Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following section of this Form 10-K generally discusses 2025 and 2024 results and year-to-year comparisons between 2025 and 2024. Discussion of 2023 results and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed on February 25, 2025 .
Description of Merck’s Business
Merck & Co., Inc. (Merck or the Company) is a global health care company that delivers innovative health solutions through its prescription medicines, including biologic therapies, vaccines and animal health products. The Company’s operations are principally managed on a product basis and include two operating segments, Pharmaceutical and Animal Health, both of which are reportable segments.
The Pharmaceutical segment includes human health pharmaceutical and vaccine products. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies, and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Human health vaccine products consist of preventive pediatric, adolescent and adult vaccines. The Company sells these human health vaccines primarily to physicians, wholesalers, distributors and government entities.
The Animal Health segment discovers, develops, manufactures and markets a wide range of veterinary pharmaceutical and vaccine products, as well as health management solutions and services, for the prevention, treatment and control of disease in all major livestock and companion animal species. The Company also offers an extensive suite of digitally connected identification, traceability and monitoring products. The Company sells its products to veterinarians, distributors, animal producers, farmers and pet owners.
Overview
Financial Highlights
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Sales
Net Income Attributable to Merck & Co., Inc.:
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Non-GAAP (1)
Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders:
GAAP
Non-GAAP (1)
(1) Non-GAAP net income and non-GAAP earnings per share (EPS) exclude acquisition- and divestiture-related costs, restructuring costs, income and losses from investments in equity securities, and certain other items from Merck’s results prepared in accordance with generally accepted accounting principles in the U.S. (GAAP). For further discussion and a reconciliation of GAAP to non-GAAP net income and EPS, see “Non-GAAP Income and Non-GAAP EPS” below .
Executive Summary
In 2025, Merck successfully advanced its science-led strategy through new product approvals and launches, strong clinical execution, important data readouts, and the addition of novel innovation through business development efforts. The Company also continued to return capital to shareholders, primarily through dividends.
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Worldwide sales were $65.0 billion in 2025, an increase of 1% compared with 2024, or 2% excluding the unfavorable effect of foreign exchange. The sales increase was primarily due to growth in oncology, cardiometabolic and respiratory, diabetes, and animal health, largely offset by declines in vaccines, immunology (as Merck’s marketing rights to these products ended in 2024), and virology (driven largely by lower sales of COVID-19 medication Lagevrio ).
Merck continues to execute science-led business development transactions to augment its robust internal pipeline and portfolio with compelling external science focused on delivering innovation to patients, long-term growth, and value creation to shareholders. Highlights of 2025 activity include the following:
• Entered into an agreement to acquire Cidara Therapeutics, Inc. (Cidara), a biotechnology company developing drug-Fc conjugate therapeutics, including a long-acting antiviral designed to prevent seasonal and pandemic influenza; this transaction closed in January 2026.
• Acquired Verona Pharma plc (Verona Pharma), a biopharmaceutical company focused on respiratory diseases, through which Merck obtained Ohtuvayre, a product approved for the maintenance treatment of chronic obstructive pulmonary disease (COPD).
• Closed an exclusive license agreement for MK-7262 (HRS-5346), an investigational oral small molecule Lipoprotein(a) inhibitor from Jiangsu Hengrui Pharmaceuticals Co., Ltd. (Hengrui Pharma).
• Closed an agreement with Dr. Falk Pharma GmbH (Falk) to acquire sole global rights to MK-8690, an investigational anti-CD30 ligand monoclonal antibody.
During 2025, Merck continued its efforts to address unmet medical needs by launching Enflonsia in the U.S. for the prevention of respiratory syncytial virus (RSV) lower respiratory tract disease in neonates (newborns) and infants born during or entering their first RSV season. Also in 2025, the Company launched Keytruda Qlex , which was approved by the U.S. Food and Drug Administration (FDA) for subcutaneous administration across all solid tumor indications for Keytruda in the U.S., and the European Commission (EC) approved a new subcutaneous (SC) route of administration and a new pharmaceutical form (solution for injection) of Keytruda (to be marketed as Keytruda SC ) for use across all Keytruda indications for adult patients in Europe. Additionally, in pulmonary arterial hypertension (PAH), the Company launched an expanded indication for Winrevair in the U.S. based on the results of the ZENITH trial.
The Company also received numerous other approvals in oncology. Keytruda received approvals for additional indications in certain markets, including in combination with chemotherapy in the therapeutic areas of gastric or gastroesophageal junction (GEJ) adenocarcinoma and malignant pleural mesothelioma, in combination with Padcev (enfortumab vedotin) for locally advanced or metastatic urothelial carcinoma and for cisplatin-ineligible muscle-invasive bladder cancer (MIBC), as well as in combination with radiotherapy with or without chemotherapy for head and neck squamous cell carcinoma (HNSCC). Additionally, in 2025, Welireg was approved in the European Union (EU) and Japan for the treatment of adult patients with certain von Hippel-Lindau (VHL) disease-associated tumors and certain adult patients with renal cell carcinoma (RCC), as well as in the U.S. for certain adult and pediatric patients with pheochromocytoma and paraganglioma.
In addition to the regulatory approvals discussed above, the Company advanced its late-stage pipeline with several regulatory submissions.
• MK-8591A, doravirine/islatravir, is an investigational, once-daily, oral two-drug regimen for adults with HIV-1 infection that is virologically suppressed on antiretroviral therapy under review by the FDA. MK-8591A is also under review in Japan.
• MK-1654, Enflonsia , a prophylactic long-acting monoclonal antibody designed to protect infants from RSV disease during their first RSV season, is under review in the EU and Japan.
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• MK-7962, Winrevair , an activin signaling inhibitor for the treatment of adults with PAH (World Health Organization [WHO] Group 1 pulmonary hypertension), is under review by the FDA in connection with a proposed update to the U.S. product label based on the results of the HYPERION trial.
• MK-3475, Keytruda (pembrolizumab), is an anti-PD-1 (programmed death receptor-1) therapy available for intravenous administration. MK-3475A, Keytruda Qlex , combines pembrolizumab with berahyaluronidase alfa to enhance dispersion and permeability to enable subcutaneous administration. Keytruda and Keytruda Qlex each are approved for the treatment of many cancers and continue to be studied in additional Phase 3 trials.
◦ Keytruda is under review in the EU and Japan in combination with chemotherapy with or without bevacizumab for the treatment of certain patients with platinum-resistant recurrent ovarian cancer.
◦ Keytruda is also under review in the EU and Japan in combination with Pfizer, Inc.’s (Pfizer) and Astellas’ Padcev as neoadjuvant treatment, then continued after radical cystectomy as adjuvant treatment, for patients with MIBC who are ineligible for cisplatin-based chemotherapy.
◦ Keytruda and Keytruda Qlex are under review by the FDA in combination with Gilead Sciences Inc.’s (Gilead) sacituzumab govitecan (Trodelvy) for the first-line treatment of certain patients with unresectable locally advanced or metastatic triple-negative breast cancer (TNBC) whose tumors express programmed death-ligand 1 (PD‑L1).
• MK-6482, Welireg, is Merck’s first-in-class oral hypoxia-inducible factor-2 alpha (HIF-2α) inhibitor.
◦ Welireg , in combination with Keytruda or Keytruda Qlex , is under priority review by the FDA for the adjuvant treatment of certain patients with clear cell RCC following nephrectomy.
◦ Welireg , in combination with MK-7902, Lenvima, an orally available multiple receptor tyrosine kinase inhibitor (TKI), is under review by the FDA for the treatment of certain patients with advanced RCC following previous treatment with a PD-1 or PD-L1 inhibitor. Lenvima is being developed as part of a collaboration with Eisai Co., Ltd. (Eisai).
In 2025, the Company announced positive late-stage results from 18 Phase 3 trials and initiated 21 new Phase 3 trials spanning cardiometabolic and respiratory, immunology, infectious diseases, oncology and ophthalmology. The Company now has approximately 80 Phase 3 studies underway. The Company is diversifying its oncology portfolio and executing on its strategy which is broadly based on three strategic pillars: immuno-oncology, precision molecular targeting and tissue targeting. Merck has numerous Phase 3 oncology programs within these pillars.
Immuno-oncology
• V940 (mRNA-4157), intismeran autogene, is an investigational individualized neoantigen therapy being evaluated in combination with Keytruda for the adjuvant portion of treatment in patients with certain types of melanoma and non-small cell lung cancer (NSCLC). Intismeran autogene is being developed as part of a collaboration with Moderna, Inc. (Moderna).
• MK-1308A is the coformulation of quavonlimab, Merck’s novel investigational anti-cytotoxic T-lymphocyte associated protein 4 (CTLA-4) antibody, in combination with pembrolizumab, being evaluated for the treatment of RCC.
Precision molecular targeting
• MK-1026, nemtabrutinib, is an investigational oral, reversible, non-covalent Bruton’s tyrosine kinase (BTK) inhibitor, being evaluated for the treatment of hematological malignancies, including chronic lymphocytic leukemia and small lymphocytic lymphoma.
• MK-1084, calderasib, is an investigational oral selective KRAS G12C inhibitor being evaluated with or without Keytruda or Keytruda Qlex for the treatment of certain patients with colorectal and non-small cell lung cancers. Calderasib is being developed as part of a collaboration with Taiho Pharmaceutical Co. Ltd. and Astex Pharmaceuticals (UK), a wholly owned subsidiary of Otsuka Pharmaceutical Co., Ltd.
• MK-3543, bomedemstat, is an investigational orally available lysine-specific demethylase 1 inhibitor being evaluated for the treatment of certain patients with essential thrombocythemia.
• MK-5684, opevesostat, is an investigational cytochrome P450 11A1 (CYP11A1) inhibitor being evaluated for the treatment of certain patients with metastatic castration-resistant prostate cancer.
• MK-6482, Welireg , is being developed for expanded indications in RCC in combination with Keytruda and Lenvima, and in other combinations.
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• MK-7339, Lynparza, is an oral poly (ADP-ribose) polymerase (PARP) inhibitor being evaluated in combination with Keytruda for expanded indications in the therapeutic areas of non-small cell lung and small cell lung cancers. Lynparza is being developed as part of a collaboration with AstraZeneca PLC (AstraZeneca).
Tissue targeting
• MK-1022, patritumab deruxtecan, is an investigational human epidermal growth factor receptor 3 (HER3) directed antibody drug conjugate (ADC) being evaluated in certain patients with breast cancer. Patritumab deruxtecan is being developed as part of a collaboration with Daiichi Sankyo.
• MK-2140, zilovertamab vedotin, is an investigational ADC targeting receptor tyrosine kinase-like orphan receptor 1 (ROR1) being evaluated for the treatment of hematological malignancies, including diffuse large B cell lymphoma.
• MK-2400, ifinatamab deruxtecan, is an investigational B7-H3 directed ADC being evaluated in certain patients with esophageal, prostate, and small cell lung cancers. Ifinatamab deruxtecan is being developed as part of a collaboration with Daiichi Sankyo.
• MK-2870, sacituzumab tirumotecan, is an investigational trophoblast cell-surface antigen 2 (TROP2)-directed ADC being evaluated for certain patients with breast, cervical, endometrial, gastric, non-small cell lung, and ovarian cancers. Sacituzumab tirumotecan is being developed as part of a collaboration with Kelun-Biotech.
• MK-5909, raludotatug deruxtecan, is an investigational CDH6 targeting ADC being evaluated in patients with platinum resistant ovarian cancer. Raludotatug deruxtecan is being developed as part of a collaboration with Daiichi Sankyo.
Additionally, the Company currently has candidates in Phase 3 clinical development in several other therapeutic areas.
• MK-0616, enlicitide decanoate, is an investigational oral proprotein convertase subtilisin/kexin type 9 (PCSK9) inhibitor being evaluated for the treatment of hypercholesterolemia, including in studies evaluating low-density lipoprotein cholesterol reduction and a cardiovascular outcomes study.
• V181 is an investigational quadrivalent vaccine for the prevention of dengue disease caused by any of the four dengue virus serotypes (DENV-1, DENV-2, DENV-3, and DENV-4), regardless of prior dengue exposure.
• MK-3000 is an investigational, potentially first-in-class tetravalent, tri-specific antibody that acts as an agonist of the Wingless-related integration site signaling pathway, which is in clinical development for the treatment of diabetic macular edema.
• MK-8591D is an investigational once-weekly, oral combination of Merck’s islatravir, a nucleoside analog leveraging translocation inhibition, and Gilead’s lenacapavir being evaluated for the treatment of HIV-1 infection in virologically suppressed adults (which remains under a partial clinical hold for any studies that would use islatravir doses higher than the doses considered for the revised clinical programs).
• MK-8527 is an investigational once-monthly, oral nucleoside analog leveraging translocation inhibition, for HIV-1 pre-exposure prophylaxis (PrEP).
• MK-1406 (formerly CD388) is an investigational small molecule neuraminidase inhibitor stably conjugated to a proprietary Fc fragment of a human antibody designed to prevent seasonal and pandemic influenza. MK-1406 was obtained in connection with the January 2026 acquisition of Cidara.
• MK-7240, tulisokibart, is an investigational humanized monoclonal antibody directed to tumor necrosis factor-like ligand 1A, a central amplifier of inflammatory pathways and fibrotic mechanisms in inflammatory bowel disease, being evaluated for the treatment of Crohn’s disease and ulcerative colitis.
• MK-4482, Lagevrio , is an investigational oral antiviral medicine for the treatment of mild to moderate COVID-19 in adults who are at risk for progressing to severe disease, which is reflected in Phase 3 development in the U.S. as it remains investigational following FDA Emergency Use Authorization (EUA) in 2021. Merck is developing Lagevrio as part of a collaboration with Ridgeback Biotherapeutics LP (Ridgeback).
Merck’s capital allocation strategy continues to prioritize investments in its business to drive near- and long-term growth, including investing in the Company’s key growth drivers and its broad and diverse pipeline of novel candidates, enabled in part by the benefits of the Company’s multiyear optimization initiative. Research and development expenses in 2025 reflect increased development spending particularly in the therapeutic areas of ophthalmology, oncology and immunology. In addition, Merck remains committed to its dividend and will continue to
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pursue the most compelling external science and technologies through value-enhancing business development transactions.
In November 2025, Merck’s Board of Directors approved an increase to the Company’s quarterly dividend, raising it to $0.85 per share from $0.81 per share on the Company’s outstanding common stock. During 2025, the Company returned $13.3 billion to shareholders through dividends of $8.2 billion and share repurchases of $5.1 billion. In January 2025, Merck’s Board of Directors authorized a new share repurchase program of up to $10 billion of Merck’s common stock for its treasury.
GAAP and non-GAAP EPS were negatively affected in 2025, 2024 and 2023 by $0.20, $1.28, and $6.21, respectively, of per share charges for certain upfront and pre-approval milestone payments related to collaborations and licensing agreements, as well as charges related to pre-approval assets obtained in transactions accounted for as asset acquisitions.
Pricing
Global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide. Changes to the U.S. health care system as part of health care reform, as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, have contributed to pricing pressure.
In 2021, the U.S. Congress passed the American Rescue Plan Act, which included a provision that eliminated the statutory cap on rebates drug manufacturers pay to Medicaid beginning in January 2024. As a result of this provision, the Company paid state Medicaid programs more in rebates than it received on Medicaid sales of Januvia , Janumet and Janumet XR in 2024.
In 2022, the U.S. Congress passed the Inflation Reduction Act (IRA), which made significant changes to how drugs are covered and paid for under the Medicare program, including the creation of financial penalties for drugs whose prices rise faster than the rate of inflation, redesign of the Medicare Part D program to require manufacturers to bear more of the liability for certain drug benefits (which went into effect in 2025), and government price setting for certain Medicare Part D drugs (starting in 2026) and Medicare Part B drugs (starting in 2028). The U.S. Department of Health and Human Services (HHS), through the Centers for Medicare & Medicaid Services (CMS), selected Januvia in 2023 for the first year of the IRA’s “Drug Price Negotiation Program” (Program), and selected Janumet and Janumet XR in 2025 for the second year of the IRA’s Program. Pursuant to the IRA’s Program, the government set a price for Januvia , which became effective on January 1, 2026, and set a price for Janumet and Janumet XR , which will become effective on January 1, 2027. In addition, in January 2026, HHS announced that Lenvima has been selected for government price setting, the set price for which will become effective on January 1, 2028. Furthermore, the Company expects that Keytruda will be selected in 2027 for government price setting, which would become effective on January 1, 2029. Government price setting may also impact pricing in the private market affecting the Company’s performance. The Company has the U.S. government regarding the IRA’s Program (see Note 10 to the consolidated financial statements).
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Additionally, increased utilization of the 340B Federal Drug Discount Program and restrictions on the Company’s ability to identify inappropriate discounts are having a negative impact on Company performance. Furthermore, the Executive Branch and Congress continue to discuss legislation designed to control health care costs, including the cost of drugs. In several international markets, government-mandated pricing actions have reduced prices of generic and patented drugs. In addition, the Company’s sales performance in 2025 was negatively affected by other cost-reduction measures taken by governments and other third parties to lower health care costs.
The Company anticipates all of these actions and additional actions in the future will continue to negatively affect sales and profits.
In May 2025, the U.S. presidential administration issued an executive order intended to encourage or impose the use of “most-favored-nation” pricing to tie U.S. prescription drug prices to prices in selected comparably developed nations. In July 2025, the Company and other pharmaceutical companies received letters from the U.S. presidential administration with a request to agree to the administration’s “most-favored-nation” drug pricing goals by September 29, 2025. Further to the letter received from the administration, in December 2025, the Company announced that it had entered into a three-year agreement (MFN Agreement) with the U.S government that addressed the four policy goals of the administration’s July letter. Included within the MFN Agreement is an obligation by the Company to provide key products through a direct-to-patient program at affordable prices for eligible patients in the U.S. This will initially include Januvia , Janumet and Janumet XR , and will be expanded in the future to include enlicitide decanoate pending FDA approval. The Company also agreed to offer its existing medicines at discounted prices to Medicaid, excluding certain products. The Company has also agreed that products launched during the term of the MFN Agreement (with certain exceptions) will be subject to “most-favored-nation” pricing in reference to prices for such products in a specified group of countries (MFN Countries). Finally, the Company agreed to repatriate and share with the Federal government a portion of foreign revenue received by the Company as a result of the government’s trade policy efforts. Additionally, the Company reached an agreement with the U.S. Department of Commerce to Section 232 tariffs for three years, the Company to make investments in the U.S. to reshore manufacturing for American patients.
Operating Results
Sales
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International
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Worldwide sales were $65.0 billion in 2025, representing growth of 1% compared with 2024, or 2% excluding the unfavorable effect of foreign exchange. Global sales growth was primarily due to higher sales in the oncology franchise, largely due to the performance of Keytruda and Welireg , as well as increased alliance revenue from Koselugo (resulting from an amendment to the collaboration agreement), Reblozyl, and Lynparza. Also contributing to revenue growth in 2025 were higher sales in the cardiometabolic and respiratory franchise, largely attributable to the ongoing launch of Winrevair , as well as the inclusion of Ohtuvayre sales following the October 2025 acquisition of Verona Pharma. Growth in the diabetes franchise largely attributable to higher net pricing of Januvia , and higher sales of animal health products largely due to the performance of livestock products also drove sales growth. Revenue growth in 2025 was largely offset by lower sales in the vaccines franchise primarily due to Gardasil/Gardasil 9, partially offset by the ongoing launch of Capvaxive and the U.S. launch of Enflonsia . Revenue growth in 2025 was also offset by lower sales in the immunology franchise due to the return of the marketing rights for Remicade and Simponi in former Merck territories to Johnson & Johnson on October 1, 2024, and by lower sales in the virology franchise largely attributable to Lagevrio .
Sales in the U.S. grew 13% to $36.5 billion in 2025 primarily driven by higher sales of Keytruda , Winrevair , Capvaxive , Januvia , Bridion , Gardasil 9, Welireg , Janumet , and Prevymis. The inclusion of Ohtuvayre sales, higher alliance revenue from Reblozyl, and higher sales of animal health products also contributed to U.S. revenue growth. U.S. sales growth in 2025 was partially offset by lower sales of Dificid and Lagevrio .
International sales declined 11% in 2025, or 10% excluding the unfavorable effect of foreign exchange. The international sales decline was primarily due to lower sales of Gardasil/Gardasil 9, Simponi, Lagevrio , Januvia , Bridion , Remicade, and Janumet , partially offset by higher sales of Keytruda , Prevymis , Winrevair , increased alliance revenue from Koselugo and Lynparza, as well as higher sales of animal health products . International sales represented 44% and 50% of total sales in 2025 and 2024, respectively.
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See Note 18 to the consolidated financial statements for details on sales of the Company’s products. A discussion of performance for select products in the franchises follows.
Pharmaceutical Segment
Oncology
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Keytruda/Keytruda Qlex
Alliance Revenue - Lynparza (1)
Alliance Revenue - Lenvima (1)
Welireg
Alliance Revenue - Reblozyl (2)
Alliance Revenue - Koselugo (3)
(1) Alliance revenue for Lynparza and Lenvima represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs (see Note 4 to the consolidated financial statements).
(2) Alliance revenue for Reblozyl represents royalties (see Note 4 to the consolidated financial statements).
(3) Alliance revenue for Koselugo in 2025 primarily includes a $150 million upfront payment received and $175 million of regulatory approval milestones recorded in connection with an amendment to the collaboration agreement with AstraZeneca, which revised the payment structure. Alliance revenue in 2024 and 2023 represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs. See Note 4 to the consolidated financial statements for more information.
Keytruda is an anti-PD-1 therapy that has been approved in over 40 indications in the U.S., including 19 tumor types and 2 tumor-agnostic indications, and has similarly been approved in markets worldwide for many of these indications. The Keytruda clinical development program includes studies across a broad range of cancer types.
Keytruda Qlex is a subcutaneously-administered fixed combination of pembrolizumab and berahyaluronidase alfa, which enhances dispersion and permeability to enable subcutaneous administration of pembrolizumab. Keytruda Qlex , which was initially approved by the FDA in September 2025, is approved in the U.S. in solid tumor indications approved for Keytruda . In November 2025, the EC approved a new subcutaneous (SC) route of administration and a new pharmaceutical form (solution for injection) of Keytruda (to be marketed as Keytruda SC ) for use across Keytruda indications for adults in Europe. Timing for commercial availability of Keytruda SC in individual EU countries will depend on multiple factors, including the completion of national reimbursement procedures and the outcome of litigation with Halozyme, Inc. as discussed in Note 10 to the consolidated financial statements.
Combined global sales of Keytruda/Keytruda Qlex grew 7% in 2025. Sales growth in the U.S. reflects higher demand and net pricing, partially offset by a negative impact due to the timing of purchases. Increased demand in the U.S. was driven by higher utilization across earlier-stage indications, including in certain types of cervical cancer, TNBC, NSCLC, RCC, and HNSCC, as well as higher demand across multiple approved metastatic indications, in particular for the treatment of certain types of urothelial and endometrial cancers. Sales growth in international markets reflects increased uptake predominately for the TNBC, NSCLC, and RCC earlier-stage indications, as well as higher demand in urothelial, gastric, cervical, and endometrial cancer metastatic indications. The 2025 launch and reimbursement of new indications for Keytruda in the EU had a negative impact on pricing in those markets. In addition, a biosimilar of Keytruda has launched in Argentina.
Summarized below are the Keytruda regulatory approvals received in 2025 and, to date, in 2026.
Date
Approval
January 2025
China’s National Medical Products Administration (NMPA) approval in combination with enfortumab vedotin, an antibody-drug conjugate, for the treatment of adults with locally advanced or metastatic urothelial carcinoma, based on the KEYNOTE-A39 trial that was conducted in collaboration with Seagen (now Pfizer) and Astellas.
April 2025
EC approval in combination with pemetrexed and platinum chemotherapy for the first-line treatment of adult patients with unresectable non epithelioid malignant pleural mesothelioma, based on the IND.227/KEYNOTE-483 trial.
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May 2025
Japan’s Ministry of Health, Labor and Welfare (MHLW) approval in combination with trastuzumab and chemotherapy for the first-line treatment of patients with unresectable, advanced or recurrent human epidermal growth factor receptor 2 (HER2) positive gastric or GEJ adenocarcinoma, based on the KEYNOTE-811 trial.
May 2025
Japan’s MHLW approval in combination with pemetrexed and platinum chemotherapy for unresectable, advanced or recurrent metastatic malignant pleural mesothelioma, based on the IND.227/KEYNOTE-483 trial.
June 2025
FDA approval for the treatment of adult patients with resectable locally advanced HNSCC whose tumors express PD-L1 Combined Positive Score (CPS) ≥ 1 as determined by an FDA-approved test, as a single agent as neoadjuvant treatment, continued as adjuvant treatment in combination with radiotherapy with or without cisplatin and then as a single agent, based on the KEYNOTE-689 trial.
June 2025
China’s NMPA approval of Keytruda plus Lenvima in combination with transarterial chemoembolization for the treatment of patients with unresectable, non-metastatic hepatocellular carcinoma (HCC), based on the LEAP-012 trial.
October 2025
EC approval as monotherapy for the treatment of resectable locally advanced HNSCC as neoadjuvant treatment, continued as adjuvant treatment in combination with radiation therapy with or without concomitant cisplatin and then as monotherapy in adults whose tumors express PD-L1 with a CPS ≥ 1, based on the KEYNOTE-689 trial.
November 2025
FDA approval in combination with Padcev as neoadjuvant treatment and then continued after cystectomy as adjuvant treatment, for the treatment of adult patients with MIBC who are ineligible for cisplatin-based chemotherapy, based on the KEYNOTE-905 trial conducted in collaboration with Pfizer and Astellas.
February 2026
China’s NMPA approval for the first-line treatment of certain patients with primary advanced or recurrent endometrial cancer, based on the KEYNOTE-868 (NRG-GY018) trial.
February 2026
FDA approval in combination with paclitaxel, with or without bevacizumab, for the treatment of adult patients with platinum-resistant epithelial ovarian, fallopian tube or primary peritoneal carcinoma whose tumors express PD-L1 (CPS ≥ 1) as determined by an FDA-authorized test, and who have received one or two prior systemic treatment regimens, based on the KEYNOTE-B96 trial.
February 2026
Japan’s MHLW approval for neoadjuvant and adjuvant treatment of locally advanced HNSCC, based on the KEYNOTE-689 trial.
Summarized below are the Keytruda Qlex regulatory approvals received in 2025 and, to date, in 2026.
Date
Approval
September 2025
FDA approval across most adult solid tumor indications for Keytruda.
October 2025
FDA approval for the treatment of adult patients with resectable locally advanced HNSCC whose tumors express PD-L1 CPS ≥ 1 as determined by an FDA-approved test, as a single agent as neoadjuvant treatment, continued as adjuvant treatment in combination with radiotherapy with or without cisplatin and then as a single agent, based on the KEYNOTE-689 trial.
November 2025
EC approval of new subcutaneous route of administration and a new pharmaceutical form of Keytruda for all adult indications approved in the EU (to be marketed as Keytruda SC ).
November 2025
FDA approval in combination with Padcev, as neoadjuvant treatment and then continued after cystectomy as adjuvant treatment, for the treatment of adult patients with MIBC who are ineligible for cisplatin-based chemotherapy, based on the KEYNOTE-905 trial conducted in collaboration with Pfizer and Astellas.
February 2026
FDA approval in combination with paclitaxel, with or without bevacizumab, for the treatment of adult patients with platinum-resistant epithelial ovarian, fallopian tube or primary peritoneal carcinoma whose tumors express PD-L1 (CPS ≥ 1) as determined by an FDA-authorized test, and who have received one or two prior systemic treatment regimens, based on the KEYNOTE-B96 trial.
The Company is a party to license agreements pursuant to which the Company pays royalties on net sales of Keytruda . Under the terms of the more significant of these agreements, Merck paid a royalty of 6.5% on worldwide net sales of Keytruda through December 2023 to one third party, which declined to 2.5% in 2024. This royalty (which also applies to net sales of Keytruda Qlex ) will continue through 2026, terminating thereafter. The Company pays an additional 2% royalty on worldwide net sales of Keytruda (and on Keytruda Qlex following regulatory approval) to another third party; this royalty expired in the U.S. in September 2024, expired in major European markets in the second half of 2025, but will continue to be paid on net sales of Keytruda and Keytruda Qlex in certain other international markets expiring at various dates through 2035. The royalty expenses are included in
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Cost of sales . The Company may be subject to additional royalties on net sales of Keytruda Qlex in the future under certain circumstances (see Note 3 to the consolidated financial statements).
Lynparza is a PARP inhibitor being developed and commercialized as part of a collaboration with AstraZeneca (see Note 4 to the consolidated financial statements). Lynparza is approved for the treatment of certain types of advanced or recurrent ovarian, early or metastatic breast, metastatic pancreatic and metastatic castration-resistant prostate cancers. Alliance revenue related to Lynparza grew 11% in 2025 largely due to higher demand globally. In January 2025, China’s NMPA approved Lynparza as adjuvant treatment for adult patients with germline BRCA -mutated, HER2-negative high-risk early breast cancer, based on the OlympiA trial.
Lenvima is an oral receptor TKI being developed and commercialized as part of a collaboration with Eisai (see Note 4 to the consolidated financial statements). Lenvima is approved for the treatment of certain types of thyroid cancer, RCC, HCC, in combination with everolimus for certain patients with advanced RCC, and in combination with Keytruda for certain patients with advanced endometrial carcinoma or advanced RCC. Alliance revenue related to Lenvima grew 4% in 2025 primarily due to higher sales in the U.S. reflecting increased demand that was partially offset by lower pricing.
Sales of Welireg , for the treatment of adult patients with certain VHL disease-associated tumors, certain adult patients with previously treated advanced RCC, and certain patients with pheochromocytoma and paraganglioma, rose 41% in 2025 primarily due to higher demand in the U.S. and continued launch uptake in several international markets, partially offset by lower net pricing in the U.S. (largely due to the Medicare Part D redesign that was part of the IRA).
Welireg received the following regulatory approvals in 2025.
Date
Approval
February 2025
EC conditional approval as monotherapy for the treatment of adult patients with VHL disease who require therapy for associated, localized RCC, central nervous system hemangioblastomas, or pancreatic neuroendocrine tumors, and for whom localized procedures are unsuitable, based on the LITESPARK-004 trial.
February 2025
EC conditional approval for the treatment of adult patients with advanced clear cell RCC that progressed following two or more lines of therapy that included a PD-1 or PD-L1 inhibitor and at least two vascular endothelial growth factor targeted therapies, based on the LITESPARK-005 trial.
May 2025
FDA approval for the treatment of adult and pediatric patients (12 years and older) with locally advanced, unresectable, or metastatic pheochromocytoma and paraganglioma, based on the LITESPARK-015 trial.
June 2025
Japan’s MHLW approval as monotherapy for the treatment of adult patients with VHL disease-associated tumors, based on the LITESPARK-004 trial.
June 2025
Japan’s MHLW approval for the treatment of adults with radically unresectable or metastatic RCC that has progressed after chemotherapy, based on the LITESPARK-005 trial.
The EC conditional approvals of Welireg noted above will be valid for one year, subject to yearly renewal, pending certain additional clinical data. Timing for commercial availability of Welireg in individual EU countries will depend on multiple factors, including the completion of national reimbursement procedures.
Reblozyl is a first-in-class erythroid maturation recombinant fusion protein that is being commercialized through a global collaboration with Bristol Myers Squibb Company (BMS) (see Note 4 to the consolidated financial statements). Reblozyl is approved for the treatment of anemia in certain rare blood disorders. Alliance revenue related to this collaboration (consisting of royalties) increased 41% in 2025 due to strong underlying sales performance.
Koselugo is an oral, selective MEK inhibitor approved for the treatment of patients with neurofibromatosis type 1 who have symptomatic inoperable plexiform neurofibromas. Koselugo is part of a collaboration with AstraZeneca. The increase in alliance revenue in 2025 is due to the recognition of a $150 million upfront payment received and $175 million of regulatory approval milestones recorded in connection with an amendment to the collaboration agreement that (subject to an annual election by AstraZeneca) discontinued the revenue and cost sharing provisions of the collaboration, and changed the payment structure. See Note 4 to the consolidated financial statements for additional information.
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Vaccines
($ in millions)
% Change
% Change
Excluding Foreign
Exchange
% Change
% Change
Excluding Foreign
Exchange
Gardasil/Gardasil 9
ProQuad
Varivax
Vaxneuvance
Capvaxive
Pneumovax 23
Enflonsia
In January 2026, the acting director of the U.S. Centers for Disease Control and Prevention (CDC) announced changes to the child and adolescent immunization schedule (January announcement), reducing the number of routinely recommended vaccinations and creating three new categories: immunizations recommended for all children; immunizations recommended for certain high-risk groups or populations; and immunizations based on shared clinical decision-making. Immunizations recommended for all children include vaccines for measles, mumps, rubella, polio, pertussis, tetanus, diphtheria, Haemophilus influenzae type B (Hib), pneumococcal disease, human papillomavirus (HPV), and varicella (chickenpox). Immunizations recommended for certain high-risk groups or populations include RSV, hepatitis A, hepatitis B, and dengue. Immunizations recommended based on shared clinical decision-making include rotavirus, hepatitis A, and hepatitis B. HHS has stated that immunizations for all of the diseases covered by the previous immunization schedule will still be available to anyone who wants them through Affordable Care Act insurance plans and federal insurance programs, including Medicaid, the Children’s Health Insurance Program, and the Vaccines For Children (VFC) program. Additionally, in September 2025, the trade association representing U.S. health insurers (AHIP) announced that its member health plans would continue to cover all immunizations that had been recommended by the CDC’s Advisory Committee on Immunization Practices (ACIP) as of September 1, 2025, with no cost-sharing for patients through the end of 2026.
Combined worldwide sales of Gardasil and Gardasil 9, vaccines to help prevent certain cancers and other diseases caused by certain types of HPV, declined 39% in 2025 primarily driven by lower demand in China (discussed below), and in Japan reflecting in part that the last date to initiate the first dose in Japan’s national immunization program catch-up cohort was in March 2025. The declines were partially offset by higher sales in the U.S. due to higher net pricing and favorable CDC purchasing patterns. Higher demand and timing in certain international markets also partially offset the sales decline in 2025. Beginning in mid-2024, the Company observed a significant decline in shipments from its distributor and commercialization partner in China, Chongqing Zhifei Biological Products Co., Ltd. (Zhifei), to disease and control prevention institutions and correspondingly into the points of vaccination compared with prior quarters of 2024, resulting in above normal inventory levels at Zhifei. Accordingly, the Company shipped less than its contracted doses to Zhifei in the latter part of 2024. Lower demand in China persisted and, at the end of 2024, overall channel inventory levels in China remained elevated at above normal levels. Therefore, the Company made a decision to temporarily pause shipments to China beginning in February 2025 and, given continued lower demand and elevated inventory levels in China, in mid-2025, the Company determined it would not make any further shipments to China in 2025. The Company will not resume shipments to China until inventory levels return to normal and cannot predict when this will occur. In January 2025, China’s NMPA approved Gardasil for use in males 9-26 years of age to help prevent certain HPV-related cancers and diseases. In April 2025, China’s NMPA approved Gardasil 9 for use in males 16-26 years of age to help prevent certain HPV-related cancers and diseases. In May 2025, a nine-valent HPV vaccine produced by a local manufacturer received regulatory approval in China for use in females 9-45 years of age. In August 2025, the Company’s nine-valent HPV vaccine was approved for use in males nine years of age and older in Japan where it will be marketed as Silgard 9.
Among the changes in the CDC’s January announcement referenced above was a reduction of the recommended doses for HPV vaccination of adolescents to a single dose. Gardasil 9 is currently indicated in the U.S. for a two-dose regimen in adolescents aged 9-14 and a three-dose regimen for those aged 15-45. Previous CDC recommendations for adolescents followed FDA-approved dosing. Many countries outside the U.S. have implemented a reduced dosing schedule for HPV vaccination in certain age groups. The Company anticipates that any negative effect of these recommendations or reduced dosing schedules on sales of Gardasil/Gardasil 9 will not be material.
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The Company is a party to license agreements pursuant to which the Company pays royalties on net sales of Gardasil/Gardasil 9. Under the terms of the more significant of these agreements, Merck pays a 7% royalty on net sales of Gardasil/Gardasil 9 in the U.S. to one third party (this royalty expires in December 2028). Merck paid an additional 7% royalty on worldwide net sales of Gardasil/Gardasil 9 to another third party; this royalty expired in December 2023. The royalty expenses are included in Cost of sales .
Global sales of ProQuad , a pediatric combination vaccine to help protect against measles, mumps, rubella and varicella, grew 1% in 2025 primarily due to higher demand in Europe, partially offset by lower sales in the U.S. reflecting lower demand that was partially offset by higher net pricing. As a result of manufacturing delays, in January 2025, the Company borrowed doses of ProQuad from the CDC Pediatric Vaccine Stockpile (CDC Stockpile), which were used to support routine vaccination in the U.S. The Company replenished the borrowing later in 2025. Worldwide sales of M-M-R II, a vaccine to help protect against measles, mumps and rubella, grew 3% in 2025 primarily due to higher sales in the U.S., largely reflecting higher net pricing and increased demand, partially offset by lower demand in certain international markets. Global sales of Varivax, a vaccine to help prevent chickenpox (varicella), declined 6% in 2025 primarily attributable to lower sales in the U.S., largely driven by lower demand and unfavorable CDC Stockpile activity, partially offset by higher net pricing. The unfavorable impact to Varivax sales from CDC Stockpile activity was offset by CDC Stockpile activity for other products as noted below. The Varivax sales decline was also due in part to lower demand in the Asia Pacific region. Higher demand in Latin America partially offset the Varivax sales in 2025.
In September 2025, the ACIP voted to recommend that children under the age of four years receive protection from chickenpox (varicella) as a standalone immunization rather than in combination with measles, mumps, and rubella (MMR) vaccination, eliminating a previous shared clinical decision-making recommendation that allowed parents to choose combined MMR and varicella vaccine (MMRV) first-dose administration. The ACIP also voted to align the VFC program with this change. The acting CDC Director adopted the recommendation in October 2025. MMR and varicella vaccines remain recommended and funded through the VFC program for both the first and second doses. The Company is the only manufacturer in the U.S. of MMRV vaccine ( ProQuad ) and varicella vaccine ( Varivax ). The Company anticipates that any negative effect of these recommendations on sales of ProQuad will not be material.
Worldwide sales of Vaxneuvance , a vaccine to help protect against invasive pneumococcal disease caused by certain serotypes, rose 2% in 2025 primarily due to higher demand in Europe and certain markets in the Asia Pacific region, partially offset by lower demand in Japan and the Latin America region due to competition. U.S. sales of Vaxneuvance were nearly flat year over year as a benefit from public and private sector purchasing patterns in the U.S. was offset by lower demand due to competition. U.S. Vaxneuvance sales in 2025 benefited from approximately $70 million of favorable CDC Stockpile activity, of which approximately $60 million was offset by a drawdown of CDC Stockpile inventory for Varivax (noted above) and RotaTeq , which resulted in a net neutral transaction. Merck is a party to license agreements pursuant to which the Company pays royalties on sales of Vaxneuvance . Under the most significant of these agreements, Merck pays a royalty of 7.25% on net sales of Vaxneuvance through 2026; this royalty will decline to 2.5% on net sales from 2027 through 2035. The royalty expenses are included in Cost of sales .
Sales of Capvaxive , a vaccine for the prevention of invasive pneumococcal disease and pneumococcal pneumonia caused by certain serotypes in individuals 18 years of age and older, increased to $759 million in 2025 primarily due to continued uptake following launch in the U.S. in 2024. Capvaxive sales growth in 2025 also reflects early launch uptake in certain international markets. Capvaxive was approved in the U.S. in June 2024, in the EU in March 2025, and in Japan in August 2025. The timing of availability of Capvaxive in individual EU countries will depend on multiple factors including the completion of national reimbursement procedures. Merck is a party to license agreements pursuant to which the Company pays royalties on sales of Capvaxive . Under the terms of the most significant of these agreements, Merck pays a royalty of 7.25% on net sales of Capvaxive through 2026; this royalty will decline to 2.5% on net sales from 2027 through 2035. The royalty expenses are included in Cost of sales .
Worldwide sales of Pneumovax 23, a vaccine to help prevent pneumococcal disease, declined 37% in 2025 due to lower global demand, particularly in the U.S. and Europe, as the market has shifted toward newer adult pneumococcal conjugate vaccines.
In June 2025, the FDA approved Enflonsia , a preventive, long-acting monoclonal antibody, for the prevention of RSV lower respiratory tract disease in neonates (newborns) and infants who are born during or entering their first RSV season. Also in June 2025, the ACIP voted to recommend Enflonsia as an option for the prevention of RSV lower respiratory tract disease in infants younger than eight months of age who are born during or entering their first RSV season. These provisional recommendations were adopted by the CDC Director and are now official. The
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ACIP also voted to include Enflonsia in the VFC program. Sales of Enflonsia in 2025 were due in part to inventory stocking.
Hospital Acute Care
($ in millions)
% Change
% Change
Excluding Foreign
Exchange
% Change
% Change
Excluding Foreign
Exchange
Bridion
Prevymis
Dificid
Global sales of Bridion , for the reversal of two types of neuromuscular blocking agents used during surgery, grew 4% in 2025 as higher demand and net pricing in the U.S. was partially offset by lower demand in most international markets due to generic competition. Bridion will lose market exclusivity in the U.S. in July 2026 at which time the Company anticipates a significant and rapid decline in U.S. sales of Bridion . The Company expects to discontinue U.S. sales of Bridion by the end of 2026.
Worldwide sales of Prevymis , a medicine for prophylaxis (prevention) of cytomegalovirus (CMV) infection and disease in certain high risk adult and pediatric recipients of an allogenic hematopoietic stem cell transplant and for prophylaxis of CMV disease in certain high risk adult and pediatric recipients of a kidney transplant, grew 25% in 2025 largely due to higher demand in the U.S. and in most international markets reflecting in part the launch of new indications, partially offset by lower demand in China due to generic competition.
Worldwide sales of Dificid , a medicine for the treatment of C. difficile -associated diarrhea, declined 27% in 2025 due to generic competition in the U.S. Dificid lost market exclusivity in the U.S. in July 2025; accordingly, the Company is experiencing a significant decline in U.S. sales of Dificid and expects the decline to continue.
Cardiometabolic and Respiratory
($ in millions)
% Change
% Change
Excluding Foreign
Exchange
% Change
% Change
Excluding Foreign
Exchange
Winrevair
Alliance Revenue - Adempas/Verquvo (1)
Adempas
Ohtuvayre
(1) Alliance revenue for Adempas and Verquvo represents Merck’s share of profits from sales in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 4 to the consolidated financial statements).
Winrevair is an activin signaling inhibitor indicated for the treatment of adults with PAH (WHO Group 1 pulmonary hypertension) to improve exercise capacity and WHO functional class (FC), and reduce the risk of clinical worsening events including hospitalization for PAH, lung transplantation and death. Sales of Winrevair rose to $1.4 billion in 2025 primarily reflecting higher sales in the U.S. due to continued uptake since launch, partially offset by lower net pricing in the U.S. (largely due to the Medicare Part D redesign that was part of the IRA). Sales growth also reflects early launch uptake in certain international markets, particularly in the EU and Japan. Winrevair was originally approved in the U.S. in March 2024, in the EU in August 2024, and in Japan in June 2025 (where it is being marketed as Airwin ). Winrevair is the subject of a licensing agreement pursuant to which Merck pays a 22% royalty on net sales of Winrevair to BMS. The royalty expenses are included in Cost of sales .
Summarized below are the Winrevair regulatory approvals received in 2025 and, to date, in 2026.
Date
Approval
June 2025
Japan’s MHLW approval for the treatment of adults with PAH, based on the STELLAR trial (marketed as Airwin ).
October 2025
FDA approval of expanded indication in adults with PAH (WHO Group 1 pulmonary hypertension) to improve exercise capacity and WHO FC, and reduce the risk of clinical worsening events, including hospitalization for PAH, lung transplantation and death, based on the ZENITH trial.
January 2026
EC approval of expanded indication in combination with other PAH therapies for the treatment of PAH in adult patients with WHO FC II, III and IV, based on the ZENITH trial.
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Adempas and Verquvo are part of a worldwide collaboration with Bayer AG (Bayer) to market and develop soluble guanylate cyclase (sGC) modulators (see Note 4 to the consolidated financial statements). Adempas is approved for the treatment of certain types of PAH and chronic pulmonary hypertension. Verquvo is approved to reduce the risk of cardiovascular death and heart failure hospitalization following a hospitalization for heart failure or need for outpatient intravenous diuretics in adults with symptomatic chronic heart failure and reduced ejection fraction. Alliance revenue from the collaboration grew 13% in 2025 reflecting higher demand in Bayer’s marketing territories. The Company expects alliance revenue will decline in 2026 reflecting the loss of market exclusivity for Adempas in the U.S. Revenue also includes sales of Adempas and Verquvo in Merck’s marketing territories. Sales of Adempas in Merck’s marketing territories grew 9% in 2025 primarily due to higher demand.
Ohtuvayre is an inhaled phosphodiesterases 3 and 4 (PDE3 and PDE4) inhibitor, which was approved in the U.S. in June 2024 for the maintenance treatment of COPD in adults. Ohtuvayre was obtained in conjunction with Merck’s October 2025 acquisition of Verona Pharma. Sales of Ohtuvayre recorded by Merck following the closing of the transaction were $178 million in 2025.
Virology
($ in millions)
% Change
% Change
Excluding Foreign
Exchange
% Change
% Change
Excluding Foreign
Exchange
Lagevrio
Lagevrio is an investigational oral antiviral COVID-19 medicine being developed in a collaboration with Ridgeback (see Note 4 to the consolidated financial statements). Sales of Lagevrio declined 61% in 2025 largely due to lower demand in several markets in the Asia Pacific region, particularly in Japan, and in the U.S. driven primarily by declining COVID-19 cases. The Company expects the Lagevrio sales decline to continue in 2026.
Immunology
($ in millions)
% Change
% Change
Excluding Foreign
Exchange
% Change
% Change
Excluding Foreign
Exchange
Simponi
Remicade
Simponi and Remicade are treatments for certain inflammatory diseases that the Company marketed in Europe, Russia and Türkiye. The Company’s marketing rights with respect to these products reverted to Johnson & Johnson on October 1, 2024, subsequent to which the Company stopped recognizing sales of these products.
Diabetes
($ in millions)
% Change
% Change
Excluding Foreign
Exchange
% Change
% Change
Excluding Foreign
Exchange
Januvia/Janumet
Worldwide combined sales of Januvia and Janumet , medicines that help lower blood sugar levels in adults with type 2 diabetes, grew 12% in 2025 primarily due to higher net pricing in the U.S., including a favorable true-up to customer discounts, partially offset by lower demand in China, ongoing generic competition in most other international markets, and continuing volume declines in the U.S. due to competitive pressure.
The American Rescue Plan Act enacted in the U.S. in 2021 included a provision that eliminated the statutory c ap on rebates drug manufacturers pay to Medicaid beginning in January 2024. As a result of this provision, the Company paid state Medicaid programs more in rebates than it received on Medicaid sales of Januvia , Janumet and Janumet XR in 2024. In early 2025, Merck lowered the list price of the Januvia family of products to more closely align them with net prices. The lower list price has reduced the rebate amount Merck pays to Medicaid, resulting in higher realized net pricing.
While the key U.S. patent for Januvia , Janumet and Janumet XR claiming the sitagliptin compound expired in January 2023, as a result of favorable court rulings and settlement agreements related to a later expiring patent directed to the specific sitagliptin salt form of the products, the Company expects that Januvia and Janumet will not lose market exclusivity in the U.S. until May 2026 and Janumet XR will not lose market exclusivity in the U.S. until July 2026, although a non-automatically substitutable form of sitagliptin that differs from the form in the Company’s sitagliptin products has been approved by the FDA. Additionally, HHS, through the CMS, selected Januvia
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in 2023 for the first year of the IRA’s Program, and selected Janumet and Janumet XR in 2025 for the second year of the IRA’s Program. Pursuant to the IRA’s Program, the government set a price for Januvia , which became effective on January 1, 20 26, and set a price for Janumet and Janumet XR, which will become effective on January 1, 2027. The Company ha s sued the U.S. government regarding the IRA’s Program. See Note 10 to the consolidated financial statements for additional information related to the above-referenced patent and IRA litigation. The Company expects a significant decline in sales of Januvia in the first half of 2026 reflecting the impact of government price setting noted above and subsequently, following loss of market exclusivity in May 2026, the Company anticipates it will lose nearly all U.S. sales of Januvia and Janumet .
Animal Health Segment
($ in millions)
% Change
% Change
Excluding Foreign
Exchange
% Change
% Change
Excluding Foreign
Exchange
Livestock
Companion Animal
Sales of livestock products grew 13% in 2025 primarily due to increased demand across all species, the inclusion of sales from the July 2024 acquisition of the aqua business of Elanco Animal Health Incorporated (Elanco aqua business), improved supply, new product launches, and higher pricing. See Note 3 to the consolidated financial statements for additional information related to the acquisition of the Elanco aqua business.
Sales of companion animal products grew 2% in 2025 reflecting higher pricing, new product launches, and improved supply, partially offset by lower demand for other products in the portfolio. Sales of the Bravecto line of products were $1.1 billion in 2025, an increase of 1% compared with 2024.
In July 2025, the FDA approved Bravecto Quantum , a once-yearly injectable product to treat and protect dogs from fleas and ticks. Also in July 2025, the EC approved Numelvi tablets for dogs, a once-daily, second-generation Janus kinase (JAK) inhibitor indicated for the treatment of pruritus associated with allergic dermatitis including atopic dermatitis and treatment of clinical manifestations of atopic dermatitis.
Costs, Expenses and Other
($ in millions)
% Change
% Change
Cost of sales
Selling, general and administrative
Research and development
Restructuring costs
Other (income) expense, net
Cost of Sales
Cost of sales was $16.4 billion in 2025 and $15.2 billion in 2024. Cost of sales includes the amortization of intangible assets recorded in connection with acquisitions, collaborations, and licensing arrangements, which totaled $2.8 billion in 2025 and $2.4 billion in 2024. Additionally, cost of sales in 2025 includes an $83 million impact for the recognition of fair value step-up of inventories related to the Verona Pharma acquisition. Also included in cost of sales are expenses associated with restructuring activities, which amounted to $1.5 billion in 2025 and $495 million in 2024, primarily reflecting accelerated depreciation and asset impairment charges related to manufacturing facilities to be fully or partially closed or divested, as well as contractual termination costs. Separation costs associated with manufacturing-related headcount reductions have been incurred and are reflected in Restructuring costs as discussed below.
Gross margin was 74.8% in 2025 compared with 76.3% in 2024. The gross margin decline was primarily due to the negative impacts of higher restructuring costs (primarily related to the accelerated depreciation of manufacturing lines at two sites under the 2025 Restructuring Program), higher inventory write-downs (primarily vaccines), increased amortization of intangibles, and the recognition of fair value step-up of inventories related to the Verona Pharma acquisition, partially offset by the favorable impact of product mix.
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Selling, General and Administrative
Selling, general and administrative (SG&A) expenses were $10.7 billion in 2025, a decline of 1% compared with 2024. The decrease was primarily driven by lower restructuring and promotional costs, partially offset by increased administrative costs.
Research and Development
Research and development (R&D) expenses were $15.8 billion in 2025, a decline of 12% compared with 2024. The decline was primarily due to lower charges for business development activity.
Significant business development transactions in 2025 include charges of:
• $300 million for completion of the technology transfer for MK-2010 (LM-299) from LaNova Medicines Ltd (LaNova, acquired by Sino Biopharmaceutical Limited)
• $200 million for a license agreement with Hengrui Pharma
• $150 million related to an agreement with Falk to acquire sole global rights to MK-8690
• $100 million for the achievement of a developmental milestone related to the 2024 Eyebiotech Limited (EyeBio) acquisition
Significant business development transactions in 2024 include charges of:
• $1.35 billion for the acquisition of EyeBio and $100 million for the achievement of a related developmental milestone
• $750 million for the acquisition of MK-1045 (formerly CN201) from Curon Biopharmaceutical
• $656 million for the acquisition of Harpoon Therapeutics, Inc. (Harpoon)
• $588 million for a global license agreement with LaNova
• $112 million for a global license agreement with Hansoh Pharma (Hansoh)
The decline in R&D expenses was partially offset by higher clinical development spending, higher restructuring costs, and increased investment in discovery research and early drug development.
R&D expenses consist of the costs directly incurred by Merck Research Laboratories (MRL), the Company’s research and development division that focuses on human health-related activities, which were $10.8 billion in 2025 and $10.1 billion in 2024. Also included in R&D expenses are Animal Health research costs, upfront and milestone payments for collaboration and licensing agreements (including charges related to the transactions with LaNova, Hengrui Pharma, Falk, and Hansoh noted above), charges for transactions accounted for as asset acquisitions (including charges for the acquisitions of EyeBio, MK-1045, and Harpoon noted above), and costs incurred by other divisions in support of R&D activities, including depreciation, production, and general and administrative, which in the aggregate were $4.8 billion in 2025 and $7.7 billion in 2024. R&D expenses also include restructuring costs of $175 million in 2025 associated with contractual termination costs.
Restructuring Costs
In July 2025, the Company approved a new restructuring program (2025 Restructuring Program) designed to position the Company for its next chapter of growth and to successfully advance its pipeline and launch new products across multiple therapeutic areas. As part of this program, the Company expects to eliminate certain positions in sales and administrative organizations, as well as research and development. The Company will, however, continue to hire employees into new roles across all strategic growth areas of the business. In addition, the Company will reduce its global real estate footprint and continue to optimize its manufacturing network, aligning the geography of its global manufacturing footprint to its customers and reflecting changes in the Company’s business. Most actions contemplated under the 2025 Restructuring Program are expected to be largely completed by the end of 2027, with the exception of certain manufacturing actions, which are expected to be substantially completed by the end of 2029. The cumulative pretax costs to be incurred by the Company to implement the program are estimated to be approximately $3.0 billion, of which approximately 60% will be cash, relating primarily to employee separation expense and contractual termination costs. The remainder of the costs will be non-cash, relating primarily to the accelerated depreciation of facilities. The Company expects the actions under the 2025 Program to result in annual cost savings of approximately $1.7 billion, which will be substantially realized by the end of 2027. The 2025 Program is part of the Company’s multiyear optimization initiative anticipated to $3.0 billion in annual cost savings by the end of 2027, which will be fully reinvested into strategic growth areas of the business.
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In January 2024, the Company approved a restructuring program (2024 Restructuring Program) intended to continue the optimization of the Company’s Human Health global manufacturing network as the future pipeline shifts to new modalities and also optimize the Animal Health global manufacturing network to improve supply reliability and increase efficiency. The actions contemplated under the 2024 Restructuring Program are expected to be substantially completed by the end of 2031, with the cumulative pretax costs to be incurred by the Company to implement the program estimated to be approximately $4.0 billion. Approximately 50% of the cumulative pretax costs will be non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested. The remainder of the costs will result in cash outlays, relating primarily to facility shut-down costs. The Company anticipates the actions under the 2024 Restructuring Program will result in cumulative annual net cost savings of approximately $750 million by the end of 2031.
Restructuring costs of $889 million in 2025 and $309 million in 2024 primarily include separation and other costs associated with these restructuring activities. Separation costs incurred were associated with actual headcount reductions, as well as estimated expenses under existing severance programs for involuntary headcount reductions that were probable and could be reasonably estimated. Other expenses in Restructuring costs include facility shut-down and other related costs, as well as employee-related costs such as curtailment, settlement, and termination charges associated with pension and other postretirement benefit plans, and share-based compensation plan costs. For segment reporting, restructuring costs are unallocated expenses.
Additional costs associated with the Company’s restructuring activities are included in Cost of sales , Selling, general and administrative expenses and Research and development costs. The Company recorded aggregate pretax costs related to restructuring program activities of $2.6 billion in 2025 and $888 million in 2024. See Note 5 to the consolidated financial statements for additional details.
Other (Income) Expense, Net
Other (income) expense, net, was $151 million of expense in 2025 compared with $24 million of income in 2024. The unfavorable year-over-year change primarily reflects $170 million of income in 2024 related to the expansion of an existing development and commercialization agreement with Daiichi Sankyo, as well as higher net interest expense and higher foreign exchange losses in 2025, partially offset by higher net income from investments in equity securities in 2025.
For details on the components of Other (income) expense, net, see Note 14 to the consolidated financial statements.
Segment Profits
($ in millions)
Pharmaceutical segment profits
Animal Health segment profits
Non-segment activity
Income Before Taxes
Pharmaceutical segment profits consist of segment sales less standard costs, as well as SG&A expenses directly incurred by the segment. Animal Health segment profits consist of segment sales, less all cost of sales, as well as SG&A and R&D expenses directly incurred by the segment. For internal management reporting presented to the chief operating decision maker, Merck does not allocate the remaining cost of sales not included in segment profits as described above, R&D expenses incurred by MRL, or general and administrative expenses not directly incurred by the segments, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits. Also excluded from the determination of segment profits are costs related to restructuring activities and acquisition- and divestiture-related costs, including the amortization of intangible assets and the recognition of fair value step-up of inventories, intangible asset impairment charges, and expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration. Additionally, segment profits do not reflect other expenses from corporate and manufacturing cost centers and other miscellaneous income or expense. These unallocated items are reflected in “Non-segment activity” in the above table. Also included in “Non-segment activity” are miscellaneous corporate profits (), as well as operating profits () related to third-party manufacturing arrangements.
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Taxes on Income
The effective income tax rate of 13.3% in 2025 reflects the favorable impacts of jurisdictional mix of income and expense, as well as certain discrete items.
The effective income tax rate of 14.1% in 2024 reflects a favorable jurisdictional mix of income and expense, as well as a 2.6 percentage point favorable impact due to a $519 million reduction in reserves for unrecognized income tax benefits resulting from the expiration in 2024 of the statute of limitations for assessments related to the 2019 and 2020 federal tax return years. The effective income tax rate in 2024 also reflects a 1.5 percentage point combined unfavorable impact of charges for the acquisition of Harpoon, for which no tax benefit was recognized, and the acquisitions of EyeBio and MK-1045 for which minimal tax benefits were realized.
The effective income tax rates for 2025 and 2024 include the global minimum tax provision of the Organization for Economic Cooperation and Development (OECD) Pillar 2, which for 2024 resulted in a minimal impact to the Company’s effective income tax rate due to the accounting for the tax effects of intercompany transactions. In July 2025, the OBBBA was enacted into law, which had an immaterial impact to the effective income tax rate in 2025.
The Internal Revenue Service (IRS) is currently conducting examinations of the Company’s tax returns for the years 2017 and 2018, including the one-time transition tax enacted under the Tax Cuts and Jobs Act of 2017 (TCJA). In April 2025, Merck received Notices of Proposed Adjustment (NOPAs) that would increase the amount of the one-time transition tax on certain undistributed earnings of foreign subsidiaries by approximately $1.3 billion. In addition, the NOPAs included penalties of approximately $260 million. These amounts are exclusive of any interest that may be due. The Company disagrees with the proposed adjustments and will vigorously contest the NOPAs through all available administrative and, if necessary, judicial proceedings. It may take a number of years to reach resolution of this matter. If the Company is ultimately unsuccessful in defending its position, the impact could be material to its financial statements. The statute of limitations for assessments with respect to the 2019 and 2020 federal tax return years expired in June 2024 and October 2024, respectively. The IRS is also currently conducting examinations of the Company’s tax returns for the years 2021 and 2022. In addition, various state and foreign tax examinations are in progress.
Non-GAAP Income and Non-GAAP EPS
Non-GAAP income and non-GAAP EPS are alternative views of the Company’s performance that Merck is providing because management believes this information enhances investors’ understanding of the Company’s results since management uses non-GAAP measures to assess performance. Non-GAAP income and non-GAAP EPS exclude certain items because of the nature of these items and the impact that they have on the analysis of underlying business performance and trends. The excluded items (which should not be considered non-recurring) consist of acquisition- and divestiture-related costs, restructuring costs, income and losses from investments in equity securities, and certain other items. These excluded items are significant components in understanding and assessing financial performance.
Non-GAAP income and non-GAAP EPS are important internal measures for the Company. Senior management receives a monthly analysis of operating results that includes a non-GAAP EPS metric. Management uses non-GAAP measures internally for planning and forecasting purposes and to measure the performance of the Company along with other metrics. In addition, annual employee compensation, including senior management’s compensation, is derived in part using a non-GAAP pretax income metric. Since non-GAAP income and non-GAAP EPS are not measures determined in accordance with GAAP, they have no standardized meaning prescribed by GAAP and, therefore, may not be comparable to the calculation of similar measures of other companies. The information on non-GAAP income and non-GAAP EPS should be considered in addition to, but not as a substitute for or superior to, net income and EPS prepared in accordance with GAAP.
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A reconciliation between GAAP financial measures and non-GAAP financial measures is as follows:
($ in millions except per share amounts)
Income before taxes as reported under GAAP
Increase (decrease) for excluded items:
Acquisition- and divestiture-related costs (1)
Restructuring costs
(Income) loss from investments in equity securities, net
Other items:
Charge for Zetia antitrust litigation settlements
Non-GAAP income before taxes
Taxes on income as reported under GAAP
Estimated tax benefit on excluded items (2)
Net tax benefit, which reflects a net benefit related to favorable audit reserve adjustments
Tax benefit resulting from the expiration of the statute of limitations for assessments related to the 2019 and 2020 federal tax return years
Non-GAAP taxes on income
Non-GAAP net income
Less: Net income attributable to noncontrolling interests as reported under GAAP
Non-GAAP net income attributable to Merck & Co., Inc.
EPS assuming dilution as reported under GAAP (3)
EPS difference
Non-GAAP EPS assuming dilution (3)
(1) Amounts in 2025, 2024 and 2023 include $55 million, $39 million and $792 million, respectively, of intangible asset impairment charges.
(2) The estimated tax impact on the excluded items is determined by applying the statutory rate of the originating territory of the non-GAAP adjustments.
(3) GAAP and non-GAAP EPS were negatively affected in 2025, 2024 and 2023 by $0.20, $1.28, and $6.21, respectively, of per share charges for certain upfront and pre-approval milestone payments related to collaborations and licensing agreements, as well as charges related to pre-approval assets obtained in transactions accounted for as asset acquisitions.
Acquisition- and Divestiture-Related Costs
Non-GAAP income and non-GAAP EPS exclude the impact of certain amounts recorded in connection with acquisitions and divestitures of businesses. These amounts include the amortization of intangible assets and the recognition of fair value step-up of inventories, as well as intangible asset impairment charges, and expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration. Also excluded are integration, transaction, and certain other costs associated with acquisitions and divestitures. Non-GAAP income and non-GAAP EPS also exclude amortization of intangible assets related to collaborations, asset acquisitions, and licensing arrangements, as well as the recognition of fair value step-up of inventories related to asset acquisitions.
Restructuring Costs
Non-GAAP income and non-GAAP EPS exclude costs related to restructuring actions (see Note 5 to the consolidated financial statements). These amounts include employee separation costs and accelerated depreciation associated with facilities to be fully or partially closed or divested. Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the revised useful life of the asset, based upon the anticipated date the site will be closed or divested or the equipment disposed of, and depreciation expense as determined utilizing the useful life prior to the restructuring actions. Restructuring costs also include asset impairment, facility shut-down, contractual termination, and other related costs, as well as employee-related costs such as curtailment, settlement and termination charges associated with pension and other postretirement plans, and share-based compensation costs.
Income and Losses from Investments in Equity Securities
Non-GAAP income and non-GAAP EPS exclude realized and unrealized gains and losses from investments in equity securities either owned directly or through ownership interests in investment funds.
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Certain Other Items
Non-GAAP income and non-GAAP EPS exclude certain other items. These items are adjusted for after evaluating them on an individual basis, considering their quantitative and qualitative aspects. Typically, these items are unusual in nature, significant to the results of a particular period or not indicative of future operating results. Excluded from non-GAAP income and non-GAAP EPS in 2025 is a net tax benefit, which reflects a net benefit from favorable audit reserve adjustments. Excluded from non-GAAP income and non-GAAP EPS in 2024 is a benefit due to reductions in reserves for unrecognized income tax benefits resulting from the expiration of the statute of limitations for assessments related to the 2019 and 2020 federal tax return years (see Note 15 to the consolidated financial statements). Excluded from non-GAAP income and non-GAAP EPS in 2023 is a charge related to settlements with certain plaintiffs in the Zetia antitrust litigation (see Note 10 to the consolidated financial statements).
Research and Development
Research Pipeline
The Company currently has several candidates under regulatory review in the U.S. and internationally, as well as in late-stage clinical development. A chart reflecting the Company’s current research pipeline as of February 20, 2026 and related discussion is set forth in Item 1. “Business — Research and Development” above.
Acquisitions, Research Collaborations and Licensing Agreements
Merck continues to remain focused on pursuing opportunities that have the potential to drive both near- and long-term growth. Certain recent transactions are summarized below; additional details are included in Note 3 to the consolidated financial statements. Merck actively monitors the landscape for growth opportunities that meet the Company’s strategic criteria.
In January 2026, Merck acquired Cidara, a biotechnology company developing drug-Fc conjugate (DFC) therapeutics, for approximately $9.2 billion (including payments to settle share-based equity awards). Cidara’s lead DFC candidate, MK-1406 (formerly CD388), is a long-acting antiviral designed to prevent seasonal and pandemic influenza. MK-1406 is currently being evaluated among adult and adolescent participants who are at higher risk of developing complications from influenza. Merck anticipates the transaction will be accounted for as an asset acquisition since MK-1406 is expected to account for substantially all of the fair value of the gross assets to be acquired (excluding cash and deferred income taxes). Merck expects to record a charge of approximately $9.0 billion to Research and development expenses, or approximately $3.65 per share, in the first quarter of 2026 for acquired IPR&D with no alternative future use. There are no future contingent payments associated with the acquisition.
In November 2025, Merck reached an agreement with Falk to discontinue an existing contract concerning co-development and co-commercialization rights in certain territories for MK-8690 (formerly PRA-052), and for Merck to assume full responsibility for the development program going forward. MK-8690 is an investigational anti-CD30 ligand monoclonal antibody being evaluated by the Company in an early-stage clinical trial. Under the terms of the agreement, Merck and Falk have discontinued their collaboration based on their existing co-development contract resulting in Merck having secured global rights to MK-8690. In exchange, Merck made a $150 million upfront payment, which the Company recorded as a charge to Research and development expenses in 2025, or approximately $0.05 per share. Falk is also eligible to receive a developmental milestone payment, as well as tiered royalties on sales in certain territories.
In October 2025, Merck and Blackstone Life Sciences (Blackstone) entered into a funding arrangement under which Blackstone will pay Merck up to $700 million in the fourth quarter of 2026 (which is non-refundable, subject to the termination provisions of the agreement) to fund a portion of the Company’s development costs for MK-2870, sacituzumab tirumotecan (sac-TMT), expected to be incurred throughout 2026.
In July 2025, the technology transfer for MK-2010 (LM-299), a novel investigational PD-1/vascular endothelial growth factor (VEGF) bispecific antibody that was licensed from LaNova in 2024, was completed. Accordingly, Merck made a $300 million payment to LaNova that was recorded as a charge to Research and development expenses in 2025, or approximately $0.09 per share.
In May 2025, Merck and Hengrui Pharma closed an exclusive license agreement for MK-7262 (HRS-5346), an investigational oral small molecule Lipoprotein(a) inhibitor. Under the agreement, Hengrui Pharma granted Merck exclusive rights to develop, manufacture and commercialize MK-7262 (HRS-5346) worldwide, excluding the Greater China region. Merck recorded a charge of $200 million to Research and development expenses in 2025, or approximately $0.06 per share, for the upfront payment. Hengrui Pharma is also eligible to receive future contingent payments associated with certain developmental, regulatory and sales-based milestones, as well as tiered royalties on future net sales of MK-7262 (HRS-5346), if approved.
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Acquired In-Process Research and Development
In connection with business combinations, the Company records the fair value of in-process research projects which, at the time of acquisition, had not yet reached technological feasibility. At December 31, 2025, the balance of in-process research and development (IPR&D) was $427 million, primarily consisting of MK-1026 (nemtabrutinib), $418 million, which is in Phase 3 clinical development.
The IPR&D projects that remain in development are subject to the inherent risks and uncertainties in drug development and it is possible that the Company will not be able to successfully develop and complete the IPR&D programs and profitably commercialize the underlying product candidates. The time periods to receive approvals from the FDA and other regulatory agencies are subject to uncertainty. Significant delays in the approval process, or the Company’s failure to obtain approval at all, would delay or prevent the Company from realizing revenues from these products. Additionally, if the IPR&D programs require additional clinical trial data than was previously anticipated, or if the programs fail or are abandoned during development, then the Company will not recover the fair value of the IPR&D recorded as an asset as of the acquisition date. If such circumstances were to occur, the Company’s future operating results could be adversely affected and the Company may recognize impairment charges, which could be material.
In 2023, the Company recorded IPR&D impairment charges within Research and development expenses of $779 million (see Note 8 to the consolidated financial statements).
Additional research and development will be required before any of the remaining programs reach technological feasibility. The costs to complete the research projects will depend on whether the projects are brought to their final stages of development and are ultimately submitted to the FDA or other regulatory agencies for approval.
Capital Expenditures
Capital expenditures were $4.1 billion in 2025, $3.4 billion in 2024 and $3.9 billion in 2023. Expenditures in the U.S. were $2.5 billion in 2025, $2.4 billion in 2024 and $2.5 billion in 2023. The Company plans to invest approximately $20 billion in capital projects from 2025-2029, more than $12 billion of which relates to investments in the U.S.
Depreciation expense was $3.0 billion in 2025, $2.1 billion in 2024 and $1.8 billion in 2023, of which $2.2 billion in 2025, $1.4 billion in 2024 and $1.2 billion in 2023, related to locations in the U.S. Total depreciation expense in 2025, 2024 and 2023 included accelerated depreciation of $1.2 billion, $254 million and $140 million, respectively, associated with restructuring activities (see Note 5 to the consolidated financial statements).
Analysis of Liquidity and Capital Resources
Merck’s strong financial profile enables it to fund research and development, finance acquisitions and external alliances, support in-line products and maximize upcoming launches while providing significant cash returns to shareholders.
Selected Data
($ in millions)
Working capital
Total debt to total liabilities and equity
Cash provided by operating activities to total debt
Cash provided by operating activities was $16.5 billion in 2025 compared with $21.5 billion in 2024. The decline in cash provided by operating activities reflects higher income tax payments, which were $6.1 billion in 2025 compared with $3.9 billion in 2024, as well as increased upfront, milestone, option and continuation payments related to certain collaborations, licensing agreements, and acquisitions, which were $3.0 billion in 2025 compared with $1.1 billion in 2024. Cash provided by operating activities continues to be the Company’s primary source of funds to finance operating needs, with excess cash serving as the primary source of funds to finance business development transactions, capital expenditures, dividends paid to shareholders and treasury stock purchases.
Cash used in investing activities was $13.7 billion in 2025 compared with $7.7 billion in 2024. The higher use of cash in investing activities was primarily due to higher cash used for acquisitions (including the acquisition of Verona Pharma), higher capital expenditures (including the acquisition of a facility from WuXi Vaccines), and higher purchases of securities and other investments, partially offset higher proceeds from sales of securities and other investments.
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Cash used in financing activities was $1.9 billion in 2025 compared with $7.0 billion in 2024. The lower use of cash in financing activities was primarily due to higher proceeds from the issuance of debt (see below), partially offset by higher purchases of treasury stock, higher payments on long-term debt (see below), higher dividends paid to shareholders, and lower proceeds from the exercise of stock options.
In December 2025, the Company issued $8.0 billion aggregate principal amount of senior unsecured notes. The Company used the net proceeds from the offering for general corporate purposes, including to fund a portion of the approximately $9.2 billion cash consideration for the January 2026 acquisition of Cidara, including related fees and expenses (see Note 3 to the consolidated financial statements). In September 2025, the Company issued $6.0 billion aggregate principal amount of senior unsecured notes. The Company used the net proceeds from the offering for general corporate purposes, including to fund a portion of the $10.4 billion cash consideration for the October 2025 acquisition of Verona Pharma, including related fees and expenses (see Note 3 to the consolidated financial statements).
In May 2024, MSD Netherlands Capital B.V., a wholly owned finance subsidiary of Merck, completed a registered public offering of €3.4 billion in aggregate principal amount of euro-dominated senior notes. The net cash proceeds from the offering were used for general corporate purposes.
In May 2023, the Company issued $6.0 billion in aggregate principal amount of senior unsecured notes. The Company used a portion of the net proceeds from the offering to fund a portion of the $11.0 billion cash consideration paid for the acquisition of Prometheus Biosciences, Inc., including related fees and expenses, and used the remaining net proceeds for general corporate purposes including to repay commercial paper borrowings and other indebtedness with upcoming maturities.
In 2025, the Company’s $2.5 billion, 2.75% notes matured in accordance with their terms and were repaid. In 2024, the Company’s $750 million, 2.90% notes and the Company’s €500 million, 0.50% euro-denominated notes matured in accordance with their terms and were repaid. In 2023, the Company’s $1.75 billion, 2.80% notes matured in accordance with their terms and were repaid.
The Company has a $6.0 billion credit facility that matures in May 2030. The facility provides backup liquidity for the Company’s commercial paper borrowing facility and is to be used for general corporate purposes. The Company has not drawn funding from this facility.
In March 2024, the Company filed a securities registration statement with the U.S. Securities and Exchange Commission (SEC) under the automatic shelf registration process available to “well-known seasoned issuers” which is effective for three years.
Effective as of November 3, 2009, the Company executed a full and unconditional guarantee of the then existing debt of its subsidiary Merck Sharp & Dohme Corp. (MSD, now Merck Sharp & Dohme LLC) and MSD executed a full and unconditional guarantee of the then existing debt of the Company (excluding commercial paper), including for payments of principal and interest. These guarantees do not extend to debt issued subsequent to that date.
In November 2025, Merck’s Board of Directors increased the quarterly dividend, declaring a quarterly dividend of $0.85 per share on the Company’s outstanding common stock for the first quarter of 2026 that was paid in January 2026. In January 2026, the Board of Directors declared a quarterly dividend of $0.85 per share on the Company’s outstanding common stock for the second quarter of 2026 payable in April 2026.
In January 2025, Merck’s Board of Directors authorized purchases of up to $10 billion of Merck’s common stock for its treasury. The treasury stock purchase authorization has no time limit and will be made over time in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions. In 2025, the Company purchased $5.1 billion (approximately 59 million shares) of its common stock for its treasury under this and a previously authorized share repurchase program. As of December 31, 2025, the Company’s remaining share repurchase authorization was $7.3 billion. The Company purchased $1.3 billion of its common stock during 2024 under an authorized share repurchase program.
The Company believes it maintains a conservative financial profile. The Company places its cash and investments in instruments that meet high credit quality standards, as specified in its investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issuer. The Company does not participate in any off-balance sheet arrangements involving unconsolidated subsidiaries that provide financing or potentially expose the Company to unrecorded financial obligations.
The Company expects foreseeable liquidity and capital resource requirements to be met through existing cash and cash equivalents and anticipated cash flows from operations, as well as commercial paper borrowings and
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long-term borrowings if needed. Merck believes that its sources of financing will be adequate to meet its future requirements. The Company’s material cash requirements arising in the normal course of business primarily include:
Debt Obligations and Interest Payments — See Note 9 to the consolidated financial statements for further detail of the Company’s debt obligations and the timing of expected future principal and interest payments.
Operating Leases — See Note 9 to consolidated financial statements for further details of the Company’s lease obligations and the timing of expected future lease payments.
License-Related Payments — At December 31, 2025, the Company has accrued liabilities for contingent sales-based milestone payments of $890 million related to a license agreement with Alteogen Inc. where payment is dependent upon the achievement of the corresponding milestone. See Note 3 to the consolidated financial statements for additional information related to these payments.
Purchase Obligations — Purchase obligations are enforceable and legally binding obligations for purchases of goods and services including minimum inventory contracts, research and development and advertising. As of December 31, 2025, the Company had total purchase obligations of $6.5 billion, of which $2.7 billion is estimated to be payable in 2026.
Financial Instruments Market Risk Disclosures
The Company manages the impact of foreign exchange rate movements and interest rate movements on its earnings, cash flows and fair values of assets and liabilities through operational means and through the use of various financial instruments, including derivative instruments.
A significant portion of the Company’s revenues and earnings in foreign affiliates is exposed to changes in foreign exchange rates. The objectives of and accounting related to the Company’s foreign currency risk management program, as well as its interest rate risk management activities are discussed below.
Foreign Currency Risk Management
The Company has established revenue hedging, balance sheet risk management, and net investment hedging programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by changes in foreign exchange rates.
The objective of the revenue hedging program is to reduce the variability caused by changes in foreign exchange rates that would affect the U.S. dollar value of future cash flows derived from foreign currency denominated sales, primarily the euro, Japanese yen and Chinese renminbi. To achieve this objective, the Company will hedge a portion of its forecasted foreign currency denominated third-party and intercompany distributor entity sales (forecasted sales) that are expected to occur over its planning cycle, typically no more than two years into the future. The Company will layer in hedges over time, increasing the portion of forecasted sales hedged as it gets closer to the expected date of the forecasted sales. The portion of forecasted sales hedged is based on assessments of cost-benefit profiles that consider natural offsetting exposures, revenue and foreign exchange rate volatilities and correlations, and the cost of hedging instruments. The Company manages its anticipated transaction exposure principally with purchased local currency put options, forward contracts, and purchased collar options.
The fair values of these derivative contracts are recorded as either assets (gain positions) or liabilities (loss positions) in the Consolidated Balance Sheet. Changes in the fair value of derivative contracts are recorded each period in either current earnings or Other Comprehensive Income (Loss) ( OCI) , depending on whether the derivative is designated as part of a hedge transaction and, if so, the type of hedge transaction. For derivatives that are designated as cash flow hedges, the unrealized gains or losses on these contracts are recorded in Accumulated Other Comprehensive Loss ( AOCL) and reclassified into Sales when the hedged anticipated revenue is recognized. The amount reclassified into earnings as a result of the discontinuation of cash flow hedges because it was no longer deemed probable the forecasted hedged transactions would occur was not material for the years ended December 31, 2025, 2024 or 2023. For those derivatives which are not designated as cash flow hedges, but serve as economic hedges of forecasted sales, unrealized gains or losses are recorded in Sales each period. The cash flows from both designated and non-designated contracts are reported as operating activities in the Consolidated Statement of Cash Flows. The Company does not enter into derivatives for trading or speculative purposes.
Because Merck principally sells foreign currency in its revenue hedging program, a uniform weakening of the U.S. dollar would yield the largest overall potential loss in the market value of these hedge instruments. The market value of Merck’s hedges would have declined by an estimated $671 million and $569 million at December 31, 2025 and 2024, respectively, from a uniform 10% weakening of the U.S. dollar. The market value was determined using a foreign exchange option pricing model and holding all factors except exchange rates constant. Although not predictive in nature, the Company believes that a 10% threshold reflects reasonably possible near-term changes in Merck’s major foreign currency exposures relative to the U.S. dollar.
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The Company manages operating activities and net asset positions at each local subsidiary in order to mitigate the effects of foreign exchange on monetary assets and liabilities. Monetary assets and liabilities denominated in a currency other than the functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in spot rates reported in Other (income) expense, net . The Company also uses a balance sheet risk management program to mitigate the exposure of such assets and liabilities from the effects of volatility in foreign exchange. Merck principally utilizes forward exchange contracts to offset the effects of foreign exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the foreign exchange rate and the cost of the hedging instrument (primarily the euro, Swiss franc, Japanese yen, and Chinese renminbi). The forward contracts are not designated as hedges and are marked to market through Other (income) expense, net . Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the remeasured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. These differences are not significant due to the short-term nature of the contracts, which typically have average maturities at inception of less than six months. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows.
A sensitivity analysis to changes in the value of the U.S. dollar on foreign currency denominated derivatives, investments, and monetary assets and liabilities indicated that if the U.S. dollar uniformly weakened by 10% against all currency exposures of the Company at December 31, 2025 and 2024, Income Before Taxes would have declined by approximately $131 million and $239 million in 2025 and 2024, respectively. Because the Company was in a net short (payable) position relative to its major foreign currencies after consideration of forward contracts, a uniform weakening of the U.S. dollar will yield the largest overall potential net loss in earnings due to exchange. This measurement assumes that a change in one foreign currency relative to the U.S. dollar would not affect other foreign currencies relative to the U.S. dollar. Although not predictive in nature, the Company believes that a 10% threshold reflects reasonably possible near-term changes in Merck’s major foreign currency exposures relative to the U.S. dollar. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows.
The Company also uses forward exchange contracts to hedge a portion of its net investment in foreign operations against movements in foreign exchange rates. The forward contracts are designated as hedges of the net investment in a foreign operation. The unrealized gains or losses on these contracts are recorded in foreign currency translation adjustment within OCI and remain in AOCL until either the sale or complete or substantially complete liquidation of the subsidiary. The Company excludes certain portions of the change in fair value of its derivative instruments from the assessment of hedge effectiveness (excluded components). Changes in fair value of the excluded components are recognized in OCI . The Company recognizes in earnings the initial value of the excluded components on a straight-line basis over the life of the derivative instrument, rather than using the mark-to-market approach. The cash flows from these contracts are reported as investing activities in the Consolidated Statement of Cash Flows.
Foreign exchange risk is also managed through the use of foreign currency debt. Certain of the Company’s senior unsecured euro-denominated notes have been designated as, and are effective as, economic hedges of the net investment in a foreign operation. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in foreign currency translation adjustment within OCI .
Interest Rate Risk Management
The Company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rate changes and to reduce its overall cost of borrowing. The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal at risk.
At December 31, 2025, the Company was a party to seven pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of the fixed-rate notes as detailed in the table below.
($ in millions)
Debt Instrument
Par Value of Debt
Number of Interest Rate Swaps Held
Total Swap Notional Amount
4.50% notes due 2033
5.00% notes due 2053
The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in the benchmark Secured Overnight Financing Rate (SOFR) swap rate. The fair value changes in the notes attributable to changes in the SOFR swap rate are recorded in interest expense along with the offsetting fair
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value changes in the swap contracts. In February 2026, the Company entered into an additional interest rate swap with a notional amount of $250 million related to its 5.00% notes due 2053. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows.
The Company’s investment portfolio includes cash equivalents and short-term investments, the market values of which are not significantly affected by changes in interest rates. The market value of the Company’s medium- to long-term fixed-rate investments is modestly affected by changes in U.S. interest rates. Changes in medium- to long-term U.S. interest rates have a more significant impact on the market value of the Company’s fixed-rate borrowings, which generally have longer maturities. A sensitivity analysis to measure potential changes in the market value of Merck’s investments and debt from a change in interest rates indicated that a one percentage point increase in interest rates at December 31, 2025 and 2024 would have positively affected the net aggregate market value of these instruments by $3.4 billion and $2.4 billion, respectively. A one percentage point decrease at December 31, 2025 and 2024 would have negatively affected the net aggregate market value by $4.0 billion and $2.9 billion, respectively. The fair value of Merck’s debt was determined using pricing models reflecting one percentage point shifts in the appropriate yield curves. The fair values of Merck’s investments were determined using a combination of pricing and duration models.
Critical Accounting Estimates
The Company’s consolidated financial statements are prepared in conformity with GAAP and, accordingly, include certain amounts that are based on management’s best estimates and judgments. Estimates are used when accounting for amounts recorded in connection with acquisitions, including initial fair value determinations of assets and liabilities in a business combination (primarily IPR&D, other intangible assets and contingent consideration), as well as subsequent fair value measurements. Additionally, estimates are used in determining such items as provisions for sales discounts, rebates and returns, depreciable and amortizable lives, recoverability of inventories (including those produced in preparation for product launches), amounts recorded for contingencies, environmental liabilities, contingent sales-based milestone payments and other reserves, pension and other postretirement benefit plan assumptions, share-based compensation assumptions, restructuring costs, impairments of long-lived assets (including intangible assets and goodwill) and investments, and taxes on income. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Application of the following accounting policies result in accounting estimates having the potential for the most significant impact on the financial statements.
Acquisitions and Dispositions
To determine whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses, the Company makes certain judgments, which include assessment of the inputs, processes, and outputs associated with the acquired set of activities. If the Company determines 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), the assets would not represent a business. 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.
In a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of the acquisition at their respective fair values with limited exceptions. The fair values of intangible assets are determined utilizing information available near the acquisition date based on expectations and assumptions that are deemed reasonable by management. Given the considerable judgment involved in determining fair values, the Company typically obtains assistance from third-party valuation specialists for significant items. 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. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accordingly, the Company may be required to value assets at fair value measures that do not reflect the Company’s intended use of those assets. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The operating results of the acquired business are reflected in the Company’s consolidated financial statements after the date of the acquisition.
The judgments made in determining estimated fair values assigned to assets acquired and liabilities assumed in a business combination, as well as asset lives, can materially affect the Company’s results of operations.
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. The Company’s estimates of market participant net cash flows consider historical and
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projected pricing, margins and expense levels; the performance of competing products where applicable; relevant industry and therapeutic area growth drivers and factors; current and expected trends in technology and product life cycles; the ability to obtain additional marketing and regulatory approvals; the ability to manufacture and commercialize the products; the extent and timing of potential new product introductions by the Company’s competitors; and the life of each asset’s underlying patent and related patent term extension, if any. The net cash flows are then probability-adjusted where appropriate to consider the uncertainties associated with the underlying assumptions, as well as the risk profile of the net cash flows utilized in the valuation. The probability-adjusted future net cash flows of each product 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, Merck 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 the Company’s 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. Changes in any of the inputs may result in a significantly different fair value adjustment.
If the Company determines the assets acquired do not meet the definition of a business under the acquisition method of accounting, the transaction will be accounted for as an asset acquisition rather than a business combination and, therefore, no goodwill will be recorded. In an asset acquisition, acquired IPR&D with no alternative future use is charged to expense, currently marketed products are capitalized as intangible assets, and contingent consideration is not recognized at the acquisition date.
Contingent Sales-Based Milestones
The terms of certain business development transactions, including collaborative arrangements, licensing agreements and asset acquisitions, require the Company to make payments contingent upon the achievement of sales-based milestones. Sales-based milestones payable by Merck are accrued and capitalized, subject to cumulative amortization catch-up, when determined by the Company to be probable of being achieved based on future sales forecasts. The amortization catch-up is calculated either from the time of the first regulatory approval for products that were unapproved at the time the transaction was completed or, for new indications of products that were approved prior to the transaction, from the time the transaction was completed. The related intangible asset that is recognized is amortized over its remaining useful life, subject to impairment testing.
Revenue Recognition
Recognition of revenue requires evidence of a contract, probable collection of sales proceeds and completion of substantially all performance obligations. Merck acts as the principal in substantially all of its customer arrangements and therefore records revenue on a gross basis. The majority of the Company’s contracts related to the Pharmaceutical and Animal Health segments have a single performance obligation - the promise to transfer goods. Shipping is considered immaterial in the context of the overall customer arrangement and damages or loss of goods in transit are rare. Therefore, shipping is not deemed a separately recognized performance obligation.
The vast majority of revenues from sales of products are recognized at a point in time when control of the goods is transferred to the customer, which the Company has determined is when title and risks and rewards of ownership transfer to the customer and the Company is entitled to payment. For certain services in the Animal Health segment, revenue is recognized over time, generally ratably over the contract term as services are provided. These service revenues are not material.
The nature of the Company’s business gives rise to several types of variable consideration including discounts and returns, which 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.
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In the U.S., sales discounts are issued to customers at the point-of-sale, through an intermediary wholesaler (known as chargebacks), or in the form of rebates. Additionally, sales are generally made with a limited right of return under certain conditions. Revenues are recorded net of provisions for sales discounts and returns, which are established at the time of sale. In addition, if collection of accounts receivable is expected to be in excess of one year, sales are recorded net of time value of money discounts, which have not been material.
The U.S. provision for aggregate customer discounts covers chargebacks and rebates. Chargebacks are discounts that occur when a contracted customer purchases through an intermediary wholesaler. The wholesaler then charges the Company back for the difference between the price initially paid by the wholesaler and the contract price agreed to between Merck and the customer. The provision for chargebacks is based on expected sell-through levels by the Company’s wholesale customers to contracted customers, as well as estimated wholesaler inventory levels. Rebates are amounts owed based upon definitive contractual agreements or legal requirements with private sector and public sector (Medicaid and Medicare Part D) benefit providers after the final dispensing of the product to a benefit plan participant. 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. The Company uses historical customer segment utilization mix, sales forecasts, 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. Merck remains committed to the 340B Program and to providing 340B discounts to eligible covered entities.
Summarized information about changes in the aggregate customer discount accrual related to U.S. sales is as follows:
($ in millions)
Balance January 1
Current provision
Adjustments to prior years
Payments
Balance December 31
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 $295 million and $1.5 billion, respectively, at December 31, 2025 and were $293 million and $2.2 billion, respectively, at December 31, 2024.
Outside of the U.S., variable consideration in the form of discounts and rebates are 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 health care spending and the Company’s specific payback obligation. Rebates may also be required based on specific product sales thresholds. The Company applies an estimated factor against its actual invoiced sales to represent the expected level of future discount or rebate obligations associated with the sale.
The Company maintains a returns policy that allows its U.S. pharmaceutical customers 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, the Company considers factors such as levels of inventory in the distribution channel, product dating and expiration period, whether products have been discontinued, entrance in the market of generic or other competition, changes in formularies or launch of over-the-counter products, among others. The product returns provision for U.S. pharmaceutical sales as a percentage of U.S. net pharmaceutical sales was 0.6% in 2025, 0.8% in 2024, and 1.0% in 2023. Outside of the U.S., returns are only allowed in certain countries on a limited basis.
Merck’s payment terms for U.S. pharmaceutical products are typically 35 days from receipt of invoice and for U.S. animal health products are typically 30 days from receipt of invoice; however, certain products have longer payment terms, including Keytruda , which has payment terms of 90 days. Payment terms for vaccine products in the U.S. typically range from 30 days to 60 days. Outside of the U.S., payment terms are typically 30 days to 90 days, although certain markets have longer payment terms.
Through its distribution programs with U.S. wholesalers, the Company encourages wholesalers to align purchases with underlying demand and maintain inventories within certain ranges. The terms of the programs allow
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the wholesalers to earn fees upon providing visibility into their inventory levels, as well as by achieving certain performance parameters such as inventory management, customer service levels, reporting of data, and providing central product distribution. Information provided through the wholesaler distribution programs includes items such as sales trends, inventory on-hand, on-order quantity and customer service level metrics.
Inventories
Inventories are valued at the lower of cost or net realizable value. Inventories consist of currently marketed products, as well as certain inventories produced in preparation for product launches that are considered by the Company to be probable of obtaining regulatory approval. The Company capitalizes inventories produced in preparation for product launches sufficient to support estimated initial market demand. Capitalization of such inventory does not begin until regulatory approval is considered by the Company to be probable. The Company monitors the status of each respective product during the research and regulatory approval process. If the Company is aware of any specific risks or contingencies other than the normal regulatory approval process or if there are any specific issues identified during the research process relating to safety, efficacy, manufacturing, marketing or labeling, the related inventory would generally not be capitalized. The Company makes ongoing estimates relating to the net realizable value of inventories based upon its assumptions about future demand in relation to inventory levels and expiry dates. Expiry dates of the inventory are affected by the stage of completion. The Company manages the levels of inventory at each stage to optimize the shelf life of the inventory in relation to anticipated market demand in order to avoid product expiry issues. If future demand for the Company’s products are less favorable than forecasted, inventory write-downs may be required.
Contingencies and Environmental Liabilities
The Company is involved in various claims and legal proceedings of a nature considered normal to its business, including product liability, intellectual property, commercial litigation and securities litigation, as well as certain additional matters, including governmental and environmental matters. See Note 10 to the consolidated financial statements for additional information. The Company records accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Generally, for product liability claims, a portion of the overall accrual is actuarially determined and considers such factors as past experience, number of claims reported and estimates of claims incurred but not yet reported. Individually significant contingent losses are accrued when probable and reasonably estimable.
Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable. Some of the significant factors considered in the review of these legal defense reserves are as follows: the actual costs incurred by the Company; the development of the Company’s legal defense strategy and structure in light of the scope of its litigation; the number of cases being brought against the Company; the costs and outcomes of completed trials and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the associated litigation. The amount of legal defense reserves as of December 31, 2025 and 2024 of approximately $245 million and $225 million, respectively, represents the Company’s best estimate of the minimum amount of defense costs to be incurred in connection with its outstanding litigation; however, events such as additional trials and other events that could arise in the course of its litigation could affect the ultimate amount of legal defense costs to be incurred by the Company. The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to increase the reserves at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.
The Company and its subsidiaries are parties to a number of proceedings brought under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, and other federal and state equivalents. When a legitimate claim for contribution is asserted, a liability is initially accrued based upon the estimated transaction costs to manage the site. Accruals are adjusted as site investigations, feasibility studies and related cost assessments of remedial techniques are completed, and as the extent to which other potentially responsible parties who may be jointly and severally liable can be expected to contribute is determined.
The Company is also remediating environmental contamination resulting from past industrial activity at certain of its sites and takes an active role in identifying and accruing for these costs. In the past, Merck performed a worldwide survey to assess all sites for potential contamination resulting from past industrial activities. Where assessment indicated that physical investigation was warranted, such investigation was performed, providing a better evaluation of the need for remedial action. Where such need was identified, remedial action was then initiated. As definitive information became available during the course of investigations and/or remedial efforts at each site, estimates were refined and accruals were established or adjusted accordingly. These estimates and related accruals continue to be refined annually.
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The Company believes that there are no compliance issues associated with applicable environmental laws and regulations that would have a material adverse effect on the Company. Expenditures for remediation and environmental liabilities were $8 million in 2025 and are estimated to be $26 million in the aggregate for the years 2026 through 2030. In management’s opinion, the liabilities for all environmental matters that are probable and reasonably estimable have been accrued and totaled $42 million and $41 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 15 years. Although it is not possible to predict with certainty the outcome of these matters, or the ultimate costs of remediation, management does not believe that any reasonably possible expenditures that may be incurred in excess of the liabilities accrued should exceed approximately $58 million in the aggregate. Management also does not believe that these expenditures should result in a material adverse effect on the Company’s financial condition, results of operations or liquidity for any year.
Restructuring Costs
Restructuring costs have been recorded in connection with restructuring program activities. As a result, the Company has made estimates and judgments regarding its future plans, including future employee termination costs to be incurred in conjunction with involuntary separations when such separations are probable and estimable. When accruing termination costs, the Company will recognize the amount within a range of costs that is the best estimate within the range. When no amount within the range is a better estimate than any other amount, the Company recognizes the minimum amount within the range. In connection with these actions, management also assesses the recoverability of long-lived assets employed in the business. In certain instances, asset lives have been shortened based on changes in the expected useful lives of the affected assets. Severance and employee-related costs, as well as other costs, such as facility shut-down costs, are reflected within Restructuring costs . Asset-related charges are reflected within Cost of sales , Selling, general and administrative expenses and Research and development expenses depending upon the nature of the asset.
Impairments of Long-Lived Assets
The Company assesses changes in economic, regulatory and legal conditions and makes assumptions regarding estimated future cash flows in evaluating the value of the Company’s property, plant and equipment, goodwill and other intangible assets.
The Company periodically evaluates whether current facts or circumstances indicate that the carrying values of its 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, the Company will estimate fair value using a discounted value of estimated future cash flows approach.
Goodwill represents the excess of the consideration transferred over the fair value of net assets acquired in a business combination. Goodwill is assigned to reporting units and evaluated for impairment at least annually, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Some of the factors considered in the assessment include general macroeconomic conditions, conditions specific to the industry and market, cost factors which could have a significant effect on earnings or cash flows, the overall financial performance of the reporting unit, and whether there have been sustained declines in the Company’s share price. If the Company concludes it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative fair value test is performed. If the carrying value of a reporting unit is greater than its fair value, a goodwill impairment charge will be recorded for the difference (up to the carrying value of goodwill).
Other acquired intangible assets (excluding IPR&D) 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, the Company will assess recoverability from future operations using pretax undiscounted cash flows derived from the lowest appropriate asset groupings. 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.
IPR&D that the Company acquires in conjunction with a business combination represents the fair value assigned to incomplete research projects which, at the time of acquisition, have not reached technological feasibility. The amounts are capitalized and accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. The Company evaluates IPR&D for impairment at least annually, or more frequently if impairment indicators exist (such as unfavorable clinical trial data, changes in the commercial landscape or delays in the clinical development program and related regulatory filing and approval timelines), by performing a
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quantitative test that compares the fair value of the IPR&D intangible asset with its carrying value. For impairment testing purposes, the Company may combine separately recorded IPR&D intangible assets into one unit of account based on the relevant facts and circumstances. Generally, the Company will combine IPR&D intangible assets for testing purposes if they operate as a single asset and are essentially inseparable. If the fair value is less than the carrying amount, an impairment loss is recognized in operating results.
The judgments made in evaluating impairment of long-lived intangibles can materially affect the Company’s results of operations.
Taxes on Income
The Company’s effective tax rate is based on pretax income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates. An estimated effective tax rate for a year is applied to the Company’s quarterly operating results. In the event that there is a significant unusual or one-time item recognized, or expected to be recognized, in the Company’s quarterly operating results, the tax attributable to that item would be separately calculated and recorded at the same time as the unusual or one-time item. The Company considers the resolution of prior year tax matters to be such items. Significant judgment is required in determining the Company’s tax provision and in evaluating its tax positions. The recognition and measurement of a tax position is based on management’s best judgment given the facts, circumstances and information available at the reporting date. The Company evaluates 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, the Company recognizes the amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the in the financial statements. If the more likely than not threshold is not met in the period for which a tax position is taken, the Company may subsequently recognize the of that tax position if the tax matter is effectively settled, the statute of expires, or if the more likely than not threshold is met in a subsequent period.
Tax regulations require items to be included in the tax return at different times than the items are reflected in the financial statements. Timing differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in the tax return in future years for which the Company has already recorded the tax benefit in the financial statements. The Company establishes valuation allowances for its deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit. Deferred tax liabilities generally represent tax expense recognized in the financial statements for which payment has been deferred or expense for which the Company has already taken a deduction on the tax return, but has not yet recognized as expense in the financial statements.
Recently Issued Accounting Standards
For a discussion of recently issued accounting standards, see Note 2 to the consolidated financial statements.
Cautionary Factors That May Affect Future Results
This report and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking statements,” all of which are based on management’s current expectations and are subject to risks and uncertainties which 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” 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. These statements are likely to address the Company’s growth strategy, financial results, product approvals, product potential, or development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from the Company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially.
The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors, including risk factors, described in the Company’s filings with the Securities and Exchange Commission, especially on this Form 10-K and Forms 10-Q and 8-K. In Item 1A. “Risk Factors” of this annual report on Form 10-K the Company discusses in more detail various important risk factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to
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predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties.
