Merck Earnings and Financials

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Merck & Co., Inc. (NYSE: MRK) reported total revenues of $63.590 billion in fiscal year 2024, the twelve months ending December 31, 2024, up from $60.115 billion in FY2023. Net income was $15.607 billion and diluted EPS was $6.13 on a GAAP basis, or $7.65 on a non-GAAP basis. Keytruda (pembrolizumab), Merck's PD-1 cancer immunotherapy, generated approximately $29.5 billion, making it the best-selling drug in the world by annual revenue and accounting for roughly 46% of Merck's total revenues. Merck operates two reportable segments: Pharmaceutical (approximately $55.2 billion) and Animal Health (approximately $5.8 billion).

Revenue by segment (FY2023 vs FY2024)

Keytruda's growth of approximately 18% year-over-year was the primary driver of Merck's total revenue increase. This was partially offset by the significant decline in Gardasil sales, which fell roughly 25% due to destocking in China. The Chinese government and distribution channels accumulated excess HPV vaccine inventory in prior years; as that inventory was worked down in 2024, Merck's shipments into China contracted sharply. Gardasil remains a major product in non-China markets, but the China headwind was large enough to reduce the overall Gardasil line by approximately $2.8 billion.

The Animal Health segment, which sells veterinary products including the Bravecto flea and tick treatment for companion animals and vaccines for livestock, grew modestly at approximately 5% and provides geographic and end-market diversification relative to the Pharmaceutical segment.

Source: Merck: Form 10-K SEC Filings (CIK 0000310158)

Key financial metrics (FY2023 vs FY2024)

The gap between GAAP EPS ($6.13) and non-GAAP EPS ($7.65) is large by the standards of most industrial companies. Merck's non-GAAP adjustment primarily excludes amortization of intangible assets acquired through business combinations. Because Merck has made large acquisitions in recent years, most notably the $10.8 billion purchase of Prometheus Biosciences in 2023, and has substantial intangible assets on its balance sheet tied to prior deals, the annual amortization charge is significant. Analysts and Merck's management focus heavily on non-GAAP EPS when assessing underlying business performance, but investors should be aware that amortization reflects a real economic cost of the assets acquired.

R&D spending of approximately $18.0 billion is exceptionally high, both in absolute terms and as a percentage of revenue. For a company with $63.6 billion in revenues, spending roughly 28% on research and development signals Merck's recognition that its current product portfolio faces patent expiration challenges that must be addressed through a next-generation pipeline.

Keytruda concentration and the 2028 patent cliff

Keytruda generated approximately $29.5 billion in FY2024, which represented roughly 46% of Merck's total revenues. This level of concentration in a single product is uncommon among large pharmaceutical companies. By comparison, blockbuster drugs for most major pharma companies rarely exceed 25% to 30% of corporate revenues. Keytruda's dominance reflects both the breadth of its approved indications (more than 40 cancer types and combinations as of 2024) and the size and growth of the oncology market.

The strategic risk embedded in this revenue structure is the patent cliff. Keytruda's U.S. composition-of-matter patents are expected to expire in 2028. Biosimilar manufacturers will then be able to seek regulatory approval for competing versions of pembrolizumab. The commercial impact of biosimilar entry for a product of this scale could be material: biosimilar versions of other large-molecule biologics have in some cases captured 30% to 50% of market volume within a few years of launch, with corresponding price pressure on the originator product.

Merck is pursuing several strategies to manage this risk. First, a subcutaneous formulation of Keytruda is under development; if approved, it may carry separate patent protection extending beyond the IV formulation's expiry. Second, Merck is investing heavily in next-generation oncology assets, including bispecific antibodies and antibody-drug conjugates, that would not be affected by Keytruda patent expiry. Third, Merck has built a substantial pipeline through internal R&D and acquisitions, aiming to have multiple products at scale by the late 2020s and early 2030s.

The Gardasil situation illustrates a different kind of concentration risk. Gardasil was Merck's second-largest product in FY2023 at approximately $11.4 billion. The sharp decline in FY2024 to approximately $8.6 billion, driven by China destocking, reduced total company revenues by more than $2.8 billion in a single line. China had been the fastest-growing market for Gardasil in the years prior to the destocking, making the reversal especially pronounced in Merck's reported numbers.

Pipeline and growth drivers

Merck's near-term growth story beyond Keytruda rests on several key assets:

Winrevair (sotatercept): Approved by the FDA in March 2024 for pulmonary arterial hypertension (PAH), Winrevair is Merck's most significant new product launch outside oncology in several years. It targets the activin signaling pathway, which drives abnormal vascular remodeling in PAH, and its mechanism is distinct from existing therapies. This makes Winrevair eligible for combination use with the current standard of care rather than being positioned purely as a switch option. PAH is a serious, progressive disease where existing drugs slow deterioration but rarely produce durable improvements; sotatercept has shown improvement in exercise capacity in clinical trials. Analysts have projected peak annual sales potential in the range of several billion dollars, though early 2024 revenues were modest as payer coverage and physician adoption ramped.

MK-7240 (IL-23 antibody for IBD): Merck acquired this asset through the $10.8 billion purchase of Prometheus Biosciences in 2023. MK-7240 is an anti-IL-23p19 antibody in development for inflammatory bowel disease (IBD), including Crohn's disease and ulcerative colitis. The IBD biologics market is large and growing, with several approved products from competitors. A successful approval would give Merck a meaningful presence in a disease area where it previously had limited exposure.

MK-1084 (oral GLP-1 agonist): Merck has an oral GLP-1 receptor agonist in clinical development for obesity and type 2 diabetes. The GLP-1 market is one of the fastest-growing pharmaceutical categories globally, driven by the success of semaglutide (Ozempic/Wegovy) and tirzepatide. An oral formulation that is effective and well-tolerated could be highly valuable, though Merck is a late entrant relative to Novo Nordisk and Eli Lilly.

Dividend track record: Merck has increased its quarterly dividend for more than 14 consecutive years as of 2024, raising it from $0.73 per share in 2023 to $0.77 per share in 2024. The annualized dividend of $3.08 represents a meaningful yield for income-oriented investors and signals management's confidence in free cash flow durability despite the pipeline investment cycle.

Frequently Asked Questions

References

• Merck: Investor Relations
• Merck: Form 10-K SEC Filings (CIK 0000310158)

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