Merck 2025 Q2 Earnings Net Income Declines 18.9% Amid Strategic Shifts

Merck reported mixed second-quarter results, with revenue declining 1.9% year-over-year to $15.81 billion, primarily due to a significant drop in Gardasil sales in China. Despite challenges, management expressed confidence in a return to growth in 2025 driven by Keytruda’s strong performance and new product launches. The company adjusted its guidance in-line with expectations, maintaining a focus on portfolio optimization and pipeline development.

Revenue
Merck's total revenue decreased by 1.9% to $15.81 billion in 2025 Q2, down from $16.11 billion in the same period in 2024. The decline was primarily attributed to a $1.3 billion drop in Gardasil sales in China, which reduced global growth by 9 percentage points. However, excluding China, revenue grew by 7% driven by strength in oncology and animal health. Keytruda sales rose 9% to $8 billion, with growth in both U.S. and international markets. Wellyreg sales increased 29% to $162 million, primarily due to higher uptake in advanced renal cell carcinoma in the U.S. Cavaxib sales reached $129 million, and animal health revenue rose 11%, aided by the Elanco Aqua acquisition and improved supply chain performance.

Earnings/Net Income
Merck's earnings per share (EPS) declined 18.1% to $1.76 in 2025 Q2 from $2.15 in the same period in 2024. Net income dropped to $4.43 billion, a 18.9% decrease from $5.46 billion in the prior year. Despite the decline, the company reported a record high for Q2 net income in over 20 years, highlighting underlying financial strength and operational efficiency. Non-GAAP EPS was reported at $2.13, reflecting disciplined cost management and strategic reallocation of resources.

Price Action
Merck’s stock price rose 1.11% during the latest trading day but fell 2.23% during the most recent full trading week. Month-to-date, the stock edged down 0.17%. Despite the mixed price action, the company's long-term strategic initiatives and strong pipeline advancements continue to support investor confidence.

Post-Earnings Price Action Review
Following its earnings release, Merck's stock experienced a 10.94% return for investors who bought on the earnings beat and held for 30 days. However, this outperformance significantly underperformed the benchmark return of 86.40%. The strategy’s Sharpe ratio of 0.09 indicated modest risk-adjusted returns, while the maximum drawdown of 0% suggested the strategy avoided losses during the backtest period. Despite a CAGR of 2.11%, the strategy's performance was muted compared to the benchmark, with volatility at 22.44%. Investors remain cautious, balancing the company's strategic shifts with market expectations.

CEO Commentary
Rob Davis, Chairman and CEO of Merck, emphasized the company’s science-driven strategy, confident in its ability to navigate the Keytruda loss of exclusivity as "a hill rather than a cliff." The CEO highlighted over $50 billion in potential new product opportunities, including successful launches of WinRevair and Cavaxib. Davis expressed optimism about the company’s scientific advancements and pipeline diversification, noting increased momentum in clinical trials and new product development. The company’s $3 billion portfolio optimization initiative will reinvest in high-potential areas to drive future growth.

Guidance
Merck provided non-GAAP revenue guidance of $64.3 to $65.3 billion for 2