Merck's $3B Shock Move: Is This the End of the Keytruda Era?

Merck & Co. MRK is entering defense mode. The drugmaker announced a sweeping $3 billion annual cost-cutting program as it braces for a high-stakes showdown: the looming patent expiration of its cancer juggernaut, Keytruda. With biosimilar rivals and U.S. government price controls expected by 2028, Merck is trimming administrative, sales, and R&D costs, while downsizing its real estate footprint. The plan runs through 2027, the last full year before Keytruda's exclusivity ends. While the drug remains a growth engineup 9% in Q2 and ahead of analyst estimatesMerck is shifting capital toward next-gen launches. Meanwhile, Gardasil, its second-largest product, is taking a hit. Shipments to China are now paused through the end of 2025, dragging global sales of the HPV vaccine down 55% last quarter.

There's another storm brewing. President Donald Trump's long-signaled pharmaceutical tariffs are about to kick in, starting August 1 with European imports. Broader industry-wide levies could follow. Merck, whose flagship Keytruda is primarily made in Ireland, has already taken precautionary stepsstockpiling inventory and outlining $9 billion in U.S. manufacturing investments over four years. Still, it expects to spend $200 million on tariffs next year, excluding potential new rounds. Shares are down more than 30% over the past 12 months, as investors grow increasingly concerned about what comes after Keytrudaa drug that still drives nearly half the company's total revenue.

To fill the coming gap, Merck is leaning hard on a few key bets. Winrevair, its newly approved treatment for a rare lung disease, exceeded expectations in Q2 and is being positioned as a future blockbuster. An easier-to-administer version of Keytrudadelivered via injection rather than infusioncould capture up to 40% of the original's market, if approved later this year. The company's animal health division also surprised to the upside, though other vaccine segments came in below forecasts. Merck's playbook is becoming clear: cut costs, double down on pipeline wins, and prepare for a world where Keytruda's dominance no longer writes the earnings script.