With potential tariffs and other drug pricing policies on the horizon, the industry is navigating uncertain waters. Merck, while steadfast in its manufacturing push that aligns with the administration’s focus, is no different as it prepares for challenges ahead.
While the company reaffirmed its full-year financial outlook of global sales between $64.1 billion and $65.6 billion in its first quarter earnings results, Merck noted that the number includes the hit of current tariffs that have been set in the U.S. That adds up to expected incremental costs of about $200 million, largely from those implemented between the U.S. and China, plus Canada and Mexico “to a lesser degree,” CEO Rob Davis explained on the company’s earnings call.
President Donald Trump has not yet imposed tariffs specifically on pharmaceuticals, but with previous threats of pharma-targeted tariffs that could come in at 25% or more, it’s a concern that continues to cloud the industry. Merck, with more than $12 billion spent on U.S. manufacturing and R&D capabilities since 2018 and an additional $9 billion earmarked through 2028, has already been working on its supply chain strategy in a way that “aligns well with the new administration’s efforts to regrow the U.S. manufacturing base,” Davis noted.
With its efforts so far, Merck has “done a good job of managing our inventory,” leaving the company “able to mitigate anything we could see in the short term,” the CEO said. For example, on-hand inventory for Keytruda in the U.S. will last through all of 2025, Davis said.
Now, the focus is on gearing up for the medium and long-term. While the company made clear its business development strategy remains unchanged, the “uncertainty everyone is wrestling with” makes it “more complex to get things done,” Davis mused.
An uncertain landscape
One thing is for certain: uncertainty is the name of the game these days. With industry opposition to Europe’s low drug prices ramping up, especially as Trump reportedly considers an international drug pricing reference policy that would link U.S. drug prices to those of other countries, the higher prices and therefore greater incentive for innovation that the U.S. sees have been top of mind lately.
“The price differential that exists between the United States and the rest of the world for our innovative medicines needs to be addressed,” Davis said, declaring Merck is “open and willing to work with the administration to do that.”
As Merck and Davis see it, the focal areas in the drug pricing topic are pharmacy benefit manager (PBM) reform, “fair value” for innovation in other countries and protecting the “innovation engine” in the U.S.
“We don't want to lose the leadership we have in this important field, and that's what we're trying to advocate for as we work with the administration,” he said.
Elsewhere on the EU issue, Davis sided with “recent commentary” from his peers, some of whom, such as Novartis CEO Vas Narasimhan and Sanofi CEO Paul Hudson, have been outspoken about European drug pricing controls.
“We have to continue to encourage foreign governments to understand that they need to give fair value for the innovation we bring,” at prices that “reward us for the risk in innovation that we have,” Davis said, adding that Merck is “spending time individually” and with its industry peers “promoting that point everywhere we can around the world.”
Preparing for a post-Keytruda future
Outside of the industry-wide focus on tariffs and policy changes, the next few years will also be crucial for Merck as it prepares to lose exclusivity of its top-selling Keytruda. The megablockbuster oncology drug’s $7.2 billion in first quarter sales made up roughly half of the company’s total haul of $15.5 billion. As it stands, the plan is to use a pipeline of 20 potential growth drivers, “almost all of which have blockbuster potential,” to weather the storm and unlock over $50 billion by the mid-2030s, Davis said. New launches of pneumococcal disease vaccine Capvaxive and pulmonary arterial hypertension (PAH) drug Winrevair represent two of those 20 new products and have so far been delivering “meaningful contributions.”
Winrevair specifically beat analysts' expectations at $280 million in first quarter sales, proving an “encouraging” launch so far, Citi Research analysts noted. More than 1,400 new patients received the drug over the quarter, while about 6,600 patients have been prescribed since its launch last April.
The drug is going up against a hefty rival in Johnson & Johnson’s Uptravi, a prostacyclin receptor (IP) agonist that controlled half of the $7.3 billion market in 2023. But Merck is edging in on a group of patients whose background treatment does not include a prostacyclin with a “steady increase” in the percentage of prescriptions filled for that subset, the company pointed out.
Meanwhile, a continuous headwind dragging down Merck’s sales is the sluggish demand for HPV vaccine Gardasil in China. With sales crashing 40% over the first quarter to $1.3 billion, the company doesn’t expect to ship further Gardasil products into China for the time being, Chief Financial Officer Caroline Litchfield noted. Excluding China, the vaccine’s sales swelled 14% over the quarter.