Merck & Co. 10-Qquarter ended 2026-03-31
MixedRestructuringImpairment / charge
Cidara’s influenza-pipeline acquisition drove a GAAP loss despite sales growth led by Keytruda and Winrevair.
Filed 2026-05-04 16:10 ET
Key figures · Q1 FY2026 · period ended 2026-03-31
- Revenue$16.3BYoY +4.9%QoQ −0.7%
- Operating income— Not reported
- Net income−$4.2BYear ago $5.1BPrevious quarter $3.0B
- Total assets$128.7BYoY +11.8%QoQ −6.0%
- Total debt$49.1B1YoY +41.0%QoQ −0.4%
How total debt adds up Long-Term Debt $46,673M + Loans payable and current portion of long-term debt $2,444M Total debt $49,117M Lines as the filer presents them on its balance sheet.
- Shareholders' equity$45.9BYoY −5.1%QoQ −12.8%
- Tangible book value−$1.4BYear ago $10.9BPrevious quarter $4.3B
Notes (1)
- Total debt: About the summary: The summary's $46.7B is the Long-Term Debt line, one of the 2 lines that make up total debt (see ⓘ).
How this filing reads
- Health+0.2Operating cash flow was $3.92B and free cash flow $2.93B against $46.7B long-term debt.
- Momentum+0.3Sales rose 5% year over year, while gross margin declined to 74.2% from 78.0%.
- Outlook−0.4Nearly all U.S. Januvia and Janumet sales are expected to disappear after May 2026.
Executive Summary
Merck grew Q1 2026 sales 5% as Keytruda, Winrevair and Animal Health more than offset declines in Gardasil and older medicines. Its $4.24B GAAP loss reflects a $9.0B charge for acquiring Cidara’s influenza-prevention candidate, rather than a collapse in product demand; operating cash flow remained positive. The acquisition reduced cash and equity, while a planned Terns purchase would add another large R&D charge and require financing. For investors, the question is whether Merck’s expanding pipeline and newer products can outweigh Keytruda concentration, vaccine weakness and imminent generic competition.
Key Financial Highlights
| Metric | Q1 2026 / 3/31/2026 | Investor interpretation |
|---|---|---|
| Revenue | $16.3B, +5% Y/Y | Growth was 3% excluding foreign exchange. |
| Gross profit; gross margin | $12.1B; 74.2% vs 78.0% | Acquired-intangible amortization and inventory accounting compressed margin. |
| GAAP net loss; diluted EPS | $(4.24)B; $(1.72), vs $5.08B income; $2.01 | The Cidara R&D charge dominated reported earnings. |
| R&D expense | $12.6B vs $3.62B | Includes the $9.0B Cidara charge. |
| OCF; FCF | $3.92B; $2.93B | Cash flow and earnings diverged largely because the acquisition charge was added back in OCF. |
| Total assets; total equity | $129B; $45.9B, vs $137B; $52.7B at year-end | Acquisition spending and the reported loss reduced the balance sheet. |
| Tangible common equity | $(1.40)B | Equity less $21.6B of goodwill and $25.7B of other intangible assets, net. |
| Cash and equivalents; long-term debt | $5.33B vs $14.6B at year-end; $46.7B | Cidara materially reduced immediately available cash. |
- Revenue mix: Pharmaceuticals generated $14.3B; Animal Health generated $1.79B, up 13% reported but 6% excluding foreign exchange. Keytruda and Keytruda Qlex together generated $8.03B, up 12%, making growth increasingly dependent on that franchise.
- Cash conversion: OCF included an $8.54B add-back for R&D asset-acquisition charges. Investing cash outflow included $8.78B of net cash paid for Cidara; capital expenditures were $991M.
- Capital return: Dividends paid were $2.11B. Cash-flow reporting shows $874M of repurchases, while the equity activity disclosure shows $925M of treasury-stock purchases; net shares outstanding fell by ≈4.9M, from ≈2.475B to ≈2.470B.
- Financing and tax: Interest expense rose to $479M from $313M. A $709M tax provision despite a pretax loss produced a (20.1)% effective tax rate, principally because the Cidara charge yielded no tax benefit.
Business Developments
Oncology remains Merck’s principal commercial engine, but Q1 Keytruda growth included ≈$250M of favorable U.S. wholesaler-purchase timing. Winrevair sales reached $525M, up 88%, while Animal Health benefited from livestock and companion-animal demand. In contrast, Gardasil/Gardasil 9 sales fell 19% to $1.07B; China shipments have been suspended since February 2025, and Merck expects any 2026 shipments there to be immaterial. These trends shift the near-term growth burden toward oncology and newer cardiopulmonary products.
Merck acquired Cidara for $9.2B, gaining Phase 3 influenza-prevention candidate MK-1406. It also agreed to buy Terns for ≈$6.7B to add investigational leukemia treatment TERN-701; closing is expected to produce an ≈$5.8B R&D charge. These deals are pipeline investments, not contributions that offset their near-term earnings and financing costs.
Management is restructuring to fund growth: Q1 charges were $466M, and its broader multiyear initiative targets $3.0B in annual savings for reinvestment. Pipeline progress includes an October 2026 regulatory decision date for antibody-drug conjugate I-DXd, but failures in two Keytruda trials and one Welireg trial show that additional indications cannot be assumed.
Risk Assessment
- Keytruda concentration: Keytruda and Keytruda Qlex generated $8.03B, nearly half of sales; reimbursement, future negotiated U.S. pricing and eventual biosimilar competition therefore have outsized consequences.
- Patent expirations and pricing: U.S. generic entry for Januvia and Janumet begins in May 2026, followed by Bridion exclusivity expiration in July; Merck expects to lose nearly all U.S. Januvia and Janumet sales after May.
- Gardasil demand: Sales fell 19%, China shipments remain suspended, and uncertainty around vaccine recommendations and purchasing could delay recovery.
- Acquisition funding and execution: Cash and equivalents fell to $5.33B; Merck arranged a delayed-draw term loan of up to $6.0B for Terns and intends to refinance it with long-term debt, increasing exposure if pipeline returns disappoint.
- Clinical development: Recent unsuccessful oncology trials and the decision to discontinue MK-1308A underscore the risk that R&D spending does not yield approvals or sales.
- Legal and tax: Product-liability litigation includes ≈135 U.S. Gardasil cases and ≈735 talc-related cases; the IRS separately proposes ≈$1.3B of additional transition tax and $260M of penalties, excluding interest, which Merck contests.
A 10-Q does not have to restate the risk factors in the annual report. Full list: FY2025 10-K.
Strategic Outlook and Investor Actionables
Merck is using cash, acquisitions and restructuring to build growth beyond mature products. The strategy has visible new-product momentum, but upcoming patent losses and acquisition charges will obscure near-term earnings and test whether pipeline investment creates durable revenue.
- Monitor Keytruda and Keytruda Qlex growth excluding wholesaler timing, alongside Winrevair sales: sustained demand would support the growth thesis beyond Q1’s purchase-timing benefit.
- Monitor Gardasil China shipments and U.S. Januvia/Janumet sales after May: continued vaccine weakness plus rapid generic erosion would increase dependence on newer launches.
- Monitor the Terns closing, associated R&D charge, financing and OCF: pipeline progress must justify the additional balance-sheet commitment.
Figures are computed from the filing's XBRL data; the summary and scores are written by an AI model reading the filing.
Model 005 · prompt 9e47f58d3c