Merck plans $3 billion cost cuts by end of 2027, narrows full-year outlook

Merck on Tuesday said it will slash $3 billion in costs by the end of 2027 to be fully reinvested to support new product launches and its drug pipeline. 

The multi-year effort comes as Merck prepares to offset revenue losses from the upcoming patent expiration of its blockbuster cancer drug Keytruda in 2028. It also comes as drugmakers brace for President Donald Trump’s planned tariffs on pharmaceuticals imported into the U.S., which has prompted Merck and other companies to invest billions to boost their manufacturing footprints in the U.S. 

Shares of the pharmaceutical giant fell roughly 3% in premarket trading on Tuesday.

“Today, we announced a multiyear optimization initiative that will redirect investment and resources from more mature areas of our business to our burgeoning array of new growth drivers, further enable the transformation of our portfolio, and drive our next chapter of productive, innovation-driven growth,” said Merck CEO Rob Davis in prepared remarks for the company’s earnings call.

He added that his confidence in Merck’s ability to navigate Keytruda’s loss of exclusivity increases with every new product launch, data readout and business deal. Davis said he sees that patent expiration “as more of a hill than a cliff, and I’m confident in our ability to grow over the long-term.”

As part of the effort, Merck in July approved a new restructuring program that will eliminate certain administrative, sales and research and development positions. But the company will continue to hire employees in new roles across growth areas of its business. Merck will also reduce its global real estate footprint and continue to pare back its manufacturing network. 

Merck expects actions under the restructuring program to generate around $1.7 billion in annual cost savings, most of which will kick in by the end of 2027. 

The company expects pretax costs related to the restructuring program to be approximately $3 billion in total. For its second quarter, Merck recorded a $649 million charge related to the program. 

Also on Tuesday, Merck reported second-quarter revenue that came in short of Wall Street estimates. It was the first time that metric had missed expectations since April 2021.

While Keytruda sales grew during the period, Merck continued to see trouble with China sales of Gardasil, a vaccine that prevents cancer from HPV, the most common sexually transmitted infection in the U.S.

In February, Merck announced a decision to halt shipments of Gardasil into China beginning that month and going through at least mid-2025. In prepared remarks, CFO Caroline Litchfield said the company will not resume shipments to China through at least the end of 2025, noting that inventories remain high and demand is still soft.

The company also narrowed its full-year guidance. Merck now expects its 2025 adjusted earnings to come in between $8.87 and $8.97 per share. That compares to its previous outlook of $8.82 to $8.97 per share.

Merck expects revenue for the year to come in between $64.3 billion and $65.3 billion, narrowed on both ends from its previous guidance of $64.1 billion to $65.6 billion. 

Here’s what Merck reported for the second quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG: 

• Earnings per share: $2.13 adjusted. That figure may not be comparable to estimates of $2.01.
• Revenue: $15.81 billion vs. $15.89 billion expected

Merck said its guidance includes the previously announced $200 million estimated impact associated with the tariffs Trump has implemented to date. In April, the company said the expected tariff charge primarily reflects levies between the U.S. and China, but did not account for sector-specific pharmaceutical tariffs. 

The outlook also includes one-time charges related to the company’s license agreements with Hengrui Pharma and LaNova, but not its recently announced acquisition of Verona Pharma. 

The company posted net income of $4.43 billion, or $1.76 per share, for the quarter. That compares with net income of $5.46 billion, or $2.14 per share, during the year-earlier period. 

Excluding acquisition and restructuring costs, Merck earned $2.13 per share for the second quarter. That includes a charge of 7 cents per share for closing the license agreement with Hengrui Pharma.

Merck raked in $15.81 billion in revenue for the quarter, down 2% from the same period a year ago.

Merck’s pharmaceutical unit, which develops a wide range of drugs, booked $14.05 billion in revenue during the second quarter. That’s down 2% from the same period a year earlier.

Keytruda recorded $7.96 billion in revenue during the quarter, up just 9% from the year-earlier period. 

That increase was driven by higher uptake of Keytruda for earlier-stage cancers and strong demand for the drug for metastatic cancers, which spread to other parts of the body, the company said. Analysts had expected the drug to see $7.9 billion in sales, according to StreetAccount estimates.  

Gardasil generated sales of $1.13 billion for the quarter, down 55% from the same period a year ago due to lower demand in China. Analysts had expected Gardasil to book sales of $1.33 billion, StreetAccount estimates said. 

The Chinese market makes up the majority of the blockbuster shot’s international revenue. Merck is hoping that Gardasil’s expanded approval for men ages 9 to 26 in China will help boost uptake of the vaccine.

Sales of Gardasil in the U.S. increased 2% during the second quarter. 

Meanwhile Merck’s newer drug Winrevair, which is used to treat a rare, deadly lung condition, recorded $336 million in sales for the quarter. Analysts had expected the drug to bring in $324.7 million, according to StreetAccount estimates.  

Merck’s animal health division, which develops vaccines and medicines for dogs, cats and cattle, posted nearly $1.65 billion in sales, up 11% from the same period a year prior. The company said higher demand for livestock products and sales from Elanco’s aqua business, which it acquired last year, drove that growth.