Core Insights - Merck is discontinuing a phase III study of the co-formulation of Keytruda and vibostolimab for high-risk melanoma due to failure to meet the primary endpoint of recurrence-free survival [1][2] - An independent Data Monitoring Committee recommended unblinding the study and switching patients to Keytruda monotherapy [2] - This marks the second recent failure for Keytruda, following a similar outcome in a study for endometrial cancer [4] Company Performance - Keytruda accounts for approximately 45% of Merck's total pharmaceutical sales and continues to show strong momentum in metastatic indications [5] - Merck's stock has increased by 18.6% this year, outperforming the industry average of 13.4% [2] - The company is actively pursuing new indications and markets for Keytruda, with ongoing studies for over 30 types of cancer [6] Pipeline Developments - Merck is exploring innovative immuno-oncology combinations and has partnered with Moderna to develop a personalized mRNA therapeutic cancer vaccine in combination with Keytruda [6] - Recent pipeline setbacks, particularly with Keytruda, may negatively impact Merck's long-term growth prospects [6] Market Comparisons - Merck currently holds a Zacks Rank of 3 (Hold), while competitors like Ligand Pharmaceuticals and ANI Pharmaceuticals have higher rankings [8][9] - Ligand's earnings estimates have improved recently, and its stock has risen by 17.7% this year, indicating strong market performance [8] - ANI Pharmaceuticals has also seen a rise of 22.2% in its stock this year, with improved earnings estimates [9]

Sector Rotation - Sector rotation involves moving funds between sectors based on macroeconomic factors, with healthcare stocks being a prime example during the pandemic [1] - As pandemic concerns eased, funds shifted to sectors like retail, travel, and tourism, while technology became the hottest sector [1] - The healthcare sector remains evergreen due to the increasing global disease burden, suggesting potential for strong returns from undervalued stocks [1] Pfizer (PFE) - Pfizer stock is trading at 10-year lows with a dividend yield of 6%, reflecting market concerns over lower growth post-pandemic and revenue impacts from drugs going off-patent [2] - Despite these concerns, Pfizer appears undervalued with a forward price-earnings ratio of 12.1 and has a pipeline of 113 candidates, expecting at least $20 billion in incremental revenue from new molecular entities by 2030 [2] - Pfizer anticipates $25 billion in incremental revenue from new business deals by 2030 and has recently acquired Seagen to enhance its oncology business [3] Merck (MRK) - Merck stock has increased by 9.5% over the past 12 months and trades at a forward price-earnings ratio of 15, with a dividend yield of 2.36% [5] - Analyst estimates show 83% have a buy rating, with a potential upside of 20% to $155, indicating possible total returns of 30% to 35% in the next 12 to 18 months [5] - For Q1 2024, Merck reported sales growth of 9% year-on-year to $15.8 billion and has a sales growth guidance of 5% to 7% for the full year [5][6] Teladoc Health (TDOC) - Teladoc stock has significantly declined from $300 in February 2021 to $12.2, primarily due to weak growth in a post-pandemic environment [7] - For Q1 2024, Teladoc reported revenue growth of 3% to $646.1 million and a 20% increase in EBITDA to $63.1 million [7] - The company has guided for full-year revenue of $2.7 billion and adjusted EBITDA of $370 million, with optimism for steady growth in international revenues over the next five years [7]

Merck (MRK) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.Shares of this pharmaceutical company have returned +2.2% over the past month versus the Zacks S&P 500 composite's -0.3% change. The Zacks Large Cap Pharmaceuticals industry, to which Merck belongs, has gained 1.1% over this period. Now the key question is: Where could the stock be headed in the near term?Although media ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Q1 2024, including income, balance sheet, cash flows, and detailed notes [Condensed Consolidated Statement of Income](index=3&type=section&id=Condensed%20Consolidated%20Statement%20of%20Income) Merck's Q1 **2024** sales increased **9%** to **$15.8 billion**, with net income surging **69%** to **$4.8 billion**, resulting in a diluted EPS of **$1.87** Q1 2024 vs Q1 2023 Income Statement Highlights | Metric | Q1 2024 ($M) | Q1 2023 ($M) | YoY Change | | :--- | :--- | :--- | :--- | | Sales | 15,775 | 14,487 | +8.9% | | Income Before Taxes | 5,670 | 3,650 | +55.3% | | Net Income Attributable to Merck & Co., Inc. | 4,762 | 2,821 | +68.8% | | Diluted EPS | $1.87 | $1.11 | +68.5% | [Condensed Consolidated Balance Sheet](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheet) As of **March 31, 2024**, total assets were **$105.8 billion**, total equity increased to **$40.4 billion**, and total debt decreased to **$34.2 billion** Balance Sheet Summary | Metric | March 31, 2024 ($M) | Dec 31, 2023 ($M) | | :--- | :--- | :--- | | Cash and cash equivalents | 5,579 | 6,841 | | Total current assets | 31,445 | 32,168 | | Total Assets | 105,849 | 106,675 | | Total current liabilities | 25,099 | 25,694 | | Total Debt (Current & Long-Term) | 34,219 | 35,055 | | Total Merck & Co., Inc. stockholders' equity | 40,364 | 37,581 | [Condensed Consolidated Statement of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) Operating cash flow more than doubled to **$3.1 billion** in **Q1 2024**, while investing cash outflow decreased and financing cash outflow increased Q1 2024 vs Q1 2023 Cash Flow Highlights | Cash Flow Activity | Q1 2024 ($M) | Q1 2023 ($M) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 3,090 | 1,339 | | Net Cash Used in Investing Activities | (1,376) | (2,359) | | Net Cash Used in Financing Activities | (2,814) | (2,054) | | Net Decrease in Cash | (1,238) | (2,987) | [Notes to Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, business development, collaborations, restructuring, financial instruments, contingencies, and segment performance - In **March 2024**, Merck acquired **Harpoon Therapeutics** for **$765 million**, resulting in a **$656 million** charge to R&D expenses[18](index=18&type=chunk) - In **February 2024**, Merck agreed to acquire the aqua business of **Elanco Animal Health** for **$1.3 billion** in cash, with the deal expected to close by mid-**2024**[18](index=18&type=chunk)[19](index=19&type=chunk) - A new restructuring program was approved in **January 2024**, with estimated cumulative pretax costs of approximately **$4.0 billion**, expected to be substantially completed by the end of **2031**[38](index=38&type=chunk) Q1 2024 Alliance Revenue from Key Collaborations | Collaboration Partner | Product(s) | Q1 2024 Alliance Revenue ($M) | | :--- | :--- | :--- | | AstraZeneca | Lynparza / Koselugo | 330 | | Eisai Co., Ltd. | Lenvima | 255 | | Bayer AG | Adempas / Verquvo | 98 | | Bristol-Myers Squibb | Reblozyl | 71 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses **Q1 2024** financial results, including **9%** sales growth to **$15.8 billion**, driven by Oncology and Vaccines, and impacts of pricing pressures Q1 2024 Sales Performance | Metric | Q1 2024 ($B) | YoY Change | YoY Change (ex-FX) | | :--- | :--- | :--- | :--- | | Total Sales | 15.8 | +9% | +12% | - Global sales growth was primarily driven by higher sales in the oncology franchise, particularly **Keytruda**, and the vaccines franchise, led by **Gardasil/Gardasil 9**[93](index=93&type=chunk)[94](index=94&type=chunk) - Pricing pressure continues due to global healthcare cost containment efforts, including the **Inflation Reduction Act (IRA)** in the U.S., which selected **Januvia** for its Drug Price Negotiation Program effective in **2026**[92](index=92&type=chunk) GAAP vs. Non-GAAP EPS Reconciliation (Q1 2024) | Metric | Amount per Share | | :--- | :--- | | EPS as reported under GAAP | $1.87 | | EPS difference | $0.20 | | Non-GAAP EPS assuming dilution | $2.07 | [Operating Results](index=27&type=section&id=Operating%20Results) Total sales reached **$15.8 billion** (**+9%**), with Pharmaceutical segment growth driven by Oncology and Vaccines, offsetting Diabetes declines Q1 2024 Sales by Segment | Segment | Q1 2024 Sales ($M) | Q1 2023 Sales ($M) | YoY Change | | :--- | :--- | :--- | :--- | | Pharmaceutical | 14,006 | 12,721 | +10.1% | | Animal Health | 1,511 | 1,491 | +1.3% | Key Product Sales Performance (Q1 2024) | Product | Q1 2024 Sales ($M) | YoY Change | | :--- | :--- | :--- | | Keytruda | 6,947 | +20% | | Gardasil/Gardasil 9 | 2,249 | +14% | | Januvia/Janumet | 670 | -24% | | Bridion | 440 | -10% | | Lagevrio | 350 | -11% | - **Keytruda** sales growth was driven by increased uptake in earlier-stage cancer indications globally. **Gardasil** growth was strong due to demand in China and U.S. public sector buying[95](index=95&type=chunk)[98](index=98&type=chunk) - **Januvia/Janumet** sales declined significantly due to lower pricing and demand in the U.S. from competitive pressures and the impact of the American Rescue Plan Act, as well as loss of exclusivity in Europe and other regions[105](index=105&type=chunk) [Costs, Expenses and Other](index=32&type=section&id=Costs,%20Expenses%20and%20Other) Total costs and expenses decreased **7%** to **$10.1 billion**, improving gross margin to **77.6%**, with R&D expenses down due to lower acquisition charges - Gross margin improved to **77.6%** from **72.9%** in **Q1 2023**, mainly due to favorable product mix, including lower royalty rates for **Keytruda** and **Gardasil**, and favorable foreign exchange[108](index=108&type=chunk) - R&D expenses declined **7%**, primarily because the **Q1 2024** charge for the **Harpoon Therapeutics** acquisition (**$656M**) was significantly lower than the **Q1 2023** charges for the Imago acquisition (**$1.2B**) and a Kelun-Biotech agreement (**$175M**)[110](index=110&type=chunk) - A new restructuring program was initiated in **January 2024** to optimize the manufacturing network, with an estimated total cost of **$4.0 billion** through **2031**. The company recorded **$123 million** in restructuring costs in **Q1 2024**[111](index=111&type=chunk)[112](index=112&type=chunk) [Research and Development Update](index=35&type=section&id=Research%20and%20Development%20Update) Merck has key candidates under regulatory review, including **MK-1022** for NSCLC and **V116** vaccine, with **Keytruda** also under review for new indications - **MK-1022** (patritumab deruxtecan), a HER3-directed ADC for EGFR-mutated NSCLC, is under priority review by the FDA with a target action date of **June 26, 2024**[121](index=121&type=chunk) - **V116**, an investigational **21**-valent pneumococcal conjugate vaccine for adults, is under priority review by the FDA with a PDUFA date of **June 17, 2024**[121](index=121&type=chunk) - **Keytruda** is under priority review for primary advanced or recurrent endometrial carcinoma, with a PDUFA date of **June 21, 2024**, and is also under review in the EU and Japan for several other indications[121](index=121&type=chunk) [Analysis of Liquidity and Capital Resources](index=37&type=section&id=Analysis%20of%20Liquidity%20and%20Capital%20Resources) As of **March 31, 2024**, Merck held **$5.9 billion** in cash, with strong operating cash flow of **$3.1 billion**, and continued share repurchases - Cash provided by operating activities was **$3.1 billion** in **Q1 2024**, a significant increase from **$1.3 billion** in **Q1 2023**, reflecting stronger operating performance[124](index=124&type=chunk) - In **Q1 2024**, the company paid **$2.0 billion** in dividends and repurchased **$122 million** of its common stock. The remaining share repurchase authorization is **$3.6 billion**[125](index=125&type=chunk) - The company maintains a **$6.0 billion** credit facility maturing in **May 2028** for backup liquidity, which has not been drawn upon[125](index=125&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) No material changes in market risk exposures have occurred since the **2023** Form **10-K** filing - There have been no material changes in market risk exposures affecting the disclosures presented in the Company's **2023** Form **10-K**[128](index=128&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of **March 31, 2024**, with no material changes to internal control - The **CEO and CFO certifications** concluded that as of **March 31, 2024**, the Company's disclosure controls and procedures are effective[129](index=129&type=chunk) - No changes in internal control over financial reporting occurred in **Q1 2024** that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[129](index=129&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note **7** for legal proceedings, including product liability and ongoing patent litigation for key products - The company is a defendant in product liability lawsuits related to alleged asbestos in **Dr. Scholl's** foot powder and alleged injuries from **Gardasil/Gardasil 9** vaccines[64](index=64&type=chunk) - Merck is actively defending its patents for key products, including **Bridion**, **Januvia**, **Keytruda**, and **Lynparza**, against challenges from generic manufacturers[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) - Legal defense reserves were approximately **$220 million** as of **March 31, 2024**[73](index=73&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Merck repurchased **990,671** shares for **$122 million** in **Q1 2024**, with **$3.6 billion** remaining in share repurchase authorization Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Shares Purchased | Average Price Paid | Total Value ($M) | | :--- | :--- | :--- | :--- | | Jan 2024 | 147,500 | $112.29 | ~$16.6 | | Feb 2024 | 209,200 | $127.83 | ~$26.7 | | Mar 2024 | 633,971 | $123.45 | ~$78.2 | | **Total Q1** | **990,671** | **$122.71** | **~$121.5** | - As of **March 31, 2024**, the approximate dollar value of shares that may yet be purchased under the plans or programs is **$3.6 billion**[125](index=125&type=chunk)[134](index=134&type=chunk) [Other Information](index=39&type=section&id=Item%205.%20Other%20Information) No directors or executive officers adopted or terminated **Rule 10b5-1** or **non-Rule 10b5-1** trading arrangements in **Q1 2024** - No directors or executive officers adopted or terminated any **Rule 10b5-1** or **non-Rule 10b5-1** trading arrangements during the three months ended **March 31, 2024**[135](index=135&type=chunk) [Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form **10-Q**, including corporate documents, **CEO/CFO certifications**, and **XBRL** data - The exhibits include **CEO and CFO certifications** pursuant to Rule **13a-14(a)/15d-14(a)** and Section **1350**[137](index=137&type=chunk) - Interactive data files (**XBRL**) are included as part of the filing[137](index=137&type=chunk)

Financial Data and Key Metrics Changes - Total company revenues for Q1 2024 were $15.8 billion, an increase of 9% or 12% excluding foreign exchange impact [9][10] - Gross margin improved to 81.2%, up 4.3 percentage points, driven by reduced royalty rates and favorable product mix [11] - Earnings per share were $2.07, which includes a $0.26 negative impact from acquisition-related charges [11][12] Business Line Performance Changes - Human Health business grew by 13%, driven by Oncology and Vaccines [9] - KEYTRUDA sales increased by 24% to $6.9 billion, with strong demand across various cancer indications [10] - GARDASIL sales rose by 17% to $2.2 billion, benefiting from global demand and shipment timing [10] Market Performance Changes - Sales in the Animal Health business increased by 4%, with growth in both companion animal and livestock products [9][10] - The impact of foreign exchange was primarily due to the devaluation of the Argentine peso, which was offset by inflation-related price increases [9] Company Strategy and Industry Competition - The company is focused on strategic business development and innovation, with a strong pipeline in cardiometabolic, oncology, and vaccine sectors [5][6] - Recent FDA approval for WINREVAIR marks a significant milestone, with expectations for a strong commercial launch [6][14] - The company aims to leverage its clinical research and regulatory expertise to enhance its competitive position in the market [7][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the operational strength and growth potential, raising full-year revenue guidance to between $63.1 billion and $64.3 billion [12][13] - The company is optimistic about the successful launch of WINREVAIR and its potential impact on patient care [14][41] - Management highlighted the importance of ongoing investments in innovation and the potential for new product approvals in the near future [15][24] Other Important Information - The company is committed to maintaining a strong dividend and plans to increase it over time [15] - There are significant clinical advancements in the pipeline, including new vaccines and therapies for various diseases [16][18] Q&A Session Summary Question: Thoughts on the opportunity in obesity and its alignment with current footprint - Management is excited about the cardiovascular metabolic build-out and recognizes the potential in obesity treatments, emphasizing the need for distinct molecules for different patient populations [26][27] Question: Differentiation of KRAS G12C assets in a crowded market - Management highlighted the importance of potent compounds with strong efficacy and the potential for combination therapies to maintain dose without modifications [28][29] Question: Updates on immunology and CNS programs - Management confirmed that the TL1A program for ulcerative colitis is in Phase 3 and recruiting, with plans to expand into other diseases [30][31] Question: Insights on pneumococcal vaccine V116 and ACIP recommendations - Management expressed confidence in V116's data and its potential for broader coverage, anticipating positive recommendations from ACIP [34][35] Question: Contribution of WINREVAIR to guidance - Management refrained from providing specific product-level guidance but expressed optimism about the launch and early prescription trends [39][40]

Core Viewpoint - Merck reported strong first-quarter 2024 results, exceeding earnings and revenue estimates, driven primarily by the performance of its oncology products, particularly Keytruda, and raised its guidance for the year despite foreign exchange headwinds [1][9]. Financial Performance - Adjusted earnings per share (EPS) for Q1 2024 were $2.07, surpassing the Zacks Consensus Estimate of $1.94, with a year-over-year increase of 48% [1]. - Revenues increased by 9% year over year to $15.78 billion, exceeding the Zacks Consensus Estimate of $15.32 billion [1][2]. Segment Performance - The Pharmaceutical segment generated $14.0 billion in revenues, up 9% year over year, driven by oncology drugs and vaccines, despite lower sales in diabetes medications [2][3]. - Keytruda sales reached $6.95 billion, a 24% increase year over year, benefiting from new indications and strong momentum in metastatic cases [2][3]. - Alliance revenues from Lynparza and Lenvima contributed positively, with Lynparza sales at $292 million (up 7%) and Lenvima at $255 million (up 10%) [3]. - HPV vaccine sales rose 17% to $2.25 billion, although they fell short of expectations [3][4]. Margin and Cost Analysis - Adjusted gross margin improved to 81.2%, up 430 basis points year over year, aided by a favorable product mix [6]. - Adjusted R&D spending decreased to $4.0 billion from $4.3 billion in the previous year, reflecting lower M&A-related costs [6]. 2024 Guidance - Merck raised its revenue guidance for 2024 to a range of $63.1 to $64.3 billion, with adjusted EPS expected between $8.53 and $8.65 [7][8]. - The adjusted gross margin is anticipated to be around 81%, an increase from previous estimates [7]. Strategic Developments - Merck is poised for future growth with eight potential new product approvals expected between 2025 and 2030, including V116 and Winrevair, which are anticipated to generate significant revenues [10].

Core Insights - Merck reported better-than-expected quarterly results, driven by strong sales of Keytruda and Gardasil, leading to an increase in share price [1][3] - The company raised and narrowed its 2024 profit and sales outlook, indicating confidence in future performance [1][3] Financial Performance - Adjusted earnings per share (EPS) for the first quarter were $2.07, with revenue increasing by 8.9% to $15.78 billion, surpassing forecasts [1][3] - Keytruda sales rose by 19.9% to $6.95 billion, attributed to increased demand in earlier-stage and metastatic indications, although impacted by the devaluation of the Argentine peso [2] - Gardasil revenue advanced 14.0% to $2.25 billion, driven by rising sales in China and the U.S. public sector, along with higher pricing [2] Future Outlook - The company anticipates full-year adjusted EPS between $8.53 and $8.65, an increase from the previous estimate of $8.44 to $8.59 [3] - Projected sales for the year are expected to be in the range of $63.1 billion to $64.3 billion, up from the earlier estimate of $62.7 billion to $64.2 billion [3]

Core Insights - Merck reported revenue of $15.78 billion for Q1 2024, an increase of 8.9% year-over-year, with EPS at $2.07 compared to $1.40 in the same quarter last year [1] - The revenue exceeded the Zacks Consensus Estimate by 2.95%, while EPS surpassed the consensus estimate by 6.70% [1] Financial Performance Metrics - Hospital Acute Care sales for Bridion in the U.S. reached $329 million, exceeding the average estimate of $301.76 million, marking a year-over-year increase of 19.2% [3] - International sales for Bridion were $111 million, below the average estimate of $124.70 million, reflecting a year-over-year decline of 47.1% [3] - Oncology sales for Keytruda in the U.S. were $4.12 billion, matching analyst estimates and showing an 18.2% increase year-over-year [3] - Animal health segment revenues totaled $1.51 billion, slightly below the average estimate of $1.55 billion, with a year-over-year increase of 1.3% [3] - Sales for Pneumovax vaccines were $61 million, below the average estimate of $70.63 million, representing a year-over-year decline of 36.5% [3] - Sales for RotaTeq vaccines were $216 million, below the average estimate of $260.45 million, indicating a year-over-year decrease of 27.3% [3] - Sales for ProQuar/M-M-R II/Varivax vaccines were $570 million, exceeding the average estimate of $544.16 million, with an 8% year-over-year increase [3] - Sales for Gardasil vaccines were $2.25 billion, slightly below the average estimate of $2.28 billion, reflecting a 14.1% year-over-year increase [3] - Alliance revenue for Reblozyl was $71 million, surpassing the average estimate of $68.77 million, with a significant year-over-year increase of 65.1% [3] - Alliance revenue for Lenvima was $255 million, below the average estimate of $265.43 million, showing a year-over-year increase of 9.9% [3] Stock Performance - Merck's shares have returned -3.6% over the past month, compared to a -3% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]

[First-Quarter 2024 Financial Results](index=1&type=section&id=First-Quarter%202024%20Financial%20Results) [Financial Highlights & Summary](index=1&type=section&id=Financial%20Highlights%20%26%20Summary) Merck reported strong Q1 2024 results with a 9% increase in worldwide sales to $15.8 billion, driven by robust growth in Oncology and Vaccines, and raised its full-year outlook Q1 2024 Financial Summary | Metric | Q1 2024 | Q1 2023 | Change | Change (Ex-FX) | | :--- | :--- | :--- | :--- | :--- | | **Sales** | $15,775 Million | $14,487 Million | 9% | 12% | | **GAAP Net Income** | $4,762 Million | $2,821 Million | 69% | 76% | | **Non-GAAP Net Income** | $5,279 Million | $3,564 Million | 48% | 54% | | **GAAP EPS** | $1.87 | $1.11 | 68% | 76% | | **Non-GAAP EPS** | $2.07 | $1.40 | 48% | 54% | - Sales growth was primarily driven by strong performance in the Oncology and Vaccines portfolios[1](index=1&type=chunk) - KEYTRUDA sales grew **20%** to **$6.9 billion**, and GARDASIL/GARDASIL 9 sales grew **14%** to **$2.2 billion**[1](index=1&type=chunk) - The company raised and narrowed its full-year 2024 worldwide sales outlook to between **$63.1 billion** and **$64.3 billion**, and its Non-GAAP EPS range to between **$8.53** and **$8.65**[1](index=1&type=chunk) [Sales Performance Review](index=3&type=section&id=Sales%20Performance%20Review) Total sales grew 9% to $15.8 billion, driven by the Pharmaceutical segment's 10% increase, primarily from KEYTRUDA and GARDASIL [Pharmaceutical Sales](index=3&type=section&id=Pharmaceutical%20Sales) Pharmaceutical sales rose 10% to $14.0 billion, driven by strong growth in KEYTRUDA and GARDASIL, while JANUVIA/JANUMET declined due to generics Top Pharmaceutical Product Sales (Q1 2024 vs Q1 2023) | Product | Q1 2024 Sales ($ Million) | Q1 2023 Sales ($ Million) | Change | Change (Ex-FX) | | :--- | :--- | :--- | :--- | :--- | | **KEYTRUDA** | 6,947 | 5,795 | 20% | 24% | | **GARDASIL/GARDASIL 9** | 2,249 | 1,972 | 14% | 17% | | **JANUVIA/JANUMET** | 670 | 880 | -24% | -21% | | **PROQUAD, M-M-R II, VARIVAX** | 570 | 528 | 8% | 8% | | **BRIDION** | 440 | 487 | -10% | -8% | | **VAXNEUVANCE** | 219 | 106 | 106% | 106% | - KEYTRUDA's growth was driven by increased uptake in earlier-stage indications like triple-negative breast cancer and renal cell carcinoma, as well as continued strong demand in metastatic indications[7](index=7&type=chunk) - GARDASIL's growth was attributed to strong demand, particularly in China, which also benefited from the timing of shipments, and public-sector buying patterns in the U.S[7](index=7&type=chunk) [Animal Health Sales](index=4&type=section&id=Animal%20Health%20Sales) Animal Health sales increased 1% to $1.5 billion, primarily due to higher pricing offsetting lower volumes, with Companion Animal sales up 3% Animal Health Sales Breakdown (Q1 2024 vs Q1 2023) | Segment | Q1 2024 Sales ($ Million) | Q1 2023 Sales ($ Million) | Change | Change (Ex-FX) | | :--- | :--- | :--- | :--- | :--- | | **Total Animal Health** | 1,511 | 1,491 | 1% | 4% | | **Livestock** | 850 | 849 | 0% | 4% | | **Companion Animal** | 661 | 642 | 3% | 4% | - Growth was primarily driven by higher pricing, which was partially offset by lower volumes[8](index=8&type=chunk) - Sales of BRAVECTO were **$332 million**, representing growth of **6%** (**7%** ex-FX)[8](index=8&type=chunk) [Expense and Earnings Analysis](index=4&type=section&id=Expense%20and%20Earnings%20Analysis) Profitability improved in Q1 2024 with expanded gross margins and decreased R&D expenses, leading to substantial growth in both GAAP and Non-GAAP EPS [GAAP Results Analysis](index=5&type=section&id=GAAP%20Results%20Analysis) GAAP Gross Margin increased to 77.6% due to favorable product mix, while R&D expenses decreased to $4.0 billion, leading to higher GAAP EPS - Gross margin increased to **77.6%** from 72.9% in Q1 2023, primarily due to favorable product mix (including lower royalty rates for KEYTRUDA and GARDASIL/GARDASIL 9)[12](index=12&type=chunk) - R&D expenses decreased to **$4.0 billion**, primarily due to lower charges for business development activity compared to the prior year[13](index=13&type=chunk) - The effective tax rate was **15.9%**, compared with 22.6% in Q1 2023[14](index=14&type=chunk) [Non-GAAP Results Analysis](index=5&type=section&id=Non-GAAP%20Results%20Analysis) Non-GAAP Gross Margin improved to 81.2% due to favorable product mix, with Non-GAAP R&D expenses decreasing, resulting in higher Non-GAAP EPS of $2.07 - Non-GAAP gross margin increased to **81.2%** from 76.9% in Q1 2023, driven by favorable product mix and foreign exchange[15](index=15&type=chunk) - Non-GAAP R&D expenses were **$4.0 billion**, down from $4.3 billion in Q1 2023, due to lower charges for business development[17](index=17&type=chunk) - The non-GAAP effective tax rate was **16.1%**, compared to 20.4% in the prior year[18](index=18&type=chunk) [GAAP to Non-GAAP Reconciliation](index=6&type=section&id=GAAP%20to%20Non-GAAP%20Reconciliation) Reconciliation from GAAP EPS of $1.87 to Non-GAAP EPS of $2.07 reflects a $0.20 per share difference, primarily from acquisition and restructuring cost adjustments Q1 2024 EPS Reconciliation | Item | Per Share Amount | | :--- | :--- | | **GAAP EPS** | **$1.87** | | Difference | $0.20 | | **Non-GAAP EPS** | **$2.07** | Q1 2024 Excluded Items (Pre-tax, $ Million) | Item | Amount ($ Million) | | :--- | :--- | | Acquisition- and divestiture-related costs | $496 | | Restructuring costs | $246 | | Income from investments in equity securities | ($116) | [Pipeline and Portfolio Developments](index=7&type=section&id=Pipeline%20and%20Portfolio%20Developments) Merck achieved significant regulatory and clinical milestones, including FDA approval for WINREVAIR, expanded KEYTRUDA indications, positive vaccine data, and the acquisition of Harpoon Therapeutics - Received FDA approval for **WINREVAIR**, a first-in-class biologic for adults with pulmonary arterial hypertension (PAH)[21](index=21&type=chunk) - **KEYTRUDA** received European approval for resectable NSCLC and FDA Priority Review for frontline advanced endometrial cancer[22](index=22&type=chunk) - Shared positive Phase 3 data for **V116**, an investigational 21-valent pneumococcal conjugate vaccine for adults[23](index=23&type=chunk) - Completed the acquisition of **Harpoon Therapeutics**, expanding the oncology pipeline with novel T-cell engagers[26](index=26&type=chunk) - Announced plans for clinical trials of a new multi-valent HPV vaccine and a single-dose regimen for **GARDASIL 9**[23](index=23&type=chunk) [Full-Year 2024 Financial Outlook](index=9&type=section&id=Full-Year%202024%20Financial%20Outlook) Merck raised its full-year 2024 financial guidance, with worldwide sales now expected between $63.1 billion and $64.3 billion and Non-GAAP EPS between $8.53 and $8.65 Full-Year 2024 Financial Outlook | Metric | Updated 2024 Outlook | Prior 2024 Outlook | | :--- | :--- | :--- | | **Sales** | $63.1 to $64.3 billion | $62.7 to $64.2 billion | | **Non-GAAP Gross Margin** | Approx. 81% | Approx. 80.5% | | **Non-GAAP Operating Expenses** | $25.2 to $26.1 billion | $25.1 to $26.1 billion | | **Non-GAAP EPS** | $8.53 to $8.65 | $8.44 to $8.59 | - The sales outlook includes an estimated negative impact of approximately **3%** from foreign exchange[34](index=34&type=chunk) - The Non-GAAP EPS outlook includes a charge of **$0.26 per share** for the Harpoon acquisition and an estimated negative foreign exchange impact of approximately **$0.30 per share**[36](index=36&type=chunk) [Appendix: Detailed Financial Tables](index=13&type=section&id=Appendix%3A%20Detailed%20Financial%20Tables) [Consolidated Statement of Income (GAAP)](index=13&type=section&id=Consolidated%20Statement%20of%20Income%20(GAAP)) The GAAP consolidated statement of income for Q1 2024 shows total sales of $15.775 billion, with net income attributable to Merck at $4.762 billion, resulting in diluted EPS of $1.87 Q1 2024 Consolidated Statement of Income (GAAP, $ Million) | Line Item | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | **Sales** | 15,775 | 14,487 | 9% | | Cost of sales | 3,540 | 3,926 | -10% | | Research and development | 3,992 | 4,276 | -7% | | **Income Before Taxes** | 5,670 | 3,650 | 55% | | **Net Income Attributable to Merck** | 4,762 | 2,821 | 69% | | **Earnings per Share (Diluted)** | $1.87 | $1.11 | 68% | [GAAP to Non-GAAP Reconciliation](index=14&type=section&id=GAAP%20to%20Non-GAAP%20Reconciliation) This table details the reconciliation of Q1 2024 GAAP to Non-GAAP results, adjusting for acquisition and restructuring costs to reconcile income before taxes and EPS Q1 2024 GAAP to Non-GAAP Reconciliation Summary ($ Million) | Line Item | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | **Income Before Taxes** | 5,670 | 626 | 6,296 | | **Net Income Attributable to Merck** | 4,762 | 517 | 5,279 | | **Earnings per Share (Diluted)** | $1.87 | $0.20 | $2.07 | [Franchise / Key Product Sales](index=15&type=section&id=Franchise%20%2F%20Key%20Product%20Sales) This table provides a detailed breakdown of Q1 2024 sales by franchise and key products, highlighting top performers like KEYTRUDA, GARDASIL, and Animal Health Select Product Sales (Q1 2024 vs Q1 2023, $ Million) | Product/Franchise | Q1 2024 | Q1 2023 | Nom % Change | | :--- | :--- | :--- | :--- | | **Total Sales** | 15,775 | 14,487 | 9% | | **Pharmaceutical** | 14,006 | 12,721 | 10% | | Keytruda | 6,947 | 5,795 | 20% | | Gardasil/Gardasil 9 | 2,249 | 1,972 | 14% | | Januvia/Janumet (Total) | 670 | 880 | -24% | | **Animal Health** | 1,511 | 1,491 | 1% |

Core Insights - Merck reported strong first-quarter results, exceeding expectations in both revenue and adjusted earnings, driven by sales of Keytruda and vaccine products [1][2] - The company raised its full-year revenue forecast to between $63.1 billion and $64.3 billion, and adjusted earnings per share to $8.53 to $8.65, reflecting positive growth outlook [1][2] Financial Performance - First-quarter adjusted earnings per share were $2.07, surpassing the expected $1.88, while revenue reached $15.78 billion, exceeding the forecast of $15.20 billion [2] - Net income for the quarter was $4.76 billion, or $1.87 per share, compared to $2.82 billion, or $1.11 per share, in the same period last year [2] - Revenue increased by 9% year-over-year, indicating strong performance despite upcoming patent expirations for Keytruda [2] Strategic Initiatives - Merck is preparing for the patent expiration of Keytruda in 2028, which is expected to impact sales, but has new drug launches and deals to mitigate losses [2][3] - The recent approval of Winrevair, a treatment for a severe lung condition, is projected to generate worldwide sales of up to $5 billion by 2030 [3] - The company is implementing a restructuring program aimed at improving its manufacturing network, with $246 million in charges recorded in the first quarter [3]