VALUATION HIGHLIGHTS
- Oncology Drugs constitute 44% of the Trefis price estimate for Merck's stock.
- Vaccines constitute 20% of the Trefis price estimate for Merck's stock.
- Animal Health & Others constitute 14% of the Trefis price estimate for Merck's stock.
WHAT HAS CHANGED?
MRK Stock Performance In Recent Years
MRK's stock performance over the past few years has been highly inconsistent. In 2021, the stock returned 2%, 49% in 2022, 1% in 2023, and -6% in 2024.
In contrast, the S&P 500 delivered returns of 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024—demonstrating that MRK underperformed the S&P in 2021, 2023, and 2024.
Q4 2024 Performance
Merck's Q4 performance exceeded analyst expectations. The company generated $15.6 billion in revenue—a 7% year-over-year increase—largely driven by higher Keytruda sales. Additionally, Merck reported adjusted earnings of $1.72 per share, compared to $0.03 in the previous year’s quarter.
Looking ahead, Merck expects full-year 2025 revenue to fall between $64.1 billion and $65.6 billion, with earnings per share anticipated to range from $8.88 to $9.03.
Harpoon Acquisition
In March 2024, Merck finalized the $680 million acquisition of Harpoon. This deal will expand Merck's oncology portfolio by integrating the Harpoon pipeline, which features a promising range of T-cell engagers, including HPN328 (MK-6070).
Prometheus Acquisition
In June 2023, Merck completed an $11 billion acquisition of Prometheus. This acquisition is set to enhance Merck's immunology portfolio with the Prometheus pipeline, which includes a promising experimental treatment for ulcerative colitis and Crohn's disease.
Acceleron Pharma Acquisition
In late September 2021, Merck announced its intent to acquire Acceleron Pharma—a biopharmaceutical company focused on rare diseases—for $11.5 billion, financed through a mix of cash and debt. Acceleron’s pipeline includes several potential blockbuster drugs, such as Sotatercept and Reblozyl (developed in partnership with Bristol Myers Squibb).
This acquisition is viewed positively, as it will bolster Merck's cardiovascular portfolio while adding multiple high-potential drugs. Moreover, the $180 per-share price represents a 34% premium over Acceleron’s trading price of approximately $134 just a few weeks before the deal was announced.
Women's Health Business Spinoff
In January 2020, Merck announced its plan to spin off its Women's Health business—including legacy brands and biosimilars—into a new company. The spin-off was completed in June 2021.
Loss of Marketing Exclusivity
In recent years, several of Merck's medications have lost their market exclusivity. This includes Zetia, Vytorin, Invanz, Dulera, Nasonex, and NuvaRing. The loss of patent protection has led to reduced sales amid increased competition.
Growth In Gardasil Sales Have Slowed
Merck has experienced success with Gardasil, the vaccine used to prevent HPV (human papillomavirus), which is linked to certain types of cancers and is therefore highly significant. Although the vaccine saw strong sales growth through immunization efforts in various regions, including Europe and China, its sales have recently slowed due to decreased demand in China.
Keytruda Is One of The Top Selling Drugs In Immuno-Oncology Space
Keytruda is gaining wider acceptance and has emerged as one of the leading drugs in the immuno-oncology field—a space currently headed by AbbVie's Humira, which generated over $29 billion in sales in 2024. The recent sales growth of Keytruda was largely driven by its success in treating lung cancer, and it is also performing strongly outside the U.S. With dozens of approvals already under its belt, the drug’s applications continue to expand. Moreover, with multiple phase 3 programs underway, Keytruda is expected to receive additional approvals for various indications, which should further support Merck's sales growth in the coming years.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Key drivers of Merck's value that present opportunities for upside or downside to the current Trefis price estimate for Merck:
Merck's Gross Profit Margins
- Merck's gross profit margin: Our forecast projects Merck's gross profit margin to rebound from its 2024 level of 73% to 80% after declining from 75% in 2021. However, failure to achieve this rebound and a further drop to 67% would pose a significant downside risk of 20% to our Merck price target. On the other hand, exceeding our margin expectations due to strong pricing trends presents a 10% upside potential.
BUSINESS SUMMARY
As one of the world's leading pharmaceutical companies by revenue, Merck provides a wide range of innovative healthcare solutions. Its offerings include prescription drugs, vaccines, biologic treatments, and products for animal health, all marketed through its own channels and collaborative ventures. Merck's business is organized into three primary divisions: Pharmaceuticals, Animal Health, and Alliances.
SOURCES OF VALUE
Oncology Drugs Portfolio
Merck's oncology division has experienced explosive growth, with sales skyrocketing from below $1.0 billion in 2014 to over $32 billion in 2024. This impressive expansion is primarily attributed to the strength of its oncology drug portfolio, particularly the leading role played by Keytruda. We anticipate this upward trend to continue, forecasting sales to surpass $40 billion by 2028.
KEY TRENDS
Loss of Patents Impacting Sales
Merck, consistent with the broader pharmaceutical landscape, is confronting the challenge of patent losses for significant drugs in its portfolio. Among these, its leading revenue generators, Keytruda and Gardasil, are projected to face biosimilar rivals in the coming 3-4 years.
Growing Threat of Generic Products
The rapidly expanding pharmaceutical market in emerging economies, known as 'Pharmerging,' presents a significant challenge to major pharmaceutical companies like Merck. These economies possess the technical expertise to produce generic versions of blockbuster drugs, often at substantially lower prices than the original branded medications.
This cost advantage can severely erode the long-term profitability of big pharma. For Merck, this threat extends to the future potential competition from biosimilars, which are essentially generic versions of its biologic drugs.
Globalization of Healthcare Reforms
In response to growing budget deficits, governments globally are seeking to control fiscal spending. As healthcare costs constitute a significant component of national budgets, it is widely anticipated that there will be a rise in healthcare legislation and reforms internationally. This trend is likely to negatively impact the revenue streams of the entire pharmaceutical sector.
