Progress in INT and sac-TMT improves Merck's revenue replacement outlook; rating upgraded to Overweight

Overview

The report centers on whether Merck can use new products and externally sourced assets to fill the revenue gap after Keytruda's patent expiration. Morgan Stanley believes recent data for INT and sac-TMT have significantly reduced the risk of the core pipeline, while diversification into immunology, respiratory, and ophthalmology has made the revenue replacement path clearer, prompting an upgrade to Merck's rating and valuation. It remains neutral on partner Moderna because the current share price already reflects high expectations for INT's success.

Core views

The report's central question is whether Merck can navigate the 2028 Keytruda patent cliff. Morgan Stanley expects Keytruda sales of approximately $37 billion in 2028, representing roughly 50% of Merck's total revenue, so the stock outlook primarily depends on Keytruda lifecycle management, subsequent pipeline progress, and M&A capital allocation. Recent clinical successes prompted it to revise the base case from an approximately 5% long-term revenue decline after patent expiration to broadly flat revenue. If the existing pipeline succeeds, revenue CAGR could reach approximately 4% from 2030 to 2035 in the bull case, and the company could resume growth from its 2029 revenue trough. The individualized cancer therapy intismeran autogene (INT) is an important source of the valuation change. Merck and Moderna announced on August 19 that the Phase III INTerpath-001 trial of INT plus Keytruda in resected stage IIB-IV melanoma met its primary endpoint of recurrence-free survival and key secondary endpoint of distant metastasis-free survival. The press release did not disclose a hazard ratio or p-value, but the report notes that the first interim analysis of an oncology trial typically requires an approximately 35%-45% risk reduction to succeed. Previous interim Phase II results showed that the combination reduced the risk of recurrence or death by 44%, with an HR of 0.56 and a one-sided p-value of 0.0266. Full data may be presented at the ESMO Congress on October 23-27, 2026. The LBA submission deadline is September 8, and the title is expected to be released no later than September 25. Based on the Phase III success and pricing benchmarks, Morgan Stanley raises its assumed US launch net price for INT from $200,000 to $400,000, still below Carvykti's $572,000 price, while also referencing Inlexzo at approximately $1 million for a full course and Zenbexus at $384,000. The probability of success in melanoma is increased from 80% to 90%, in non-small cell lung cancer and bladder cancer from 50% to 60%, and in other tumors from 25% to 50%. Consequently, the 2040 risk-adjusted global sales forecast for INT rises from $5.9 billion to $13.9 billion, with the blended probability of success increasing from 52% to 68%. INT is expected to account for approximately 8% of Merck's total revenue in 2035. The probability-unadjusted total sales forecast for 2040 is $20 billion. On manufacturing, Moderna's Marlborough GMP facility currently has one production line capable of serving several thousand patients, with room to add another line, and an average turnaround time of approximately six weeks. Whether INT can expand into other tumors still depends on the magnitude of efficacy shown in the full melanoma data. The report believes stronger efficacy would increase confidence in extrapolating the results to other cancers. Current development focuses largely on immunotherapy-sensitive "hot tumors." Lung and bladder cancers already have an established efficacy base for checkpoint inhibitors, while extrapolation is more uncertain in tumors such as pancreatic and gastric cancers, where checkpoint inhibitors are less effective. All studies use the same dosing regimen: 1 mg of INT administered intramuscularly every three weeks for up to nine doses. For Moderna, improved INT fundamentals have not translated into a rating upgrade. The report estimates that Moderna's current share price of approximately $150 implies roughly $25 billion in risk-adjusted peak sales for INT, above Morgan Stanley's forecast of approximately $14 billion. For comparison, its peak sales forecast for Keytruda is $37 billion. Moderna's price target is raised from $39 to $89 using a DCF covering its mRNA product candidates through 2040, with a 10% discount rate and the terminal growth rate raised from 2% to 4%. Positive Phase III data make the $212 bull case more plausible, and near-term catalysts are favorable, but the report believes the current valuation already prices in more than $20 billion of risk-adjusted peak INT sales and therefore maintains Equal-weight. Moderna's base case also includes COVID-19, influenza, RSV, INT, norovirus, mRNA-4359, and the MMA and PA rare disease programs. The bear case assigns only limited tail value to the COVID-19 business and no value to the pipeline. sac-TMT (MK-2870) is the largest single asset in Merck's revenue replacement portfolio. Following three positive Phase III results over the past four months, Morgan Stanley believes it has become the most de-risked asset in the portfolio and raises its 2035 risk-adjusted sales forecast from approximately $4 billion to approximately $7 billion, with a blended probability of success of 55%. This is above the Visible Alpha consensus of $6.4 billion and represents approximately 10% of Merck's total 2035 revenue. The forecast includes $3.8 billion in lung cancer, $1.9 billion in breast cancer, and $1.3 billion in endometrial cancer and other indications. For comparison, the report estimates Keytruda's 2025 global lung cancer sales at approximately $10.5 billion, broadly divided equally among patients with PD-L1 expression above 50%, 1%-49%, and below 1%. The China Phase III OptiTROP-Lung06 trial met its primary endpoint of progression-free survival in first-line PD-L1-negative, locally advanced or metastatic nonsquamous non-small cell lung cancer. sac-TMT plus Keytruda achieved a statistically significant and clinically meaningful improvement versus the combination of Keytruda, pemetrexed, and platinum chemotherapy, while showing a favorable overall survival trend. Full results are expected at ESMO in October. Merck management believes the control arm performed credibly and that the trial strengthens its confidence that sac-TMT can cover the full range of PD-L1 expression. Interim PFS and OS results from TroFuse-005 in second-line and later endometrial cancer were also positive, and Merck plans to use a national priority review voucher to advance the filing. However, the commercial opportunity in this indication is relatively limited, and more global Phase III results will be needed in 2027 and beyond to define the drug's value more fully. The next key piece of evidence for the competitive landscape is AstraZeneca/Daiichi Sankyo's global Phase III AVANZAR trial. The trial has co-primary PFS endpoints in the overall intent-to-treat population and the TROP2-positive population identified using the QCS-NMR algorithm, with OS as a secondary endpoint. The report cites its European pharmaceuticals team's view that the probability of success is higher in the TROP2-positive population, estimating an HR of 0.8, corresponding to an absolute improvement of approximately two months assuming control-arm PFS of seven months. The report outlines three scenarios: Datroway succeeds broadly in the overall population; only the TROP2-positive subgroup benefits, leaving room for sac-TMT differentiation but potentially requiring a biomarker strategy, which Merck has not implemented to the report's knowledge; or Datroway fails in both populations, providing a positive read-through for sac-TMT's differentiation. AVANZAR is expected to report in the second half of 2026, followed by TROPION-Lung07 in 2027. Beyond the two oncology assets, the report believes multiple product cycles collectively support revenue replacement. Lipfendra, the first oral PCSK9 inhibitor, has received FDA approval and is under review in the EU and China, with a 2035 sales forecast of $2.1 billion. From 2027 onward, the focus will be on launch execution and insurance access and coverage. The 52-week induction-plus-maintenance data from the Phase III ATLAS-UC trial of tulisokibart are expected in the second half of 2026. The report forecasts 2035 risk-adjusted sales of $4.7 billion across indications, with an 80% probability of success, representing approximately 7% of Merck's total revenue. The Phase II hidradenitis suppurativa trial met its primary and key secondary endpoints, but the Phase II SSc-ILD trial did not meet its endpoint. Phase III BRUNELLO data for the ophthalmology asset Restoret in diabetic macular edema are expected in the second half of 2026, with BAROLO data expected in 2027. The report includes $1 billion in 2035 risk-adjusted sales at a 40% probability of success but does not yet include neovascular age-related macular degeneration, which represents potential upside to the model. Morgan Stanley also links pipeline progress to Merck's capital allocation. The company is advancing internal programs such as Capvaxive, Lipfendra, and islatravir while also acquiring or licensing assets from Acceleron, Prometheus, Verona, Cidara, Terns, EyeBio, Kelun, Daiichi Sankyo, and LaNova. The report believes this strategy leverages Merck's oncology capabilities built through Keytruda, while taking risk through pre-clinical-approval investments in pursuit of higher returns and expanding the business into immunology, respiratory, and ophthalmology. It expects Merck to have approximately $80 billion in cash in 2030, supporting continued business development and M&A. On valuation, Merck's 12-month price target rises from $116 to $179, based on 3Q27-2Q28 EPS of $10.52 and a 17x P/E multiple, versus 11x previously. The 17x multiple is above Merck's approximately 14x ten-year average and the industry's 15x, justified by progressive pipeline de-risking and the potential for new product launches to drive multiple expansion. The $179 base case includes approximately $25.4 billion in risk-adjusted pipeline sales and approximately $6 billion in Winrevair sales in 2035, corresponding to an approximately 0% revenue CAGR from 2025 to 2035. The $216 bull case assumes success of the Keytruda co-formulation strategy, $36.5 billion in 2035 pipeline sales included at a 100% probability of success, and $9.1 billion in Winrevair sales, corresponding to an approximately 3% revenue CAGR over the same period. The $102 bear case assumes failure of Keytruda lifecycle management, erosion of its immuno-oncology advantage following biosimilar entry, and Winrevair sales of only $3.6 billion, corresponding to an approximately negative 3% revenue CAGR. BioNTech is supplementary coverage in this report. Its most advanced individualized cancer therapy, BNT122, is being developed with Roche. The data safety monitoring board completed an interim analysis in June 2026 and recommended that the trial continue without modification, with the final analysis expected in 2027. Morgan Stanley forecasts $609 million in risk-adjusted sales for BNT122 in 2040 at a 15% probability of success. The primary completion date for the Phase II pancreatic ductal adenocarcinoma study is 2031, and success would provide upside to the model. BioNTech's valuation uses a DCF covering existing and future products through 2040, with a 10% discount rate and a 3% terminal growth rate.

Analysis framework

The report begins with the revenue gap after Keytruda loses exclusivity in 2028, then updates the clinical probabilities of success, pricing, and long-term sales forecasts for INT, sac-TMT, and other late-stage pipeline assets one by one. It then incorporates these risk-adjusted product revenues into Merck's base, bull, and bear cases and determines the price target using historical and industry P/E multiples. For Moderna and BioNTech, the report uses DCF models extending through 2040 while also applying SOTP and share-price reverse-engineering analysis to determine how much INT value the market already reflects.

Methodology notes

• Valuation MethodPE/PEG valuation

  Forward P/E price-target methodology

  The report multiplies Merck's 3Q27-2Q28 EPS of $10.52 by a 17x P/E multiple to derive a 12-month price target of $179, compared with an approximately 14x ten-year average and a 15x industry multiple.

• Valuation MethodDCF Discounted Cash Flow

  Discounting product cash flows through 2040

  Moderna uses a 10% discount rate and 4% terminal growth rate, while BioNTech uses a 10% discount rate and 3% terminal growth rate, discounting future product cash flows to present value.

• Valuation MethodSOTP Sum-of-the-Parts Valuation

  Moderna sum-of-the-parts and implied INT value analysis

  The report separately estimates the value of Moderna's existing business, other pipeline assets, and INT, then reverse-engineers the market's implied assumptions for INT peak sales under different share-price scenarios.

• Event Trading and Behavioral FinanceEvent-driven analysis

  Clinical and regulatory catalyst pathway

  The report assesses the path of pipeline de-risking and valuation changes based on milestones such as full ESMO data, Phase III readouts, regulatory reviews, and product launches.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Combining indication-level patient opportunity, pricing, and manufacturing capacity

  The report combines oncology indication opportunities, treatment-course net pricing, probabilities of success, Moderna's production-line capacity, and six-week turnaround time to estimate INT's commercial potential.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Merck & Co., Inc. (MRK.N, MRK UN)

  INT, sac-TMT, and the diversified pipeline are expected to offset the revenue gap after Keytruda loses exclusivity, prompting the report to upgrade the rating to Overweight.

  Strengths

  Oncology capabilities, multiple positive Phase III readouts, a diversified business development and M&A portfolio, and approximately $80 billion in expected cash by 2030.

  Weaknesses

  Keytruda is expected to represent approximately 50% of total revenue in 2028, and revenue replacement still depends on multiple products that have not yet been fully validated or commercialized.

  Comparison

  The 17x target P/E multiple is above the company's approximately 14x ten-year average and the industry's 15x; the approximately $7 billion sac-TMT 2035 forecast is above the Visible Alpha consensus of $6.4 billion.

  Risks

  Failure of Keytruda lifecycle management, the pipeline failing to contribute long-term revenue, poor commercial execution, or negative returns from M&A.

• Moderna Inc (MRNA.O)

  As an INT partner, it benefits from the Phase III melanoma success, but the current share price already implies INT sales above the report's forecast, so Equal-weight is maintained.

  Strengths

  Its mRNA development platform is more diversified and scalable than those of competitors and has been validated through its broad collaboration with Merck.

  Weaknesses

  The valuation is highly sensitive to the success of INT, tail revenue from COVID-19 vaccines, and other clinical pipeline programs.

  Comparison

  The approximately $150 share price implies approximately $25 billion in risk-adjusted peak INT sales, versus Morgan Stanley's approximately $14 billion forecast and its approximately $37 billion Keytruda peak sales forecast.

  Risks

  Efficacy or safety issues, delays in major clinical data, intensifying competition, and the current valuation pricing in excessively high expectations of success.

• BioNTech SE (BNTX.O)

  BNT122 is its most advanced individualized cancer therapy, with the final analysis expected in 2027.

  Strengths

  The BNT122 trial partnered with Roche continued without modification following an interim review, while a pancreatic cancer study offers potential upside.

  Weaknesses

  BNT122's 2040 risk-adjusted sales are included at only a 15% probability of success, and key value validation remains distant.

Key data

• Merck ratingOverweightUpgraded from Equal-weight
• Merck 12-month price target$179Previous price target $116; based on 17x 3Q27-2Q28 EPS
• Merck EPS used for valuation$10.523Q27-2Q28 estimate
• Merck target P/E multiple17xPreviously 11x; ten-year average approximately 14x, industry approximately 15x
• Keytruda 2028 sales$37bnExpected to represent approximately 50% of Merck's total revenue
• INT 2040 risk-adjusted global sales$13.9bnPreviously $5.9bn; blended probability of success increased from 52% to 68%
• Assumed INT US launch net price$400kPreviously $200k
• INT melanoma probability of success90%Previously 80%
• INT non-small cell lung cancer and bladder cancer probability of success60%Previously 50%
• INT other tumors probability of success50%Previously 25%
• sac-TMT 2035 risk-adjusted salesapproximately $7bnPreviously approximately $4bn; blended probability of success 55%
• sac-TMT 2035 sales by indicationLung cancer $3.8bn; breast cancer $1.9bn; endometrial cancer and other indications $1.3bnCombined, approximately 10% of Merck's 2035 revenue
• Moderna price target$89Previously $39; Equal-weight maintained
• INT peak sales implied by Moderna's share priceapproximately $25bnCalculated using an approximately $150 share price, versus Morgan Stanley's approximately $14bn forecast
• Merck's expected 2030 cash balanceapproximately $80bnCan continue to support business development and M&A
• Merck scenario price targetsBull $216; base $179; bear $102Corresponding to different assumptions for Keytruda lifecycle management, pipeline success, and revenue growth

Impact & implications

The report believes the positive results for INT and sac-TMT have shifted Merck's revenue replacement portfolio from being highly dependent on early-stage assumptions to having multiple assets validated in Phase III, significantly improving the revenue trajectory after the 2028 Keytruda patent cliff. The valuation upgrade also depends on continued pipeline de-risking, timely product launches, and positive returns from capital allocation. For Moderna, the same INT upside is already reflected to a greater extent in the share price, so improved fundamentals are insufficient to support a rating upgrade.

Risks

• Merck's Keytruda co-formulation and other lifecycle management strategies may fail, and its immuno-oncology advantage may weaken after biosimilar entry.
• Merck's subsequent pipeline may fail clinically or be unable to generate sufficient long-term revenue, while sac-TMT's global commercial value still requires confirmation from additional Phase III data in 2027 and beyond.
• Product launches, insurance access, and multi-indication commercial execution may fall below expectations.
• Merck may lack additional M&A opportunities, or its M&A and licensing transactions may generate negative investment returns.
• Moderna's pipeline may encounter efficacy or safety issues, affecting investor assessments of other technology approaches and subsequent readouts.
• Moderna may face delays in generating important clinical data and encounter competitive pressure.
• The INT peak sales implied by Moderna's current share price are significantly above the report's forecast, making the valuation sensitive to downward revisions in expectations.

What to watch

• Monitor the magnitude of efficacy in the full Phase III melanoma data for INT. The ESMO Congress is scheduled for October 23-27, 2026, the LBA submission deadline is September 8, and the title is expected to be released no later than September 25.
• Monitor Phase II INT data in renal cancer, which may be disclosed later in 2026 or in 2027, as well as progress on Phase II bladder cancer data in 2027.
• Monitor PFS, OS, and performance across PD-L1 expression subgroups after the full OptiTROP-Lung06 data are presented at ESMO in October 2026.
• Monitor the results of AstraZeneca/Daiichi Sankyo's Phase III AVANZAR data in the second half of 2026 and whether efficacy is limited to TROP2-positive patients.
• Monitor TROPION-Lung07 and additional global Phase III sac-TMT readouts in 2027 to determine whether a biomarker strategy is needed.
• Monitor Lipfendra's launch execution, insurance access and coverage from 2027 onward, as well as regulatory reviews in the EU and China.
• Monitor the disclosure of tulisokibart's 52-week ATLAS-UC data and hidradenitis suppurativa data in the second half of 2026.
• Monitor the release of Restoret's Phase III BRUNELLO data in the second half of 2026 and BAROLO data in 2027.
• Monitor Merck's Keytruda lifecycle management, pipeline product cycle, and subsequent M&A and business development supported by expected cash accumulation.
• Monitor the final analysis of BNT122 in 2027 and subsequent progress in the Phase II pancreatic cancer program.