Merck results beat expectations on strong Keytruda sales, surprise Covid drug growth

Merck on Thursday reported third-quarter revenue and adjusted earnings that topped expectations on strong sales of its blockbuster cancer drug Keytruda, HPV vaccine Gardasil and surprisingly, its Covid drug Lagevrio. 

The pharmaceutical giant also increased its full-year sales forecast to $59.7 billion to $60.2 billion, slightly higher than the $58.6 billion to $59.6 billion guidance provided in August. 

Merck lowered its adjusted profit guidance to $1.33 to $1.38 per share, from a previous forecast of $2.95 to $3.05 a share. But that updated outlook reflects an upfront charge of $5.5 billion, or $1.70 per share, related to the company's recent drug collaboration agreement with Daiichi Sankyo. 

That guidance also includes previously announced one-time charges related to the company's acquisitions of Prometheus Biosciences and Imago BioSciences, along with another upfront payment related to a collaboration deal with Kelun-Biotech. 

Here's what Merck reported for the third quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG, formerly known as Refinitiv:

Shares of Merck are down nearly 7% this year. It has a market value of roughly $263 billion, making it one of the largest pharmaceutical companies based in the U.S.

Merck raked in $15.96 billion in revenue for the quarter, up 7% from the same period a year ago. 

The company posted net income of $4.75 billion, or $1.86 per share. That compares with $3.25 billion, or $1.28 per share, for the same period a year ago. 

Excluding certain items, Merck's adjusted earnings per share were $2.13 for the period. 

Merck's pharmaceutical business, which develops a wide range of drugs for different disease areas, posted $14.26 billion in revenue during the quarter. That's up 10% from the same period a year ago. 

Excluding Lagevrio, pharmaceutical sales grew 9%. The Covid antiviral treatment brought in $640 million in sales for the quarter, up 47% from the third quarter of 2022. Merck said that growth was due to higher demand in Japan, partially offset by lower demand in Australia and the nonrecurrence of sales in the U.K.

Analysts had been expecting the drug to rake in only $140.8 million in sales, according to FactSet estimates. Lagevrio's revenue is surprising since sales of Covid products from companies like Pfizer and Moderna have plummeted this year as the world emerges from the pandemic and relies less on vaccines and treatments for protection. 

Merck's popular antibody treatment Keytruda, which is used to treat several types of cancer, booked $6.34 billion in revenue, up 17% from the year-earlier quarter. Analysts had been expecting $6.20 billion in Keytruda sales, FactSet estimates said.

That increase was driven by higher uptake for the treatment of earlier-stage cancers and strong global demand for metastatic indications, which refers to when a cancer has spread to a different part of the body part than where it started, Merck CFO Caroline Litchfield said during an earnings call Thursday.

The company has been under pressure to reduce its dependence on Keytruda, which is slated to lose patent protection in 2028. But Merck is trying to defend its patent edge over Keytruda by developing new formulations of the drug, such as a version that can be injected under the skin.

Merck's pharmaceutical business also saw a jump in sales of Gardasil, a vaccine that prevents cancer from HPV, the most common sexually transmitted infection in the U.S.

Gardasil generated $2.59 billion in sales, which is up 13% from the third quarter of 2022. Analysts had been expecting sales of $2.64 billion, according to FactSet estimates.

Litchfield said the increase was due to underlying global demand, particularly in China. Meanwhile, Gardasil sales decreased in the U.S. due to the Centers for Disease Control and Prevention's purchasing patterns.

The company's animal health division, which develops vaccines and medicines for dogs, cats and cattle, posted $1.40 billion in sales, up 2% from the same period a year ago.

Merck will hold a conference call at 9 a.m. ET on Thursday.

Correction: Merck acquired Imago BioSciences. An earlier version misstated a company name.

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