Merck & Co., Inc. (MRK) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong product development, robust pipeline, and strategic focus on unmet needs, particularly in oncology and cardiometabolic diseases. Despite some unclear responses in the Q&A, the guidance remains optimistic, with significant growth drivers and potential new product launches. The anticipated strong growth in the Animal Health business and potential contributions from new products are positive indicators. The lack of a market cap suggests a moderate reaction, leading to a positive stock price movement prediction of 2% to 8% over the next two weeks.
Key Financial Performance
Revenue $16.3 billion, an increase of 5% year-over-year (3% excluding the impact of foreign exchange). Growth driven by oncology, animal health, and new product contributions.
KEYTRUDA family sales $8 billion, an increase of 8% year-over-year. Growth driven by strong demand from metastatic indications, earlier-stage cancers, and combination use with Padcev in urothelial cancer. U.S. growth benefited by approximately $250 million from timing of purchases.
WELIREG sales $199 million, an increase of 43% year-over-year. Growth driven by ongoing launches in international markets and increased use in advanced renal cell carcinoma in the U.S.
GARDASIL sales $1.1 billion, a decrease of 22% year-over-year. Decline driven by lower demand in China and Japan, and a 10% decline in the U.S. due to timing of CDC purchases, partially offset by price.
CAPVAXIVE sales $142 million, an increase of 31% year-over-year. Growth driven by uptake from ongoing launches in certain markets outside the U.S. and increased demand in the U.S.
WINREVAIR sales $525 million, reflecting strong demand for pulmonary arterial hypertension therapy. U.S. growth driven by new patient prescriptions and increased usage by patients without prostacyclin background therapies.
OHTUVAYRE sales $131 million. Sales impacted by CMS reimbursement changes and Medicare deductible resets. Prescription trends began to recover in March.
Animal Health sales Increased by 6% year-over-year. Livestock sales grew 8% due to higher demand for ruminant and poultry products and price. Companion Animal sales increased 4% due to new product launches and price, partially offset by reduced vet visits.
Gross margin 81.9%, a decrease of 0.3 percentage points year-over-year. Decrease attributed to operational factors.
Operating expenses $15.2 billion, including a $9 billion one-time charge related to the acquisition of Cidara Therapeutics. Excluding this charge, operating expenses grew 2% due to increased investments in growth drivers, partially offset by optimization efforts.
Other expense $318 million, an increase due to financing related to recent business development transactions.
Tax provision $957 million. Tax rate was negative 43.5% due to the non-tax deductible one-time charge for Cidara.
Earnings per share (EPS) Loss of $1.28 per share, including a negative impact of $3.62 per share from the one-time charge related to Cidara.
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Operating Highlights
IDVYNSO approval: FDA approved IDVYNSO as a new treatment option for adults with virologically suppressed HIV-1.
I-DXd priority review: FDA granted priority review for I-DXd, an antibody drug conjugate for extensive stage small cell lung cancer.
NUMELVI launch: Introduced NUMELVI to the U.S. market, a second-generation JAK inhibitor for allergic dermatitis in dogs.
TERN-701 acquisition: Planned acquisition of Terns Pharmaceuticals for TERN-701, a promising candidate for chronic myeloid leukemia.
20+ new product launches: Initial launches of over 20 new products with blockbuster potential across various therapeutic areas.
Animal Health growth: High expectations for long-term growth driven by new and ongoing product launches.
KEYTRUDA sales: KEYTRUDA family sales increased 8% to $8 billion, driven by strong demand in oncology.
Vaccines and Infectious Diseases: GARDASIL sales decreased 22% due to lower demand in China and Japan, while CAPVAXIVE sales increased 31%.
Commercial operating structure: Announced a new business unit model to drive accountability, sharpen focus, and increase agility.
AI partnerships: Partnerships with Google Cloud, Tempus AI, and Mayo Clinic to scale AI and data capabilities.
Pipeline transformation: Portfolio transformation with a diversified set of growth drivers and potential commercial opportunity of over $70 billion by mid-2030s.
Business development strategy: Disciplined approach to acquisitions, exemplified by the Terns Pharmaceuticals acquisition.
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Risk or Challenges
Regulatory and Compliance Risks: The company faces significant risks and uncertainties related to regulatory approvals and compliance. For example, the FDA and European Commission approvals for KEYTRUDA and other drugs are critical, and any delays or rejections could adversely impact the company's operations and financial performance.
Market and Competitive Pressures: The company is exposed to competitive pressures in oncology, vaccines, and other therapeutic areas. For instance, the decline in GARDASIL sales in China and Japan due to lower demand highlights market challenges. Additionally, the company faces competition in the development of innovative therapies, which could impact its market share and revenue growth.
Supply Chain and Inventory Risks: The company experienced a reduction in wholesaler inventory for certain products, such as CAPVAXIVE, which could disrupt supply chain operations and affect sales performance. Seasonal nature and high inventory levels of products like ENFLONSIA also pose risks to consistent revenue generation.
Economic and Financial Risks: Foreign exchange fluctuations impacted revenue growth, and the company faces risks related to financing recent business development transactions. Additionally, the onetime charge related to the acquisition of Cidara Therapeutics significantly affected the company's financial performance in the quarter.
Strategic Execution Risks: The company is undergoing a transformation with over 20 new product launches and a new business unit model. While these changes aim to drive growth, they also pose risks related to execution, accountability, and agility. Any missteps in implementing these strategies could hinder the company's ability to achieve its growth objectives.
Research and Development Risks: The company is heavily reliant on its pipeline of new products and ongoing clinical trials. Delays or failures in these trials, such as the LITESPARK-012 study not meeting its dual primary endpoints, could impact future growth and innovation.
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Guidance & Outlook
Revenue Guidance for 2026: Merck expects revenue to be between $65.8 billion and $67 billion, representing growth of 1% to 3%, including a positive impact from foreign exchange of approximately 1 percentage point.
Earnings Per Share (EPS) Guidance for 2026: Merck expects EPS of $5.04 to $5.16, including a positive impact from foreign exchange of approximately $0.10.
Impact of Terns Acquisition on 2026 Financials: The acquisition of Terns Pharmaceuticals is expected to result in a one-time charge increasing R&D expense by approximately $5.8 billion or $2.35 per share. Ongoing investment in TERN-701 and financing costs will negatively impact EPS by approximately $0.12.
KEYTRUDA Sales Outlook: Growth in KEYTRUDA sales benefited from timing of wholesaler purchases in Q1 but will face a corresponding headwind in Q3.
ENFLONSIA Sales Outlook: Minimal sales expected in Q2 due to seasonal nature and high levels of RSV monoclonal antibody inventory. Shipments are expected to increase in the second half of the year.
SG&A Expenses Outlook: SG&A expenses are expected to increase over the remainder of the year to support recent and upcoming product launches.
Capital Allocation Strategy: Merck plans to prioritize investments in business growth, including new product launches and pipeline development, maintain dividend growth, and pursue additional value-enhancing transactions while repurchasing approximately $3 billion in shares in 2026.
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Shareholder Return Plan
Dividend Commitment: Merck remains committed to the dividend with the goal of increasing it over time.
Share Repurchase Program: Merck is on pace for approximately $3 billion of share repurchases this year, as previously communicated.
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Key Q&A
Q:How is Merck approaching dosing for MK-3000 in retinal vascular disease?
A:Merck is initially focusing on Q4-week dosing for MK-3000 to get it into the label but is also considering other dosing frequencies. MK-3000 targets the Wnt pathway, addressing the 40% of patients with suboptimal responses to VEGF. Additionally, MK-8748, a bispecific agonizing Tie2, is advancing in Phase IIb/III trials.
Q:What is Merck's perspective on the LITESPARK-012 trial results and their implications for other WELIREG trials?
A:Merck remains optimistic about the outcomes of LITESPARK-022 and LITESPARK-011 trials, despite the LITESPARK-012 results. They are cautious about drawing negative implications from the LITESPARK-012 trial, which involved three agents, for other trials involving VEGF-TKI and WELIREG or PD-1 and WELIREG.
Q:How is Merck positioning sac-TMT in the context of PD-1 VEGF and other assets?
A:Merck is advancing sac-TMT in collaboration with Kelun, with data expected at ASCO. They are exploring combinations of sac-TMT with PD-1 VEGF and KEYTRUDA. Sac-TMT is being evaluated in 17 Phase III studies globally, including combinations with KEYTRUDA in non-small cell lung cancer.
Q:What is Merck's business development (BD) strategy and focus areas?
A:Merck focuses on unmet scientific opportunities rather than specific therapeutic areas. They target deals in the $1 billion to $15 billion range but can go beyond for strategic opportunities. Key focus areas include oncology, immunology, and cardiometabolic diseases. Merck views BD as an ongoing strategy to complement internal pipeline development.
Q:What are Merck's plans for WINREVAIR in pulmonary hypertension?
A:Merck aims to reshape the standard of care in pulmonary arterial hypertension (PAH) and expand to pulmonary hypertension with heart disease. They are discussing endpoints like time to clinical worsening with the FDA and defining inclusion criteria for Phase III trials. WINREVAIR targets a patient population with significant unmet needs.
Q:What should be considered when evaluating Kelun's OptiTROP-Lung05 data for sac-TMT?
A:Kelun's OptiTROP-Lung05 data, a China-based study, is important for signal finding but may differ globally. The study evaluates sac-TMT plus KEYTRUDA versus KEYTRUDA in PD-L1 positive first-line non-small cell lung cancer. Merck is conducting global studies with sac-TMT and KEYTRUDA in TPS >50% non-small cell lung cancer.
Q:What is the status of enlicitide's FDA acceptance and titration discussions?
A:Merck is in active discussions with the FDA regarding enlicitide's rolling submission and label details. They expect approval in the second half of the year and are addressing FDA priorities like addressing public health crises and supply chain resilience. Titration and administration details are under discussion.
Q:What is Merck's view on TL1A's role in immunology and IBD?
A:Merck sees TL1A as a potential key node in immunology, with applications in IBD and fibrosis. They are exploring combinations with other therapies and expanding indications. TL1A may address both inflammation and fibrosis, with Phase II data expected in 2026 for conditions like SSc-ILD and HS.
Q:What is Merck's perspective on the CADENCE study results?
A:Merck believes the CADENCE study addresses a significant unmet need in a patient population with no current treatments. They are focused on modeling Phase III trials based on Phase II results and engaging with the FDA and KOLs to ensure compelling treatment options.
Q:What is Merck's assessment of TERN-701's data and potential?
A:Merck views TERN-701 as a potential best-in-class allosteric TKI for CML. They estimate an MMR rate north of 50%, which they find compelling. They are also exploring the drug's potential to catalyze the field to consider DMR as a treatment goal.
Q:What is Merck's commitment to HIV and infectious diseases?
A:Merck is committed to advancing its HIV program, focusing on islatravir as a next-generation nucleoside reverse transcriptase inhibitor. They are exploring daily, weekly, and monthly dosing options, including combinations with lenacapavir and ulo. Merck aims to address global public health needs with innovative treatments.
Q:Review of Unclear Management Responses
A:Management avoided providing clear answers on the following topics: 1. Specific details on dosing intervals beyond Q4 weeks for MK-3000. 2. Detailed implications of LITESPARK-012 results on other WELIREG trials. 3. Exact timelines and operational details for WINREVAIR's Phase III program. 4. Specific differences between Kelun's China-based OptiTROP-Lung05 study and global studies. 5. Precise titration and administration details for enlicitide. 6. Comprehensive plans for expanding beyond TL1A in immunology. 7. Detailed competitive positioning of CADENCE study results. 8. Specific data points on TERN-701's DMR rates.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Cidara
FDA PDUFA
HIV
IDVYNSO
KEYTRUDA
LDL cholesterol
MK
Merck
Oncology
Phase III
RSV
TERN
WELIREG combination
WINREVAIR
acquisition
adult
area
cancer
charge
date
disease
driver
drug
enlicitide
inhibitor
oncology
portfolio
potential
product launch
reduction
regimen
risk
stage cell
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survival
therapy
treatment patient
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MRK Transcript
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The earnings call highlights strong product development, robust pipeline, and strategic focus on unmet needs, particularly in oncology and cardiometabolic diseases. Despite some unclear responses in the Q&A, the guidance remains optimistic, with significant growth drivers and potential new product launches. The anticipated strong growth in the Animal Health business and potential contributions from new products are positive indicators. The lack of a market cap suggests a moderate reaction, leading to a positive stock price movement prediction of 2% to 8% over the next two weeks.
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MRK Slides
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Frequently Asked Questions
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