Merck & Co., Inc. (MRK) Q3 2026 earnings review
Merck's new drugs grow fast, but deal costs cut profit
Merck's newly launched medicines and cancer trials advanced, even as order timing carried headline revenue and deal costs reduced profit. The drugmaker reported $18.1 billion in sales, up 5% from a year ago, but $550 million of early customer orders and an acquired lung drug drove almost all of that gain. Chief executive Robert M. Davis raised the full-year sales outlook, yet by our math the plan leaves fourth-quarter revenue down 2% as generic competition hits older pills.
| Sales ex Ohtuvayre and $550M timing | +0.4% from a year ago, by our math (reported sales: +5% to $18.1B) |
|---|---|
| Profit per share, excluding one-offs | $2.49 -3% from a year ago (includes $0.12 SciBrunch charge) |
| Keytruda Qlex and Winrevair sales | $830M / $694M Qlex at 10% of Keytruda family; Winrevair +93% |
| Full-year sales outlook | Raised $250M middle of the range: $67.05B (+3.1%), leaving Q4 at -2% |
⚖️ Verdict: 🟢 Bullish
The story got better because the products meant to replace Keytruda after its 2028 patent expiration cleared both commercial and clinical hurdles. Under-the-skin injection Keytruda Qlex reached nearly a tenth of the franchise's sales, lung drug Winrevair nearly doubled, and late-stage uterine and skin cancer trials succeeded. One caution: buying that pipeline has doubled net interest expense and lifted research spending, pushing quarterly profit per share down.
The question now is whether fast-growing launches can outrun generic losses and rising interest costs once order timing reverses next quarter. One view is that Winrevair, Qlex and new cancer drugs will keep overall sales expanding; the other is that patent expirations and deal expenses will hold profit down. Fourth-quarter sales and the initial 2027 outlook will settle it.
🐂 Bull Case
New Drugs Outpaced Generic Losses
Merck is launching heart, lung and cancer medicines before its top product loses patent protection in 2028. At the same time, generic rivals entered the US market against diabetes pills Januvia and Janumet and surgery recovery drug Bridion. Those older medicines lost $539 million of sales this quarter, yet newer launches grew enough to keep revenue outside the Keytruda cancer franchise up 3.9% from a year ago, by our math.
- Winrevair, for high blood pressure in the lungs: $694 million, up 93% from a year ago
- Welireg, for kidney and genetic tumors: $307 million, up 56%
- Enflonsia, an antibody protecting babies from respiratory syncytial virus: $187 million, up 138%
- Ohtuvayre, an inhaled chronic lung disease drug bought with Verona Pharma: $184 million
- Januvia, Janumet and Bridion combined: $524 million, down 50.7% by our math
This matters because the drugmaker proved its new products can replace half a billion dollars of quarterly generic losses right as those patents expire. Furthermore, the US regulator updated Winrevair's label to include recently diagnosed patients, which widens its market.
What to watch: fourth-quarter sales of Winrevair and Ohtuvayre in the full-year earnings release. Continued sequential gains would show real patient demand rather than pharmacy stocking is driving the replacement.
Faster Shots Took One-Tenth of Keytruda Sales
Keytruda, Merck's flagship cancer immunotherapy, brings in nearly half of total sales and faces US patent expiration in 2028. To keep patients on its medicine longer, the pharmaceutical group launched Keytruda Qlex, an under-the-skin injection that takes about a minute instead of a long intravenous infusion. Total Keytruda family sales rose 6% to $8.6 billion this quarter, helped by "strong global uptake in earlier-stage indications".
Within that total, Qlex reached $830 million, up from $463 million last quarter and $128 million in the first quarter. By our math, the under-the-skin version now accounts for 9.7% of the Keytruda family, up from 5.5% three months ago. Japan also approved the injection across all local Keytruda uses.
What to watch: Qlex's share of total Keytruda sales next quarter. Another four-point jump would keep the drugmaker on track to move a third of patients before intravenous patents expire.
Late-Stage Cancer Trials Cut Pipeline Risk
"Our science-led strategy is transforming our business," chief executive Robert M. Davis said, adding that recent oncology trial readouts "further clinically de-risk the substantial long-term opportunity of our late-phase pipeline". Merck needs experimental cancer drugs to fill the gap when Keytruda loses exclusivity.
In October, the company presented three late-stage successes. Its targeted chemotherapy sac-TMT cut the risk of death by 32% in uterine cancer, and the US regulator granted priority review with a decision due by June 2027. A personalized cancer vaccine built with Moderna, intismeran, cut melanoma recurrence or death by 42% when added to Keytruda. One setback partially offset those wins: Merck and partner Daiichi Sankyo withdrew their US application for lung cancer candidate I-DXd.
What to watch: whether the US regulator approves sac-TMT ahead of its June 15, 2027 target date. An early approval would let oncology sales reps start selling the drug in the first half of next year.
🐻 Bear Case
Order Timing Drove the Sales Growth
Merck reported 5% worldwide sales growth to $18.1 billion and raised the bottom of its full-year sales outlook by $500 million. However, the drugmaker noted that pharmaceutical sales benefited from the "timing of purchases by approximately $550 million", and the quarter also included $184 million from acquired lung drug Ohtuvayre.
By our math, sales from businesses owned a year ago excluding that $550 million timing boost grew 0.4% from a year ago. Even the rebound in human papillomavirus vaccine Gardasil, up 14% to $2.0 billion, relied on "favorable public-sector purchasing patterns and higher net pricing" in the US, while adult pneumonia vaccine Capvaxive fell 13% in the US on "lower adult pneumococcal vaccination rates and lower net pricing". Because those early orders reverse, the raised full-year outlook leaves fourth-quarter sales at $16.1 billion at the middle of the range, down 2.0% from a year ago by our math.
What to watch: fourth-quarter pharmaceutical sales in the US and China. A drop greater than 2% would show that generic erosion is outrunning underlying demand once order timing normalizes.
Deal Costs and Debt Interest Cut Profit
Merck has spent heavily over the past year to buy external drug candidates, including Verona Pharma, Cidara Therapeutics, Terns Pharmaceuticals and a new license with SciBrunch Therapeutics. While those deals add future products, their upfront charges and borrowing costs are reducing profit today. Even excluding acquisition amortization and restructuring, profit per share fell 3% from a year ago to $2.49.
- Research and development excluding one-offs: 25.1% of sales, up 1.9 percentage points by our math, including a $400 million SciBrunch charge
- Selling and administrative costs excluding one-offs: 15.8% of sales, up 0.8 percentage points on launch promotions
- Net interest expense: $494 million, up 114% from $231 million a year ago by our math
- Profit per share excluding one-offs and deal charges: $2.61 vs $2.68 a year ago, down 2.6% by our math
What to watch: fourth-quarter operating expenses excluding one-offs, which the full-year plan puts up 8.3% from a year ago by our math. If research and interest costs keep rising faster than sales, profit will shrink again in the fourth quarter.
Risks this quarter didn't answer
Three standing concerns received no update in the third-quarter earnings release because legal and policy disclosures appear in the quarterly filing or on the conference call.
- Long-term sales floor: management still gives no multi-year revenue forecast through the 2028 Keytruda patent expiration.
- Keytruda Qlex patent lawsuits: no update on the Halozyme patent disputes in Europe and the US; the quarterly filing's legal note will show any court rulings.
- Government drug price rules: no new figures on US Medicare price negotiations for Janumet, Lenvima and Keytruda or German pricing laws taking effect in 2027.
💲 Other KPIs
Sales of medicines and vaccines for pets and farm animals rose 3.8% from a year ago, slowing from 8% growth in the second quarter and 13% in the first. Companion animal sales grew 6% on new launches while the Bravecto flea treatment was flat excluding currency, and livestock sales rose 2% on poultry demand.
Gross margin excluding one-offs slipped 0.5 percentage points from 81.9% a year ago as higher production costs weighed on profitability. Under standard accounting, gross margin dropped 4.8 percentage points to 72.9% because amortization of intangible assets from recent acquisitions rose to $1.14 billion from $621 million.
Average diluted shares fell 0.8% from 2,498 million a year ago, but ticked up by 8 million from the second quarter. In the first two quarters of 2026 Merck reported a net loss from acquisition charges, so its share count then excluded potentially dilutive stock awards.
🔮 Guidance
Raised. Merck lifted the bottom of its full-year range by $500 million, putting the middle of the range at $67.05 billion, or 3.1% growth. By our math, that leaves $16.07 billion for the fourth quarter, down 2.0% from a year ago as generic losses and third-quarter order timing unwind. It is the third raise this year: +$150 million, +$400 million, and +$250 million at the middle.
Raised. The middle of the range moved up $0.085 to $2.795 per share, even after absorbing a new $0.12 charge for the SciBrunch license alongside $5.93 of earlier Cidara and Terns acquisition charges. By our math, the outlook leaves $1.72 per share for the fourth quarter, down 16% from $2.04 a year ago.
Raised. The drugmaker increased its expected operating expense range by $300 million at the middle to $42.65 billion, primarily because it added the $400 million SciBrunch research charge on top of $14.7 billion of Cidara and Terns buyout charges. By our math, that leaves $7.40 billion of fourth-quarter operating expenses, up 8.3% from $6.84 billion in the fourth quarter of 2025.
Cut. The company lowered its expected full-year tax rate by 3 percentage points after third-quarter tax items and geographical profit mix brought the quarterly rate down to 10.9%. The full-year rate remains elevated because the $14.7 billion of Cidara and Terns acquisition charges cannot be deducted from taxes.
Unchanged. The plan still calls for about $1.4 billion of net other expense, mostly interest on debt issued to fund recent acquisitions. With $1.03 billion recorded through the first nine months, the outlook leaves about $374 million of expense for the fourth quarter, down from $420 million in the third quarter.
Unchanged. Management kept its full-year average diluted share count forecast at 2.48 billion shares, matching the 2.478 billion reported in the third quarter.
❓ Key Questions
Where did the $550 million purchase timing occur?
The release says timing of purchases lifted pharmaceutical sales by $550 million, and without it underlying sales barely grew. Investors need to know which drugs and countries received early shipments and whether the full amount reverses in the fourth quarter.
Why did Merck withdraw the I-DXd lung cancer application?
Merck and partner Daiichi Sankyo voluntarily pulled their US application for I-DXd in small cell lung cancer without stating the reason. Was the withdrawal driven by regulator feedback on trial design or safety, and does it delay the drug's broader program?
How are the Halozyme patent suits affecting Keytruda Qlex?
Qlex reached $830 million, with $693 million in the US and $136 million internationally. Because the release lacks legal disclosures, management has not said whether German or Dutch patent rulings are blocking European rollouts or requiring new royalty payments.
What slowed US adult pneumonia vaccination rates for Capvaxive?
US sales of adult pneumonia vaccine Capvaxive fell 13% from a year ago to $207 million on lower vaccination rates and lower net pricing. Is the drop caused by pharmacy stocking shifts, rival competition, or a permanent shrink in the US adult market?