Merck (MRK) Q1 2026 earnings review
Top-Line Resilience Overshadowed by Massive M&A Toll on Earnings
Merck delivered stable 5% YoY revenue growth to $16.3B in Q1, anchored by the accelerating launch of WINREVAIR and steady double-digit expansion of KEYTRUDA. However, this top-line consistency failed to reach the bottom line. Non-GAAP EPS reversed violently to a loss of $1.28, entirely driven by a massive $9.0B R&D charge for the Cidara Therapeutics acquisition. While management slightly raised FY26 revenue guidance to a midpoint of $66.4B, the upcoming Terns Pharmaceuticals acquisition will add another ~$5.8B charge in Q2. Merck's aggressive portfolio transformation to offset KEYTRUDA's 2028 Loss of Exclusivity (LOE) is successfully building future pipelines but carrying an exceptionally heavy near-term price tag for investors.
🐂 Bull Case
WINREVAIR sales accelerated 88% YoY to $525M, proving its practice-changing status in pulmonary arterial hypertension and showing strong initial uptake internationally.
Despite approaching LOE, KEYTRUDA grew 12% YoY to $8.0B, driven by high global demand in earlier-stage indications. Subcutaneous uptake (QLEX) is also contributing $128M in the quarter.
🐻 Bear Case
GARDASIL sales fell 19% YoY to $1.07B, continuing a decelerating trend driven by weak demand in China and the exhaustion of catch-up programs in Japan.
The $9.0B charge for Cidara wiped out quarterly earnings. With another $5.8B charge slated for Q2 (Terns acquisition), 2026 profitability is fundamentally distorted.
⚖️ Verdict: ⚪
Neutral. The underlying commercial execution on KEYTRUDA and WINREVAIR is excellent, proving Merck can launch and scale effectively. However, the collapse in GARDASIL and the sheer size of BD charges highlight the expensive, bumpy reality of Merck's post-KEYTRUDA transition.
Key Themes
WINREVAIR Momentum is Accelerating
WINREVAIR is establishing itself as a foundational growth pillar. Sales jumped 88% YoY to $525M, reflecting continued strong U.S. uptake and early adoption in Japan and Europe. Positive Phase 2 CADENCE data expands the horizon into a new patient population (CpcPH-HFpEF), ensuring this asset has long-term tailwinds.
KEYTRUDA Continues to Power Top Line
KEYTRUDA sales grew 12% YoY to $8.0B. Management's strategy to push into earlier-stage cancers (like triple-negative breast cancer and RCC) is paying off. The new subcutaneous formulation (QLEX) generated $128M, signaling the beginning of Merck's lifecycle management defense strategy ahead of the 2028 LOE.
Animal Health Segment is Accelerating
Animal Health delivered an excellent quarter, with sales growing 13% YoY to $1.79B. Growth was broad-based across Livestock (+15%) and Companion Animal (+9%), proving this segment remains a durable, high-margin offset to pharmaceutical patent cliffs.
GARDASIL's Asian Tailwinds are Reversing
GARDASIL revenues dropped 19% YoY to $1.07B. Management has repeatedly cited macro issues in China (soft demand) and Japan (end of national catch-up program). This marks a stable structural decline for what was previously the company's second most important growth engine.
Legacy Blockbusters are Decelerating Rapidly
Generic competition is gutting the legacy portfolio. JANUVIA/JANUMET sales plunged 28% YoY to $574M due to generic competition internationally and demand/pricing pressure in the U.S. LAGEVRIO plummeted 73% to just $28M, confirming its obsolescence in the post-pandemic market.
M&A Addiction Crushing Current Earnings
While management touts a seamless pipeline transition, the financial data contradicts this: the transition is violently expensive. The $9.0B charge for Cidara erased Q1 profits, and a forthcoming $5.8B charge for Terns will hit Q2. This massive scale of in-licensing highlights that internal R&D was insufficient to bridge the upcoming KEYTRUDA LOE gap, forcing management to pay premium acquisition prices that destroy near-term shareholder value.
HIV Portfolio Innovation Materializes
Merck secured FDA approval for IDVYNSO (doravirine/islatravir), a once-daily oral treatment for virologically suppressed HIV-1. This is a critical regulatory milestone, giving Merck a modern anchor medicine to compete in the lucrative HIV maintenance space.
Other KPIs
Stable. Gross margin remained essentially flat YoY (down from 82.2% in 25Q1). Unfavorable foreign exchange was almost entirely offset by a more favorable product mix, driven by the higher proportion of high-margin KEYTRUDA and WINREVAIR sales.
Reversing sharply from the historical norm of ~$3.6B. This massive spike is almost entirely attributable to the $9.0B charge incurred for the Cidara acquisition. Excluding this, R&D spend would be roughly flat YoY.
Guidance
Accelerating slightly vs previous expectations. The midpoint was raised, representing ~2.1% YoY growth over FY25's $65.0B. Management assumes underlying strength in Oncology and Animal Health will outweigh the continuing generic drag on JANUVIA and the GARDASIL weakness.
Decelerating/Reversing due to M&A. The midpoint was narrowed and slightly raised from prior guidance, but this range still includes the massive $3.62 per share drag from Cidara. Notably, this guidance does NOT yet reflect the upcoming ~$2.35 per share hit from the Terns acquisition closing in May. Once Terns is accounted for, reported EPS will fall dramatically further.
Key Questions
GARDASIL Floor
With China and Japan continuing to drag down GARDASIL revenues, what is the new baseline expectation for this franchise, and when do we lap the worst of the macro comparisons?
Capacity for Further M&A
After recording roughly $15 billion in acquisition charges between Cidara and Terns in the first half of 2026 alone, how does management assess its remaining balance sheet capacity and appetite for further business development this year?
Terns Integration and Pipeline Timing
With the Terns deal closing in May, what is the expected clinical timeline and investment cadence required for TERN-701 to reach the market for Chronic Myeloid Leukemia?
WINREVAIR Indication Expansion
Following the positive Phase 2 CADENCE trial for CpcPH-HFpEF, what are the plans and anticipated timelines for initiating a registrational Phase 3 trial in this new patient cohort?