Newsletter · · Ashutosh Agarwal

Wall Street Buries the Keytruda Cliff, Bernstein Disagrees - Merck - Week of August 21, 2026

How the Moderna cancer-vaccine readout flipped Wall Street's mood on Merck's 2028 Keytruda patent cliff, and why Bernstein's Courtney Breen says the relief is sentiment, not math, for the week of August 21, 2026.

Merck

Week of August 21, 2026: Wall Street Buries the Keytruda Cliff, Bernstein Disagrees

For three years, one number has hung over the entire drug industry: 2028, the year Merck's cancer blockbuster Keytruda loses its patent protection and the copycats are free to pile in. Keytruda is the best-selling medicine in history. Losing its exclusivity was supposed to blow a crater in Merck's revenue that no amount of dealmaking could fill.

This week, Wall Street decided the crater had been paved over. A single trial result, a personalized cancer vaccine Merck built with Moderna, sent both stocks vertical and, almost overnight, flipped the mood on the whole "patent cliff" story from dread to relief. Merck's own CEO reportedly said it's time to just drop the whole narrative.

Then a Bernstein analyst got on TV and, very calmly, explained why the relief is mostly a mood, not math.

TL;DR

  • The Keytruda-cliff panic is over, on sentiment. A positive melanoma-vaccine readout sent Merck to a record high and Moderna up nearly 180% in a day. One well-followed investor says Merck's revenue gap is now "essentially been filled" and the stock is still too cheap; Merck's CEO reportedly wants to "drop the narrative."
  • But the vaccine does not actually save the cliff. Bernstein's analyst was blunt: the shot is added on top of Keytruda, not baked into it, so "it doesn't stave off the patent cliff", biosimilar copies still swap in from 2028. The one real shield is the newer under-the-skin version of Keytruda, which the first copycats can't touch.
  • The mid-cap buying spree is the quiet, durable story. Small and mid-sized drugmakers did 8 billion-dollar-plus acquisitions in the first half of 2026, versus 3 in all of 2025. They've stopped waiting to be bought and started buying.

What's new

The trigger: a cancer-vaccine result that added $80 billion of market value in a day. Moderna's mRNA shot, developed with Merck's Keytruda, hit its goal in a late-stage melanoma (skin cancer) trial, cutting the chance the cancer comes back or spreads. Moderna, which had roughly 15% of its shares sold short, rocketed as those bets unwound; Merck closed at a record. As Bernstein senior analyst Courtney Breen put it on Closing Bell, the two companies "each added $40 billion plus" in market value "for a peak sales drug of $1.2 billion or so", a gap she flagged as a warning, not a green light. (Breen is a sell-side research analyst, informed opinion, not company management.)

The relief narrative, in two voices. The bullish read came through loud. On Squawk on the Street, Simon Baker of Rothschild Redbird, an investor who owns the stock, argued the cliff fear is already stale:

"Merck has done an excellent job of filling in that gap such that the gap in revenues has essentially been filled. And the market is still not fully pricing in that... the stock is still trading cheap relative to where it should do, given that problem is now behind them."

And the operator's own words, relayed secondhand: on Squawk on the Street's morning show, Jim Cramer recounted a recent Mad Money appearance by Merck CEO Rob Davis, saying Davis argued "maybe it's time to drop the narrative" about the loss of exclusivity, that between this vaccine and a strong heart-drug pipeline, Merck is "going to leave the loss of exclusivity behind, like Johnson & Johnson." (This is Merck's CEO view, but filtered through a pundit, treat it as reported, not a direct quote.)

The reality check that deserves more airtime. Here is the part the celebration skipped. Breen walked through exactly how the vaccine relates to the patent, and the answer is: it doesn't rescue it.

"You are adding on to Keytruda rather than co-formulating with Keytruda. So it doesn't stave off the patent cliff. So it is highly likely that we could see biosimilars swapping in and replacing Keytruda in combination with the [vaccine]."

In plain terms: the vaccine is given alongside Keytruda, not fused into a single new product. So when cheap biosimilar copies of Keytruda arrive in 2028, doctors can simply pair the vaccine with the cheap copy instead of the pricey original. Merck keeps the vaccine; it does not keep Keytruda's pricing power.

There is one genuine escape hatch, and it's worth understanding because it's the real story of Merck's defense. Merck has been pushing patients onto a newer version of Keytruda that's injected under the skin in minutes, rather than dripped in through an IV over half an hour. As Breen noted, early-stage cancer patients are "a bit more likely to be using the subcutaneous product of Keytruda, which is unlikely to have direct biosimilar competition for those first biosimilars that launch, which will be IV." The first wave of copycats will be IV-only. Every patient Merck moves to the under-the-skin shot before 2028 is a patient the first biosimilars simply can't reach. That is the actual cliff defense, not the vaccine.

Her verdict on the day's move was as dry as it gets: "It's very much a momentum play today rather than something I can point to in my DCF."

Even the bull on the vaccine agrees it doesn't move the patent. On Fast Money, Mizuho healthcare specialist Jared Hulls, constructive on the stock, was asked point-blank whether the vaccine changes the cliff: "I don't think it changes it. I think they've done, what, five deals over the past few years that get them most of the way through... It takes the pressure off for sure." His more interesting point was about what a record-high stock price buys you: "to be trading at or near an all-time high... it gives them more ammunition to do other deals that they want. I think we're going to see plenty more activity from Merck and others through the rest of the year." A soaring share price is itself a dealmaking currency.

The story that will still matter next year: mid-caps became buyers. Away from the vaccine fireworks, the most substantive M&A discussion came from Scrip's Jessica Merrill on Citeline Podcasts. Her reporting quantifies a real shift in who is doing the buying. (Merrill is a trade-press journalist, informed reporting, not a stock call.)

"There were 8 acquisitions by small- to mid-cap companies this year with upfront values of more than $1 billion in the first half of 2026. Versus 3 in all of 2025."

The buyers she named, Insmed, Servier, Neurocrine, Alkermes, UCB, and since her story published, argenx and Jazz, are companies that would once have been takeout targets themselves. Her explanation is the whole thesis in a sentence: a crop of biotechs has proven it can launch and sell its own drugs, "they've grown too big" to be bought, they've reached profitability with cash on hand, and so "they're turning more to M&A" to keep growing. She pointed to argenx, whose autoimmune drug Vyvgart is "about to exceed $6 billion in sales this year," using its firepower to buy Forte Biosciences for "$2.2 billion upfront" for a celiac and vitiligo drug; and Jazz buying Actio for "$820 million upfront" for a rare epilepsy medicine. She even floated the big-picture question: whether "a next Amgen or a next Regeneron" is being born inside this cohort right now.

The debate

This week the tape was genuinely two-sided, but not along the usual lines. The fight wasn't "M&A supercycle vs. antitrust." It was narrower and more interesting: is the Keytruda cliff actually solved, or does it just feel solved?

The relief case. The stock is at a record, a real scientific breakthrough is in hand, the CEO says stop worrying, and a respected investor says the revenue hole is already filled and the shares are still cheap. Layer on Merck's five acquisitions over recent years and a strong cardiology pipeline, and the argument is that the market is still discounting a problem that management has quietly already solved. As Cramer put it, this "obviates the idea that it could be a cliff."

The show-me case. Bernstein's Breen supplied the counter, and it's a good one: the vaccine sits on top of Keytruda, so cheap copies still take Keytruda's revenue from 2028, the vaccine's own peak sales are maybe $1.2 billion (perhaps $9–10 billion if every future cancer trial hits, but "the operating margins on this cancer vaccine are unlikely to be great" because each dose is custom-built from a patient's own tumor and can't be mass-produced). The genuine defense is the under-the-skin Keytruda switch, which is real but incremental, not a single trial result. The two camps aren't even that far apart on the facts. They're far apart on whether the market should have added $40 billion to Merck on a day when the underlying patent math didn't change.

One thing worth flagging honestly: nobody this week made a detailed bear case on antitrust or drug-pricing killing the deal wave. That risk simply wasn't the story: after last week's $400 billion mega-merger rumor put regulators front and center, this week the mood swung the other way. Rothschild's Baker actually called the political backdrop "much more favorable, particularly on pricing," crediting the pricing deals big pharma struck with the administration "following the Pfizer deal in October."

The names in play

Treat these as what podcast guests genuinely discussed, not recommendations.

  • Merck (MRK): the whole debate. Record high, a real (if narrow) science win, a CEO waving off the cliff, and one analyst quietly explaining the win doesn't touch the 2028 patent. The thing to watch is boring and real: how fast Merck converts patients from IV Keytruda to the under-the-skin version before biosimilars land.
  • Moderna (MRNA): up nearly 180% in a day, powered as much by a short squeeze (15% of the float was sold short) as by the science. The vaccine's melanoma peak is modest ($1.2 billion); the bull case is entirely about whether the same approach works in lung, kidney, bladder and other cancers, with those results due in 2027. Also flagged: the individualized manufacturing can't scale like a normal drug.
  • argenx (ARGX): the poster child for the new mid-cap buyer. A ~$6 billion-a-year franchise funding a $2.2 billion bolt-on for future growth.
  • Jazz Pharmaceuticals (JAZZ): bought Actio for $820 million; its business chief also made the case that smaller buyers win deals on speed and stewardship, not just price.
  • Neurocrine (NBIX): a cautionary note inside the buying spree: its $2.9 billion Prader-Willi drug acquisition from May is now under a safety cloud, with a physician group reporting increased deaths. A reminder that paying up for a single asset cuts both ways for a mid-cap.

Read-throughs

  • Keytruda biosimilar makers: the opportunity is real but forked. Breen's point is the actionable one for anyone watching the copycat manufacturers: the first biosimilars will be IV-only, so they inherit Keytruda's IV business but not the growing under-the-skin segment Merck is deliberately herding patients into. The size of the biosimilar prize depends heavily on how much of Keytruda's book is IV versus subcutaneous by 2028.
  • XBI and biotech sentiment: about as hot as it gets. Mizuho's Hulls said healthcare has beaten the S&P 500 by "17 or 18 percent" since early June, "the biggest correction versus the S&P to the upside we've ever seen in health care", and that "biotech has obviously had its best run on record." The mid-cap buying wave is both a symptom and a fuel of that strength.
  • Life-science tools: a rare skeptical voice. When Merck/Moderna popped, the companies that supply lab equipment and services jumped too, on the theory they'll profit from making these complex vaccines. Hulls pushed back: "I'm not so sure... that might have been overly [enthusiastic] today." Worth remembering before chasing the second-derivative trade.
  • Drug pricing is quietly reshaping mid-cap strategy. Merrill flagged that the "Most Favored Nation" pricing push, which ties US prices to cheaper overseas prices, is freezing some mid-caps out of Europe. Insmed, she noted, is holding its new respiratory blockbuster brinsupri back from an immediate European launch "partly due to the current pricing environment." A slow-burn factor in where these newly-independent buyers choose to compete.
  • Bankers and CROs: quiet again. As with recent weeks, no podcast offered a specific, investable view on the investment banks or contract research firms that get paid when deal volume spikes. Given how loud the M&A talk is, that's a gap rather than a signal, and I'd rather flag it than invent one.

What changed

Last week the fear was too much consolidation, a rumored $400 billion Bristol-Myers/AstraZeneca mega-merger that dragged antitrust regulators back into every conversation. This week the pendulum swung hard the other way: a single trial result convinced the market that the industry's scariest patent cliff might not be so scary after all, and the regulatory worry faded into the background. (The AZ-BMS talk didn't die, Rothschild's Baker still name-checked "the speculation around the Astra Bristol Myers deal", but it was a footnote, not the headline.)

More importantly, a gap I've flagged for weeks finally closed. The specific mechanics of how the loss of exclusivity actually plays out, IV versus under-the-skin, add-on versus reformulation, which biosimilars can touch what, had been talked about only glancingly. This week, thanks to Bernstein, the cliff arithmetic got properly voiced for the first time. The irony is that it happened in the same week the market decided to stop caring about it.