Merck & Co., Inc. reported its Q1 2025 earnings, surpassing analyst expectations with earnings per share (EPS) of $2.22 compared to the forecasted $2.14. The company also exceeded revenue forecasts, reporting $15.5 billion in revenue against a projected $15.3 billion. Despite these positive results, Merck’s stock experienced a decline, with a pre-market drop of 0.88%, closing at $78.74. This movement reflects investor concerns over certain market dynamics, including significant revenue impacts from Gardasil sales in China.
Key Takeaways
- Merck’s Q1 EPS of $2.22 beat the forecast of $2.14.
- Revenue for Q1 was $15.5 billion, exceeding projections.
- Gardasil sales in China reduced overall revenues by $1.1 billion.
- Stock price fell by 0.88% in pre-market trading.
- Full-year revenue guidance remains between $64.1 billion and $65.6 billion.
Company Performance
Merck’s overall performance in Q1 2025 showed resilience despite challenges in specific markets. The company reported a 2% decrease in total revenues year-over-year, primarily due to reduced Gardasil sales in China. However, excluding the impact of foreign exchange and China, global growth stood at 8%. Keytruda sales continued to be a strong performer, with a 6% increase to $7.2 billion, highlighting the company’s robust position in the oncology sector.
Financial Highlights
- Revenue: $15.5 billion, down 2% year-over-year.
- Earnings per share: $2.22, compared to $2.14 forecast.
- Keytruda sales: $7.2 billion, a 6% growth.
- Gardasil sales: $1.3 billion, a 40% decrease.
Earnings vs. Forecast
Merck’s Q1 earnings exceeded expectations with an EPS of $2.22 against the forecast of $2.14, marking a positive surprise of approximately 3.7%. Revenue also surpassed projections, coming in at $15.5 billion compared to the expected $15.3 billion. This performance is consistent with Merck’s historical trend of meeting or beating earnings forecasts.
Market Reaction
Despite the earnings beat, Merck’s stock dropped by 0.88% in pre-market trading, closing at $78.74. This decline may reflect investor concerns over the significant decrease in Gardasil sales and its impact on future revenues. The stock remains close to its 52-week low of $75.93, indicating cautious market sentiment. InvestingPro analysis suggests the stock is currently undervalued, with a P/E ratio of 11.3x and strong free cash flow yield of 9%. For deeper insights into Merck’s valuation and 12+ additional ProTips, explore the comprehensive Pro Research Report available on InvestingPro.
Outlook & Guidance
Merck maintains its full-year revenue guidance between $64.1 billion and $65.6 billion, with expected EPS ranging from $8.82 to $8.97. The company anticipates moderate growth in Gardasil sales following the completion of a catch-up program in Japan. With a robust financial health score rated as "GREAT" by InvestingPro, and five analysts revising earnings upward for the upcoming period, Merck demonstrates strong potential for continued growth. The company’s moderate debt levels and ability to cover interest payments through cash flows further support its stable outlook. Merck is also focusing on potential product launches and business development initiatives to drive future growth.
Executive Commentary
Rob Davis, CEO, emphasized the company’s strategic focus on innovation, stating, "We are working with focus and urgency to both realize the full potential of our near-term opportunities and to rapidly progress the next wave of innovation." CFO Caroline Litchfield expressed confidence in Merck’s outlook, highlighting the strength of its portfolio and pipeline.
Risks and Challenges
- Gardasil sales decline in China poses a significant revenue challenge.
- Potential US pharmaceutical tariffs could impact cost structures.
- Keytruda’s patent expiration raises concerns about future revenue streams.
- Shifts in vaccine market dynamics in Japan and China may affect sales.
- Supply chain adjustments are necessary to mitigate geopolitical risks.
Q&A
During the earnings call, analysts inquired about Merck’s strategies to counter potential US pharmaceutical tariffs and the impact of Gardasil dosing recommendations. The company addressed its business development approach and innovation strategy, emphasizing its commitment to expanding its pipeline and mitigating risks associated with Keytruda’s patent expiration.
Full transcript - Merck (MRK) Q1 2025:
Conference Operator: Thank you for standing by. Welcome to the Merck and Company, Inc. Rathaway, New Jersey, USA Quarter One Sales and Earnings Conference Call. At this time, all participants are in a listen only mode until the question and answer session of today’s conference. This call is being recorded.
If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Dannenbaum, Senior Vice President, Investor Relations. Sir, you may begin.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Thank you, Dustin, and good morning, everyone. Welcome to the first quarter twenty twenty five conference call for Merck and Company Incorporated, Rahway, New Jersey, USA. Speaking on today’s call will be Rob Davis, Chairman and Chief Executive Officer Caroline Litchfield, Chief Financial Officer and Doctor. Dean Lee, President of Research Labs. Before we get started, I’d like to point out that we have items in our GAAP results such as acquisition related charges, restructuring costs and certain other items that we have excluded from our non GAAP results.
There is a reconciliation in our press release. I will also remind you that some of the statements that we make today may be considered forward looking statements within the meaning of the Safe Harbor provision of The U. S. Private Securities Litigation Reform Act of 1995. Such statements are made based on the current beliefs of our company’s management and are subject to significant risks and uncertainties.
If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in the forward looking statements. Our SEC filings, including Item 1A and the twenty twenty four ten ks, identify certain risk factors and cautionary statements that could cause the company’s actual results to differ materially from those projected in any of our forward looking statements made this morning. Merck and Company, Inc. Broadway, New Jersey, USA undertakes no obligation to publicly update any forward looking statements. During today’s call, a slide presentation will accompany our speakers’ prepared remarks.
These slides, along with the earnings release, today’s prepared remarks and our SEC filings are all posted to the Investor Relations section of our company’s website. With that, I’d like
Rob Davis, Chairman and Chief Executive Officer, Merck: to turn the call over to Rob. Thank you, Peter. Good morning and thank you for joining today’s call. Our company made strong progress to start the year with increasing contributions from our newer commercialized medicines and vaccines and continued advancement of our pipeline. We’re working with focus and urgency to both realize the full potential of our near term opportunities and to rapidly progress the next wave of innovation that will positively impact the lives of the patients we serve and drive future value creation for all of our stakeholders.
In what is a dynamic global environment, we continue to work with regulators and policymakers around the world to tackle some of the biggest health challenges and ensure patient and customer access to our lifesaving and life improving medicines and vaccines. Over the last few years, we’ve been evolving our supply chain strategy in an effort to better balance our manufacturing footprint, which aligns well with the new administration’s efforts to regrow The U. S. Manufacturing base. This can be seen by our efforts beginning with the passing of the Tax Cut and Jobs Act and accelerated since the pandemic.
Of note, since 2018, we’ve invested $12,000,000,000 in U. S. Manufacturing and we’ve committed to an additional $9,000,000,000 plus for projects through 2028. Our investments are leading to more of our products for U. S.
Patients being manufactured in The U. S. As well as more opportunities for export. Turning to our first quarter results, our performance was in line with our expectations with revenue of $15,500,000,000 reflecting strength in oncology, animal health and increasingly meaningful contributions from the continued strong launches of WinRevir and Cefaxib. As we look forward, we remain confident in our outlook for improved growth in the second half of the year.
Considering the current environment, we are maintaining our full year revenue and EPS guidance excluding business development charges, which Caroline will speak to in more detail. The benefit from improved foreign exchange is offset in part by approximately $200,000,000 of expected cost from tariffs implemented to date, primarily between The U. S. And China and to a lesser degree Canada and Mexico. With respect to potential additional tariffs by The U.
S, specifically on pharmaceuticals, our global supply chain and current inventory levels put us in a good position to navigate potential near term impacts and our ongoing efforts to locate more manufacturing in The U. S. For U. S. Supply, including for the majority of our upcoming new products will help us manage over the medium and long term.
As I look at how we’ve started 2025, I’m proud of the continued advancement of our research efforts. Recently, we presented important Phase three data for WinRevAir in additional patient populations supporting the strong potential for this product to improve the lives of more people living with pulmonary arterial hypertension. In addition, our HIV pipeline is now coming into sharper focus with data presentations from two Phase three trials of the zolotrovir based regimens. And new clinical trial starts and regulatory submissions in oncology reinforce our belief that we are well positioned for long term leadership with the promise of helping even more patients with cancer. The success of biopharmaceutical innovation on the scale we’re driving is not measured in quarters, but rather in years.
And we’re seeing compelling progress on this front. Since 2021, we’ve nearly tripled our late phase pipeline through both the advancement of internally discovered compounds, as well as the completion of numerous important business development transactions across multiple therapeutic areas of great unmet need, including oncology, cardiometabolic, ophthalmology and immunology. Together, our efforts have resulted in an expanded late phase pipeline comprising programs having potential commercial opportunity of over $50,000,000,000 by the mid-2030s. Winrebir and Capvaxin represent the initial launches from this robust pipeline of 20 promising potential new growth drivers we expect to come to the market over the next few years, almost all of which have blockbuster potential. Looking ahead, we have a rich slate of data readouts, presentations, filings, and additional approvals.
Our pipeline includes some of the world’s most scientifically advanced modalities and Dean and our research colleagues are advancing several molecules that have foundational multi indication potential in areas of significant unmet need. We’ve also deepened and extended our commitment to early research and development. And over the next few years expect many of these programs to advance to Phase two and to become visible to you. Thanks to the incredible efforts of our dedicated team and the strong progress we are achieving, we believe that we’re well positioned to successfully navigate through the KEYTRUDA LOE period. And our work is not finished.
Science and value driven business development remains a top priority and we continue to assess opportunities with urgency and an eye toward driving near and long term growth and value creation. In summary, our results reflect the continued demand for breakthrough therapies and novel solutions that can address global health challenges. We’re leveraging our scientific leadership to deliver the next wave of innovation that can save and improve lives around the world. Our commercial performance today continues to enable the advancement of our pipeline and in turn create long term value for patients, customers and shareholders. We remain confident in our strategic direction, our commitment to research and development as the source for sustainable value creation and our enduring promise to positively impact patients.
With that, I’ll turn the call over to Caroline.
Caroline Litchfield, Chief Financial Officer, Merck: Thank you, Rob. Good morning. As Rob noted, first quarter performance was in line with our expectations. The fundamentals of our business remain healthy, fueled by robust global demand for our innovative portfolio. We are confident in our ability to deliver on the promise of today, while we make strategic investments to enable the innovations of tomorrow, leveraging leading edge science to save and improve lives around the world.
Now turning to our first quarter results. Total company revenues were $15,500,000,000 a decrease of 2%, or an increase of 1% excluding the impact of foreign exchange. As expected, results were impacted by a decline in sales of Gardasil in China of approximately $1,100,000,000 reducing growth excluding foreign exchange by seven percentage points. Excluding these sales and the impact from foreign exchange, global growth was 8%, primarily driven by new products WinRevare and Capfaxiv, as well as strength in oncology and animal health. The following revenue comments will be on an ex exchange basis.
In oncology, sales of Keytruda grew 6% to $7,200,000,000 Global growth was driven by increased uptake from earlier stage cancers and robust demand from metastatic indications. In the earlier stage setting, growth was driven by increased utilization in resectable triple negative breast cancer, renal cell carcinoma, and non small cell lung cancer. In metastatic disease, we saw increased use of Keytruda in combination with PADCEF in first line locally advanced urothelial cancer, as well as Keytruda in combination with chemotherapy in first line endometrial cancer. In The US, as previously communicated, growth was negatively impacted by approximately $250,000,000 due to the timing of wholesaler purchases. Our broad oncology portfolio achieved strong growth, driven by Wellyrig, with sales increasing 63 percent to $137,000,000 due to increased use in certain patients with previously treated advanced renal cell carcinoma in The U.
S. Welireg is now the market leader in the treatment of patients with advanced renal cell carcinoma following prior therapies. In vaccines, GARDASIL sales were $1,300,000,000 a decrease of 40% driven by China, where we see elevated channel inventories and continued soft demand. In the rest of the world, growth was 16%. In The US, sales benefited from price and demand.
Outside The US and China, growth was driven by higher overall demand, including from the catch up cohort in Japan. In pneumococcal, Cavaxib sales were $107,000,000 driven primarily by demand from the retail pharmacy segment. We have made great progress in the early stages of this launch and are well positioned to help protect adults from invasive pneumococcal disease. Vaxnuvan’s sales increased 7%, as growth from launches in international markets was partially offset by competitive pressures in The US. In cardiovascular, the strong momentum of the ongoing launch of WinRevair continues with global sales of $280,000,000 The launch continues to perform in line with our high expectations, and we remain excited about the significant benefit WinRevare is providing for patients.
In The US, more than 1,400 new patients received a prescription during the quarter. We are continuing to see a steady increase in the percentage of new prescriptions for patients whose background PAH therapies do not include aprofstacycline. Outside The US, we continue to progress with launches and reimbursement. Overall, we are very pleased with the uptake of WinRiver and look forward to positively impacting the lives of more patients with pulmonary arterial hypertension. The strength of the additional data from the clinical development program, which Dean will speak to in a moment, provides further confidence to physicians and patients and supports our belief in WinRev’s significant potential.
Our animal health business delivered another quarter of robust growth, with sales increasing 10%. Livestock growth reflects higher demand across all species, as well as the benefit from timing of sales in ruminants and sales from the Aqua portfolio acquired from Elanco. Companion animal sales growth reflects price. I will now walk you through the remainder of our P and L, and my comments will be on a non GAAP basis. Gross margin was 82.2%, an increase of one percentage point, driven by favorable product mix.
Operating expenses decreased to $6,100,000,000 There were no significant business development expenses in the quarter, compared with the $656,000,000 charge a year ago. Excluding this charge, operating expenses grew 6%, reflecting disciplined investments in support of our robust early and late phase pipeline and key growth drivers. Other expense was $75,000,000 Our tax rate of 14.2% benefited from certain discrete items. Taken together, earnings per share were $2.22 Now turning to our 2025 non GAAP guidance. As Rob noted, we are maintaining our full year revenue guidance of between $64,100,000,000 and $65,600,000,000 This range represents growth of 1% to 3%, excluding a negative impact from foreign exchange of approximately 1% using mid April rates.
Our gross margin assumption is now approximately 82%. This includes approximately $200,000,000 in costs related to the tariffs implemented to date. Operating expenses are now assumed to be between $25,600,000,000 and $26,600,000,000 This range now includes a $200,000,000 payment related to the license agreement with Hungry Pharma, which is expected to close in the second quarter. It also includes the $300,000,000 tech transfer payment related to Lenovo, which remains in our guidance but has not yet occurred. As a reminder, our guidance does not assume additional significant potential business development transactions.
Other expense is expected to be between 300,000,000 and $400,000,000 We assume a full year tax rate between 15.516.5%. We assume approximately 2,510,000,000.00 shares outstanding. Taken together, we expect EPS of $8.82 to $8.97 This range includes a negative impact from foreign exchange of more than 20¢ using mid April rates. Recall, our prior guidance range was $8.88 to $9.03 If not for the one time charge of $200,000,000 related to Hongray, or 6¢ per share, our guidance range is unchanged. As you consider your models, there are a few items to keep in mind.
Following the successful HPV catch up vaccination program in Japan, we expect uptake to moderate as future sales will predominantly reflect the primary age cohort. As a result, global Gardasil growth excluding China, while still strong, is anticipated to slow going forward. For Keytruda, the timing of wholesaler purchasing in The US negatively impacted sales by approximately $250,000,000 in the first quarter and is expected to positively impact sales by roughly the same amount in the third quarter. As a reminder, we lowered the list prices for the Januvia family of products in The US at the beginning of twenty twenty five. The lower list prices reduced the rebate amount our company pays to Medicaid, and as a result, we expect higher net sales for these products in 2025.
First quarter sales of the Januvia family of products in The U. S. Also benefited by more than $100,000,000 from favorable one time true ups. Now turning to capital allocation, where our strategy remains unchanged. We will continue to prioritize investments in our business to drive near and long term growth and returns for our shareholders.
Our company is rapidly moving towards a future with a more diversified portfolio of growth drivers. As we continue to assess our business, we are likely to take actions that will seek to maximise the potential of these opportunities by investing with discipline, while transforming our business to drive continuous productivity across the company. We intend to communicate more about these efforts later this year. We remain committed to our dividend, with the goal of increasing it over time. Business development remains an important priority.
We continue to actively evaluate opportunities to execute additional science driven value creating transactions. We increased our share repurchases in the quarter to approximately $1,200,000,000 similar to the full year amount in 2024. We expect the pace of repurchase to continue at this level, given our strong balance sheet. Our top priority, however, remains to invest fully behind our growth drivers and pipeline, as well as business development. To conclude, we are confident in the outlook for our business, driven by our strong portfolio and exceptional pipeline.
With investment in innovation and our ongoing focus on execution, we are well positioned to deliver value to patients, customers and shareholders now and well into the future. With that, I’d now like to turn the call over to Dean.
Dean Lee, President of Research Labs, Merck: Thank you, Caroline. Good morning. Progress continued in the first quarter with a steady cadence of positive clinical and regulatory milestones. Today, I will provide updates from programs in cardiometabolic disease, HIV, vaccines, and we’ll close with oncology. Starting with cardiometabolic disease, since its first approval just over a year ago, winravir, the first and only active in signaling inhibitor for the treatment of pulmonary arterial hypertension, has continued to generate clear evidence of benefit for a broad spectrum of patients with PAH.
Last month, detailed results from the Phase three ZENITH trial evaluating high risk patients with PAH were presented at the American College of Cardiology’s ACC twenty five Conference. The findings showed an important seventy six percent risk reduction in the composite of all cause death, lung transplantation, and PAH hospitalization with the Kaplan Meier curve illustrating an early and sustained separation as early as four to five weeks after initiation of winravir. Results were published simultaneously in the New England Journal of Medicine. ZENITH is the first positive trial in PAH with a primary endpoint comprised entirely of major outcome measures and the first to be stopped early for overwhelming efficacy. The significant reduction in risk of major morbidity and mortality events reinforces Winrevere’s efficacy.
The safety profile in Zenith was generally consistent with that observed in previous studies. As a reminder, prompted by the early stoppage of the ZENITH study and a review of the totality of data from the winrevir clinical program to date, the external steering committee determined that the Phase III Hyperion study had lost clinical equipoise and should also be stopped early. All participants have now been given the option to receive winravir. We anticipate sharing data from the Hyperion study later this year. The clinical benefit and statistically significant improvement observed across a range of patients receiving winravir in the STELLAR and ZENITH study provide strong evidence for its potential to be practice changing and to alter the trajectory for patients with this devastating disease.
The clinical program also includes the ongoing long term extension study, Suteria, as well as a Phase II light ray study, which is being conducted to support the development of an auto injector option for patients. In addition, the Phase II CADENCE study exploring the potential in pulmonary hypertension due to left heart disease, a specific segment within WHO Group two has completed recruitment and is on track for completion later this year. We continue to bolster our portfolio of candidates targeting cardiometabolic disease. In March, we announced an exclusive license agreement with Hungry Pharma for HRS-five thousand three hundred forty six, an investigational oral small molecule lipoprotein A or LP formation inhibitor. Elevated levels of LP in the blood are an inherited atherosclerotic cardiovascular disease risk factor for which there are currently no approved treatment options.
Hangrei recently initiated a phase two clinical trial for HRS-five thousand three hundred and forty six in China. We are planning a robust global clinical development program that expands and complements our broader cardiometabolic pipeline. Next to vaccines. We continue to secure regulatory approvals globally for Cavaxiv. More recently, the European Commission granted approvals for active immunization for the prevention of invasive disease and pneumonia caused by Streptococcus pneumoniae in adults.
This is based on safety and immunogenicity data from multiple pivotal studies in the program and is the fourth approval for Cavaxiv, building on prior approvals in The US, Canada, and Australia. GARDASIL Nine was recently approved by the National Medical Products Administration of China to help prevent certain HPV related cancers and diseases in males sixteen to 26 years old, making it the first nine valent HPV vaccine approved for certain males and females in China. Turning to HIV, detailed results from two pivotal Phase three trials evaluating adults with virologically suppressed HIV-one who switched to the investigational once daily oral fixed dose combination of doravirine and ezlotrovir, an investigational nucleoside reverse transcriptase translocation inhibitor were presented at the conference on retrovirus and opportunistic infections in March. In both trials, at week 48, duravarine and islasovir met the primary efficacy success criteria for non inferiority to comparator antiretroviral therapies and primary safety objectives. The combinations of deravirine and enzlotrovir is the first complete two drug regimen without an integrase strand transfer inhibitor to demonstrate comparable efficacy and safety to the three drug insti based regimen Biktarvy in a Phase III trial.
We plan to submit applications for marketing authorization to regulatory agencies by midyear. These data and additional programs evaluating longer acting regimens for treatment and pre exposure prophylaxis underscore our ongoing commitment to find new options that address the evolving needs of people at risk of and living with HIV. Moving to oncology. Last month at the European Lung Cancer Congress, we announced detailed findings from a pivotal Phase III trial evaluating a six weeks dosing regimen of the investigational subcutaneous fixed dose combination of pembrolizumab and barohyaluronidase alfa with chemotherapy versus intravenous Keytruda with chemotherapy. The study met its dual primary endpoints demonstrating non inferior pharmacokinetics for subcutaneous pembrolizumab versus intravenous Keytruda.
Consistent results were also reported for efficacy and safety endpoints across treatment arms. The median time for administration of subcutaneous pembrolizumab given every six weeks was approximately two minutes, a meaningful reduction compared to the time needed to administer Keytruda as an IV infusion. Of note, at the American Association for Cancer Research meeting next week, data from another study evaluating a three week dosing regimen will be presented. The FDA has set up PDUFA date of September 23 and the European Medicines Agency is reviewing the application. We are seeking approval for both a six weeks and a three week dosing option.
If approved, subcutaneous pembrolizumab would provide an important option for healthcare systems and patients, most notably for those in earlier stage settings where KEYTRUDA continues to have an unparalleled breadth of approvals and a significant impact for patients. The FDA granted priority review for Keytruda as part of a perioperative treatment regimen for patients newly diagnosed with stage III or IVA resectable, locally advanced head and neck squamous cell carcinoma based on the KEYNOTE-six 89 study. The PDUFA date is June 23. As a reminder, this is the first trial in twenty years for patients with resected locally advanced head and neck squamous cell carcinoma and the first phase three trial to show a statistically significant event free survival benefit of neoadjuvant plus adjuvant therapy for newly diagnosed patients in this setting. Earlier intervention has the potential to improve outcomes and reduce the burden of disease in this patient population.
Results will be submitted to regulatory agencies and if approved, this will mark the tenth indication of a Keytruda based regimen for the treatment of an earlier stage cancer. Detailed findings will be presented at the American Association for Cancer Research meeting next week, where it may be important to scrutinize the Kaplan Meier plot for the divergence of the curves as a sign of event free survival benefit. Based on the LIGHTSPARK four and LIGHTSPARK five trials, we received the first conditional European Commission approval for Wellerig for the treatment of adults with von Hippel Lindau disease who require therapy for associated localized renal cell carcinoma, central nervous system hemagioblastomas or pancreatic neuroendocrine tumors and advanced clear cell RCC that progressed following two or more lines of therapy that included a PD-one or a PD L1 inhibitor and at least two vascular endothelial growth factor targeted therapies. Please mark your calendars for the evening of Monday, June 2 for an investor event at the twenty twenty five ASCO Annual Meeting in Chicago, where we will provide an update on pipeline progress and the latest on our oncology strategy. Finally, we have a number of near term milestones to look out for this year, including in oncology upcoming PDUFA dates for KEYNOTE-six eighty nine and earlier stage head and neck squamous cell carcinoma in June, subcutaneous pembrolizumab in September, in RSV, the upcoming PDUFA for klezroblimab in June, in the cardiometabolic space, anticipated results from three Phase III registration enabling studies evaluating our oral PCSK9 inhibitor candidate enlicitide for the treatment of hypercholesterolemia and the scheduled fall primary completion date of the Phase two CAEDEN study evaluating winravir in pulmonary hypertension due to left heart disease, as well as the final readout from the Phase III Hyperion study.
Lastly, in HIV, filing for deravirin and nivolatrovir regimen and results from the Phase IIa trial for MK8527, a novel NRTTI candidate as a potentially important once monthly oral option for pre exposure prophylaxis. In closing, we continue to advance our pipeline and execute on our strategy with speed and rigor. I look forward to providing further updates on our progress. And now, I turn the call back to Peter.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Thanks, Dean. Dustin, we’re ready for Q and A. We request that analysts limit themselves to one question, please.
Conference Operator: Our first question is from Geoff Meacham from Citibank. Go ahead. Your line is open.
Geoff Meacham, Analyst, Citibank: Hey, great. Thanks so much for the question. I guess I’ll kick it off with a tariff question. So Rob I recognize it’s hard to talk specifics but maybe at a high level can you talk about Merck’s mitigating strategies as an offset, you know, whether it’s a new CapEx cycle, whether it’s changing the elements of the supply chain or even raising U. S.
Price? Thanks so much.
Rob Davis, Chairman and Chief Executive Officer, Merck: Yes. No, Jeff, I appreciate the question. And obviously, Caroline spoke to the tariffs we’ve included in our earnings so far, $200,000,000 And just to be clear, that relates to the existing tariffs that have been announced largely between China and The U. S. And to a lesser extent, Canada and Mexico.
I think you’re really referring to the potential for further sector specific tariffs that could come and what we’re doing. And in that regard, we’ve been very focused and I tried to highlight this in the script. We’ve actually had started to change and rebalance our supply chain strategy going back actually beginning with the Tax Cut and Jobs Act, where we started moving more towards being able to have U. S. For U.
S, Europe for Europe, and Asia for Asia. And we’ve been in the process of doing that. That was a big part of where we announced that we’ve spent $12,000,000,000 since that time to date. And then we expect to spend an additional $9 plus billion. And I expect frankly that number is going to grow going forward.
So we have already been in the process of changing our supply chain. But what we’ve done is specifically in the near term, we have, I think, done a good job of managing our inventory. So as you look at 2025, we’re well positioned with inventory to be able to mitigate anything we could see in the short term. And then in the medium to long term, we’ve already started to identify where we can either reposition our own manufacturing, so change the priorities of existing plants, bring on external manufacturing in some cases to bridge gaps, and then finally to build internal manufacturing long term so that we have that in our base going forward. So really as I look at it, short term, I think we’re in a good shape.
Medium and long term, we’re taking the steps to position ourselves. And that really is our main efforts. We are not using and do not really see price as a lever for tariffs, just given there’s always limitations in what you can do there. So for us, it’s more about how do we optimize our supply chain. But again, a lot of what we’re doing now, frankly, we were already underway in.
So in many ways, we are aligned with what the administration is wanting to do and feel that we’re in a position to be able to do that quite effectively.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Great. Thanks, Jeff. Next question please, Dustin.
Conference Operator: Our next question is from Kim Anderson from Bank of America. Go ahead. Your line is open.
Kim Anderson, Analyst, Bank of America: Thank you. So I want to ask about long term guidance, Rob. It was something I asked last quarter. I wanted to ask again. Lots of concerns about KEYTRUDA going into IRA facing patent expiry at the end of ’twenty eight.
And in my view, you guys kind of give clarity on what that means downstream at ’twenty eight, my fear is going to continue to haunt the stock and now trades at a single digit P multiple, which is a level that Merck shares have not been other than once in the last twenty five years, an ’nine after you buy sharing plow. So last quarter when I asked that, you seem to imply you might give it at some point. I’m wondering where you are on that line of thinking as the stock continues to kind of drift lower. Thank you.
Rob Davis, Chairman and Chief Executive Officer, Merck: Yeah. So Tim, thanks the question. What we tried to do at the JPMorgan conference, and I think everyone is aware, really highlight the confidence we have in our long term by focusing on the strength of the pipeline. I commented in our script that we have over 20 new products that we see coming over the next few years, almost all of which have blockbuster potential. If you look at the totality of those, as you look forward, this really makes up the bulk of what is the $50,000,000,000 plus potential we see out in the early to mid-two thousand and thirty.
So I think that gives people a sense of what we’re doing, whether we go beyond that to give specific line by line guidance as of right now, we do not have a plan to do that, but we are continuing to evaluate it. And we’ll take a sense of where the majority of investors have a view on that. Many people, frankly, disagree with you that we’ve heard from.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Great. Thanks, Tim. Next question please, Dustin.
Conference Operator: Next question is from Luisa Hector from Berenberg. Go ahead, your line is open.
Caroline Litchfield, Chief Financial Officer, Merck: Hello, thanks for taking my question. Perhaps you could comment on some of the changes we’re seeing within the FDA and the HHS, particularly with reference to vaccines and the outlook there? Thank you.
Dean Lee, President of Research Labs, Merck: Yeah, is Dean. Thanks for the question. In specific relationship to the FDA, I would just say we’ve listed programs with imminent PDUFA dates like plasarobimab, subcu, Keynote June. And all of our communications have suggested that they’re all on track. There’s actually very active dialogue with FDA on programs with near term filings, including enlicitide and also for example, when we’re bearer as we speak about potential label changes.
What we can’t comment is the mid to long term sort of impact of the many FDA personnel transitions.
Luisa Hector, Analyst, Berenberg: And we’ll just have
Dean Lee, President of Research Labs, Merck: to see and be very watchful for that. But in the imminent PDUFA date, and in the active dialogues that we’ve had on programs that we’ve been talking to them for the last year, year and a half, we haven’t seen any shift in timelines.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Great, thanks, Luisa. Next question please, Dustin.
Conference Operator: Next question is from Vamil Divan from Guggenheim Securities. Go ahead, your line is open.
Luisa Hector, Analyst, Berenberg: Maybe, again, just more on macros or big picture questions here. I have two, if I could. So one, you mentioned business development is a top priority. I’m wondering if could just sort of comment on the sort of environment for business development now, given all the macro volatility and the unknowns on tariffs, etcetera, just, your willingness to do a, you know, sort of deal or maybe a more meaningful sized bolt on deal? And also from the sort of seller side, is there, you know, willingness to sell at this time?
So any insight there would be appreciated. And the second topic that comes up a lot now is for the potential for international reference pricing of some sort where US prices may get tied in some way to ex US prices. Obviously, lot of unknowns there too, but just curious if you can comment on your perspective on that or any insights you might have on that potentially becoming a reality. Yes.
Rob Davis, Chairman and Chief Executive Officer, Merck: No, thanks, Vamil, for the questions. On the first question, the macro environment and what does it mean from a business development perspective, maybe just to provide context. To be clear, our focus on business development is unchanged. Our desire and belief that we need to continue to identify new science based opportunities to continue to build on the pipeline is unchanged. And so our strategy continues.
As we look at the environment, I mean, clearly what’s happening does make it more complex to get things done because the uncertainty everyone is wrestling with. And we are doing everything we can to make sure we reflect that as we think about value and what we are willing to pay in that environment. But it’s not stopping us from being aggressive and wanting to move forward and do deals. As it relates to the sellers, I would say that we continue to see, at least in the conversations we’ve had, a little bit of a disconnect between what is the reality of the market that the sellers face and what is the expectation for value that they have. I don’t think they have fully aligned to the realities of where we are today.
And so we continue to move forward, but that is kind of the environment we seek. But I am confident that you are going to see us get some stuff done as we move forward because we’ve got things in the queue that we’re looking for. And then as it relates to the most favored nations question, I don’t want to speculate on what the administration might do specifically, but I would say generally, we recognize, I recognize, and I think the industry recognizes that the price differential that exists between The United States and the rest of the world for our innovative medicines needs to be addressed. We are open and willing to work with the administration to do that. And I think it’s important that I would highlight a few areas that we see as kind of the focal areas.
First and foremost, we as an industry and Merck continue to believe PBM reform would be one important step. If you look at the fact that over $0.50 of every dollar goes to somewhere in the middle. So the discoverers and manufacturers only get less than half of every dollar. If we could find a way to bring more of that back to the patient at the pharmacy counter, that could meaningfully reduce prices in The US. That would be an important step to lessen the differential.
And then secondly, and I agree with there was I think you probably saw the recent commentary from some of my peers, but I agree with the fact that we have to continue to encourage foreign governments to understand that they need to give fair value for the innovation we bring and that they give access to their patients so that we can bring the medicines to them and it’s at prices that reward us for the risk and innovation that we have. I think that that’s also an important element. We are spending time individually as a company and along with our other industry peers promoting that point everywhere we can around the world. And we will continue to do that. And then as I mentioned, lastly, we’re very open to working with the administration to find solutions to address this.
But the important thing is we need to make sure we protect access in The United States and we protect the innovation engine we have and the jobs it creates and the strength of this industry as an important contributor to The United States. We don’t want to lose the leadership we have in this important field. And that’s what we’re trying to advocate for as we work with the administration.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Thank you, Vamil. Next question, please.
Conference Operator: Next question is from Chris Schott from JPMorgan. Go ahead, your line is open.
Vamil Divan, Analyst, Guggenheim Securities: Great, thanks so much. Just had one question and just a quick follow-up on an earlier one. On the question, can you just talk about Gardasil and the potential to move to a single dose in The U. S? I’d be interested in your thoughts on the potential for a CDC recommendation here and Merck’s ability to potentially adjust price in such an outcome.
My follow-up was just on the manufacturing and kind of longer term tariff mitigation efforts. Should we think about those efforts mostly focused on new products and pipeline? Or is there also an ability to address legacy products such as KEYTRUDA with those longer term efforts? Thank you.
Dean Lee, President of Research Labs, Merck: Yeah, Chris, thanks for the question. Let me address the GARDASIL reduced dosing. And I think you’re specifically referring to ACIP and potential deliberations in relationship to reduce dosing. And I don’t want to speculate what the ACIP may do. But I just want to emphasize that we are extremely confident in the safety and efficacy of the Gardasil nine and in the dosing regimen.
And I would just emphasize, we have had clear, firm, consistent and recent, guidance from the FDA on what would require for the licensure of a reduced dosing or a single dose. They are very clear on the high evidentiary standard. They point out to us that it must be efficacy against disease endpoints, not just infections. You must have data in males and females, recognizing that HPV related head and neck in males is actually greater here in The United States than cervical cancer. They emphasize to us high statistical bar, and they emphasize to us long term durability of protection.
The FDA is incredibly up to date and aware of the limitations of existing trials, and none meet the criteria for them to have a label change. So there appears to be a disparity between the stringent clinical requirements outlined by the FDA, and some of the proposals that are in front of the ACIP. So what we are hopeful is that there will be a robust discussion and interrogation in a public setting in relationship to the clear disparity in the evidentiary standard set by the FDA to us and the options that the ACIP is considering. Caroline, did you want to answer the other question?
Caroline Litchfield, Chief Financial Officer, Merck: Yes, so in terms of should the ACIP look towards any different type of dosing regimen, we stand firmly behind the value that Gardasil brings in preventing certain HPV related cancers, and we will be looking to ensure that that cost effectiveness is understood as we appropriately price the vaccine. Did you want to touch then on the second question, Rob, which is the manufacturing and the longer term?
Rob Davis, Chairman and Chief Executive Officer, Merck: Oh, yeah, sorry about that. I was enjoying your answer so much. Forgot the other question. Sorry about that. Now, Chris, to your question about the manufacturing, it’s really both.
So clearly, we are very focused on new products, some of which we already have in The United States, others we’re going to be moving to bring them to The United States. But we also were very focused on Keytruda. As you probably can surmise, our biggest exposure is Keytruda in the near term. But I feel very good that as we sit here today with, as I mentioned, the fact that we have basically on hand inventory in The United States to protect us through all of 2025. And then we’ve taken steps to be prepared both from a drug substance and a drug product as we move into 2026 and 2027.
We’re as well positioned as you could be through both the short term actions on inventory, as well as securing additional manufacturing in The United States, both through contract manufacturers and then we are already underway to go to our own internal manufacturing. So we’re as well positioned on KEYTRUDA as you can be. Obviously, we have to wait and see what the tariffs are. So I don’t want to speak to the specific implications because it depends on the form they take. But I think we’re positioned on both KEYTRUDA and the new products.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Thank you, Chris. Next question please.
Conference Operator: Next question is from James Shin from Deutsche Bank. Go ahead. Your line is open.
Chris Schott, Analyst, JPMorgan: Good morning. Thank you for the question. One for Rob. Rob, you’ve already disclosed a healthy amount of U. S.
Investments. But is there a need for more or room for more U. S. CapEx? And is it pending U.
S. Tax reform? And then one for Dean, has the recent PD-one VEGF datasets made you and your team want to accelerate or maybe allocate more resources to LM299’s development? Thank you.
Rob Davis, Chairman and Chief Executive Officer, Merck: Yeah, thanks for the question. So as we sit here today, as we mentioned between the $12,000,000,000 we’ve done plus the $9,000,000,000 plus we have underway. So we’re going to be looking at north of $21,000,000,000 since 2018 as we look over the next few years. I actually think over time you’re going to see that grow as we continue to because that’s based on the firm decisions we’ve already made. So that doesn’t include an expectation.
That’s actually firm decisions. And as we think about bringing back manufacturing, I think you actually will see that number grow. The tax environment, obviously we have to think holistically about all of this, but it is not going to affect how we think about investment. We think we can both do the necessary investments and manage our tax position quite effectively.
Dean Lee, President of Research Labs, Merck: Yeah, in relationship to the PD-one VEGF question, I think you’re referring to the, I think it’s the Harmony two and six sort of readout that’s come up. One of the things that’s actually very consistent that I think the field is looking for is whether any advancement in relationship to PFS over a single PD-one can be translated to an OS and whether something that’s in a China only study can be done globally. Having said that, we embrace the advancements in the field and we think KEYTRUDA sets a high bar with 41 indications across 18 tumor types. As you know, have our own PD-one VEGF and we will gate our decisions in relationship to this as our data and other data evolves. But as you point out, we believe strongly that we are the advantage owner given clinical expertise, extensive data generated, and that in some sense, we have both a Keytruda and a LEAP playbook, and we would intend to move with speed and vigor.
Most importantly or equally important is that should that PD-one VEGF show that OS benefit, we also have an advantage of having unique portfolio agents that have clear potential for combinability. So we are looking at our own data and the data in the field as we make those decisions.
Rob Davis, Chairman and Chief Executive Officer, Merck: And maybe I would just want to add that should the bispecific be successful, I think you can expect that the impact to us because of this is likely to come, frankly, probably post the LOE of KEYTRUDA is pretty small. If you look across non small cell lung cancer where potentially the competitor could be coming, by that time we’ll only be mid teens of our business max. And remember, we are working very diligently to convert people to the earlier stage setting. As we do so, they don’t have an indication there. So from that perspective, the risk to us is minimal, but I think what I really want to emphasize, the opportunity is significant.
And I think that’s the point that Dean’s trying to make. I think this could be frankly a really good thing for Merck long term.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Great, thanks James. Next question please.
Conference Operator: Next question from Steve Sculler from TD Cowen. Go ahead, your line is open.
Dean Lee, President of Research Labs, Merck: Thank you so much. Regarding GARDASIL growth slowdown globally, which seems to be a new disclosure, what new information emerged since Q1 when the company spoke to growth in each and every market? Is there still a line of sight to $11,000,000,000 which was repeated on the Q4 call? And is 2025 still the trough year? Thank you.
Caroline Litchfield, Chief Financial Officer, Merck: Thank you, Steve, for the question. First, the information that we’re providing with regards to the opportunities to grow Gardasil outside of China is not new. What we are highlighting however is a very effective execution by our colleagues in Japan of a catch up cohort programme that ends on the March 31. And as a result of that ending, we expect ourselves in Japan to reflect the primary age cohort and therefore be reduced from quarter two onwards to what we have achieved over the prior quarters. As we look to Gardasil globally this year, we expect China to be a headwind.
We had said previously with regards to China, we will assess do we or do we not ship further products this year at the midpoint of this year and we will do that assessment at the midpoint of this year. However, expect given the current dynamics in China that it is not so likely that we will ship further product in China and that is actually an outcome that is incorporated into the midpoint of our guidance. All of that said, we do expect strong growth excluding China, strong double digit we’ve achieved in the first quarter and we expect continued strong growth as we go through the remainder of the year. In terms of the longer term guidance, we did withdraw the $11,000,000,000 target last quarter, given the fact that China was an important part of the achievement of that $11,000,000,000 Our company remains focused and on the ground in China to maximize the opportunity and maximize the launch in males, while we’re working across the entirety of the world to protect many more lives from HPV related cancers and drive growth for our business as we move forward.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Great, thanks Steve. Next question please.
Conference Operator: Next question is from Alex Hammond from Wolfe Research. Go ahead, your line is open.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck0: Thanks for taking the question. So during the ACIP meeting, you spoke about adjusting the wording for the HPV recommendation from 11 to 12 years old, but eligible at nine to recommendation to nine to 12. That should be voted on at the June meeting. How important do you see this wording update to an impact to US sales? And from your doctor checks, do you see the broader recommendation being a material tailwind?
Thank you.
Rob Davis, Chairman and Chief Executive Officer, Merck: Yeah, thanks for the question. As we look at what is the potential recommendation that could come in June to your point, it appears that we could see them extend the recommendation to nine years old and up. We actually view that as a very important and positive development because of the fact that one, as you look at adolescents who are being vaccinated in their early teens, to the extent that they will need multiple vaccinations, it’s harder to get the fulfillment of the full vaccination schedule. If you start at nine, we’re more apt to see people complete the schedule, which is a positive. And then in addition, at nine years old, you’re at a time when there’s not a lot of other vaccines happening, vaccinations happening.
And so there can be a focus on the Gardasil vaccination at a time when it’s, I think, easier for the family to prioritize and focus on it. So we do see it as a positive. I wouldn’t view it as a big upside to The US. We’ve always viewed that this was an evolution that will be important. And in fact, while this will be an important recommendation, it’s already approved in that age cohort today.
And in fact, you do see vaccinations happening. This recommendation just reinforces it because it’s coming from the ACIP.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Great. Thanks, Alex. Next question, please.
Conference Operator: Next question from Umer Raffat from Evercore. Go ahead. Your line is open.
Dean Lee, President of Research Labs, Merck: Thanks for taking my question. I have a simple one perhaps, if I may. Rob, are you intending to keep the IP for KEYTRUDA subQ here in U. S. Rather than Ireland as we head towards potential approval?
Thank you.
Rob Davis, Chairman and Chief Executive Officer, Merck: Yeah, actually I don’t think we’ve ever disclosed where the IP is for SUBQ and I don’t want to get into a discussion of that. So I think I would prefer not to speak to that just for proprietary reasons.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Thanks, Umer. Next question please.
Conference Operator: Next question is from Akish Tewari from Jefferies. Go ahead. Your line is open.
Dean Lee, President of Research Labs, Merck: Hey guys. So a few admittedly unfair questions on tariffs. One, is a 25% tariff a reasonable expectation? Or do you expect the headline number to be higher? What is your confidence that if they do get announced, they’ll at least be administered thoughtfully, whether it’s gradual implementation or expedited regulatory process to move manufacturing to The US quickly?
And then finally, let’s say they end up being 25%. Could the impact to Merck with reasonable mitigation efforts be in the kind of single digit range on earnings on a percent basis? Thanks so much.
Rob Davis, Chairman and Chief Executive Officer, Merck: Yes. No, I appreciate the question. I don’t want to speculate on what the tariffs could be because we need to see what the language is from the administration. I think the important point is, as I previously stated, we have taken the steps both in terms of inventory management for the short term as well as starting to reposition manufacturing for the medium and long term that I think we are well positioned under most scenarios that they could come through. But the specifics you’re looking for, I don’t want to speculate because we need to see what it is.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Thanks, Akash. Next question please.
Conference Operator: This question is from Mohit Bansal from Wells Fargo. Go ahead, your line is open.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck1: Great, thank you very much for taking my question. I have a question regarding the BD strategy. What we have seen lately is that you have acquired a bunch of assets from China. I mean, mean, like, I completely understand the cost effectiveness of them, but at the same time, it doesn’t seem like they are an innovative area. Right?
I mean, all I did, I think you are the first mover here, the trap to give an LP little a and even Raja PD one. So it like, why doesn’t it feel like more like a company like Merck is chasing the front runners here versus trying to be something do something innovative? We’d love to understand the thought process there. Thank you.
Dean Lee, President of Research Labs, Merck: Yeah. I’ll I’ll take that question first. So first of all, I would remind us that I would sit there and I would consider the Acceleron purchase and winravir as being a front leading molecule. I would also sit there and consider that the move to T01A into lisocopart would be that as well. And I would reemphasize my excitement of our acquisition of iBio in relationship to wet AMD and diabetic macular edema.
I should also emphasize that when you talk about certain compounds, let’s say an LP or GLP, I would remind you also that we believe that we have an ambition to have the first and best oral PCSK9, it will be first to market. We think it’ll be the most effective. Cardiovascular outcomes. But we’re also very confident in its ability to combine with certain agents. So when you look at some of the BD, I might not look at it as in isolation of the rest of pipeline.
I think that there are certain combinations that would be incredibly innovative that would require a combination. But some of the innovation of the base of that innovation comes from our company. And it’s a coordinated one pipeline, external internal pipeline fusing into a final product. Rob, did you wanna add anything?
Rob Davis, Chairman and Chief Executive Officer, Merck: Yeah, maybe just reinforce, I think a couple of points. We’ve been, I think very balanced. Dean gave some great examples of where we are first in class and frankly best in class. We’re also looking at other strategies where we might not be first, but we still think we can be best in class. So I think you have to look at the total of the portfolio and not just the most recent three deals we’ve done.
And I actually think you’ll see us continue to do a range of opportunities, which cover the full spectrum. Because as we look at it, it’s about how do we position ourselves for growth. And in some cases, some of these therapeutic areas, we think there’s still unmet need. I mean, Dean highlighted a little bit, but obesity, there’s an opportunity for a next wave. Depending on what comes with the PD-one VEGF, that could be a next wave where frankly, when you combine it with other agents we have, we could lead as well.
So I don’t think it’s a fair characterization and I would urge you to think more in terms of the total portfolio.
Peter Dannenbaum, Senior Vice President, Investor Relations, Merck: Great. Thank you very much, Mohit. I think that puts us past the hour. So very much appreciate your time and attention this morning. And if you have any additional questions, please reach out to IR.
Thank you all very much. Thank you.
Conference Operator: That concludes today’s conference. Thank you for participating. You may disconnect at this time.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.