Merck & Co., Inc. (MRK), Financial Analysis

1 Revenue & Business Model

• Storyline: Merck funds its move away from one product with debt and acquisitions. Keytruda earned 48.7% of FY2025 sales and loses US compound patent protection in Dec 2028; Merck agreed $26.5bn of acquisitions (Verona, Cidara, Terns) between Oct 2025 and May 2026. Chapters 2 to 5 cover the four revenue drivers: Keytruda and oncology, vaccines, cardiopulmonary and Animal Health.
• Two segments: Pharmaceutical (human health incl. vaccines) $58.1bn in FY2025, 89.4% of sales, segment profit 78.7% of segment sales before R&D, which Merck books at corporate level; Animal Health $6.4bn (9.8%), segment profit margin 33.5% after its own R&D.
• Sales FY2021 $48.7bn to FY2025 $65.0bn, a 7.5% CAGR; TTM Q3 2026 $67.4bn, +4.9%.
• Regions: United States 56.2% of FY2025 sales against 47.4% in FY2023; China fell from $6.80bn (FY2023) to $1.94bn (FY2025) after Gardasil shipments to China stopped in Feb 2025. In Q3 2026 the US was 58.7% of sales.
• Pricing exposure: Medicare negotiated prices apply to Januvia from 2026, Janumet from 2027 and Lenvima from 2028; Merck expects Keytruda selection in 2027 with prices from 1 Jan 2029, and signed a three year most favoured nation pricing agreement with the US government in Dec 2025.

2 Keytruda & Oncology: Subcutaneous Switch Before the 2028 Patent Expiry

• Keytruda family $8.60bn in Q3 2026, +5.6%, 47.6% of sales; 9M 2026 $25.00bn, +7.3%; FY2025 $31.68bn, 48.7% of sales. About $200m of Q3 sales came from US purchase timing that reverses in Q4.
• Intravenous Keytruda $7.77bn, (4.6%), with US intravenous sales $4.5bn, (7%), as US patients moved to Keytruda Qlex at $693m. Qlex was 9.7% of the family in Q3 2026 against 1.6% in Q1 2026 and 5.5% in Q2 2026.
• Other oncology: Welireg $307m, +56.6%; Lynparza alliance $352m, (7.1%); Lenvima alliance $287m, +11.2%; Reblozyl alliance $177m, +30.1%.
• Pipeline: sac TMT cut the risk of death by 32% against chemotherapy in endometrial cancer (FDA action date 15 Jun 2027); intismeran with Keytruda cut the risk of melanoma recurrence or death by 42%; Terns ($6.8bn, May 2026) adds an oral CML drug.

How the PD1 market is changing

• Patents and prices: the key Keytruda US patent expires in 2028 (EU 2031, Japan 2032 to 2033, China 2028); Medicare price setting is expected from 1 Jan 2029, and a CMS proposed rule may cover Keytruda Qlex at the same time. A Keytruda biosimilar launched in Argentina in 2025.
• Subcutaneous dosing: BMS sold $334m of subcutaneous Opdivo Qvantig in Q3 2026, +398.5%, while intravenous Opdivo fell 6.2% and US Opdivo 8%. Merck's Keytruda Qlex reached $830m in the same quarter; its US patent runs to 2031.
• PD1/VEGF bispecific antibodies: Summit reported in Sep 2026 that ivonescimab showed an overall survival benefit against pembrolizumab in PD L1 positive lung cancer in a China study; AstraZeneca stopped a Phase 3 study of volrustomig for futility; fianlimab plus Libtayo missed against pembrolizumab in melanoma.

3 Vaccines: Gardasil After China, in a Smaller US Market

• Gardasil $2.00bn in Q3 2026, +14.1%: US $1.37bn, +18.4%, incl. a CDC purchase and higher net prices; international $629m, +5.7%. 9M 2026 $4.23bn, +0.7%; FY2025 $5.23bn, (39%).
• China: Gardasil China sales were nil from Q2 2025 to Q1 2026, against $3.5bn across 2024; Merck pharmaceutical sales in China were $429m in Q3 2026, +13.8%, against $668m in Q1 2025. A revised Zhifei supply contract (Apr 2026) restarted limited shipments with immaterial 2026 revenue expected.
• Other vaccines, Q3 2026: ProQuad, MMR II and Varivax $730m, +6.7%; Capvaxive $263m, +7.8%, with US sales (13%); Vaxneuvance $195m, (13.7%); Enflonsia (RSV antibody) $187m against $79m. About $300m of Q3 vaccine sales came from purchase timing, most of which reverses in 2027.
• Royalties: 7% on US Gardasil sales until Dec 2028; the Vaxneuvance and Capvaxive royalty falls from 7.25% to 2.5% in 2027.

How the vaccine market is changing

• US policy: in Jan 2026 the acting CDC director cut the routine child and adolescent schedule and reduced HPV vaccination to a single dose; a district court stayed the changes on 16 Mar 2026 and the government appealed. Insurer association members cover vaccines recommended by ACIP as of 1 Sep 2025 without cost sharing through 2027.
• Demand: Merck states the US vaccines market has contracted; Pfizer reported US Prevnar sales (13%) in Q2 2026 on lower vaccination rates.
• Peers in Q3 2026: GSK vaccines (2%) at constant exchange rates, with Shingrix (5%) and Arexvy (24%); Sanofi vaccines (6.6%).

4 Cardiopulmonary: Winrevair and New Launches Against Generic Losses

• Winrevair $694m in Q3 2026, +92.8%: US $610m, +82.1%; international $84m against $25m; 9M 2026 $1.81bn, +85.2%; about 1,600 new US patients in the quarter. Merck pays BMS a 22% royalty; US data exclusivity runs to 2036.
• New products: Ohtuvayre (COPD, from Verona) $184m in Q3 2026 and $519m in 9M 2026; Lipfendra, an oral PCSK9 inhibitor approved in Jul 2026, reached over 11,000 prescriptions from over 6,500 prescribers in Q3, with commercial coverage expected in 2027 and Medicare in 2028.
• Exclusivity losses: Januvia and Janumet $380m, (39.2%), with US Januvia $78m, (70%); Bridion $144m, (67.2%), with US $108m, (72%).
• Net effect: Winrevair and Ohtuvayre added $518m year on year in Q3 2026; Januvia, Janumet and Bridion lost $540m.

How the cardiopulmonary market is changing

• Older PAH oral drugs face generics: J&J Opsumit and Opsynvi fell 35.7% in the quarter to 27 Sep 2026 after US generic entry; Uptravi generics are possible in 2027. United Therapeutics revenue fell 1.9% in Q2 2026 and it has filed for oral ralinepag.
• Diabetes drugs lose exclusivity: Januvia and Janumet lost US exclusivity in May 2026; Medicare negotiated prices apply to Januvia from 2026 and Janumet from 2027.
• Lipids and COPD: Merck entered oral PCSK9 therapy with Lipfendra (Jul 2026) and COPD with Ohtuvayre (Verona, Oct 2025).

5 Animal Health: Livestock Growth, Slower Companion Animal Market

• Animal Health $1.68bn in Q3 2026, +3.8%, 9.3% of sales: Livestock $1.05bn, +2.4%; Companion Animal $628m, +6.1%; Bravecto $264m, +0.8%. 9M 2026 $5.24bn, +8.1%.
• Segment profit: FY2025 $2.13bn, 33.5% of segment sales, after $448m of its own R&D; Q1 2026 $723m (40.4%), Q2 2026 $636m (35.8%). Q3 2026 segment profit is published with the 10-Q.
• Additions: TARGAN (poultry biodevices, about $650m, Jul 2026); FDA approved Numelvi for dogs in Q1 2026.

How the animal health market is changing

• Companion animals: Zoetis reported fewer clinic visits, price sensitivity among pet owners and more competition in Q2 2026, with US companion animal sales (11%), and cut FY2026 revenue guidance to $9.12bn to $9.32bn.
• Livestock: Zoetis US livestock +23% in Q2 2026; New World screwworm has been confirmed in the US. Elanco revenue +10.2% in Q2 2026, led by Zenrelia and Credelio Quattro, with FY2026 guidance raised to $5.09bn to $5.14bn.

6 Financial Analysis & Ratios

• Operating income (computed as sales less cost of sales, SG&A, R&D and restructuring) TTM $5.5bn, 8.1% of sales, against 32.6% in FY2025; excluding the $15.1bn of 2026 acquisition and licence charges the TTM margin is 30.5%. FY2023 shows the same pattern: 3.9% after $11.4bn of acquired IPR&D.
• Net income TTM $2.5bn, diluted EPS $0.97; the Cidara and Terns charges are not tax deductible, so the 9M 2026 GAAP tax rate was 138.2% and 9M GAAP EPS ($0.21).
• Cash flow (latest available, TTM Q2 2026): operating cash flow $20.0bn, capex $3.9bn, free cash flow $16.1bn (24.1% of TTM Q2 2026 sales). FY2025 free cash flow $12.4bn after $16.5bn of operating cash flow; acquisitions paid in cash: Verona $10.04bn (FY2025), Cidara $8.78bn and Terns $5.84bn (H1 2026).
• Balance sheet at 30 Jun 2026 (latest filed): debt $53.9bn, cash and short term investments $7.1bn, net debt $46.8bn; equity $41.9bn against $52.6bn at end 2025 after the R&D charges; goodwill $21.6bn and other intangibles $25.0bn.
• Capital returns: dividends $8.2bn and buybacks $5.1bn in FY2025; H1 2026 dividends $4.25bn and buybacks $1.63bn; about $3bn of buybacks planned for 2026.

Cost structure and profitability

• GAAP gross margin 72.9% in Q3 2026 against 77.7%, while non GAAP gross margin was 81.4% against 81.9%: amortization of the Ohtuvayre intangible and the Verona inventory step up run through cost of sales. Q4 2025 GAAP gross margin was 66.2% after accelerated depreciation under the 2025 restructuring program.
• R&D $4.54bn in Q3 2026, +7.2%, incl. the $400m SciBrunch charge and net of $200m Blackstone funding; 9M 2026 R&D $26.9bn against $11.9bn, of which $15.1bn acquisition and licence charges.
• SG&A $2.89bn, +9.6%, 16.0% of sales; Q2 2026 SG&A included IT investment.
• Restructuring: income statement line $184m in Q3 2026; total restructuring costs excluded from non GAAP $581m in Q3 2026 and $1.38bn in 9M 2026. The 2025 program targets about $3.0bn of cost (about 60% cash), the 2024 program about $4.0bn.
• Below operating income: Q3 2026 interest expense $546m against $327m; equity investment income $401m. GAAP tax rate 8.9% in Q3 2026.
• Operating margin 30.9% in Q3 2026 against 37.7%; 9M 2026 3.2% reported, 32.8% excluding the three charges, against 35.7% in 9M 2025.

7 MD&A & Management Commentary

Q3 2026 earnings call and results release (29 Oct 2026)

• Q3 2026: sales $18.1bn, +5% (+4% excluding currency); GAAP EPS $2.04, (12%); non GAAP EPS $2.49, (3%), incl. the $0.12 SciBrunch charge; non GAAP gross margin 81.4% against 81.9%; non GAAP operating expenses +12% to $7.4bn; non GAAP tax rate 10.9% on discrete items.
• Purchase timing: about $550m of Q3 sales came from favourable US purchase timing, $200m Keytruda, $50m Winrevair and $300m vaccines, mostly Gardasil; the Keytruda and Winrevair amounts reverse in Q4 2026 and most of the vaccine amount in 2027.
• Keytruda Qlex: $830m, of which US $693m; target of 30% to 40% US subcutaneous use by end 2027; a permanent US billing code since 1 Apr 2026; a Dutch injunction in the Halozyme litigation blocks Qlex supply in six European markets; Japan and China approved subcutaneous pembrolizumab.
• 2027 outlook (qualitative): moderate sales growth; more than $2bn of exclusivity losses (Bridion, Januvia family, Adempas); underlying operating expenses up by a mid to high single digit %; higher gross margin as the 2.5% Keytruda royalty ends after 2026.
• Pipeline (8-K Ex 99.1): FDA accepted the sac TMT filing in endometrial cancer, action date 15 Jun 2027; intismeran with Keytruda cut melanoma recurrence or death risk by 42%; FDA approved Welireg with Lenvima in kidney cancer; the I DXd filing in small cell lung cancer was withdrawn.
• Q2 2026 call (4 Aug 2026): sales $16.6bn, +5%; Terns charge $2.31 per share; Lipfendra, an oral PCSK9 inhibitor, approved in Jul 2026; German GKV cost containment law approved in Jul 2026, mainly effective from 1 Jan 2027.
• Q1 2026 results (8-K Ex 99.1, 30 Apr 2026): sales $16.3bn, +5%; Cidara charge $3.62 per share; Gardasil $1.1bn, (19%), on lower demand in China and Japan.

Management and CFO commentary

• CFO Caroline Litchfield, Q2 2026 call: non GAAP gross margin 81.1%, down 1.1 points on larger inventory reserves; operating expenses excluding charges up about 7%; non GAAP tax rate 160.3% as the Terns charge is not tax deductible.
• CFO Litchfield, Q2 2026 call: about $3bn of buybacks in 2026; committed to growing the dividend and to an investment grade rating; current actions expected to lead to faster growth in 2027.
• CFO commentary, Q3 2026 release outlook: FY2026 non GAAP gross margin about 81%, other expense about $1.4bn, about 2.48bn diluted shares; currency adds about 1% to sales and $0.15 to EPS.
• Q4 2025 results (8-K Ex 99.1, 3 Feb 2026): Q4 2025 non GAAP gross margin 79.7% against 80.8%, on higher inventory write offs; GAAP gross margin 66.2% after accelerated depreciation under the 2025 restructuring program.
• CEO Robert Davis, Q2 2026 call: more than $70bn of commercial opportunity from over 20 new products, with 10 programs about 70% of it.
• CEO Davis, 8-K Ex 99.1 of 29 Oct 2026: ESMO 2026 data for sac TMT and the first Phase 3 result for a therapeutic cancer vaccine (intismeran, with Moderna) reduce clinical risk in the late stage pipeline.
• Dean Li, President of Merck Research Laboratories, Q2 2026 call: 17 Phase 3 studies for sac TMT; the Cidara influenza antiviral could be approved in 2029.

8 Peer Valuation & Sector Summary

• Sector: large pharmaceutical companies with human health, vaccines and animal health; Merck relies on one product more than the peer set, with Keytruda at 48.7% of FY2025 sales.
• FY2025 like for like: revenue growth MRK 1.3% against LLY 44.7%, ABBV 8.6%, AZN 8.6%, JNJ 6.0% and PFE (1.6%); operating margin before restructuring MRK 34.0% against LLY 45.6%, PFE 35.6%, ABBV 32.5%, JNJ 27.2% and AZN 23.7%.
• Free cash flow margin FY2025: MRK 19.0% against ABBV 29.1%, JNJ 20.9%, AZN 20.0%, PFE 14.5% and LLY 13.8%.
• 2026 growth: H1 2026 MRK 5.0% against LLY 51.2%, ABBV 11.2%, AZN 9.4%, JNJ 8.2% and PFE 3.9%; Q3 2026 MRK 4.7%, LLY 38.6%, AZN 7.0%.
• Valuation: EV/Sales on FY2025 sales MRK 6.2x (30 Oct 2026 price) against LLY 17.1x, ABBV 8.7x, JNJ 6.8x, AZN 4.6x and PFE 3.3x (6 Oct 2026 prices); MRK 16.9x FY2026 non GAAP EPS guidance excluding one time charges.

9 Material Events & Contracts

• Eight Forms 8-K in twelve months: four results releases (Ex 99.1 and 99.2 each), two notes offerings ($8.0bn in Dec 2025, $6.0bn in May 2026, each with officers' certificates and a legal opinion), the annual meeting vote results and a director election; 26 exhibits in total. The Verona, Cidara, Terns and TARGAN closings were not filed under Item 2.01.
• Business development: $26.5bn of announced value across Verona (about $10.5bn), Cidara ($9.2bn) and Terns ($6.8bn), plus TARGAN (about $650m) and the SciBrunch licence ($400m upfront).

10 Ownership, Voting Power & Annual Meeting

• One class of common stock, one vote per share, no controlling holder. Directors and officers hold below 1%; CEO Robert Davis held about 443,602 shares directly after his Feb 2026 sale.
• 2026 annual meeting (26 May 2026): all 13 directors elected with 88.3% (Patricia Russo) to 99.7% of votes cast; say on pay 94.1%; auditor ratified with 94.1%; the political contributions report proposal received 12.4% and two other shareholder proposals 1.2% and 1.3%.
• Insiders, 12 months to 31 Oct 2026: no open market purchases; 27 open market sales by 11 officers of about 575,700 shares for about $71.3m, mostly after option exercises and clustered after the Q4 2025 and Q2 2026 results. Largest seller: General Counsel Jennifer Zachary, about $25.2m; CEO Davis $5.6m and CFO Caroline Litchfield $5.0m in Feb 2026.
• Board: Paul J. Diaz joins on 1 Nov 2026, taking the board to 14 members.

2026 annual meeting remarks

• CEO Davis: over $70bn of potential commercial opportunity by the mid 2030s from over 20 growth drivers, $20bn more than a year earlier; about 80 Phase 3 studies, more than 60 in oncology; more than $65bn spent on business development since 2021.
• Questions: shareholders asked about reliance on Keytruda, drug pricing and political donations; Davis called the financial effect of the US pricing agreement manageable and said political contributions are published on the company website.

11 Risk Factors

• Item 1A of the FY2025 Form 10-K holds 30 risk factors, as in FY2024; five were materially reworded, none added or removed; the Q1 and Q2 2026 Forms 10-Q report no material changes.

How risk factors changed

• Comparison: 10-K FY2025 filed 24 Feb 2026 acc 0000310158-26-000063 against 10-K FY2024 filed 25 Feb 2025 acc 0001628280-25-007732.
• The expected start of Keytruda US price setting moved one year later, from 1 Jan 2028 in the FY2024 10-K to 1 Jan 2029 in the FY2025 10-K, while US biosimilar entry stays tied to Dec 2028.
• Keytruda reached 49% of 2025 sales against 46% in 2024, and Keytruda Qlex uptake is named as a new risk event.
• US exclusivity losses are now dated: Januvia and Janumet May 2026, Bridion and Janumet XR Jul 2026.
• China language moved from expected decline to reported decline, with no material Gardasil recovery expected in 2026.
• US policy exposure widened: the pricing factor adds the MFN Agreement and Lenvima price setting, and the economic factor names the US directly.

12 Stock Price, Scenarios & Sensitivity

• MRK closed at $149.49 on 30 Oct 2026, +73.9% on the Oct 2025 month end close of $85.98, 4.7% below the 52 week high of $156.90 and 86.6% above the low of $80.11.
• Valuation: 154.1x TTM GAAP EPS of $0.97, which carries the 2026 charges; 53.5x the FY2026 non GAAP EPS guidance midpoint of $2.795; 16.9x that midpoint plus the $6.05 of one time charges; EV/Sales 6.2x on TTM sales; free cash flow yield 4.4% on TTM Q2 2026 free cash flow.
• Scenario model: sales grow from TTM Q3 2026 for three years to FY2029; operating margin as stated; other expense $1.4bn a year (FY2026 guidance level); 16% tax rate; price equals FY2029 EPS times exit P/E.

Critical factors and core assumptions

• Base: TTM Q3 2026 sales $67.4bn; operating margin 8.1% reported, 30.5% excluding the 2026 charges; FY2025 32.6%.
• Best case: 4.0% sales CAGR, 38% operating margin, 17x P/E, share count (3%) from buybacks.
• Base case: 2.0% sales CAGR, 33% margin, 14x P/E, share count (2%).
• Worst case: (3.0%) sales CAGR as Keytruda biosimilars and Medicare prices arrive with low Qlex conversion, 26% margin, 10x P/E, share count unchanged.
• Tax rate 16% (assumption; FY2026 guidance rate is inflated by charges that are not tax deductible); other expense $1.4bn a year; no further multi billion IPR&D charges.

Scenarios, three years forward

Sensitivity analysis

Disclaimer

This analysis is for information only and is not financial advice. It is derived from public SEC filings retrieved via sec-api.io and is not a publication of the U.S. Securities and Exchange Commission. Scenario values are model outputs under stated assumptions and are not forecasts. Data as of 30 October 2026.

Sources

All company figures are read from SEC filings retrieved through the sec-api.io MCP server. Call statements come from the Q3 2026 and Q2 2026 earnings call transcripts posted by the company; Q1 2026 and Q4 2025 points come from the 8-K earnings releases.