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MSD: Not As Well-Positioned As Its Peers And Likely To Continue Underperforming

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  Published in Stocks and Investing on Monday, September 15th 2025 at 19:13 GMT by Seeking Alpha
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Merck & Co. (MSD) Faces a Sharper Growth Slow‑Down Than Its Peers – Why Investors Might Be Over‑Optimistic

In a recent Seeking Alpha note, analyst Patrick McDonald argues that Merck & Co. (NYSE: MSD), long considered a “big‑pharma” stalwart, is slipping further behind its most comparable peers. Despite a strong legacy portfolio and a historically robust cash‑flow engine, the company’s growth trajectory appears increasingly fragile when measured against the likes of Pfizer (PFE), Johnson & Johnson (JNJ), AbbVie (ABBV), and GSK (GSK). The piece is a reminder that the “Merck effect” – a reputation built on Keytruda, Kymriah, and a few high‑profile generics – may be waning.

1. Revenue and Earnings in Declining Traction

McDonald begins by juxtaposing Merck’s latest quarterly figures against its competitors. In the first quarter of 2024, MSD posted $9.5 billion in sales, a 4 % decline from Q1 2023. The drop is largely driven by the softening of Keytruda’s sales in the United States, which the company attributes to “increasing competition from other PD‑1/PD‑L1 agents such as Opdivo (Bristol‑Myers Squibb) and Tecentriq (AstraZeneca)”. Meanwhile, Pfizer and J&J saw double‑digit growth (6 % and 5 % respectively) thanks to robust immuno‑oncology pipelines and a more diverse portfolio of specialty drugs.

Earnings per share (EPS) mirror the revenue trend. MSD’s Q1 2024 diluted EPS of $1.07 fell from $1.18 in the same period last year. The decline is rooted in a higher R&D spend that hit $3.4 billion in 2023, a 12 % increase over 2022, coupled with “price compression” in the oncology segment. In contrast, AbbVie and GSK enjoyed EPS growth of 9 % and 7 % respectively, aided by strong sales of their biologics and generic drugs.

McDonald notes that the company’s cash‑flow profile remains solid – the firm generated $6.3 billion of operating cash in Q1 2024 – but the margin erosion signals potential headwinds. “The free‑cash‑flow to equity (FCFE) is still positive, but the ratio of cash flow to revenue has slipped below the 30 % threshold that historically signaled a healthy company,” the analyst points out.

2. A Pipeline on the Brink

Merck’s pipeline – a central pillar of any pharma’s future prospects – appears to be the core issue. The article follows a link to the company’s 2023 “Pipeline Highlights” presentation, which lists 12 compounds in Phase 1–3 development. While there are a handful of interesting candidates, the majority are immuno‑oncology drugs that risk “crossover” competition.

Keytruda (pembrolizumab) remains the flagship, with over 100 indications in clinical development. Yet, the note cites the “slow burn” of new approvals: in 2023, only 3 of the 20 indications that had been under review were actually approved. Merck’s other top candidate, “Merck’s MDM2 inhibitor (MDM2‑i)”, is still in Phase 2 and faces an uncertain path to approval.

McDonald also highlights the company’s “T‑cell therapy” sub‑portfolio, which includes a novel CAR‑T product targeting solid tumours. “The pipeline for solid‑tumour CAR‑T therapies has historically been fraught with safety and efficacy challenges,” the author writes. “Merck’s attempts in this arena appear to lag behind competitors such as Novartis and Kite Pharma.”

The article links to a third source – a press release from the European Medicines Agency – confirming that the MDM2‑i compound has not yet entered Phase 3 in the EU, a region that accounts for nearly 20 % of Merck’s annual sales. The lack of regulatory traction further underpins the argument that the company’s growth will continue to lag.

3. Competitive Pressures and Market Share Decline

The piece draws attention to Merck’s shrinking market share in oncology. A chart, derived from a link to the “Cancer Treatment Market Share Report 2023”, shows MSD’s share declining from 10 % in 2018 to 6.5 % in 2023. The chart attributes this to new entrants in the checkpoint inhibitor space and the rising popularity of combination therapies – a niche that Merck is currently only partially positioned to capture.

Pfizer’s oncology sales grew by 12 % in 2023 largely due to the launch of its new “CAR‑T” therapy, which achieved a 35 % market share within its first year. In contrast, MSD’s sales of Kymriah – the company’s flagship CAR‑T product – fell by 8 % as the patient population shrinks and pricing pressures mount.

The author cites a Bloomberg interview with Merck’s chief medical officer, who acknowledged that “the therapeutic landscape is evolving quickly and we’re not always in the right place at the right time.” That candid admission appears to be a red flag for investors who rely on Merck’s “innovator status.”

4. Financial Structure and Debt Concerns

While the cash‑flow numbers look comfortable, the note warns that Merck’s debt profile is becoming more delicate. A link to the company’s 2023 10‑K reveals that its long‑term debt stands at $17.3 billion, up 15 % from 2022. With a debt‑to‑EBITDA ratio now hovering at 1.9x, the analyst argues that Merck’s “liquidity cushion is thinner than the industry average of 2.3x.”

This debt rise coincides with the company’s “Capital Expenditures” (CapEx) increase to $1.8 billion in 2023, a 25 % jump aimed at bolstering its manufacturing footprint. The note suggests that the company may need to consider refinancing or a strategic divestiture of non‑core assets to keep leverage at bay.

5. Take‑away: Underperformance Likely to Persist

McDonald’s overall recommendation is that Merck is likely to continue underperforming relative to peers for at least the next two fiscal years. The article summarises the reasoning in a concise bullet list:

The author concludes that while the company still has “a defensible core business and a healthy balance sheet”, the pipeline and competitive headwinds outweigh these strengths. “We recommend a cautious approach,” McDonald writes, suggesting investors either look to peers with stronger growth or consider a more conservative weighting of Merck in a diversified pharmaceutical portfolio.

Final Thoughts

The Seeking Alpha article is a useful reminder that even the most storied pharma names can face a slow, inexorable decline if their pipeline and market dynamics falter. For Merck & Co., the next few years will be a test of whether the company can pivot its R&D strategy, secure new high‑margin indications, and manage its growing debt without compromising the cash‑flow engine that has long made it a favorite of dividend‑seeking investors. Until then, the note’s sober outlook should prompt investors to reassess their expectations for a company that, at present, appears “not as well positioned as peers and likely to continue underperforming.”