Caroline Litchfield
Executive Vice President and Chief Financial Officer at Merck & Co., Inc.
Thank you, Rob. Good morning.
As Rob highlighted, we are off to a strong start to the year with robust underlying performance across our key growth pillars. These results further demonstrate that our focus on science and innovation as the core of our strategy is working. Our success is enabled by the excellent execution of our team of dedicated colleagues, who are delivering our important medicines and vaccines to people and animals across the globe. We remain very confident in our ability to continue to deliver in the short-term, while we make disciplined investments to maximize long-term value for patients and shareholders.
Now, turning to our first quarter results. Total company revenues were $14.5 billion. Excluding the impact from LAGEVRIO and foreign exchange, the business delivered very strong underlying growth of 15%. The remainder of my revenue comments will be on an ex-exchange basis.
Our Human Health business continued its strong momentum. Excluding LAGEVRIO, growth was 18%, driven by Oncology and Vaccines. Our Animal Health business also delivered solid performance, with sales increasing 5%, driven by growth across both livestock and companion animal products.
Now, turning to the first quarter performance of our key brands. In Oncology, KEYTRUDA grew 24% to $5.8 billion driven by robust global demand for metastatic indications as well as increased utilization driven by approvals in early-stage cancers. In the US, KEYTRUDA grew across all key tumor types and continues to benefit from uptake in earlier-stage cancers including triple-negative breast cancer, as well as in certain types of renal cell carcinoma and melanoma.
We continue to anticipate gradual uptake from KEYNOTE-091 in earlier-stage lung cancer as we are working with the medical community to increase adjuvant treatment rates for diagnosed patients receiving surgery. We, along with others, are also working to improve upon the low level of lung cancer screenings and follow-up through diagnosis, which we anticipate will increase over time. We are encouraged by the positive feedback we've received thus far. Furthermore, we are excited by the potential to bring an additional treatment option to patients following the positive results of the KEYNOTE-671 study. Together, these studies position us well to extend our leadership in non-small cell lung cancer.
We also look forward to providing a new treatment option to certain adult patients with bladder cancer following the recent approval of KEYNOTE-869. Outside the US, KEYTRUDA continues to maintain its leadership in non-small cell lung cancer. Growth was driven by uptake in metastatic renal cell carcinoma and certain types of head and neck cancer, as well as in earlier-stage cancers, including certain types of high-risk, early-stage triple-negative breast cancer, which continues to launch in additional markets.
Lynparza remains the market-leading PARP inhibitor. Alliance revenue grew 8% primarily due to increased demand in key European markets in certain patients with ovarian cancer. Lenvima alliance revenue grew 5% due to increased uptake in the treatment of certain patients with advanced renal cell carcinoma in key European markets.
Our vaccines portfolio delivered excellent growth led by GARDASIL, which grew 43% to $2.0 billion. Performance was driven by strong demand in major ex-US markets, particularly China, as well as increased supply. Growth also benefitted from an acceleration of shipments to China from the second half to the first half of the year to ensure the availability of product to meet heightened demand following the approval of the expanded indication of GARDASIL 9 for girls and women nine to 45 years of age. Vaccine sales also benefited from the increasing demand for VAXNEUVANCE following the ongoing pediatric launch, particularly in the US.
In our Hospital Acute Care portfolio, BRIDION sales grew 27%, driven by an increase in market share among neuromuscular blockade reversal agents. Our Animal Health business delivered another good quarter, with sales increasing 5%, reflecting strong demand across our Livestock portfolio, particularly in ruminant and poultry products as well as strategic price actions.
I will now walk you through the remainder of our P&L, and my comments will be on a non-GAAP basis. Gross margin was 76.9%, an increase of 6.1 percentage points due to favorable product mix, which reflects a benefit from the lower sales of LAGEVRIO.
Operating expenses increased to $6.7 billion, reflecting $1.4 billion of charges related to the acquisition of Imago and our license and collaboration agreement with Kelun. Excluding these charges, operating expenses grew 12% driven by increased investments to support our key growth drivers and pipeline. Other income was $70 million. Our tax rate was 20.4%, reflecting the unfavorable impact from the Imago transaction, for which no tax benefit was recognized. Taken together, we earned $1.40 per share, which includes a $0.52 impact from charges related to the acquisition of Imago and our agreement with Kelun.
Turning now to our 2023 non-GAAP guidance. The continued operational strength of our business enables us to raise and narrow our full-year revenue guidance. We now project revenue to be between $57.7 billion and $58.9 billion, including approximately $1 billion from LAGEVRIO. We expect strong underlying revenue growth of 8% to 10%, offset by the decline in LAGEVRIO and an approximate 2 percentage point negative impact from foreign exchange using mid-April rates.
Our gross margin is still expected to be approximately 77%. We have narrowed the estimated range of operating expenses to be between $23.3 billion and $24.1 billion. As a reminder, this range includes $1.4 billion of upfront research and development expenses related to the acquisition of Imago and our agreement with Kelun. This guidance does not assume the proposed acquisition of Prometheus or any additional significant potential business development transactions.
Other Income is anticipated to be approximately $250 million. We continue to assume a full-year tax rate between 17% and 18% and approximately 2.55 billion shares outstanding. Taken together, we are increasing and narrowing our expected EPS range to $6.88 to $7.00. This range includes a negative impact from foreign exchange of approximately 4 percentage points, using mid-April rates.
It is important to note that this guidance does not include the impact of the proposed acquisition of Prometheus, which is expected to close in the third quarter of this year. We expect the transaction will result in a one-time charge that will increase research and development expense of approximately $10.3 billion, or approximately $4 per share. The impact of this charge will be reflected in both our GAAP and non-GAAP results.
In addition, ongoing investment to advance the pipeline assets as well as the cost of financing will negatively impact EPS by approximately $0.25 in the first 12 months following close. As Rob noted, we are very excited by Prometheus' compelling science and confident that this transaction has the potential to create meaningful value for patients and shareholders.
Our guidance reflects our continued confidence in the underlying strength of our business driven by our key pillars in Oncology, Vaccines, and Animal Health. As you consider your models, there are a few items to keep in mind. In the US, KEYTRUDA has achieved exceptional growth over the past several quarters driven by recent launches, particularly in early-stage indications, such as triple-negative breast cancer. While we continue to anticipate growth from these earlier stage indications, the year-over-year growth rate is expected to moderate as we anniversary their very strong initial uptake.
Outside the US, we continue to expect strong volume growth for KEYTRUDA; however, pricing is an increasing headwind, particularly as we launch new indications in key European markets, which will temper ex-US growth. Finally, we are confident in our ability to drive strong growth of GARDASIL, particularly in international markets. We are well positioned to protect many more people from HPV-related cancers now and over the long term and given the strong global demand for the vaccine, we see an acceleration of growth for GARDASIL in the full year 2023 relative to 2022, though not quite at the same level of growth achieved this quarter.
Now shifting to capital allocation, where we remain committed to our priorities following the announcement to acquire Prometheus. We will continue to prioritize investments in our business and growing pipeline to realize the value of the many near- and long-term opportunities we see. We remain committed to our dividend, and plan to increase it over time. Business development remains a high priority, and we maintain the ability within our strong investment grade credit rating to pursue additional, science-driven, value-enhancing transactions going forward. We will continue to execute a modest level of share repurchases this year.
To conclude, we remain very confident in the outlook of our business driven by the global demand for our innovative medicines and vaccines. We are in a position of financial and operational strength, and our continued excellent execution will enable us to deliver value to patients and shareholders well into the future.
With that, I'd now like to turn the call over to Dean.
