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

• 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.

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.

• 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.

• 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.

• 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.

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.

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.

• 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.

• 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.

• 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.

• 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.

• January 2024: Merck approved a restructuring program intended to optimize the Human Health and Animal Health global manufacturing networks.
• October 1, 2024: The company's marketing rights with respect to Simponi and Remicade reverted to Johnson & Johnson.
• November 2024: Merck's Board of Directors declared a quarterly dividend of $0.81 per share on the company's outstanding common stock for the first quarter.
• January 2025: China's NMPA approved Gardasil for use in males 9-26 years of age.
• January 2025: China's NMPA approved Lynparza as adjuvant treatment for adult patients with germline BRCA -mutated, human epidermal growth factor receptor 2 (HER2)-negative high-risk early breast cancer.
• January 2025: Merck's Board of Directors declared a quarterly dividend of $0.81 per share on the company's outstanding common stock for the second quarter.
• January 2025: The U.S. Department of HHS announced that Janumet and Janumet XR would be included in the second year of the IRAs Program.
• February 2025: The company's $2.5 billion, 2.75% notes matured in accordance with their terms and were repaid.
• February 2025: The EC conditionally approved Welireg as monotherapy both for the treatment of adult patients with VHL disease and for the treatment of adult patients with advanced clear cell RCC.
• February 2025: The company temporarily paused shipments to China beginning in February 2025 through at least the middle of the year.
• March 2025: Merck and Jiangsu Hengrui Pharmaceuticals Co., Ltd. announced that the companies have entered into an exclusive license agreement for HRS-5346.
• March 2025: Merck acquired the Dundalk, Ireland facility of WuXi Vaccines.
• March 2025: The EC approved Capvaxive.
• April 2025: China's NMPA approved Gardasil 9 for use in males 16-26 years of age.
• April 2025: The EC approved Keytruda in combination with pemetrexed and platinum chemotherapy for the first-line treatment of adult patients with unresectable non epithelioid malignant pleural mesothelioma.
• April 21, 2025: Merck received 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.
• June 2025: The U.S. Centers for Disease Control and Preventions (CDC) Advisory Committee on Immunization Practices (ACIP) has stated that at its meeting in June 2025 it intends to discuss and, potentially, vote on a change to the dose recommendation, which could include a reduction in the number of recommended doses.