Today Merck announced its Q2 of 2025 financial results, whereby it revealed the amount of revenue it generated for the quarter. More importantly, it made a strategic move to cut costs in order to focus on future high-growth drivers for its pipeline. It noted that it would be able to implement $3 billion in annual cost savings, and this would be done specifically by realigning its pipeline towards products that are expected to drive future growth. This move makes a whole lot of sense, because the company is seeing heavy reliance on its flagship oncology drug, KEYTRUDA. Sales of this drug grew by 9% to $8 billion for the quarter. This in and of itself is not bad at all; however, the truth is that this product accounted for half of the revenue it generated for the quarter.
Total Q2 of 2025 revenues were $15.8 billion, which in essence was a decrease of 2% from the prior quarter. The reliance on KEYTRUDA is not ideal because other products in its pipeline are starting to falter. For example, GARDISIL and GARDISIL 9 sales declined by 55% to $1.1 billion. Both of these candidates are approved HPV vaccines; however, the latter one provides broader protection against HPV. Besides products that are seeing massive declines, there is another item of importance to note, which is that KEYTRUDA is nearing a patent cliff. In 2028, patent protection will be gone, and then knockoffs can begin flooding the market to steal market share.
This big pharma is trying to take steps to move towards growth in other areas. That is, the move to cut $3 billion is that of adjusting money from one end of the spectrum to another. That is, to make cash freely available to hire, manufacture, and develop new candidates in its pipeline that are expected to drive sales growth in the future. Just recently, at the beginning of this month, it put down $10 billion to acquire Verona Pharma for its U.S.-approved drug OHTUVAYRE. The reason for doing this was because this dual inhibitor of PDE-3 and PDE-4 provided a novel mechanism of action as a maintenance treatment for patients with chronic obstructive pulmonary disease (COPD). More specifically, it is the first inhaled drug of its kind to offer both mechanisms of action [MOA] of bronchodilation and non-steroidal anti-inflammatory effect.
All is not lost though for this big pharma because it notes that it has an extensive pipeline of 20 potential new blockbuster drugs, which, if everything works out accordingly in clinical trials, could generate $50 billion in future revenue. Speaking of new drugs, one such new drug expected to continue to drive growth for it would be WINREVAIR, which was approved for the treatment of patients with pulmonary arterial hypertension (PAH). This is a disorder of pulmonary arteries that are constricted due to hyperproliferation of cells. With this happening, it alters the structure of the arteries, leading to such constriction and increased blood pressure, causing disease. The MOA of this drug works by modulating vascular cell proliferation, which in turn prevents vascular remodeling of the arteries.
Speaking of WINREVAIR for Merck, it is performing well, having brought in $336 million in sales in this most recently reported quarter. Other growth areas intended to possibly help drive revenues later on would be those of oncology, ophthalmology, HIV, and other target areas. What I believe could end up being huge growth drivers would be what is highly ideal now in oncology, which are anti-PD-1/VEGF bispecific antibodies. This is becoming a crowded field with a host of players, but if done right, then Merck may have a shot to do well with LM-299. However, this was not a cheap deal, as it had to pay LaNova an upfront payment of $588 million to obtain it. Along with the fact that should milestones be met in the coming years, it will have to pony up another $2.8 billion as well.
Whether this drug pays off remains to be seen because the anti-PD-1/VEGF bispecific antibody space is crowded. However, one thing is for sure: the MOA of this class of drugs has already been proven by several companies, including that of Akeso and Summit Therapeutics’ IVONESCIMAB. Where it might work out for Merck is that LM-299 incorporates a modified molecular design, which is that there is an anti-VEGF antibody linked to two c-terminal domain anti-PD1 antibodies. The purpose of this is so that there can be enhanced expression and ultimately improved efficacy over other drugs of the same class. In essence, there is best-in-class potential with this molecule. If proven to be as such in coming clinical trials, then the company will have a competitive edge. It is also touted that its structural design provides improved safety as well, which means that future growth expansion might be possible by combining it with other drug modalities such as immuno-oncology drugs, antibody drug conjugates (ADCs), and other types.
One other possible drug that could be classified as being one of Merck’s future growth drivers would be a drug it acquired from China Hansoh, which is oral GLP-1 HS-10535. The downside is that this is still a very early preclinical stage program, and it will be many years before this candidate makes it to the finish line. On the flip side, the thought of acquiring this drug was not just on the basis of only developing it as a weight loss drug. It wants to explore its use for other cardiometabolic benefits beyond this. To get its hands on this drug it paid Hansoh an upfront payment of $112 million and then could pay up to $1.9 billion as potential milestone payments.
The point here is that Merck has not ruled out any other potential acquisitions that align with its goals. Chief Executive Rob Davis has not ruled out going beyond the $1 billion to $15 billion preferred target range for future deals. This makes sense, as the acquisitions made thus far are likely not going to be enough to counter the patent cliff for KEYTRUDA in 2028. The restructure it just implemented is a long multi-year process, and the $3 billion in annual cost savings is not expected to be seen until the end of 2027.