After recent M&A moves, Merck CEO says he's thinking beyond Keytruda's eventual downfall

Merck has dreaded the year 2028 for a while, because that's when cancer superstar Keytruda is expected to face biosimilar competition in the U.S.

But recent moves by the company—including last week’s $10.8 billion purchase of Prometheus Biosciences and its late-stage bowel disease candidate PRA023—have Merck CEO Rob Davis thinking beyond the foreboding date.

“I am no longer focused on 2028; I am looking at how do we have sustainable growth well into the next decade,” Davis said Thursday on the company’s first-quarter earnings conference call.

Davis didn’t waste any time with his $11.5 billion acquisition of Acceleron in 2021. The deal came just two months after he took the reins from former CEO Kenneth Frazier. It brought the New Jersey-based drugmaker portfolio diversity, led by pulmonary arterial hypertension (PAH) candidate sotatercept, which is on track for approval this year and carries peak sales potential of $2 billion.

Regarding business development, Davis added on Thursday that the company doesn’t favor early- or late-stage development assets. It also isn’t seeking deals in particular therapeutic areas, but rather is governed by “scientific opportunity," he said.

Edward Jones analyst John Boylan thinks Merck is taking the correct approach to dealmaking. 

“We believe Merck will use its strong financial position to make acquisitions to boost growth," Boylan wrote in a note to investors."These acquisitions may help reduce dependence on Keytruda."

Merck delivered (PDF) revenue of $14.5 billion in the first quarter, down from $15.9 billion in the first quarter of 2022. The 9% decrease was attributed to lower sales from COVID oral antiviral Lagevrio, which maxed out at $3.2 billion a year ago. Take Lagevrio out of the mix and sales in the quarter increased 11%, Merck said.

The revenue performance surprised analysts, who expected $13.8 billion on the consensus, which also is what the company generated in the fourth quarter of last year.

The growth, minus Lagevrio, can be chalked up to Merck’s mainstays. Keytruda raked in $5.8 billion, up from $5.45 billion in the previous quarter and 20% year-over-year. HPV vaccine Gardasil posted sales of $2 billion, up from $1.5 billion in the previous quarter and up 9% from Q1 2022.

With the performance, the company has adjusted its 2023 revenue projection upward slightly. Merck now expects to pull down between $57.7 billion and $58.9 billion this year, up from a prior range of $57.2 billion to $58.7 billion.