TD Cowen Downgrades Merck Stock to 'Hold' Amid Keytruda, Gardasil Uncertainties

In a recent research note, TD Cowen analysts downgraded Merck & Co. Inc. (MRK) stock to 'hold' from 'buy,' citing uncertainties surrounding the company's key products, Keytruda and Gardasil. The analysts expressed concerns about increased competition for Keytruda, Merck's blockbuster cancer immunotherapy, and the recent pause in Gardasil shipments to China due to market dynamics and inventory management.

Keytruda, a PD-1/PD-L1 inhibitor, has faced increased competition from other drugs in its class, such as Opdivo and Tecentriq, which has led to slower growth in sales. Additionally, the recent pause in Gardasil shipments to China, due to soft economy and weak consumer demand, has negatively impacted Merck's overall sales and earnings outlook.

The pause in Gardasil shipments is expected to continue at least through the middle of the year, which will impact Merck's overall sales and earnings. This decision is part of Merck's efforts to pare inventory and support its commercialization partner in China, which owns the inventory. The company's CEO, Robert Davis, attributed the pause to market dynamics in China, including a soft economy and weak consumer demand.

The International Monetary Fund (IMF) recently forecast that China's economy, the second-largest in the world, would decelerate from 4.8% last year, to 4.6% in 2025 and 4.5% in 2026. A collapse in the Chinese housing market has undermined consumer confidence, further exacerbating the challenges faced by Merck and other companies operating in the region.

The uncertainty surrounding Keytruda and Gardasil has led to a revision in Merck's financial outlook. The company now expects adjusted earnings to range between $8.88 and $9.03 per share on $64.1 billion to $65.6 billion in sales, compared to analysts' projections of $9.13 per share on $67.07 billion in sales. This revision reflects a one-time charge of approximately $0.09 per share related to an anticipated milestone payment to LaNova.

Shares of Merck slid Tuesday after the drugmaker surprised Wall Street with a lower-than-expected 2025 sales forecast due partly to the pause in shipments of one of its top-selling products to China. The stock tumbled 10%, or $10.07, to $89.72 Tuesday while broader indexes climbed.

In conclusion, the uncertainties surrounding Keytruda and Gardasil have led TD Cowen to downgrade Merck's stock to 'hold.' The pause in Gardasil shipments to China and increased competition for Keytruda have negatively impacted Merck's overall sales and earnings outlook, leading to a revision in the company's financial projections. Investors should closely monitor the situation and consider the potential implications for Merck's market position and competitive landscape.