MSD trims outlook as it aims to shave $3bn off costs

MSD has said it will cut $3 billion off its annual costs by the end of 2027 as it prepares for the end of patent protection for blockbuster cancer drug Keytruda the following year.

The plan was announced alongside the group's second-quarter results, which revealed a 2% fall in worldwide sales to $15.8 billion, driven by a 55% fall in its human papillomavirus (HPV) vaccines Gardasil and Gardasil 9, mainly due to continuing weak demand in China, to $1.1 billion.

Earlier this year, MSD suspended shipments of the vaccines to China in an attempt to reduce inventory as it faced competition from lower-cost domestic shots, an ongoing anti-corruption crackdown in the health sector, and weak discretionary spending. Gardasil is not included in China's national immunisation programmes, so has to be paid for out of pocket.

The company had earlier suggested it would resume shipments in the middle of 2025, but has now set that target date back to the end of the year.

Keytruda (pembrolizumab) grew 9% to $8 billion in the period but, with MSD now preparing for biosimilar competition to the brand, there is a need to reduce costs and reinvest the savings into its R&D pipeline, according to chief executive Robert Davis.

The plan is to "redirect investment and resources from more mature areas of our business to our burgeoning array of new growth drivers, further enable the transformation of our portfolio, and drive our next chapter of productive, innovation-driven growth," he said. MSD announced a $10 billion takeover of UK-based Verona Pharma earlier in July as part of that pipeline-building effort.

There will be staffing cuts in "certain administrative, sales and R&D positions," according to the financial update, along with a reduction in the number of buildings MSD operates and changes to the group's manufacturing network with the aim of "aligning the geography of its global manufacturing to its customers."

Those changes will include a $1 billion biologics plant in Wilmington, Delaware, to manufacture Keytruda, a previously announced facility in Durham, North Carolina, to produce the bulk drug substance for Gardasil, and an $895 million expansion of an animal health unit in Soto, Kansas.

Shares in the group – known as Merck & Co in the US and Canada – were down over 4% at the time of writing as investors reacted to the fall in revenues and a $200 to $300 million cut MSD's full-year sales forecast. That includes a previously divulged $200 million hit from tariffs levied by the Trump administration.

On the positive side of the equation, recently-launched pulmonary arterial hypertension (PAH) drug Winrevair (sotatercept) brought in $336 million in the quarter, ahead of analyst forecasts, while rare cancer drug Welireg (belzutifan) grew 29% to $162 million.