Business Context and Reporting Period
Company: Merck & Co., Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2024
Filing Date: February 25, 2025
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 breakthrough science, innovation, and a robust pipeline in oncology, vaccines, and animal health. In 2024, the company executed significant business development transactions, including the acquisition of EyeBio and Harpoon Therapeutics, and expanded collaborations with Daiichi Sankyo.
Key Financial Metrics
| Metric ($ in millions) | 2024 | 2023 | Change |
|---|---|---|---|
| Total Sales | 64,168 | 60,115 | +7% |
| Net Income (GAAP) | 17,117 | 365 | >100% |
| Net Income (Non-GAAP) | 19,444 | 3,837 | +407% |
| Diluted EPS (GAAP) | $6.74 | $0.14 | +4,714% |
| Diluted EPS (Non-GAAP) | $7.65 | $1.51 | +407% |
| Operating Cash Flow | 21,468 | 13,006 | +65% |
| Capital Expenditures | 3,372 | 3,863 | -13% |
| Long-Term Debt | 34,462 | 33,683 | +2% |
| Working Capital | 10,362 | 6,474 | +60% |
Segment Performance: Pharmaceutical segment sales were $57.4 billion (up 7%), driven by oncology growth. Animal Health sales were $5.9 billion (up 4%).
Key Product Sales: Keytruda sales reached $29.5 billion (up 18%). Gardasil/Gardasil 9 sales were $8.6 billion (down 3%). Januvia/Janumet sales were $2.3 billion (down 33%).
Material Changes vs. Prior Period
- Revenue Growth: Worldwide sales increased 7% (10% excluding foreign exchange) primarily due to growth in oncology (Keytruda, Welireg), cardiovascular (Winrevair), and animal health. This was partially offset by declines in diabetes (Januvia/Janumet), virology (Lagevrio), and vaccines (Gardasil).
- Profitability Surge: GAAP Net Income rebounded significantly from $365 million in 2023 to $17.1 billion in 2024. The 2023 results were heavily impacted by $16.9 billion in non-cash charges related to the Prometheus acquisition and the Daiichi Sankyo collaboration, which were not present in 2024.
- R&D Expenses: Reported R&D expenses decreased 41% to $17.9 billion from $30.5 billion in 2023. This decline is largely due to the absence of the massive upfront charges recorded in 2023 for the Prometheus acquisition ($10.2 billion) and the Daiichi Sankyo collaboration ($5.5 billion).
- China Market Dynamics: Sales of Gardasil/Gardasil 9 in China declined in 2024 due to elevated channel inventory levels. The company paused shipments to China in February 2025, expecting a significant sales decline in 2025.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
- Keytruda: The company expects U.S. sales of Keytruda to decline beginning in January 2028 due to government price setting under the Inflation Reduction Act (IRA) and further decline upon loss of market exclusivity in December 2028.
- Januvia/Janumet: Significant sales declines are anticipated in the U.S. in 2026 and thereafter due to patent expirations (May/July 2026) and IRA price setting (effective 2026/2027).
- Restructuring: A new 2024 Restructuring Program is underway to optimize manufacturing networks, with estimated cumulative pretax costs of $4.0 billion through 2031, expected to yield $750 million in annual net cost savings by 2031.
- Capital Allocation: The company returned $9.1 billion to shareholders in 2024 via dividends and buybacks. In January 2025, the Board authorized an additional $10 billion share repurchase program and increased the quarterly dividend to $0.81 per share.
Key Risks & Contingencies:
- IRA Impact: The Inflation Reduction Act poses significant pricing risks. Januvia, Janumet, and Janumet XR have been selected for government price setting. Keytruda is expected to be selected in 2026.
- Patent Expirations: Key products face patent cliffs. Bridion lost exclusivity in Europe/Japan and faces U.S. expiration in 2026. Keytruda faces U.S. compound patent expiration in 2028.
- Legal Proceedings: Ongoing litigation includes product liability suits regarding Gardasil (POTS allegations) and Dr. Scholl's foot powder (talc/asbestos), as well as antitrust litigation regarding Zetia and RotaTeq. The company is also challenging the constitutionality of the IRA's Drug Price Negotiation Program.
- Supply Chain: Manufacturing delays for ProQuad and Varivax are expected to cause supply constraints in international markets in 2025.
Investor Verification Checklist
- Non-GAAP Adjustments: Verify the magnitude of the 2023 one-time charges ($16.9 billion) that suppressed prior-year earnings, ensuring the 2024 recovery is viewed in the correct context of recurring vs. non-recurring items.
- China Inventory Levels: Monitor the impact of the paused Gardasil shipments to China on 2025 revenue guidance and the timeline for inventory normalization.
- IRA Price Negotiations: Track the specific government-set prices for Januvia (effective 2026) and Janumet (effective 2027) and the potential selection of Keytruda in 2026.
- Pipeline Milestones: Watch for FDA decisions on patritumab deruxtecan (MK-1022) following the June 2024 Complete Response Letter, and the status of the KeyVibe and favezelimab programs which were discontinued in late 2024.
- Restructuring Execution: Assess the progress of the $4.0 billion restructuring program and the realization of the projected $750 million in annual cost savings.