Merck Earnings: Solid Results Led by Keytruda and Gardasil as the Pipeline Makes Strong Progress

Based on Merck’s better-than-expected fourth-quarter results driven by wide portfolio support and robust pipeline advancement, we plan to increase our fair value estimate. In the quarter, total sales increased operationally 13% (excluding COVID-19 sales), a rate we expect to decelerate as cancer drug Keytruda (up 22%) and human papillomavirus vaccine Gardasil (up 27%) mature in their lifecycles. However, the expiration of royalty payments on these drugs should allow for significant margin expansion. Further, new indications in earlier cancer settings for Keytruda (especially the recently approved perioperative lung cancer setting) will be important for close to an incremental $10 billion in annual sales over the next five years.