Q4 2024 Earnings Summary
- Confidence in Post-KEYTRUDA Growth Due to Robust Pipeline: Merck expects to successfully navigate the loss of exclusivity for KEYTRUDA by leveraging a robust pipeline with over $50 billion potential in future revenues. This includes small molecules, individualized neoantigen therapies, and antibody-drug conjugate (ADC) programs, particularly from partnerships with Kelun and Daiichi Sankyo, which are expected to drive growth.
- Increased Oncology Revenue Guidance Reflecting Strong Pipeline: The company has increased its oncology new product revenue guidance from $20 billion to $25 billion, indicating strong confidence in its oncology pipeline. This increase is attributed to the progress in ADC programs, small molecule assets, and the addition of a T cell engager from Harpoon. The upcoming launch of subcutaneous KEYTRUDA, which is not included in this figure, further enhances growth prospects.
- Strong Growth Potential of WINREVAIR in Cardiometabolic Space: Merck remains confident in WINREVAIR's potential to be a significant growth contributor. Positive clinical trial results, including the ZENITH and HYPERION studies, support its ability to reshape the standard of care in pulmonary arterial hypertension. The company expects WINREVAIR to exhibit strong growth, with fundamentals supporting its expansion in 2025 and beyond.
- Uncertainty surrounding KEYTRUDA's future revenue due to patent expiration and lack of detailed guidance: Analysts expressed concerns about Merck's limited disclosure on long-term strategies to mitigate the impact of KEYTRUDA's patent expiration in 2028. Merck has not provided specific quantification or forward-looking guidance on how it plans to navigate this period, creating uncertainty about future revenue streams once KEYTRUDA goes off patent. ( )
- Withdrawal of GARDASIL's $11 billion revenue target due to challenges in China: Merck withdrew its previous $11 billion long-term revenue target for GARDASIL, citing "uncertain timing of an economic recovery in China" and acknowledging that "GARDASIL was a meaningful part of the $11 billion" target. Elevated inventory levels and weakened consumer demand in China raise concerns about the vaccine's future growth potential. ( , )
- Potential competitive threats to KEYTRUDA from upcoming clinical trial results: Investors are worried about two competitor readouts in 2025 that could challenge KEYTRUDA's market position, including AstraZeneca's AVINZA trial and the SUMMIT data involving PD-1 VEGF combinations. Negative outcomes from these trials could impact KEYTRUDA's market share and revenue. ( )
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +7% (from ~$14.63B to ~$15.62B) | Total Revenue's growth is driven largely by strong performance in the pharmaceutical segment, particularly the impressive increases in Keytruda and Lynparza sales, which offset declines in other regions; previous period pressures are now alleviated by better overall global performance. |
Pharmaceutical Segment Performance | Keytruda: +19% (from ~$6.61B to ~$7.84B); Lynparza: ~+16% | Pharmaceutical sales surged due to significant growth in Keytruda (up 19%) and a healthy rise in Lynparza (nearly 16%), reflecting improved uptake, pricing, and new indications compared to the previous period’s lower baseline. |
Geographic Breakdown – United States | +15% (from ~$7.09B to ~$8.19B) | US revenue improved strongly by 15%, demonstrating robust domestic performance likely fueled by the rapid adoption of key therapies like Keytruda and supportive market dynamics that corrected the underperformance seen in the prior period. |
Geographic Breakdown – China | -40% (from ~$1.48B to ~$888M) | China revenue declined markedly by 40%, largely due to a significant reduction in sales volume, possibly driven by decreased demand, distribution challenges, and elevated inventory levels in the previous period which now impacted shipments and sales. |
Net Income Turnaround | From a net loss of ~$1.23B to a net gain of ~$3.74B | The net income rebound indicates a dramatic recovery, likely resulting from the easing of previous period burdens such as one-off charges or high cost-of-sales, combined with improved sales performance and better cost management that turned losses into substantial gains. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | FY 2024 | no prior guidance | $63.6B – $64.1B (6–7% growth, −3% FX impact) | no prior guidance |
Gross Margin | FY 2024 | no prior guidance | ~81% | no prior guidance |
Operating Expenses | FY 2024 | no prior guidance | $27.8B – $28.3B (includes $750M one-time Curon charge) | no prior guidance |
Other Expense | FY 2024 | no prior guidance | ~$100M (includes $170M from Daiichi Sankyo) | no prior guidance |
Tax Rate | FY 2024 | no prior guidance | 16% – 17% | no prior guidance |
Shares Outstanding | FY 2024 | no prior guidance | ~2.54B shares | no prior guidance |
EPS | FY 2024 | no prior guidance | $7.72 – $7.77 (−$0.30 FX impact) | no prior guidance |
Revenue | FY 2025 | no prior guidance | $64.1B – $65.6B (up to 4% growth, −2% FX impact) | no prior guidance |
Gross Margin | FY 2025 | no prior guidance | ~82.5% | no prior guidance |
Operating Expenses | FY 2025 | no prior guidance | $25.4B – $26.4B (includes $300M LaNova payment) | no prior guidance |
Other Expense | FY 2025 | no prior guidance | $300M – $400M | no prior guidance |
Tax Rate | FY 2025 | no prior guidance | 16% – 17% | no prior guidance |
Shares Outstanding | FY 2025 | no prior guidance | ~2.53B shares | no prior guidance |
EPS | FY 2025 | no prior guidance | $8.88 – $9.03 (−$0.35 FX impact) | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | FY 2024 | $63.6B to $64.1B | $64.17B (sum of Q1 $15,775, Q2 $16,112, Q3 $16,657, and Q4 $15,624) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
KEYTRUDA Patent Expiry and Post-Exclusivity Strategy | Discussed in Q1 with detailed timelines (e.g. U.S. 2028, China 2031, Europe/Japan 2032), viewed as a “hill rather than a cliff” and accompanied by confidence in rapid post-LOE recovery | Addressed in Q4 with renewed emphasis on navigating the post-exclusivity period through enhanced business development and a diversified pipeline approach | Consistent focus but with a shift from timeline specifics to strategic confidence and proactive pipeline diversification. |
Robust Pipeline Expansion and Diversification | Consistently highlighted in Q1–Q3 with focus on ADCs, small molecules, neoantigen therapies, and T cell engagers to drive oncology growth | Q4 discussion continues to emphasize a broad portfolio expansion—excluding KEYTRUDA contributions—with a refined focus on high-potential areas such as ADCs and small molecules | Steady positive sentiment with evolving emphasis on non-KEYTRUDA assets, reinforcing a diversified growth strategy. |
WINREVAIR Launch and Growth Potential vs. Access and Reimbursement Challenges | In Q1–Q3, the launch was portrayed as strong with significant new patient uptake and expanding prescriber networks, alongside challenges in reimbursement timelines and access hurdles | Q4 reiterates strong growth potential with impressive efficacy data, but introduces heightened concerns over Medicare Part D redesign impacting pricing and revenue | Overall optimism remains, although Q4 reflects emerging pricing/reimbursement challenges that slightly temper the positive outlook. |
GARDASIL Revenue Challenges and Shifting China Market Dynamics | Earlier quarters noted accelerated shipments in Q1 2023 and normalized quarterly shipments in 2024, with long‐term growth optimism despite short-term shipment adjustments | Q4 reports an 18% revenue decline in China, a temporary pause in shipments to manage inventory, and the withdrawal of the previous $11 billion revenue target, although global growth outside China remains robust | A clear intensification of short-term headwinds in China with increased caution, while long-term global optimism persists. |
Strategic Acquisitions and Business Development Initiatives | Q1 through Q3 showcased several acquisitions (e.g., Harpoon in Q1, EyeBio in Q2, Curon asset in Q3) and collaborations to enrich the pipeline, with a science-led and value-driven focus | Q4 builds on this with new acquisitions (ARPU, EyeBio, asset from Curon) and additional licensing agreements, further broadening the pipeline in oncology and cardiometabolic fields | Continued and even accelerated deal activity, reflecting a persistent commitment to leveraging external science to boost long-term growth. |
Emerging Pipeline Areas (NASH, Obesity, Cardiometabolic, Neuroscience, Immunology) | Q1 included details on NASH, obesity, cardiometabolic, neuroscience, and immunology; Q2 and Q3 shifted focus toward obesity, cardiometabolic, and immunology with emerging neuroscience signals | Q4 primarily emphasizes cardiometabolic (e.g. oral PCSK9 inhibitor, GLP-1 receptor agonist), immunology, and obesity, with little mention of NASH and neuroscience updates | A narrowing of focus: reduced emphasis on NASH and neuroscience in Q4 suggests strategic prioritization of areas with more immediate potential impact. |
Competitive Clinical Trial Outcomes and Market Competition Impact on KEYTRUDA | Earlier periods (especially Q1 and Q2) made broad references to KEYTRUDA’s strong clinical data and growing indications, without diving deep into competitor comparisons | Q4 explicitly highlights upcoming competitor trials (e.g., AstraZeneca’s TROP2-ADC, SUMMIT’s PD-1/VEGF combo) and underscores Merck’s differentiation by focusing on overall survival benefits and strategic innovations such as subcutaneous formulations | A heightened defensive posture in Q4 with increased focus on competitive dynamics, signaling a more proactive strategy to maintain market leadership. |
Investment Impact on Earnings Amid Expanding Pipeline Initiatives | Q1–Q3 detailed disciplined investments impacting operating expenses (with targeted charges tied to acquisitions like Harpoon and EyeBio) while stressing long-term value creation | Q4 reports lower operating expenses relative to the previous year (e.g. $7.4 billion with reduced charges) and underscores continued investments in the pipeline as key drivers for future earnings | Consistent investment strategy across periods, with Q4 reflecting slightly improved expense management while remaining focused on long-term growth. |
Subcutaneous KEYTRUDA Launch and Its Influence on Oncology Revenue Guidance | In Q1, the subcutaneous formulation was discussed as a new approach expected in 2025 to improve patient access and reduce healthcare costs; not mentioned in Q2 or Q3 | Q4 reintroduces the topic, clarifying that its revenue impact is not included in the stated oncology guidance yet represents a potential upside beyond the $25 billion target | A reinvigorated focus in Q4 on this novel launch, highlighting its strategic potential as an additional growth lever despite not being factored into current revenue targets. |
Evolving Global Economic and Regulatory Challenges in Key Markets | Not mentioned in earlier periods, as discussions primarily focused on product and pipeline strategy [–] | Q4 brings a brief mention of external challenges, including consumer spending pressures in China and U.S. tariff proposals, albeit with an expected minimal impact due to limited manufacturing exposure | A new emerging consideration in Q4 that, while limited in discussion, signals growing awareness of external economic/regulatory risks impacting future operations. |
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GARDASIL Sales and M&A Strategy
Q: Will GARDASIL sales changes affect your M&A strategy; will you pursue larger deals?
A: Robert Davis stated that the change in GARDASIL sales does not alter their M&A strategy. They anticipated GARDASIL would eventually plateau, and their post-LOE expectations remain unchanged. Merck will continue to augment the pipeline through business development, focusing on deals in the $0 to $15 billion range, but are open to larger deals if they align with their strategy and offer value. -
KEYTRUDA Post-LOE Guidance
Q: When will Merck provide long-term guidance addressing KEYTRUDA's LOE impact?
A: Robert Davis acknowledged the focus on post-LOE plans for KEYTRUDA. While they have no current plans to give long-term guidance, he emphasized confidence in their pipeline, which includes small molecules, individualized neoantigen therapy, and an ADC portfolio, amounting to a $50 billion-plus potential. He reiterated their belief in a growth trajectory described as a "hill versus a cliff." -
GARDASIL China Inventory
Q: How much GARDASIL inventory does Zhifei have, and will stopping shipments reduce inventory and improve demand in China?
A: Robert Davis did not specify Zhifei's inventory levels but stated they plan to stop shipments from February through midyear, or longer if needed, to allow underlying demand to absorb inventory. This action aims to improve Zhifei's financial position and return to a normal market dynamic. He noted that GARDASIL China now represents about 1% of total revenue, and any future growth there is considered upside. -
GARDASIL Long-Term Guidance
Q: Is the removal of the $11 billion GARDASIL target due to conservatism, or a permanent reset of the China outlook? Any change in ex-China views?
A: Robert Davis explained that while they still see a path to the $11 billion, they withdrew the target due to uncertainty in China's recovery timing and extent. The underlying dynamics in China remain, including over 100 million unvaccinated women and the male indication launch. Expectations for GARDASIL outside China are unchanged, with strong double-digit growth excluding China. -
Oncology Pipeline Guidance
Q: What are the components of the updated $25 billion oncology pipeline guidance?
A: Robert Davis clarified that the $25 billion guidance includes their ADC programs from Kelun and Daiichi Sankyo, small molecule deals, and the individualized neoantigen therapy partnership with Moderna. Failures in TIGIT and LAG3 were not part of this figure. They have added a T cell engager from Harpoon and expect their TROP2 program to be more successful than originally thought. -
GARDASIL U.S. Market and Dosing
Q: Did the U.S. market play a role in the GARDASIL guidance withdrawal, and what are expectations from the upcoming ACIP meeting on dosing?
A: Robert Davis stated that their expectations for GARDASIL outside China, including the U.S., remain unchanged. Regarding the ACIP meeting on dosing, Dean Li emphasized that dosing schedules are rigorously vetted by the FDA, and changes require high evidentiary proof. They are confident in the current dosing schedule and have been in discussions with the FDA about it. -
Vaccines Business and BD Priorities
Q: Has the political climate towards vaccines changed your business development and R&D priorities in this area?
A: Robert Davis affirmed that vaccines remain an important area for Merck. They continue R&D efforts, including launching CAPVAXIVE and developing plazobumab for RSV and a dengue vaccine. While vaccines are not a big focus of their BD strategy due to limited opportunities, they remain committed to advancing their vaccine pipeline. -
WINREVAIR Growth Outlook
Q: Are you confident that WINREVAIR can grow 100% year-over-year into end of 2025?
A: Robert Davis expressed confidence in WINREVAIR's growth prospects, noting that January is returning to expected levels. They view WINREVAIR as a strong growth contributor for 2025, with fundamentals supporting this outlook. -
Tariff Impact
Q: How will new tariffs affect your manufacturing footprint and potential transfer pricing impacts?
A: Caroline Litchfield indicated that Merck has low levels of manufacturing in China, Mexico, and Canada, expecting an immaterial impact from proposed tariffs. They are confident in their supply chain and ability to supply medicines globally. -
Impact of Part D Redesign
Q: How does the Part D redesign affect your 2025 guidance, specifically regarding volume and price components of the $400 million impact?
A: Caroline Litchfield explained that the majority of the $400 million impact is due to pricing, predominantly affecting WINREVAIR and oral oncology agents. This will be partially offset by volume benefits as patients stay on therapy. -
Oral PCSK9 Development
Q: What are your goals for cholesterol lowering with the oral PCSK9 inhibitor, and potential for combinations?
A: Dean Li stated they aim to achieve a similar profile to PCSK9 antibodies in an oral molecule, addressing the unmet need as 70% of people on statins are not at goal. Three Phase IIIs are ongoing, with data expected in 2025, and they are exploring combinations to enhance cardiovascular outcomes. -
WINREVAIR in Broader Indications
Q: Has success with WINREVAIR in PAH influenced expectations for other indications like heart failure?
A: Dean Li expressed high confidence in WINREVAIR reshaping the standard of care in PAH. They are exploring its use in other forms of pulmonary hypertension beyond PAH and are eager to see results in heart failure populations.