By Michael Erman

(Reuters) -Merck & Co on Thursday reported higher-than-expected third-quarter results on surprisingly strong demand for its COVID-19 treatment, primarily in Japan, and raised its sales forecast for the drug.

Sales of molnupiravir, the COVID-19 antiviral pill sold under brand name Lagevrio, jumped 47% to $640 million in the quarter, crushing Wall Street estimates of $120 million, according to LSEG data.

Merck shares were up more than 2% in morning trade.

Molnupiravir was initially hailed as a potential breakthrough when few treatment options were available, but was soon eclipsed by Pfizer's rival treatment Paxlovid, which had more impressive data.

Paxlovid dominates the out-of-hospital COVID treatment market in the United States, and the EU regulator recommended against use of Merck's drug. In Japan, however, it has been a market leader, Merck has said previously.

The company last quarter said it had already booked most of the 2023 sales it expected for Lagevrio in the first half of the year, so the increase comes as a surprise. Merck raised its Lagevrio full-year sales forecast to $1.3 billion.

Third-quarter sales of Merck's top-selling cancer immunotherapy Keytruda stood at $6.34 billion, surpassing analysts' average estimate of $6.22 billion.

Gardasil, its vaccine to prevent cancers caused by the human papillomavirus (HPV), generated sales of $2.59 billion, rising 13% but missing analysts' average estimate of $2.69 billion.

"As investors have come to expect a beat and raise on Keytruda, strength in Gardasil is also needed," Wells Fargo analyst Mohit Bansal said in a note.

The company now expects 2023 sales in the range of $59.7 billion to $60.2 billion, up from its previous forecast of $58.6 billion to $59.6 billion.

Merck posted sales of $15.96 billion in the reported quarter, compared to the average analyst estimate of $15.3 billion. The U.S. drugmaker earned an adjusted profit of $2.13 per share, beating estimates by 18 cents.

(Reporting by Michael Erman and Leroy Leo; Editing by Bill Berkrot and Shinjini Ganguli)