Latest quarter

Merck reported Q2 FY2026 revenue of $16.6 billion, up 5.07% from $15.8 billion a year earlier. The company reported revenue of $16.6 billion against the consensus of $16.3 billion, while adjusted EPS, as the consensus counts it, was −$0.13 versus the consensus estimate of −$0.26.

Merck’s filing said revenue growth reflected oncology, cardiometabolic and respiratory, and animal health, partly offset by declines in diabetes and infectious diseases. The filing said Keytruda/Keytruda Qlex and Welireg supported oncology, while Winrevair uptake and Ohtuvayre sales supported cardiometabolic and respiratory growth. Merck reported diluted EPS of −$0.54, compared with $1.76 in Q2 FY2025, as R&D expense rose principally on business-development charges.

The filing showed gross margin of 73.5%, compared with 77.5% a year earlier, primarily reflecting higher intangible-asset amortization, inventory write-downs, restructuring costs and inventory step-up recognition. Merck reported operating margin of −2.61%, compared with 35.1%, and free cash flow of $4.5 billion, compared with $2.5 billion.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

Chief Executive Officer Rob Davis said Q2 revenue of $16.6 billion reflected oncology and animal-health demand and increasing contributions from recent launches. Chief Financial Officer Caroline Litchfield said Keytruda-family sales increased 4% to $8.4 billion, driven by uptake in earlier-stage cancers and demand in metastatic indications. Litchfield said U.S. Keytruda growth is expected to moderate as key indications increasingly reach peak penetration, and said a roughly $250 million benefit from the timing of wholesaler purchases in the third quarter of 2025 will not repeat this year.

Litchfield said Gardasil sales were $1.2 billion, with international growth partly offset by lower U.S. demand and the timing of CDC purchases. She said Capvaxive sales were $184 million, reflecting international launch uptake and higher U.S. demand, while animal-health sales increased 5%. She also said third-quarter Ohtuvayre sales will be affected by the unwind of specialty-pharmacy purchases made in the second quarter; Merck expects its sales-force, promotion and specialty-pharmacy actions to lead to accelerated growth in 2027.

On margins and investment, Litchfield said non-GAAP gross margin was 81.1%, down 1.1 percentage points principally because of higher inventory reserves. She said operating expenses included a $5.7 billion charge for the Terns Pharmaceuticals acquisition, and that expenses excluding business-development charges grew 7% as Merck invested in launches and its pipeline. She said the reported loss of $0.13 per share included a $2.31-per-share one-time Terns charge.

In response to questions about the loss-of-exclusivity period, Davis said Merck views it as a hill rather than a cliff and cited faster-than-expected pipeline readouts and launched products. He said Merck still has work to do to achieve growth through that period. In response to questions about Lipvendra’s launch, Davis said Merck expects access to take time to establish and did not quantify its near-term sales contribution. Research Laboratories President Dean Li said the company remains on track for potential MK1406 approval in 2029 and said a Tulasocobar study in SSC-ILD did not meet its primary endpoint.

Guidance

Merck said it raised and narrowed its FY2026 sales outlook to $66.3 billion–$67.3 billion, including an approximately 1% positive foreign-exchange impact at mid-July exchange rates. The company expects FY2026 non-GAAP EPS of $2.66–$2.76, including an approximately $0.15-per-share positive foreign-exchange impact. Merck now assumes gross margin of approximately 81%, expects other expense of approximately $1.4 billion, and expects a tax rate of 35.0%–36.0%.