TLDR
- Merck reported Q1 adjusted EPS of $2.22, beating analyst expectations
- Company lowered 2025 profit guidance due to tariffs costing an extra $200 million
- Keytruda sales grew 4% to $7.2 billion but fell short of analyst projections
- Gardasil vaccine sales plunged 41% due to weak demand in China
- Stock rose about 1% immediately following earnings release despite the mixed results
Merck & Co. has delivered mixed first-quarter results that showcase both the company’s strengths and challenges. The pharmaceutical giant topped earnings expectations despite headwinds from vaccine sales in China and newly implemented tariffs.
The company reported adjusted earnings per share of $2.22 for Q1 2025, exceeding analyst expectations of $2.13-$2.14. This represents a 7% increase in profit compared to the same period last year.
Total sales reached $15.5 billion, slightly above forecasts of $15.3-$15.4 billion. However, this actually represents a 2% decline from the previous year when accounting for currency fluctuations.
The earnings beat comes despite ongoing issues with Gardasil, Merck’s HPV vaccine. Sales of Gardasil plummeted 41% to $1.3 billion, primarily due to weak demand in China.
Merck had previously disclosed problems with Gardasil distribution in China, but the full extent of the issue became clearer in February when the company revealed it had completely stopped shipping the vaccine to the Chinese market.
Keytruda Growth Slows
Cancer immunotherapy Keytruda, Merck’s flagship product, saw sales rise 4% to $7.2 billion. While still growing, this fell short of analyst expectations of $7.4 billion.
Keytruda continues to be Merck’s most important product, accounting for approximately 40% of the company’s total revenue. The drug’s patent expiration in 2028 remains a major concern for investors.
The company has been working on a subcutaneous version of Keytruda that could potentially help mitigate the impact of Medicare price negotiations and extend the drug’s commercial viability.
Merck’s lung disease treatment Winrevair, launched last year, contributed $280 million in sales. The company’s animal health division performed well with sales growing 5% to $1.6 billion.
Tariff Impacts and Revised Guidance
In response to these results and emerging challenges, Merck has adjusted its financial outlook for the year. The company lowered its 2025 adjusted earnings per share guidance to between $8.82 and $8.97, down from the previous range of $8.88 to $9.03.
This reduction reflects two main factors: a one-time charge of 6 cents per share related to a licensing agreement with Hengrui Pharma, and the impact of tariffs.
Merck explicitly cited tariffs as a major concern, estimating they will result in an extra $200 million in costs this year. This includes tariffs implemented by the U.S. government on imports as well as retaliatory tariffs imposed by other countries, particularly China.
The Trump Administration recently launched a national security investigation into pharmaceuticals, aiming to justify increased tariffs to boost domestic manufacturing of medicines. These trade tensions are now directly affecting Merck’s bottom line.
Despite these challenges, Merck maintained its full-year 2025 sales forecast of $64.1 billion to $65.6 billion.
The market’s initial reaction to the results was positive. Merck stock rose approximately 1.2% in pre-market trading following the earnings release, reaching $79.70 per share.
This modest gain comes after a difficult year for the stock. Merck shares have declined about 38% over the past 12 months, significantly underperforming both the S&P 500 and the pharmaceutical sector as a whole.
The company’s valuation has contracted substantially during this period. Merck now trades at 8.5 times forward earnings, down from 10.5 times at the start of the year.
Investors remain concerned about Merck’s growth prospects beyond 2028, when Keytruda loses patent protection. With Gardasil sales in China faltering, one of the company’s key growth drivers appears less reliable than previously thought.
However, the earnings beat suggests that Merck is managing to control costs effectively in the face of these challenges. The 7% increase in net earnings despite the sales decline indicates improved operational efficiency.
The coming quarters will be crucial for Merck as it navigates trade tensions, works to revive Gardasil sales, and prepares for the eventual Keytruda patent cliff. The company’s ability to develop new revenue streams while maximizing the value of its existing portfolio will determine its long-term trajectory.
