Merck Q3 2026: sales up 5% to $18.1B, but $550M came from purchase timing and EPS fell 12%

Merck's third quarter of 2026 looks like steady growth with a profit dip: sales rose 4.7% to $18,085 million (4% excluding currency moves), while net income fell 12.4% to $5,065 million and diluted earnings per share (EPS) fell 12.1% to $2.04. Both halves of that need a qualifier. About $550 million of the sales growth came from the timing of customer purchases rather than from patients, and the profit decline would have been steeper without a tax rate that fell to 8.9% from 14.2%. Underneath, the story is the one Merck has been telling all year: newer drugs are filling the hole left by older ones going generic, but more of each sales dollar is going to amortization, launch spending and interest on the debt Merck took on to buy its pipeline.

This report is based on Merck's earnings release (Exhibit 99.1 and the supplemental tables in Exhibit 99.2 to its October 29, 2026 Form 8-K). The full 10-Q has not been filed yet, so cash flow, buybacks, dividends and balance-sheet figures for the quarter are not available here.

Key figures

Operating margin — the share of sales left after the costs of making and selling products and of research, before interest and tax — is calculated here from the income statement: sales less cost of sales, SG&A (selling, general and administrative costs), R&D and restructuring costs, which came to $5,586 million against $6,507 million a year earlier. Merck's release does not state an operating-income line. "Ex-FX" means excluding the effect of exchange-rate changes. "Gross margin" is the share of sales left after the cost of making the products. "Non-GAAP" is Merck's own adjusted measure; what it removes is covered below.

Takeaway: Merck's quarter was better on paper than underneath. Strip out the $550 million of purchase timing that Merck itself discloses and sales grew roughly 1.5%; on its own adjusted basis, pretax profit fell 7.2% and only a lower tax rate held the EPS decline to 3.5%. The launches are now big enough to more than cover the generic losses on Bridion and Januvia — the problem is that they are not yet big enough to cover those losses and the rising cost of having bought them.

What happened to profit

GAAP pretax income fell 17.6% to $5,559 million from $6,745 million. Four things did it, all named in the release:

• Cost of sales rose 27% to $4,892 million on 5% more sales. Most of the jump is not manufacturing: acquisition-related charges in cost of sales — mainly amortization, the gradual write-down of the value Merck assigned to drugs it bought or licensed — rose to $1,140 million from $621 million, and restructuring charges in cost of sales rose to $396 million from $110 million. Merck attributes the gross-margin drop to "higher amortization of intangible assets, restructuring costs and production costs." On its adjusted basis, gross margin slipped only 0.5 points, to 81.4%.
• SG&A rose 10% to $2,886 million, "primarily due to higher administrative costs, as well as higher promotional costs in support of product launches" — twice the pace of sales.
• R&D rose 7% to $4,537 million, including a $400 million charge for a global license with SciBrunch Therapeutics for MK-2690, a preclinical oral cancer drug (KRAS G12D inhibitor). That is partly offset by a $200 million reduction in R&D expense under Merck's funding deal with Blackstone Life Sciences, which is paying for part of the development of the cancer drug sac-TMT in exchange for future royalties.
• Interest cost nearly doubled. Interest expense rose to $546 million from $327 million and interest income fell to $52 million from $96 million — the cost of the debt raised for the Cidara and Terns acquisitions earlier this year. "Other (income) expense, net" swung to $27 million of expense from $238 million of income.

Net income fell less than pretax income — 12.4% against 17.6% — because the tax charge dropped to $492 million from $958 million. Merck puts the 8.9% rate down to "the favorable impacts of certain discrete items, as well as jurisdictional mix of income and expense," without sizing the discrete items.

What the headline numbers hide

Purchase timing did most of the sales growth. The release says pharmaceutical growth "benefited from the timing of purchases by approximately $550 million." The product notes point to where: Winrevair grew partly on "favorable wholesaler and specialty pharmacy purchasing patterns in the U.S.," Gardasil's U.S. sales on "favorable public-sector purchasing patterns," and Enflonsia, the new RSV antibody for infants, on "seasonal demand and associated inventory build." Merck also notes that wholesaler timing hurt Keytruda in the U.S. but was "largely offset by a benefit from increased inventory in the channel." Sales of $18,085 million minus $550 million is $17,535 million, about 1.5% above last year. Purchases pulled into one quarter are normally missing from a later one.

The year-ago quarter had its own one-off in revenue. Koselugo alliance revenue fell to $13 million from $214 million because Q3 2025 included a $150 million upfront payment and a $50 million milestone from AstraZeneca after the two companies rewrote their deal. Take that $200 million out of the base as well and underlying growth is closer to 2.7% — still well short of the headline 4.7%. Separately, "other revenues" rose $91 million to $141 million on revenue-hedging gains, which is currency hedging, not drug sales.

Adjusted EPS leaned on tax. Merck's non-GAAP figures remove acquisition-related costs ($1,167 million pretax, up from $659 million), restructuring ($581 million, up from $390 million) and gains on equity investments (which it subtracts: $393 million of income, against $344 million). The gap between GAAP and adjusted EPS widened to $0.45 from $0.26. On that adjusted basis, pretax income was $6,914 million against $7,450 million a year earlier, down 7.2%, while non-GAAP EPS fell only 3.5%. The difference is the non-GAAP tax rate, 10.9% versus about 13.4% last year (calculated from the release's reconciliation). Taxed at last year's rate, this quarter's adjusted EPS would have been about $2.42 rather than $2.49.

The excluded costs are growing, and they recur. The acquisition-cost add-back is now $1.2 billion a quarter, up 77%, because Merck keeps buying products (Verona Pharma's Ohtuvayre last October, Cidara and Terns this year). Amortization is a real cost of a buy-rather-than-build strategy even though the adjusted figure removes it.

One-off deal charges are similar in both years. The $400 million SciBrunch charge ($0.12 a share) compares with a $300 million milestone paid to LaNova a year ago ($0.10 a share); both are left in GAAP and non-GAAP EPS. They roughly cancel out in the comparison.

Buybacks barely helped. Average diluted shares fell 0.8% to 2,478 million. That lifts EPS by about 2 cents in the comparison, so this is not a buyback-driven quarter either way.

Cash conversion can't be checked yet. The release has no cash-flow statement; the 10-Q will show operating cash flow, buybacks, dividends, and whether receivables and inventory grew with the purchase-timing benefit.

On balance the quarter is flattered: about $550 million of sales came from purchase timing, and a tax rate that fell to 10.9% (non-GAAP) and 8.9% (GAAP) held EPS declines well short of the 7–18% drops in pretax income.

The product picture

Keytruda. Keytruda plus Qlex is still 47.6% of Merck's sales. Merck credits growth to "strong global uptake in earlier-stage indications" (triple-negative breast, cervical, head and neck and bladder cancer). The format shift is now visible in the numbers: in the U.S., infused Keytruda fell 7% to $4,520 million while Qlex brought in $693 million; outside the U.S., infused sales were flat at $3,251 million. Qlex is now 9.7% of the franchise, up from 5.5% in Q2. Every patient who moves to the injectable form is one that a future copy of the infused drug would have to win back, which is why this matters more than the 6% growth rate.

The generic losses arrived on schedule. Bridion's U.S. sales fell to $108 million from $392 million after it lost U.S. exclusivity in July; U.S. Januvia fell to $78 million from $258 million. Together Bridion, Januvia and Janumet lost $540 million of quarterly sales. The launch drugs — Winrevair, Welireg, Prevymis, Enflonsia and Ohtuvayre — added $818 million, though some of that is the purchase timing described above.

Animal Health grew 4% to $1,676 million: livestock +2% on poultry demand, companion animal +6% on new launches, with the Bravecto flea-and-tick line flat at $264 million.

Did last time's read hold up?

Our Q2 2026 report said the test for the next two quarters was "whether those launches grow fast enough to cover the U.S. generic losses on Januvia and Bridion without another step down in gross margin." The first half held: launches added $818 million against $540 million lost on the three generic products. The second half held only on Merck's adjusted basis — non-GAAP gross margin was 81.4%, in line with the "approximately 81%" guide — while GAAP gross margin stepped down again, to 72.9% from 73.5% in Q2, as amortization and restructuring charges kept climbing. The Q2 report also noted that interest on acquisition debt was a new drag; it grew this quarter, with interest expense up $219 million year on year.

Guidance

The sales range lost $500 million off its bottom end, so the midpoint rose $250 million, including about 1% of currency benefit. The EPS range includes one-time charges of $3.62 a share for Cidara, $2.31 for Terns and $0.12 for SciBrunch; the SciBrunch charge "was not previously included in the outlook." Adding it back, the new midpoint of $2.795 is equivalent to about $2.92 on the old basis, a raise of roughly $0.20. The tax-rate cut does much of that work: three points off the rate on roughly $10 billion of implied non-GAAP pretax income (our estimate from the guided EPS, share count and tax rate) is worth around $0.12 a share. Merck says the high full-year rate reflects "the non-tax-deductible one-time charges for the acquisitions of Cidara and Terns."

Two forward reads. First, by simple subtraction, the $1.08 of non-GAAP EPS earned through September leaves about $1.69–1.74 for the fourth quarter, well below the $2.49 just reported. Merck does not explain the step down; the release's own disclosure of $550 million of purchase timing in Q3 is one candidate, since purchases pulled forward usually come out of a later quarter. Second, for 2027 the questions are the same as this quarter's: how fast Bridion's U.S. sales go to zero (Merck said in its Q2 10-Q it expects to discontinue U.S. Bridion sales in 2027), whether Keytruda Qlex keeps taking share of the franchise, and whether amortization and interest stop growing faster than sales. On the pipeline side, the FDA set a June 15, 2027 decision date for sac-TMT in endometrial cancer (Merck is "hopeful for an earlier approval"), and Merck and Moderna's INTerpath-001 trial showed its personalised cancer vaccine plus Keytruda cut the risk of melanoma recurrence or death by 42% against Keytruda alone — the first Phase 3 validation of a therapeutic cancer vaccine, and a potential way to extend Keytruda's own life.

Source: Merck & Co., Inc. third-quarter 2026 earnings release, Exhibit 99.1 (with supplemental tables in Exhibit 99.2) to the Form 8-K filed October 29, 2026. The Form 10-Q for the quarter has not yet been filed.