Merck's (MRK) strong momentum continues, driven by better-than-expected cancer vaccine data, but valuation now fully reflects the upside, RBC Capital Markets said in a note Thursday.

The analysts said that, at $150, Merck is trading at a historically high valuation despite facing a major loss of exclusivity in two years and only modest near-term growth. Further upside would require its pipeline to outperform already-high expectations, limiting the risk/reward at current levels.

The analysts said they remain positive on near-term catalysts, especially Sac-TMT data at ESMO and TL1A trial results in ulcerative colitis and hidradenitis suppurativa. "However, expectations are high, and the pipeline benefits from a halo effect. Any material disappointment could trigger a disproportionate negative reaction," the firm said.

The analysts said that beyond the upcoming Q3 readouts, further upside would likely require more business development activity, faster growth outside Keytruda, or positive early-stage pipeline results, all of which they believe are largely priced.

RBC downgraded Merck to sector perform from outperform and raised its price target to $150 from $142.

Price: 152.02, Change: -0.18, Percent Change: -0.12