"K drug" and new drugs drive Merck & Co., Inc. (MRK.US) Q4 performance exceeded expectations, but the HPV vaccine dilemma dragged down growth prospects.

On February 3, before the US stock market opened, the US pharmaceutical giant Merck & Co., Inc. (MRK.US) announced its latest quarterly performance data report and future performance outlook. Merck & Co., Inc. gave a less than market-expected outlook due to the challenges faced by its Gardasil vaccine. The company's management's latest forecast for 2026 sales and profits is lower than the average Wall Street analyst expectations, as its flagship HPV vaccine Gardasil continues to face challenges. The vaccine may still not achieve strong shipment and sales growth in the Chinese market this year, thus overshadowing the strong growth data brought by Merck & Co., Inc.'s "K drugs" and some new drug products. Merck & Co., Inc. said on Tuesday that annual sales are expected to range from $65.5 billion to $67 billion, below the average Wall Street analysts' estimates. The company expects adjusted earnings per share to reach a maximum of $5.15 (with a range of $5.00 to $5.15), also below the average Wall Street analyst expectations. After the company announced its performance, the stock fell 3.2% in pre-market trading. Merck & Co., Inc. has been dealing with the significant decline in demand for its second largest product - Gardasil, a vaccine for preventing carcinogenic human papillomavirus (HPV) in the Chinese market. A spokesperson told analysts that the company did not assume any Gardasil shipments to China in its 2026 full-year performance guidance; the company had already announced the suspension of shipments to the Chinese market until the end of 2025. In terms of overall fourth-quarter performance, Merck & Co., Inc. had total sales of about $16.4 billion, a 5% year-on-year increase, higher than the average Wall Street analysts' expectations of about $16.2 billion. Net profit under the Non-GAAP standard was approximately $5.088 billion, meaning a 16% year-on-year increase; earnings per share under the Non-GAAP standard were $2.04, slightly higher than Wall Street analysts' expectations and stronger than the $1.72 in the same period last year. Gardasil is also facing additional challenges in its largest market, the United States, as health officials in the government have now recommended a reduction in the number of doses of the vaccine administered. In January of this year, Merck & Co., Inc. CEO Robert Davis told investors that the financial impact of this recommendation was "overall manageable," and he expressed more concern from a health policy perspective about the potential issues related to not being able to administer the vaccine as initially planned. As of the close of the US stock market on Monday, Merck & Co., Inc. shares have risen by 7.7% this year. The uncertainty surrounding Gardasil has been a major pain point in Merck & Co., Inc.'s performance fundamentals. The product had cumulative sales of approximately $1.03 billion in the fourth quarter, better than analysts' average expectations but still a significant decrease of about 35% year-on-year. Merck & Co., Inc. attributed this decline to global economic uncertainty and the ripple effects of ant-corruption efforts. However, the vaccine also faces immense competitive pressure from pharmaceutical companies in other countries that sell HPV vaccines at a tenth of the price of Gardasil. Seeking new growth points The challenge of Gardasil has overshadowed Merck & Co., Inc.'s growth in other areas, including demand for a new pneumonia vaccine that competes with one of Pfizer Inc.'s best-selling products, as well as strong sales growth for the rare lung disease drug Winrevair - which saw a 133% increase in sales in Q4. These products helped Merck & Co., Inc. exceed Wall Street's expectations by about $200 million in fourth-quarter revenue. Adjusted earnings per share were around $2.04 for the quarter, also higher than analyst expectations. Winrevair, a drug for treating pulmonary arterial hypertension, achieved sales of around $467 million in the fourth quarter, exceeding the consensus Wall Street analysts' expectations and showing a 133% increase. The company announced that sales of the pneumonia vaccine Capvaxive, intended to surpass Pfizer Inc.'s vaccines, were also significantly higher than previously expected. Although Merck & Co., Inc. is entering a year with potentially lower policy risks for the entire pharmaceutical industry, some large pharmaceutical companies still face pressure as the US Secretary of Health Robert F. Kennedy Jr. reshapes the vaccine regulatory framework domestically. In addition to Gardasil, Merck & Co., Inc. also produces ProQuad, a widely used combination vaccine that prevents measles, mumps, rubella, and chickenpox. In December last year, Merck & Co., Inc. reached an agreement with competitors and the Trump administration to lower drug prices for some Americans in exchange for a three-year grace period free from any threatened tariffs. The company is also preparing for competition and price reduction pressure for its best-selling product, the blockbuster cancer drug Keytruda. This has put pressure on Davis, who needs to introduce promising new drugs through deals. In January of this year, amid speculation that Merck & Co., Inc. was interested in acquiring Revolution Medicines Inc., Davis told investors that he believed there were significant acquisition opportunities worth billions in the pharmaceutical market. However, shortly after, due to the parties' inability to agree on the acquisition price, Merck & Co., Inc. has halted its acquisition talks with the biotechnology company Revolution Medicines. "We are not limited by our balance sheet - it's more about where we see strategic acquisition opportunities," said Merck & Co., Inc. CEO Davis at the J.P. Morgan Healthcare Conference in San Francisco, emphasizing significant acquisition opportunities worth "tens of billions of dollars." Keytruda's patent is expected to expire in 2028. Last September, Merck & Co., Inc. received regulatory approval for a faster and easier-to-administer formulation. The drug, called Keytruda Qlex, can be administered subcutaneously in minutes. It is a strategic component for Merck & Co., Inc. to continue to generate strong revenue from Keytruda. In the fourth quarter, Keytruda Qlex had overall sales of $35 million in the US market, while total Keytruda sales were around $8.4 billion - surpassing analyst average estimates and achieving a 7% year-on-year growth. Sales of another new product from Merck & Co., Inc., Ohtuvayre, also exceeded expectations, which is a positive trend for this lung disease treatment drug; the drug is the result of a significant acquisition of Verona Pharma by Merck & Co., Inc. last year for $10 billion. Merck & Co., Inc. had previously stated that Ohtuvayre has a "significant commercialization potential worth tens of billions of dollars" and that the fourth quarter would show the gradual emergence of acquisition benefits. As Keytruda, the "drug king," faces patent expiration in 2028, which innovative drugs will the giant Merck & Co., Inc. favor? For the sales and profit prospects of Merck & Co., Inc., the pressure on Keytruda's patents in 2028 is seen as a "time-driven" demand for filling a gap. Merck & Co., Inc.'s performance data heavily relies on Keytruda, and both management and media reports see the expiration of its patents as a core variable that needs to be addressed in advance. In this context, engaging in "billion-dollar" transactions essentially buys time and certainty for the growth curve after 2028. Merck & Co., Inc.'s management has clearly identified "mega acquisitions" as an option and is actively evaluating specific targets. Keytruda (pembrolizumab), also known as "K drug," is Merck & Co., Inc.'s anti-PD-1 immune checkpoint inhibitor monoclonal antibody drug that helps T cells more effectively identify and attack tumor cells by blocking the PD-1 pathway. The drug has a wide range of indications, covering 18 cancer types and 42 indications approved by official sources, making it accessible to a large population of patients and suitable for use in multiple cancer types and treatment lines (such as first-line, adjuvant/neoadjuvant, and combination with chemotherapy/targeted therapy), with high clinical utilization frequency. Therefore, Keytruda has been dubbed the "drug king" worldwide. Undoubtedly, innovative drug companies in the oncology treatment sector remain Merck & Co., Inc.'s top priority. The management of Merck & Co., Inc. has revealed that the future strategy will shift from the "Keytruda single engine" to a "multi-engine" cancer product line. In addition, ADCs (antibody-drug conjugates) and the "next generation tumor payload platform" are the next focus, as Merck & Co., Inc. has reached a global development and commercialization agreement with Daiichi Sankyo for three DXd ADCs (with considerable potential total consideration), reflecting its systemic bet on ADCs as cancer growth engines in the "post-Keytruda era." Emerging immunotherapy modalities such as T-cell engagers are also likely to become a favored track for Merck & Co., Inc. as evidenced by the acquisition of Harpoon Therapeutics, aiming to expand its oncology pipeline and obtain new assets with T-cell engaging mechanisms. In the cardiovascular, metabolic, and respiratory sectors, Merck & Co., Inc. is likely to focus on acquiring differentiated small molecules or biologics for chronic diseases such as COPD/asthma (which can quickly enter guidelines and be used for long-term purposes) or for specific clinical endpoints in cardiovascular and metabolic diseases (such as complications of obesity/metabolic syndrome) with evident commercialization potential for mid-to-late stage assets in the 2028-2032 period.