Merck's Tulisokibart Succeeds in UC Trial but Does Little to Alter Keytruda/China Overhang

What happened

Merck announced positive Phase 3 results for tulisokibart in moderately to severely active ulcerative colitis, meeting the primary endpoint of clinical remission and key secondary endpoints in the ATLAS-UC induction study. While this adds a promising investigational therapy to Merck's pipeline in the inflammatory bowel disease space, the company's near-term earnings remain dominated by the Keytruda franchise and the lingering Gardasil-China inventory overhang. The DeepValue report maintains a WAIT rating, emphasizing that the next 6–12 months hinge on containing the ~$2.5B FY2026 headwind and showing a restart signal for China Gardasil shipments. Tulisokibart, though encouraging, is still early-stage and would face competitive IBD markets, likely contributing little to financials before 2028. Thus, the positive trial outcome does not alter the fundamental calculus that Merck's valuation is tied to near-term execution on Keytruda and Gardasil.

Implication

The positive UC data provide incremental pipeline value but do not materially shift the investment thesis, which remains anchored on Keytruda's LOE timeline and China Gardasil restart. With a WAIT rating and a base-case value of $125, the stock at $119 offers a narrow margin of safety. The tulisokibart readout supports the BD/development strategy but does not accelerate the timeline for replacing Keytruda's contribution. Investors should view this as a positive data point but not a catalyst for re-rating until the larger headwinds show resolution. The key catalysts remain the April 28 Keytruda PDUFA date and any update on China shipments.

Thesis delta

The news adds a pipeline asset but does not shift the thesis; the near-term focus remains on the headwind and China restart. The positive data may slightly improve sentiment but does not change the fundamental wait-and-see stance.