Merck & Co., Inc. (MRK) FY2025 10-K and Q2 FY2026 10-Q Summary

Business

From the annual report on Form 10-K for the fiscal year ended December 31, 2025 (accession 0000310158-26-000063).

Merck is a global health care company that sells prescription medicines, including biologic therapies, vaccines and animal health products. It runs two reportable segments, Pharmaceutical and Animal Health. Human health pharmaceuticals and vaccines go primarily to drug wholesalers and retailers, hospitals, government agencies, physicians, distributors and managed-care organizations such as health maintenance organizations and pharmacy benefit managers; animal health products go to veterinarians, distributors, animal producers, farmers and pet owners. Payment terms for U.S. pharmaceutical products are typically 35 days from invoice, with Keytruda at 90 days.

Total 2025 sales were $65,011 million, split Pharmaceutical $58,142 million, Animal Health $6,354 million and other revenues $515 million. The business is heavily concentrated: sales of Keytruda represented 49% of total Company sales in 2025. Sales by subsidiaries outside the U.S. were 44% of total sales in 2025, down from 50% in 2024 and 53% in 2023.

Top product lines in 2025 (with 2024 and 2023 comparatives, $ millions):

Pharmaceutical segment. Oncology is anchored by Keytruda (pembrolizumab), an anti-PD-1 therapy approved in over 45 indications in the U.S. covering 19 tumor types and two tumor-agnostic indications, and by Keytruda Qlex (pembrolizumab and berahyaluronidase alfa-pmph), the subcutaneous fixed combination first approved by the FDA in September 2025 and marketed as Keytruda SC in some markets. Other oncology assets include Welireg (belzutifan) and alliance revenue from Lynparza and Lenvima (AstraZeneca and Eisai collaborations respectively) and Reblozyl royalties (Bristol Myers Squibb). Vaccines comprise Gardasil/Gardasil 9, ProQuad, M-M-R II, Varivax, Vaxneuvance, RotaTeq, Capvaxive, Enflonsia and Pneumovax 23. Hospital acute care includes Bridion, Prevymis, Zerbaxa and Dificid. Cardiometabolic and respiratory includes Winrevair, Adempas and Verquvo (a Bayer collaboration) and Ohtuvayre. Virology includes Lagevrio, Isentress, Delstrigo and Pifeltro; neuroscience, Belsomra; diabetes, Januvia and Janumet.

Animal Health segment. Livestock products include the Nuflor antibiotic range, the Bovilis and Vista cattle vaccine lines, Banamine, Revalor, Safe-Guard, the Porcilis and Circumvent swine vaccine lines, the Nobilis and Innovax poultry lines, Exzolt, aquaculture products (Slice, Imvixa, Aquavac/Norvax, Aquaflor) and Allflex Livestock Intelligence identification and monitoring. Companion animal products center on the Bravecto parasiticide family, including Bravecto Quantum, the once-yearly injectable approved by the FDA in July 2025, plus the Sentinel line, Numelvi, the Nobivac vaccine lines, and Sure Petcare and Home Again identification products. Bravecto sales were $1.1 billion in 2025, 18% of Animal Health segment sales.

Research and development. Roughly 80 Phase 3 studies were underway at year end; in 2025 Merck announced positive late-stage results from 18 Phase 3 trials and initiated 21 new ones across cardiometabolic and respiratory, immunology, infectious diseases, oncology and ophthalmology. Late-stage and under-review assets span MK-8591A (doravirine/islatravir), Enflonsia, Winrevair label expansion, Welireg combinations, the Daiichi Sankyo antibody-drug conjugates (patritumab deruxtecan, ifinatamab deruxtecan, raludotatug deruxtecan), sacituzumab tirumotecan with Kelun-Biotech, intismeran autogene with Moderna, calderasib with Taiho/Astex, enlicitide decanoate, tulisokibart, V181 dengue vaccine, MK-3000 for diabetic macular edema, and MK-1406 (formerly CD388) for influenza obtained with Cidara.

Intellectual property. Patent protection is material in the aggregate. Royalty income on patent and know-how licenses was $1.5 billion in 2025 against $1.9 billion of royalty expense. Merck pays a 2.5% royalty on worldwide net sales of Keytruda/Keytruda Qlex through 2026 (down from 6.5% before 2024), terminating thereafter, plus a 2% royalty that expired in the U.S. in September 2024 and in major European markets in the second half of 2025 but continues in certain other markets through dates as late as 2035. Winrevair carries a 22% royalty to Bristol Myers Squibb; Gardasil/Gardasil 9 a 7% U.S. royalty expiring December 2028; Vaxneuvance and Capvaxive 7.25% through 2026, declining to 2.5% from 2027 through 2035.

People. As of December 31, 2025 Merck had approximately 75,000 employees worldwide, including about 30,000 in the U.S. and Puerto Rico, plus about 15,000 third-party contractors. Approximately 73,000 employees are full-time and approximately 21% are covered by collective bargaining agreements. Voluntary turnover was approximately 4.8% in 2025; about 6,800 people were hired globally.

Risk factors

From the annual report on Form 10-K for the fiscal year ended December 31, 2025 (accession 0000310158-26-000063).

Loss of exclusivity, concentrated in Keytruda. Bridion loses U.S. market exclusivity in July 2026, at which point Merck anticipates a significant and rapid decline in U.S. Bridion sales. Januvia and Janumet lose U.S. market exclusivity in May 2026 and Janumet XR in July 2026; Merck expects to lose nearly all U.S. sales of those products afterward. Keytruda sales are expected to be materially negatively affected by biosimilar competition between 2028 and 2029: the primary compound patent expires in December 2028 and two patents in the composition-of-matter family expire in May and November 2029, but Merck expects those later patents to be litigated and biosimilar entry could begin in December 2028. European exclusivity is expected to be lost in 2031 on compound patent expiry, with possible earlier challenges after European data exclusivity expired in July 2026. Dificid lost U.S. exclusivity in July 2025. Because Keytruda was 49% of 2025 sales, any event affecting it, patent loss, price setting, weaker-than-expected Keytruda Qlex uptake, manufacturing cost, safety findings, would be significant to results.

Government price setting and most-favored-nation pricing. Under the Inflation Reduction Act's Drug Price Negotiation Program, a government-set price for Januvia took effect January 1, 2026; set prices for Janumet and Janumet XR take effect January 1, 2027 and for Lenvima January 1, 2028. Merck expects Keytruda to be selected in 2027 with a set price effective January 1, 2029, and expects U.S. Keytruda sales to decline materially after that. Merck has sued the U.S. government over the program. Medicare Part D redesign took effect in 2025 and shifts more benefit liability to manufacturers. In December 2025 Merck entered a three-year agreement with the U.S. government addressing the administration's most-favored-nation pricing goals: a direct-to-patient program at affordable prices covering Januvia, Janumet and Janumet XR (to be expanded to enlicitide decanoate on approval), discounted prices to Medicaid excluding certain products, most-favored-nation reference pricing for newly launched products in a specified group of countries, and repatriation and sharing of a portion of foreign revenue. Merck separately agreed with the U.S. Department of Commerce to delay Section 232 tariffs for three years in exchange for U.S. reshoring investment. A consequence of the agreement is that certain products may not be launched in the reference countries, or may be delayed, prompting adverse responses from those countries. The American Rescue Plan Act removed the cap on Medicaid rebates, so rebates on high-Medicaid-utilization drugs can exceed 100% of Average Manufacturer Price. Expanded 340B utilization is also pressuring results, and states are moving toward Prescription Drug Affordability Boards and upper payment limits.

Vaccine policy and coverage. In January 2026 the acting CDC director announced changes to the child and adolescent immunization schedule, cutting the number of routinely recommended vaccinations and creating three tiers, and reducing recommended adolescent HPV dosing to a single dose; the announcement is the subject of third-party litigation. In September 2025 the Advisory Committee on Immunization Practices recommended standalone varicella immunization rather than combined MMRV for children under four, adopted by the acting CDC director in October 2025, Merck is the only U.S. manufacturer of both the MMRV vaccine (ProQuad) and the varicella vaccine (Varivax). In December 2025 the CDC ended the universal hepatitis B birth-dose recommendation. Merck states it does not expect a material effect on ProQuad, Varivax, Recombivax HB, Vaxelis or Gardasil from these recommendations, but broader changes at HHS, the FDA and the CDC, including to the recommended schedule, state school immunization requirements, and the National Vaccine Injury Compensation Program, could reduce vaccine uptake.

China. Sales of Gardasil/Gardasil 9 fell sharply in 2025. Merck paused shipments to its distributor and commercialization partner Chongqing Zhifei Biological Products in February 2025 because of elevated channel inventory and does not expect China Gardasil sales to increase materially in 2026. A locally manufactured nine-valent HPV vaccine was approved in China in 2025 for females aged 9–45. National Reimbursement Drug List entries recently averaged about 60% price cuts and volume-based procurement rounds have cut mature-product prices by more than 50% on average. Merck also has significant research and manufacturing operations in China, and an anti-corruption campaign there adds administrative burden.

Pipeline failure and impairment risk. Bringing a compound from discovery to market can take a decade or more, with a high inherent failure rate and failures possible late, after large sums are invested. If pipeline programs are cancelled or their commercial prospects deteriorate, Merck may recognize material non-cash impairment charges on programs capitalized in acquisitions or collaborations.

Manufacturing, biologics and vaccines. Merck has experienced difficulties manufacturing certain products, including vaccines, and may face regulatory shutdowns, facility construction delays, supply chain and raw-material shortages, and capacity limits. Biologics and vaccines require long lead times and planning years ahead of demand, raising the risk of inventory write-downs; each lot must pass identity, strength, quality, purity and potency testing, and small process deviations can cause lot failures or recalls. Certain raw materials come from a single source. Merck also depends on third-party relationships and outsourcing arrangements, suppliers, distributors, alliances with other pharmaceutical and biotechnology companies, and third-party service providers, including support for its IT systems, for key aspects of developing, manufacturing and commercializing its products; failure by those parties to meet their contractual and regulatory obligations, or a material disruption of those relationships, could adversely affect the business.

International operations, currency and macro conditions. Risks include reimbursement and pricing restrictions, multiple regulatory regimes, trade protection measures and tariffs, foreign exchange, weaker IP protection in some countries, and regional instability. Argentina is experiencing hyperinflation. A uniform 10% weakening of the U.S. dollar would have reduced the market value of revenue hedges by an estimated $671 million at December 31, 2025 (versus $569 million a year earlier) and income before taxes by approximately $131 million (versus $239 million).

Litigation, tax and regulation. Exposure spans intellectual property disputes, product liability (including Gardasil litigation), consumer protection and commercial cases, anti-bribery matters, pricing and promotional matters, securities and antitrust claims, environmental matters, and tax assessments. Unexpected safety or efficacy concerns can also arise with marketed products, whether or not scientifically justified, leading to product recalls, withdrawals or declining sales as well as product liability, consumer fraud and other claims, including potential civil or criminal governmental actions. Merck self-insures substantially all product liability risk and carries no insurance for most product liabilities, having judged the cost of coverage to outweigh the available benefit. The IRS is examining the 2017 and 2018 returns, including the Tax Cuts and Jobs Act transition tax, and has issued Notices of Proposed Adjustment that would raise the one-time transition tax by approximately $1.3 billion plus approximately $260 million of penalties, exclusive of interest; Merck disagrees and is contesting. The 2021 and 2022 returns are also under examination. The 2021 Organon spin-off was treated as tax-free based on counsel's opinions; if the underlying representations fail, significant federal tax liabilities could arise for Merck and its shareholders.

Animal health specifics. Outbreaks such as Avian Influenza or African Swine Fever could cause widespread animal death and precautionary destruction, reduce demand for animals, or force production halts near main sites. Government procurement and pricing, weather and agribusiness cycles also affect the segment.

Technology, cybersecurity and artificial intelligence. Merck is increasingly dependent on sophisticated software applications, complex information technology systems, computing infrastructure and cloud service providers to conduct critical operations and financial reporting, and certain of those systems are managed, hosted or provided by third parties. Merck continues to be a target of cyber-attacks, which could disrupt worldwide manufacturing, research and sales operations, expose confidential information, modify critical data, or lead to theft of trade secrets and intellectual property. The aggregate impact of cyber-attacks and network disruptions has not been material to date, but Merck expects them to continue and states that such disruptions "have in the past and could in the future result in loss of revenue," alongside financial, legal, business or reputational harm and substantial remediation costs. A multi-year upgrade of its SAP system is beginning, and the Animal Health business sells technology products that could themselves be compromised once deployed. Merck's growing use of AI systems to automate processes, analyze data and support decision-making carries inherent risks: flaws, biases or malfunctions causing operational disruption, data loss or erroneous decision-making; ethical and legal exposure including emerging AI-specific regulation such as the EU AI Act and the NIS2 Directive; inadvertent disclosure of confidential information through unauthorized use of open-source or generative AI tools; increased cybersecurity exposure from AI deployment; and competitive risk if Merck fails to adopt such technologies in a timely fashion.

Climate and sustainability. Merck identifies physical risks (extreme weather, inland flooding, sea-level rise, reduced access to high-quality water, biodiversity loss), transition risks, and social effects, along with rising compliance costs from climate-related and sustainability reporting requirements such as the EU's CSRD.

Management's discussion, fiscal year 2025

From the annual report on Form 10-K for the fiscal year ended December 31, 2025 (accession 0000310158-26-000063).

Headline results. Sales of $65,011 million rose 1% (2% excluding foreign exchange). GAAP net income attributable to Merck was $18,254 million, up 7% (9% ex-FX), and GAAP diluted EPS was $7.28, up 8%. Non-GAAP net income attributable to Merck was $22,513 million, up 16%, and non-GAAP diluted EPS was $8.98, up 17%. Both GAAP and non-GAAP EPS were reduced by $0.20 of per-share charges for upfront and pre-approval milestone payments and pre-approval assets obtained in asset acquisitions, versus $1.28 in 2024 and $6.21 in 2023.

Revenue drivers. Growth came from oncology (Keytruda and Welireg, plus higher alliance revenue from Koselugo, Reblozyl and Lynparza), cardiometabolic and respiratory (the Winrevair launch and the inclusion of Ohtuvayre after the October 2025 Verona Pharma acquisition), diabetes (higher Januvia net pricing) and animal health (livestock). Offsets were vaccines, chiefly Gardasil/Gardasil 9, down 39%, partly cushioned by the Capvaxive ramp and the U.S. Enflonsia launch, immunology, where Remicade and Simponi marketing rights in former Merck territories returned to Johnson & Johnson on October 1, 2024, and virology, where Lagevrio fell 61%. U.S. sales grew 13% to $36.5 billion; international sales fell 11% (10% ex-FX) and were 44% of the total, down from 50%.

Selected product movements: combined Keytruda/Keytruda Qlex grew 7% on higher U.S. demand and net pricing and broader international uptake in earlier-stage indications, with EU launch pricing a headwind and a Keytruda biosimilar launched in Argentina; Welireg rose 41%; Prevymis rose 25%; Capvaxive reached $759 million; Winrevair reached $1.4 billion; Ohtuvayre contributed $178 million post-closing; Bridion grew 4%; Pneumovax 23 fell 37% as the adult market shifted to newer conjugates; Dificid fell 27% on U.S. generic entry; livestock grew 13% and companion animal 2%.

Costs and margins ($ millions).

Gross margin was 74.8% versus 76.3%, hurt by higher restructuring costs (mainly accelerated depreciation of manufacturing lines at two sites under the 2025 program), higher inventory write-downs concentrated in vaccines, more intangible amortization, and an $83 million inventory fair-value step-up from Verona Pharma, partly offset by product mix. Cost of sales included $2.8 billion of intangible amortization (2024: $2.4 billion) and $1.5 billion of restructuring-related expense (2024: $495 million). R&D fell mainly on lower business development charges; Merck Research Laboratories spend was $10.8 billion (2024: $10.1 billion), while other R&D components, animal health research, collaboration and licensing payments, asset-acquisition charges and support costs, were $4.8 billion versus $7.7 billion. 2025 business development charges included $300 million for the MK-2010 technology transfer from LaNova, $200 million for the Hengrui Pharma license, $150 million for the Falk agreement covering MK-8690, and $100 million on an EyeBio development milestone. Other (income) expense swung unfavorably largely because 2024 included $170 million of income from expanding the Daiichi Sankyo agreement, plus higher net interest expense and foreign exchange losses.

Restructuring. The 2025 Restructuring Program approved in July 2025 will cut positions in sales, administration and R&D, reduce the global real estate footprint and continue optimizing manufacturing. Most actions should be largely complete by the end of 2027, certain manufacturing actions by the end of 2029. Cumulative pretax cost is estimated at approximately $3.0 billion, roughly 60% cash, with expected annual savings of approximately $1.7 billion substantially realized by the end of 2027. It sits inside a multiyear optimization initiative targeting $3.0 billion of annual savings by the end of 2027, to be fully reinvested in growth areas. The 2024 Restructuring Program, aimed at the human health and animal health manufacturing networks, runs to the end of 2031 at an estimated $4.0 billion cumulative pretax cost (about 50% non-cash) for approximately $750 million of cumulative annual net savings. Aggregate pretax restructuring costs recognized across all line items were $2.6 billion in 2025 versus $888 million in 2024. Accelerated depreciation within total depreciation expense of $3.0 billion was $1.2 billion in 2025, versus $254 million in 2024.

Segments and tax ($ millions).

The effective tax rate was 13.3% in 2025, reflecting jurisdictional mix and certain discrete items, versus 14.1% in 2024, which included a 2.6 point benefit from a $519 million reserve release on expiry of the statute of limitations for the 2019 and 2020 federal returns and a 1.5 point combined charge drag from the Harpoon, EyeBio and MK-1045 acquisitions. Both years include the OECD Pillar 2 global minimum tax; the OBBBA enacted in July 2025 had an immaterial 2025 effect.

GAAP to non-GAAP bridge ($ millions except per share). From income before taxes of $21,067 million, Merck added back acquisition- and divestiture-related costs of $3,007 million and restructuring costs of $2,551 million, and removed $306 million of net income from equity securities, giving non-GAAP income before taxes of $26,319 million. Non-GAAP taxes were $3,797 million against $2,804 million reported, producing non-GAAP net income attributable to Merck of $22,513 million and non-GAAP diluted EPS of $8.98 versus $7.28 GAAP.

Business development. Merck acquired Verona Pharma in October 2025 (obtaining Ohtuvayre) for $10.4 billion of cash consideration, closed the Hengrui Pharma license for MK-7262 and the Falk agreement for MK-8690, and agreed to acquire Cidara Therapeutics, closing in January 2026 for approximately $9.2 billion including payments to settle share-based awards, a transaction expected to be an asset acquisition with an approximately $9.0 billion charge, because MK-1406 accounts for substantially all of the fair value acquired.

Liquidity and capital returns. Operating cash flow was $16.5 billion versus $21.5 billion in 2024, the decline reflecting income tax payments of $6.1 billion (2024: $3.9 billion) and upfront, milestone, option and continuation payments of $3.0 billion (2024: $1.1 billion). Investing used $13.7 billion (2024: $7.7 billion) on acquisitions including Verona Pharma, higher capital expenditure including a facility purchased from WuXi Vaccines, and securities purchases. Financing used $1.9 billion (2024: $7.0 billion), with higher debt issuance offsetting larger buybacks, debt repayments and dividends. Merck issued $8.0 billion of senior unsecured notes in December 2025, partly to fund Cidara, and $6.0 billion in September 2025, partly to fund Verona Pharma; $2.5 billion of 2.75% notes matured and were repaid. A $6.0 billion credit facility maturing May 2030 backs commercial paper and remains undrawn. Capital expenditure was $4.1 billion (2024: $3.4 billion), with approximately $20 billion planned across 2025–2029, more than $12 billion of it in the U.S. Merck returned $13.3 billion to shareholders, $8.2 billion of dividends and $5.1 billion of repurchases, about 59 million shares, raised the quarterly dividend to $0.85 from $0.81 in November 2025, and had $7.3 billion left under the $10 billion authorization approved in January 2025. Accrued contingent sales-based milestones under the Alteogen license were $890 million at year end, and purchase obligations totalled $6.5 billion with $2.7 billion payable in 2026.

Current quarter, second quarter and first half of 2026

From the quarterly report on Form 10-Q for the quarter ended June 30, 2026 (accession 0000310158-26-000212), with the full-year outlook from the earnings release furnished on Form 8-K (accession 0001104659-26-090045).

Top line. Second-quarter sales were $16,607 million, up 5% (4% ex-FX); first-half sales were $32,893 million, up 5% (3% ex-FX). U.S. sales were $9,367 million in the quarter, up 6%, and $18,532 million in the half, up 7%. International sales were $7,240 million in the quarter, up 4% (2% ex-FX), and $14,361 million in the half, up 3% but down 1% ex-FX. Growth came from oncology, cardiometabolic and respiratory, and animal health, offset by diabetes and infectious diseases, with vaccines also down in the half.

Terns acquisition. Merck completed the acquisition of Terns Pharmaceuticals in May 2026 for $6.8 billion, including $606 million of payments to settle share-based equity awards, acquiring Terns' lead candidate MK-4208 (formerly TERN-701), an investigational oral allosteric BCR::ABL1 tyrosine kinase inhibitor in a Phase 1/2 trial in previously treated Philadelphia chromosome-positive chronic phase chronic myeloid leukemia; the transaction was accounted for as an asset acquisition because MK-4208 accounted for substantially all of the fair value of the gross assets acquired, with the resulting charge recorded in research and development as acquired in-process research and development with no alternative future use.

Bottom line turned negative on acquisition charges. Merck recorded a pretax loss of $683 million in the quarter (versus income of $4,999 million a year earlier) and $4,217 million in the half (versus income of $10,902 million). GAAP net loss attributable to Merck was $1,335 million in the quarter and $5,575 million in the half, against income of $4,427 million and $9,506 million in the prior-year periods. GAAP diluted loss per share was $0.54 in the quarter and $2.26 in the half; non-GAAP loss per share was $0.13 and $1.41, against non-GAAP EPS of $2.13 and $4.35 a year earlier. The cause is two asset acquisitions charged to R&D: $5.7 billion, or $2.31 per share, for Terns Pharmaceuticals in the second quarter, and $9.0 billion, or $3.62 per share, for Cidara in the first quarter, $5.93 per share combined in the half. Because both GAAP and non-GAAP results were losses, no dilutive shares were used in the per-share computations.

Costs ($ millions).

Gross margin fell to 73.5% from 77.5% in the quarter and to 73.9% from 77.7% in the half, on higher intangible amortization ($984 million in the quarter versus $599 million; $1.9 billion in the half versus $1.2 billion), higher inventory write-downs concentrated in vaccines, higher restructuring costs, and Verona Pharma inventory step-up of $83 million in the quarter and $166 million in the half, partly offset by product mix. SG&A rose on administrative costs including IT investment, launch-related promotion and selling, and currency. Merck Research Laboratories spend was flat at $2.8 billion in the quarter and $5.3 billion in the half, each inclusive of a $200 million and $400 million benefit from the Blackstone Life Sciences funding arrangement for sacituzumab tirumotecan; the rest of R&D swelled to $7.0 billion in the quarter and $17.0 billion in the half, from $1.2 billion and $2.3 billion, on the acquisition charges.

Tax. The quarter's $654 million provision on a pretax loss produced an effective rate of negative 95.9%, including a 108.9 point unfavorable impact from the Terns charge, which carried no tax benefit. The half's $1.4 billion provision on a $4.2 billion pretax loss produced negative 32.3%, including a 45.3 point combined drag from the Cidara and Terns charges. Prior-year rates were 11.4% and 12.7%.

Segments ($ millions). Pharmaceutical segment profits were $11,612 million in the quarter (prior year $11,103 million) and $23,151 million in the half ($21,973 million). Animal Health segment profits were $636 million and $1,359 million ($593 million and $1,226 million). Non-segment activity was a charge of $12,931 million in the quarter and $28,727 million in the half, versus $6,697 million and $12,297 million, which is where the acquisition charges sit.

Product detail. Keytruda/Keytruda Qlex sales were $8,366 million in the quarter, up 5% (4% ex-FX), and $16,400 million in the half, up 8% (6% ex-FX); the earnings release disclosed Keytruda Qlex sales of $463 million in the quarter. The half benefited from approximately $250 million of favorable wholesaler purchase timing. Welireg rose 67% in the quarter and 57% in the half. Winrevair sales were $588 million, up 75%. Gardasil/Gardasil 9 rose 4% to $1,169 million in the quarter on Asia-Pacific and European demand and tender timing, but fell 9% to $2,238 million in the half on China and Japan. Prevymis rose 29% to $295 million. Capvaxive grew 42% in the quarter and 38% in the half. Vaxneuvance fell 35% in the quarter and 24% in the half, largely against $60 million of favorable prior-year CDC stockpile activity. Enflonsia sales were only $2 million in the quarter and $3 million in the half given seasonality and high RSV monoclonal antibody inventory in the market, with shipments expected to increase in the second half. Bridion sales were $497 million in the quarter, up 8%, and $969 million in the half, up 7%, as higher U.S. demand and pricing was partly offset by lower demand in most international markets on generic competition. Januvia/Janumet fell 31% to $429 million in the quarter and 29% to $1,003 million in the half. Dificid fell 77% and Lagevrio 95% in the quarter. Animal Health sales were $1,775 million, up 8% (5% ex-FX), with livestock $1,041 million and companion animal $734 million; Bravecto was $359 million in the quarter and $738 million in the half.

China restart. Merck entered a revised supply contract with Chongqing Zhifei Biological Products in April 2026 and began making limited Gardasil shipments to China in the second quarter, but expects revenue associated with the revised contract to be immaterial in 2026.

Policy developments in the period. A federal district court in Massachusetts issued a preliminary injunction on March 16, 2026 staying, among other things, the immunization schedule changes announced by the CDC in January 2026, and the government is appealing to the First Circuit; the September 2025 ACIP varicella recommendations are also subject to that injunction. Health insurer members of AHIP have said they will keep covering immunizations recommended as of September 1, 2025 without cost-sharing through the end of 2027. In June 2026 Merck signed an agreement with CMS to join the GENEROUS Model for Medicaid reference pricing. Also in June 2026, the Secretary of HHS gave advance notice that the declaration supporting the Lagevrio Emergency Use Authorization will terminate effective June 29, 2027; Merck does not expect FDA approval of a Lagevrio new drug application before then and is working with the FDA on a U.S. disposition plan.

Pipeline in the period. Idvynso (MK-8591A) was approved by the FDA in April 2026 and in Japan in March 2026 for HIV-1 treatment in virologically suppressed adults, and is under review in the EU. Ifinatamab deruxtecan is under U.S. priority review for previously treated extensive-stage small cell lung cancer with a PDUFA date of October 10, 2026. Welireg plus Lenvima carries a U.S. PDUFA date of October 4, 2026, and the Winrevair HYPERION label update September 21, 2026. Tulisokibart met its primary endpoint in the Phase 3 ATLAS-UC induction-only ulcerative colitis study and in a Phase 2 hidradenitis suppurativa study, but missed in a Phase 2 systemic sclerosis-associated interstitial lung disease study, which will be discontinued. The Phase 3 KEYNOTE-D46/EVOKE-03 study of Trodelvy with Keytruda in first-line metastatic NSCLC is being discontinued on Data Monitoring Committee recommendation. Merck will not proceed with prospective single-dose Gardasil 9 trials, citing operational infeasibility, and is instead funding a five-year extension of the Costa Rica ESCUDDO trial expected to start in the third quarter of 2026. In June 2026 Merck received a letter from the Chairman of the House Select Committee on China about its clinical trial conduct in China.

Litigation developments. The proposed October 2025 agreement with plaintiffs' counsel to substantially resolve U.S. Gardasil product liability litigation has met its conditions and is now final; the total payment is considerably less than anticipated defense costs and is not material to Merck. Fewer than 15 product liability cases are pending outside the U.S. Halozyme's patent claims over an ingredient in subcutaneous pembrolizumab remain live across U.S. and European proceedings, and timing of Keytruda SC availability in individual EU countries depends in part on that outcome. In June 2026 Merck and AstraZeneca received a second Paragraph IV notice from Cipla on generic Lynparza tablets.

Balance sheet and cash flow. Cash and investments were $8,363 million at June 30, 2026, down from $15,521 million at December 31, 2025; working capital fell to $8,948 million from $15,189 million; total debt as a share of total liabilities and equity rose to 41.5% from 36.0%. Operating cash flow was $9.3 billion in the half versus $5.8 billion. Investing used $15.8 billion versus $2.3 billion, driven by Cidara and Terns. Financing used $1.2 billion versus $9.3 billion. In April 2026 Merck entered a 364-day delayed draw term loan facility of up to $6.0 billion and drew it in full to fund part of the approximately $6.8 billion Terns consideration; in May 2026 it issued $6.0 billion of senior unsecured notes, $500 million floating rate due 2028, $1.0 billion 4.30% due 2028, $500 million 4.65% due 2031, $1.0 billion 4.95% due 2033, $1.5 billion 5.20% due 2036, $500 million 5.75% due 2046 and $1.0 billion 5.85% due 2056, and used the proceeds to repay the term loan, which has since been repaid in full. Maturities of $135 million of 6.30% debentures and $1.0 billion of 0.75% notes were repaid in January and February 2026. Dividends paid were $4.2 billion, at $0.85 per share per quarter. Merck repurchased $1.6 billion (14 million shares) in the half, expects approximately $3.0 billion of repurchases in 2026, and had $5.7 billion of authorization remaining at June 30, 2026.

Full-year 2026 outlook (as updated August 4, 2026).

The sales range was raised and narrowed and includes an approximately 1% positive foreign exchange impact at mid-July 2026 rates. The operating expense and EPS ranges carry the one-time R&D charges of $9.0 billion ($3.62 per share) for Cidara and $5.7 billion ($2.31 per share) for Terns, the Terns charge was not in the prior outlook, plus approximately $0.12 per share of costs to finance the Terns acquisition and advance MK-4208. The tax rate range reflects the non-deductibility of both charges. Foreign exchange is expected to add approximately $0.15 per share. The outlook assumes no additional significant business development transactions.

Subsequent events

From the quarterly report on Form 10-Q for the quarter ended June 30, 2026 (accession 0000310158-26-000212). Events after June 30, 2026.

• TARGAN acquisition, July 2026. Merck acquired TARGAN, a privately held company developing and commercializing biodevice solutions for the poultry industry, for approximately $650 million. The deal broadens Merck Animal Health's commercial poultry portfolio with WingScan, an automated vision-technology solution for gender identification, and adds a high-speed precision ocular spray technology for administering respiratory and coccidiosis vaccines to day-old chicks. Merck expects to account for the transaction as a business combination; there are no future contingent payments. Merck already held an investment in TARGAN and recorded a related unrealized gain of $71 million in other (income) expense, net in the second quarter.
• Peloton milestone payment, July 2026. The June 2026 FDA approval of Welireg in combination with Keytruda or Keytruda Qlex for adjuvant treatment of certain clear cell renal cell carcinoma patients triggered a $50 million regulatory milestone payment to former Peloton Therapeutics shareholders, made in July 2026. Merck also recorded a $100 million non-current liability in the second quarter for a future sales-based milestone it judged probable, increased the Welireg intangible asset by $192 million, and took $65 million of cumulative amortization catch-up to cost of sales. Former Peloton shareholders remain eligible for up to $900 million of sales-based milestones.
• Interest rate swap, July 2026. Merck entered an additional interest rate swap contract with a notional amount of $250 million related to its 5.20% notes due 2036, adding to the ten pay-floating, receive-fixed swaps outstanding at June 30, 2026.
• Daiichi Sankyo collaboration amended, July 2026. Merck and Daiichi Sankyo amended their DXd antibody-drug conjugate collaboration agreement, under which the companies otherwise share development costs, so that certain clinical development expenses may be incurred solely by Merck and are not shareable under the collaboration agreement, though they may be partially reimbursed subject to certain conditions.
• Lipfendra approval, July 2026. The FDA approved Lipfendra (enlicitide) tablets as an adjunct to diet and exercise to reduce LDL cholesterol in adults with hypercholesterolemia, including heterozygous familial hypercholesterolemia, a macrocyclic peptide and the first FDA-approved oral PCSK9 inhibitor shown to lower LDL-C, based on the CORALreef Lipids and CORALreef HeFH trials.
• Keytruda label expansion, July 2026. The FDA approved Keytruda and Keytruda Qlex in combination with Padcev for expanded use as neoadjuvant treatment and then continued after cystectomy as adjuvant treatment for adults with muscle-invasive bladder cancer, including those eligible for cisplatin-containing chemotherapy, based on KEYNOTE-B15.
• Exclusivity losses, July 2026. Bridion lost U.S. market exclusivity; Merck expects U.S. Bridion sales to decline depending on generic supply and expects to discontinue U.S. sales in 2027. Janumet XR lost U.S. market exclusivity, following Januvia and Janumet in May 2026; Merck expects to lose a substantial portion of U.S. sales of all three.
• German pricing legislation, July 2026. The German parliament approved the Statutory Health Insurance Contribution Rate Stabilization Act (GKV-BStabG), with the majority of provisions effective January 1, 2027. Merck is evaluating the implications and states the law will exert significant downward pressure on sales in Germany.
• Lynparza patent suit, July 2026. Following a second Paragraph IV notice from Cipla in June 2026, Merck and AstraZeneca filed a patent infringement lawsuit in the U.S. District Court for the District of New Jersey asserting a number of Orange Book-listed patents; the FDA will stay approval of Cipla's second abbreviated new drug application for 30 months from the notice date.
• Dividend, July 2026. The $0.85 per share quarterly dividend for the third quarter of 2026, declared in May 2026, was paid in July 2026.