Merck's Keytruda Strength Fuels Stock High, But Patent Cliff Risks Loom Unchanged

What happened

Merck's stock hit a 52-week high of $123.3 in February 2026, buoyed by a 6.8% year-over-year increase in Q4 pembrolizumab franchise sales to $8.37 billion, highlighting near-term oncology demand resilience. However, the DeepValue master report rates the stock as 'WAIT' with conviction 2.5, emphasizing that this performance does not mitigate the 2028 patent cliff for Keytruda, which represents 46% of sales and faces a two-step U.S. reset starting in 2028. Upcoming catalysts, such as the CD388 Phase 3 interim analysis in 1Q26 and adoption of subcutaneous Keytruda Qlex, are critical for validating the company's pre-2028 earnings bridge. Meanwhile, legacy product losses of exclusivity in diabetes during 2026 and persistent Gardasil challenges in China add near-term pressure, complicating management's guidance of $65.5B–$67.0B in 2026 revenue. The Seeking Alpha article's bullish tone overlooks these embedded risks, portraying sales growth as a solution rather than a temporary reprieve in a high-stakes transition period.

Implication

First, the strong Keytruda sales confirm its dominance but exacerbate concentration risk ahead of the 2028 patent cliff, making successful lifecycle management through Qlex adoption essential. Second, the CD388 interim analysis in 1Q26 is a binary event that could derail the diversification thesis if it requires additional enrollment, delaying contributions. Third, 2026 legacy LOEs in diabetes will pressure earnings, testing the efficacy of Merck's restructuring and cost-saving initiatives. Fourth, Gardasil's recovery in China remains uncertain, with structural pricing pressures posing a lasting headwind. Finally, at current prices near $123, the risk-reward is skewed, as the market may be overpaying for unproven growth while ignoring the stacked erosion ahead.

Thesis delta

The news of robust Keytruda sales and a stock high does not alter the core investment thesis; it merely validates near-term demand without addressing the looming 2028 patent risks or the unproven diversification efforts. Investors should maintain a 'WAIT' stance, as the critical de-risking events—CD388 data and Qlex ramp—remain pending, and the stock's rally may be premature given the unchanged structural overhangs.