Merck’s Keytruda Dependency: A Growth Story With An Expiration Date

Merck’s (NYSE:MRK) leading drug, Keytruda, has shown remarkable recent growth—a success story with a foreseeable conclusion. The pharmaceutical company’s strong performance has been largely driven by Keytruda, a blockbuster oncology treatment. Yet, behind this success lies a growing concern: how long this growth can continue as competition in the oncology space intensifies.

Keytruda has delivered phenomenal results for Merck. Sales jumped 72%, from $17 billion in 2021 to $29 billion last year, and the drug alone has powered Merck’s average double-digit revenue growth over the past three years. It now accounts for 46% of the company’s total revenue—a level of concentration that raises red flags. When a single product contributes nearly half of total sales, diversification becomes a critical consideration. That’s why our High Quality (HQ) portfolio emphasizes a balanced mix of sectors. This diversified strategy has helped the HQ portfolio outperform the S&P 500, generating returns of over 91% since inception. Also, check out – Buy, Sell, or Hold HIMS Stock?

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The Looming Patent Cliff

There’s no ambiguity about Keytruda’s future: its market exclusivity in the U.S. ends in 2028, which will usher in biosimilar competition. This isn’t a possibility—it’s a certainty that will reshape Merck’s revenue outlook. The higher a drug’s sales, the harder it becomes to offset the gap once generics arrive. We estimate Keytruda’s sales could peak near $36 billion by 2028 but could fall to $20 billion—or even below $15 billion—within four to five years. That outcome looks increasingly likely.

The Brutal Reality of Biosimilar Competition

There’s no sugarcoating it: biosimilars cause steep sales drops. Consider AbbVie’s Humira, which lost close to 60% of its revenue in just a few years, from $21 billion in 2022 to under $9 billion last year. Or Roche’s Herceptin, which lost U.S. exclusivity in 2019 and saw its sales shrink from $7 billion in 2018 to $3.7 billion in 2020. These examples highlight the predictable and disruptive impact biosimilars can have—a scenario Merck will soon contend with.

The Growth Slowdown Ahead

Can Merck continue growing when its top-selling drug is set for a major sales decline? The likely answer is no. While acquisitions or licensing deals could introduce new opportunities, the core challenge remains: Keytruda’s dominance will fade, and growth will slow—likely starting around 2028.

As this high-growth period winds down, Merck’s valuation may fall sharply. In fact, this risk may already be priced in, with MRK stock down 40% over the past year. Other issues are also at play, notably falling demand for Gardasil—Merck’s second-largest drug—particularly in China.

Merck now faces a critical three-year window to either replace that lost revenue or come to terms with the reality of slower, possibly declining, sales.

The Investment Implications

This situation highlights why building a resilient portfolio with diversified holdings is vital. Merck’s position shows how even dominant pharmaceutical firms can face turning points due to patent expirations. Keytruda is both Merck’s strongest asset and its biggest near-term risk.

Investors should consider the company’s solid recent performance alongside the very real challenges ahead. Diversification—across sectors and stocks—is essential to avoid this kind of concentration risk. Our Trefis High Quality (HQ) portfolio is built on that principle, outperforming the S&P 500, Nasdaq, and Russell 2000 with over 91% returns since inception. That balance of risk and reward is what makes diversification critical.

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