Merck & Co., Inc. — Third Quarter 2026 Earnings Summary

Financial Performance:

• Total worldwide sales were $18.1 billion, representing 5% growth (4% growth ex-FX) compared to $17.3 billion in the third quarter of 2025.
• GAAP net income was $5.1 billion, a 12% decrease from $5.8 billion in the prior year period; GAAP EPS was $2.04, down 12% from $2.32.
• Non-GAAP net income was $6.2 billion, a 4% decrease from $6.4 billion in the prior year period; Non-GAAP EPS was $2.49, down 3% from $2.58.
• Both GAAP and Non-GAAP EPS included a one-time charge of $0.12 per share related to a global license agreement with SciBrunch.
• GAAP gross margin was 72.9%, down from 77.7% in the prior year, primarily due to higher amortization of intangible assets, restructuring costs, and production costs.
• Non-GAAP gross margin was 81.4%, down from 81.9% in the prior year, primarily due to higher production costs.
• Selling, general and administrative (SG&A) expenses were $2.9 billion, a 10% increase from the prior year, driven by higher administrative and promotional costs.
• Research and development (R&D) expenses were $4.5 billion, a 7% increase from the prior year, driven by a $400 million charge for the SciBrunch agreement and higher clinical development spending.
• Other (income) expense, net, was $27 million of expense in the third quarter of 2026, compared to $238 million of income in the prior year, primarily due to higher net interest expense.
• The effective income tax rate was 8.9% for GAAP and 10.9% for Non-GAAP.

Guidance and Future Outlook:

• The company narrowed and raised the full-year 2026 worldwide sales range to $66.8 billion to $67.3 billion, up from the prior range of $66.3 billion to $67.3 billion.
• The company raised the full-year 2026 Non-GAAP EPS range to $2.77 to $2.82, up from $2.66 to $2.76.
• The updated outlook includes one-time charges of $9.0 billion ($3.62 per share) for the Cidara acquisition, $5.7 billion ($2.31 per share) for the Terns acquisition, and $400 million ($0.12 per share) for the SciBrunch agreement.
• The company now expects the full-year 2026 Non-GAAP effective income tax rate to be between 32.0% and 33.0%, down from the prior range of 35.0% to 36.0%.
• The outlook includes a positive foreign exchange impact of approximately 1% on sales and $0.15 per share on EPS.
• The outlook does not assume any additional significant potential business development transactions.

Business Segments and Product Lines:

• Pharmaceutical sales were $16.3 billion, up 4% year-over-year, driven by growth in KEYTRUDA/KEYTRUDA QLEX, WINREVAIR, GARDASIL/GARDASIL 9, WELIREG, ENFLONSIA, and the inclusion of OHTUVAYRE sales.
• KEYTRUDA/KEYTRUDA QLEX sales were $8.6 billion, up 6% year-over-year; KEYTRUDA QLEX sales specifically were $830 million. Growth was driven by uptake in earlier-stage indications (triple-negative breast cancer, cervical cancer, head and neck cancer, bladder cancer) and metastatic indications.
• WINREVAIR sales were $694 million, up 93% year-over-year, driven by higher demand and launch uptake in the U.S., Europe, and Japan.
• GARDASIL/GARDASIL 9 sales were $2.0 billion, up 14% year-over-year, driven by favorable public-sector purchasing patterns and higher net pricing in the U.S.
• Animal Health sales were $1.7 billion, up 4% year-over-year, with Livestock sales up 2% and Companion Animal sales up 6%.
• Companion Animal sales were driven by new product launches; BRAVECTO line sales were $264 million, up 1% year-over-year.
• Declines were noted in JANUVIA/JANUMET (-39%), BRIDION (-67%), and LAGEVRIO (-88%), primarily due to generic competition and lower demand in Japan.
• Alliance revenue from Koselugo was $13 million in the third quarter of 2026, down from $214 million in the prior year, following an amendment to the collaboration agreement with AstraZeneca.

Market and Competitive Landscape:

• The company highlighted strong global uptake of KEYTRUDA in earlier-stage indications as a key competitive driver.
• Generic competition impacted sales of JANUVIA/JANUMET, BRIDION, and LAGEVRIO following the loss of market exclusivity.
• The company noted favorable wholesaler and specialty pharmacy purchasing patterns contributing to WINREVAIR growth.

Risks and Challenges:

• The press release notes general risks including industry competition, economic factors, interest rate and currency fluctuations, and regulatory approval uncertainties.
• Specific challenges mentioned include manufacturing difficulties, patent dependence, and litigation exposure.
• The company noted that the outlook excludes intangible asset impairment charges, legal settlements, and income/losses from investments, which are difficult to forecast and could significantly impact future GAAP results.

Management Commentary and Tone:

• Robert M. Davis, Chairman and CEO, stated that the company's science-led strategy is transforming the business and expressed increasing confidence in delivering long-term value.
• Management highlighted the clinical de-risking of the late-phase pipeline following the presentation of Phase 3 data at ESMO Congress 2026.
• The tone was positive regarding momentum across multiple therapeutic areas, specifically oncology, vaccines, and animal health.

Other Key Points:

• The U.S. FDA accepted a Biologics License Application (BLA) for sacituzumab tirumotecan (sac-TMT) for endometrial cancer, with a PDUFA date of June 15, 2027.
• The U.S. FDA approved WELIREG plus Lenvima for previously treated adult patients with advanced renal cell carcinoma.
• The European Commission approved KEYTRUDA plus Padcev as perioperative treatment for resectable muscle-invasive bladder cancer.
• The U.S. FDA accepted a supplemental BLA for ENFLONSIA to expand its indication to children under 2 years at risk for severe RSV, with a PDUFA date of March 22, 2027.
• The company entered into an exclusive global license agreement with SciBrunch for MK-2690 (SPR2015), an investigational oral KRAS G12D inhibitor.
• The I-DXd BLA for extensive-stage small cell lung cancer was voluntarily withdrawn.
• The company announced positive Phase 2b results for tulisokibart in moderate to severe hidradenitis suppurativa.
• One-year results were presented for remigromig in diabetic macular edema from the Phase 2b/3 BRUNELLO trial.
• The company introduced new 2030 sustainability targets, including a goal to reach 100 million people with access solutions.