Merck & Co., Inc. (MRK) — Q3 2026 Earnings Preview
Key Points
- Guidance Raised for FY26: Merck now expects FY26 revenue of $66.3B–$67.3B and non-GAAP EPS of $2.66–$2.76, both raised and narrowed from prior guidance. This includes significant one-time charges for recent acquisitions.
- Consensus Estimates for Q3 2026: Revenue expected at $17,332M, GAAP EPS at $1.90. These reflect a modest YoY growth vs. Q3 2025 actuals.
- Q3 2025 Actuals: Reported revenue was $17,277M (+4% YoY), GAAP EPS $2.32, non-GAAP EPS $2.58. The company faces a moderately tough YoY comp, especially on EPS.
- Major Factors to Watch:
- Initial launch trajectory for LIPFENDRA (oral PCSK9 inhibitor) and its impact on top-line growth.
- Uptake and adoption rates for KEYTRUDA QLEX (subcutaneous), WINREVAIR, OHTUVAYRE, and other new launches.
- Expense growth, especially R&D and SG&A, as Merck invests heavily in pipeline and launches.
- Impact of recent business development (Cidara, Terns) on P&L, including one-time charges and ongoing costs.
- Progress on pipeline catalysts, especially in oncology (sac-TMT, INT), immunology (tulisokibart), HIV (islatravir/lenacapavir), and ophthalmology (MK-3000).
- Gross margin trends, given higher inventory reserves and product mix shifts.
- Guidance updates for FY26, especially any changes to sales/EPS ranges or commentary on expense discipline.
Upcoming Quarter: Q3 2026 — Consensus vs. Guidance
| Metric | Q3 2026 Consensus | FY26 Guidance (as of Q2) | Context Notes |
|---|---|---|---|
| Revenue ($M) | 17,332 | $66,300M–$67,300M (FY) | Q3 consensus implies +0.3% YoY vs. Q3 2025 actuals |
| GAAP EPS | 1.90 | $2.66–$2.76 (non-GAAP, FY) | Q3 consensus EPS below Q3 2025 actuals due to higher expense base and one-time charges |
| Gross Margin (%) | ~81% (FY, non-GAAP) | Down from 82% prior, reflecting higher inventory reserves | |
| Non-GAAP EPS | $2.66–$2.76 (FY) | Includes $3.62/share (Cidara) and $2.31/share (Terns) one-time charges | |
| Operating Expenses ($B, FY) | $42.0B–$42.7B (FY, non-GAAP) | Up sharply YoY due to BD charges and pipeline investment |
Q3 2025 Actual Results (Restated)
| Metric | Q3 2025 Actual | YoY Growth vs. Q3 2024 | Notes |
|---|---|---|---|
| Revenue ($M) | 17,277 | +4% | Q3 2024: $16,657M |
| GAAP EPS | 2.32 | +87% | Q3 2024: $1.24; driven by lower BD charges |
| Non-GAAP EPS | 2.58 | +64% | Q3 2024: $1.57 |
| Gross Margin (%) | 77.7 | +220 bps | Q3 2024: 75.5% |
| Non-GAAP Gross Margin (%) | 81.9 | +140 bps | Q3 2024: 80.5% |
| Operating Expenses ($M, non-GAAP) | 6,596 | Flat YoY | Excludes BD charges |
| KEYTRUDA Sales ($M) | 8,142 | +10% | Q3 2024: $7,429M |
| WINREVAIR Sales ($M) | 360 | N/M | Q3 2024: $149M |
| GARDASIL Sales ($M) | 1,749 | -24% | Q3 2024: $2,306M |
| Animal Health Sales ($M) | 1,615 | +9% | Q3 2024: $1,487M |
Q3 2026 Preview: What to Watch
1. Revenue Growth and Product Mix
- LIPFENDRA Launch: Early prescription trends, payer access, and physician feedback. Management has emphasized market expansion rather than share shift from injectables.
- KEYTRUDA Franchise: Growth rate is moderating as penetration peaks in key indications; QLEX (subcutaneous) adoption is ramping, with Q2 2026 sales of $463M (up from $128M in Q1).
- WINREVAIR, OHTUVAYRE, CAPVAXIVE: New launches are contributing more meaningfully; WINREVAIR Q2 2026 sales were $588M (+75% YoY).
- GARDASIL: Lapping a weak year in China/Japan; U.S. sales stable but not a growth driver.
- Animal Health: Continues to deliver strong growth, especially in livestock.
2. Expense Growth and Margins
- R&D and SG&A: Expect continued high investment, especially in support of launches and pipeline. Q2 2026 non-GAAP R&D was $9.7B (includes $5.7B Terns charge); SG&A up 10% YoY.
- Gross Margin: Guidance for FY26 is ~81% (down from 82% prior), reflecting higher inventory reserves and product mix.
- Other Expense: Higher due to financing costs for Cidara and Terns deals.
3. Guidance and Outlook
- FY26 Guidance: Raised and narrowed to $66.3B–$67.3B revenue, $2.66–$2.76 non-GAAP EPS. Watch for any further updates or commentary on expense discipline.
- Expense Headwinds: One-time charges for Cidara ($3.62/share) and Terns ($2.31/share), plus ongoing costs for MK-4208 and financing.
- Gross Margin and Tax Rate: FY26 non-GAAP tax rate now guided to 35–36% (was 23.5–24.5%), reflecting non-deductible BD charges.
4. Pipeline and Catalysts
- Oncology: Sac-TMT (TROP2 ADC) Phase III endometrial cancer data positive; lung and breast data from Kelun in China de-risking global program. Watch for further trial initiations and readouts.
- Immunology: Tulisokibart (TL1A) positive Phase III in UC; additional readouts in Crohn’s, HS, and other indications expected.
- HIV: Islatravir/lenacapavir (weekly oral) Phase III positive; IDVYNSO (daily oral) launched; alimatravir (monthly PrEP) in Phase III.
- Ophthalmology: MK-3000 (Wnt agonist) Phase III DME data expected late 2026.
- Influenza: MK-1406 (CD388) flu prevention agent progressing; launch expected 2029.
5. Comparability and YoY Dynamics
- Q3 2025 was a strong quarter with +4% revenue growth and +87% GAAP EPS growth, aided by lower BD charges. Q3 2026 faces a moderately tough comp, especially on EPS, given higher expense base and one-time charges.
- Expense Base: Q3 2026 will reflect higher R&D and SG&A, as well as ongoing amortization and integration costs from recent acquisitions.
Quarterly Financials: Actuals and Consensus
Quarterly Income Statement ($M)
| Quarter | Revenue | GAAP EPS | Non-GAAP EPS | Gross Margin (%) | KEYTRUDA Sales | WINREVAIR Sales | GARDASIL Sales | Animal Health Sales |
|---|---|---|---|---|---|---|---|---|
| Q3 2026 Cons | 17,332 | 1.90 | ||||||
| Q2 2026 Act | 16,607 | -0.54 | -0.13 | 81.1 | 8,366 | 588 | 1,169 | 1,775 |
| Q1 2026 Act | 16,286 | -1.72 | -1.28 | 81.9 | 8,034 | 525 | 1,069 | 1,791 |
| Q4 2025 Act | 16,400 | 1.19 | 2.04 | 79.7 | 8,372 | 467 | 1,031 | 1,505 |
| Q3 2025 Act | 17,277 | 2.32 | 2.58 | 81.9 | 8,142 | 360 | 1,749 | 1,615 |
Full-Year Guidance Table (FY26, as of Q2 2026)
| Metric | FY26 Guidance (Q2 2026) | Prior Guidance (Q1 2026) | Notes |
|---|---|---|---|
| Revenue ($M) | 66,300–67,300 | 65,800–67,000 | Raised and narrowed |
| Non-GAAP EPS ($) | 2.66–2.76 | 5.04–5.16 | Lowered due to $5.7B Terns charge; includes $3.62/share (Cidara) and $2.31/share (Terns) |
| Gross Margin (%) | ~81 | ~82 | Lowered due to higher inventory reserves |
| Operating Expenses ($B) | 42.0–42.7 | 36.0–36.8 | Up sharply YoY due to BD charges |
| Non-GAAP Tax Rate (%) | 35.0–36.0 | 23.5–24.5 | Higher due to non-deductible BD charges |
| Other Expense ($B) | ~1.4 | ~1.3 | Includes Terns financing costs |
| Share Count (Diluted, B) | ~2.48 | ~2.48 |
Summary and Conclusions
- Merck enters Q3 2026 earnings with strong momentum in new product launches and pipeline progress, but faces a moderately tough YoY comp on EPS and revenue.
- Key focus areas for the quarter will be the early trajectory of LIPFENDRA, continued adoption of KEYTRUDA QLEX, WINREVAIR, and OHTUVAYRE, and the impact of heavy investment in launches and pipeline on margins and EPS.
- Expense growth is expected to remain elevated, with significant one-time charges from recent acquisitions (Cidara, Terns) and ongoing R&D and SG&A investment.
- Management has raised and narrowed FY26 guidance for both revenue and EPS, but the midpoint of non-GAAP EPS is down sharply YoY due to acquisition charges.
- Investors should watch for updates on product launch metrics, expense discipline, gross margin trends, and any changes to full-year guidance.
- Pipeline catalysts in oncology, immunology, HIV, and ophthalmology remain critical for long-term growth and derisking the >$70B commercial opportunity management has outlined for the mid-2030s.
Most Important Factors to Watch for Q3 2026
| Factor | Why It Matters |
|---|---|
| LIPFENDRA Launch Metrics | Early Rx, payer access, physician feedback—key for market expansion |
| KEYTRUDA QLEX Adoption | Ramp rate, penetration, impact on overall KEYTRUDA franchise |
| WINREVAIR/OHTUVAYRE Uptake | Contribution to top-line, validation of new launch strategy |
| Expense Growth (R&D, SG&A) | Magnitude of investment, impact on margins and EPS |
| Gross Margin Trends | Effect of product mix, inventory reserves, and pricing |
| Guidance Updates | Any changes to FY26 sales/EPS, expense, or margin outlook |
| Pipeline Progress | Readouts/updates in oncology, immunology, HIV, ophthalmology |
| Business Development Impact | Integration costs, one-time charges, ongoing expense from deals |
How Did They Report Last Year? Are They Coming Off a Tough Comparable?
- Q3 2025 was a strong quarter: revenue +4% YoY, GAAP EPS +87% YoY, non-GAAP EPS +64% YoY, gross margin up +220 bps. This was driven by strong KEYTRUDA growth, new launches, and lower business development charges.
- Q3 2026 faces a moderately tough comparable, especially on EPS, as the expense base is higher and one-time charges are significant.
- Revenue growth is expected to be modest, with consensus at +0.3% YoY, reflecting both tougher comps and a maturing KEYTRUDA franchise.
- Expense growth and margin compression are likely to be the main headwinds vs. last year.
Conclusion
Merck's Q3 2026 earnings will be a test of its ability to execute on multiple new launches, manage a higher expense base, and continue to deliver on its ambitious pipeline-driven growth strategy. Investors should focus on launch metrics, expense discipline, and any guidance updates, as well as signals on the sustainability of growth through and beyond the KEYTRUDA LOE period.
