Merck's quarterly results exceed expectations, but conservative 2026 guidance issued due to generic drug competition

Merck & Co reported fourth-quarter earnings and revenue on Tuesday that exceeded expectations, driven by strong demand for its cancer immunotherapy Keytruda and several newer products.

However, the company issued a relatively conservative outlook for 2026, falling short of Wall Street expectations, as it prepares for several of its drugs to lose patent protection and face generic competition later this year. These drugs include the type 2 diabetes medications Januvia and Janumet, as well as Bridion, a drug that helps restore muscle function blocked during surgery.

While these drugs are not top sellers like Keytruda, the combined decline in their sales could put pressure on the company.

The pharmaceutical giant expects its 2026 revenue to be between $65.5 billion and $67 billion. According to London Stock Exchange Group data, analysts had previously expected revenue of $67.6 billion.

Merck also expects adjusted earnings per share to be between $5 and $5.15. According to London Stock Exchange Group data, analysts had previously forecast earnings per share of $5.36.

This guidance range includes a one-time charge of about $9 billion (approximately $3.65 per share), related to Merck's acquisition of biotech company Cidara, which is developing a flu prevention drug.

According to a company spokesperson, the guidance factors in the drug pricing agreement Merck reached with U.S. President Trump last December, as well as the "manageable impact" of recent U.S. government cutbacks to the national childhood immunization program.

Under this "most favored nation" agreement, Merck will voluntarily sell its existing therapies to Medicaid patients at the lowest prices offered in other developed countries and guarantee similar pricing for new drugs. In exchange, Merck will receive a three-year tariff exemption.

Merck's adjusted earnings per share for the fourth quarter were $2.04, beating the market expectation of $2.01; revenue was $16.4 billion, compared to the market expectation of $16.19 billion.

The company reported net income of $2.96 billion this quarter, or $1.19 per share, compared to net income of $3.74 billion, or $1.48 per share, in the same period last year.

Excluding acquisition and restructuring costs, Merck's fourth-quarter earnings per share were $2.04.

Merck's fourth-quarter revenue reached $16.4 billion, a 5% year-over-year increase.

These results come as Merck is planning to cut $3 billion in costs by the end of 2027 and preparing for revenue losses when Keytruda's patent expires in 2028.

Keytruda drives growth amid Gardasil challenges

Merck's pharmaceutical division develops a variety of drugs and generated $14.84 billion in revenue in the fourth quarter, up 6% year-over-year.

Keytruda's sales in the quarter exceeded $8.37 billion, a 7% year-over-year increase. According to StreetAccount estimates, analysts had previously expected revenue of $8.35 billion.

The company said Keytruda's revenue growth was driven by increased use of the drug in early-stage cancer and strong demand for treating metastatic cancer that has spread to other parts of the body.

The more convenient subcutaneous version of Keytruda, approved last year, generated $35 million in sales in the fourth quarter.

This version of Keytruda is critical for Merck to respond to potential revenue declines after the original intravenous formulation's patent expires.

Meanwhile, Merck's new drug Winrevair, used to treat a rare and fatal lung disease, achieved sales of $467 million this quarter, a 133% year-over-year increase.

According to StreetAccount estimates, analysts had previously expected revenue of $459 million for this drug.

Winrevair was first launched in mid-2024, and its growth primarily reflects increased adoption in the U.S. and early launches in some international markets.

Merck's Gardasil vaccine, which prevents cancers caused by HPV (the most common sexually transmitted infection in the U.S.), continues to face challenges in the Chinese market.

In February, Merck announced it would stop shipping Gardasil to China starting that month. In July, Merck CFO Caroline Litchfield said the company would not resume shipments to China until at least the end of 2025, noting that inventories remain high and demand is still weak.

Due to declining demand in China, Gardasil sales for the quarter were $1.03 billion, down 34% year-over-year. However, according to StreetAccount data, this was still in line with analyst expectations.

Gardasil's revenue may face even greater pressure in 2026. As part of changes to the U.S. Centers for Disease Control and Prevention's vaccination program for children, the agency said children should receive one dose of the HPV vaccine instead of the two or three doses recommended on the label.

Merck's animal health division develops vaccines and drugs for dogs, cats, and cattle, with sales of nearly $1.51 billion, up 8% year-over-year. The company said this reflects increased demand across all species.

Editor in charge: Zhang Jun SF065