Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We make statements in this 2025 Form 10-K, and we may from time to time make other written reports and oral statements, regarding our outlook or expectations for financial, business or strategic matters regarding or affecting us that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, all of which are based on management’s current expectations and are subject to risks and uncertainties which change over time and may cause results to differ materially from those set forth in the statements. One can identify these forward-looking statements by their use of words such as “anticipates,” “expects,” “plans,” “will,” “estimates,” “forecasts,” “projects,” “believes,” “would,” “potentially,” “intends,” “seeks,” “future,” “might,” “likely,” “target,” “predict,” “continue,” “should,” and other words of similar meaning, or negative variations of any of the foregoing. One can also identify them by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements include, but are not limited to, statements relating to our growth and acquisition strategies, financial results, product development, product approvals, product potential and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from our forward-looking statements. These factors may be based on inaccurate assumptions and are subject to a broad variety of other risks and uncertainties. No forward-looking statement can be guaranteed and actual future results
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may vary materially. The factors described in Part I, Item 1A. Risk Factors of this 2025 Form 10-K or otherwise described in our filings with the SEC provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations expressed in our forward-looking statements, including, but not limited to:
• the impact of tariffs and other trade restrictions or domestic sourcing requirements;
• the impact of our substantial levels of indebtedness;
• our ability to execute on our capital allocation priorities and to deleverage our business;
• expanded brand and class competition in the markets in which we operate;
• difficulties with performance of third parties we rely on for our business growth;
• the failure of any supplier to provide substances, materials, or services as agreed, or otherwise meet their obligations to us;
• the increased cost of supply, manufacturing, packaging, and operations;
• difficulties developing and sustaining relationships with commercial counterparties;
• competition from generic products as our products lose patent protection;
• any failure by us to retain market exclusivity for Nexplanon or to obtain an additional period of exclusivity in the United States for Nexplanon subsequent to the expiration of the rod patents in 2027;
• the continued impact of the September 2024 LOE for Atozet ;
• the success of our efforts to adopt our business and sales strategies to address the changing market and regulatory landscape in order to achieve our business objectives and remain competitive;
• restructuring or other disruptions at the FDA, the SEC and other U.S. and comparable foreign government agencies;
• difficulties and uncertainties inherent in the implementation of our acquisition strategy or failure to recognize the benefits of such acquisitions;
• pricing pressures globally, including rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to or affecting Medicare, Medicaid and healthcare reform, pharmaceutical pricing and reimbursement, access to our products, international reference pricing, including MFN drug pricing, and other pricing related initiatives and policy efforts;
• the impact of higher selling and promotional costs;
• changes in government laws and regulations in the United States and other jurisdictions, including laws and regulations governing the research, development, approval, clearance, manufacturing, supply, distribution, and/or marketing of our products and related intellectual property, environmental regulations, and the enforcement thereof affecting our business;
• our inability to remediate the material weaknesses in our internal control over financial reporting;
• efficacy, safety or other quality concerns with respect to our marketed products, whether or not scientifically justified, leading to product recalls, withdrawals, labeling changes or declining sales;
• delays or failures to demonstrate adequate efficacy and safety of our product candidates in pre-clinical and clinical trials, which may prevent or delay the development, approval, clearance, or commercialization of our product candidates;
• reduced research and development investment and increased reliance on fewer research and development programs for new products to generate future revenue and replace existing products that come to the end of their market life cycle;
• future actions of third-parties, including significant changes in customer relationships or changes in the behavior and spending patterns of purchasers of healthcare products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and forgoing healthcare insurance coverage;
• legal factors, including product liability claims, antitrust litigation and governmental investigations, including tax disputes, environmental claims and patent disputes with branded and generic competitors, any of which could preclude commercialization of products or negatively affect the profitability of existing products;
• lost market opportunity resulting from delays and uncertainties in clinical trials and the approval or clearance process of the FDA and other regulatory authorities;
• the failure by us or our third party collaborators and/or their suppliers to fulfill our or their regulatory or quality obligations, which could lead to a delay in regulatory approval or commercial marketing of our products;
• cyberattacks on, or other failures, accidents, or security breaches of, our or third-party providers’ information technology systems, which could disrupt our operations and those of third parties upon which we rely;
• increased focus on privacy issues in countries around the world, including the United States, the EU, and China, and a more difficult legislative and regulatory landscape for privacy and data protection that continues to evolve with the potential to directly affect our business, including recently enacted laws in a majority of states in the United States requiring security breach notification;
• changes in tax laws including changes related to the taxation of foreign earnings;
• the impact of any future pandemic, epidemic, or similar public health threat on our business, operations and financial performance;
• our ability to hire and retain a permanent CEO, other members of our senior management, or other key employees;
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• changes in accounting pronouncements promulgated by standard-setting or regulatory bodies, including the Financial Accounting Standards Board and the SEC, that are adverse to us;
• volatility of commodity prices, fuel, and shipping rates that impact the costs and/or ability to supply our products;
• uncertainties surrounding matters relating to the Audit Committee investigation and any related investigations, inquiries, claims, proceedings or actions, as described elsewhere in this 2025 Form 10-K; and
• economic factors over which we have no control, including changes in inflation, interest rates, recessionary pressures, and foreign currency exchange rates.
It is not possible to predict or identify all such factors. Consequently, one should not consider the above list or any other such list to be a complete statement of all potential risks or uncertainties. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.
General
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist the reader in understanding our financial condition and results of operations for the years ended December 31, 2025 and 2024 and should be read in conjunction with our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K to enhance the understanding of our results of operations, financial condition and cash flows. Additionally, this section should be read in connection with Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 28, 2025 (the “Original 2024 Form 10-K”), as amended by Amendment No. 1 thereto, filed on November 10, 2025 (“Amendment No. 1” and, together with the Original 2024 Form 10-K, the “Prior Form 10-K”), which are available on the SEC’s website at www.sec.gov. The Prior Form 10-K includes a discussion regarding our financial condition and results of operations for the years ended December 31, 2024 and 2023.
We are a global healthcare company with a primary focus on improving the health of women throughout their lives. We develop and deliver innovative health solutions through a portfolio of prescription therapies and medical devices within our women’s health and general medicines portfolios. We have a portfolio of more than 70 medicines and products across a range of therapeutic areas. We sell these products through various channels including drug wholesalers and retailers, hospitals, government agencies and managed healthcare providers such as health maintenance organizations, pharmacy benefit managers and other institutions. We operate six manufacturing facilities around the world.
Key Trends Affecting Our Results of Operations
• Generic Competition : Except for Emgality and Vtama , our established brands products are beyond market exclusivity. Although these products continue to represent a valuable opportunity to generate significant operating profit relative to low promotional and development expenses, they are subject to competition from generic versions of these products. For instance, we have been negatively impacted since late 2024 from the LOE for Atozet in France, Spain and Japan, and we expect these impacts to continue in 2026 driven by increased competition and further price erosion. In addition, Nexplanon is the largest brand we commercialize that continues to have market exclusivity; however, in the United States, patents claiming key aspects of the Nexplanon applicator will expire in 2030 and patents for the Nexplanon rod will expire in late 2027. Outside of the United States, we have lost exclusivity in Nexplanon in certain markets beginning in 2025 and will continue to market in other geographies in the near future. See Note 18 “Contingencies—Other Matters” to the Consolidated Financial Statements in this 2025 Form 10-K.
• Historical Shift Towards Long-Acting Reversible Contraceptives : Daily contraceptive pills are by far the largest contraception market segment, with almost half of all women choosing a hormonal contraceptive electing this particular method. However, the long-acting reversible contraceptives market, including Nexplanon , is expected to continue to be an important and large segment of the overall contraceptive market. Despite an increasingly diverse market of contraception methods (including the over-the-counter birth control pill), payors, providers, and patients continue to believe in the benefits of long-acting and highly effective options such as Nexplanon . Nexplanon is available for prescription under controlled distribution once the healthcare provider has completed a clinical training program (“CTP”) demonstrating safe and effective insertion and removal of Nexplanon . During the recent label update in January 2026, the FDA expanded the duration of use for Nexplanon from three years to five years, and also enhanced the CTP program by adding a Risk Evaluation and Mitigation Strategy (REMS) program, which contains additional proactive measures to certify healthcare providers in the proper insertion and removal of Nexplanon .
• Increased Access to Fertility Solutions : With the global trend toward declining birthrates, governments and payors are implementing favorable policies across major markets that, in turn, improve access to fertility and maternal care.
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• Growing Acceptance of Biosimilars : The market for biologics continues to experience strong growth trends. Given the high cost of many of these biologics treatments, biosimilars are a potentially more affordable alternative and represent a significant opportunity for patients, providers, and payors once a biologics product loses patent protection. Moreover, a significant number of biologics are expected to lose exclusivity over the next decade, representing a large opportunity for more biosimilar approvals.
• Increased Competitive Pressures : The markets in which we conduct our business and the pharmaceutical industry in general are highly competitive and highly regulated. Our competitors include other worldwide research-based pharmaceutical companies, smaller research companies with more limited therapeutic focus and generic drug manufacturers.
• Other Macroeconomic Considerations: Geopolitical developments including changes to the political orientation of the governments in key countries, global trade issues such as tariffs imposed by or on the United States, shifting U.S. federal and state government policies, policies hindering market access, and worsening macroeconomic conditions could impact our business and results of operations and may stress our working capital resources. While tariffs have not, to date, had a material impact on our business, future tariff actions could potentially have a significant effect on our supply chain and operating costs. Regulatory agency developments, including disruptions at the FDA and other agencies, could increase the time needed for review and approval of new drugs and medical devices, potentially impacting our ability to develop new drugs, delaying our product launches and impacting our business operations. Additionally, proposed cuts to Medicaid and changes in federal funding policies could reduce access to healthcare services for low-income individuals. International reference pricing frameworks, including MFN mandates, may further constrain our pricing flexibility and commercial strategy. Voluntary price concessions in certain European markets and increased rebate negotiations across the EU have introduced additional pressure on net pricing and margins. These developments may influence our commercial strategy, constrain pricing flexibility and product launches. For additional information, please refer to Item 1A — Risk Factors.
Recent Developments
Business Development
Laborie Medical Technologies Corporation (“Laborie”)
In January 2026, we divested the Jada System to Laborie for an aggregate payment of up to $465 million, comprised of consideration of $440 million, subject to certain closing adjustments, plus potential earnout payments of up to $25 million based on the achievement of certain 2026 net sales targets. Approximately 100 employees transferred to Laborie as part of this transaction.
Biogen Inc. (“Biogen”)
In March 2025, we acquired from Biogen the regulatory and commercial rights in the United States for Tofidence , a biosimilar to Actemra 2 (tocilizumab), for intravenous infusion. Tofidence , launched in the U.S. market in May 2024, is indicated in certain patients for the treatment of moderately to severely active rheumatoid arthritis, giant cell arteritis, polyarticular juvenile idiopathic arthritis, systemic juvenile idiopathic arthritis, and COVID-19. Under the terms of the agreement with Biogen, we paid an upfront payment of $51 million in July 2025, and are obligated to pay tiered royalty payments based on net sales and tiered annual net sales milestone payments of up to $45 million from a previous in-license arrangement with Bio-Thera Solutions Ltd., the product developer for Tofidence . In the first quarter of 2025, we recognized an intangible asset of $51 million, related to the upfront payment to Biogen, which will be amortized over 10 years.
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Operating Results
Sales Overview
Year Ended December 31,
% Change
% Change Excluding Foreign Exchange
% Change
% Change Excluding Foreign Exchange
($ in millions)
United States
International
Total
Worldwide sales were $6.2 billion for the year ended December 31, 2025, a decrease of 3%, compared to 2024. Worldwide sales during the year ended December 31, 2025 were positively impacted by approximately $36 million, or approximately 1%, due to favorable foreign exchange rates.
Excluding the impact of foreign exchange rates, sales decreases for the year ended December 31, 2025, primarily reflect lower sales of:
• Atozet, primarily due to LOE in France, Spain and Japan, partially offset by increased demand in Asia Pacific, Latin America and the product launch in China;
• Singulair, p rimarily attributable to price reductions in China and Japan, as well as lower demand outside of the United States resulting from increased competition and less favorable medical guidelines; and
• Dulera, primarily due to the loss of a customer contract in the first part of the year combined with increased discount rate pressure in the United States.
This decrease in the above sales was offset by sales increases for the year ended December 31, 2025 in:
• Vtama, as a result of our acquisition of Dermavant in the fourth quarter of 2024, launch of the atopic dermatitis indication for adults and children two years of age and older in the United States and launch of the topical treatment of plaque psoriasis in adults in Canada in the third quarter of 2025;
• Hadlima, due to sales ramp up since its launch in July 2023 in the United States and a modest increase in demand in Canada and other international markets;
• Emgality, as a result of our acquisition of the distribution and promotion rights from Lilly in 2024 in certain markets outside of the United States; and
• Follistim , due to increased demand in the United States, partially offset by a decrease in demand in China. Comparability of sales for the year ended December 31, 2025, is impacted by a one-time buy-in that occurred in the fourth quarter of 2023. This buy-in, a consequence of exiting our interim operating model agreement with Merck, resulted in a reduction of sales in the first half of 2024.
LOE negatively impacted sales of certain of our products by approximately $197 million during the year ended December 31, 2025, based on the decrease in sales volume compared to 2024. This was primarily driven by the LOE of Atozet in France, Spain and Japan and Rosuzet in Japan. VBP in China had an immaterial impact on our sales during the year ended December 31, 2025. However, we expect VBP to continue to negatively impact our general medicines product portfolio for the next several quarters.
Due to changing market conditions, new and evolving U.S. and international tariffs, U.S. tax law changes and regulatory uncertainty that impact our business, as well as the pharmaceutical industry, we have been and will continue to adapt our business and sales strategies to address this changing landscape in order to achieve our business objectives and remain competitive. Such strategies may include implementing or continuing to assess product discount programs and wholesaler inventory levels under the relevant agreements or waivers of their terms for certain key products.
Our operations include a portfolio of products. Highlights of the sales of our products for the year ended December 31, 2025 and 2024 are provided below. See Note 5 “Product and Geographic Information” to the Consolidated Financial Statements for further details on sales of our products.
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Women’s Health
Year Ended December 31,
% Change
% Change Excluding Foreign Exchange
% Change
% Change Excluding Foreign Exchange
($ in millions)
Nexplanon/Implanon NXT
NuvaRing
Marvelon/Mercilon
Follistim AQ
Jada
Contraception
Worldwide sales of Nexplanon, a single-rod subdermal contraceptive implant, declined 4% for the year ended December 31, 2025, compared to 2024, primarily due to decreased demand related to policy related access restrictions and lower physician demand, coupled with increased discount rates in the United States, partially offset by increased demand in Brazil and our institutional business. Nexplanon sales for the year ended December 31, 2024, included an estimated $15 million of sales resulting from the identified sales practices for U.S. wholesalers described in Item 1. Business—Recent Developments. The impact was estimated using average daily sales, inventory levels at the wholesaler and days on hand at the wholesaler. The Company ceased the identified sales practices for U.S. wholesalers, which adversely impacted the full year 2025 sales by $15 million, as inventory levels at the wholesalers were reduced the normalized levels. In January 2026, the FDA approved a supplemental New Drug Application for Nexplanon which extends the duration of use for up to five years, an extension of the previous three-year indication.
Worldwide sales of NuvaRing , a vaginal contraceptive product, declined 21% for the year ended December 31, 2025, compared to 2024, due to the loss of a customer contract in 2024 and ongoing generic competition, partially offset by favorable discount rates in the United States associated with a new agreement. We expect a continued decline in NuvaRing sales as a result of generic competition.
Worldwide sales of Marvelon and Mercilon , combined oral hormonal daily contraceptive pills not approved or marketed in the United States, but available in certain countries outside the United States, declined 5% for the year ended December 31, 2025, compared to 2024, as a result of decreased demand in the Middle East, partially offset by increased demand in China and increased demand and favorable pricing in Asia Pacific.
Fertility
Worldwide sales of Follistim AQ , a fertility treatment, increased 11% for the year ended December 31, 2025, compared to 2024, due to increased demand in the United States, partially offset by a decrease in demand in China. Comparability of sales for the year ended December 31, 2025, is impacted by a one-time buy-in that occurred in the fourth quarter of 2023. This buy-in, a consequence of exiting our interim operating model agreement with Merck, resulted in a reduction of sales in the first half of 2024.
Other Women’s Health
Worldwide sales of Jada, a device intended to provide control and treatment of abnormal postpartum uterine bleeding or hemorrhage when conservative management is warranted, increased 22% for the year ended December 31, 2025, compared to 2024. The sales increase is due to continued uptake in the United States following the Jada launch in early 2022. In January 2026, we completed the sale of the Jada System to Laborie.
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General Medicines
Biosimilars
Year Ended December 31,
% Change
% Change Excluding Foreign Exchange
% Change
% Change Excluding Foreign Exchange
($ in millions)
Renflexis
Hadlima
Ontruzant
Brenzys
Renflexis is a biosimilar to Remicade for the treatment of certain autoimmune conditions. Sales declined 8% for the year ended December 31, 2025, compared to 2024, primarily due to competitive pressure and unfavorable discount rates in the United States, partially offset by increased demand in Canada.
Hadlima is a biosimilar to Humira for the treatment of certain autoimmune and autoinflammatory conditions. Sales increased 60% for the year ended December 31, 2025, compared to 2024, due to sales ramp up since its launch in July 2023 in the United States and a modest increase in demand in Canada and Puerto Rico. We have commercialization rights to Hadlima in countries outside of the European Union, South Korea, China, Turkey, and Russia. Hadlima is currently approved in the United States, Australia, Canada and Israel.
Ontruzant is a biosimilar to Herceptin for the treatment of HER2-overexpressing breast cancer and HER2-overexpressing metastatic gastric or gastroesophageal junction adenocarcinoma. Sales for the year ended December 31, 2025, compared to 2024, declined 30%, due to competitive pressure in the United States, unfavorable pricing and lower tendered volume from Brazil’s Ministry of Health when compared with 2024. We have commercialization rights to Ontruzant in all countries except in South Korea and China.
Brenzys is a biosimilar to Enbrel for the treatment of certain inflammatory diseases. Sales for the year ended December 31, 2025, compared to 2024, increased 4%, as a result of the timing of tenders in Brazil and increased demand in Asia Pacific. We have commercialization rights to Brenzys in countries outside of the United States, Europe, South Korea, China, and Japan.
Established Brands
Cardiovascular
Year Ended December 31,
% Change
% Change Excluding Foreign Exchange
% Change
% Change Excluding Foreign Exchange
($ in millions)
Atozet
Zetia/Vytorin
Cozaar/Hyzaar
Sales of Atozet , a medicine for lowering LDL cholesterol, declined 31% for the year ended December 31, 2025, compared to 2024, primarily due to LOE in France, Spain and Japan, partially offset by increased demand in Asia Pacific, Latin America and the product launch in China.
Combined global sales of Zetia and Vytorin , medicines for lowering LDL cholesterol, increased 4% for the year ended December 31, 2025, compared to 2024, primarily driven by increased demand in China, partially offset by the decrease in demand and pricing pressure in various international markets.
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Combined global sales of Cozaar and Hyzaar , medicines for the treatment of hypertension, declined 10% for the year ended December 31, 2025, compared to 2024, driven by decreased hospital demand in China and decreased demand in Japan.
Respiratory
Year Ended December 31,
% Change
% Change Excluding Foreign Exchange
% Change
% Change Excluding Foreign Exchange
($ in millions)
Singulair
Nasonex
Dulera
Worldwide sales of Singulair , a once-a-day oral medicine for the chronic treatment of asthma and for the relief of symptoms of allergic rhinitis, declined 30% for the year ended December 31, 2025, compared to 2024. This decline was primarily attributable to price reductions in China and Japan, as well as lower demand outside of the United States resulting from increased competition and less favorable medical guidelines.
Global sales of Nasonex , an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms, declined 5% for the year ended December 31, 2025, compared to 2024, due to decreased demand and an increase in competitive pressure in various international markets.
Global sales of Dulera , which is also marketed as Zenhale in certain markets outside of the United States, a combination medicine for the treatment of asthma, declined 25% for the year ended December 31, 2025, compared to 2024, primarily due to the loss of a customer contract in the first part of the year combined with increased discount rate pressure in the United States.
Non-Opioid Pain, Bone and Dermatology
Year Ended December 31,
% Change
% Change Excluding Foreign Exchange
% Change
% Change Excluding Foreign Exchange
($ in millions)
Arcoxia
Vtama
* Calculation not meaningful.
Sales of Arcoxia , a medicine for the treatment of arthritis and pain, declined 2% for the year ended December 31, 2025, compared to 2024, primarily due to decreased demand in Latin America and Asia Pacific, partially offset by increased demand in Russia.
Sales of Vtama, a cream for the topical treatment of mild, moderate, and severe plaque psoriasis in adults and atopic dermatitis, also known as eczema, in adults and children two years of age and older, were $128 million for the year ended December 31, 2025, as a result of our acquisition of Dermavant in the fourth quarter of 2024, launch of the atopic dermatitis indication for adults and children two years of age and older in the United States and launch of the topical treatment of plaque psoriasis in adults in Canada in the third quarter of 2025. We anticipate launching Vtama in certain international markets in 2026 and beyond.
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Other
Year Ended December 31,
% Change
% Change Excluding Foreign Exchange
% Change
% Change Excluding Foreign Exchange
($ in millions)
Emgality
* Calculation not meaningful.
Sales of Emgality, a medicine for the preventive treatment of migraine, increased 63% for the year ended December 31, 2025, compared to 2024, as a result of our acquisition of the distribution and promotion rights from Lilly in 2024 in certain markets outside of the United States.
Gross Profit, Expenses and Other
Year Ended December 31,
% Change
($ in millions)
Cost of sales
Gross profit
Selling, general and administrative
Research and development
Acquired in-process research and development and milestones
Goodwill impairment
Restructuring costs
Interest expense
Exchange losses
Other (income) expense, net
* Calculation not meaningful.
Cost of Sales
Cost of sales increased 8% for the year ended December 31, 2025, compared to 2024. Cost of sales for the year ended December 31, 2025, includes amortization associated with the inventory fair value adjustment related to the Dermavant acquisition of $49 million, an impairment charge related to a currently marketed women’s health product of $9 million, estimated unavoidable losses associated with a long-term vendor supply contract of $7 million and amortization of intangible assets of $205 million. Cost of sales for the year ended December 31, 2024 includes amortization of intangible assets of $145 million. In addition, the year ended December 31, 2025 was impacted by increased costs to optimize our manufacturing and supply network. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity” for further information. Separation costs associated with manufacturing-related headcount reductions during 2025 have been incurred and are reflected in Restructuring costs.
Gross Profit
Gross profit decreased 11% for the year ended December 31, 2025, compared to 2024, due to increased costs to optimize our manufacturing and supply network, the impact of unfavorable pricing, volume and product mix, partially offset by foreign exchange.
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Selling, General and Administrative
Selling, general and administrative expenses decreased 2% for the year ended December 31, 2025, compared to 2024, due to lower costs related to the prior year implementation of our Enterprise Resource Planning (“ERP”) system and lower headcount related expenses, offset by increased costs associated with the promotion of our recently acquired products and Nexplanon and an increase in reserves for legal settlements.
Research and Development
Research and development expenses decreased 22% for the year ended December 31, 2025, compared to 2024, primarily due to a decrease in headcount related expenses and a decrease in clinical study activity. During 2025, we discontinued the clinical development programs for investigational candidates OG-6219 and OG-7191.
Acquired In-Process Research and Development and Milestones
For the year ended December 31, 2025, we recognized $6 million in acquired in-process research and development and milestones, related to the exit of our agreement with Centergene, due to the evolving fertility landscape in China. For the year ended December 31, 2024, acquired in-process research and development and milestones of $81 million primarily represented the research and development milestones of $70 million for our agreement with Henlius and $10 million for our agreement with Cirqle, which were determined to be probable of being achieved.
Goodwill impairment
For the year ended December 31, 2025, we recognized a $301 million impairment of goodwill which represents the amount by which the carrying value of goodwill exceeded its implied fair value. The goodwill impairment resulted from the decline of the Company’s patent protected products in the U.S. in the fourth quarter for 2025 that it is expected to result in a continuing impact on the products’ future forecast. The goodwill impairment recorded reflects continued pressure on the U.S. reporting unit resulting from lower-than-expected financial performance primarily from our patent-protected products, revised forward-looking projections, adverse geopolitical development market conditions, and uncertainty in the macroeconomic environment. As a result, the U.S. reporting unit is more susceptible to future impairment than the International reporting unit. See Note 11 “Intangibles and Goodwill” to the Consolidated Financial Statements for information on the impairment.
Restructuring Costs
For the year ended December 31, 2025, we incurred restructuring costs of $95 million comprised primarily of headcount-related restructuring expense associated with restructuring initiatives that were aimed at driving operational efficiencies in 2025. For the year ended December 31, 2024, we incurred restructuring costs of $31 million, comprised of headcount-related restructuring expense related to the optimization of our internal operations, primarily within the research and development function.
Interest Expense
Interest expense decreased 3% for the year ended December 31, 2025, compared to 2024, and reflects lower interest rates as a result of refinancing a portion of our long-term debt in the prior year and the repurchase and cancellation of approximately $419 million of the 2031 Notes during the second and fourth quarters of 2025 combined with lower reference rates on our variable rate debt, offset by interest related to the debt acquired as part of the Dermavant acquisition and previously unamortized debt issuance fees of approximately $3 million associated with the repurchase and cancellation of approximately $419 million of the 2031 Notes.
Exchange Losses
Exchange losses decreased 46% for the year ended December 31, 2025, compared to 2024, primarily due to favorable movements in certain foreign currencies relative to the U.S. dollar.
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Other (Income) Expense, net
Other (income) expense, net was impacted for the year ended December 31, 2025, by a $69 million pre-tax gain related to the repurchase and cancellation of approximately $419 million of the 2031 Notes and the repayment and termination of the NovaQuest Funding Agreement and the fair value adjustments and $50 million related to the accretion of the Dermavant acquisition contingent consideration, related to changes in the timing of expected commercial milestones based on updated sales forecasts. See Note 12 “Long-Term Debt, Short-Term Borrowings and Leases” to the Consolidated Financial Statements for further details on the repurchase of the 2031 Notes and the NovaQuest Funding Agreement.
Taxes on Income
The effective income tax rates were 56.0% and (7.1)% for the year ended December 31, 2025 and 2024, respectively. These effective income tax rates reflect the beneficial impact of foreign earnings, offset by the impact of U.S. inclusions under the Global Intangible Low-Taxed Income regime and a valuation allowance recorded against non-deductible U.S. interest expense. The 2025 effective tax rate was driven higher by a non-deductible goodwill impairment and an investment basis difference on the sale of the Jada System, offset by the favorable impact of a tax amortization benefit. The favorable impact to the 2024 effective tax rate was driven by the reversal of a valuation allowance, the favorable closure of two non-U.S. tax audits and a return to provision adjustment for an entity in Switzerland.
The OBBBA includes significant corporate tax provisions such as modifications to interest deductibility, the option to fully expense U.S.-based research and development costs, and changes to the taxation of foreign earnings. For 2025, any impact of the OBBBA is immaterial. For 2026 and beyond, we are evaluating the impacts of the OBBBA on our U.S. cash tax liability and income tax provision.
Liquidity and Capital Resources
As of December 31, 2025, we had cash and cash equivalents of $574 million. We have historically generated and expect to continue to generate positive cash flow from operations.
Working capital is defined as current assets less current liabilities and was $1.96 billion and $1.63 billion as of December 31, 2025 and December 31, 2024, respectively. Working capital was positively impacted by our active cash cycle management, which includes the factoring of receivables and timing of vendor payments; milestone payments; net repayments of debt; and increased inventory associated with the acquisition of the Oss Biotech Site in July 2025.
We have accounts receivable factoring agreements with financial institutions in certain countries. Under these agreements, we have factored $217 million and $186 million of our accounts receivable as of December 31, 2025 and December 31, 2024, respectively. See Note 13 “Financial Instruments” to the Consolidated Financial Statements for information on our accounts receivable factoring and related agreements.
Net cash provided by operating activities was $700 million for the year ended December 31, 2025, compared to $939 million for the same period in the prior year due to lower operating income, partially offset by our active cash cycle management.
Net cash used in investing activities was $390 million for the year ended December 31, 2025, compared to $513 million for the same period in the prior year, primarily due to decreased milestone payments and capital spending.
Net cash used in financing activities was $561 million for the year ended December 31, 2025, compared with $368 million for the same period in the prior year, primarily driven by the repurchase and cancellation of $419 million of the 2031 Notes and the payment and termination of the NovaQuest Funding Agreement, partially offset by borrowings on our Revolving Credit Facility, decreased dividend payments in the current year and no debt issuance costs compared to the prior period.
As part of our post-spinoff plan to further optimize our manufacturing and supply network, we will continue to separate our supply chain through planned exits from supply agreements with Merck through 2031. This will enable us to redefine our appropriate sourcing strategy, and move to fit-for-purpose supply chains, while focusing on delivering efficiencies. We anticipate continuing to incur costs associated with this separation, including but not limited to accelerated depreciation, exit premiums and fees, technology transfer costs, stability and qualification batch costs, one-time resourcing costs, regulatory and filing costs, capital investment, and inventory stock bridges.
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Contractual Obligations
Our contractual obligations as of December 31, 2025, which require material cash requirements in the future, consist of contractual milestones, purchase obligations and lease obligations.
Contractual milestones are potential payments based upon the achievement of specified milestones associated with business development transactions. Such milestone payments will only be payable in the event that our collaborative partners achieve contractually defined success-based milestones such as the advancement of the specified research and development programs or the receipt of regulatory approval for the specified compounds or products and/or we reach a sales threshold of the specified compounds or products. The timing of the payments of the contractual milestones are uncertain and the likelihood of achieving the milestones cannot be determined. As of December 31, 2025, total potential payments for contractual milestones are $2.2 billion. Potential amounts to be paid within the next twelve months are $75 million.
Purchase obligations are enforceable and legally binding obligations for purchases of goods and services which include inventory purchase commitments. As of December 31, 2025, total payments due for purchase obligations are $1.1 billion and extend through 2033. Amounts due within the next twelve months are $298 million.
Our ability to fund our operations and anticipated capital needs is reliant upon the generation of cash from operations, supplemented as necessary by periodic utilization of our revolving credit facility. Our principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures, repayment of borrowings, strategic business development transactions and the payment of dividends. We believe that our financing arrangements, future cash from operations, and access to capital markets will provide adequate resources to fund our future cash flow needs. Our ability to raise new capital or refinance our debt, will depend on the capital markets and our financial condition at such times.
Long-term debt consists of both fixed and variable-rate instruments. As of December 31, 2025, total payments due for debt obligations are $8.7 billion and extend through 2034. Amounts due within the next twelve months are $10 million. Approximately $3.6 billion of notes are scheduled to mature in 2028.
Lease obligations exclude reasonably certain lease renewals that have not yet been executed. As of December 31, 2025, total payments due for lease obligations are $176 million and extend through 2041. Amounts due within the next twelve months are $47 million.
During 2025, we paid cash dividends of $0.34 per share. On February 12, 2026, our Board of Directors declared a quarterly dividend of $0.02 for each issued and outstanding share of our common stock. The dividend is payable on March 12, 2026, to stockholders of record at the close of business on February 23, 2026.
We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such transactions, if any, may be material, and will depend upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
Critical Accounting Estimates
The audited annual consolidated financial statements are prepared in conformity with U.S. GAAP and, accordingly, include certain amounts that are based on management’s best estimates and judgments. A discussion of accounting estimates considered critical because of the potential for a significant impact on the Consolidated Financial Statements due to the inherent uncertainty in such estimates are disclosed below. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates.
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Revenue Recognition
Our accounting policy for revenue recognition has a substantial impact on reported results and relies on certain estimates. Revenue is recognized following a five-step model: (i) identify the customer contract; (ii) identify the contract’s performance obligation; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation; and (v) recognize revenue when or as a performance obligation is satisfied. Revenue is reduced for gross-to-net sales adjustments discussed below, all of which involve significant estimates and judgment after considering applicable laws and regulations and definitive contractual agreements with private sector and public sector benefit providers. These types of variable consideration are estimated at the time of sale generally using the expected value method, although the most likely amount method is used for prompt pay discounts. In addition, revenues are recorded net of time value of money discounts if collection of accounts receivable is expected to be in excess of one year. Estimates are assessed each period and adjusted as required to revise information or actual experience.
In the United States, revenue is reduced by sales discounts issued to customers at the point-of-sale, through an intermediary wholesaler (known as chargebacks), or in the form of rebate amounts owed based upon definitive contractual agreements or legal requirements with private sector (Managed Care) and public sector (Medicaid and Medicare Part D) customers. Additionally, sales are generally made with a limited right of return under certain conditions.
The provision for aggregate customer discounts in the United States covers chargebacks and rebates. We determine the provision for chargebacks based on expected sell-through levels by our wholesale customers to contracted customers, as well as estimated wholesaler inventory levels. The provision for rebates is based on expected patient usage, as well as inventory levels in the distribution channel to determine the contractual obligation to the benefit providers. We use historical customer segment utilization mix, sales, changes to product mix and price, inventory levels in the distribution channel, government pricing calculations and prior payment history in order to estimate the expected provision. Amounts accrued for aggregate customer discounts are evaluated on a quarterly basis through comparison of information provided by the wholesalers, health maintenance organizations, pharmacy benefit managers, federal and state agencies, and other customers to the amounts accrued.
We continually monitor our provision for aggregate customer discounts. There were no material adjustments to estimates associated with the aggregate customer discount provision in 2025, 2024, or 2023.
Summarized information about changes in the aggregate customer discount accrual related to sales in the United States is as follows:
Year Ended
December 31,
($ in millions)
Balance January 1
Provision
Payments (1)
Balance December 31
(1) The year ended December 31, 2024 includes $48 million of liabilities assumed as part of the 2024 Dermavant acquisition.
Accruals for chargebacks are reflected as a direct reduction to accounts receivable and accruals for rebates as current liabilities. The accrued balances relative to these provisions included in accounts receivable and accrued and other current liabilities were $111 million and $412 million, respectively, at December 31, 2025, and $100 million and $380 million, respectively, at December 31, 2024.
Outside of the United States, variable consideration in the form of discounts and rebates is a combination of commercially-driven discounts in highly competitive product classes, discounts required to gain or maintain reimbursement, or legislatively mandated rebates. In certain European countries, legislatively mandated rebates are calculated based on an estimate of the government’s total unbudgeted spending and our specific payback obligation. Rebates may also be required based on specific product sales thresholds. We apply an estimated factor against our actual invoiced sales to represent the expected level of future discount or rebate obligations associated with the sale.
We maintain a returns policy that allows our customers in certain countries to return product within a specified period prior to and subsequent to the expiration date (generally, three to six months before and 12 months after product expiration). The estimate of the provision for returns is based upon historical experience with actual returns. Additionally, we consider factors such as levels of inventory in the distribution channel, product dating and expiration period, whether products have been
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discontinued, entrance in the market of generic competition, changes in formularies or launch of over-the-counter products, among others.
See Note 2 “Summary of Accounting Policies” to the Consolidated Financial Statements included in this 2025 Form 10-K for additional details on our revenue recognition policy.
Contingencies and Environmental Liabilities
We are involved in various claims and legal proceedings of a nature considered normal to our business, including product liability, intellectual property, and commercial litigation, as well as certain additional matters including governmental and environmental matters. See Note 18 “Contingencies” to the Consolidated Financial Statements included in this 2025 Form 10-K. We record accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.
We believe that there are no compliance issues associated with applicable environmental laws and regulations that would have a material adverse effect on us. Expenditures for remediation and environmental liabilities were $2 million in 2025, and are estimated at $14 million in the aggregate for the years 2026 through 2030. Liabilities for all environmental matters that are probable and reasonably estimable have been accrued and totaled $16 million and $16 million at December 31, 2025 and 2024, respectively. These liabilities are undiscounted, do not consider potential recoveries from other parties and will be paid out over the periods of remediation for the applicable sites, which are expected to occur primarily over the next 12 years. Although it is not possible to predict with certainty the outcome of these matters, or the ultimate costs of remediation, we do not believe that any reasonably possible expenditures that may be incurred in excess of the liabilities accrued should exceed $26 million in the aggregate. We also do not believe that these expenditures should result in a material adverse effect on our financial condition, results of operations or liquidity for any year.
Impairments of Long-Lived Assets, Goodwill and Indefinite-Lived Assets
We assess changes in economic, regulatory and legal conditions and make assumptions regarding estimated future cash flows in evaluating the value of our property, plant and equipment, goodwill and intangible assets. The judgments made in evaluating impairment of long-lived intangibles, goodwill and indefinite-lived intangibles such as in-process research and development (“IPR&D”) can materially affect our results of operations.
We periodically evaluate whether current facts or circumstances indicate that the carrying values of our long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of the undiscounted future cash flows of these assets, or appropriate asset groupings, is compared to the carrying value to determine whether an impairment exists. If the asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. If quoted market prices are not available, we estimate fair value using a discounted value of estimated future cash flows approach.
Long-lived intangibles are initially recorded at fair value, assigned an estimated useful life, and amortized primarily on a straight-line basis over their estimated useful lives. When events or circumstances warrant a review, we will assess recoverability from future operations using pretax undiscounted cash flows derived from the lowest appropriate asset groupings. Potential risks leading to impairment could include LOE occurring earlier than expected, competition, pricing reductions, and other macroeconomic changes. Impairments are recognized in operating results to the extent that the carrying value of the intangible asset exceeds its fair value, which is determined based on the net present value of estimated future cash flows. We recorded an impairment charge related to a currently marketed women’s health product of $9 million for the year ended December 31, 2025. We did not have impairment charges for the years ended December 31, 2024 and 2023. See Note 11 “Intangibles and Goodwill” to the Consolidated Financial Statements included in this 2025 Form 10-K for additional details on intangibles.
Goodwill and indefinite-lived intangibles are evaluated for impairment each year in the fourth quarter, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that fair value is less than carrying value.
Goodwill represents the excess of the consideration transferred over the fair value of net assets of businesses acquired. Some of the factors considered in the assessment include general macroeconomic conditions, conditions specific to the industry and
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market, cost factors which could have a significant effect on earnings or cash flows, and overall financial performance. If we conclude it is more likely than not that fair value is less than carrying value, a quantitative fair value test is performed. If carrying value is greater than fair value, a goodwill impairment charge will be recorded for the difference (up to the carrying value of goodwill).
Our quantitative goodwill impairment analysis relies on projected cash flows and market assumptions. Key assumptions used in projected cash flows include projected revenue growth rates, operating margins, terminal growth rates, and discount rates. These assumptions require significant judgment and are based on our best estimates of future economic and market conditions. A significant decline in forecasted performance, whether due to external economic factors or internal operational challenges, could result in the fair value of either the U.S. or International reporting unit falling below its carrying amount. In such cases, we would be required to recognize a non-cash impairment charge, which could materially impact our financial condition and results of operations. Additionally, we may be required to record impairment charges on goodwill related to a reporting unit if adverse macroeconomic or geopolitical developments materially affect our business outlook. These developments may include, but are not limited to, the implementation of tariffs, changes in trade policies, inflationary pressures, supply chain disruptions, or regulatory changes that reduce forecasts or increase operating costs.
Indefinite-lived intangibles acquired in conjunction with the acquisition of a business are initially recorded at fair value. We evaluate the indefinite-lived intangibles for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. Some of the factors and indicators considered in the assessment include regulatory and status of clinical testing, commercial and competitive landscape, legal and financial considerations for the indefinite-lived intangibles. If we conclude it is more likely than not that the fair value is less than its carrying amount, a quantitative impairment test is performed. If carrying value is greater than fair value, an impairment charge will be recorded for the difference. We completed the annual impairment test as in the fourth quarter of 2025 and concluded that there was no impairment to indefinite-lived intangibles.
Taxes on Income
Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. We establish valuation allowances for our deferred tax assets when the amount of expected future income is not likely to support the use of the deduction or credit. We evaluate tax positions to determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, we recognize the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement in the Consolidated Financial Statements. For tax positions that are not more likely than not of being sustained upon audit, we do not recognize any portion of the benefit in the Consolidated Financial Statements. We recognize interest and penalties associated with uncertain tax positions as a component of Taxes on Income in the consolidated statement of income.
Inventory Valuation
Inventories consist of currently marketed products and are valued at the lower of cost or net realizable value. Inventories are assessed regularly for impairment and valuation reserves are established when necessary based on a number of factors including, but not limited to, product obsolescence and changes in estimates of future product demand and expiry. The determination of events and the assumptions utilized in our quantification of valuation reserves may require judgment. No material adjustments have been required to our inventory reserve estimates for the periods presented. Adverse changes in assumptions utilized in our inventory reserve calculations could result in an increase to our inventory valuation reserves and higher cost of sales.
Acquisitions
Business combinations are evaluated in order to determine whether transactions should be accounted for as acquisitions of assets or businesses. We make certain judgments, which include assessment of the inputs, processes, and outputs associated with the acquired set of activities. If we determine that substantially all of the fair value of gross assets included in a transaction is concentrated in a single asset (or a group of similar assets), we account for the transaction as an asset acquisition. In an asset acquisition, IPR&D with no alternative future use is charged to expense and contingent consideration is not recognized at the acquisition date. Product development milestones are recognized upon achievement and sales-based milestones are recognized when the milestone is deemed probable of being achieved. No goodwill is recorded in an asset acquisition.
To be considered a business, the assets in a transaction need to include an input and a substantive process that together significantly contribute to the ability to create outputs. Businesses acquired are consolidated upon obtaining control. The fair
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value of assets acquired and liabilities assumed are recognized at the date of acquisition. Assets acquired and liabilities assumed in a business combination that arise from contingencies are generally recognized at fair value. If fair value cannot be determined, the asset or liability is recognized if probable and reasonably estimable; if these criteria are not met, no asset or liability is recognized. Any excess of the purchase price over the estimated fair values of the net assets acquired is recognized as goodwill. Business acquisition costs are expensed when incurred.
The fair values of identifiable intangible assets related to currently marketed products are primarily determined by using an income approach through which fair value is estimated based on each asset’s discounted projected net cash flows. Our estimates of market participant net cash flows consider historical and projected pricing, margins and expense levels; the performance of competing products and the current and expected competition environment where applicable; relevant industry and product growth drivers and factors; product life cycles; the ability to obtain additional marketing and regulatory approvals; the ability to manufacture and commercialize the products; and the life of each asset’s underlying patent and related patent term extension, if any. The net cash flows are then discounted to present value utilizing an appropriate discount rate.
The fair values of identifiable intangible assets related to IPR&D are also determined using an income approach, through which fair value is estimated based on each asset’s probability-adjusted future net cash flows, which reflect the different stages of development of each product and the associated probability of successful completion. The net cash flows are then discounted to present value using an appropriate discount rate. Amounts allocated to acquired IPR&D are capitalized and accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each IPR&D project, we will make a determination as to the then-useful life of the intangible asset, generally determined by the period in which the substantial majority of the cash flows are expected to be generated and begin amortization.
Certain of our business combinations involve the potential for future payment of consideration that is contingent upon the achievement of performance milestones, including product development milestones and royalty payments on future product sales. The fair value of contingent consideration liabilities is determined at the acquisition date using unobservable inputs. These inputs include the estimated amount and timing of projected cash flows, the probability of success (achievement of the contingent event) and the risk-adjusted discount rate used to present value the probability-weighted cash flows. Subsequent to the acquisition date, at each reporting period until the contingency is resolved, the contingent consideration liability is remeasured at current fair value with changes (either expense or income) recorded in earnings in Other expense, net. Changes in any of the inputs may result in a significantly different fair value adjustment.
Pension
Our pension plans are calculated using actuarial assumptions including a discount rate for plan benefit obligations and an expected rate of return on plan assets. These significant assumptions are reviewed annually and are disclosed in Note 14 “Pension and Other Postretirement Benefit Plans” to the Consolidated Financial Statements included in this 2025 Form 10-K.
For our pension plans, the discount rate is evaluated on measurement dates to reflect the prevailing market rate of a portfolio of high-quality fixed-income debt instruments that would provide the future cash flows needed to pay the benefits included in the benefit obligation as they come due.
The expected rate of return for the pension plans represents the average rate of return to be earned on plan assets over the period the benefits included in the benefit obligation are to be paid. In developing the expected rate of return, we consider long-term compound annualized returns of historical market data, current market conditions and actual returns on our plan assets. Using this reference information, we develop forward-looking return expectations for each asset category and a weighted-average expected long-term rate of return for a target portfolio allocated across these investment categories. The expected portfolio performance reflects the contribution of active management as appropriate.
Stock-Based Compensation
We expense all stock-based payment awards to employees, including grants of stock options, over the requisite service period based on the grant date fair value of the awards. The fair value of certain stock-based awards is determined using the Black-Scholes option-pricing model which uses both historical and current market data to estimate the fair value. This method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the options.
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Recently Issued Accounting Standards
For a discussion of recently issued accounting standards, see Note 2 “Summary of Accounting Policies” to the Consolidated Financial Statements included in this 2025 Form 10-K.
