Merck Delivers Strong Q3 2025 Performance with Keytruda Momentum and Upgraded Full-Year Outlook
Executive Summary
Merck & Co., Inc. delivered a solid third-quarter 2025 performance, underpinned by resilient oncology growth, strong operating leverage, and disciplined capital allocation. Total revenue reached $17.3 billion, up 4% YoY (3% excluding FX), exceeding market expectations, while non-GAAP EPS of $2.58 beat consensus by $0.23, reflecting margin expansion and lower R&D expenses.
Growth was led by KEYTRUDA, which posted 10% reported growth to $8.1 billion, supported by demand in metastatic indications and continued uptake in earlier-stage cancers. WINREVAIR, Merck’s newest growth driver, delivered exceptional early traction, with sales of $360 million (+141% YoY), highlighting its blockbuster potential. These gains were partially offset by a sharp decline in GARDASIL/GARDASIL 9 sales (-24%), driven largely by China and Japan market dynamics.
Merck strengthened its long-term growth profile through strategic acquisitions (Verona Pharma and Cidara Therapeutics), FDA approvals (including subcutaneous Keytruda), and continued pipeline investment with ~80 Phase 3 trials ongoing. Management raised and narrowed FY2025 EPS guidance and reaffirmed capital returns, including ~$5 billion in share repurchases, reinforcing confidence in earnings durability and cash-flow generation.
Financial Highlights – Statement of Profit or Loss ($’million)
$’million Q3 2025 Q3 2024 YoY
Revenue 17,276 16,657 +4%
Cost of Revenue 3,745 3,888 -4%
Gross Profit 13,531 12,769 +6%
Operating Expenses 6,482 8,405 -23%
Operating Income 7,049 4,364 +62%
Net Income 5,785 3,157 +83%
Diluted EPS ($) 2.32 1.24 +87%
Gross Margin (%) 81.9% 80.5% +1.4 pts
Effective Tax Rate 14.2% 22.7% -8.5 pts
Revenue Performance
Merck delivered above-expectation revenue growth, supported by oncology and Animal Health, despite vaccine headwinds.
Key Growth Drivers
- KEYTRUDA:
- Sales: $8.1bn (+10% reported, +8% ex-FX)
- Growth driven by metastatic indications and earlier-stage cancer uptake
- Remains the backbone of Merck’s earnings and cash generation
- WINREVAIR:
- Sales: $360m (+141% YoY)
- Strong US and international demand
- Emerging as a multi-billion-dollar franchise
- CAPVAXIVE:
- Sales: $244m, reflecting early market adoption
- Animal Health:
- Sales: $1.6bn (+9% reported, +7% ex-FX)
- Livestock sales up 14%, offsetting softer companion animal trends
- GARDASIL/GARDASIL 9:
- Sales: $1.7bn (-24%)
- Ex-China decline limited to ~3%, highlighting geographic concentration of weakness
Revenue Summary by Key Franchise
Segment Q3 2025 YoY
Total Revenue $17.3bn +4%
KEYTRUDA $8.1bn +10%
GARDASIL $1.7bn -24%
WINREVAIR $360m +141%
CAPVAXIVE $244m n/a
Animal Health $1.6bn +9%
KEYTRUDA accounted for ~47% of total revenue, underscoring its strategic importance while highlighting the need for pipeline diversification.
Profitability and Margins
Operating Leverage
- Operating income rose 62% YoY, driven by:
- Higher gross margins (favorable product mix)
- Lower R&D expenses YoY
- Disciplined SG&A control
Gross Margin
- 81.9%, up 1.4 percentage points YoY
- Reflects higher oncology contribution and manufacturing efficiency
Net Income & EPS
- Net income increased 83% YoY
- Non-GAAP EPS of $2.58 exceeded expectations, supporting guidance upgrades
Balance Sheet Overview ($’million)
$’million Q3 2025 Q3 2024 % Δ
Total Assets 129,546 117,532 +10%
Cash & ST Investments 18,214 14,593 +25%
Total Liabilities 77,639 72,972 +6%
Total Equity 51,907 44,560 +17%
Net Debt 23,160 23,538 Stable
Interpretation
- Strong liquidity supports M&A, R&D, and shareholder returns
- Balance sheet remains robust despite increased long-term debt
Cash Flow Highlights ($’million)
Metric Q3 2025 Q3 2024
Operating Cash Flow 7,822 9,291
Free Cash Flow 6,236 7,622
Share Repurchases (1,323) (444)
Dividends Paid (2,031) (1,953)
Merck continues to convert earnings into strong, recurring cash flows, funding dividends, buybacks, and acquisitions.
Strategic Insights
- Pipeline Strength: ~80 Phase 3 trials across oncology, cardiometabolic, immunology, and vaccines
- Strategic M&A:
- Verona Pharma acquisition adds a high-growth respiratory asset
- Cidara Therapeutics acquisition strengthens anti-infectives portfolio
- Innovation Focus: FDA approval for subcutaneous Keytruda improves patient access and lifecycle value
- US Investment: Planned $70bn+ investment in US manufacturing and R&D enhances long-term competitiveness
Strengths
- Market-leading oncology franchise (KEYTRUDA)
- High and expanding gross margins
- Strong balance sheet and cash-flow generation
- Deep late-stage pipeline and strategic acquisitions
- Consistent capital returns (dividends + buybacks)
Weaknesses
- Heavy dependence on KEYTRUDA for earnings
- GARDASIL volatility, particularly in China and Japan
- Loss of exclusivity and generic pressure on legacy products
- Competitive intensity in vaccines and animal health
2025 Outlook (Updated)
- Revenue: $64.5bn – $65.0bn (1–2% growth ex-FX)
- Non-GAAP EPS: $8.93 – $8.98 (raised and narrowed)
- Share Repurchases: ~$5bn expected for FY2025
Management’s guidance upgrade reflects confidence in earnings resilience, oncology momentum, and cost discipline.
Analyst View
“Merck delivered a high-quality quarter, marked by strong oncology growth, expanding margins, and disciplined capital allocation. While vaccine headwinds persist, the company’s deep pipeline, WINREVAIR momentum, and strategic acquisitions position it well to navigate post-KEYTRUDA risks and sustain long-term shareholder value.”
Conclusion
Merck’s Q3 2025 results reinforce its position as a high-quality global pharmaceutical leader, combining durable oncology cash flows, pipeline optionality, and financial discipline. Despite near-term vaccine pressures and looming patent expiries, Merck’s earnings strength, upgraded guidance, and strategic investments support a constructive long-term outlook and continued relevance in global healthcare innovation.
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