Merck's Keytruda-Padcev Combo Shows Positive Phase 3 Results in Bladder Cancer Trial

What happened

Merck announced positive topline results from the Phase 3 KEYNOTE-B15 trial, showing that Keytruda plus Padcev significantly improved event-free survival, overall survival, and pathologic complete response rates for cisplatin-eligible patients with muscle-invasive bladder cancer when given before and after surgery. This reinforces Keytruda's entrenched position in oncology by expanding its use in a high-need setting, aligning with Merck's strategy to leverage combination therapies. However, the DeepValue report highlights that Keytruda contributes 46% of Merck's revenue and faces a looming 2028 patent cliff and IRA pricing pressures, which the market heavily discounts. The trial success, while clinically meaningful, does little to directly mitigate these systemic risks or address Gardasil volatility, which are core concerns for investors. Thus, the news underscores Merck's ongoing innovation but leaves the fundamental overhang on future earnings unchanged.

Implication

In the short term, the positive data may drive incremental adoption of Keytruda-Padcev in bladder cancer, supporting revenue growth in a niche oncology segment. It strengthens Merck's moat by demonstrating the efficacy of combination regimens, which could enhance Keytruda's stickiness and lifecycle management. However, the financial impact is limited relative to Keytruda's $29.5 billion sales base and the broader challenges of post-2028 erosion, making it a non-transformative event. Investors should see this as a validation of Merck's R&D execution but remain focused on pipeline conversions and cost-saving initiatives to offset looming declines. Overall, while reinforcing oncology leadership, the news does not warrant a reassessment of the stock's discounted valuation amid persistent concentration and policy risks.

Thesis delta

The successful trial confirms Merck's ability to extend Keytruda's clinical utility through strategic combinations, supporting management's efforts to backfill the patent cliff with new data and regimens. However, it does not shift the investment thesis, as the core risks of Keytruda concentration, IRA pricing, and Gardasil volatility remain unaddressed, maintaining the cautious 'POTENTIAL BUY' stance with unchanged execution and policy overhangs.