Merck Earnings Call: Oncology Strength Amid One-Off Hits

Merck & Company ((MRK)) has held its Q1 earnings call. Read on for the main highlights of the call.

Merck & Co.’s latest earnings call balanced strong commercial momentum and pipeline advances against heavy one-time charges and a few clinical and product setbacks. Management underscored resilient underlying growth, a deep oncology portfolio, and accelerating launches, while acknowledging that headline GAAP losses and softer vaccine demand may mask the company’s longer-term earnings power.

Revenue Growth and Upgraded 2026 Outlook

Merck posted Q1 revenue of $16.3 billion, up 5% year over year, or 3% excluding currency shifts, underscoring steady top-line growth despite pockets of weakness. Management also narrowed and raised 2026 guidance to $65.8–$67.0 billion in revenue and non‑GAAP EPS of $5.04–$5.16, signaling confidence in the underlying trajectory.

KEYTRUDA Remains the Core Growth Engine

The KEYTRUDA franchise delivered $8.0 billion in Q1 sales, rising 8% as uptake broadened across metastatic and earlier-stage indications. The launch of KEYTRUDA QLEX added $128 million in its first quarter and should benefit from a new permanent J‑code, though about $250 million of wholesaler stocking in Q1 will reverse as a headwind in Q3.

Oncology and Regulatory Wins Bolster Pipeline Story

Merck highlighted a string of oncology and regulatory milestones, including U.S. approval of IDVYNSO for virologically suppressed HIV‑1 and priority review for antibody‑drug conjugate I‑DXd. Additional approvals and priority reviews for KEYTRUDA combinations and further WELIREG filings, alongside multiple Phase III readouts over the next 18 months, reinforced management’s long-term growth narrative.

New Launches, AI Partnerships and Long-Term Upside

The company is rolling out more than 20 new products and frames these launches as a collective opportunity exceeding $70 billion in potential mid‑2030s revenue. To capture this, Merck is reorganizing into new business units and leaning into AI collaborations with partners such as Google Cloud, Tempus, and Mayo Clinic to sharpen commercialization and R&D productivity.

Vaccines: CAPVAXIVE Grows as GARDASIL Slips

In vaccines, CAPVAXIVE posted $142 million in Q1 sales, climbing 31% on strong uptake in select markets and robust U.S. retail and nonretail demand. This performance contrasted with a sharp 22% decline in GARDASIL revenue to $1.1 billion, pressured by weaker demand in China and Japan and lower U.S. purchases tied to timing dynamics.

Animal Health Delivers Steady, Broad-Based Growth

Animal Health revenue rose 6%, with livestock sales up 8% thanks to stronger ruminant and poultry demand and supportive pricing. Companion animal revenue increased 4%, driven by new product introductions and price, including the launch of NUMELVI for canine allergic dermatitis that adds another niche growth vector.

Margins, Cash Returns and Balance Sheet Flexibility

Merck’s non‑GAAP gross margin came in at about 81.9%, in line with its roughly 82% guidance, showing continued cost discipline. Management reiterated its commitment to dividend growth, plans for about $3 billion of 2026 share repurchases, and maintaining investment‑grade capacity to pursue further business development.

Cidara Charge Drives GAAP Loss Optics

The quarter’s headline numbers were skewed by a $9 billion operating charge tied to the Cidara acquisition, which produced a pretax loss and a negative 43.5% effective tax rate. This one-time hit translated into a GAAP loss of $1.28 per share, including a roughly $3.62 per-share drag from the Cidara charge that masks underlying profitability trends.

Planned Terns Deal to Weigh on Near-Term EPS

Management flagged that the proposed purchase of Terns Pharmaceuticals would trigger a one-time R&D charge of about $5.8 billion, or roughly $2.35 per share, plus an estimated $0.12 EPS headwind in 2026. Current guidance deliberately excludes this transaction, but investors were reminded to factor in this expected near-term earnings dilution as part of the broader pipeline build-out.

GARDASIL Weakness Highlights Regional and Timing Risks

GARDASIL’s 22% year-over-year sales decline underscored how regional demand shifts and purchase timing can hit quarterly results, particularly in China and Japan. In the U.S., sales fell 10%, largely on the timing of public-sector buying, partly offset by pricing, suggesting underlying demand remains more stable than the headline drop implies.

Clinical Setback Tempers WELIREG Expectations

The LITESPARK‑012 trial was a disappointment, as the tested combination regimens failed to beat KEYTRUDA plus Lenvima on key endpoints in first-line renal cell carcinoma. Management framed the data as scientifically informative while cautioning against extrapolating the outcome across the entire WELIREG program, but it still represents a notable setback within that franchise.

Product-Specific Headwinds and Seasonality Effects

Merck called out several product-level drags, including expectations for minimal ENFLONSIA sales in Q2 amid RSV seasonality and elevated monoclonal supply. OHTUVAYRE revenue of $131 million was hit by reimbursement changes and Medicare deductible resets, though prescriptions began to recover in March, and KEYTRUDA’s Q1 stocking benefit will reverse later this year.

Operating Cost Creep and Financing Burden

Total operating expenses reached $15.2 billion, inflated by the Cidara charge, but even excluding it, costs rose about 2% as Merck invested behind new launches. Other expense increased to $318 million, driven mainly by financing tied to recent business development, a reminder that pipeline-building comes with higher interest and integration costs.

Updated Guidance Underscores Long-Term Confidence

For 2026, Merck now expects revenue of $65.8–$67.0 billion, representing 1%–3% growth including a roughly one‑point FX tailwind, and a gross margin near 82%. Operating expenses are projected at $36.0–$36.8 billion, other expense around $1.3 billion, a tax rate of 23.5%–24.5%, and EPS of $5.04–$5.16, while share count is seen at about 2.48 billion and buybacks tracking toward roughly $3 billion this year.

Merck’s call painted a picture of a company absorbing near-term hits from large R&D-driven charges and uneven vaccine trends while leaning into oncology strength and an expanding product portfolio. For investors, the key takeaway is a management team willing to tolerate near-term GAAP volatility in exchange for a more robust, diversified earnings base later in the decade.