Financial Projection Adjustments

Merck has adjusted its profit forecast for the fiscal year 2025, citing an anticipated $200 million impact from tariff-related costs as well as charges linked to a recent license agreement. The pharmaceutical giant now projects adjusted earnings to fall within the range of $8.82 to $8.97 per share, a slight reduction from the previous estimate of $8.88 to $9.03.

Impact of Tariffs on Operations

The company’s revised expectations primarily reflect border tariffs between the U.S. and China, with lesser impacts from Canada and Mexico. Merck, which has a significant footprint in China, considers this market crucial for its manufacturing and research capabilities.

Importantly, these estimates do not factor in President Donald Trump’s proposed tariffs on imported pharmaceuticals. This move has prompted a number of drug manufacturers, including Merck, to enhance their manufacturing operations within the U.S.

As part of this strategic shift, Merck has committed $12 billion to U.S. manufacturing and R&D, with an additional investment exceeding $9 billion expected by 2028. During a recent earnings call, CEO Rob Davis expressed confidence in the company’s inventory management, stating, “as you look at 2025, we’re well positioned with inventory to be able to mitigate anything we could see in the short term.”

Performance Highlights

Merck’s recent first-quarter financial report indicated revenue of $15.53 billion, which surpassed analysts’ expectations of $15.31 billion. The adjusted earnings for the quarter were reported at $2.22 per share, compared to an anticipated $2.14. The company’s net income rose to $5.08 billion, or $2.01 per share, up from $4.76 billion, or $1.87 per share the previous year.

Despite these positive results, Merck’s overall revenue for the quarter experienced a decline of 2% compared to the same period last year.

Sector Analysis

Pharmaceuticals

The pharmaceutical division generated $13.64 billion in sales, reflecting a 3% decrease year-over-year. Merck’s top-selling drug, Keytruda, achieved revenues of $7.21 billion, marking a 4% increase from last year but falling short of the $7.43 billion forecast by analysts. The drug’s growth has been attributed to its increased use in treating earlier-stage cancers and demand for metastatic cancer treatments.

Animal Health

In contrast, Merck’s animal health sector performed well, achieving nearly $1.59 billion in sales, which is a 5% increase from the previous year. This growth is primarily driven by heightened demand for livestock products and contributions from Elanco’s aqua business, recently acquired by Merck.

Challenges with Gardasil

Merck continues to face significant challenges with its HPV vaccine, Gardasil, particularly in the Chinese market. Following a decision to suspend shipments of Gardasil to China, which will persist until at least mid-2025, the vaccine reported $1.33 billion in sales—a decline of 41% year-over-year and below the $1.45 billion analysts had forecasted.

The Chinese government has implemented retaliatory tariffs of up to 125% on American goods. These tariffs may potentially lead to price increases or supply chain constraints for various Western pharmaceuticals in China.