Merck (MRK) Q4 2025 earnings review
WINREVAIR Soars, GARDASIL Stumbles
Merck delivered a mixed Q4 where the future outperformed the past. Total sales grew 5% to $16.4B, driven by a massive acceleration in the cardiopulmonary launch WINREVAIR (+133% vs prior year launch period) and solid Animal Health performance. However, the GARDASIL franchise collapsed 34% due to the ongoing China reset. While Non-GAAP EPS grew 19% to $2.04, the FY26 guidance is optically shocking: expected EPS of $5.00-5.15 includes a massive $3.65/share one-time charge for the Cidara acquisition, masking underlying operational stability.
🐂 Bull Case
The launch is accelerating significantly. Sales hit $467M in Q4, up from $360M in Q3, annualizing at nearly $2B. With new approvals (EC) and positive trial data (HYPERION/CADENCE), this is quickly becoming the new growth pillar.
Animal Health grew 8% (9% ex-FX) to $1.5B, driven by 11% growth in Livestock. This segment remains a reliable, high-quality diversifier against pharmaceutical patent cliffs.
🐻 Bear Case
The China reset is severe. Global GARDASIL sales fell 34% YoY to $1.03B. With China demand evaporating and Japan catch-up programs ending, a former reliable growth engine has turned into a significant drag.
Non-GAAP gross margin compressed 110bps YoY to 79.7%, driven by higher inventory write-offs. Additionally, the Cidara acquisition charge will heavily distort FY26 GAAP and Non-GAAP profitability.
⚖️ Verdict: ⚪
Neutral. The operational pivot is working—WINREVAIR is a blockbuster in the making—but the hole left by GARDASIL's China collapse is deep. FY26 guidance is messy due to one-time charges, requiring investors to look past headline numbers to see the underlying single-digit growth.
Key Themes
WINREVAIR: The New Blockbuster
Accelerating. WINREVAIR is successfully filling the growth narrative vacuum. Revenue climbed sequentially from $360M in Q3 to $467M in Q4. Growth is driven by U.S. uptake and early international launches. This asset validates the company's cardiovascular pivot.
GARDASIL China Collapse
Reversing. The vaccine franchise is under immense pressure. Sales plummeted 34% YoY. The decline is specifically attributed to lower demand in China and the end of catch-up programs in Japan. While U.S. sales offset this slightly, the international segment collapsed 47% YoY.
Acquisition-Heavy Strategy
Merck continues to buy growth, closing the Verona Pharma deal (Oct 2025) and completing the Cidara Therapeutics acquisition (Jan 2026). While strategic, these deal costs are muddying the P&L; the Cidara deal alone triggers a ~$9.0B charge, impacting FY26 EPS by ~$3.65.
Oncology Diversification
Accelerating. Beyond KEYTRUDA (+7%), the broader oncology portfolio is gaining traction. WELIREG jumped 37% YoY to $220M. Alliance revenue from Lynparza grew 7%. The FDA approval of subcutaneous KEYTRUDA (QLEX) offers lifecycle management defense, though sales are currently minimal ($35M).
Gross Margin Pressure
Decelerating. Non-GAAP Gross Margin fell to 79.7% from 80.8% a year ago. Management explicitly cited higher inventory write-offs as a primary driver, partially offset by product mix. This break in trend warrants monitoring as new products ramp.
Other KPIs
Stable. Grew 7% YoY (5% ex-FX). While still the massive revenue engine, the growth rate has normalized to single digits compared to the +21% growth seen in Q4 2024, reflecting saturation in major metastatic indications.
Accelerating. Growth of 8% (9% ex-FX) was robust, driven by Livestock (+11%). This is a solid improvement over the +2% growth seen in Companion Animal, indicating cyclical strength in protein production markets.
Decreasing. Down 13% YoY, primarily due to lower business development charges compared to the prior year period. However, clinical development costs are rising, reflecting the intense Phase 3 activity (approx 80 trials).
Guidance
Stable/Decelerating. The midpoint ($66.25B) implies growth of ~1.9% vs FY2025. This reflects the continued headwind from GARDASIL and generic competition (BRIDION), offset by WINREVAIR expansion.
Distorted. The number is heavily impacted by the $3.65/share charge for the Cidara acquisition. Adding that back implies an operational EPS of ~$8.65-$8.80, which is roughly flat/slightly down vs FY2025's $8.98, indicating significant reinvestment or margin pressure.
Improving. Expects a bounce back from Q4's 79.7% low, likely as inventory write-off issues resolve and the high-margin WINREVAIR mix increases.
Key Questions
GARDASIL China Visibility
Shipments to China have been paused/reduced for several quarters. Do you have any visibility on channel inventory clearance, or should we model China as a zero-growth market for 2026?
WINREVAIR Peak Sales
With the annual run-rate approaching $2B just quarters into launch, does management see potential to exceed previous peak sales estimates earlier than expected?
Underlying Earnings Power
Stripping out the Cidara charge, implied FY26 EPS guidance looks flat vs FY25. Is this driven by specific OpEx investments for new launches, or are we seeing base business margin erosion?
Inventory Write-Offs
Q4 Gross Margin was hit by inventory write-offs. Was this specific to the GARDASIL slowdown, or are there other products facing obsolescence/demand mismatches?