Merck Q1 2025 Earnings Report Analysis: Decline in Revenue, Core Drivers and Short-term Challenges Coexist

On April 24, Merck released its financial performance for Q1 2025. The report shows that the company’s global sales reached $15.5 billion, a 2% year-on-year decrease (1% increase excluding the impact of exchange rates). Non-GAAP earnings per share (EPS) were $2.22, a 7% increase from the previous year. Despite challenges from exchange rate fluctuations and demand volatility for some products, key products such as KEYTRUDA and the animal health business performed strongly, with the R&D pipeline also achieving multiple milestones.

Financial Performance: Core Drivers and Short-term Challenges Coexist

Revenue Overview

In Q1 2025, Merck’s global sales totaled $15.529 billion, slightly down from $15.775 billion in the same period last year. After excluding the negative 6% impact of exchange rates, actual sales grew by 1%. Breaking down by business:

• Pharmaceuticals: Sales were $13.638 billion (88% of total sales), a 3% decrease year-on-year, mainly due to declines in vaccine and antiviral products. However, oncology, cardiovascular, and diabetes sectors saw growth.
• Animal Health: Sales were $1.588 billion, a 5% increase year-on-year (10% growth excluding exchange rate impact), driven by demand for livestock products and the acquisition of Elanco's aquaculture business.

Core Product Performance

• KEYTRUDA (pembrolizumab): Sales were $7.205 billion, a 4% increase year-on-year (6% growth excluding exchange rate effects), accounting for 53% of pharmaceutical sales. Growth was driven by global penetration in earlier indications (e.g., triple-negative breast cancer, renal cell carcinoma) and increased demand in metastatic indications such as bladder cancer and endometrial cancer.
• WINREVAIR (new pulmonary arterial hypertension drug): Sales were $280 million, continuing to grow since its launch in Q2 2024.
• Animal Health Products: BRAVECTO (anti-parasitic drug) sales were $327 million, with a 2% increase after excluding exchange rate effects.

Short-term Volatile Products

• GARDASIL 9 (HPV vaccine): Sales were $1.327 billion, a 41% decrease year-on-year (mainly due to a sharp drop in demand in China; excluding China, global sales grew by 14%).
• LAGEVRIO (oral COVID-19 medication): Sales were $102 million, a 71% decrease year-on-year, reflecting a post-pandemic decline in demand.

Profit and Costs

• GAAP Net Income: $5.079 billion, a 7% increase year-on-year. Non-GAAP net income was $5.611 billion, a 6% increase year-on-year.
• R&D Investment: $3.621 billion, a 9% decrease year-on-year, mainly due to the high base effect from the acquisition of Harpoon Therapeutics in 2024.
• Tariff Impact: The company expects an additional cost of about $200 million due to the US-China tariffs for the full year, which has partially impacted this quarter's costs.

R&D and Pipeline Progress: Innovation Driving Future Growth

In Q1, Merck disclosed several key clinical data and regulatory progress across oncology, cardiovascular, and infectious disease sectors:

• Oncology: Subcutaneous KEYTRUDA: Phase III trial showed that its efficacy is non-inferior to the intravenous form. The FDA approval date is set for September 23, 2025, which could enhance patient convenience. KEYTRUDA Combination Therapy: Received FDA priority review for perioperative treatment of locally advanced head and neck squamous cell carcinoma, with a PDUFA date of June 23, 2025. ADC New Drug Zilovertamab Vedotin: Phase III trials have begun for diffuse large B-cell lymphoma.
• Cardiovascular: WINREVAIR: The Phase III ZENITH trial showed a 76% reduction in mortality, lung transplant, or hospitalization risk for pulmonary arterial hypertension patients, leading to an early termination due to significant efficacy.
• Infectious Disease: HIV combination drug DOR/ISL: Two Phase III trials confirmed that its once-daily oral regimen maintains viral suppression, with a plan to submit a market application in mid-2025.
• Partnership Expansion: Merck reached an exclusive licensing agreement with Hengrui Medicine to bring in oral Lp(a) inhibitor HRS-5346 (currently in Phase II clinical trials). The transaction is expected to close in Q2 2025.

Full-year Outlook: Maintaining Revenue Guidance, Adjusting Earnings Forecast

Merck maintains its full-year revenue guidance for 2025 ($64.1 billion to $65.6 billion) but has revised its non-GAAP EPS guidance to $8.82–$8.97 (from the previous $8.88–$9.03), mainly reflecting a one-time expense of $0.06 related to the Hengrui Medicine agreement. Other key forecasts include:

• Non-GAAP gross margin: Around 82% (down from 82.5%), impacted by tariffs and exchange rates.
• Capital Investment: Over $12 billion invested since 2018, with plans to invest another $9 billion by 2028. Recently, a $1 billion investment was made to expand the vaccine manufacturing facility in North Carolina.

Management's Statement

Merck’s Chairman and CEO, Robert M. Davis, stated: “We have made solid progress in commercializing new products and advancing our R&D pipeline. We are accelerating innovation to meet patient needs and create long-term value for shareholders. Despite some market volatility, the growth of KEYTRUDA and WINREVAIR validates our strategic execution.”

Summary

Merck faces challenges with an aging R&D pipeline, insufficient delivery of R&D pipeline assets, and high dependence on KEYTRUDA for sales.