Eli Lilly vs Merck, Q3 2026: one quarter understated, the other flattered

Two pharma giants, two distortions in opposite directions

Eli Lilly and Merck both reported Q3 2026 on October 29. Read the headlines next to each other and Lilly looks like the clear winner: revenue up 39% versus Merck's 4.7%. Look at what each company's own filing says is driving its numbers, and the gap between "reported" and "underlying" runs in opposite directions for the two companies — Lilly's headline understates how well the business did, Merck's flatters it.

Takeaway: Lilly's 16% EPS growth undersells a business whose operating profit, stripped of acquisition charges, grew roughly in line with its 39% revenue surge. Merck's 4.7% sales growth and its contained EPS decline both lean on one-time help — purchase timing on the revenue line, a falling tax rate on the profit line — so the business underneath grew slower and lost more profit than the headlines show.

Lilly: the headline undersells the quarter

Lilly's reported EPS growth (16%) is less than half its revenue growth (39%) for one reason: a $4,181M charge for "acquired in-process R&D" — mostly the AtaiBeckley and Curevo deals — against just $656M a year ago. That single line item cut EPS by $4.57 a share versus $0.71 last year. Add it back and EPS rose about 70% ($11.79 vs $6.92), and operating margin, which fell on paper from 41.8% to 35.3%, actually rose from about 45.6% to 52.4%. Tirzepatide (Mounjaro plus Zepbound) drove the growth, up 59% to $16,075M; Mounjaro outside the US nearly doubled. Lilly raised full-year revenue guidance by $5.5 billion at the midpoint, to $91-92 billion. About $900 million of the quarter's revenue — a Jardiance milestone and favorable rebate-estimate revisions — won't repeat, which trims the underlying growth rate slightly but doesn't change the basic picture: a business growing faster than its reported profit shows, because it is spending heavily to buy its next generation of drugs.

Merck: the headline flatters the quarter

Merck's smaller numbers tell an opposite story. Merck itself discloses that about $550 million of the quarter's $809 million in sales growth came from "the timing of purchases" — wholesalers and pharmacies buying earlier than usual for Winrevair, Gardasil and the new RSV drug Enflonsia. Strip that out and sales grew roughly 1.5%, not 4.7%. On profit, GAAP pretax income fell 17.6% as acquisition-related amortization, restructuring charges and higher interest expense (debt from the Cidara and Terns deals) all rose. EPS fell only 12.1% because the tax rate dropped to 8.9% from 14.2%; on Merck's own adjusted basis, pretax income fell 7.2% while adjusted EPS fell just 3.5%, with the gap explained by a non-GAAP tax rate of 10.9% versus roughly 13.4% last year. Keytruda, still 47.6% of sales, is mid-transition to an injectable version (Qlex) that grew to $830M while the older infused version shrank 5% — a format shift Merck needs to win before cheaper copies of the infused drug arrive later this decade.

Why it matters

Neither distortion is a one-off fluke: Lilly's acquisition spending and Merck's tax-rate and purchase-timing patterns both reflect ongoing strategy (Lilly buying pipeline assets; Merck managing a post-Keytruda-patent transition with debt-funded deals of its own). An investor comparing "39% growth" to "4.7% growth" at face value would miss that Lilly's underlying margin expansion is even better than it looks, and that Merck's underlying profit decline is worse than its EPS suggests.

Figures are drawn from each company's own Q3 2026 report: Eli Lilly Q3 2026 and Merck Q3 2026.