Merck & Co. reported fourth-quarter earnings and revenue that surpassed expectations on Tuesday, driven by robust demand for its cancer immunotherapy Keytruda and several newer products. However, the company issued a more conservative outlook for 2026 that fell short of Wall Street's expectations, as it prepares for several of its drugs to lose patent protection later this year and face generic competition. These drugs include the Type 2 diabetes treatments Januvia and Janumet, as well as Bridion, a medication used to reverse the effects of muscle relaxants administered during surgery. While these drugs are not top-selling products like Keytruda, the combined decline in their sales is expected to put pressure on the company. The pharmaceutical giant projected its 2026 revenue to be in the range of $65.5 billion to $67 billion. According to data from LSEG, analysts had anticipated revenue of $67.6 billion. Merck also forecast adjusted earnings per share between $5.00 and $5.15. Analysts had previously estimated earnings per share of $5.36, based on LSEG data. This projected range includes a one-time charge of approximately $9 billion (about $3.65 per share) related to Merck's acquisition of the biotech firm Cidara, which is developing an influenza prevention drug. According to a company spokesperson, the guidance incorporates the "manageable impact" of a drug pricing agreement Merck reached with President Trump in December and the recent scaling back of the U.S. children's vaccination program by his administration. Under this "Most Favored Nation" agreement, Merck will voluntarily sell its existing therapies to Medicaid patients at the lowest price offered in other developed countries and guarantee pricing for new drugs, among other terms. In exchange, Merck will receive a three-year tariff exemption. Merck's adjusted earnings per share for the fourth quarter were $2.04, beating market expectations of $2.01; revenue was $16.4 billion, surpassing the consensus estimate of $16.19 billion. The company posted a net income of $2.96 billion, or $1.19 per share, for the quarter. This compares to a net income of $3.74 billion, or $1.48 per share, in the same period a year earlier. Excluding acquisition and restructuring costs, Merck's fourth-quarter earnings per share were $2.04. Merck's fourth-quarter revenue reached $16.4 billion, a 5% increase compared to the prior year. These results come as Merck plans to cut $3 billion in costs by the end of 2027 and prepares for the anticipated revenue loss when Keytruda's patent expires in 2028. Keytruda Drives Growth Amid Gardasil Challenges Merck's pharmaceutical division, which develops a variety of drugs, generated revenue of $14.84 billion in the fourth quarter, a 6% year-over-year increase. Keytruda's sales for the quarter exceeded $8.37 billion, a 7% increase. Analysts had expected revenue of $8.35 billion, according to estimates from StreetAccount. The company stated that the growth in Keytruda revenue was fueled by increased use of the drug in early-stage cancers and strong demand for treating metastatic cancer that has spread to other parts of the body. The subcutaneous version of Keytruda, which offers a more convenient administration method and was approved last year, generated sales of $35 million in the fourth quarter. This version of Keytruda is crucial for Merck's strategy to mitigate potential revenue decline after the patent for the original intravenous formulation expires. Meanwhile, sales of Merck's new drug, Winrevair, for treating a rare and fatal lung disease, reached $467 million for the quarter, a significant 133% increase. Analysts had expected the drug's revenue to be $459 million, according to StreetAccount estimates. Winrevair, which first launched in mid-2024, saw growth primarily reflecting its increased adoption in the United States and early launches in some international markets. Merck continues to face challenges with sales of Gardasil in China. Gardasil is a vaccine that prevents cancers caused by HPV, the most common sexually transmitted infection in the U.S. In February, Merck announced it would halt shipments of Gardasil to China starting that month. In July, Merck's Chief Financial Officer, Caroline Litchfield, stated that the company would not resume shipments to China until at least the end of 2025, noting that inventory levels remain high and demand is still weak. Due to the decline in Chinese demand, Gardasil sales for the quarter were $1.03 billion, a 34% decrease year-over-year. However, this still aligned with analyst expectations, according to StreetAccount. Gardasil's revenue could face further pressure in 2026. As part of adjustments to the U.S. Centers for Disease Control and Prevention's children's vaccination schedule, the agency now recommends that children receive one dose of the HPV vaccine, instead of the two to three doses indicated on the label. Merck's animal health division, which develops vaccines and medicines for dogs, cats, and cattle, reported sales of nearly $1.51 billion, an 8% increase. The company attributed this growth to increased demand across all species.
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