10-Q: Merck & Co. Reports Q1 2025 Results: Keytruda Growth Offsets Vaccine Decline, Januvia Sales Surge

Merck & Co.'s Q1 2025 results show a slight sales decrease due to vaccine and virology declines, balanced by oncology and diabetes growth, with Keytruda remaining a key driver.

Summary

• Merck & Co. reported a 2% decrease in worldwide sales for Q1 2025, totaling $15.5 billion.
• The decline was primarily driven by lower sales in the vaccine and virology segments, offset by growth in oncology, cardiovascular, diabetes, and animal health.
• Keytruda sales grew by 4% to $7.2 billion, driven by higher demand in the U.S. and international markets.
• Gardasil/Gardasil 9 sales declined by 41% due to lower demand in China, despite growth in other international markets.
• Lagevrio sales decreased by 71% due to lower demand in the Asia Pacific region.
• Januvia/Janumet sales increased by 19% due to higher net pricing in the U.S.
• The company expects to record charges of approximately $550 million in 2025 related to the 2024 Restructuring Program.
• The effective income tax rate was 13.9% for Q1 2025.
• The company purchased $1.2 billion of its common stock during the quarter.
• Merck expects the pace of share repurchases to continue at this level for the remainder of 2025.

Sentiment

Score: 6

Explanation: The report presents a mixed picture, with strong performance in some areas offset by declines in others. The company is facing significant challenges related to pricing pressure and regulatory changes, but is also taking steps to improve efficiency and invest in its pipeline. The overall sentiment is neutral to slightly positive.

Positives

• Keytruda continues to be a strong growth driver, with sales increasing by 4% to $7.2 billion.
• Januvia/Janumet sales increased by 19% due to higher net pricing in the U.S.
• Winrevair is showing strong initial uptake, with sales of $280 million in the first quarter.
• Animal Health segment profits rose 14% due to higher sales.
• The company is actively repurchasing shares, indicating confidence in its future prospects.

Negatives

• Worldwide sales decreased by 2% compared to the first quarter of 2024.
• Gardasil/Gardasil 9 sales declined significantly by 41% due to lower demand in China.
• Lagevrio sales decreased by 71% due to lower demand in the Asia Pacific region.
• The company is facing increased pricing pressure and cost-reduction measures from governments and third parties.
• Manufacturing delays related to ProQuad and Varivax are expected to cause supply constraints in some international markets during 2025.

Risks

• Global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide.
• The Inflation Reduction Act (IRA) will negatively affect the company's performance through government price setting and financial penalties.
• Increased utilization of the 340B Federal Drug Discount Program and restrictions on the company's ability to identify inappropriate discounts are having a negative impact on company performance.
• The company is facing potential tax increases under existing provisions of the Tax Cuts and Jobs Act of 2017 (TCJA).
• The company is contesting Notices of Proposed Adjustment (NOPAs) from the IRS that would increase the amount of the one-time transition tax on certain undistributed earnings of foreign subsidiaries by approximately $1.3 billion, plus penalties of approximately $260 million.

Future Outlook

The company anticipates that government-mandated pricing actions and cost-reduction measures will continue to negatively affect sales and profits. Merck expects to record charges of approximately $550 million in 2025 related to the 2024 Restructuring Program and anticipates the actions under the 2024 Restructuring Program will result in cumulative annual net cost savings of approximately $750 million by the end of 2031.

Industry Context

The pharmaceutical industry is facing increasing pressure on pricing and market access due to global efforts toward health care cost containment. The Inflation Reduction Act (IRA) in the U.S. is expected to have a significant impact on drug pricing and coverage, with government price setting for certain Medicare drugs starting in 2026. Companies are also facing increased competition from generic and biosimilar manufacturers, which can significantly shorten periods of exclusivity for their products.

Comparison to Industry Standards

• Merck's performance can be compared to other large pharmaceutical companies such as Pfizer, Johnson & Johnson, and Novartis, which are also facing similar challenges related to pricing pressure, patent expirations, and competition from generics and biosimilars.
• Keytruda's continued growth is a positive sign for Merck, as it is a key driver of revenue and is expected to remain a significant contributor in the coming years.
• However, the decline in Gardasil/Gardasil 9 sales due to lower demand in China is a concern, as China is a major market for the vaccine.
• The company's restructuring program is aimed at improving efficiency and reducing costs, which is a common strategy among pharmaceutical companies in the current environment.

Legal Proceedings

• Merck is a defendant in product liability lawsuits in the U.S. arising from consumers alleged exposure to talc in Dr. Scholls foot powder.
• Merck is a defendant in product liability lawsuits in the U.S. involving Gardasil and Gardasil 9.
• In February 2025, a putative class action was filed against Merck and certain of its officers in the U.S. District Court for the District of New Jersey purportedly on behalf of all purchasers of Merck common stock between February 2022 and February 2025.
• The Merck Defendants filed motions to dismiss in each of the Insurer Plaintiff cases.
• The Company intends to vigorously defend its patents, which it believes are valid, against infringement by companies attempting to market products prior to the expiration of such patents.
• Halozyme, Inc. filed a complaint in the U.S. District Court for the District of New Jersey alleging that the Companys activities related to subcutaneous pembrolizumab infringe or will infringe 15 patents belonging to the MDASE portfolio.

Stakeholder Impact

• Shareholders may be concerned about the decline in sales and the challenges related to pricing pressure and regulatory changes.
• Employees may be affected by the company's restructuring program, which is expected to result in headcount reductions.
• Customers may be affected by potential supply constraints related to ProQuad and Varivax.
• Suppliers may be affected by the company's efforts to reduce costs and improve efficiency.

Next Steps

• The company will continue to monitor the impact of government-mandated pricing actions and cost-reduction measures on its sales and profits.
• Merck is working with Daiichi Sankyo to address FDA feedback regarding the complete response letter (CRL) for the BLA for patritumab deruxtecan.
• The company will continue to invest in its pipeline and pursue business development opportunities to drive growth.
• Merck will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to increase the reserves at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.

Key Dates

Keywords

Keytruda, Gardasil, Januvia, Winrevair, Lagevrio, Pharmaceutical, Vaccines, Oncology, Diabetes, Animal Health, Sales, Earnings, Merck