Merck & Co. Inc. (NYSE:MRK) shares fell over 6% in early trading Tuesday after the pharmaceutical giant reported a mixed second-quarter earnings picture, with adjusted earnings surpassing analyst consensus but overall sales experiencing a slight year-over-year decline and missing revenue expectations.
The market’s cautious reaction underscores investor scrutiny of the company’s performance, particularly a significant drop in Gardasil vaccine sales, even as its blockbuster cancer drug Keytruda continued its strong growth trajectory.
While adjusted earnings per share (EPS) of $2.13 surpassed consensus estimates of $2.04, it marked a decline from the $2.28 reported in the prior-year period. Similarly, total sales of $15.81 billion, a 2% year-over-year decrease, narrowly missed analysts’ projections of $15.94 billion.
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The pharmaceutical segment recorded $14.1 billion in sales, down 2% year over year, primarily due to vaccines and immunology, partially offset by growth in oncology and cardiology.
Keytruda, an immunotherapy for cancer, delivered $7.96 billion in global sales, up 9% year-over-year, reflecting continued uptake across more cancer types and earlier treatment stages.
However, GARDASIL and GARDASIL 9, vaccines to prevent HPV-related diseases, generated $1.1 billion in sales, down 55% compared to last year. The company cited lower demand in China.
Excluding China, sales declined 3%, or 4% excluding the impact of foreign exchange, reflecting lower demand in Japan following a national catch-up immunization program, as well as the timing of public-sector purchases in certain international markets. U.S. sales increased 2% in the quarter.
The diabetes franchise, led by JANUVIA and JANUMET, remained mostly flat at around $623 million, with a slight 1% sales decrease.
Newer products, including Winrevair sales, a therapy for pulmonary arterial hypertension (a rare heart-lung condition), saw accelerated sales since its launch, reaching $336 million compared to $70 million a year ago.
CAPVAXIVE, a 21-valent pneumococcal conjugate vaccine, saw $129 million in sales, representing continued uptake since the third-quarter 2024 launch in the U.S.
Animal Health sales increased 11% to $1.65 billion, primarily due to higher demand for Livestock products, the inclusion of sales from the Elanco aqua business acquired in July 2024, higher pricing, and improved supply.
Restructuring Program
Merck launched a new multiyear optimization initiative to enable the transformation of its portfolio by generating an expected $3.0 billion in annual cost savings.
The company anticipates cumulative pretax costs related to the program to be approximately $3.0 billion. For the second quarter of 2025, the company recorded charges in its GAAP results of $649 million related to this restructuring program.
Merck expects the actions under the restructuring program to result in annual cost savings of approximately $1.7 billion, which will be substantially realized by the end of 2027.
This restructuring program is part of the multiyear optimization initiative expected to achieve $3.0 billion in annual cost savings by the end of 2027.
Manufacturing and R&D Investment
Merck continued to make long-term investments in its U.S. manufacturing and R&D capabilities, including the start of construction for a $1.0 billion, 470,000-square-foot state-of-the-art biologics center in Wilmington, Delaware, which will serve as a launch and commercial production facility and the primary U.S. manufacturing site for Keytruda.
In addition, the company announced an $895 million expansion of its Animal Health manufacturing facility in De Soto, Kansas, to increase capacity for Animal Health vaccines and biologic products.
Guidance
Merck raises its fiscal 2025 adjusted earnings guidance from $8.82-$8.97 to $8.87-$8.97 compared to the consensus estimate of $8.90.
The company also narrowed its 2025 sales guidance from $64.1 billion-$65.6 billion to $64.3 billion-$65.3 billion versus the consensus of $65.01 billion.
The $200 million of costs previously included in the company’s financial outlook related to the impact of tariffs is unchanged pending the outcome of additional potential government actions.
During the earnings conference call, Merck’s CEO addressed the potential impact of EU tariffs, stating that immediate implementation would have a minimal effect on 2025 results. However, the timing of these tariffs and their connection to the Section 232 investigation remain unclear.
Simultaneously, Merck revealed it will not resume Gardasil shipments to China through at least the end of this year. This decision comes as Gardasil channel inventories in China remain elevated and demand continues to be soft. Furthermore, the company anticipates that Japan will experience a “more significant headwind” in terms of growth for Gardasil in the second half of the year.
Price Action: MRK stock is trading lower by 6.19% to $78.86 at last check Tuesday.
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