
- Regulatory Navigation: Legal challenges against the IRA and MFN proposals aim to limit pricing pressures, preserving margins.

Analysts project $26.6 billion Keytruda sales by 2030 (vs. $33.7B in 2028), with non-oncology assets filling the gap. The $138 price target assumes 20% EPS growth by 2027, achievable if pipeline assets meet mid-tier expectations.

Conclusion: Hold Now, Buy After Validation

Merck is not a “set it and forget it” investment. Near-term risks—IRA price negotiations, biosimilar timing, and pipeline trial outcomes—demand vigilance. However, the combination of a diversified pipeline, subcutaneous Keytruda's bridge, and dividend resilience creates a compelling long-term narrative.

Investors should hold through 2025–2026 volatility, using dips below $115 to accumulate. A shift to Buy becomes warranted once Phase 3 data for bispecifics and GLP-1 therapies (2025–2026) confirm their commercial viability. With a 3.4% yield and analysts' $131 median target, Merck offers asymmetric upside for those willing to wait until post-2028 proof points. The patent cliff isn't a cliff—it's a runway.