Global pharmaceutical company Merck (NYSE: MRK) met Wall Street’s revenue expectations in Q2 CY2025, but sales fell by 1.9% year on year to $15.81 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $64.8 billion at the midpoint. Its non-GAAP profit of $2.13 per share was 5% above analysts’ consensus estimates.

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StockStory’s Take

Merck’s second quarter performance aligned with Wall Street’s revenue expectations but drew a negative reaction from the market, as sales declined 1.9% year-over-year. Management attributed the drop primarily to weaker demand for GARDASIL in China, which reduced overall growth by 9 percentage points. CEO Robert Davis cited robust performances in oncology and Animal Health, as well as strong launches of new products like WINREVAIR, which has achieved $1 billion in cumulative sales since approval. CFO Caroline Litchfield noted, “excluding China, global growth was 7%, primarily driven by strength in oncology and Animal Health as well as new products.”

Looking ahead, Merck’s guidance for the remainder of 2025 emphasizes confidence in new product launches across its portfolio, especially in oncology, cardiopulmonary, and infectious diseases. Management expects continued growth from WINREVAIR and CAPVAXIVE, alongside positive clinical milestones for key pipeline assets, including enlicitide and HIV therapies. Davis stated, “We expect to return to growth in the second half of 2025 and remain confident in our outlook for the remainder of the year.” Litchfield highlighted a multiyear optimization program aimed at reallocating $3 billion in cost savings to high-potential areas, ensuring strong investment in late-stage pipeline opportunities.

Key Insights from Management’s Remarks

Merck’s management pointed to divergent segment performance as the key driver of the quarter, with new product launches and pipeline updates helping to offset significant regional declines.

• China GARDASIL sales decline: Management stressed that a sharp drop in GARDASIL revenue from China, due to elevated channel inventories and soft demand, was the largest drag on results, reducing overall growth by 9 percentage points. The company will not resume shipments to China until at least year-end, and is not relying on this market for near-term growth.

• Oncology momentum: Growth in the oncology segment was led by KEYTRUDA, which saw strong demand in metastatic and earlier-stage cancers, particularly those affecting women. Uptake in new indications, such as head and neck cancer, contributed to this momentum, while WELIREG also showed increased use in advanced renal cell carcinoma.

• WINREVAIR launch success: The cardiovascular therapy WINREVAIR surpassed $1 billion in cumulative sales just over a year after approval, with management highlighting expanding use in both severe and less severe pulmonary arterial hypertension patients. The product is expected to benefit further from recent positive trial results and upcoming geographic launches, especially in Japan and Europe.

• Animal Health growth: The Animal Health division grew 11%, driven by both livestock and companion animal products, and supported by improved supply and the addition of the aqua portfolio from Elanco. Management pointed to this segment as an increasingly important contributor to overall growth.

• Portfolio optimization initiative: Merck announced a multiyear program to reallocate $3 billion from slower-growth areas to fund its late-stage pipeline and new launches more efficiently. This move is designed to support continued investment in R&D and commercial capabilities for the company’s next generation of growth drivers.

Drivers of Future Performance

Merck’s forward guidance hinges on new launches, pipeline execution, and disciplined portfolio investment, while navigating regional headwinds and potential cost pressures.

• Pipeline-driven growth: Management expects the launch and expansion of products like WINREVAIR, CAPVAXIVE, and ENFLONSIA to be the primary drivers of future revenue and margin growth, with over 20 new and prospective assets in the pipeline, including advancements in oncology, cardiometabolic, and HIV segments.

• Reinvestment from cost optimization: The multiyear initiative to redirect $3 billion in cost savings from lower-growth areas will fund research and launch activities in high-potential segments. Management believes this will enable Merck to maintain strong investment in late-stage clinical programs and commercial expansion, even as operating expenses increase.

• Regional and regulatory risks: Ongoing weakness in China for GARDASIL, the emergence of biosimilars in certain markets, and potential new tariffs represent key uncertainties. Management also noted that guidance does not assume additional large acquisitions beyond the Verona Pharma deal, and that foreign exchange and CDC purchasing patterns could impact results.

Catalysts in Upcoming Quarters

In the coming quarters, StockStory analysts will monitor (1) the pace of WINREVAIR’s adoption in new markets and additional indications, (2) progress on Merck’s multiyear cost optimization and reinvestment program, and (3) regulatory milestones for late-stage pipeline assets such as enlicitide, ENFLONSIA, and upcoming oncology approvals. The trajectory of GARDASIL sales outside China and ongoing business development activity will also be key indicators of Merck’s execution and future growth potential.

Merck currently trades at $80.26, down from $84.08 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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