Merck's Diverging Drug Trends: KEYTRUDA Growth vs. GARDASIL Slump

Merck & Co. (MRK) has long been a pharmaceutical powerhouse, riding the success of blockbusters like KEYTRUDA, its PD-1 checkpoint inhibitor, and GARDASIL, the HPV vaccine. But the company’s Q1 2023 results reveal a stark divide: KEYTRUDA sales rose 4% year-over-year, while GARDASIL sales plummeted 41% in the same period. This divergence raises critical questions about Merck’s growth trajectory and the risks investors should weigh.

The Rise of KEYTRUDA
KEYTRUDA remains Merck’s crown jewel, accounting for roughly 23% of total revenue in 2022. The 4% Y/Y growth in Q1, however, marks a notable slowdown from its blistering 29% growth in 2020. Still, the drug’s expansion into new indications—such as first-line treatment for non-small cell lung cancer—has kept it on a steady path. Analysts project KEYTRUDA could reach $20 billion in annual sales by 2025, though competition from rival checkpoint inhibitors like BMS’s Opdivo and Roche’s Tecentriq will test that trajectory.

The GARDASIL Slide
GARDASIL’s 41% Q1 sales drop is a stark reversal. The HPV vaccine, which prevents cervical and other cancers, was a $2.5 billion product in 2022. The collapse in Q1 likely stems from supply chain disruptions, as Merck cited manufacturing issues in 2022 that limited shipments. But deeper concerns linger: competition from GlaxoSmithKline’s Cervarix and Gardasil 9, coupled with waning demand in mature markets, could be long-term headwinds. Worse, the FDA’s approval of a rival HPV vaccine, Vaxelis, in late 2022 adds to the pressure.

The Bigger Picture: Merck’s Stock and Strategy
Merck’s stock has been buffeted by these mixed signals. Shares fell nearly 5% on Q1 earnings reports, but the 4% dip from their 52-week high still leaves the stock up 10% year-to-date. Investors must ask: Is the KEYTRUDA growth enough to offset GARDASIL’s stumble?

On one hand, Merck’s oncology pipeline remains robust, with KEYTRUDA’s label expansion and early-stage candidates like the LIV-1 inhibitor M7824. On the other, the company faces headwinds beyond GARDASIL: patent cliffs loom for its diabetes drug Januvia, and pricing pressures in the U.S. and Europe could crimp margins.

Conclusion: A Mixed Bag, But Momentum Remains
Merck’s Q1 results are a tale of two drugs—and two trajectories. While GARDASIL’s collapse is alarming, the broader narrative is still one of resilience. KEYTRUDA’s steady growth, paired with Merck’s deep pipeline and $2.3 billion in quarterly free cash flow, suggests the company can weather the storm.

The critical question is whether GARDASIL’s issues are temporary. If supply ramps up and demand rebounds, the vaccine’s sales could stabilize. Meanwhile, KEYTRUDA’s expansion into China and other emerging markets offers a tailwind.

For investors, the stock’s current valuation—trading at 20x forward earnings, below its 5-year average of 23x—offers some margin of safety. While the GARDASIL slump isn’t trivial, the broader story of Merck’s oncology dominance and disciplined R&D spending argues for a cautiously optimistic stance. The next six months will be crucial, as Merck’s ability to resolve supply issues and secure new drug approvals will determine whether this divergence becomes a lasting concern or a temporary stumble.