Merck's third-quarter revenue exceeded expectations, with strong sales of the COVID-19 vaccine Capvaxive

On Thursday before the U.S. stock market opened, Merck announced its third-quarter financial report, with sales of $17.28 billion, exceeding the market expectation of $16.96 billion, driven by strong performance from the pneumonia vaccine Capvaxive.

Merck's adjusted earnings per share for the third quarter reached $2.58, significantly surpassing Wall Street expectations and exceeding last year's $1.57. Capvaxive's sales amounted to $244 million, also higher than analysts' estimates. As a result, Merck's stock price rose 3.8% in pre-market trading on Thursday.

Merck has lowered the upper limit of its 2025 sales guidance by $300 million, expecting full-year sales of $64.5 billion to $65 billion, down from the previous estimate of $64.3 billion to $65.3 billion. At the same time, it slightly raised its full-year profit forecast to $8.98 per share, up from the previous estimate of $8.87 to $8.97.

The company is preparing for the patent expiration of Keytruda, which is expected to lose patent protection starting in 2028, by cutting costs and launching new drugs. Following the financial report, Merck's stock price rose 3.8% in pre-market trading on Thursday. As of Wednesday's close, the company's stock price has fallen about 13% year-to-date.

New pneumonia vaccine becomes a growth highlight, star product faces challenges

Capvaxive has emerged as a standout performer in Merck's results. This newer pneumonia vaccine directly competes with one of Pfizer's blockbuster products, with third-quarter sales reaching $244 million, exceeding Wall Street expectations.

Merck's vaccine has the potential to become the preferred product. Research shows that Capvaxive can prevent 80% of pathogenic bacterial strains in adults, while Pfizer's Prevnar only covers 50% of pathogenic strains, which may help Merck gain a larger share in the competitive vaccine market.

Both Keytruda and Winrevair, used for treating rare lung diseases, did not meet market expectations in the third quarter. Keytruda's patent is expected to expire starting in 2028, and it may face government-mandated price negotiations as early as 2027.

In September, Merck received approval from U.S. regulators for a new formulation of Keytruda, named Keytruda Qlex, which can be administered via subcutaneous injection in minutes, making it faster and more convenient. This is a key component of Merck's strategy, allowing the company to focus on new compounds with longer remaining patent periods.

Cost-cutting plan progresses

Merck is actively advancing cost control measures in preparation for the patent expiration of Keytruda. Third-quarter R&D spending decreased by over $1.6 billion compared to the same period last year, primarily due to reduced expenses related to business development activities, while the company also cut sales and administrative expenses.

In July of this year, Merck announced plans to cut annual spending by $3 billion by the end of 2027, mainly through reductions in administrative, sales, and R&D positions, as well as reducing real estate holdings. The company plans to reinvest the saved funds into new drug launches.

Pharmaceutical companies face tariff threats, and Pfizer and AstraZeneca have reached agreements with the White House to provide certain drugs at significant discounts and adjust prices relative to other wealthy countries in exchange for a three-year tariff exemption Merck has not disclosed the relevant agreements but stated that it has stockpiled enough Keytruda inventory to cope with this year's tariff impacts. The company previously announced plans to invest over $9 billion in domestic manufacturing over the next four years, aiming to increase the number of drugs produced in the United States.

As one of the largest vaccine manufacturers, Merck also faces threats from the Trump administration to the vaccine industry. In September, a panel of advisors to the Centers for Disease Control and Prevention, selected by Health Secretary Robert F. Kennedy Jr., recommended that children under 4 years old should not receive the ProQuad combination vaccine due to the risk of febrile seizures. The panel suggested that children should receive the varicella vaccine separately. ProQuad is a widely used combination vaccine produced by Merck that prevents measles, mumps, rubella, and varicella