Merck & Co

In a Phase 3 study, individualized neoantigen therapy intismeran improved recurrence-free survival and distant metastasis-free survival in melanoma patients when combined with Keytruda, relative to Keytruda alone. Moderna shares rose nearly 150% and Merck rose over 10% intraday on Aug. 19.

Why it matters: Declining covid vaccine demand and an uncertain US vaccine policy environment have forced Moderna to budget its cash and invest only in its most promising programs, but intismeran's success in phase 3 offers validation of the potential of its mRNA technology beyond vaccines. While the specific type of cancer studied in Interpath-001 (high-risk melanoma at the adjuvant, or post-surgery, stage) is a relatively small niche (30,000 patients in the US and EU), it bodes well for ongoing intismeran studies, including adjuvant lung cancer (more than 100,000 in the US and EU). The magnitude of benefit is not yet disclosed, but a positive readout at this first interim analysis is a good sign, as Merck and Moderna likely designed the trial with a high statistical bar for an early readout. Five-year phase 2b data showed a 49% reduction in the risk of recurrence or death.

The bottom line: We're raising our fair value estimates for wide-moat Merck (to $143 from $111) and no-moat Moderna (to $163 from $79) after raising our intismeran sales forecast to $16.8 billion (from $7.2 billion) by 2035, with profits from the program split 50/50 between the partners. We've increased our assumed probability of approval for intismeran in melanoma (from 60% to 100%) and lung cancer (from 40% to 60%), and we've added phase 2 kidney and bladder cancer programs to our model. We expect rapid approval, likely in the first half of 2027, once data is filed. We're watching for Keytruda/intismeran combination data in other areas where Keytruda has benefited patients, including phase 2 kidney cancer data expected this year and phase 2 bladder cancer data expected in 2027.

BLANK PAGEModerna and Merck's three phase 3 trials of intismeran in the largest potential indication of adjuvant lung cancer are all still enrolling, making it difficult to assess when they could read out, although we assume a potential launch in lung cancer in 2029. Also, Moderna and Merck are testing Keytruda and intismeran in higher-risk areas where Keytruda hasn't worked, with phase 1 trials ongoing in gastric and pancreatic cancers, although we do not include these in our model yet.

The latest intismeran data reflect Moderna's wise focus on earlier-stage cancers, where it appears that patients can still effectively mount an immune response against their cancer cells. This is in contrast to BioNTech and Roche's autogene cevumeran/BNT122, which moved slowly through midstage development in late-stage melanoma patients before the firm pivoted to earlier-stage cancers (phase 2 adjuvant colorectal cancer data is expected in 2027).

Intismeran also stands as one of the most advanced cancer therapies that relied on a machine learning algorithm—central to its design—to select the most promising neoantigens for each individual patient. This is one of the first direct links we've seen between application of artificial intelligence and phase 3 development success.

For more information on Merck's portfolio and pipeline, please see our recent in-depth report, "Biopharma Product Pipelines Rise to Meet Steeper Patent Cliffs."

We are raising our Merck fair value estimate to $143 from $111 per share following positive data for Merck and Moderna's individualized neoantigen therapy, intismeran, in a phase 3 adjuvant melanoma study. We now forecast global intismeran sales of $16.8 billion by 2035, with profits split 50/50 between the partners.

Overall, while we expect roughly 3% revenue growth in 2026 due to Gardasil headwinds and Januvia generic competition, we model high-single-digit to low-double-digit sales growth for the firm between 2026 and 2029, partly driven by the solid outlook for cancer drug Keytruda. Overall, we expect improving margins over the near term as overall sales are represented by more specialty-oriented drugs that carry strong pricing power and need less marketing support.

We expect Keytruda to maintain the lion's share of the market for late-stage non-small cell lung cancer drugs, as well as a solid position in the adjuvant NSCLC market. We expect the drug to reach peak sales of $39 billion in 2029, largely based on strong efficacy in several cancer types, including lung, head and neck, melanoma, and several other cancer indications.

We expect sales of Gardasil to stabilize following reduced sales in China. We see uncertainty surrounding the timing of economic recovery in China as well as US vaccine policy, and we now assume 2030 sales for Gardasil around $5.7 billion globally.

Merck's newer products and late-stage pipeline look increasingly well positioned to mitigate the patent losses on US Januvia (2026) and US Keytruda (2029). We assume peak sales for Winrevair of roughly $9 billion, with several other multibillion-dollar products, including Capvaxive and pipeline drugs across oncology, cardiology, and immunology. We think top-line declines will be tough to avoid in 2030, although pipeline progress could bring Merck back to growth in 2031.

We estimate Merck's weighted average cost of capital at 7.7%. Our beta of 0.6 reflects our view of both biopharma's defensive nature and Merck's own fundamentals and market returns.

Merck's innovative portfolio and late-stage pipeline give us confidence in the firm's wide economic moat. Even with the upcoming patent expirations for the original intravenously dosed oncology drug Keytruda (49% of 2025 revenue), we think Merck's remaining portfolio will help keep returns on invested capital well above our estimated 7.7 % cost of capital for the firm over the next 10 years, and a large, promising pipeline gives us reasonable confidence in Merck's prospects beyond our 10-year explicit forecast.

US drug price-related policy reform is one of the main environmental, social, and governance risks that Merck faces, given that 53% of total 2025 sales were generated by prescription drug sales in the US. Ongoing product governance issues (including litigation related to side effects and patents) also weigh on the firm. While we have factored these threats into our analysis, we don't see them as a material threat to Merck's moat.

The US market represents close to half of global pharmaceutical sales and well more than 50% of profits, giving it increased importance in assessing moats. Pharmacy benefit managers negotiate pricing with drug firms on behalf of most individuals in the US, whether they are covered by private insurance (typically through employers) or government programs (like Medicare and Medicaid). We think pricing power that drug firms can generate from their intangible assets has weakened, as PBMs have gradually consolidated over the past 20 years. The top three PBMs now represent 80% of the market, giving them greater negotiating power for each contract. In addition, the 2022 Inflation Reduction Act made changes to Medicare (30% of the US market) that discourage price increases and allow Medicare to negotiate significant discounts on certain older drugs that still hold patent protection. However, individual company agreements with the Trump administration in 2025-26 traded most-favored-nation pricing for certain drugs covered by Medicaid (less than 10% of the US market) for a three-year reprieve from tariffs, which we think makes more widespread MFN pricing less likely.

We are encouraged by Merck's December 2025 agreement with the Trump administration that isolates MFN pricing to Medicaid and future drug launches. However, there is still uncertainty around how international launch and pricing strategies will evolve and around whether these agreements will be codified in law (making them more permanent). In addition, pilot programs could still be implemented in Medicare, and this could have indirect effects on private market prices.

We think Merck's entrenchment in immuno-oncology with Keytruda has bolstered its competitive advantages in oncology. We expect Keytruda to see US biosimilar competition in 2028 and international competition in 2031-33, although we think a more convenient subcutaneous version (Qlex was launched in 2025) could help protect some of this revenue from biosimilars until 2039. As a differentiated product for patients with high unmet medical needs, Keytruda has strong pricing power and is the foundation for newer combination regimens that could further improve outcomes for patients. While some of these are external partnerships—such as the combinations with Pfizer's Padcev in bladder cancer or Gilead's Trodelvy in triple-negative breast cancer—Merck is internally developing and acquiring rights to other potential combination therapies, such as its collaboration with Moderna focused on combining Keytruda with a personalized mRNA-based therapy (which had positive data in phase 3 in melanoma and is in phase 3 testing in lung cancer).

Overall, Merck has built a large oncology pipeline, including antibody drug conjugates from the Daiichi Sankyo and Kelun partnerships and the VelosBio acquisition, which are in phase 3 trials. The company also has earlier-stage bispecifics from the Harpoon Therapeutics acquisition and Curon Biopharmaceutical and LaNova Medicines deals. LaNova’s PD-1/VEGF bispecific antibody could compete with Akeso/Summit’s ivonescimab.

Beyond oncology, newer marketed products like Winrevair (pulmonary arterial hypertension) and Capvaxive (pneumonia vaccine) are poised for multibillion-dollar annual peak sales potential. Merck also has other promising programs in cardiology (oral PCSK9 Lipfendra was approved in July 2026) and immunology (phase 3 trials are ongoing for a novel TL1A-targeting therapy). Merck's strong entrenchment in vaccines adds a layer of competitive protection from intellectual property and cost advantages, as the company's large-scale production enables a lower cost base, which can be more important in the vaccine market. Despite a sharp pullback in sales of the firm's leading HPV vaccine, Gardasil (8% of 2025 revenue), in China in 2025, we think the overall vaccine business will grow steadily beyond 2025. Merck's animal drug business (10% of 2025 sales) helps support a moat, to a much lesser extent than the human health business, through patents, brands, and switching costs.

Keytruda's leadership position in immuno-oncology, buoyed by a first-mover advantage in first-line non-small cell lung cancer, could become even further entrenched as Merck and other firms test new combinations with the drug.

Merck's acquisition of Acceleron in 2021 brought rights to pulmonary arterial hypertension drug Winrevair, which is seeing a strong launch due to strong efficacy and differentiation.

Merck has a large late-stage pipeline to help counter growth headwinds as biosimilar versions of Keytruda launch in the late 2020s.

The US patent loss on Keytruda in 2028 is concerning, given the high sales contribution of the drug (49% of 2025 sales).

Competition in oncology is fierce, and a large pipeline of complex biologic therapies is in testing that could compete with Keytruda or Merck's next-generation pipeline.

HPV vaccine Gardasil had been seen as a steady growth driver with no patent cliff, but recent competition, macroeconomic headwinds, and high penetration rates in China have stalled sales in this country, which drove 2025 global Gardasil sales down 39%.