Why Market Sentiment on Merck Has Flipped Despite Struggling Quotes Valuation

A Tale of Two Markets

Merck’s stock price tells a story of investor psychology more than fundamental shifts. The pharmaceutical giant plummeted from its March 2024 peak above $130 to a May low near $76, reflecting deep anxieties about patent cliffs. Yet it has since recovered to roughly $100. This dramatic swing raises a crucial question: did the company’s prospects suddenly transform, or did the market simply reassess what was already there?

The answer is both simpler and more nuanced than it appears. The struggling quotes around Merck weren’t wrong — they reflected genuine concerns. But they also obscured an increasingly compelling narrative that finally clicked into focus for investors.

Understanding the Core Dilemma

Merck operates as a diversified powerhouse with over 40 products generating approximately $70 billion in annual revenue. Yet this portfolio masks a critical vulnerability: nearly half that revenue streams from a single asset — the oncology drug Keytruda.

Since its 2014 approval, Keytruda has been transformative, securing approvals across 20 different cancer types and becoming arguably the company’s most important profit driver. However, patent protection begins expiring in 2028. That date loomed over the market like a storm cloud, triggering the steep selloff throughout 2023 and early 2024 as investors questioned whether Merck had viable contingency plans.

The Confluence of Catalysts

Rather than a single breakthrough moment, several developments converged to shift market perception. September brought FDA approval for Keytruda Qlex — a subcutaneously administered formulation treating solid tumors already in Keytruda’s approved indications. This variant effectively extends patent protection through new formulation exclusivity, even as competitors enter the anti-PD-1 therapy space.

Simultaneously, late-September results for Winrevair, Merck’s pulmonary arterial hypertension treatment, exceeded expectations. The already-approved drug projects to generate just over $1 billion in 2025 revenue, yet analysts anticipate it could climb to approximately $8 billion annually within several years as clinical applications expand.

Most significantly, Merck’s management has articulated a compelling vision: pipeline drugs could collectively produce more than $50 billion in annual revenue by the mid-2030s. While no single candidate will match Keytruda’s current contribution, the aggregate impact will more than compensate for patent erosion.

Strategic acquisitions further reinforce this narrative. October’s acquisition of Verona Pharma adds pulmonary disease expertise, while November’s announcement to acquire Cidara Therapeutics for $9 billion brings an innovative flu vaccine candidate. These deals reflect Merck’s proven track record of acquiring the right assets — notably including Keytruda itself through the 2009 Schering-Plough acquisition.

Investment Perspective

Despite the 30% advance since May, the valuation remains attractive. Shares trade below 12 times forward earnings projections, with a 3.3% dividend yield exceeding most established dividend-payers.

While Merck will never be a high-growth investment, its structural positioning supports sustained progress. The patent cliff — though real — represents a manageable transition rather than an existential threat. The company has navigated similar inflection points before and maintains a demonstrated ability to develop new profit centers.

The market’s initial panic and subsequent recovery underscore a timeless principle: companies built on diversification and innovation remain resilient through cyclical challenges. Merck exemplifies this durability.