Pharma giant Merck (MRK) reported a 12.4% dip in earnings for the second quarter as higher costs offset a dip in income taxes. While R&D expenses rose 28%, materials and production costs witnessed a hike of 10%. The top and bottom line came in above analysts’ expectations. Following this, shares of the company rose 1.39% in premarket trading.

Earnings for the quarter declined 12.4% to $1.71 billion or $0.63 per share. The results included acquisition and divestiture related costs, and restructuring costs. Non-GAAP EPS increased 5% to $1.06.

Worldwide sales rose 5% to $10.5 billion, including a 1% positive impact from foreign exchange. The top line was driven by an 89% jump in sales of the cancer drug Keytruda, and a 30% climb in sales of cervical cancer preventing therapy Gardasil.

For the full year of 2018, Merck narrowed its revenue outlook to the range of $42 billion to $42.8 billion from the previous estimate of $41.8 billion to $43 billion. GAAP EPS target is trimmed down to a range of $2.51-$2.59 from $2.45-$2.57 while non-GAAP EPS outlook is lifted to a range of $4.22-$4.30 from $4.16-$4.28.

Merck Q2 2018 earnings results
Merck Q2 2018 Earnings Infographics

Pharmaceutical sales grew 6%, driven primarily by growth in oncology, vaccines, and hospital acute care. This was partially offset by lower sales in virology and the ongoing impacts of the loss of market exclusivity for several products.

Oncology benefited from an increase in sales of Keytruda, which reflects its continued launches with new indications globally and the strong momentum for the treatment of patients with non-small cell lung cancer, as Keytruda is the only anti-PD-1 approved in the first-line setting.

Animal Health sales increased 14% fuelled by higher sales of livestock products. The growth was also driven by higher sales of companion animal products, specifically from the Bravecto line of products that kill fleas and ticks in dogs and cats for up to 12 weeks.

R&D expenses increased 28% due to a $344 million charge for the Viralytics acquisition, increased clinical development spending, in particular from oncology collaborations, as well as investment in early drug development.

Related: Merck joins pharma giants in lowering drug prices

For the third quarter, Merck will be facing a decline in six of its drug prices by 10% or more. This move by Merck follows that of Pfizer (PFE) and Swiss firm Novartis, who agreed to freeze the price increase for this year after President Donald Trump’s Twitter outburst.

Meanwhile, Merck’s rival Pfizer is expected to report its second-quarter results on July 31. Analysts are expecting Pfizer to post a 10.40% jump in earnings for the second quarter on a 3.20% rise in revenue.

Shares of Merck ended Thursday’s regular trading session down 0.74% at $64.01 on the NYSE.

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