Merck's (MRK) internal pipeline progress and business development strategy take precedence over Q4 and 2026 guidance, as the company prepares for Keytruda's loss of exclusivity in 2028, Morgan Stanley said Wednesday.

The company reiterated a non-risk adjusted commercial opportunity of over $70 billion from recent launches and existing pipeline by the mid-2030s, and most of its assets will be substantially de-risked by end of 2027, Morgan Stanley added.

Keytruda's Q4 sales of $8.4 billion were in-line with consensus, but outside-the-US pricing has been a headwind. Therefore, Morgan Stanley trimmed its 2026 Keytruda estimate by about $200 million, the report said.

With respect to business development, management is interested to add more assets to Merck's pipeline, especially in the $1 billion to $15 billion area, but would go bigger for the "right" deal, according to the report.

The company's 2026 earnings per share guidance is $5 to $5.15, versus Morgan Stanley's new EPS estimate of $5.17 and Street consensus of $5.27. Morgan Stanley's reduced its EPS estimate from $5.48, the report said.

Morgan Stanley raised the price target on Merck to $109 from $101 and maintained an equal-weight rating on the stock.

Shares of Merck rose about 2.5% in recent Wednesday trading.

Price: 118.26, Change: +2.42, Percent Change: +2.09