Merck & Co., Inc. Q1 FY2025 earnings call

Key Points - Company made strong progress at the start of 2025 with contributions from newer commercialized medicines and vaccines and pipeline advancement. - Worked on supply chain strategy, having invested $12 billion in US manufacturing since 2018 and committed to $9 billion plus more by 2028. - First-quarter performance in line with expectations, with revenue $15.5 billion. - Oncology: Keytruda sales grew 6%, Wellyreg sales up 63%. - Vaccines: GARDASIL sales affected by China, but rest of world had growth; Cafaxib and Vaxnuvan had their own performance. - Animal health: Robust growth with livestock and companion animal sales. - R&D progress: Clinical and regulatory milestones in various programs like cardiometabolic disease, HIV, vaccines, and oncology.

Total company revenues were $15.5 billion in the first quarter, a decrease of 2% or an increase of 1% excluding the impact of foreign exchange. In oncology, sales of Keytruda grew 6% to $7.2 billion. In vaccines, GARDASIL sales were $1.3 billion, a decrease of 40% driven by China, while the rest of the world saw 16% growth. Cafaxib sales were $107 million driven by retail pharmacy demand. Vaxnuvan sales increased 7%. The animal health business delivered robust growth with sales increasing 10%. Revenue contribution: Oncology contributed significantly with Keytruda at $7.2 billion, vaccines had GARDASIL and others, and animal health had its own contribution.

Guidance - Maintaining full-year revenue guidance of between $64.1 and $65.6 billion, representing growth of 1% to 3% excluding a negative impact from foreign exchange of approximately 1%. - EPS guidance of $8.82 to $8.97. - Gross margin assumption approximately 82%, operating expenses between $25.6 and $26.6 billion, other expense between $300 million and $400 million, tax rate between 15.5% and 16.5%.

Risks - Potential additional tariffs by the US, specifically on pharmaceuticals, which could impact results. - Assumptions in forward-looking statements may prove inaccurate or uncertainties may materialize, leading to actual results differing materially from forward-looking statements. - Risks identified in SEC filings, including certain risk factors that could cause actual results to differ from projected forward-looking statements.

Q: Geoff Meacham from Citibank asked about Merck's mitigating strategies for tariffs.

A: Rob Davis said they've been rebalancing supply chain, spent $12 billion since 2018 on US manufacturing, well-positioned with inventory in short term, and working on medium to long-term manufacturing repositioning.

Q: Tim Anderson from Bank of America asked about long-term guidance for KEYTRUDA.

A: Rob Davis said they focus on pipeline strength with over 20 new products coming in next few years, but no specific line-by-line long-term guidance planned yet.

Q: Luisa Hector from Berenberg asked about FDA and HHS outlook on vaccines.

A: Dean Li said imminent PDUFA dates for programs like clasorbimab, subcu, Keynote six eighty-nine are on track, but mid to long-term impact of FDA personnel transitions is to be watched.

Q: Vamil Divan from Guggenheim Securities asked about business development environment and international reference pricing.

A: Rob Davis said business development focus unchanged, but macro environment makes it complex; on international reference pricing, emphasized PBM reform, encouraging foreign governments to give fair value, and openness to working with administration to address it.

Q: Chris Schott from JPMorgan asked about GARDASIL single dose in US and manufacturing mitigation for legacy products.

A: Dr. Dean Li said FDA has high evidentiary standard for label change on Gardasil, Caroline Litchfield said they stand behind Gardasil's value and will consider cost-effectiveness in pricing; Rob Davis said manufacturing mitigation for Keytruda is both for new products and legacy products, well-positioned with inventory and manufacturing repositioning.

Q: James Shin from Deutsche Bank asked about US CapEx and PD one VEGF development.

A: Rob Davis said US CapEx investments not affected by tax environment; Dr. Dean Li said will gate decisions on PD one VEGF based on evolving data, but believe in KEYTRUDA's position and unique portfolio agents.

Q: Steve Scala from TD Cowen asked about GARDASIL growth slowdown globally.

A: Caroline Litchfield said information not new, Japan catch-up cohort program ended, expect strong growth excluding China, and company remains focused in China.

Q: Alex Hammond from Wolfe Research asked about HPV recommendation update impact on US sales.

A: Rob Davis said extending recommendation to nine years old and up is positive as it helps with vaccination schedule completion.

Q: Umer Raffat from Evercore asked about keeping IP KEYTRUDA sub q in US.

A: Rob Davis said preferred not to speak to proprietary details of IP location.

Q: Mohit Bansal from Wells Fargo asked about BD strategy and innovation.

A: Dr. Dean Li and Rob Davis said portfolio is balanced with first in class and best in class examples, and should look at total portfolio for growth, not just recent deals.