Merck’s Split Could Trigger a 2028 Immunotherapy Shock: Investor Playbook

• Merck is separating its cancer and non‑cancer portfolios, a move that could reshape valuation metrics.
• Keytruda’s patent cliff looms in 2028, with biosimilar entrants expected to erode a $30 bn revenue stream.
• Leadership turnover (retirement of Joseph Romanelli) adds execution risk but also fresh strategic perspective.
• Peers like Pfizer, Bristol‑Myers, and Novartis are accelerating their own specialty‑oncology pipelines, intensifying competition.
• Historical analogues (e.g., AbbVie’s Humira loss) suggest a steep short‑term dip followed by a potential rebound if reinvestment is disciplined.

You’re overlooking Merck’s biggest structural shift of the decade—act now or watch it slip by.

Why Merck’s Cancer Unit Split Aligns With Sector Trends

The pharmaceutical landscape has been migrating toward “focused” business models. Investors reward companies that isolate high‑growth, high‑margin segments (cancer, rare disease) from slower‑moving, commodity‑type assets. By carving out a pure‑play cancer entity, Merck can present a clearer growth narrative, attract oncology‑focused capital, and potentially secure a premium multiple on the cancer arm.

In parallel, the non‑cancer unit—encompassing specialty, general pharma, and infectious‑disease drugs—will be evaluated on its ability to generate stable cash flow and fund the next wave of R&D. This bifurcation mirrors moves by Johnson & Johnson (separating consumer health) and Bayer (spinning off its animal health unit), both of which saw short‑term volatility but long‑term valuation uplift.

Impact of Keytruda Patent Expiry on Merck’s Bottom Line

Keytruda (pembrolizumab) is currently Merck’s cash‑cow, delivering roughly $30 bn in 2025 revenue—almost half of the firm’s $65 bn turnover. The drug’s U.S. patent protection expires in 2028, opening the floodgates for biosimilars. Analyst consensus projects a 40‑50% revenue decline within three years of expiry, assuming aggressive market entry by generics.

Two dynamics will dictate the fallout:

• Pricing pressure: Biosimilars typically launch at 20‑30% discount to the originator, compressing gross margins.
• Volume erosion: Physicians may switch to lower‑cost alternatives, especially in pay‑or‑play health systems.

The split allows the cancer unit to be valued on a forward‑looking pipeline (lung, melanoma, colorectal) rather than being weighed down by a looming decline in a single product. Conversely, the non‑cancer unit can highlight its diversified revenue base, softening the hit to the consolidated balance sheet.

Competitor Moves: How Pfizer, Bristol‑Myers, and Novartis Are Positioning

Merck is not navigating this terrain alone. Pfizer’s recent acquisition of Seagen bolsters its oncology franchise, while Bristol‑Myers Squibb continues to double‑down on immuno‑oncology with the rollout of Opdivo‑based combos. Novartis, meanwhile, is expanding its CAR‑T platform, seeking to capture the next wave of cell‑therapy revenue.

These peers are all pursuing two complementary strategies:

• Accelerating pipeline diversification to reduce reliance on a single blockbuster.
• Strategically pairing high‑margin oncology assets with stable, cash‑generating specialty drugs.

Merck’s split puts it on a comparable footing, allowing investors to benchmark each unit against the respective peer group rather than the blended conglomerate.

Historical Parallel: What the 2015 AbbVie Humira Loss Teaches

When AbbVie’s Humira patent expired in 2018, the company’s stock plunged over 15% as investors priced in a $12 bn revenue gap. However, AbbVie’s aggressive acquisition of Allergan and a robust pipeline of newer biologics eventually restored growth, delivering a 20% upside over the subsequent five years.

The lesson for Merck is two‑fold:

• Short‑term pain is almost inevitable; the market will discount the expected loss aggressively.
• Strategic reinvestment—whether through acquisitions, joint ventures, or internal R&D—can mitigate the long‑term impact.

Merck’s internal talent shuffle, appointing Jannie Ossthuizien to lead the cancer arm, signals a commitment to accelerating late‑stage trials and expanding into next‑generation checkpoint inhibitors.

Technical Insight: Reading the Forward‑PE and Free Cash Flow Signals

From a valuation standpoint, the split should generate two distinct forward price‑to‑earnings (PE) ratios. The cancer unit, with its high‑growth pipeline, is likely to command a PE of 25‑30×, whereas the non‑cancer unit—more akin to a traditional pharma house—may settle near 12‑15×.

Free cash flow (FCF) will be a critical metric. Historically, Merck’s FCF margin hovers around 20%. Post‑split, investors will watch for the non‑cancer unit to sustain this margin, providing the liquidity needed to fund the cancer arm’s R&D burn. Any deviation below 15% could raise red flags about execution risk.

Investor Playbook: Bull vs Bear Cases for Merck

Bull Case: The cancer unit secures FDA approval for at least two next‑generation immunotherapies by 2026, offsetting Keytruda’s decline. The non‑cancer unit launches a breakthrough antiviral that captures market share from legacy incumbents, preserving cash flow. Combined, the two entities generate a composite earnings growth of 8% CAGR through 2030, justifying a 20% upside to current share price.

Bear Case: Biosimilar competition erodes Keytruda revenue faster than anticipated, with a 55% drop by 2029. The cancer pipeline stalls due to clinical setbacks, and the non‑cancer unit fails to replace the lost cash flow, compressing margins below 15%. In this scenario, the split adds complexity without delivering upside, leading to a 15% downside risk.

For the pragmatic investor, a balanced approach may involve a partial position in Merck’s stock paired with selective exposure to its peers that are better positioned to capture the post‑Keytruda market. Monitoring quarterly guidance on the split’s operational costs and pipeline milestones will be essential to tilt the risk‑reward scale in your favor.