Business Context and Reporting Period
Company: Merck & Co., Inc.
Filing Type: Form 10-K (Annual Report)
Period Covered: Fiscal Year Ended December 31, 2025
Filing Date: February 24, 2026
Merck is a global healthcare company operating through two reportable segments: Pharmaceutical (human health pharmaceuticals and vaccines) and Animal Health. The company's strategy focuses on oncology, vaccines, cardiometabolic/respiratory, and animal health, supported by a robust R&D pipeline and strategic acquisitions.
Key Financial Metrics
| Metric ($ in millions) | 2025 | 2024 | Change |
|---|---|---|---|
| Total Sales | $65,011 | $64,168 | +1% (+2% ex-FX) |
| Net Income (GAAP) | $18,254 | $17,117 | +7% |
| Net Income (Non-GAAP) | $22,513 | $19,444 | +16% |
| Diluted EPS (GAAP) | $7.28 | $6.74 | +8% |
| Diluted EPS (Non-GAAP) | $8.98 | $7.65 | +17% |
| Operating Cash Flow | $16,472 | $21,468 | -23% |
| Capital Expenditures | $4,112 | $3,372 | +22% |
| Long-Term Debt | $46,750 | $34,462 | +36% |
| Working Capital | $15,189 | $10,362 | +46% |
Segment Performance: Pharmaceutical sales were $58.1 billion (+1.3%), driven by oncology growth. Animal Health sales were $6.4 billion (+8.1%).
Material Changes vs. Prior Period
- Revenue Growth Drivers: Sales growth was primarily driven by the oncology franchise (Keytruda sales of $31.7 billion, +7%), the cardiometabolic/respiratory franchise (Winrevair sales of $1.4 billion), and the Animal Health segment. The acquisition of Verona Pharma (Ohtuvayre) contributed $178 million in sales.
- Revenue Declines: Growth was offset by a 39% decline in Gardasil/Gardasil 9 sales (driven by lower demand in China and Japan) and a 61% decline in Lagevrio sales due to reduced COVID-19 cases. Immunology sales dropped to zero as marketing rights for Simponi and Remicade reverted to Johnson & Johnson in late 2024.
- China Market Contraction: Sales in China fell significantly to $1.9 billion from $5.5 billion in 2024. The company paused shipments of Gardasil to China in February 2025 due to elevated inventory levels at its commercialization partner and expects no material increase in 2026.
- Acquisitions: Merck acquired Verona Pharma (October 2025) for $10.4 billion and Cidara Therapeutics (January 2026) for $9.2 billion. The Cidara acquisition is expected to result in a $9.0 billion R&D charge in Q1 2026.
- Restructuring: The company initiated a new 2025 Restructuring Program with estimated cumulative costs of $3.0 billion, aiming for $1.7 billion in annual savings by 2027.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Keytruda: Remains the primary growth driver, representing 49% of total sales. The company expects biosimilar competition to begin in late 2028 following patent expiration.
- IRA Impact: The Inflation Reduction Act (IRA) price negotiation program has selected Januvia (price effective Jan 2026), Janumet/Janumet XR (effective Jan 2027), and Lenvima (effective Jan 2028). The company expects Keytruda to be selected in 2027, with price setting effective Jan 2029, which is expected to materially decline U.S. sales thereafter.
- MFN Agreement: In December 2025, Merck entered a three-year "Most-Favored-Nation" pricing agreement with the U.S. government, agreeing to discounted prices for Medicaid and direct-to-patient programs for key products.
- Dividends and Buybacks: The quarterly dividend was increased to $0.85 per share. The company returned $13.3 billion to shareholders in 2025 ($8.2B dividends, $5.1B buybacks). A $10 billion share repurchase authorization was approved in Jan 2025, with $7.3 billion remaining as of Dec 31, 2025.
Risks and Contingencies
- Patent Expirations: Bridion loses exclusivity in July 2026. Januvia/Janumet lose exclusivity in May 2026. Keytruda faces biosimilar competition starting late 2028.
- Legal Proceedings: Significant litigation includes Gardasil product liability cases (a proposed settlement is under review), Zetia antitrust litigation, and a securities class action regarding Gardasil demand in China. The company is also contesting IRS Notices of Proposed Adjustment regarding the TCJA transition tax, which could increase liability by approximately $1.3 billion plus penalties.
- Regulatory Environment: Ongoing pricing pressure in the U.S. (IRA, Medicaid rebates) and international markets (China VBP, EU reference pricing) poses a risk to margins.
Investor Verification Checklist
- China Recovery: Verify the timeline for resuming Gardasil shipments to China and the impact of local competition on future vaccine sales.
- IRA Price Negotiations: Monitor the specific negotiated prices for Januvia, Janumet, and Lenvima and their impact on 2026-2028 revenue projections.
- Keytruda Patent Defense: Track the status of litigation regarding Keytruda patents and the potential timeline for biosimilar entry in the U.S. and EU.
- Cidara Integration: Assess the impact of the $9.0 billion R&D charge expected in Q1 2026 on near-term earnings and the development timeline for MK-1406 (influenza).
- Restructuring Execution: Monitor the realization of the $1.7 billion in annual cost savings from the 2025 Restructuring Program.
- IRS Tax Dispute: Follow the resolution of the TCJA transition tax dispute with the IRS, which could materially impact cash flows if the company is unsuccessful.