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Dive Brief:
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Merck & Co. “absorbed” $200 million in addition expenses related to U.S. and overseas tariffs in the first quarter of 2025, increasing its cost of selling products and trimming a half percent from its gross profits, the company said Thursday.
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The company doesn’t intend to use price hikes as a “lever” to offset tariff costs, CEO Rob Davis said on a conference call. However, Merck has brought enough drug supply to the U.S. to reduce tariff impacts for the rest of the year and started adding contract and in-house manufacturing capacity to lower future costs.
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Merck’s $15.5 billion first quarter sales total was 1% higher than the same period a year ago when keeping currency exchange rates constant, slightly above Wall Street analysts’ expectations. Sales of its top product, the cancer immunotherapy Keytruda, grew 6% to $7.2 billion, but were below analyst forecasts. Shares fell as much as 3% in early Thursday trading.
Dive Insight:
Merck’s first-quarter earnings are among the first signs of the financial impact President Donald Trump’s tariff threats will have on pharmaceutical companies. Johnson & Johnson already reported a $400 million impact from tariff costs, primarily in its medical device business, but didn’t alter its forecast for the year. Other companies, such as Sanofi and Bristol Myers Squibb, have also reiterated or increased their financial outlooks, citing the lack of clarity about what their dues might look like.
Merck’s adjustment was minimal, too, with only a half-percent change — from 82.5% at the beginning of the year to 82% — in the guidance for its gross margin. The company also added $200 million to its operating expenses estimate and trimmed 6 cents from its earnings per share outlook, which is now expected to fall between $8.82 and $8.97. Both of those numbers will be affected by payments to development partners.
Davis expects that Merck’s longstanding plan to onshore drug manufacturing — which has been underway since 2017 — should help protect it from substantial tariff costs. Those moves, he said, have stimulated $12 billion in U.S. capital spending so far, along with another $9 billion in planned investments.
“As you look at 2025, we're well-positioned with inventory to be able to mitigate anything we could see in the short term,” Davis said. “In the medium to long term, we've already started to identify where we can either reposition our own manufacturing, change the the priorities of existing plants, bring on external manufacturing, in some cases, to bridge gaps, and then finally, to build internal manufacturing.”
Merck faces its biggest potential tariff exposure in Keytruda, he added. But the company has enough inventory for 2025, and has prepared to produce “drug substance and drug product” in the U.S.” in the years ahead.