Merck's full-year revenue for 2025 is $65 billion, up 1% year-over-year; its 2026 revenue guidance is $65.5 billion to $67 billion, below expectations｜Earnings Report News

On February 3, Merck released its financial results for the fourth quarter and full year of 2025. Driven by continued growth of Keytruda, increased contributions from new products such as Winrevair and Capvaxive, and steady performance in animal health, the company achieved full-year sales of $65 billion, up 1% year-on-year. Non-GAAP earnings per share were $8.98, up 17% year-on-year.

Merck delivered solid results in 2025, but its earnings outlook for 2026 is below market consensus. The company expects full-year sales of $65.5 billion to $67 billion, with adjusted earnings per share between $5.00 and $5.15, both falling short of Wall Street’s general expectations.

Impacted by a one-time cost from the acquisition of Cidara Therapeutics, the 2026 adjusted EPS includes about $3.65 per share in acquisition-related expenses, resulting in a significant decline compared to 2025’s $8.98. Excluding this short-term M&A effect, the company’s core business is still projected to maintain its growth trajectory.

Global Sales Pressure for Gardasil

Gardasil, once Merck’s second largest core product, is now facing growth challenges across multiple global markets. In the fourth quarter of 2025, sales for this vaccine were $1.031 billion, down 35% year-on-year. Although slightly above analysts’ previously conservative estimates, the trend is clearly downward; full-year sales were $5.233 billion, a sharp drop of 39% year-on-year.

In some key international markets, demand for the vaccine has visibly weakened. The strong growth momentum previously seen in major Asian markets has noticeably slowed, facing increasingly intense price and market share competition from domestic manufacturers. Additionally, demand in the Japanese market has declined following the conclusion of a nationwide catch-up immunization program.

Even in the U.S., Gardasil is encountering new shifts in the policy environment. In January this year, U.S. health authorities revised vaccine guidelines, reducing the recommended number of doses. CEO Robert Davis previously stated that while the financial impact of this adjustment is “generally manageable,” he is “more concerned about its potential impact on public health policy.” At the same time, senior officials at the U.S. Department of Health have recently been promoting adjustments to the vaccine policy framework, bringing new uncertainties for vaccine manufacturers such as Merck.

Keytruda Growth Slows, Patent Expiry Approaches

Merck’s core product Keytruda achieved fourth-quarter sales of $8.4 billion, up 7% year-on-year, exceeding market expectations. Full-year sales broke the $30 billion mark for the first time, reaching $31.68 billion, up 7% year-on-year. However, the growth rate has slowed, indicating that Keytruda is approaching a plateau in its growth cycle.

The growth of this drug is mainly driven by global market demand for its early indications, which cover triple-negative breast cancer, non-small cell lung cancer, renal cell carcinoma, cervical cancer, and head and neck cancer. Meanwhile, ongoing demand for metastatic urothelial carcinoma, gastric cancer, and endometrial cancer indications also contributes to stable sales. Notably, the newly launched subcutaneous formulation Keytruda Qlex achieved $35 million in sales in the U.S. market during the fourth quarter.

With Keytruda’s key patents expected to gradually expire starting in 2028, management faces pressure to introduce new growth drivers through strategic acquisitions. In January this year, amid market rumors of Merck’s interest in acquiring Revolution Medicines Inc., CEO Robert Davis publicly stated that the company had identified M&A opportunities worth tens of billions of dollars. The approval of Keytruda Qlex’s subcutaneous formulation last September is a crucial commercial strategy to extend the product lifecycle of Keytruda.

New Product Portfolio Transformation Accelerates

Merck is actively advancing its product portfolio transformation to tackle the upcoming patent expiries and generic competition pressure facing several core products, including Keytruda. In addition to this flagship oncology drug, its diabetes drug Januvia and surgical medication Bridion will also soon enter phases of increased competition.

The company’s new product lineup is performing exceptionally. Pulmonary arterial hypertension treatment Winrevair achieved full-year sales of $1.443 billion, a notable leap from $419 million in 2024, quickly becoming a blockbuster, mainly driven by U.S. demand and early launches in select overseas markets. The 21-valent pneumococcal conjugate vaccine Capvaxive saw rapid market penetration, with full-year sales of $759 million.

Additionally, Ohtuvayre, a chronic obstructive pulmonary disease drug acquired by purchasing Verona Pharma, achieved fourth-quarter sales of $178 million, surpassing market expectations. The company estimates this drug has “multi-billion-dollar commercial potential.” The animal health business continued robust growth, posting full-year sales of $6.354 billion, up 8% year-on-year.

2026 Outlook Includes Major Acquisition Costs

Merck’s 2026 guidance indicates expected adjusted earnings per share in the $5.00 to $5.15 range. This guidance has already factored in roughly $9 billion in one-time acquisition costs related to acquiring Cidara Therapeutics (about $3.65 per share), as well as related financing and operating costs (about $0.30 per share). For comparison, the company’s 2025 adjusted EPS was $8.98, which included about $0.20 per share in one-time business development costs.

Mizuho healthcare industry analyst Jared Holz noted that although the market had anticipated conservative guidance from Merck, the actual gap may be slightly greater than investors previously expected.

The company expects its 2026 adjusted gross margin to be around 82%, with adjusted operating expenses between $35.9 billion and $36.9 billion, including the one-time acquisition costs. The adjusted effective tax rate is expected to be 23.5% to 24.5%. In addition, based on mid-January exchange rates, currency fluctuations are expected to have a roughly 1% positive impact on full-year sales, contributing about $0.10 per share to EPS.

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