Merck & Co., Inc. (NYSE:MRK) has surged over 38% in 2026 so far, outperforming the broader market. Merck is no longer being valued like a pharmaceutical company whose biggest challenge is looming patent pressure. Yahoo Finance puts the stock at 15.29 times forward earnings, compared with 8.56 times at the end of September 2025. The multiple has, therefore, almost doubled in a year.
The investment question has consequently changed for the company, and is no longer whether Merck is cheap. It is whether the company’s newer growth engines can become large enough to justify the much higher valuation before Keytruda’s eventual loss of exclusivity starts weighing heavily on results.
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The Market Has a Reason to Be More Optimistic
We meticulously crafted a list of the 7 Best Pharma Stocks to Invest In Now. Access the complete list here. Anyway, Merck’s recent operating performance gives investors a legitimate reason to reassess the company. Second-quarter worldwide sales increased 5% to $16.6 billion, while Keytruda and Keytruda Qlex sales rose 5% to $8.4 billion. More importantly, the newer portfolio is growing considerably faster.
Winrevair sales jumped 75% to $588 million in the quarter, while Merck’s Animal Health business grew 8% to $1.8 billion. Keytruda Qlex, the subcutaneous formulation of Keytruda, generated $463 million in its initial contribution to the Keytruda franchise.
Merck does not need every new product to replace Keytruda immediately. It needs a collection of businesses that can compound while Keytruda eventually declines. Winrevair is particularly important because its rapid growth demonstrates that Merck can build meaningful revenue outside its flagship oncology franchise.
The company is also adding to that portfolio. Merck received U.S. approval for Lipfendra, an oral PCSK9 inhibitor for lowering LDL cholesterol, while its 2025 results showed continued growth from products including Welireg, Capvaxive, and Reblozyl. Our extensive investment analysis also includes insight into which other healthcare companies offer lucrative investment opportunities. Read our article on Pfizer vs. Medtronic: Which Healthcare Turnaround is More Convincing? to gain more insight into the sector.
But Keytruda Is Still a Huge Problem to Solve
The difficulty is the sheer scale of what Merck & Co., Inc. (NYSE:MRK) has to replace. Keytruda and Keytruda Qlex generated $31.7 billion in 2025, accounting for almost half of Merck’s $65.0 billion in total sales. The franchise was still growing 7% that year, showing why Merck has so much earnings power today.
But Merck expects Keytruda sales to be materially affected by biosimilar competition between 2028 and 2029. Its 2025 annual report says competition could begin in December 2028 following expiration of the primary U.S. compound patent. That creates the central tension in the stock. Merck has several years to build its replacement businesses, but investors are already paying substantially more for the company than they were when that transition looked more uncertain.
And there are other weaknesses that cannot simply be ignored. Gardasil sales fell 39% in 2025 to $5.2 billion, while Merck is facing significant pressure on Januvia and Janumet primarily due to lower demand and net pricing in the U.S. due to competition, as well as lower demand in China and most other international markets because of ongoing generic competition.
Is 15x Earnings Enough?
At 15.29 times forward earnings, Merck & Co., Inc. (NYSE:MRK) is not priced like a high-growth pharmaceutical company, but it is also no longer priced as a distressed patent-cliff story.
That makes the current valuation reasonable if Merck can successfully convert today’s pipeline and newer launches into durable growth. Winrevair’s momentum, Keytruda Qlex, and the broader oncology pipeline provide evidence that the transition has started. But the scale of Keytruda means “starting” is not the same as “solved.”
Merck’s 2026 expected worldwide sales outlook of $66.3 billion to $67.3 billion also shows that the company expects to remain around the current revenue level despite the pressures affecting parts of its portfolio. However, its $2.66-$2.76 non-GAAP EPS guidance includes $2.43 per share of charges related to the Terns acquisition, including a $2.31 one-time charge, along with costs of around $0.12 per share to finance the acquisition and advance MK-4208, which was formerly TERN-701.
The bigger issue is therefore not whether Merck can justify 15 times earnings today. It is whether it can still justify something close to that multiple once investors are looking beyond Keytruda.
After a 62% rally, the stock has already received much of the valuation benefit from a more optimistic view of Merck’s future. The newer portfolio gives that optimism substance, but Keytruda remains too large for the patent cliff to be dismissed. At this valuation, investors are no longer simply buying Merck for its discount, but they are rather paying for evidence that the next Merck can be built before the old one fades.
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This article is originally published at Insider Monkey.
