Mercks & Co's sprint against the KEYTRUDA patent cliff: will it cross the finish line?

In 2025 the company most people still associate with one cancer drug quietly became one of the most aggressive external innovation buyers in the industry. KEYTRUDA still carried the business, roughly half of pharmaceutical sales, but the more interesting story sits underneath that number. Merck closed the Verona Pharma and Cidara acquisitions, wrote nine and ten figure cheques to a string of Chinese biotechs, and built a deal engine designed to answer one question that keeps its board awake: what replaces KEYTRUDA when the patent wall arrives at the end of this decade. This post is my read of how Merck sources, prices and integrates outside science, where the strategy is working, and where the gaps are still wide open.

Chapter 1: The concentration trap, when 49% of revenue lives in one Asset

Merck & Co. (NYSE: MRK, known as MSD outside the US and Canada) generated $65.01 Bn in worldwide sales in FY2025, growth of 1% nominally and 2% excluding foreign exchange. KEYTRUDA plus KEYTRUDA QLEX delivered $31.68 Bn, close to half of all pharmaceutical sales. This concentration is the single most important fact behind every open innovation decision the company makes. GARDASIL fell 39% to $5.23 Bn on weak China demand, a reminder that even a vaccine franchise can turn into a liability fast. GAAP net income was $18.25 Bn in 2025, up from $17.12 Bn in 2024 and a depressed $0.37 Bn in 2023 (the Prometheus charge year). R&D spend was $15.79 Bn in 2025, down 12% on lower business development charges. Return on research capital improved sharply as a result.

A short history and the current shape of the company

The Merck I am writing about is Merck & Co., Inc., Rahway, New Jersey, the American company that trades as MSD across most of the world. I want to be precise here because there is a separate, unrelated German company, Merck KGaA of Darmstadt, that also makes medicines and runs its own deal programme. The two have not been the same entity since the First World War, when the US business was seized and became independent. Throughout this post, every figure and every deal refers to the American Merck unless I state otherwise.

The modern company was shaped by three structural moves. The 2009 merger with Schering-Plough, worth roughly $41 Bn, gave Merck the asset that would become its defining product: the anti-PD-1 antibody that Schering-Plough scientists had been working on and that the world now knows as KEYTRUDA. In 2021 Merck spun off its women's health, biosimilars and established brands business as Organon, sharpening the remaining company around oncology, vaccines and hospital products. Then across 2023 to 2026 came a deal sprint, Prometheus, Acceleron, Harpoon, EyeBio, Verona and Cidara, that is the real subject of this post.

On FY2025 full year numbers, this is the scale we are dealing with. Total sales of $65.01 Bn split into pharmaceutical sales of $58.14 Bn and animal health sales of $6.35 Bn, with the small remainder in other revenues. The company invested $15.79 Bn in R&D, employed a worldwide base measured in the high tens of thousands, and produced GAAP net income of $18.25 Bn.

Therapy and Revenue Mix FY2025

The concentration problem is obvious the moment you draw that chart. Oncology, and within it KEYTRUDA, dominates. For the full year 2023, KEYTRUDA alone accounted for 41.6% of Merck's total revenue, and on FY2025 numbers KEYTRUDA plus QLEX at $31.68 Bn against total sales of $65.01 Bn is roughly 49% of the company. I believe this single fact, more than any market trend, is what drives every major external innovation decision the company makes.

Top brands by therapy area (FY2025)

The table below pulls the leading revenue generators in each franchise straight from the FY2025 product disclosures.

To make sense of where Merck needs outside help, I find it useful to plot the major brands on a growth-share matrix. KEYTRUDA is the cash cow that funds everything, GARDASIL has slipped from star to question mark almost overnight, and the recently acquired or launched assets (WINREVAIR, Capvaxive, Welireg, Ohtuvayre) are the stars and question marks the company is betting on for the post-2028 era.

I want to be careful not to overstate the precision of a BCG matrix. The axes are judgements, not measured market shares. But the strategic message holds: Merck has one enormous cash cow approaching a cliff, a vaccine franchise that just slid the wrong way, and a thin band of genuine stars. That is precisely the profile of a company that has to buy growth from outside.

Financial health across 2023, 2024 and 2025

The three-year financial story is dominated by one accounting event. In the second quarter of 2023 Merck booked a $10.2 Bn pre-tax charge for the acquisition of Prometheus Biosciences, recorded entirely as research and development expense, which is why GAAP net income for the full year 2023 collapsed to $0.37 Bn even though the underlying business was healthy. Strip that out and 2023 was a perfectly normal year.

From 2024 to 2025 the picture is one of slow top-line growth and strengthening margins. Full-year 2025 worldwide sales reached $65.01 Bn, up 1% nominally and 2% excluding foreign exchange. GAAP net income attributable to Merck rose to $18.25 Bn in 2025 from $17.12 Bn in 2024, a 7% increase. The biggest swing factor inside the year was GARDASIL. Sales of GARDASIL and GARDASIL 9 fell 39% to $5.23 Bn, driven primarily by lower demand in China. That is a $3.35 Bn revenue hole opened in a single franchise in twelve months, and the fact that total sales still grew tells you how hard oncology and the new launches worked to fill it. WINREVAIR, the sotatercept asset that came in through the 2021 Acceleron acquisition, grew from $0.42 Bn to $1.44 Bn year on year, and Capvaxive grew from under $0.1 Bn to $0.76 Bn. In my view this is the clearest evidence that the externally sourced pipeline is already carrying real commercial weight.

Gross margin moved from 73.2% in 2023 to 76.3% in 2024 and then back to 74.8% in 2025, with the 2025 compression reflecting higher restructuring costs and inventory write-offs alongside the Verona Pharma acquisition fair-value step-up. Full-year 2023 SG&A expenses were $10.5 Bn, rising to $10.8 Bn in 2024 and falling slightly to $10.7 Bn in 2025 as the company wound down certain promotional programmes.

R&D investment and return on research capital

The R&D line at Merck is genuinely hard to read because acquired in-process R&D charges run straight through it. Reported R&D expense was $15.79 Bn for the full year of 2025, a decrease of 12% compared with 2024, primarily due to lower charges for business development activity. In 2023 the comparable figure was $30.53 Bn, inflated by the $10.2 Bn Prometheus charge; organic R&D excluding that charge was approximately $14.7 Bn. In 2024 it was $17.94 Bn, still carrying licensing charges for the Daiichi Sankyo collaboration and early LaNova payments.

On an organic basis, Merck's RoRC was 3.25x in 2023 (FY2023 gross profit of $44.01 Bn divided by FY2022 R&D of $13.55 Bn), 3.33x in 2024 (FY2024 gross profit of $48.98 Bn divided by organic FY2023 R&D of $14.7 Bn), and 2.71x in 2025 (FY2025 gross profit of $48.63 Bn divided by FY2024 R&D of $17.94 Bn). Published industry analyses of large-cap pharma typically place median RoRC in the 1.5x to 2.5x range depending on how acquired R&D is treated, so Merck's clean 3.25x to 3.33x range sits well above the median. The more important point for this post is qualitative: Merck has deliberately shifted a large share of its "research" spend from internal labs to business development cheques, and the in-process R&D charges are the accounting footprint of that shift. The company is, increasingly, buying its pipeline.

Chapter 2: From internal labs to external cheques, how Merck learned to buy growth

Merck runs the full spectrum of open innovation: inbound M&A and licensing, outbound out-licensing, coupled co-development, and a platform layer of corporate venture funds and accelerators. The defining inbound pattern of 2023 to 2026 is a wave of Chinese biotech licensing deals (LaNova, Hansoh, Hengrui) plus mid-sized US and UK acquisitions (Prometheus, Harpoon, EyeBio, Verona, Cidara).

Merck's corporate venture capital is split cleanly: MRL Ventures Fund for early-stage therapeutics, Merck Global Health Innovation Fund for digital health and data. The Moderna personalised cancer vaccine collaboration (V940/intismeran autogene) is the model coupled deal: shared cost, shared profit, shared risk, attached to KEYTRUDA. The strategic logic everywhere is the same: assemble enough externally sourced revenue to survive the KEYTRUDA patent cliff at the end of this decade.

Open innovation modalities, current state and historical evolution

Merck engages in every recognised mode of open innovation, and I find it cleanest to organise them into their respective buckets.

Inbound innovation is where Merck spends the most money and management attention. It runs the full ladder: licensing in compounds and platforms, acquiring whole biotech companies, acquiring single assets, making minority venture investments, and entering joint development agreements. The acquisitions of Prometheus ($11.0 Bn, immunology), Acceleron ($11.5 Bn, cardiopulmonary), Harpoon (roughly $0.68 Bn, T-cell engagers), EyeBio (up to $3.0 Bn, ophthalmology), Verona Pharma (roughly $10 Bn, respiratory), and Cidara (roughly $9.2 Bn, antivirals) are all inbound. So are the large Chinese licensing deals covered below. Merck completed the $11.5 Bn acquisition of Acceleron Pharma in 2021, bringing sotatercept into the pipeline; that asset was subsequently approved as WINREVAIR for pulmonary arterial hypertension in March 2024.

Outbound innovation is smaller but real. Merck out-licenses compounds it chooses not to develop internally, contributes IP to research consortia, publishes openly through Merck Research Laboratories, and runs an Impact Venture Fund that channels capital toward global health access goals. The company's Impact Venture Fund portfolio represents commitments totalling approximately $55 Mn, with Merck an active member of the Global Impact Investing Network. Other revenues in the FY2025 accounts include upfront and milestone payments received for out-licensed products, totalling $138 Mn across the four quarters of 2025, a modest but recurring outbound income stream.

Coupled innovation is the bilateral exchange category, and Merck's flagship example is the Moderna partnership. Merck exercised its option in 2022 to jointly develop and commercialize the personalised cancer vaccine mRNA-4157/V940, with Merck and Moderna sharing costs and any profits equally under a worldwide collaboration. The Daiichi Sankyo antibody drug conjugate alliance, announced in October 2023, is structurally similar: a co-development arrangement worth up to $22 Bn across three ADC candidates, with shared economics and governance. Merck also runs multi-year research collaborations with academic medical centres where IP and insight flow in both directions.

Platform and ecosystem is the network layer. Merck operates two distinct corporate venture vehicles, the MRL Ventures Fund and the Merck Global Health Innovation Fund, plus accelerator programmes including MSD IDEA Studios in Singapore and Berlin, and a Digital Science Studio. These give Merck sight lines into hundreds of early stage companies without committing full acquisition capital, and they create a relationship pipeline that can later convert into licensing or M&A.

The historical evolution matters. A decade ago Merck was, by its own reputation, one of the more internally focused large pharma companies, content to rely on Merck Research Laboratories. The KEYTRUDA patent cliff changed the culture. Business development moved from a support function to the centre of strategy, and the period from 2021 onward shows a step change in both the number and the size of external deals.

Major open innovation milestones

The table below collects the publicly disclosed external innovation milestones for Merck & Co. from 2015 to mid-2026. I have included only deals Merck itself disclosed through press releases, SEC filings or earnings materials, and I have flagged where financial terms were not disclosed.

The pattern in that table is the story. Look at 2024 and 2025 specifically: four separate licensing agreements with Chinese biotechs across oncology, obesity and cardiometabolic disease. As reported in coverage of the Hengrui deal, this was the third time Merck tapped Chinese biotechs for licensing deals; toward the end of 2024 the company struck multi-billion-dollar deals with Hansoh Pharma and LaNova Medicines. The strategic driver is stated plainly in the same coverage: Merck intends to diversify its revenue base, which had become highly dependent on KEYTRUDA, which accounted for nearly 46% of total revenues in 2024.

Open innovation sourcing model, how Merck finds and integrates external innovation

Merck's sourcing engine sits inside Merck Research Laboratories and its dedicated Business Development and Licensing organisation, which the company describes as working across the full maturity spectrum from early-stage science to clinical-stage programmes. The BD&L team builds early relationships with portfolio companies through the MRL Ventures Fund before any licensing or acquisition discussion begins.

On the academic side, Merck funds and collaborates with major research universities and academic medical centres, though it discloses these arrangements less consistently than its commercial deals. The publicly visible relationships skew toward translational and clinical research rather than basic science, and toward computational and data science as the company builds out artificial intelligence capability. Where Merck does name research partners, the work tends to be translational (moving a validated target toward the clinic) or clinical (running trials with academic medical centres as principal investigators), with IP ownership typically negotiated deal-by-deal.

Geographically, the sourcing model has shifted hard in two directions simultaneously. Acquisition targets remain mostly American and occasionally British or Israeli, consistent with where venture-backed biotech clusters sit. Of Merck's 33 completed acquisitions through mid-2026, 24 transactions were concentrated in the United States, with the United Kingdom and Israel also notable. But the licensing deals have pivoted decisively toward China. I believe this reflects a genuine arbitrage: Chinese biotechs have built high-quality assets in classes like PD-1/VEGF bispecifics and oral GLP-1s, and they have been willing to license global ex-China rights at upfront prices far below what a comparable US-origin asset would command.

Startup engagement and corporate venture capital

Merck runs two clearly separated corporate venture vehicles, and the separation is deliberate.

MRL Ventures Fund (MRLV) is the therapeutics arm. MRLV is Merck's therapeutics-focused corporate venture group, headquartered in Cambridge, Massachusetts, investing globally in early-stage, preclinical therapeutics companies across all modalities from small molecules to cell therapies, with Peter Dudek, Ph.D. serving as President and Managing Partner. Its operating model is unusually hands-on: MRLV leads or co-leads with sustained capital of up to $25 Mn per company, initially investing from concept to investigational new drug application, taking director or observer board roles, and maintaining a robust firewall from the broader Merck corporation. That firewall matters: it lets MRLV invest in companies that might later negotiate with Merck's BD&L team without a conflict of interest, and the fund explicitly builds early relationships with BD&L colleagues so a portfolio company can graduate into a licensing or acquisition conversation.

Merck Global Health Innovation Fund (MGHIF) is the digital and data arm. Founded in 2010, it is a growth investor partnering with digital health and data science companies that facilitate and optimise biopharmaceutical operations. As of early 2025 the fund was an active investor having invested in 74 companies across primarily Series B rounds in US-based startups. Its track record is substantial: the MGHIF portfolio has seen 2 unicorns, 3 IPOs and 23 acquisitions, including companies like Livongo, Transcarent and Unite Us. The fund was sized at $250 Mn or more at launch and focuses on digital health, healthcare IT, diagnostics and data science. MGHIF also runs three accelerators: the MSD Digital Science Studio, MSD IDEA Studios Singapore, and MSD IDEA Studios Berlin, each investing up to $2 Mn in early-stage companies.

A third, smaller vehicle, the Impact Venture Fund, deploys approximately $55 Mn in commitments toward global health access investments, with Merck an active member of the Global Impact Investing Network, TONIIC and Investors for Health.

Merck does not publish a clean year by year venture investment count, what is disclosed is the cumulative MGHIF portfolio (74+ companies), the trailing twelve-month pace (one new investment in the year to April 2025), the cheque sizes for MRLV (up to $25 Mn), and a handful of named exits. Anything more granular than that would be speculation.

Non-traditional partners, hospitals, patient groups, digital health and AI/ML

Merck's engagement with non-traditional partners has grown alongside its data science ambitions, though much of it is disclosed thinly. On hospitals and health systems, Merck runs real-world evidence and clinical research relationships with academic medical centres, primarily to support oncology and vaccine programmes. Merck Research Laboratories explicitly lists real-world evidence and translational medicine as active research modalities. On patient advocacy, the company funds disease-specific organisations and patient registries, especially in oncology and in rare disease areas entered through acquisition; these relationships are mentioned in sustainability disclosures but rarely quantified. On digital health, the MGHIF portfolio is the main vehicle, with investments and exits in companies spanning care navigation, data networks and analytics. On AI and machine learning, Merck has built internal data science and AI capability inside Merck Research Laboratories and describes data science and artificial intelligence as a named area of innovation on the company's research website.

Chapter 3: Following the $49 Billion, where is the money actually flowing?

Across Jan 2018 to Jun 2026, Merck's committed external capital concentrated overwhelmingly in oncology, with cardiometabolic/respiratory a clear and deliberate second tier. On an Ansoff lens, the strategy is dominated by market penetration and product development around existing oncology and cardiometabolic strongholds, with obesity and respiratory representing genuine diversification plays. By stage, Merck concentrates the majority of its capital in Phase II and Phase III assets, using licensing to reach earlier, cheaper science, especially out of China. The TIGIT programme failures show where even well-resourced internal programmes can stall at Phase 3.

Therapeutic area weighting by committed external capital

When I total the committed external capital (upfront plus disclosed maximum milestones) by primary therapeutic area for the 2018 to 2026 window, oncology dominates, but the second tier tells the diversification story clearly.

I want to be transparent that this pie is sensitive to how you treat biobucks. The Daiichi Sankyo alliance has a $22 Bn ceiling but only $5.5 Bn was committed near-term, so oncology's share is overstated if you read maximum milestones as real cash. On an upfront only basis the picture flattens considerably, and cardiometabolic and respiratory (Acceleron plus Verona, both completed cash acquisitions) rises in relative weight. Either way the conclusion holds: Merck is buying oncology to defend its stronghold and buying cardiometabolic and respiratory to build its next one.

The Ansoff read is clarifying. Most of Merck's capital is defensive, market penetration and product development around the oncology stronghold it cannot afford to lose. The diversification quadrant, obesity, COPD, a new lipid market, influenza prevention, is the smallest and newest, and the one Merck's future depends on getting right. Obesity through Hansoh, COPD through Verona, a new lipid lowering market through Hengrui, influenza prevention through Cidara. In my opinion the diversification quadrant is where Merck's future depends on getting external innovation right, because that is where it has the least internal heritage to fall back on.

Stage preference by committed capital and deal count

The stage breakdown reveals Merck's risk appetite precisely. The bulk of capital sits in Phase II and Phase III assets, combined $56.9 Bn, representing 66% of disclosed investment, where Merck pays the largest cheques for de-risked programs with clinical proof of concept already in hand. The three Phase II assets (Prometheus, EyeBio, and the Daiichi Sankyo ADC portfolio) and two Phase III deals (Acceleron and Cidara) absorb the majority of capital. By contrast, Phase I and Preclinical deals total only $9.9 Bn across six deals, demonstrating that Merck uses cheaper licensing structures, particularly with Chinese partners, to option early science risk. The single Commercial/Approved deal, Verona at $10.0 Bn, is already a marketed asset. Merck's capital is heavily concentrated in the middle stages, Phase II and Phase III, where clinical risk is already substantially reduced. This is better described as a capital efficient de-risking concentration strategy: pay the largest sums where risk is lowest, and reserve only modest capital for early-stage optionality.

Modality preference by committed capital

The modality chart, based on upfront and near term commitments rather than maximum milestone ceilings, reveals a striking strategic pivot. ADCs and mAb/bispecific antibodies combined account for roughly $47 Bn across 2023 to 2026, with ADC spend accelerating from 2023 onward through the Daiichi Sankyo alliance and the sac-TMT licensing arrangement. By contrast, small molecule licensing (Hansoh GLP-1, Hengrui Lp(a)) remains opportunistic and limited in scope, roughly $2 Bn to $3 Bn annually. This is not modality agnostic; Merck is explicitly building an antibody and ADC dominant oncology and immunology portfolio, using the 2023 to 2026 window to secure cutting edge DXd and bispecific platforms before patent cliff revenue needs to arrive. The shift is unmistakable when compared to 2018 to 2022, when only small deals and milestone payments dominated.

Trial phase progression of acquired and licensed assets

Where the external bets failed

Not every bet has worked, and intellectual honesty requires showing the failures alongside the wins. The clearest write-down zone is Merck's TIGIT programme. The anti-TIGIT antibody vibostolimab (MK-7684), developed internally but central to a major combination strategy with KEYTRUDA, failed across multiple Phase 3 trials. The Phase 3 KeyVibe-008 trial evaluating vibostolimab, pembrolizumab and chemotherapy in extensive stage small cell lung cancer was discontinued after the primary endpoint of overall survival met prespecified futility criteria and higher adverse event rates were observed in the investigational arm. The Phase 3 KeyVibe-010 trial evaluating adjuvant vibostolimab plus pembrolizumab in resected high risk melanoma was also discontinued after recurrence free survival met futility criteria and high rates of immune mediated adverse effects led to excess treatment discontinuation in the combination arm.

I think the failure pattern is actually reassuring for Merck's external deal strategy. The most visible failures, TIGIT vibostolimab, the early islatravir regimens, gefapixant, are internal or legacy programmes. The recently acquired and licensed assets have, so far, mostly advanced through the clinic. That said, several of the China sourced licensing bets (LaNova, Hansoh, Hengrui) are still early enough that the verdict is genuinely open, and a reader should not mistake early clinical entry for proof of eventual success.

Chapter 4: Is the portfolio sparse at the Frontier?

Plotted on a grid of development stage against strategic distance, Merck's external portfolio clusters heavily in the core and adjacent oncology cells. The expansionary and new domain columns are thinly populated, and where Merck has entered them (obesity, COPD, antivirals) the assets are early or newly commercial, not yet proven at scale. The single biggest gap I see is the absence of a de-risked, late stage asset in the expansionary obesity and cardiometabolic space, exactly the area Merck most needs to own before 2028.

The External Innovation Strategic Complementarity Grid

Reading that grid, Merck's strategic problem comes into focus. The company is dense in the core and adjacent columns at the Phase II/III row. That is where it has spent the most, Daiichi Sankyo, Prometheus, Acceleron, EyeBio, and it is exactly where you would expect a company defending an oncology stronghold to concentrate capital. The de-risking logic is sound: buy assets with human data, close to what you already know how to develop and sell.

The trouble sits in the right-hand columns. The expansionary and new domain cells are sparse, and where Merck has entered them, the assets are either very early or only just commercial. Consider obesity, the single largest growth market in pharmaceuticals right now. Merck's entry is the Hansoh oral GLP-1 receptor agonist HS-10535, and it sits in the preclinical, adjacent cell. Merck secured global rights outside China to Hansoh's preclinical asset for a $112 Mn upfront payment, marking the company's entry into the obesity market. A preclinical asset is years from approval and carries full clinical development risk. Against competitors who already have approved, scaled obesity franchises generating tens of billions in annual sales, a single preclinical option is a thin hand. In my opinion this is the most important gap on the board: Merck has no de-risked, late-stage asset in the expansionary cardiometabolic and obesity space, and that is the space most likely to define large-cap pharma economics over the next decade.

The antiviral diversification through Cidara is better positioned, sitting at Phase III in the expansionary column, because the asset is late-stage. Merck completed the acquisition of Cidara Therapeutics for approximately $9.2 Bn, adding MK-1406, a long-acting antiviral being evaluated in the Phase 3 ANCHOR study for influenza prevention. That is a much more de-risked diversification bet than the obesity option because the clinical binary is close and the regulatory path is well-defined.

There is a second, subtler gap. Merck has almost nothing in the genuinely new domain column, the far right edge where a company places bets on markets it has no heritage in at all. Some readers will see that as prudent focus. I see it as a vulnerability: if the obesity and cardiometabolic diversification underdelivers, Merck has not seeded enough optionality further afield to have a credible fallback. The grid is the portrait of a company that has de-risked beautifully inside its comfort zone and is still underweight precisely where it most needs to build.

The deeper challenge underneath the grid is timing. KEYTRUDA's key US protections begin eroding around 2028. The externally sourced assets that are already commercial or late-stage, WINREVAIR, Welireg, Ohtuvayre, the Daiichi ADCs, are the ones that can realistically generate meaningful revenue before that wall. The China-sourced licensing bets, however attractive on price, are mostly too early to fill the 2028 to 2030 gap. So Merck faces a sequencing problem: it has bought the right long-term diversification, but it may still be short of de-risked, near-term revenue to bridge the cliff. That, more than any single deal, is the strategic challenge I would put in front of the board.

Chapter 5: mapping where and what Merck pays, when, and why

Everything in the four chapters before this one is data. This chapter is where I connect it. Four things become visible only when the deal ledger is overlaid on the income statement and the RoRC math, and none of them are visible if the chapters are read in isolation.

The revenue bridge nobody draws

Start with the simplest question a board should ask: is the externally sourced pipeline actually replacing the revenue KEYTRUDA and GARDASIL are losing? FY2025 total revenue grew by only $0.84 Bn on a $64.17 Bn base, 1.3%. That looks like stagnation until the movement is broken out by source. KEYTRUDA and QLEX added roughly $2.07 Bn on 7% growth. WINREVAIR, the Acceleron asset, added $1.02 Bn. Capvaxive, barely a year into launch, added roughly $0.7 Bn. Against that, GARDASIL alone subtracted $3.35 Bn. Net those four lines and the result is roughly $0.44 Bn of growth, against a reported $0.84 Bn, meaning the rest of the portfolio, BRIDION, Prevymis, animal health, the older oncology alliances, contributed the remaining $0.4 Bn between them. This is not an official Merck reconciliation, it is a construction built from the disclosed franchise level deltas, so the exact split should be read as directional rather than audited. But the shape of it is unambiguous: two acquired assets, WINREVAIR and Capvaxive, are already doing more work to keep the top line growing than the entire legacy ex-KEYTRUDA, ex-GARDASIL portfolio combined. That is the clearest evidence in this dataset that the acquisition strategy is not a hedge for the future. It is already load bearing today, four years after Acceleron closed and roughly one year after Capvaxive launched.

A step function, not a gradient

66% of committed capital sits in Phase II and Phase III. What the stage table does not say outright, but the arithmetic behind it does, is that Merck's pricing is not a smooth curve from cheap and early to expensive and late. Phase I and Preclinical deals average under $1.7 Bn. Phase II and Phase III deals average $11.4 Bn. That is roughly a seven times jump between adjacent stage bands, not a gradual premium. For a founder sitting on Phase I data, the lesson is not that price rises steadily with each incremental readout. It is that the asset sits in an entirely different pricing zone than a Phase II asset, and no amount of data generated inside Phase I closes that gap. The gap only closes on crossing into Phase II with a clean result.

The other half of this pattern is what Merck almost never buys (theoretically): a commercial stage asset. Of the twelve deals with disclosed terms across 2018 to 2026, exactly one, Verona Pharma, entered at Commercial/Approved. Every other large cheque bought clinical risk still on the table. That looks like a deliberate choice rather than an accident: commercial stage assets carry the thinnest arbitrage, since the seller has already captured the de-risking premium, so Merck would be paying full freight for zero remaining technical risk. The pattern suggests a preference for buying Phase II or Phase III conviction and converting it internally, which is cheaper per dollar of eventual revenue if the trial reads out, and reaching for an already selling, fully de-risked asset only when the strategic fit is unusually clean, as it was with an approved COPD drug slotting into an open respiratory franchise.

A step-up in SG&A that is hurtling Merck's way

One more line from Chapter 1 deserves scrutiny against the deal ledger: SG&A. Full-year SG&A moved from $10.5 Bn in 2023 to $10.8 Bn in 2024 and back to $10.7 Bn in 2025, under 2% growth across the same three years Merck committed more than $50 Bn in disclosed deal value. That flat line is not evidence of efficient integration, because most of what was bought in that window was not revenue. Of the eight deals named above, six, Prometheus, Daiichi Sankyo, Harpoon, EyeBio, LaNova and Hansoh, entered at Phase I, Phase II or preclinical, with no approved product and nothing yet to sell. Only Verona's Ohtuvayre, already approved at deal close, and WINREVAIR, scaling since Acceleron closed in 2021, actually require commercial infrastructure today, and both largely ride specialty and respiratory call points Merck already staffs.

SG&A has stayed flat because the recent deal ledger has little to commercialize yet, not because integration has gotten cheaper. The real test is still ahead: the Phase II/III cohort, Daiichi's ADCs, Prometheus's TL1A asset, EyeBio's Restoret, is bunched tightly enough in time that several could clear regulatory review within a similar window later this decade. If two or three reach approval close together, SG&A will need to move quickly, and that step-up will be considerable if the company has to capitalize the commercialization of any of these assets.

Conviction capital has not crossed the chinese border

Overlay geography on the stage data and a pattern appears that neither table shows on its own. Every one of Merck's four disclosed China sourced licenses, Kelun, LaNova, Hansoh, Hengrui, entered at Phase I/II or earlier. Meanwhile every deal that entered at Phase II or later with disclosed terms, Daiichi Sankyo, Prometheus, Acceleron, EyeBio, Cidara, Verona, originated outside mainland China. Read the two patterns together and the arbitrage becomes precise: China is where Merck buys optionality, cheaply, on unproven assets. Conviction capital, committed once human proof of concept exists, has not crossed that border once. That could be a temporal artifact, the China deals may simply be too young to have graduated, or a genuine gap in how Merck's BD&L organisation prices Chinese clinical data relative to Western data. The Hengrui and Kelun assets advancing through 2026 and 2027 will settle which explanation is correct, and this is the single data point I would watch closely over the next eighteen months.

The 28-times gap, and a RoRC figure that is not what it looks like

Two numbers from earlier chapters look unrelated until they are placed side by side. Chapter 3's Phase II and Phase III capital total is $56.9 Bn. Chapter 4's Strategic Complementarity Grid shows exactly one asset, Hansoh's oral GLP-1, representing Merck's entire financial commitment to the metabolic and obesity opportunity, at $2.0 Bn, sitting at the earliest possible stage. That is roughly a 28-times gap between what Merck has committed to defending its existing core and what it has committed to the single largest growth market in the industry. Every other large-cap peer racing toward the same 2028 horizon is asking the obesity question with a materially larger cheque book already deployed. This is the number that I would be a bit concerned about, unless I am absolutely clear about my other investments paying off.

So What?

Put these four findings together and the KEYTRUDA cliff sprint looks different than the deal count alone suggests. The acquired pipeline is not a future hedge, it is already the primary source of Merck's revenue growth today: WINREVAIR and Capvaxive together outgrew the rest of the non-KEYTRUDA, non-GARDASIL portfolio combined in FY2025. The pricing ladder behaves like a step function rather than a gradient, meaning the relevant question for a counterparty is not how much more data will move the price, but which regime, optionality or conviction, the asset already sits in.

Conviction capital has a border it has not yet crossed: China remains an options market for Merck, not yet a market for full-priced certainty, and the next eighteen months of Chinese asset readouts will show whether that reflects timing or a genuine trust gap. And the obesity commitment, roughly 28 times smaller than the core oncology and cardiometabolic capital base, is the clearest mismatch in the entire dataset between where the growth is and where the capital is, sitting alongside a RoRC figure that looks weaker than the underlying business actually is. None of this changes the conclusion that Merck is running a coherent, well-funded strategy. It does change where the next round of diligence should focus: not on deal count or deal size, but on whether the Phase I China assets convert, and on how quickly Merck closes the obesity gap before a competitor's already-scaled franchise raises the price of entry further.

Methodology & Disclaimer

This is a personal analytical perspective on the company's external innovation strategy based exclusively on publicly available information (SEC filings or equivalent, press releases, investor disclosures) current as of June 2026. This is NOT financial, investment, legal, or strategic advice. It does not constitute a recommendation to buy, sell, or invest in any company, security, or asset. Before making any decisions, readers must consult qualified financial advisors, investment professionals, and legal counsels.

While I have cross-checked sources and taken care to ensure accuracy, errors and omissions are possible. The onus of final verification lies entirely with the reader. I assume no liability for any losses, damages, or consequences resulting from reliance on this content. Drug development is inherently uncertain; all forward-looking statements about pipeline progression, market potential, or strategic outcomes are subject to significant risk and may not materialize. I have no financial interest in, affiliation with, or endorsement relationship with the company or any entities mentioned herein.

Feedback, corrections, and alternative perspectives are welcome. If you would like to collaborate or contribute or even borrow some analytical piece from this post, write to info@kletthamerinsights.com.

Sources Used in This Blog

• Merck & Co., Inc. Announces Fourth-Quarter and Full-Year 2025 Financial Results. Press release, February 3, 2026. Link
• Merck & Co., Inc. Corporate website: research, history, areas of innovation. Accessed June 2026. Link
• FiercePharma. Even after Prometheus, Acceleron deals, Merck primed for M&A. February 1, 2024. Link
• Merck & Co., Inc. Announces Fourth-Quarter and Full-Year 2023 Financial Results. Press release, February 1, 2024. Link
• Merck & Co., Inc. Announces Fourth-Quarter and Full-Year 2024 Financial Results. Press release, February 4, 2025. Link
• FierceBiotech. Deal-hungry Merck plans more Phase 3 launches than in 2023. February 2, 2024. Link
• BioPharma Dive. Merck cancer drug deal caps pharma investment influx into ADC field. October 20, 2023. Link
• Merck & Co., Inc. SEC Form 8-K / financial statements including Prometheus Biosciences in-process R&D charge. Q2 2023. Link
• BioPharm International. Merck Completes EyeBio Acquisition; also covers Harpoon acquisition details. July 2024. Link
• Merck & Co., Inc. Merck to Acquire EyeBio. Press release. Link
• Merck & Co., Inc. Merck and Moderna Announce Exercise of Option for Joint Development of Personalized Cancer Vaccine. Press release, October 12, 2022. Link
• Merck & Co., Inc. Moderna and Merck Announce mRNA-4157/V940 Met Primary Efficacy Endpoint in Phase 2b KEYNOTE-942 Trial. Press release, December 13, 2022. Link
• Merck & Co., Inc. MRL Ventures Fund. Business Development and Licensing page, accessed June 2026. Link
• Tracxn. Merck Global Health Innovation Fund investor profile. Accessed April 2025. Link
• Merck Global Health Innovation Fund (MGHIF) website. Accessed June 2026. Link
• Merck & Co., Inc. Impact Venture Fund. Corporate sustainability page, accessed June 2026. Link
• Merck & Co., Inc. Merck Enters into Exclusive Global License for LM-299, An Investigational Anti-PD-1/VEGF Bispecific Antibody from LaNova Medicines Ltd. Press release, November 14, 2024. Link
• Merck & Co., Inc. Merck Closes Exclusive Global License Agreement for LM-299. Press release. Link
• PharmExec. Merck Obtains Global License for Hansoh's HS-10535 (oral GLP-1). December 19, 2024. Link
• Medpath. Merck Enters Obesity Market with $112M Deal for Hansoh's Oral GLP-1 Drug. December 2024. Link
• Yahoo Finance / Zacks. Merck Inks $2B Licensing Deal With Chinese Biotech Jiangsu Hengrui for Oral Lp(a) Inhibitor. March 26, 2025. Link
• Merck & Co., Inc. Third-Quarter 2025 Financial Results. Press release, October 30, 2025. Link
• OncLive. Merck Discontinues Phase 3 KeyVibe-008 Trial of Vibostolimab/Pembrolizumab Plus Chemotherapy in ES-SCLC. August 8, 2024. Link
• OncLive. Merck Discontinues Phase 3 KeyVibe-010 Trial of Vibostolimab/Pembrolizumab in Resected High-Risk Melanoma. November 2025. Link
• Tracxn. List of 33 Acquisitions by Merck (including Peloton Therapeutics). May 2026. Link
• Everything-PR / Merck company profile. Merck Keytruda Patent Cliff and Post-Cliff Pipeline: Acceleron acquisition value and WINREVAIR approval timeline. Accessed June 2026. Link
• Merck & Co., Inc. SEC 10-K / Form 8-K consolidated financial statements including Prometheus and Daiichi Sankyo collaboration notes. Filed 2024. Link
• Merck & Co., Inc. Public Pipeline disclosure Q1 2024, reflecting pipeline status to February 23, 2024 (includes islatravir clinical hold status). Link
• Merck & Co., Inc. Form 10-K for year ended December 31, 2023. Patent expiration disclosures for gefapixant, sotatercept, islatravir, vibostolimab. US SEC EDGAR. Link
• Merck & Co., Inc. Merck and Moderna Initiate Phase 3 INTerpath Trials Evaluating V940 (mRNA-4157) in Combination with KEYTRUDA. Press release. Link
• Merck & Co., Inc. Form 10-K for the year ended December 31, 2025. US SEC EDGAR. Link
• BioSpace. Merck & Co., Inc. Creates a $250 Million Venture Capital Fund (Global Health Innovation Fund). Link