Ahead of U.S. market trading on February 3rd, American pharmaceutical giant Merck (MRK.US) disclosed its latest quarterly earnings data and future performance outlook, which fell short of market expectations due to challenges surrounding its Gardasil vaccine. The company's newly projected 2026 sales and profits lagged behind the average forecasts of Wall Street analysts, as its blockbuster HPV vaccine Gardasil continues to face headwinds—the product may again fail to achieve robust shipments and sales growth in the Chinese market this year, thereby overshadowing strong growth figures delivered by Merck's "K Drug" and several new pharmaceutical products. Merck stated on Tuesday that its full-year sales would range between $65.5 billion and $67 billion, below the average analyst estimate. The company anticipates adjusted earnings per share to reach a high of $5.15 (guidance range $5.00 to $5.15), also trailing the average Wall Street projection. Following the earnings release, the stock declined by as much as 3.2% in pre-market trading.
Merck has long been grappling with a significant demand slump in China for its second-largest product, the Gardasil vaccine, which prevents cancer-causing human papillomavirus (HPV). A company spokesperson indicated to analysts that its 2026 full-year guidance does not assume any Gardasil shipments to China; the company had previously announced a suspension of shipments to the Chinese market until the end of 2025. Regarding overall fourth-quarter performance, Merck's total revenue reached approximately $16.4 billion, a 5% year-over-year increase, surpassing the average Wall Street estimate of around $16.2 billion. Non-GAAP net profit was about $5.088 billion, representing a 16% annual increase; non-GAAP earnings per share were $2.04, slightly exceeding analyst expectations and stronger than the $1.72 reported a year earlier.
Gardasil is also confronting additional challenges in its largest market, the United States, where government health officials have shifted to recommending fewer doses of the vaccine. In January, Merck's Chief Executive Officer Robert Davis told investors that the financial impact of this recommendation was "overall manageable," and expressed greater concern from a health policy perspective about "the consequences of not being vaccinated." As of Monday's market close, Merck's stock had risen 7.7% year-to-date.
Uncertainty surrounding Gardasil has remained a significant pain point in Merck's fundamental performance. The product's cumulative sales in the fourth quarter were approximately $1.03 billion, better than average analyst forecasts but still down sharply by about 35% compared to the previous year. Merck attributed the decline to global economic uncertainty and a chilling effect stemming from anti-corruption crackdowns. However, the vaccine also faces intense competitive pressure from pharmaceutical firms in other countries, which sell HPV vaccines at one-tenth the price of Gardasil.
The challenges with Gardasil have obscured Merck's growth in other areas, including demand for a new pneumonia vaccine that competes with one of Pfizer Inc.'s top-selling products, as well as robust sales growth for Winrevair, a drug targeting a rare lung disease—Winrevair's Q4 sales surged by an impressive 133%. These products helped Merck's fourth-quarter revenue exceed Wall Street consensus estimates by approximately $2 billion. Adjusted earnings per share for the quarter were about $2.04, also beating analyst expectations. Winrevair, used to treat pulmonary arterial hypertension, generated sales of roughly $467 million in the fourth quarter, surpassing the Wall Street consensus estimate and achieving a remarkable 133% growth rate. The company stated that overall sales for Capvaxive, a pneumonia vaccine with the potential to become a "latecomer surpassing" Pfizer's vaccine, were also significantly higher than previously anticipated.
Although Merck is entering a year that may present relatively lower policy risks for the entire pharmaceutical industry, some major drugmakers still face pressure as U.S. Health Secretary Robert F. Kennedy Jr. reshapes the domestic vaccine regulatory framework. Beyond Gardasil, Merck also manufactures ProQuad, a widely used combination vaccine that protects against measles, mumps, rubella, and chickenpox. In December, Merck, along with competitors, reached an agreement with the Trump administration: securing a three-year grace period free from threatened tariffs in exchange for lowering drug prices for some Americans. The company is also preparing for its top-selling product, the blockbuster cancer drug Keytruda, to face price reductions and competition from generics.
This pressure forces Davis to seek promising new drug pipelines through transactions. In January, amid market speculation that Merck was interested in acquiring Revolution Medicines Inc., Davis told investors he saw significant merger opportunities worth tens of billions of dollars in the current pharmaceutical M&A landscape. However, shortly thereafter, Merck halted acquisition talks with biotechnology firm Revolution Medicines after the parties failed to agree on a purchase price. "We are not constrained by the balance sheet—it's more about where we see strategic acquisition opportunities," Merck CEO Davis stated at the J.P. Morgan Healthcare Conference in San Francisco at the time, emphasizing he saw "several multi-billion dollar" major acquisition opportunities.
Keytruda's patents are expected to begin expiring in 2028. Last September, Merck gained U.S. regulatory approval for a faster, easier-to-administer formulation. Named Keytruda Qlex, it can be administered via subcutaneous injection in minutes and is a key component of the drugmaker's strategy to continue deriving strong earnings associated with Keytruda. The company reported that Keytruda Qlex generated total U.S. sales of $35 million in the fourth quarter, while total Keytruda sales reached approximately $8.4 billion—exceeding the average analyst estimate and growing 7% year-over-year. Sales of another new Merck product, Ohtuvayre, also surpassed expectations, indicating a positive trend for this lung disease treatment; the drug originated from Merck's significant $10 billion acquisition of Verona Pharma last year. Merck has stated that Ohtuvayre possesses "blockbuster" commercialization potential and indicated the fourth quarter would show the beginnings of the acquisition's benefits materializing.
For Merck's sales and profit prospects, the 2028 patent pressure on Keytruda represents a "timeline-driven" need to fill the impending gap. Merck's performance metrics are highly dependent on Keytruda, and both management and media reports view its subsequent patent expiration as a core variable requiring proactive planning; in this context, pursuing "tens-of-billions-of-dollars" deals is essentially about buying time and certainty for the post-2028 growth trajectory. Merck's management has explicitly positioned "mega-acquisitions" as a viable tool and is actively evaluating specific targets.
Keytruda (also known as "K Drug") is Merck's anti-PD-1 immune checkpoint inhibitor, with the generic name pembrolizumab. It is a monoclonal antibody drug that works by blocking the PD-1 pathway, helping T-cells more effectively recognize and attack tumor cells. This anticancer drug boasts an exceptionally broad range of indications; official information shows it is approved for 18 types of cancer across 42 indications, granting it access to a very large patient population. Its use in key treatment lines for multiple cancers, both as monotherapy and in combination (e.g., first-line, adjuvant/neoadjuvant, combined with chemotherapy/targeted therapy), and its high frequency of use in clinical pathways have earned it the global title of "King of Drugs." Undoubtedly, oncology-focused innovative drug companies remain Merck's top priority. Management has indicated that future strategy will evolve from a "Keytruda-centric" model towards a "multi-engine" anticancer product pipeline. Next in line are ADCs (Antibody-Drug Conjugates) and "next-generation tumor payload platforms." Merck's global development and commercialization collaboration with Daiichi Sankyo for three DXd ADCs (with a potentially very substantial total consideration) reflects a systematic bet on ADCs as a growth engine in the "post-Keytruda era." New modalities in immunotherapy, such as T-cell engagers, are also highly likely to be favored areas for Merck. The completion of the Harpoon Therapeutics acquisition was explicitly aimed at expanding the oncology pipeline and gaining assets with new mechanisms like T-cell engagers. In the cardio-metabolic and respiratory therapeutic areas, Merck's more probable acquisition directions include differentiated small molecules or biologics for chronic diseases like COPD/asthma (which can be rapidly incorporated into guidelines for long-term use), or mid-to-late stage assets in cardio-metabolism (e.g., related to obesity/metabolic syndrome complications) that have clear clinical endpoints and can generate substantial sales between 2028 and 2032.
Comments