MRK's Strong Technical Position Masks Underlying Challenges—What Investors Should Know

Merck (MRK) has been trading meaningfully above both its 50-day and 200-day moving averages since November, a technical signal that typically indicates sustained upside momentum over both short and medium-term horizons. For those unfamiliar with moving averages, the 50-day SMA captures near-term price trends while the 200-day SMA reflects longer-term directional strength. When a stock consistently trades above both thresholds simultaneously, it suggests the company is performing better than its historical average valuations would predict.

The recent stock lift came from positive developments in Merck’s drug pipeline, particularly the $9.2 billion acquisition of Cidara Therapeutics [CDTX]. This deal brings CD388 into Merck’s fold—a first-in-class, long-acting antiviral candidate currently in late-stage testing for preventing seasonal flu in high-risk populations. Yet technical strength alone doesn’t guarantee returns. A closer examination of the company’s competitive positioning reveals a more nuanced picture.

Keytruda Dominates, but Dependency Looms Large

The heart of Merck’s earnings engine is Keytruda, an immunotherapy powerhouse that generated $23.3 billion in sales during the first nine months of 2025—up 8% year-over-year. This single drug accounts for over half of Merck’s pharmaceutical revenues, making it the linchpin of the company’s financial model.

Keytruda’s growth is being fueled by expanded use in earlier-stage lung cancer, where adoption has been particularly robust. Beyond this, Merck is pursuing combination approaches, teaming the drug with LAG-3 and CTLA-4 inhibitors to extend its therapeutic reach. In partnership with Moderna [MRNA], Merck is advancing intismeran autogene (V940/mRNA-4157), a personalized mRNA cancer vaccine designed to work alongside Keytruda in pivotal phase III studies across non-small cell lung cancer and melanoma patients.

A significant development came in September 2025 when the FDA approved Keytruda Qlex, a subcutaneous (under-the-skin) version of the drug. This formulation offers faster administration than intravenous infusion and carries its own patent protections extending well beyond Keytruda’s scheduled 2028 loss of exclusivity (LOE). The SC version could prove critical in maintaining revenue streams once generic competition emerges for the IV form.

However, the company’s heavy reliance on a single asset creates vulnerability. With Keytruda facing patent cliff in 2028, questions persist about Merck’s ability to sustain growth through that transition and beyond.

The Pipeline & M&A Strategy: Building the Future

Merck has tripled its phase III pipeline since 2021 through a combination of internal development and strategic acquisitions. The company is positioned to launch approximately 20 new drugs and vaccines over the coming years, with many carrying blockbuster potential.

Key recent approvals and launches include:

• Capvaxive: A 21-valent pneumococcal conjugate vaccine showing strong early commercial momentum
• Winrevair: A pulmonary arterial hypertension drug capturing solid uptake in early markets
• Enflonsia (clesrovimab): An RSV antibody approved in the U.S. in June 2025, currently under EU review
• Ohtuvayre: Acquired via the $10 billion Verona deal in 2025, this novel COPD maintenance therapy offers differentiated benefits and has launched successfully

Additional late-stage assets include an oral PCSK9 inhibitor for high cholesterol, a TL1A inhibitor for ulcerative colitis (tulisokibart), and various antibody-drug conjugates developed in partnership with Daiichi-Sankyo. A fixed-dose HIV combination therapy awaits FDA decision in April 2026.

This pipeline diversification is essential, yet success remains uncertain. Capturing meaningful market share in these crowded therapeutic areas will require both clinical efficacy and commercial execution.

Vaccine Portfolio Under Pressure

A significant headwind has emerged in Merck’s vaccine business. Gardasil, the company’s second-largest product, experienced a shocking 40% sales decline in the first nine months of 2025. The primary culprit: China’s economic slowdown, which dampened demand and created excess inventory at Merck’s partner, Zhifei. In response, Merck halted shipments to China and doesn’t expect to resume through at least end-2025.

Weakness extends beyond Gardasil. Sales of Proquad, M-M-R II, Varivax, Rotateq, and Pneumovax 23 also retreated in the same period. Additional pressure comes from declining diabetes product revenues and generic erosion of certain legacy drugs.

The Competitive Landscape: Dual PD Inhibitors Emerge as Real Threat

While Keytruda has dominated immuno-oncology for years, new competitive threats are crystallizing. Dual PD-1/VEGF inhibitors represent a potentially significant competitive challenge. Unlike traditional single-target therapies like Keytruda, these agents simultaneously target both the PD-1 immune pathway and the VEGF angiogenesis pathway—a design intended to overcome inherent limitations of monotherapy approaches.

Summit Therapeutics [SMMT] has developed ivonescimab, a dual PD inhibitor that outperformed Keytruda in a Chinese phase III trial in advanced lung cancer patients. Summit believes ivonescimab could eventually displace Keytruda as a new standard of care across multiple NSCLC settings. Meanwhile, Pfizer recently secured global ex-China rights to SSGJ-707, another dual PD-1/VEGF inhibitor from China’s 3SBio.

Merck, recognizing this threat, is developing its own dual PD inhibitor candidate. Nevertheless, the emergence of these alternative mechanisms suggests Keytruda’s competitive moat may narrow faster than previously anticipated.

Valuation & Consensus Shifts

From a valuation perspective, Merck presents an attractive entry point. The stock trades at 11.21x forward earnings—notably below the industry average of 16.68x and its own five-year mean of 12.52x. This discount reflects market concerns about the Keytruda LOE and near-term headwinds in the vaccine business.

Earnings estimates have shifted modestly in recent weeks: 2025 guidance rose from $8.94 to $8.98 per share, while 2026 estimates contracted from $9.54 to $8.81—signaling analyst uncertainty about post-Keytruda growth dynamics.

Year-to-date, MRK has declined 0.5% compared to 14.1% gains for the broader healthcare industry, underperforming both its sector and the S&P 500.

The Verdict: A Measured Approach Makes Sense

Merck possesses genuine strengths. Keytruda remains a cash-generating juggernaut with runway through 2028. New products like Capvaxive and Winrevair are launching solidly. The Animal Health division continues contributing above-market growth. Keytruda Qlex provides a potential bridge through the LOE cliff.

Yet material risks demand caution. Gardasil’s China collapse signals demand fragility. Emerging dual PD inhibitors threaten Keytruda’s competitive dominance. Questions persist about whether new launches can adequately replace revenue lost to Keytruda’s expiration. Generic and competitive pressures continue mounting across the portfolio.

For risk-conscious investors, a wait-and-see posture appears prudent despite the recent price recovery and attractive valuation. Sitting on the sidelines and awaiting clearer evidence of sustainable post-Keytruda revenue generation and stable profitability makes more strategic sense than committing capital now. The technical setup looks fine, but the fundamentals require further clarity.

Merck carries a Zacks Rank #3 (Hold) rating.