Key Points
Merck’s lineup appears strong enough to enable the company to overcome a fast-approaching patent cliff.
AbbVie’s core growth drivers have plenty of room to run, and the company boasts an attractive pipeline.
The healthcare sector is rebounding in 2026 after several years of underperformance relative to the market, and two companies leading the charge are Merck(NYSE:MRK) and AbbVie(NYSE:ABBV). Both healthcare giants have outperformed the broader equity market this year. Merck's shares have climbed 39%, while AbbVie's have gained 24%. Meanwhile, the S&P 500 is up about 12% year-to-date. Could the two drugmakers maintain their recent momentum over the near term? That's hard to say. It's always difficult to predict stock market movements over short periods. However, both companies look like great long-term picks. Here's why.
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Merck
Merck's financial results have been stronger than expected this year. In the second quarter, the company's revenue increased by 5% year over year to $16.6 billion, beating Wall Street estimates. The drugmaker reported a non-GAAP loss per share of $0.13, compared to net earnings per share (EPS) of $2.13 in the prior-year quarter, due to acquisition-related impacts.
Merck's most important growth drivers performed well. The company's Keytruda franchise posted sales of $8.4 billion, up 5% year over year, while its HPV vaccines, Gardasil and Gardasil 9, increased their combined revenue by 4% year over year to $1.2 billion. Merck will likely lose patent exclusivity for Keytruda by 2028, but the company's newer Keytruda Qlex, a subcutaneous version of the medicine, could help it retain a decent market share.
Keytruda Qlex first earned approval last year. It is much easier and faster to administer than the original intravenous version. The company should successfully switch many patients to Keytruda Qlex. Beyond its core growth franchise, Merck has earned approval for several newer products that could also contribute meaningfully over the medium term.
These include Winrevair, a medicine for pulmonary arterial hypertension. Second-quarter Winrevair revenue increased by 75% year over year to $588 million. The medicine could earn an important label expansion down the line as well. Further, Merck has an attractive pipeline. The company's promising candidates include a personalized cancer vaccine called intismeran autogene, which it is developing with Moderna(NASDAQ:MRNA).
Intismeran autogene recently posted excellent Phase 3 clinical trial results and is likely to earn approval across several indications. Merck's pipeline features several other promising products. Finally, the company boasts an attractive dividend program. Merck offers a forward yield of 2.3%, and it has increased its payouts by almost 90% over the past 10 years.
Merck's strong financial results, deep pipeline, and solid dividend program make the stock worth holding onto for the next decade.
AbbVie
AbbVie has also posted strong financial results this year. The company's second-quarter revenue grew by 10.2% year over year to almost $17 billion, while its adjusted EPS climbed 22.9% to $3.65. AbbVie's core growth drivers, Skyrizi and Rinvoq, are doing much of the heavy lifting, with both growing their sales by about 24% year over year.
They still have a long runway for growth. AbbVie expects no major loss of patent exclusivity through the end of the decade, and Skyrizi likely won't face biosimilar competition in the U.S. -- its most important market -- at least until 2033, with Rinvoq likely safe from U.S. generics until 2037. That grants AbbVie plenty of time to develop a sound succession strategy, and the company is already on it.
The pharmaceutical giant boasts several exciting pipeline candidates, including zumilokibart, a promising investigational medicine for eczema that could extend its leadership in immunology. AbbVie is also going after the weight loss market with a candidate called ABBV-295, an investigational long-acting anti-obesity medicine.
Investors should expect AbbVie to launch several new products over the next five years, and the company's core growth drivers, including products beyond Skyrizi and Rinvoq, should continue to perform well. Now turning to AbbVie's dividend program, the company is on a streak of 54 consecutive annual payout increases, when including the time it spent as a division of Abbott Laboratories(NYSE:ABT).
That makes AbbVie a Dividend King, a corporation with 50 (or more) straight annual dividend increases. That's a rare streak that AbbVie will seek to protect, making it an attractive dividend growth stock to hold onto for the long term.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, Merck, and Moderna. The Motley Fool has a disclosure policy.
