Why This Beaten-Down Stock Is a Buy in 2025 and Beyond

Last year wasn't a good one for Merck (NYSE: MRK), one of the largest pharmaceutical companies in the world. The healthcare giant is dealing with the fast-approaching patent cliff for its most important product, cancer medicine Keytruda. Further, even beyond Keytruda's upcoming loss of patent exclusivity in the U.S., Merck could face stiff competition for its cash cow from at least two cancer drugs in development.

These are unquestionably serious issues, but Merck remains a top stock to buy and hold, at least for investors focused on the long game. Here's why.

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Merck's first-mover advantage

Merck's Keytruda generates over $20 billion in sales annually, an incredibly rare feat for a medicine. While it will lose patent protection in 2028, it should continue to grow its revenue until then, even with mounting competition. Why? Consider that Merck has earned more than 30 indications in the U.S. alone across various types of cancer.

True, one of its most important indications is in non-small cell lung cancer (NSCLC), and it is in this market that ivonescimab, a potential cancer medicine that Summit Therapeutics is developing in the U.S., is looking to challenge Keytruda. However, even within NSCLC, Keytruda has earned several indications, including first-line and advanced NSCLC, to name just two examples.

It will take a while for ivonescimab to prove its worth in clinical trials across all these indications, earn approval from regulators, ramp up sales and marketing efforts, and make a serious dent into Keytruda's empire. Ivonescimab won't earn approval in the U.S. before 2026, at the earliest. It shouldn't win more than a couple (or so) of indications before Keytruda's patent cliff.

BioNTech's PM8002, which is also being touted as a potential competitor to Keytruda, has an even longer road ahead since it hasn't started phase 3 studies yet. So, Keytruda's sales should continue growing just fine until 2028. What will the company do once it loses patent protection for its crown jewel?

Turning on the innovative machine

Merck's post-Keytruda plans, interestingly enough, include Keytruda. The company is developing a subcutaneous (SC) version of the medicine that will take over many of the original version's indications.

In November, Merck reported positive phase 3 results for SC Keytruda, which demonstrated non-inferiority compared to the current formulation of the medicine in patients with metastatic NSCLC. This newer formulation will almost certainly have to deal with the challenges from ivonescimab and PM8002 down the road.

However, Merck is working on other products. It recently signed an agreement to develop LM-299, a potential cancer medicine, with China-based LaNova Medicines. LM-299, like ivonescimab and PM8002, is a bispecific antibody. Further, Merck is also entering the highly lucrative weight loss area. Last month, the healthcare giant penned a deal with Hansoh Pharma, another drugmaker based in China, to develop an oral GLP-1 medicine that is still in preclinical studies.

Merck wouldn't have spent $112 million upfront on this investigational medicine if it had not shown some promise. Still, it is years away from being even close to earning approval. Perhaps Merck is late to the party. Many of the largest drugmakers and smaller ones already have GLP-1 candidates in phase 2 or phase 3 studies. The key point, though, is that Merck is actively looking for ways to move beyond Keytruda.

One of its newest products, Winrevair, a treatment for pulmonary arterial hypertension, earned approval last year and should go on to generate over $1 billion in annual sales. Merck should succeed in finding more gems, given its large pipeline of more than 90 programs in mid or late-stage trials.

Don't forget the dividend

Over the past few decades, Merck has usually generated growing revenue. It will fall occasionally, often because of patent cliffs, but then it will keep growing again.

MRK Revenue (Annual) data by YCharts

That is a testament to the strength of Merck's underlying operations, and I expect the same to happen after the loss of Keytruda's patent exclusivity in 2028. Merck's solid business has allowed it to maintain a strong dividend program. In the past 10 years, the pharmaceutical company has increased its payouts by 80%. Merck's forward yield currently hovers around 3.4%, compared to the S&P 500's average of 1.27%.

Merck's dividend is yet another excellent reason to invest in the company, which, despite the issues it is facing, remains a top pick for buy-and-hold investors.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck and Summit Therapeutics. The Motley Fool recommends BioNTech Se. The Motley Fool has a disclosure policy.