Merck & Co (MRK 0.49%) is a top healthcare company that makes prescription medications, vaccines, and animal health products. Its business is broad, with Merck generating billions in revenue from all over the world. A lot centers around Keytruda, a cancer treatment that has helped the business grow over the years.

But the danger is that Keytruda will be losing patent protection before the decade is over, and without it, Merck's business could stall. At worst, the company's revenue may decline significantly. Is Merck too dependent on the drug, and is it too risky of a stock to buy today?

Keytruda accounts for 36% of revenue

Last month, Merck reported its most recent quarterly results. For the third quarter (ended Sept. 30), the company's sales came in at just under $15 billion, which were 14% higher than in the prior-year period. More than one-third of that revenue (36%) came from Keytruda, which grew at a rate of 20% -- highest among all of the company's key products.

A year ago, Keytruda's sales represented slightly less of the company's total revenue at 34%. But that picture will change even more toward the end of the decade because in 2028, Keytruda will lose exclusivity, resulting in generic versions of the treatment -- and the competition will chip away at the product's revenue.

Is this a significant concern for investors?

Any business that is in danger of losing a significant chunk of its revenue is going to be a risky one to invest in. The good thing is that 2028 is still several years away, and even then, Keytruda's revenue won't just suddenly go to zero. The company has time to work on developing its pipeline. Merck has 30 programs in its pipeline that are currently in phase 3 trials that could collectively soften the blow from a loss in Keytruda's sales.

By 2030, the company estimates it may generate up to $10 billion in revenue from a group of eight cardiovascular drugs. Among its most promising candidates is sotatercept, which Merck added to its portfolio after acquiring Acceleron Pharma last year. Sotatercept treats pulmonary arterial hypertension and has the potential to be a blockbuster, generating more than $2 billion in revenue at its peak.  

So while there is some understandable concern about a loss in exclusivity for Keytruda, Merck does have products that can help fill the gap. Plus, there is time to seek out other acquisitions to help bolster its portfolio.

Does the valuation price in this risk?

Merck's stock trades at just 16 times earnings. Not only is that below the healthcare average of 21, it's also lower than what the stock has averaged in the past:

MRK PE Ratio Chart

MRK PE Ratio data by YCharts

Given the discount, it does appear that some of the concerns around Merck's business are factored into the price it trades at today.

Is Merck a good buy?

Facing losses in exclusivity of top drugs is something drugmakers often have to plan for in the course of doing business. And in Merck's case, the business has a strong pipeline that can help minimize the impact of that in the long run. Plus, with the healthcare stock trading at a reasonably cheap multiple, there's a margin of safety there for investors in the event things don't go as well as planned. 

Concerns relating to Keytruda shouldn't deter investors from buying shares of Merck as it's still a top stock to own for the long term. Although Keytruda is a significant part of its business today, Merck isn't being too dependent on it, as is demonstrated by a strong pipeline and a plan for greater diversification in the future.