Merck’s Q1 Beat Signals Resilience in a Challenging Market

Merck & Co (MRK) delivered a Q1 2025 revenue beat, posting $15.5 billion against the IBES estimate of $15.3 billion, driven by strong performance in oncology, new product launches, and cost discipline. Yet, the results also highlighted vulnerabilities, including declines in vaccines and the impact of tariffs. With full-year guidance largely intact but EPS expectations trimmed, investors must weigh Merck’s near-term challenges against its long-term growth catalysts.

Key Drivers of Q1 Success

1. Oncology Dominance Led by KEYTRUDA
The star of Merck’s portfolio, KEYTRUDA (pembrolizumab), grew sales by 4% to $7.2 billion, fueled by expanding use in earlier-stage cancers and first-line therapies. Its subcutaneous formulation—currently under regulatory review—could further boost adoption by reducing infusion time.

2. New Product Momentum
- WINREVAIR (sotatercept-csrk), launched in Q2 2024 for pulmonary arterial hypertension (PAH), contributed $280 million in Q1, buoyed by Phase 3 data showing a 76% risk reduction in PAH-related events.
- WELIREG (belzutifan), an oral HIF-2α inhibitor for renal cell carcinoma, saw sales surge 62% to $137 million.

3. Animal Health Surge
Merck’s Animal Health division grew 5% to $1.6 billion, driven by its Elanco aqua business acquisition and strong livestock demand. Companion Animal sales, while stable, faced modest declines due to reduced BRAVECTO (flea/tick treatment) uptake.

4. Tax and Cost Efficiency
A 13.9% effective tax rate (down from 15.9% in 2024) and a 9% drop in R&D expenses to $3.6 billion (due to prior-year charges) bolstered profitability.

Challenges and Headwinds

• Vaccine Declines: GARDASIL/GARDASIL 9 sales plummeted 41% to $1.3 billion, primarily due to reduced demand in China. While Merck secured male approvals in China for males aged 16–26, recovery may take time.
• Strategic Exits: Loss of SIMPONI (golimumab) marketing rights to J&J after October 2024 erased $184 million in potential sales.
• Tariffs and FX Pressures: U.S.-China trade tensions added $200 million in costs, while foreign exchange headwinds reduced sales growth by ~3%.

Forward Guidance: A Balanced Outlook

Merck reaffirmed its $64.1–65.6 billion full-year sales target, reflecting confidence in oncology and new products. However, non-GAAP EPS guidance was trimmed to $8.82–8.97 (from $8.88–9.03) due to:
- A $0.06/share charge for the Hengrui Pharma Lp(a) inhibitor deal (targeting cardiovascular risk).
- A $0.09/share payment to LaNova Medicines for oncology technology transfer.

Investment Implications

Merck’s Q1 results underscore its ability to navigate headwinds while investing in high-growth areas. Oncology remains the crown jewel, with KEYTRUDA’s subcutaneous form (PDUFA date: Sept. 2025) poised to drive further adoption. Meanwhile, WINREVAIR’s rapid uptake and the WELIREG pipeline expansion position Merck to capitalize on unmet needs in cardiovascular and oncology markets.

However, risks persist:
- Regulatory Delays: Subcutaneous KEYTRUDA’s approval timing and zilovertamab vedotin (for DLBCL) Phase 3 results could sway investor sentiment.
- Geopolitical Risks: Tariffs and China’s vaccine demand recovery are critical uncertainties.

Conclusion

Merck’s Q1 beat signals resilience, with oncology and new products offsetting declines in legacy areas. The company’s focus on R&D—$25.6–$26.6 billion in operating expenses in 2025—aims to fuel long-term growth, particularly in immuno-oncology, cardiovascular care, and diabetes. While the revised EPS guidance reflects near-term costs, the $64.1–65.6 billion sales target remains achievable if KEYTRUDA’s subcutaneous form wins approval and WINREVAIR’s momentum continues.

Investors should monitor Hengrui’s Lp(a) inhibitor progress (a $200 million upfront investment with high upside) and GARDASIL’s China rebound. With a dividend yield of 1.8% and a P/E ratio of 13.5x (vs. industry average 15x), Merck offers a stable, if cautious, entry point for those betting on its oncology leadership and pipeline execution.

In a sector facing pricing pressures and generics, Merck’s strategic bets—expanding in underserved markets and advancing novel therapies—position it to outperform peers if executed well. The next 12 months will test whether this resilience translates into sustained growth.