Merck (MRK)

Half of Sales on One Patent Date

Keytruda, a cancer immunotherapy, sold $31,680M in FY2025, 48.7% of Merck's $65,011M. The figure includes Keytruda Qlex, the version injected under the skin.

The primary US compound patent expires in December 2028. Two related patents run to May and November 2029, and Merck expects both to be litigated. It also expects Keytruda to be selected for Medicare price-setting under the Inflation Reduction Act (IRA) in 2027, with the price applying from January 2029. Nearly half of revenue therefore faces a patent date and a price date about a month apart. That makes Merck the reference case for forecasting sales after loss of exclusivity (LOE). Keytruda sits well above the 40% line for high concentration (see the concentration guide).

R&D, Margin and Payout

R&D was $15,789M, 24.3% of sales, the highest of the six large drugmakers covered here and above the 20.9% average in the survey by PhRMA, the US drug industry body. Part of the gap is where costs are booked: Merck puts licence upfronts and asset-acquisition charges inside R&D, where some peers use a separate line (see the R&D intensity guide).

Merck's income statement has no operating income line, so the ~32.6% margin is computed: pre-tax operating profit of approximately $21,218M over sales. The Pfizer and Johnson & Johnson profiles compute theirs the same way, so the three compare on one basis.

The dividend was $3.24 per share, 44.5% of GAAP EPS of $7.28. At Pfizer and AbbVie amortisation distorts the GAAP payout (see the payout trap guide).

Valuation Framework

Merck needs a sum of parts. Keytruda gets its own DCF, with sales declining from December 2028 (or 2029) and an IRA price from January 2029. Keytruda Qlex and any new approved uses belong inside that forecast, not in a company-wide growth rate. Cancer and vaccine drugs still in trials are valued with risk-adjusted NPV (rNPV): revenue weighted by the BIO phase rates (7.9% cumulative from Phase I; 9.1% for biologics) at an ordinary cost of capital.

The model then has to answer one question: do the pipeline and the rest of the portfolio refill Keytruda's revenue after exclusivity ends? A sector multiple cannot answer it, because it assumes no single event of this size.

What to Watch in the Financials

Keytruda growth into LOE. At 48.7% of sales, even high-single-digit Keytruda growth moves group revenue. Fewer new approved uses is the early warning.

Two dates, two effects. The compound expiry and the 2029 patents set when volume falls; the expected IRA price from January 2029 sets when price falls. Model each separately.

What the R&D buys. If 24.3% of sales goes on R&D without late-stage trial wins, nothing is lined up to replace Keytruda's cash.

Key Risks

Keytruda LOE. Keytruda is a biologic, and biosimilar copies take sales more slowly than generics of a chemically made drug do. Still, no other product among the six puts so large a share of sales on so near a date.

Medicare price from January 2029. The expected IRA price hits the same product as the patent expiry, so price and volume losses can overlap.

Pipeline delivery. A late-stage trial failure lowers both the pipeline value and the later years of the forecast, because those years assume new drugs replace Keytruda.