Merck Earnings Call Balances Pressure and Pipeline

Merck & Company ((MRK)) has held its Q4 earnings call. Read on for the main highlights of the call.

Investor sentiment emerged cautiously optimistic as management framed Merck’s near-term strain—dragging from vaccine softness, RSV disappointment, and a sizable Sidera charge—against a reassuring cadence of oncology durability, high-growth launches, and a deep bench of upcoming readouts meant to sustain momentum beyond looming loss-of-exclusivity cliffs.

1) Solid Q4 Revenue Growth

Merck delivered $16.4 billion in fourth-quarter revenue, up 5% year over year (4% excluding FX), with non-GAAP EPS of $2.04 and a still-elevated 79.7% gross margin despite inventory-related pressure, signaling that the core franchise remains resilient even as margins slipped 110 basis points.

2) KEYTRUDA Continued Strength

KEYTRUDA generated $8.4 billion in sales, rising 5% thanks to earlier-stage uptake, metastatic breadth, and the early debut of QLEX, which logged $35 million and should benefit from an April J-code as Merck targets 30%–40% IV-to-QLEX adoption by 2028.

3) Material Pipeline and Long-Term Commercial Opportunity

Management now sees over $70 billion of potential commercial opportunity by the mid-2030s—up roughly $20 billion year over year—backed by 21 identified growth drivers, 10 of which could be substantially de-risked within two years, plus 18 Phase III readouts and 21 trial initiations slated for 2025.

4) Strategic Acquisitions and New Assets

The Sidera Therapeutics and Verona Pharma deals broaden respiratory and infectious-disease reach, highlighted by Sidera’s MK1406 long-acting influenza antiviral that management touts as a possible first-in-class asset with more than $5 billion revenue potential.

5) Strong Growth in Select Products

Select launches offset vaccine weakness: Wellyrec rose 37% to $220 million, WinRevair posted $467 million with robust U.S. patient adds, Cefaxib contributed $279 million, and O2Ver (via Verona) added $178 million on brisk prescribing growth.

6) Animal Health Momentum

Animal health sales climbed 6%, fuelled by 9% livestock growth, while companion animal revenue held flat as new products balanced softer vet traffic.

7) Clinical and Regulatory Milestones

Late-stage progress spanned enlicitide’s Phase III data headed to JAMA/NEJM, CADANCE Phase II support for winravir, positive topline readouts for islotrovir in HIV, and multiple KEYTRUDA label wins including bladder cancer regimens and EU approval for the subcutaneous formulation, with numerous PDUFA events approaching across therapeutic areas.

8) 2026 Revenue Guidance and Underlying Growth Drivers

Merck reiterated 2026 non-GAAP revenue of $65.5–$67.0 billion (1%–3% growth including ~1 point FX tailwind), expecting oncology and new launches to overcome a $2.5 billion drag from generics, IRA price caps, and a Koselugo renegotiation.

9) Gardasil Revenue Decline

Gardasil plunged 35% to $1.0 billion on sharply lower demand in China and Japan, partially countered by U.S. pricing strength and modest gains elsewhere, underscoring the volatility tied to geographic vaccination trends.

10) RSV Uptake Below Expectations

Inflonsia RSV sales of just $21 million reflected sluggish infant immunization rates and elevated monoclonal antibody inventories, signaling a slower-than-hoped on-ramp for the newly acquired respiratory franchise.

11) Large One-Time Acquisition Charge Impacting 2026 Results

The ~ $9 billion non-deductible Sidera charge severely compresses reported 2026 EPS to a midpoint of $5.08, though management emphasized that adjusting for the $3.65 per-share upfront hit (plus $0.03 ongoing costs) reveals a healthier $9.03 underlying midpoint.

12) Near-Term Commercial Headwinds (~$2.5B)

Merck flagged about $2.5 billion of 2026 headwinds as Januvia, Bridion, and other mature brands face generics, IRA price setting bites, and Koselugo’s restructured deal weighs on revenue.

13) Margin and Inventory Pressure

Gross margin slipped to 79.7%, down 110 basis points, as higher inventory reserves offset favorable mix, reflecting the cost of managing demand volatility and prepping for multiple launches.

14) Soft Demand for Certain Products and Seasonality Risks

Management cautioned that Lagevrio demand remains weak, RSV products face seasonal and deductible-related hurdles, and companion animal sales are hampered by fewer vet visits despite new product energy.

Guidance and Outlook

Looking ahead, Merck’s 2026 plan anchors on $65.5–$67.0 billion in revenue, ~82% gross margin, $35.9–$36.9 billion in operating expenses (inclusive of the Sidera charge), $1.3 billion in other expense, a 23.5%–24.5% tax rate, and non-GAAP EPS of $5.00–$5.15 (or ~$9.03 excluding the Sidera burden), alongside $3 billion of buybacks, a steady dividend, and no baked-in mega deals.

Merck’s earnings call mixed immediate pressure—from vaccine volatility, RSV softness, and acquisition accounting—with evidence that oncology leadership, targeted dealmaking, and a rich pipeline can bridge the LOE era, leaving investors weighing patience today against a potentially stronger growth profile later in the decade.