KENILWORTH, N.J. – One day, perhaps, Merck, with multiple locations in eastern Pennsylvania and New Jersey, will receive the proper respect in the marketplace for what it expects to have accomplished with its cancer-fighting drug, Keytruda.

Today, however, the company’s stock price took a little bit of a hit, down 1.27% at noon, likely because Keytruda’s sales in the second quarter missed analysts’ expectations by $170 million even though its sales increased by 23% over the second quarter of 2020.

Wall Street is a heartless taskmaster.

Feeding the hopes of an expanding number of cancer patients, and their families, Keytruda received several Food and Drug Administration approvals in the quarter.

Keytruda in combination with chemotherapy was approved as pre-operative (neoadjuvant) treatment and then continuing as a single-agent (adjuvant) treatment after surgery in high-risk early-stage triple-negative breast cancer.

The FDA approved Keytruda in combination with trastuzumab and chemotherapy for the first-line treatment of patients with locally advanced unresectable or metastatic human epidermal growth factor receptor 2 (HER2)-positive gastric or gastroesophageal junction (GEJ) adenocarcinoma. This is the first time an anti-PD-1 therapy has been approved in combination with anti-HER2 therapy and chemotherapy as a first-line treatment for these patients. This accelerated approval is contingent upon verification of a clinical benefit in confirmatory trials.

Also, Keytruda received FDA approval as monotherapy for the treatment of patients with locally advanced cutaneous squamous cell carcinoma that is not curable by surgery or radiation.

In addition, the FDA approved KEYTRUDA in combination with Lenvima for the treatment of certain patients with advanced endometrial carcinoma that is not microsatellite instability-high or mismatch repair deficient who have disease progression following prior systemic therapy in any setting and are not candidates for curative surgery or radiation.

Keytruda also is involved in numerous other studies to treat a variety of cancers, and Merck has many other drugs for other illnesses in various phases of FDA approval.

Second Quarter Financial Results

Merck’s business results were mixed in the quarter. Sales were up nicely over the previous year, but GAAP (Generally Accepted Accounting Principles) net income and EPS (Earnings Per Share) were down. However, non-GAAP net income and EPS, which excludes certain non-recurring items, both increased by 28% over 2020’s first quarter.

“We are encouraged by the strong momentum of our underlying business led by our key growth drivers as the impact of the pandemic on our performance lessens,” said Rob Davis, chief executive officer and president, Merck. “We are confident that we will deliver sustained long-term growth and value creation enabled by our strengthening discovery research engine and by working with increased speed, urgency and agility to accelerate the delivery of our innovations to the patients who depend on them.”

Second quarter 2021 worldwide sales were $11.4 billion, an increase of 22% above second quarter 2020. Excluding the impact from foreign exchange, sales grew 19% reflecting ongoing recovery from the COVID-19 pandemic and strong underlying demand across the company’s portfolio of products.

GAAP net income in the second quarter was $1.213 billion, compared to $2.341 billion in the second quarter of 2020. Non-GAAP net income was $3.321 billion in the quarter, an increase of 28% above $2.586 billion in 2020.

GAAP earnings per share assuming dilution was $0.48 for the second quarter of 2021. GAAP EPS for the second quarter of 2021 includes a $1.7 billion charge for the acquisition of Pandion Therapeutics, Inc. Non-GAAP EPS of $1.31 for the second quarter of 2021 excludes acquisition-and-divestiture-related costs, restructuring costs, and income and losses from investments in equity securities.

In product financial highlights, Keytruda sales grew 23% to $4.2 billion from $3.39 billion; excluding the Impact from foreign exchange, sales grew 20%. Gardisil/Gardisil 9 sales increased 88% to $1.2 billion from $656 million; excluding the impact from foreign exchange, sales grew 78%. Animal Health sales grew 34% to $1.5 billion from $1.1 billion; excluding the impact from foreign exchange, sales grew 27%.

Financial Outlook

Merck said it continues to experience strong global underlying demand across its business. Consequently, at mid-July 2021 exchange rates, Merck now expects sales growth of 12% to 14% in 2021 with full-year 2021 revenue estimated to be between $46.4 billion and $47.4 billion, including a positive impact from foreign exchange of less than 2%.

The company continues to believe that global health systems and patients have largely adapted to the impacts of COVID-19 disease, and that while certain negative effects will persist, the trend will continue to improve. Merck now estimates that the pandemic will have a net unfavorable impact to 2021 revenues of less than 3%, all of which relates to the pharmaceutical segment.

Merck expects full-year 2021 GAAP EPS to be between $4.24 and $4.34. Full-year 2021 non-GAAP EPS are expected to be between $5.47 and $5.57, including a positive impact from foreign exchange of approximately 2%. The non-GAAP range excludes acquisition- and divestiture-related costs, costs related to restructuring programs, income and losses from investments in equity securities and certain other items.

For full-year 2021, Merck continues to expect the pandemic will have a negligible impact on operating expenses, as spending on the development of its COVID-19 antiviral program is expected to offset the favorable impact of lower spending in other areas due to the COVID-19 pandemic.

Neither the sales nor the EPS guidance ranges provided above include the impact of the potential launch of Merck’s COVID-19 antiviral drug candidate for COVID-19, molnupiravir.

Merck (NYSE:MRK), known as MSD outside the U.S. and Canada, is a leading pharmaceutical company that develops and markets prescription medicines, vaccines, biologic therapies and animal health products. The company is at the forefront of research to advance the prevention and treatment of diseases including cancer, cardio-metabolic diseases, emerging animal diseases, Alzheimer’s disease and infectious diseases including COVID, HIV and Ebola.

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