MRK · Q2 2025 Earnings
CautiousMerck & Co.
Reported July 29, 2025
30-second summary
Revenue fell 1.9% YoY to $15.81B as Gardasil shipments to China went to zero and the broader Vaccines franchise dropped 35%. Keytruda (+9.4%), Animal Health (+11.1%) and 12.2% US growth absorbed most of the damage, but the international book contracted 15.4% and the Pharma segment was down 2.5%. Management framed the China Gardasil situation as a multi-quarter pause — no shipments through year-end 2025, 2026 decision pending — and used the call to refresh FY2025 guidance ($64.3–65.3B revenue, $8.87–8.97 EPS) and refocus the narrative on the post-Keytruda-LOE revenue stack.
Headline numbers
EPS
Q2 FY2025
$2.28
Revenue
Q2 FY2025
$15.81B
-1.9% YoY
Gross margin
Q2 FY2025
77.5%
Operating margin
Q2 FY2025
31.6%
Key financials
Q2 FY2025| Metric | Q2 FY2025 | YoY |
|---|---|---|
| Revenue | $15.81B | -1.9% |
| EPS | $2.28 | — |
| Gross margin | 77.5% | — |
| Operating margin | 31.6% | — |
Guidance
Prior quarter data unavailable — comparison not possible.
Segment KPIs
Q2 FY2025| Segment | Q2 FY2025 | YoY |
|---|---|---|
| Pharmaceutical | $14.05B | -2.5% |
| Animal Health | $1.646B | +11.1% |
| Oncology (Keytruda) | $7.956B | +9.4% |
| Vaccines | $2.37B | -35.1% |
| Keytruda Revenue | $7,956 million | — |
| Gardasil/Gardasil 9 Revenue | $1,126 million | — |
| Animal Health Revenue | $1,646 million | — |
Other KPIs
Q2 FY2025| Segment | Q2 FY2025 | YoY |
|---|---|---|
| United States | $8.836B | +12.2% |
| International | $6.969B | -15.4% |
| China | $0.407B | -77.3% |
| Europe | $2.551B | -0.8% |
| Operating Margin | 31.63% | — |
| Gross Margin | 77.49% | — |
| Tax Rate | 11.4% | — |
| U.S. Pharmaceutical Sales Growth | +13.0% | — |
| International Pharmaceutical Sales Growth | -18.4% | — |
Management tone
Three observations from the prepared remarks and Q&A:
The $3B cost program is being positioned as reallocation, not retrenchment. Asked by J.P. Morgan's Chris Schott about margin trajectory, Rob emphasized that the $3B is moving from "slow-growth to fast-growth areas" with full reinvestment across R&D, SG&A and COGS, and that overall investment will continue to grow. The signal: don't model OPEX leverage from this restructuring — model mix shift.
On Gardasil China, management is no longer hedging — they are walking away from 2025. Telling Goldman's Asad Haider there will be no shipments "through at least the end of this year" and that the 2026 decision will be assessed at year-end is a definitive concession that this is a multi-quarter problem, not a working-capital blip. Demand remains soft and channel inventories remain elevated.
On the LOE narrative, Rob continues to frame it as "more of a hill than a cliff," anchored on 20+ new and potential growth drivers, more than 80 Phase III studies in flight, and the Verona/Ohtuvayre acquisition expected to close in Q4. The Winrevair ramp — $336M in Q2, cumulative sales over $1B in 15 months since launch, and 1,600+ new patients in the quarter — is the proof point management is leaning on.
Q&A highlights
Dana Graybosh · Luraint Partners
What are the success criteria for the Cadence Phase II trial in heart failure with pulmonary hypertension (PVR and 6-minute walk distance endpoints)? Can positive Phase II results support registration, or will FDA require Phase III with hard cardiovascular/mortality outcomes?
Dean Lee explained Cadence targets a select HF population with PAH-like hemodynamics. PVR is the most important signal for efficacy in this non-PAH population. While detailed endpoints matter, Dean expects FDA would likely require a Phase III trial to demonstrate effectiveness in this broader patient population.
Masad Haider · Goldman Sachs
Three-part: (1) CDC purchasing dynamics for Gardasil US; (2) ACIP potential recommendation for lower Gardasil doses and timing; (3) China Gardasil shipment timeline and 2026 outlook.
On CDC: management noted lumpy purchasing but expects continued growth. On ACIP/dosing: emphasized FDA's high evidentiary standard for single-dose vs. ACIP proposals; no agenda posted for Aug-Oct meetings; no single-dose approval anticipated. On China: soft demand, elevated inventory; no shipments through year-end; 2026 decision pending; note Gardasil China <1% of company revenue.
Chris Shaw · J.P. Morgan
How should investors think about operating margins and absolute OPEX growth over the next few years, given the $3 billion restructuring and reinvestment, alongside a large ramp in Phase III programs and multiple launches?
Rob emphasized full funding for 20+ launches, Phase III pipeline, and commercial preparation; the $3B is a reallocation from slow-growth to fast-growth areas, not a net reduction. Overall investment will continue to grow, but at a more productive level. Caroline noted $3B savings will flow through R&D, SG&A, and COGS, with full reinvestment plus additional R&D and SG&A spend as products launch.
Tim Anderson · Bank of America
Two parts: (1) What are the biggest offsets to Keytruda LOE that justify calling it a 'hill' not a 'cliff'? (2) When should investors expect return to consistent growth post-LOE (e.g., 2031 trough)?
Rob provided quantified offsets: oncology ($25B+), cardiometabolic ($15B), ophthalmology, HIV (~$5B), immunology (~$5B), animal health expansion. Combined with pipeline visibility and continued BD, these offset Keytruda LOE. Declined to specify timeline but implied return to growth within 2-3 years of patent expiry.
Kash Tiwari · Jefferies
Two questions: (1) Winrevere patient addition cadence—what should we expect going forward given Hyperion/Zenith results and earlier-line adoption? (2) Confirmation that Hanzo GLP-1 has moved into clinic.
On Winrevere: consistent 400-500 patient additions per month expected to continue; 75% of use currently triple/prostacyclin therapy, but growing penetration in less-severe/dual-therapy patients (50%+ of 1,200+ prescribers now using in earlier stages). Hyperion and Zenith expected to drive label updates and earlier adoption. On Hanzo: confirmed moving to clinic this year on schedule.
What to watch into next quarter
Gardasil China 2026 decision. Management has explicitly deferred to year-end. Whether the company guides toward resumption of shipments in 2026 or signals a structural step-down will reset the Vaccines franchise trajectory.
Winrevair patient adds. 1,600+ new prescriptions in Q2 in the US is the benchmark. Sustained or rising quarterly adds — together with Hyperion/Zenith label updates and the Japan launch — is the bull case; deceleration would call the ramp narrative into question.
Operating margin under reinvestment. GAAP operating margin held 31.6% this quarter; non-GAAP GM guided at ~82% for the year. Watch whether margins compress as launch spending and Phase III initiations layer on through 2H — that would test management's "reallocation, not OPEX cut" framing.
ACIP agenda for late-2025 meetings. Management says no agenda is currently posted for Aug-Oct on Gardasil dosing. An agenda posting — and the specific framing — would be a near-term catalyst on US Gardasil.
Keytruda growth deceleration. +9.4% YoY this quarter. Watch whether growth holds high-single-digits or decelerates further as the franchise approaches LOE; the post-LOE bridge narrative requires Keytruda to fund the transition.
Verona / Ohtuvayre close. Targeted for Q4 and not in current guidance. Closing timing and any updated launch framing will be the next data point on the COPD entry.
Sources
- Merck Q2 2025 earnings press release (SEC EDGAR Ex. 99.2): https://www.sec.gov/Archives/edgar/data/310158/000110465925071380/tm2521736d1_ex99-2.htm
- Merck Q2 2025 earnings call transcript — prepared remarks (Rob Davis, Caroline Litchfield, Dean Lee) and Q&A.
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