Up 42% since January: Why Merck is defeating the patent cliff

The Merck & Co. (NYSE:MRK) stock has surged 42.3% since January, reaching around $146.73, despite the looming patent expirations of its blockbuster oncology drug Keytruda in 2028. This growth stands in stark contrast to the sector-wide anxiety surrounding the loss of exclusivity for Keytruda, which has affected competitors like Bristol-Myers Squibb (NYSE:BMY) and Pfizer (NYSE:PFE).

Merck has successfully neutralized the revenue headwind years ahead of the patent expiration, demonstrating that the company's operational results indicate a business that can manage the patent cliff proactively. InvestingPro's ProPicks AI models identified Merck as a dominant player in the Dow Jones Industrial Average in January, and in November's active portfolio, it was paired with other resilient blue-chip companies.

Merck's third-quarter financial results surpassed expectations, delivering revenue of $18.1 billion against an estimated $17.28 billion, and adjusted earnings per share of $2.49 against $2.09. This progress has led Merck to raise its full-year 2026 revenue guidance to between $66.8 billion and $67.3 billion. Keytruda sales increased by 6% year-over-year to $8.6 billion, while the company is actively restructuring the drug's lifecycle by developing a subcutaneous formulation that will extend patent protections into the 2030s.

New therapeutic offerings, such as Winrevair for pulmonary arterial hypertension and the personalized cancer vaccine intismeran, are also driving growth. These developments have positioned Merck as a company that can convert a patent cliff into an extended transition phase, supported by substantial organic liquidity and a strong track record of dividend growth.

The company's operating cash flow for the past year was $18.7 billion, providing a free cash flow yield of 4.07% and covering its 2.31% dividend yield. Merck has increased its dividend for 15 consecutive years and plans to repurchase approximately $3 billion in shares in 2026. With its pipeline of new drugs and a strong balance sheet, Merck is well-positioned to overcome the patent cliff and continue generating value for investors.