Summary of Key Points
Merck & Co. seemed to incur a loss of $5.575 billion in the first half of this year, but it wasn't due to poor performance in its core businesses. Instead, the reason was a one-time expense of $5.7 billion associated with the acquisition of a company called Terns (which exceeded the amount of the loss itself). In fact, its core businesses even grew by 5%. Its flagship drug, Keytruda, the acquired Sotexip, and its animal health business all performed well, with only the HPV vaccine experiencing a temporary decline in sales. The company has been acquiring frequently because the patent for its key drug Keytruda is about to expire in 2028, and it fears a potential drop in revenue thereafter. To mitigate this risk, Merck is investing in new drugs and launching products, with the goal of achieving revenues exceeding $70 billion by 2030.
The Truth Behind the Loss: It Was a One-Time Large Expense Due to a Company Acquisition
Merck's loss of $5.5 billion may sound alarming, but it is not related to its regular drug sales. This loss was caused by a one-time payment of $5.7 billion for the acquisition of Terns Pharmaceuticals in March this year. Simply put, Merck paid a large sum of money to acquire Terns' drug TERN-701, which treats chronic myeloid leukemia. This expense directly impacted its profits, resulting in a financial loss on the books. Without considering this expense, the company would actually have made a profit (given that its revenue increased by 5%).
Performance of Core Businesses: Mixed Results
1. Flagship Drug Keytruda: Still a Profit Driver
Keytruda (pembrolizumab) generated sales of $16.4 billion in the first half of the year, a year-on-year increase of nearly 8%. The good sales performance can be attributed to several factors: more early-stage cancer patients using the drug for recurrence prevention after screening, stable demand for advanced metastatic cancers, and increasing prescriptions for breast and cervical cancers, which are common among women.
2. Sotexip: An Acquired Drug Becomes a New Success
This drug, acquired earlier, sold for $1.114 billion in the first half of the year, a year-on-year increase of 81%. The main contributor to this growth was the strong demand in the U.S. market, with additional revenue from its recent launches in Japan and Europe.
3. Animal Health Business: Steady Growth
The animal health business generated sales of $3.566 billion, a 10% increase. Although this segment is not as prominent as Keytruda, it has shown stable growth.
4. HPV Vaccine: Temporary Slump in Sales
Sales of the quadrivalent and nine-valent HPV vaccines totaled $2.238 billion in the first half of the year, a 9% decrease from the previous year. This could be due to temporary saturation after a surge in demand or increased competition.
The Reason for Frequent Acquisitions: The Upcoming Patent Expiration of Keytruda
Merck's frequent acquisitions are primarily driven by the approaching expiration of the patent for Keytruda. Starting in 2028, the exclusive sales rights for this drug will expire, and generic versions will enter the market, potentially leading to a significant decline in Keytruda's revenue. To avoid relying solely on Keytruda for profits, Merck is looking for new drugs to replace it. The acquisition of Terns was aimed at its leukemia drug TERN-701, which management believes could generate billions in revenue over the next decade. Merck also indicates that it has the financial resources to acquire more valuable companies.
Future Strategy: New Products and Acquisitions to Reach $70 Billion in Revenues by 2030
Merck has already begun planning for its future:
1. New Product Launches
In July this year, Merck launched the world's first oral PCSK9 inhibitor (a cholesterol-lowering drug that does not require injections) for patients with high cholesterol levels.
2. Multiple Pipeline Drugs
The company has more than 20 new drugs in development, which management believes will transform clinical treatments and drive growth over the next decade.
3. Clear Goals
Merck aims to exceed $70 billion in revenues by 2030 (with current上半年 revenue at $32.8 billion, and an annual estimate of around $65 billion, indicating room for growth). The company has even raised its revenue forecast for 2026 from $65.8-67 billion to $66.3-67.3 billion, showing its confidence in the future.
In summary, while Merck may have a short-term financial loss, it has a well-defined long-term strategy. By investing in one-time acquisitions to acquire potential drugs, it is preparing for the expiration of its key drug's patent and seeking new sources of growth. Investors and stakeholders should focus on the company's core business performance and future development plans rather than being intimidated by the temporary financial setbacks.