Merck & Co., Inc. (MRK.US) Q3 results beat expectations: Keytruda and Gardasil perform well, full-year guidance raised.

Merck & Co., Inc. (MRK.US) reported third-quarter 2026 results. Q3 total revenue was US$18.085 billion, up 5% year over year (4% excluding currency effects), above the LSEG-compiled analyst average estimate of US$17.31 billion; adjusted earnings per share were US$2.49, far exceeding the expected US$2.08; GAAP net income was US$5.065 billion and GAAP earnings per share were US$2.04, each down 12% year over year. The company raised its full-year guidance the same day: the low end of the 2026 revenue range was lifted from US$66.3 billion to US$66.8 billion, and full-year adjusted EPS guidance was raised from US$2.662.76 to US$2.772.82. But this "beat" contains an element of dilution that the company itself flagged: of the quarter's pharmaceutical sales growth, about US$550 million came from procurement timingthat is, customers stocking up early. Based on official figures, total revenue increased by about US$809 million year over year this quarter, of which roughly 70% was not new demand but demand pulled forward. Breakdown of the increase: about US$550 million came from "buying early" The official press release flagged timing factors in several places: pharmaceutical business growth "benefited from approximately US$550 million of procurement timing"; under Keytruda, wholesaler procurement timing "adversely affected" U.S. sales but was largely offset by the benefit of higher channel inventories; Gardasil growth benefited from early purchasing by the U.S. Centers for Disease Control and Prevention (CDC); and Winrevair benefited from the purchasing patterns of U.S. wholesalers and specialty pharmacies. This means the quality of the quarter's 5% revenue growth should be discountedpull-forward purchasing borrows from future quarters. It also explains why revenue substantially beat expectations (US$18.085 billion vs. US$17.31 billion) while adjusted EPS still fell 3% year over year and GAAP EPS fell 12%: part of the growth "volume" was borrowed. Margins were also under pressure: GAAP gross margin fell to 72.9% from 77.7% a year earlier, though non-GAAP gross margin excluding one-time items was 81.4%, essentially flat versus 81.9% a year earlier. On the expense side, R&D spending was US$4.537 billion, up 7% year over year (up 13% on a non-GAAP basis), and selling, general and administrative expenses were US$2.886 billion, up 10%. Keytruda: IV version down 5% year over year; subcutaneous version's US$830 million accounts for all the growth Keytruda and the subcutaneous formulation Keytruda QLEX combined sales were US$8.601 billion, up 6% year over year (also 6% excluding currency effects), above the US$8 billion expectation cited by Reuters. Broken down, the mix is more noteworthy than the total: sales of intravenous Keytruda were US$7.771 billion, down 5% year over year (US$8.142 billion a year earlier); while QLEX, the subcutaneous version launched only at the end of 2025, contributed US$830 million (versus only US$5 million a year earlier), the highest single quarter since that formulation launched (the market expected US$649 million for QLEX and US$7.73 billion for Keytruda overall, both of which were beaten). In other words, nearly all of Keytruda's 6% overall growth came from the subcutaneous version, while the IV version is already contracting year over year. This is precisely Merck & Co., Inc.'s core strategy: before Keytruda begins losing key patent protection starting in 2028, shift patients from intravenous infusion to more convenient subcutaneous injection, using formulation conversion to defend market share and the sales scale of this "blockbuster"-level product. The strategy also gained a regulatory anchor this quarter: Japan's Ministry of Health, Labour and Welfare approved the subcutaneous formulation for all Keytruda indications approved in that country. Gardasil: +14% to US$1.995 billion, driven by early CDC purchasing HPV vaccine Gardasil/Gardasil 9 sales were US$1.995 billion, up 14% year over year (also 14% excluding currency effects), above Wall Street expectations of roughly US$1.761.8 billion. Growth was mainly boosted by early CDC purchasingin the preceding several quarters, the vaccine had been weighed down by weak demand in China. The China market line has not truly recovered: the company previously disclosed that in April 2026 it signed a revised supply contract with Chongqing Zhifei Biological Products and resumed limited shipments from the second quarter, but it expects revenue related to that contract in 2026 to be "not material." Thus this quarter's Gardasil rebound rests on the pace of U.S. government procurement, not a return of Chinese demand. The remaining vaccines diverged markedly: Capvaxive US$263 million, up 8%; Enflonsia US$187 million, up 138%; ProQuad/M-M-R II/Varivax US$730 million, up 7%; RotaTeq US$196 million, down 4%; Vaxneuvance US$195 million, down 14% (partly due to the high base from CDC stockpile purchasing a year earlier). New engines scaling up, old drugs collapsing faster New growth drivers continued their steep trajectory: pulmonary arterial hypertension drug Winrevair sales were US$694 million, up 93% year over year (94% excluding currency effects), above the roughly US$645 million expectation; Welireg US$307 million, up 56%; Prevymis US$347 million, up 30%; alliance revenue from Eisai's Lenvima US$287 million, up 11%; animal health business US$1.676 billion, up 4% (including livestock US$1.048 billion and companion animals US$628 million; Bravecto US$264 million, up 1%), slightly below analyst expectations. At the other end, the collapse of off-patent products is accelerating: Bridion sales plunged 67% to US$144 million due to generic competition; Januvia/Janumet combined US$380 million, down 39% (including Januvia down 51%); alliance revenue from Astrazeneca PLC Sponsored ADR's Lynparza US$352 million, down 7%. The gap between these two groups of numbers is precisely the underlying motivation for Merck & Co., Inc.'s heavy M&A and licensing in recent years. Guidance adjustment details The company's 2026 adjusted EPS range is US$2.772.82 (previously US$2.662.76), but a footnote to the press release specifies that the range includes three one-time chargesUS$9 billion for the Cidara acquisition (US$3.62 per share), US$5.7 billion for the Terns acquisition (US$2.31 per share), and US$400 million related to the global licensing agreement with SciBrunch (US$0.12 per share)totaling about US$6.05 per share. That is, excluding these one-time items, full-year EPS on an operating basis is about US$8.828.87 (calculated from the official footnote; this is the translator's calculation, not a company-disclosed figure). In the first three quarters, the Cidara and Terns charges successively weighed on non-GAAP profit, and the newly added SciBrunch charge this quarter (US$400 million, recorded in R&D expense) had not previously been in guidance. On revenue guidance, the US$66.867.3 billion range includes about a 1% positive currency effect at mid-October exchange rates, while EPS guidance includes about US$0.15 per share of currency benefit. Pipeline: last weekend's ESMO "first Phase III validation" and the 2028 cliff Chairman and CEO Robert M. Davis said in the press release: "Our science-led strategy is transforming our business. The potentially practice-changing oncology advances presented at last weekend's ESMO Congressincluding new data for our antibody-drug conjugate sac-TMT and the first Phase III validation of a therapeutic cancer vaccinefurther de-risk the significant long-term opportunity across our late-stage pipeline from a clinical perspective. The positive momentum across multiple therapeutic areas makes me increasingly confident in our ability to create long-term value for patients and shareholders." Milestones achieved this quarter include: FDA approval of Welireg in combination with Lenvima for certain previously treated advanced renal cell carcinoma; acceptance of the biologics license application for sac-TMT in previously treated endometrial cancer, with a PDUFA date of June 15, 2027; EU approval of Keytruda in combination with Padcev for resectable muscle-invasive bladder cancer; Japanese approval of the subcutaneous formulation; acceptance of the sBLA for Enflonsia to extend to children under 2 (PDUFA March 22, 2027); acceptance of the sNDA for IDVYNSO (PDUFA April 22, 2027); and a Winrevair label update incorporating Phase III HYPERION data. There was also one setback: the marketing application for I-DXd in extensive-stage small cell lung cancer, partnered with Daiichi Sankyo, was voluntarily withdrawn by the company. In addition, the company obtained the global exclusive license to SciBrunch's oral KRAS G12D inhibitor MK-2690 for US$400 million.