Merck shares began to decline in early 2024, largely on concerns that the patent on its family-bread drug was about to expire.
A few months ago, the trading crowd changed its collective mind, causing the stock price to rise significantly.
While the stock has been buoyed by bullish headlines, none of the news is shocking — investors are just connecting the dots in a different light.
10 stocks we like better than Merck & Co. ›
Merck(NYSE: MRK) Its shareholders have been on a wild ride lately – from an all-time high of over $130 last March to a low of nearly $76 in May of this year, and back to its current price of just over $100.
What to give? More importantly, does the recent rally suggest the pharma giant’s stock is a buy? Here’s what you need to know.
Merck is a pharmaceutical manufacturer that currently has more than 40 different products on the market and annual revenue totaling approximately $70 billion. In fact, the company is one of the largest players in the pharmaceutical industry.
But nearly half of Merck’s revenue is generated by a single product. This is the oncology drug Keytruda, which has proven to be a miracle drug due to its efficacy and versatility; it is now approved to treat 20 different types of cancer.
However, this level of success can be a double-edged sword. Although the drug has been booming since it was first approved in 2014, its patent protection will begin to expire in 2028. That would allow competitors to make and sell the same drugs at a much lower cost, threatening much of Merck’s revenue.
That’s the main reason the stock sold off sharply for much of last year and the first few months of this year – investors had been counting on the company to come up with a solution to the threat, but it didn’t materialize.
besides indeed. It just took a while for the market to see this.
There aren’t any specific catalysts that could serve as the driving force behind the stock’s sharp rebound from its May lows. Instead, several factors ultimately reached a collective tipping point.
One factor is the September approval of Keytruda Qlex as a treatment for most solid tumors for which Keytruda itself is already approved. This is simply a subcutaneous version of the same drug (otherwise intravenous), which indirectly extends Keytruda’s patent protection. It remains to be seen how soon oncologists will choose this dosing option, given that other oncology drugs are beginning to compete with Merck’s highly successful anti-PD-1 therapy, but there are certainly some doctors who will choose Keytruda Qlex.
Image source: Getty Images.
It’s also worth mentioning that the Phase 3 trial results for the pulmonary arterial hypertension treatment drug Winrevair (available in late September) were very promising. While the approved drug is expected to generate just over $1 billion in revenue in 2025, as its uses expand and interest grows, analysts believe it could generate annual sales of about $8 billion within a few years.
In that spirit, Merck believes that drugs in its current pipeline could generate annual revenue worth more than $50 billion by the mid-2030s, something investors didn’t realize until recently. None of them, by themselves, can replace Keytruda’s revenue. But overall, all of them will do more.
Then there’s the bullish development that’s been brewing behind the scenes: an acquisition. In October, Merck completed its acquisition of lung disease specialist Verona Pharma. In November, the company announced that it would acquire Sidara Therapeutics A new influenza vaccine candidate was introduced at a cost of just over $9 billion. Of course, these are just the pharmaceutical company’s recent deals. Merck has a long history of buying the right drugs at the right time, including Keytruda through its 2009 acquisition of Schering-Plough.
But is the drugmaker’s stock a buy, especially after rising 30% since its September lows? I believe so, as it has been for much of the past few years. Shares remain cheap at less than 12 times next year’s projected earnings per share, and the current forward dividend yield of 3.3% is better than most dividend-paying blue-chip stocks.
To be clear, it will never be a high-growth investment. However, the pharmaceutical giant aims to make steady progress, even if the market at large occasionally ignores that longevity — as concerns about Keytruda’s patent expiration turned into panic in the middle of last year and early this year.
The problem is, Keytruda isn’t the first Merck drug to lose patent protection, and it won’t be the last. As always, the company will continue to find and develop new profit centers, such as Keytruda Qlex, some of which will prove to be surprisingly productive. Don’t fall into the trap of making more than you deserve from a patent cliff.
Before buying Merck stock, consider the following factors:
this Motley Fool Stock Advisor The analytics team has just identified what they believe is 10 Best Stocks Investors can buy now…and Merck isn’t one of them. The 10 stocks selected could generate huge returns in the coming years.
consider when Netflix This list was created on December 17, 2004… If you invested $1,000 when we recommended, You will have $540,587!* or when NVIDIA This list was created on April 15, 2005… If you invested $1,000 when we recommended, You will have $1,118,210!*
Now, it’s worth noting stock advisor The overall average return is 991% — Outperformed the market compared to the S&P 500’s 195%. Don’t miss the latest top 10 list, available via stock advisorand join an investment community built by individual investors for individual investors.
See 10 stocks »
*Stock Advisor returns as of December 1, 2025
James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Merck & Co. The Motley Fool has a disclosure policy.
Merck shares are suddenly soaring, but is the troubled medical giant a buy? Originally posted by The Motley Fool
