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MRK's 2027 Outlook Challenging, Long-Term Prospects Promising
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Key Takeaways
Merck expects modest 2027 revenue growth as more than $2 billion in generic headwinds weigh on sales.
Keytruda faces biosimilar competition around 2028-2029, potentially triggering a sharp sales decline
Merck sees over $70 billion in potential pipeline opportunities by the mid-2030s
Merck (MRK - Free Report) announced strong third-quarter 2026 results on Oct. 29, with both adjusted earnings and revenues surpassing estimates. Third-quarter 2026 sales were $18.1 billion, up 5% year over year, while adjusted earnings declined 3% to $2.49 per share. Keytruda/Keytruda Qlex sales rose 6% to $8.6 billion. Merck raised its 2026 guidance, projecting revenues of $66.8-$67.3 billion and adjusted EPS of $2.77-$2.82
On the call, Merck also provided a preliminary outlook for 2027 and shed light on its long-term growth outlook.
Merck Expects Modest Growth in 2027 Amid Generic Pressures
Merck expects moderate revenue growth in 2027 as contributions from new product launches and higher sales in Animal Health are expected to be partially offset by generic headwinds. Merck expects more than $2 billion of generic headwinds due to loss of exclusivity of drugs like Bridion, the Januvia family of products, as well as Adempas. Keytruda is expected to remain a significant revenue contributor, although sales growth will likely moderate as the drug approaches peak penetration across several approved indications. Pricing pressures in international markets, particularly Germany, could also weigh on Keytruda’s sales.
Merck also expects challenges in its vaccines business, mainly for the HPV vaccine, Gardasil, due to increased vaccine hesitancy and declining utilization. Additionally, an approximately $250 million benefit from CDC vaccine purchases in 2026 is expected to reverse in 2027.
On the profitability front, gross margins are expected to improve following the expiration of a royalty obligation associated with Keytruda. However, underlying operating expenses are expected to rise at a mid-to-high single-digit rate, reflecting investments in its expanding pipeline and growing portfolio of new product launches.
MRK Targets Growth Beyond Keytruda With Expanding Pipeline
Keytruda’s core U.S. patent is expected to expire around 2028, with additional patents expiring slightly after that. Keytruda is expected to face significant biosimilar competition around 2028-2029. Once biosimilars enter, Keytruda’s sales are likely to decline sharply. Merck expects a shallow dip in total revenues and earnings in the initial period following Keytruda LOE before quickly returning to growth.
However, MRK’s long-term prospects look brighter. It expects more than $70 billion of potential non-risk-adjusted commercial opportunity for the current pipeline by the mid-2030s. On the third-quarter earnings call, management indicated that it expects to raise this estimate, reflecting growing confidence in its pipeline. The potential upward revision is supported by additional opportunities from the Terns acquisition, PD-1/VEGF combinations, expanded indications for sac-TMT and better-than-expected commercial prospects for intismeran.
Conclusion
Merck faces a challenging transition period as generic competition, weakness in its vaccines business and the looming Keytruda patent cliff threaten its near-term growth prospects. However, the company's expanding pipeline, growing portfolio of new products and strategic acquisitions could help offset these pressures over time. While the pace of recovery following Keytruda's LOE remains uncertain, successful pipeline development and commercialization will be crucial to achieving Merck's ambitious long-term growth targets.
PD-1/PD-L1 Inhibitors Competing With MRK's Keytruda
Keytruda faces competition from other PD-1/PD-L1 inhibitors, including Bristol Myers’ (BMY - Free Report) Opdivo, Roche’s (RHHBY - Free Report) Tecentriq and AstraZeneca’s (AZN - Free Report) Imfinzi.
BMY’s Opdivo, also a PD-1 inhibitor like Keytruda, is approved across multiple cancer types, including lung, melanoma and kidney cancers. Bristol Myers recorded $7.0 billion in Opdivo sales in the first nine months of 2026, down 5% year over year.
Tecentriq is Roche’s leading immuno-oncology drug approved for multiple cancer indications. RHHBY recorded CHF 2.6 billion in Tecentriq sales in the first nine months of 2026, up 5% year over year.
AZN’s Imfinzi generated $5.5 billion in sales in the first nine months of 2026, up 28%, driven by strong demand growth across all regions from established indications and new launches.
MRK Share Price, Valuation & Estimates
Merck’s shares have risen 39.4% so far this year compared with an increase of 22.5% for the industry.
Merck Stock Outperforms Industry
Image Source: Zacks Investment Research
From a valuation standpoint, Merck is slightly expensive. Going by the price/earnings ratio, the company’s shares currently trade at 17.86 forward earnings, lower than 19.39 for the industry. The stock is trading above its 5-year mean of 13.17.
MRK Stock Valuation
Image Source: Zacks Investment Research
Estimates for MRK’s 2026 earnings have risen from $2.69 per share to $2.77 per share over the past seven days, while those for 2027 have declined from $9.44 per share to $9.12 per share.
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MRK's 2027 Outlook Challenging, Long-Term Prospects Promising
Key Takeaways
Merck (MRK - Free Report) announced strong third-quarter 2026 results on Oct. 29, with both adjusted earnings and revenues surpassing estimates. Third-quarter 2026 sales were $18.1 billion, up 5% year over year, while adjusted earnings declined 3% to $2.49 per share. Keytruda/Keytruda Qlex sales rose 6% to $8.6 billion. Merck raised its 2026 guidance, projecting revenues of $66.8-$67.3 billion and adjusted EPS of $2.77-$2.82
On the call, Merck also provided a preliminary outlook for 2027 and shed light on its long-term growth outlook.
Merck Expects Modest Growth in 2027 Amid Generic Pressures
Merck expects moderate revenue growth in 2027 as contributions from new product launches and higher sales in Animal Health are expected to be partially offset by generic headwinds. Merck expects more than $2 billion of generic headwinds due to loss of exclusivity of drugs like Bridion, the Januvia family of products, as well as Adempas. Keytruda is expected to remain a significant revenue contributor, although sales growth will likely moderate as the drug approaches peak penetration across several approved indications. Pricing pressures in international markets, particularly Germany, could also weigh on Keytruda’s sales.
Merck also expects challenges in its vaccines business, mainly for the HPV vaccine, Gardasil, due to increased vaccine hesitancy and declining utilization. Additionally, an approximately $250 million benefit from CDC vaccine purchases in 2026 is expected to reverse in 2027.
On the profitability front, gross margins are expected to improve following the expiration of a royalty obligation associated with Keytruda. However, underlying operating expenses are expected to rise at a mid-to-high single-digit rate, reflecting investments in its expanding pipeline and growing portfolio of new product launches.
MRK Targets Growth Beyond Keytruda With Expanding Pipeline
Keytruda’s core U.S. patent is expected to expire around 2028, with additional patents expiring slightly after that. Keytruda is expected to face significant biosimilar competition around 2028-2029. Once biosimilars enter, Keytruda’s sales are likely to decline sharply. Merck expects a shallow dip in total revenues and earnings in the initial period following Keytruda LOE before quickly returning to growth.
However, MRK’s long-term prospects look brighter. It expects more than $70 billion of potential non-risk-adjusted commercial opportunity for the current pipeline by the mid-2030s. On the third-quarter earnings call, management indicated that it expects to raise this estimate, reflecting growing confidence in its pipeline. The potential upward revision is supported by additional opportunities from the Terns acquisition, PD-1/VEGF combinations, expanded indications for sac-TMT and better-than-expected commercial prospects for intismeran.
Conclusion
Merck faces a challenging transition period as generic competition, weakness in its vaccines business and the looming Keytruda patent cliff threaten its near-term growth prospects. However, the company's expanding pipeline, growing portfolio of new products and strategic acquisitions could help offset these pressures over time. While the pace of recovery following Keytruda's LOE remains uncertain, successful pipeline development and commercialization will be crucial to achieving Merck's ambitious long-term growth targets.
PD-1/PD-L1 Inhibitors Competing With MRK's Keytruda
Keytruda faces competition from other PD-1/PD-L1 inhibitors, including Bristol Myers’ (BMY - Free Report) Opdivo, Roche’s (RHHBY - Free Report) Tecentriq and AstraZeneca’s (AZN - Free Report) Imfinzi.
BMY’s Opdivo, also a PD-1 inhibitor like Keytruda, is approved across multiple cancer types, including lung, melanoma and kidney cancers. Bristol Myers recorded $7.0 billion in Opdivo sales in the first nine months of 2026, down 5% year over year.
Tecentriq is Roche’s leading immuno-oncology drug approved for multiple cancer indications. RHHBY recorded CHF 2.6 billion in Tecentriq sales in the first nine months of 2026, up 5% year over year.
AZN’s Imfinzi generated $5.5 billion in sales in the first nine months of 2026, up 28%, driven by strong demand growth across all regions from established indications and new launches.
MRK Share Price, Valuation & Estimates
Merck’s shares have risen 39.4% so far this year compared with an increase of 22.5% for the industry.
Merck Stock Outperforms Industry
From a valuation standpoint, Merck is slightly expensive. Going by the price/earnings ratio, the company’s shares currently trade at 17.86 forward earnings, lower than 19.39 for the industry. The stock is trading above its 5-year mean of 13.17.
MRK Stock Valuation
Estimates for MRK’s 2026 earnings have risen from $2.69 per share to $2.77 per share over the past seven days, while those for 2027 have declined from $9.44 per share to $9.12 per share.
MRK Estimate Movement
MRK's Zacks Rank
Merck currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.