Skip to content
    MRK
    Earnings call· Mar 2025(Q1 FY25)

    Merck & Co., Inc. MRK

    Apr 24, 2025 Source

    Executive summary

    Merck & Co., Inc. Q1 FY25 — Strong Pipeline Advancement and New Product Launches Drive Performance

    Merck delivered Q1 FY25 results in line with expectations, driven by strong oncology performance and promising launches of WINREVAIR and CAPVAXIVE. The company is strategically investing in its pipeline and manufacturing footprint to navigate the KEYTRUDA LOE and potential tariff impacts, while actively pursuing science-driven business development to build a diversified portfolio of future growth drivers.

    Highlights

    5

    • Total company revenues were $15.5 billion, an increase of 1% excluding FX, in line with expectations.

    • WINREVAIR global sales reached $280 million, with over 1,400 new U.S. patients receiving prescriptions.

    • KEYTRUDA sales grew 6% to $7.2 billion, driven by increased uptake in earlier-stage cancers and metastatic indications.

    • WELIREG sales increased 63% to $137 million, becoming the market leader in advanced renal cell carcinoma after prior therapies.

    • Animal Health business delivered robust growth with sales increasing 10%.

    Concerns

    4

    • GARDASIL sales decreased 40% to $1.3 billion, primarily due to a $1.1 billion decline in China from elevated channel inventories and soft demand.

    • Full-year guidance includes approximately $200 million in costs from tariffs implemented to date.

    • GARDASIL growth outside China is anticipated to slow due to the moderation of the Japan catch-up vaccination program.

    • Operating expenses guidance now includes a $200 million payment related to the Hengrui Pharma license agreement.

    Guidance & targets

    6
    CategoryTargetConfidence
    Full-year Revenue
    $64.1 billion to $65.6 billion
    high materiality
    High
    Full-year Non-GAAP EPS
    $8.82 to $8.97
    high materiality
    High
    Full-year Gross Margin
    approximately 82%
    medium materiality
    High
    Full-year Operating Expenses
    $25.6 billion to $26.6 billion
    medium materiality
    High
    Full-year Other Expense
    $300 million to $400 million
    low materiality
    High
    Full-year Tax Rate
    15.5% and 16.5%
    medium materiality
    High

    Segment performance

    8
    SegmentRevenueYoYQoQMargin
    Total Company
    Total company revenues increased 1% excluding the impact of foreign exchange. Results were impacted by a $1.1 billion decline in GARDASIL sales in China, reducing ex-FX growth by 7 percentage points. Excluding these sales and FX, global growth was 8%.
    		$15.5 billion1%——
    Oncology - KEYTRUDA
    Global growth driven by increased uptake from earlier-stage cancers (resectable triple-negative breast cancer, renal cell carcinoma, non-small cell lung cancer) and robust demand from metastatic indications (urothelial cancer with Padcev, endometrial cancer with chemotherapy). U.S. growth negatively impacted by approximately $250 million due to wholesaler purchasing timing.
    		$7.2 billion6%——
    Oncology - WELIREG
    Sales increased 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 this treatment setting.
    		$137 million63%——
    Vaccines - GARDASIL
    Decrease driven by China where elevated channel inventories and soft demand reduced sales by approximately $1.1 billion. Rest of the world growth was 16%, with U.S. sales benefiting from price and demand, and outside U.S./China growth from higher overall demand, including catch-up cohort in Japan.
    		$1.3 billion-40%——
    Vaccines - CAPVAXIVE
    Sales driven primarily by demand from the retail pharmacy segment. Strong early launch progress.
    		$107 million———
    Vaccines - VAXNEUVANCE
    Growth from launches in international markets partially offset by competitive pressures in the U.S.
    		—7%——
    Cardiovascular - WINREVAIR
    Strong momentum in its launch, performing in line with high expectations. Steady increase in new prescriptions for patients whose background PAH therapies do not include a prostacyclin. Progressing with launches and reimbursement outside the U.S.
    New U.S. patients receiving prescription: 1,400+
    		$280 million———
    Animal Health
    Robust growth reflecting higher demand across all species in Livestock, benefit from timing of sales in ruminants, and sales from acquired aqua portfolio. Companion animal sales growth reflects price.
    		—10%——

    Operational metrics

    9
    Gross Margin
    82.2%up 1 percentage point
    Q1 FY25
    Operating Expenses (excluding BD charge)
    $6.1 billionup 6%
    Q1 FY25

    Reflects disciplined investments in support of robust early- and late-phase pipeline and key growth drivers. No significant business development expenses in Q1 FY25 compared to a $656 million charge a year ago.

    Tax Rate
    14.2%
    Q1 FY25
    Share Repurchases
    $1.2 billionsimilar to full year 2024
    Q1 FY25

    Pace of repurchase expected to continue at this level, prioritizing investments in growth drivers, pipeline, and business development.

    JANUVIA Family U.S. Sales Benefit
    more than $100 million
    Q1 FY25

    Lowered list prices for JANUVIA family in the U.S. at the beginning of 2025 are expected to reduce rebate amounts to Medicaid and result in higher net sales for 2025.

    U.S. Manufacturing Investment
    $12 billion
    since 2018

    Invested in U.S. manufacturing since 2018, with an additional $9+ billion committed for projects through 2028, to rebalance manufacturing footprint and align with U.S. manufacturing growth efforts.

    Future U.S. Manufacturing Investment Commitment
    $9+ billion
    through 2028

    Committed for projects through 2028, expected to grow further. Aims to bring more product manufacturing to the U.S. for domestic supply and export.

    Late-Phase Pipeline Expansion
    nearly tripled
    since 2021

    Achieved through advancement of internally discovered compounds and numerous business development transactions across oncology, cardiometabolic, ophthalmology, and immunology.

    Pipeline Commercial Opportunity
    over $50 billion
    by mid-2030s

    Comprises programs with potential commercial opportunity by the mid-2030s, with over 20 new products expected to launch in the next few years, almost all with blockbuster potential.

    Industry KPIs

    9
    MetricValueDetails
    EPS$2.22USD
    Gross margin82.2%%
    Tariff impact$200 millionUSD
    Revenue net sales$15.5 billionUSD
    Effective tax rate14.2%%
    Pricing price realizationLowered list prices
    Therapeutic drug market shareMarket leader
    Geographic regional revenue growth16%%
    Clinical trial efficacy safety data76% risk reduction%

    Product announcements

    3
    ProductTypeDetails
    CAPVAXIVEexpansion
    GARDASIL 9expansion
    WELIREGexpansion

    Deals & partnerships

    1
    Hengrui PharmaExclusive license agreement for HRS-5346, an investigational oral small molecule lipoprotein A (Lp(a)) formation inhibitor.$200 million payment

    Merck announced an exclusive license agreement with Hengrui Pharma for HRS-5346. Hengrui recently initiated a Phase II clinical trial in China. Merck is planning a robust global clinical development program.

    Risks & headwinds

    6
    GARDASIL sales decline in ChinaQ1 FY25, ongoing

    $1.1 billion reduction in Q1 FY25 sales

    Mitigation: Assessing further product shipments at midpoint of year; focused on maximizing opportunity and launch in males in China; working globally to protect more lives from HPV-related cancers.

    TariffsFY25, ongoing

    Approximately $200 million in costs included in FY25 guidance

    Mitigation: Evolving supply-chain strategy to balance manufacturing footprint (U.S. for U.S., Europe for Europe, Asia for Asia); $12 billion invested in U.S. manufacturing since 2018, $9+ billion committed through 2028; inventory management for near-term impacts; repositioning manufacturing for medium/long term.

    KEYTRUDA Loss of Exclusivity (LOE)Post-2028

    Not quantified, but a major future event

    Mitigation: Advancing a robust pipeline of over 20 new products with blockbuster potential ($50+ billion by mid-2030s) to successfully navigate the LOE period; continued science-driven business development.

    Potential for International Reference PricingFuture

    Not quantified

    Mitigation: Open to working with administration to address U.S.-rest-of-world price differential; advocating for PBM reform; encouraging foreign governments to give fair value for innovation; protecting U.S. access and innovation engine.

    Disconnect between BD seller expectations and market realitiesOngoing

    Not quantified

    Mitigation: Merck is doing everything to reflect market realities in valuation; continuing to be aggressive in pursuing deals despite the disconnect.

    FDA personnel transitionsMid- to long-term

    Not quantified

    Mitigation: Monitoring and watchful for potential impacts, but near-term PDUFA dates and active dialogues are on track.

    What to watch in Q2 FY25

    5

    GARDASIL China Shipment Decision

    Midpoint of this year
    CurrentElevated channel inventories and soft demand led to $1.1 billion decline in Q1 FY25
    TargetDecision on whether to ship further product in China

    Why it matters

    This decision will impact full-year GARDASIL sales and the overall revenue outlook, as China is a significant market.

    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.

    Q&A highlights

    5

    What are Merck's mitigating strategies for potential tariffs, such as new CapEx, supply chain changes, or U.S. price increases?

    Merck has been rebalancing its supply chain since 2018, investing $12 billion in U.S. manufacturing since then and committing $9+ billion more through 2028. Near-term impacts are managed by inventory, while medium-to-long term involves repositioning manufacturing, external contracts, and building internal U.S. facilities. Price increases are not considered a lever for tariffs.

    “We are not using and do not really see price as the 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.”

    asked by Geoff Meacham · answered by Robert Davis

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Supply Chain and Manufacturing Investments

    Merck is actively evolving its supply chain strategy to balance its manufacturing footprint, aligning with efforts to regrow the U.S. manufacturing base. Since 2018, the company has invested $12 billion in U.S. manufacturing and committed an additional $9+ billion through 2028. These investments aim to increase U.S. production for domestic supply and export, positioning Merck to manage potential near-term tariff impact🌐s through inventory and long-term through localized manufacturing, including for new products and KEYTRUDA.

    02

    Pipeline Expansion and Future Growth Drivers

    Merck has significantly expanded its late-phase pipeline, nearly tripling it since 2021 through internal advancements and business development. This robust pipeline comprises over 20 promising potential new growth drivers expected in the coming years, almost all with blockbuster potential, representing a commercial opportunity of over $50 billion by the mid-2030s. WINREVAIR and CAPVAXIVE are initial launches from this pipeline, with many early-phase programs expected to advance to Phase II soon.

    03

    WINREVAIR's Strong Launch and Clinical Validation

    WINREVAIR continues its strong launch momentum, with global sales of $280 million in Q1 FY25 and over 1,400 new U.S. patients receiving prescriptions. Detailed results from the Phase III ZENITH trial showed a 76% risk reduction in major PAH outcomes, leading to early stoppage for overwhelming efficacy. The HYPERION study was also stopped early due to loss of clinical equipoise, reinforcing WINREVAIR's potential to be practice-changing for pulmonary arterial hypertension patients.

    04

    HIV Pipeline Advancements

    Merck's HIV pipeline is gaining focus with positive Phase III data for islatravir-based regimens. Two pivotal trials demonstrated noninferior efficacy and safety for the once-daily oral fixed-dose combination of doravirine and islatravir compared to InSTI-based regimens. Regulatory submissions for marketing authorization are planned by midyear, offering a new 2-drug regimen option without an integrase strand transfer inhibitor.

    05

    Oncology Portfolio and Subcutaneous Pembrolizumab

    The oncology portfolio showed strong growth, with KEYTRUDA sales up 6% and WELIREG sales up 63%. Significant progress was made with the investigational subcutaneous fixed-dose combination of pembrolizumab and berahyaluronidase alfa, which met dual primary endpoints in a Phase III trial, demonstrating noninferior pharmacokinetics and comparable efficacy/safety to IV KEYTRUDA. The FDA has a PDUFA date of September 23, and EMA is reviewing, with approval sought for both 3-week and 6-week dosing options.

    06

    Business Development Strategy and Market Dynamics

    Business development remains a top priority, with Merck actively evaluating science-driven, value-creating transactions. While the macro environment adds complexity, the company continues to pursue deals. Management noted a disconnect between sellers' expectations and market realities but expressed confidence in closing deals. Merck aims for a balanced BD approach, seeking both first-in-class and best-in-class opportunities across therapeutic areas.

    AI-generated summary of the company’s earnings call. Not investment advice.