10-K: Merck Navigates Patent Cliffs, IRA Headwinds with Pipeline Growth

Merck reports modest 2025 sales growth driven by oncology and animal health, while facing significant patent expirations and IRA pricing pressures on key products, alongside strategic acquisitions and pipeline advancements.

Summary

• Total sales for 2025 reached $65.011 billion, a 1% increase from 2024, or 2% excluding unfavorable foreign exchange effects.
• GAAP Net Income Attributable to Merck & Co., Inc. was $18.254 billion in 2025, up 7% from $17.117 billion in 2024.
• Non-GAAP Net Income Attributable to Merck & Co., Inc. increased 16% to $22.513 billion in 2025 from $19.444 billion in 2024.
• GAAP Earnings per Common Share Assuming Dilution was $7.28 in 2025, an 8% increase from $6.74 in 2024.
• Non-GAAP EPS Assuming Dilution rose 17% to $8.98 in 2025 from $7.65 in 2024.
• Keytruda/Keytruda Qlex combined global sales grew 7% to $31.680 billion in 2025, representing 49% of total company sales.
• Gardasil/Gardasil 9 sales declined 39% to $5.233 billion in 2025, primarily due to significantly lower demand in China.
• Winrevair sales surged to $1.443 billion in 2025 from $419 million in 2024, reflecting continued uptake.
• Januvia/Janumet combined sales increased 12% to $2.544 billion in 2025, driven by higher net pricing in the U.S., but face impending patent expiry and IRA price setting.
• Animal Health segment sales grew 8% to $6.354 billion in 2025, with livestock products showing a 13% increase.
• Research and development expenses decreased 12% to $15.789 billion in 2025, primarily due to lower charges for business development activity.
• A new 2025 Restructuring Program was approved, with estimated cumulative pretax costs of approximately $3.0 billion and expected annual cost savings of $1.7 billion by the end of 2027.
• Merck acquired Verona Pharma plc in October 2025 for $10.4 billion, adding Ohtuvayre, a COPD treatment.
• Merck acquired Cidara Therapeutics, Inc. in January 2026 for approximately $9.2 billion, adding MK-1406, a long-acting antiviral for influenza.
• The Board of Directors approved an increase in the quarterly dividend to $0.85 per share in November 2025.
• The company repurchased $5.1 billion of its common stock in 2025 under a $10 billion authorization.
• Merck's 5-year cumulative total return (2020-2025) was 10% CAGR, underperforming its Composite Peer Group (15% CAGR) and the S&P 500 (15% CAGR).

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a mixed filing. While Merck demonstrated growth in key oncology and animal health segments and made strategic acquisitions to bolster its pipeline, significant upcoming patent expirations and the impact of the IRA on major revenue drivers present considerable near-to-medium term challenges. The underperformance against peers in TSR also indicates areas for improvement.

Positives

• Overall sales increased by 1% (2% excluding foreign exchange) in 2025, demonstrating continued growth.
• Oncology franchise showed strong performance, with Keytruda/Keytruda Qlex sales growing 7% to $31.680 billion, driven by increased demand in earlier-stage and metastatic indications.
• Successful launches of Keytruda Qlex (subcutaneous pembrolizumab) in the U.S. and EU, offering a new administration route.
• Winrevair, a PAH treatment, saw significant sales growth to $1.443 billion in 2025 due to continued uptake and expanded indications.
• Animal Health segment delivered robust growth of 8% in 2025, with livestock products increasing 13%.
• Numerous regulatory approvals for Keytruda in various cancer types and regions, expanding its market reach.
• Enflonsia, a long-acting monoclonal antibody for RSV prevention, received FDA approval and ACIP recommendation, with initial sales of $100 million in 2025.
• Capvaxive, a pneumococcal vaccine, generated $759 million in sales in 2025, reflecting strong early launch uptake.
• Strategic acquisitions of Verona Pharma plc ($10.4 billion) and Cidara Therapeutics, Inc. ($9.2 billion) enhance the respiratory and infectious disease pipelines.
• New collaborations and license agreements, such as with Hengrui Pharma for MK-7262 and Blackstone Life Sciences for MK-2870, strengthen the R&D portfolio.
• Positive topline results from the Phase 3 MK-8591A-053 trial for HIV-1 treatment and Phase 2 CADENCE trial for Winrevair in pulmonary hypertension, indicating pipeline strength.
• The Board of Directors increased the quarterly dividend to $0.85 per share and authorized a new $10 billion share repurchase program, returning capital to shareholders.
• Favorable court rulings extended patent exclusivity for Bridion in the U.S. until July 27, 2026, and for Januvia in Japan until March 30, 2026.
• A favorable trial decision against Shilpa for Lenvima extends its exclusivity in the U.S. until February 2036.

Negatives

• Gardasil/Gardasil 9 sales experienced a significant 39% decline in 2025, primarily due to lower demand in China and Japan, with shipments to China paused since February 2025.
• Lagevrio sales plummeted 61% in 2025, mainly due to declining COVID-19 cases and lower demand in the Asia Pacific region.
• Dificid sales decreased 27% in 2025 due to generic competition in the U.S. following loss of market exclusivity in July 2025.
• The company lost marketing rights for immunology products Simponi and Remicade in Europe, Russia, and Turkey on October 1, 2024, impacting sales.
• Januvia and Janumet are subject to government price setting under the Inflation Reduction Act (IRA), effective January 1, 2026, and January 1, 2027, respectively, and will lose U.S. market exclusivity in May/July 2026, anticipating a significant decline in sales.
• Keytruda is expected to be selected for IRA government price setting in 2027, with a material negative impact on U.S. sales anticipated after January 1, 2029.
• Bridion will lose market exclusivity in the U.S. in July 2026, with a significant and rapid decline in U.S. sales expected, leading to anticipated discontinuation of U.S. sales by the end of 2026.
• Lenvima has been selected for government price setting under the IRA, effective January 1, 2028.
• A data entry issue related to solicited complaints for Enflonsia delayed the European Commission's marketing authorization decision.
• The company received Notices of Proposed Adjustment (NOPAs) from the IRS for 2017 and 2018 tax returns, proposing an increase of approximately $1.3 billion in transition tax and $260 million in penalties.
• Gross margin declined to 74.8% in 2025 from 76.3% in 2024, impacted by higher restructuring costs, inventory write-downs, increased amortization, and fair value step-up of inventories from acquisitions.
• Cash provided by operating activities decreased to $16.5 billion in 2025 from $21.5 billion in 2024, reflecting higher income tax payments and increased upfront/milestone payments for collaborations and acquisitions.
• Ongoing product liability lawsuits, including approximately 610 cases for Dr. Scholls Foot Powder and 135 cases for Gardasil/Gardasil 9, pose legal and financial risks.
• Securities class action and derivative lawsuits were filed alleging false and misleading statements regarding Gardasil/Gardasil 9 demand in China.
• A preliminary injunction was awarded against the company in Germany, prohibiting sales of subcutaneous pembrolizumab, following patent infringement allegations by Halozyme, Inc.

Risks

• Dependence on patent rights, with risks of invalidation or circumvention, leading to loss of market exclusivity and significant sales declines for key products.
• Key products (Keytruda, Gardasil/Gardasil 9, Lynparza, Winrevair, Bravecto) generate a significant portion of profits and cash flows, making the company vulnerable to adverse events affecting these products.
• High rate of failure inherent in pharmaceutical research and development, with substantial funds invested in programs that may not generate financial returns or receive regulatory approval.
• Continued pricing pressure from managed care organizations, government agencies, and programs globally, including the impact of the Inflation Reduction Act (IRA) on Medicare drug prices.
• Unfavorable or uncertain economic conditions, including inflation, interest rates, and raw material costs, could negatively affect operating results.
• Intense competition from lower-cost generic and biosimilar products, as well as new products from competitors, could reduce sales and market share.
• Significant global operations expose the company to risks such as changes in medical reimbursement policies, multiple regulatory requirements, trade protection measures, foreign exchange fluctuations, and diminished intellectual property protection in some countries.
• Climate change or measures to address it may negatively affect business through increased operating costs, physical risks to facilities, water limitations, and supply chain disruptions.
• Environmental, social, and governance (ESG) matters may impact business and reputation, leading to increased compliance costs and potential negative stakeholder reaction.
• Failure to attract and retain highly qualified scientific, technical, and management personnel could hinder product development and commercialization.
• Difficulties and delays in manufacturing certain products, including vaccines, could lead to product shortages, lost sales, and reputational harm.
• Significantly lower sales of Gardasil/Gardasil 9 in China in 2025, with no material increase expected in 2026, impacting business in the region.
• Inability to realize expected benefits from investments in emerging markets due to political instability, currency fluctuations, and limited healthcare funding.
• Exposure to market risk from fluctuations in currency exchange rates and interest rates, which may not be fully mitigated by hedging activities.
• Unexpected safety or efficacy concerns with marketed products could lead to recalls, withdrawals, declining sales, and product liability claims.
• Reliance on third-party relationships and outsourcing arrangements for key business aspects could be adversely affected by failures of these parties.
• Negative events in the animal health industry, such as disease outbreaks, government procurement practices, and global agribusiness economic events, could materially affect the Animal Health business.
• Biologics and vaccines carry unique risks and uncertainties related to development, complex manufacturing, and extensive regulatory requirements.
• The U.S. healthcare industry is subject to increasing regulation and political action, including potential changes to vaccine recommendations and the 340B Federal Drug Discount Program.
• Failure to obtain and maintain regulatory approval or authorization for products, including those in development, would prevent market entry and revenue generation.
• Developments following regulatory approval, such as post-approval trials, re-reviews, recalls, or negative publicity, may adversely affect product sales.
• Subject to evolving and complex tax laws, including ongoing IRS examinations and potential liabilities related to the TCJA transition tax.
• Adverse outcomes in current or future legal matters, including intellectual property disputes, product liability, antitrust litigation, and government investigations, could negatively affect the business.
• Product liability insurance for products may be limited, cost-prohibitive, or unavailable, leading to significant self-insured risks.
• Increasing dependence on sophisticated software applications and computing infrastructure, including cloud-based systems, makes the company a target for cyber-attacks that could disrupt operations and lead to data loss.
• Growing use of artificial intelligence (AI) systems poses inherent risks, including flaws, biases, operational disruptions, data loss, ethical/legal challenges, and increased cybersecurity threats.
• Social media and mobile messaging platforms present risks of brand damage, information leakage, and legal implications from inappropriate or unauthorized use.

Future Outlook

Merck anticipates a material decline in U.S. Keytruda sales after January 1, 2029, due to government price setting under the IRA, and expects significant and rapid declines in U.S. sales of Bridion after July 2026, with discontinuation by year-end. Januvia and Janumet are also projected to lose nearly all U.S. sales after May 2026 due to IRA pricing and market exclusivity loss. Lagevrio sales are expected to continue declining in 2026. The company plans to submit an NDA for enlicitide decanoate in early 2026 and proceed with Phase 3 development for Winrevair in a new indication. Merck is committed to investing approximately $20 billion in capital projects from 2025-2029, with over $12 billion in the U.S., and expects annual cost savings of $1.7 billion from its 2025 Restructuring Program by the end of 2027, which will be reinvested into strategic growth areas. Pricing pressures and market access challenges are expected to persist in emerging markets.

Management Comments

• 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.
• 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.
• Merck remains confident in the robustness of the CLEVER and SMART trials as pivotal studies for Enflonsia and the risk-benefit profile of Enflonsia.
• Merck is working to mitigate the potentially harmful effects that the Inflation Reduction Act could have, which could include a detrimental impact on innovation.
• Merck remains committed to the 340B Program and to providing 340B discounts to eligible covered entities.
• Merck believes that its sources of financing will be adequate to meet its future requirements.
• Management does not believe that expenditures related to environmental initiatives should have a material adverse effect on the company's financial condition, results of operations, liquidity or capital resources for any year.
• Management also does not believe that environmental remediation expenditures should result in a material adverse effect on the company's financial condition, results of operations or liquidity for any year.

Industry Context

StockSavvy.ai notes that Merck's 2025 performance reflects broader pharmaceutical industry trends, including the increasing impact of healthcare cost containment measures globally, such as the U.S. Inflation Reduction Act (IRA) and government-mandated pricing in international markets. The company's strong oncology and animal health growth aligns with robust demand in these sectors, while declines in older vaccine products and COVID-19 treatments are consistent with market shifts. The strategic focus on acquisitions and pipeline diversification, particularly in biologics and vaccines, is a common industry response to patent expirations and the need for continuous innovation. The underperformance in cumulative total shareholder return compared to peers and the S&P 500 highlights the competitive pressures and the significant challenges posed by upcoming patent cliffs and regulatory changes.

Comparison to Industry Standards

• Merck's 5-year cumulative total return (2020-2025) was 10% Compound Annual Growth Rate (CAGR), which significantly underperformed its Composite Peer Group (15% CAGR) and the S&P 500 Index (15% CAGR).
• The Composite Peer Group includes major U.S. and European-based pharmaceutical companies such as AbbVie Inc., Amgen Inc., AstraZeneca plc, Bristol-Myers Squibb Company, Johnson & Johnson, Eli Lilly and Company, Gilead Sciences Inc., GlaxoSmithKline plc, Novartis AG, Pfizer Inc., Roche Holding AG, and Sanofi SA.

Management Changes

Corporate Governance

Legal Proceedings

• Approximately 610 product liability lawsuits are pending against Merck in the U.S. related to alleged asbestos-contaminated talc in Dr. Scholls foot powder.
• Approximately 135 product liability cases are pending against Merck in federal or state court involving Gardasil/Gardasil 9, alleging various personal injuries including postural orthostatic tachycardia syndrome (POTS). A proposed agreement to substantially resolve the Gardasil product liability litigation was reached in October 2025, for a payment considerably less than anticipated defense costs and not material to Merck.
• A Civil Investigative Demand (CID) was received from the U.S. Department of Justice (DOJ) in August 2025, investigating programs and practices concerning diversity, equity, and inclusion under the False Claims Act.
• A CID was received from the DOJ in June 2024, investigating price reporting under the Medicaid Drug Rebate Program and anti-kickback compliance related to Steglatro, Januvia, and certain related drugs.
• Merck filed a complaint against the U.S. government in June 2023, challenging the constitutionality of the Inflation Reduction Act's Drug Price Negotiation Program.
• The California Attorney General's Office is investigating conduct and agreements that allegedly affected or delayed competition to Lantus in the insulin market.
• A putative class action was filed in March 2023 alleging an anticompetitive vaccine bundling scheme related to RotaTeq.
• A class action lawsuit is pending in the U.S. District Court for the District of New Jersey and Quebec, Canada, alleging Bravecto products cause neurological events in dogs and cats.
• Ongoing litigation with Merck KGaA regarding the use of the 'Merck' name in the U.S. and counterclaims in other jurisdictions.
• Patent infringement lawsuits against generic companies for Lynparza are consolidated, with a trial expected in 2026; the olaparib compound patent expires in September 2027.
• Halozyme, Inc. filed a patent infringement complaint against Merck regarding subcutaneous pembrolizumab, leading to Merck filing post-grant review petitions and a preliminary injunction being awarded against Merck in Germany.
• Pogona, LLC filed a patent infringement lawsuit against Merck in September 2025, alleging infringement related to Capvaxive.

Stakeholder Impact

• Shareholders: Benefit from increased dividends and share repurchases, but face risks from patent expirations, IRA pricing, and ongoing litigation that could impact future earnings and stock performance.
• Employees: Affected by restructuring programs involving job eliminations and new hires in strategic growth areas, but benefit from competitive compensation, enhanced benefits, and well-being programs.
• Patients/Customers: Gain access to new innovative medicines and vaccines (e.g., Keytruda Qlex, Enflonsia, Capvaxive, Winrevair) and benefit from direct-to-patient programs for affordability, but may face reduced access or higher costs for products impacted by IRA or generic competition.
• Suppliers: Engaged in partnerships to reduce Scope 3 GHG emissions, but may face increased scrutiny and requirements related to environmental sustainability.
• Governments/Regulators: Engaged in ongoing discussions and litigation regarding drug pricing (IRA), compliance with anti-kickback and rebate programs, and environmental regulations.

Next Steps

• Vigorously contest the IRS Notices of Proposed Adjustment (NOPAs) for 2017 and 2018 tax returns.
• Continue to monitor legal defense costs and review the adequacy of associated reserves for ongoing litigation.
• Submit a New Drug Application (NDA) for enlicitide decanoate to the FDA in early 2026.
• Proceed with Phase 3 development for Winrevair in combined postand precapillary pulmonary hypertension due to heart failure with preserved ejection fraction.
• Manage the impact of government price setting for Januvia (effective January 1, 2026) and Janumet/Janumet XR (effective January 1, 2027) under the IRA.
• Prepare for the anticipated material decline in U.S. Keytruda sales after January 1, 2029, due to expected IRA price setting.
• Address the anticipated significant and rapid decline in U.S. Bridion sales after July 2026 and plan for discontinuation of U.S. sales by the end of 2026.
• Continue efforts to mitigate the impact of the IRA on innovation and overall business performance.
• Monitor and respond to ongoing patent litigation for Keytruda, Lenvima, Lynparza, Capvaxive, and subcutaneous pembrolizumab.
• Implement the 2025 Restructuring Program to achieve approximately $1.7 billion in annual cost savings by the end of 2027, with full reinvestment into strategic growth areas.
• Continue to invest approximately $20 billion in capital projects from 2025-2029, with over $12 billion allocated to the U.S.
• Work to resolve the data entry issue for Enflonsia to secure European Commission marketing authorization.
• Monitor global economic conditions, including currency fluctuations and trade policies, particularly in emerging markets and China.

Key Dates

Recommendation

Merck demonstrates a strong commitment to innovation and shareholder returns through strategic acquisitions, pipeline advancements, dividend increases, and share repurchases. However, the significant upcoming patent expirations for key products like Januvia, Janumet, and Bridion, coupled with the anticipated material impact of the Inflation Reduction Act on Keytruda sales, create substantial near-to-medium term revenue headwinds. The company's 5-year TSR underperformance relative to its peers and the broader market suggests that these challenges are already factored into its valuation. While the long-term strategy of reinvesting cost savings into growth areas is sound, the immediate future presents considerable uncertainty and competitive pressures, warranting a 'hold' recommendation for seasoned investors.

Keywords

Pharmaceuticals, Oncology, Vaccines, Animal Health, Keytruda, Gardasil, Winrevair, Januvia, SEC Filing, 10-K, Financial Report, Biologics, R&D, Acquisitions, Market Exclusivity, Pricing Pressure, Inflation Reduction Act, Patent Litigation, Cybersecurity, ESG, Corporate Governance, Restructuring, Dividend, Share Repurchase