MRK Q1 Earnings Call: Pipeline Expansion, Tariff Pressures, and Portfolio Diversification

Global pharmaceutical company Merck (NYSE:MRK) reported Q1 CY2025 results exceeding the market’s revenue expectations, but sales fell by 1.6% year on year to $15.53 billion. The company expects the full year’s revenue to be around $64.85 billion, close to analysts’ estimates. Its non-GAAP profit of $2.22 per share was 4% above analysts’ consensus estimates.

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StockStory’s Take

Merck’s first quarter performance was shaped by steady demand in its oncology and animal health businesses and the growing contribution from new product launches such as WinRevair and Cafaxib. Management cited a pronounced decline in Gardasil sales in China, which offset growth in other segments, while ongoing investments in U.S. manufacturing and supply chain flexibility emerged as key themes. CEO Rob Davis highlighted the company’s progress on pipeline development and the ability to manage near-term headwinds through inventory planning and manufacturing localization.

Looking ahead, Merck’s 2025 guidance is anchored by continued momentum in its late-stage portfolio and expectations for improved growth in the second half of the year. Management acknowledged external risks, particularly from evolving U.S. tariff policies, but expressed confidence in the company’s strategic positioning. CFO Caroline Litchfield emphasized that operational investments and disciplined cost management will support both innovation and Merck’s ability to navigate industry challenges.

Key Insights from Management’s Remarks

Merck’s leadership focused on the evolving product mix, supply chain strategy, and regulatory developments as primary factors influencing first quarter results. The underlying performance was shaped by new product launches and ongoing demand for established therapies, while selective investments and external pressures played significant roles.

• New launch momentum: The recent launches of WinRevair for pulmonary arterial hypertension and Cafaxib in pneumococcal vaccines generated meaningful growth, with WinRevair’s uptake driven by expanded clinical trial data and increasing patient reach in the U.S. and international markets.
• Gardasil sales volatility: A sharp decline in Gardasil vaccine sales in China was attributed to elevated inventories and softer demand, partially offset by stable or growing demand in the U.S., Japan, and other international markets. Management expects Japan’s catch-up vaccination cohort to taper off, moderating future growth.
• Oncology expansion: Keytruda and other oncology assets recorded demand growth, particularly in earlier-stage cancers. Management noted new clinical and regulatory milestones, including additional indications and new dosing formulations for Keytruda, as contributors to ongoing portfolio strength.
• Supply chain adaptation: Merck’s ongoing investments in U.S. manufacturing are designed to mitigate tariff exposure and support future launches. The company cited over $12 billion invested since 2018, with plans for more than $9 billion in further projects through 2028, focusing on ‘U.S. for U.S.’ supply resilience.
• Pipeline broadening: The late-stage pipeline now includes 20+ programs with significant commercial potential, spanning oncology, cardiometabolic, ophthalmology, and immunology, with management emphasizing the expected introduction of multiple blockbuster candidates over the next several years.

Drivers of Future Performance

Merck’s outlook for the coming quarters centers on the continued integration of new products, proactive supply chain management, and ongoing investment in research and development to sustain portfolio diversification.

• Tariff and policy impacts: Management flagged ongoing and potential new tariffs—especially between the U.S. and China—as a risk to cost structure. The company’s focus on U.S.-based manufacturing and inventory management is intended to offset near-term disruptions, but longer-term policy changes remain a source of uncertainty.
• Gardasil trajectory: Ongoing softness in China and the conclusion of Japan’s catch-up vaccination program are expected to weigh on vaccine revenue growth, with management monitoring whether U.S. regulatory recommendations could boost domestic demand.
• Pipeline execution: Progress toward regulatory milestones and data readouts for late-stage pipeline programs will be critical to offsetting future revenue loss from patent expirations on major products such as Keytruda.

Top Analyst Questions

• Geoff Meacham (Citibank): Asked about Merck’s strategies to mitigate new U.S. tariffs, particularly whether supply chain changes or price increases would be used. CEO Rob Davis explained the company’s focus on manufacturing localization and inventory planning, stating price increases are not the preferred lever.
• Tim Anderson (Bank of America): Queried about long-term guidance after Keytruda’s patent expiry and the potential for more granular disclosure. Rob Davis reiterated reliance on the pipeline’s strength and noted there are no current plans for detailed line-by-line guidance.
• Luisa Hector (Berenberg): Sought clarity on regulatory developments at the FDA and HHS, especially for vaccine programs. Dr. Dean Li responded that near-term regulatory timelines remain on track despite broader agency personnel changes.
• Chris Schott (JPMorgan): Questioned the likelihood of Gardasil moving to a single-dose regimen in the U.S. and implications for pricing. Management emphasized the high evidentiary bar set by the FDA and the company’s intention to maintain the vaccine’s value proposition.
• Steve Scala (TD Cowen): Asked about the outlook for Gardasil growth after the end of Japan’s catch-up program and whether previous long-term targets remain achievable. CFO Caroline Litchfield confirmed that the $11 billion target was withdrawn, citing China headwinds, but still expects strong growth outside China.

Catalysts in Upcoming Quarters

In the next few quarters, the StockStory team will be monitoring (1) clinical trial readouts and regulatory decisions for key pipeline candidates, including new oncology and cardiometabolic therapies, (2) the impact of U.S. tariff policy changes on operating margins and supply chain strategy, and (3) the trajectory of Gardasil sales as Japan’s catch-up program phases out and China demand remains uncertain. Execution on pipeline launches and mitigation of external headwinds will remain central to Merck’s performance.

Merck currently trades at a forward P/E ratio of 8.4×. In the wake of earnings, is it a buy or sell? Find out in our free research report.

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