Notes to Condensed Consolidated Financial Statements (unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Merck & Co., Inc. (Merck or the Company) have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States (U.S.) for complete consolidated financial statements are not included herein. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Merck’s Form 10-K filed on February 24, 2026.
The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. In the Company’s opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Recently Issued Accounting Standards Not Yet Adopted
In November 2024, the Financial Accounting Standards Board (FASB) issued guidance intended to improve financial reporting by requiring entities to disclose additional information about specific expense categories for interim and annual reporting periods. The guidance is effective for 2027 annual reporting and 2028 interim reporting. Early adoption is permitted. The guidance, which can be applied on a prospective or retrospective basis, will result in incremental disclosures within the footnotes to the Company’s financial statements.
In December 2025, the FASB issued guidance that includes requirements for the recognition of government grants in a company’s financial statements as well as disclosure requirements, including the nature of the government grant received, the accounting policies used to account for the grant, and significant terms and conditions of the grant. The guidance is effective for 2029 interim and annual reporting on a modified prospective, modified retrospective or retrospective approach. Early adoption is permitted as of the beginning of an annual reporting period. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
2. Acquisitions, Research Collaborations and Licensing Agreements
The Company continues to pursue acquisitions and the establishment of external alliances such as research collaborations and licensing agreements to complement its internal research capabilities. These arrangements often include upfront payments; expense reimbursements or payments to the third party; milestone, royalty or profit share arrangements contingent upon the occurrence of certain future events linked to the success of the asset in development; and can also include option and continuation payments. The Company also reviews its marketed products and pipeline to examine candidates which may provide more value through out-licensing and, as part of its portfolio assessment process, may also divest certain assets. Pro forma financial information for acquired businesses is not presented if the historical financial results of the acquired entity are not significant when compared with the Company’s financial results.
2026 Transactions
In July 2026, Merck acquired TARGAN, a privately held company developing and commercializing biodevice solutions to improve performance outcomes for the poultry industry, for approximately $650 million. The acquisition is expected to broaden Merck Animal Health’s portfolio in commercial poultry operations with WingScan, an automated solution that uses vision technology for gender identification. This acquisition also brings the capability for a high-speed precision ocular spray technology, which administers respiratory and coccidiosis vaccines, among others, to day-old chicks. In addition, TARGAN has the potential to develop additional biodevices within poultry and other livestock species. Merck recorded an unrealized gain of $71 million to Other (income) expense, net in the second quarter and first six months of 2026 related to an existing investment that Merck held in TARGAN. The Company expects to account for the transaction as a business combination. There are no future contingent payments associated with the acquisition.
In June 2026, the U.S. Food and Drug Administration (FDA) approved Welireg (belzutifan) in combination with Keytruda (pembrolizumab) or Keytruda Qlex (pembrolizumab and berahyaluronidase alfa) for the adjuvant treatment of certain adult patients with clear cell renal cell carcinoma following nephrectomy. The approval of this combination therapy triggered a $50 million regulatory milestone payment to former Peloton Therapeutics, Inc. (Peloton) shareholders, which was made in July 2026. Additionally, following FDA approval, the Company determined that it was probable that sales of Welireg in the future would trigger a $100 million sales-based milestone payment from Merck to former Peloton shareholders. Accordingly, in the second quarter of 2026, Merck recorded a $100 million non-current liability for the potential future sales-based milestone payment. In addition, Merck recorded a $192 million increase to the intangible asset related to Welireg (included in Other Intangibles, Net) associated with these milestones. The intangible asset is being amortized over its estimated useful life through August 2031. Merck also recorded $65 million of cumulative amortization catch-up expense to Cost of sales in the second quarter and first six months of 2026 related to the recognition of the sales-based milestone. Former Peloton shareholders remain eligible to receive up to $900 million of sales-based milestones.
In May 2026, Merck acquired Terns Pharmaceuticals, Inc. (Terns), a clinical-stage oncology company, for $6.8 billion (including $606 million of payments to settle share-based equity awards of which $433 million related to unvested equity awards). Through this acquisition, Merck acquired Terns’ lead candidate, MK-4208 (formerly TERN-701), a novel investigational
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
oral allosteric BCR::ABL1 tyrosine kinase inhibitor (TKI) currently being evaluated in a Phase 1/2 trial for patients with Philadelphia chromosome-positive, chronic phase chronic myeloid leukemia previously treated with at least one prior TKI and who experienced treatment failure, suboptimal response or treatment intolerance. The transaction was accounted for as an asset acquisition because MK-4208 accounted for substantially all of the fair value of the gross assets acquired (excluding cash and deferred income taxes). Merck recorded a charge of $5.7 billion to Research and development expenses (which primarily represented acquired in-process research and development [IPR&D] with no alternative future use) in the second quarter and first six months of 2026, as well as net assets of $1.1 billion, including cash of $505 million, investments of $487 million, deferred tax assets of $190 million, and other net liabilities of $105 million. There are no future contingent payments associated with the acquisition.
In January 2026, Merck acquired Cidara Therapeutics, Inc. (Cidara), a biotechnology company developing drug-Fc conjugate (DFC) therapeutics, for $9.2 billion (including $570 million of payments to settle share-based equity awards of which $406 million related to unvested equity awards). Cidara’s lead DFC candidate, MK-1406 (formerly CD388), is a long-acting antiviral designed to prevent seasonal and pandemic influenza. MK-1406 is currently being evaluated in a Phase 3 trial among adult and adolescent participants who are at higher risk of developing complications from influenza. The transaction was accounted for as an asset acquisition because MK-1406 accounted for substantially all of the fair value of the gross assets acquired (excluding cash and deferred income taxes). Merck recorded a charge of $9.0 billion to Research and development expenses (which primarily represented acquired IPR&D with no alternative future use) in the first six months of 2026, as well as net assets of $332 million. Under a previous license agreement between Cidara and J&J Innovative Medicine (a Johnson & Johnson company, previously Janssen Pharmaceuticals, Inc.), which was assumed by Merck, J&J Innovative Medicine is eligible to receive up to $105 million in regulatory milestones and up to $455 million in sales-based milestones related to MK-1406.
2025 Transactions
In October 2025, Merck and Blackstone Life Sciences (Blackstone) entered into a funding arrangement under which Blackstone will pay Merck $700 million in the fourth quarter of 2026 (which is non-refundable, subject to the termination provisions of the agreement) to fund a portion of the Company’s development costs for MK-2870, sacituzumab tirumotecan (sac-TMT), expected to be incurred throughout 2026. Under the terms of the agreement, Merck recognized $200 million and $400 million of funding in the second quarter and first six months of 2026, respectively, as a reduction to Research and development expenses, as well as a corresponding $400 million receivable from Blackstone, which is included in Other current assets. Upon receipt of regulatory approval for an indication in the U.S. for first-line triple-negative-breast cancer (TroFuse-011 trial), Blackstone will be eligible to receive low-to-mid single-digit royalties on net sales of sac-TMT subsequent to such approval across all approved indications in Merck’s marketing territories. Sac-TMT is an investigational trophoblast cell-surface antigen 2 (TROP2)-directed antibody drug conjugate (ADC) being developed as part of an exclusive license and collaboration agreement with Sichuan Kelun-Biotech Biopharmaceutical Co., Ltd. (Kelun-Biotech) that is currently in clinical development for the treatment of a variety of cancers. The agreement between Merck and Kelun-Biotech with respect to sac-TMT is unchanged by the agreement with Blackstone. Merck retained decision-making authority and control over the development, manufacturing, and commercial activities relating to sac-TMT provided for in the agreement with Kelun-Biotech, and Blackstone did not receive any rights to sac-TMT.
In May 2025, Merck and Jiangsu Hengrui Pharmaceuticals Co., Ltd. (Hengrui Pharma) closed an exclusive license agreement for MK-7262 (HRS-5346), an investigational oral small molecule Lipoprotein(a) inhibitor. Under the agreement, Hengrui Pharma granted Merck exclusive rights to develop, manufacture and commercialize MK-7262 (HRS-5346) worldwide, excluding the Greater China region. The agreement provided for an upfront payment of $200 million, which was recorded as a charge to Research and development expenses in the second quarter and first six months of 2025. Hengrui Pharma is also eligible to receive future contingent developmental milestone payments of up to $92.5 million, regulatory milestone payments of up to $177.5 million and sales-based milestone payments of up to $1.5 billion, as well as tiered royalties ranging from a mid-single-digit rate to a low-double-digit rate on future net sales of MK-7262 (HRS-5346), if approved.
In March 2025, Merck acquired the Dundalk, Ireland facility of WuXi Vaccines (a wholly owned subsidiary of WuXi Biologics), which was accounted for as an asset acquisition. Merck paid $437 million at closing which, combined with previous consideration transferred under a prior manufacturing arrangement with WuXi Vaccines related to this facility, resulted in $759 million being recorded as assets under construction within Property, Plant and Equipment. There are no future contingent payments associated with the acquisition.
3. Collaborative Arrangements
Merck has entered into collaborative arrangements that provide the Company with varying rights to develop, produce and market products together with its collaborative partners. Both parties in these arrangements are active participants and exposed to significant risks and rewards dependent on the commercial success of the activities of the collaboration. Merck’s more significant collaborative arrangements are discussed below.
AstraZeneca PLC
In 2017, Merck and AstraZeneca PLC (AstraZeneca) entered into a global strategic oncology collaboration to co-develop and co-commercialize AstraZeneca’s Lynparza (olaparib) for multiple cancer types. Independently, Merck and AstraZeneca are developing and commercializing Lynparza in combinations with their respective PD-1 and PD-L1 medicines,
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Keytruda and Imfinzi. Under the terms of the agreement, AstraZeneca and Merck share the development and commercialization costs for Lynparza monotherapy and non-PD-1/PD-L1 combination therapy opportunities.
Profits from Lynparza product sales generated through monotherapies or combination therapies are shared equally. AstraZeneca is the principal on Lynparza sales transactions. Merck records its share of Lynparza product sales, net of cost of sales and commercialization costs, as alliance revenue, and its share of development costs associated with the collaboration as part of Research and development expenses. Reimbursements received from AstraZeneca for research and development expenses are recognized as reductions to Research and development costs.
The initial collaboration agreement also included the joint development and commercialization of AstraZeneca’s Koselugo (selumetinib) for multiple indications, with revenues, costs and profits being accounted for similar to Lynparza. In August 2025, Merck and AstraZeneca amended the terms of the original collaboration agreement, which resulted in the discontinuation of the revenue and cost sharing provisions of the collaboration and the simplification of the governance structure related to Koselugo. In exchange, Merck received a $150 million upfront payment (which was recorded within Sales as alliance revenue in the third quarter of 2025) and $150 million in February 2026 (which was recorded within Sales as alliance revenue in the first quarter of 2026). Merck may also receive $150 million in the first quarter of 2027 and $100 million in the first quarter of 2028, subject to an annual election by AstraZeneca in January of each year as discussed below. Additionally, the amended agreement provided for Merck to receive contingent regulatory milestone payments of up to $175 million in the aggregate, all of which were triggered in 2025 and recorded within Sales as alliance revenue. Of these milestone amounts, $50 million was received from AstraZeneca in the second quarter of 2026, $50 million is due in the third quarter of 2027, and $75 million is due in the third quarter of 2028. The Company also receives tiered royalties ranging from 6% to 7% on net sales (which are included within Sales as alliance revenue). Merck remains eligible to receive future contingent payments for the achievement of sales-based milestones of up to $235 million. AstraZeneca has the option in January 2027 or January 2028 to revert back to the income and cost sharing terms of the original agreement (in which case any future annual, contingent milestone, and royalty payments referenced above would no longer be due) although Merck would retain any payments made by AstraZeneca prior to the exercise of that option and any amounts due from AstraZeneca would remain payable to Merck.
As part of the initial collaboration agreement, Merck made an upfront payment to AstraZeneca and also made payments over a multi-year period for certain license options. In addition, the initial collaboration agreement provides for contingent payments from Merck to AstraZeneca related to the successful achievement of sales-based and regulatory milestones. In the first six months of 2025, Merck made sales-based milestone payments aggregating $700 million (related to the original collaboration agreement) to AstraZeneca of which $600 million related to Lynparza and $100 million related to Koselugo (both of which had been previously accrued for). Potential future sales-based milestone payments of $2.0 billion have not yet been accrued as they are not deemed by the Company to be probable at this time. The partners have agreed that no future regulatory milestone payments from Merck to AstraZeneca are likely.
The intangible asset balances related to Lynparza and Koselugo (which reflect the capitalized sales-based and regulatory milestone payments attributed to each product) were $681 million and $33 million, respectively, at June 30, 2026 and are included in Other Intangibles, Net. The assets are being amortized over their estimated useful lives (through 2028 for Lynparza and through 2029 for Koselugo) as supported by projected future cash flows, subject to impairment testing.
Summarized financial information related to this collaboration is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| Alliance revenue - Lynparza | $ | 365 | | | $ | 370 | | | $ | 706 | | | $ | 682 | |
Alliance revenue - Koselugo (1) | 10 | | | 43 | | | 171 | | | 87 | |
| Total alliance revenue | $ | 375 | | | $ | 413 | | | $ | 877 | | | $ | 769 | |
| | | | | | | |
Cost of sales (2) | 84 | | | 86 | | | 169 | | | 169 | |
| Selling, general and administrative | 25 | | | 40 | | | 49 | | | 72 | |
| Research and development | 9 | | | 16 | | | 15 | | | 28 | |
| | | | | | | |
| ($ in millions) | | | | | June 30, 2026 | | December 31, 2025 |
Receivables from AstraZeneca included in Other current assets (3) | | | | | $ | 375 | | | $ | 451 | |
Receivables from AstraZeneca included in Other assets (3) | | | | | 125 | | | 125 | |
Payables to AstraZeneca included in Accrued and other current liabilities | | | | | 6 | | | 6 | |
(1) Amount in the first six months of 2026 includes $150 million related to the amendment of the collaboration agreement noted above.
(2) Represents amortization of capitalized milestone payments.
(3) Includes milestone receivables.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Eisai Co., Ltd.
In 2018, Merck and Eisai Co., Ltd. (Eisai) announced a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima (lenvatinib), an orally available TKI discovered by Eisai. Under the agreement, Merck and Eisai are developing and commercializing Lenvima jointly, both as monotherapy and in combination with Keytruda. Eisai records Lenvima product sales globally (Eisai is the principal on Lenvima sales transactions) and Merck and Eisai share applicable profits equally. Merck records its share of Lenvima product sales, net of cost of sales and commercialization costs, as alliance revenue. Expenses incurred during co-development are shared by the two companies in accordance with the collaboration agreement and reflected in Research and development expenses. Certain expenses incurred solely by Merck or Eisai are not shareable under the collaboration agreement, including costs incurred in excess of agreed upon caps, and costs related to certain combination studies of Keytruda and Lenvima, as well as Welireg and Lenvima.
Under the agreement, Merck made an upfront payment to Eisai and also made payments over a multi-year period for certain option rights. In addition, the agreement provides for contingent payments from Merck to Eisai related to the successful achievement of sales-based and regulatory milestones. Potential future sales-based milestone payments of $2.3 billion have not yet been accrued as they are not deemed by the Company to be probable at this time. There are no regulatory milestone payments remaining under the agreement.
The intangible asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $175 million at June 30, 2026 and is included in Other Intangibles, Net. The amount is being amortized over its estimated useful life through 2029 as supported by projected future cash flows, subject to impairment testing.
Summarized financial information related to this collaboration is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| Alliance revenue - Lenvima | $ | 283 | | | $ | 265 | | | $ | 539 | | | $ | 523 | |
| | | | | | | |
Cost of sales (1) | 13 | | | 60 | | | 26 | | | 121 | |
| Selling, general and administrative | 29 | | | 35 | | | 56 | | | 66 | |
| Research and development | — | | | 3 | | | 2 | | | 7 | |
| | | | | | | |
| ($ in millions) | | | | | June 30, 2026 | | December 31, 2025 |
Receivables from Eisai included in Other current assets | | | | | $ | 281 | | | $ | 271 | |
(1) Represents amortization of capitalized milestone payments.
Bayer AG
In 2014, the Company entered into a worldwide clinical development collaboration with Bayer AG (Bayer) to market and develop soluble guanylate cyclase (sGC) modulators including Bayer’s Adempas (riociguat) and Verquvo (vericiguat). The two companies have implemented a joint development and commercialization strategy. Under the agreement, Bayer commercializes Adempas in the Americas, while Merck commercializes in the rest of the world. For Verquvo, Merck commercializes in the U.S. and Bayer commercializes in the rest of the world. Both companies share in development costs and profits on sales. Merck records sales of Adempas and Verquvo in its marketing territories, as well as alliance revenue. Alliance revenue represents Merck’s share of profits from sales of Adempas and Verquvo in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs. Cost of sales includes Bayer’s share of profits from sales in Merck’s marketing territories. The agreement provided for contingent payments from Merck to Bayer related to the successful achievement of sales-based milestones. There are no such payments remaining under this collaboration.
The intangible asset balances related to Adempas (which includes the acquired intangible asset balance, as well as capitalized sales-based milestone payments attributed to Adempas) and Verquvo (which reflects the portion of the final sales-based milestone payment that was attributed to Verquvo) were $203 million and $35 million, respectively, at June 30, 2026 and are included in Other Intangibles, Net. The assets are being amortized over their estimated useful lives (through 2027 for Adempas and through 2031 for Verquvo) as supported by projected future cash flows, subject to impairment testing.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Summarized financial information related to this collaboration is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| Alliance revenue - Adempas/Verquvo | $ | 126 | | | $ | 123 | | | $ | 235 | | | $ | 229 | |
| Net sales of Adempas recorded by Merck | 78 | | | 80 | | | 156 | | | 147 | |
| Net sales of Verquvo recorded by Merck | 9 | | | 11 | | | 18 | | | 21 | |
| Total sales | $ | 213 | | | $ | 214 | | | $ | 409 | | | $ | 397 | |
| | | | | | | |
Cost of sales (1) | 67 | | | 61 | | | 134 | | | 120 | |
| Selling, general and administrative | 11 | | | 29 | | | 23 | | | 58 | |
| Research and development | 10 | | | 20 | | | 27 | | | 43 | |
| | | | | | | |
| ($ in millions) | | | | | June 30, 2026 | | December 31, 2025 |
Receivables from Bayer included in Other current assets | | | | | $ | 166 | | | $ | 167 | |
Payables to Bayer included in Accrued and other current liabilities | | | | | 86 | | | 81 | |
(1) Includes amortization of intangible assets, cost of products sold by Merck, as well as Bayer’s share of profits from sales in Merck’s marketing territories.
Ridgeback Biotherapeutics LP
In 2020, Merck and Ridgeback Biotherapeutics LP (Ridgeback), a closely held biotechnology company, entered into a collaboration agreement to develop Lagevrio (molnupiravir), an investigational orally available antiviral candidate for the treatment of patients with COVID-19. Merck gained exclusive worldwide rights to develop and commercialize Lagevrio and related molecules. Under the terms of the agreement, Ridgeback received an upfront payment and is eligible to receive future contingent payments dependent upon the achievement of certain developmental and regulatory approval milestones. The agreement also provides for Merck to reimburse Ridgeback for a portion of certain third-party contingent milestone payments and royalties on net sales, which is part of the profit-sharing calculation. Merck is the principal on sales transactions, recognizing sales and related costs, with profit-sharing amounts recorded within Cost of sales. Profits from the collaboration are split equally between the partners. Reimbursements from Ridgeback for its share of research and development costs (deducted from Ridgeback’s share of profits) are reflected as decreases to Research and development expenses.
Following initial authorizations in certain markets in 2021, Lagevrio has since received multiple additional authorizations. In the U.S., where Lagevrio remains in Phase 3 development and is marketed under an Emergency Use Authorization (EUA), the Secretary of the U.S. Department of Health and Human Services provided advance notice on June 29, 2026 that the declaration supporting the EUAs pursuant to which Lagevrio and certain other COVID-19 drug and biologic products are marketed will terminate, effective June 29, 2027. Based on the Secretary’s June 2026 determination and advance notice of termination, the Company is working with the FDA to develop a plan for disposition of Lagevrio in the U.S. by June 29, 2027.
Summarized financial information related to this collaboration is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in millions) | 2026 | | 2025 | | 2026 | | 2025 |
Net sales of Lagevrio recorded by Merck | $ | 5 | | | $ | 83 | | | $ | 32 | | | $ | 185 | |
| | | | | | | |
Cost of sales (1) | 14 | | | 44 | | | 67 | | | 97 | |
Selling, general and administrative | 9 | | | 14 | | | 19 | | | 28 | |
Research and development | 5 | | | 6 | | | 10 | | | 14 | |
(1) Includes cost of products sold by Merck, Ridgeback’s share of profits, royalty expense, amortization of capitalized milestone payments and inventory reserves.
Daiichi Sankyo
In 2023, Merck and Daiichi Sankyo entered into a global development and commercialization agreement for three of Daiichi Sankyo’s DXd ADC candidates: patritumab deruxtecan (MK-1022), ifinatamab deruxtecan (MK-2400) and raludotatug deruxtecan (MK-5909). All three potentially first-in-class DXd ADCs are in various stages of clinical development for the treatment of multiple solid tumors both as monotherapy and/or in combination with other treatments. The companies will jointly develop and potentially commercialize these ADC candidates worldwide, except in Japan where Daiichi Sankyo will maintain exclusive rights. Daiichi Sankyo will be solely responsible for manufacturing and supply.
Under the terms of the agreement, Merck made payments to Daiichi Sankyo totaling $4.0 billion in 2023. These payments included $1.0 billion ($500 million each for patritumab deruxtecan and ifinatamab deruxtecan), which may be refundable on a pro-rated basis in the event of early termination of development with respect to either program. In addition, the agreement provided for a continuation payment of $750 million related to patritumab deruxtecan (which Merck paid in October 2024) and a continuation payment of $750 million related to raludotatug deruxtecan (which Merck paid in October 2025). The
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
agreement also provides for contingent payments from Merck to Daiichi Sankyo of up to an additional $5.5 billion for each DXd ADC upon the successful achievement of certain sales-based milestones.
Merck and Daiichi Sankyo equally share research and development costs, except for raludotatug deruxtecan, for which Merck is responsible for 75% of the first $2.0 billion of research and development expenses. Merck includes its share of development costs associated with the collaboration as part of Research and development expenses. Following regulatory approval, Daiichi Sankyo will generally record sales worldwide (Daiichi Sankyo will be the principal on sales transactions) and the companies will equally share expenses as well as profits worldwide except for Japan where Daiichi Sankyo retains exclusive rights and Merck will receive a 5% sales-based royalty. Merck will record its share of product sales, net of cost of sales and commercialization costs, as alliance revenue. In July 2026, Merck and Daiichi Sankyo amended their agreement, whereby certain clinical development expenses may be incurred solely by Merck and are not shareable under the collaboration agreement, but may be partially reimbursed subject to certain conditions.
In 2024, Merck and Daiichi Sankyo expanded their agreement to include gocatamig (MK-6070), an investigational DLL3 targeting T-cell engager, which Merck obtained through its acquisition of Harpoon Therapeutics, Inc. The companies are evaluating gocatamig in combination with ifinatamab deruxtecan in certain patients with small cell lung cancer, with plans to evaluate other potential combinations. Merck received an upfront cash payment of $170 million from Daiichi Sankyo (recorded within Other (income) expense, net) and has also satisfied a contingent quid obligation from the original collaboration agreement. The companies will jointly develop and commercialize gocatamig worldwide and share research and development costs, as well as commercialization expenses. Research and development expenses related to gocatamig in combination with ifinatamab deruxtecan will be shared in a manner consistent with the original agreement for ifinatamab deruxtecan. Merck will be solely responsible for manufacturing and supply of gocatamig. If approved, Merck will generally record sales for gocatamig worldwide (Merck will be the principal on sales transactions) and the companies will equally share expenses as well as profits worldwide, except for Japan where Merck retains exclusive rights and Daiichi Sankyo will receive a 5% sales-based royalty.
Summarized financial information related to this collaboration is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| Selling, general and administrative | $ | 12 | | | $ | 4 | | | $ | 24 | | | $ | 13 | |
Research and development | 181 | | | 193 | | | 341 | | | 321 | |
| | | | | | | |
| ($ in millions) | | | | | June 30, 2026 | | December 31, 2025 |
Receivables from Daiichi Sankyo included in Other current assets | | | | | $ | 27 | | | $ | 15 | |
Payables to Daiichi Sankyo included in Accrued and other current liabilities | | | | | 100 | | | 113 | |
Moderna, Inc.
In 2022, Merck exercised its option to jointly develop and commercialize intismeran autogene (V940/mRNA-4157), an investigational individualized neoantigen therapy, pursuant to the terms of an existing collaboration and license agreement with Moderna, Inc. (Moderna). Intismeran autogene is currently being evaluated in combination with Keytruda or Keytruda Qlex in multiple clinical trials. Merck and Moderna share costs and will share any profits equally under this worldwide collaboration. Merck records its share of development costs associated with the collaboration as part of Research and development expenses. Any reimbursements received from Moderna for research and development expenses are recognized as reductions to Research and development costs. Merck has also capitalized a net $226 million of shared facility costs at June 30, 2026, primarily reflected within Other Assets. These costs are amortized over the assets’ estimated useful lives.
Summarized financial information related to this collaboration is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| Selling, general and administrative | $ | 9 | | | $ | 6 | | | $ | 17 | | | $ | 12 | |
Research and development (1) | 94 | | | 90 | | | 184 | | | 176 | |
| | | | | | | |
| ($ in millions) | | | | | June 30, 2026 | | December 31, 2025 |
Receivables from Moderna included in Other current assets | | | | | $ | 15 | | | $ | — | |
Payables to Moderna included in Accrued and other current liabilities | | | | | — | | | 13 | |
(1) Includes amortization of shared facility costs.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Bristol-Myers Squibb Company
Reblozyl (luspatercept-aamt) is a first-in-class erythroid maturation recombinant fusion protein that is being commercialized through a global collaboration with Bristol-Myers Squibb Company (BMS). Reblozyl is approved in the U.S., Europe and certain other markets for the treatment of anemia in certain rare blood disorders and is also being evaluated for additional indications for hematology therapies. BMS is the principal on sales transactions for Reblozyl. Merck receives tiered royalties ranging from 20% to 24% based on sales levels. This royalty will be reduced by 50% upon the earlier of patent expiry or generic entry on an indication-by-indication basis in each market. Additionally, Merck is eligible to receive future contingent sales-based milestone payments of up to $80 million. Alliance revenue related to this collaboration, consisting of royalties (recorded within Sales), was $122 million and $270 million in the second quarter and first six months of 2026, respectively, compared with $107 million and $226 million in the second quarter and first six months of 2025, respectively.
4. Restructuring
In July 2025, the Company approved a restructuring program (2025 Restructuring Program) designed to position the Company for its next chapter of growth and to successfully advance its pipeline and launch new products across multiple therapeutic areas. As part of this program, the Company expects to eliminate certain positions in sales and administrative organizations, as well as research and development. The Company will, however, continue to hire employees into new roles across all strategic growth areas of the business. In addition, the Company will reduce its global real estate footprint and continue to optimize its manufacturing network, aligning the geography of its global manufacturing footprint to its customers and reflecting changes in the Company’s business. Most actions contemplated under the 2025 Restructuring Program are expected to be largely completed by the end of 2027, with the exception of certain manufacturing actions, which are expected to be substantially completed by the end of 2029. The cumulative pretax costs to be incurred by the Company to implement the program are estimated to be approximately $3.0 billion, of which approximately 60% will be cash, relating primarily to employee separation expense and contractual termination costs. The remainder of the costs will be non-cash, relating primarily to the accelerated depreciation of facilities. The Company recorded total pretax costs of $172 million and $490 million in the second quarter and first six months of 2026, respectively, and $649 million for both the second quarter and first six months of 2025, related to the 2025 Restructuring Program. Since inception of the 2025 Restructuring Program through June 30, 2026, Merck has incurred total cumulative pretax costs of $2.5 billion.
In January 2024, the Company approved a restructuring program (2024 Restructuring Program) intended to continue the optimization of the Company’s Human Health global manufacturing network as the future pipeline shifts to new modalities and also optimize the Animal Health global manufacturing network to improve supply reliability and increase efficiency. The actions contemplated under the 2024 Restructuring Program are expected to be substantially completed by the end of 2031, with the cumulative pretax costs to be incurred by the Company to implement the program estimated to be approximately $4.0 billion. Approximately 50% of the cumulative pretax costs will be non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested. The remainder of the costs will result in cash outlays, relating primarily to facility shut-down costs. The Company recorded total pretax costs of $162 million and $130 million in the second quarter of 2026 and 2025, respectively, and $310 million and $235 million in the first six months of 2026 and 2025, respectively, related to the 2024 Restructuring Program. Since inception of the 2024 Restructuring Program through June 30, 2026, Merck has incurred total cumulative pretax costs of $1.9 billion.
For segment reporting, restructuring charges are unallocated expenses.
The following tables summarize the charges related to restructuring program activities by type of cost:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2026 | | Six Months Ended June 30, 2026 |
| ($ in millions) | Accelerated Depreciation | | Separation Costs | | Other Exit Costs | | Total | | Accelerated Depreciation | | Separation Costs | | Other Exit Costs | | Total |
| 2025 Restructuring Program | | | | | | | | | | | | | | | |
| Cost of sales | $ | 76 | | | $ | — | | | $ | 9 | | | $ | 85 | | | $ | 88 | | | $ | — | | | $ | 141 | | | $ | 229 | |
| | | | | | | | | | | | | | | |
| Research and development | — | | | — | | | (1) | | | (1) | | | — | | | — | | | 33 | | | 33 | |
| Restructuring costs | — | | | 63 | | | 25 | | | 88 | | | — | | | 186 | | | 42 | | | 228 | |
| 76 | | | 63 | | | 33 | | | 172 | | | 88 | | | 186 | | | 216 | | | 490 | |
| 2024 Restructuring Program | | | | | | | | | | | | | | | |
| Cost of sales | 39 | | | — | | | 60 | | | 99 | | | 135 | | | — | | | 57 | | | 192 | |
| | | | | | | | | | | | | | | |
| Restructuring costs | — | | | (1) | | | 64 | | | 63 | | | — | | | (1) | | | 119 | | | 118 | |
| 39 | | | (1) | | | 124 | | | 162 | | | 135 | | | (1) | | | 176 | | | 310 | |
| $ | 115 | | | $ | 62 | | | $ | 157 | | | $ | 334 | | | $ | 223 | | | $ | 185 | | | $ | 392 | | | $ | 800 | |
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2025 | | Six Months Ended June 30, 2025 |
| ($ in millions) | Accelerated Depreciation | | Separation Costs | | Other Exit Costs | | Total | | Accelerated Depreciation | | Separation Costs | | Other Exit Costs | | Total |
| 2025 Restructuring Program | | | | | | | | | | | | | | | |
| Cost of sales | $ | — | | | $ | — | | | $ | 100 | | | $ | 100 | | | $ | — | | | $ | — | | | $ | 100 | | | $ | 100 | |
| Research and development | — | | | — | | | 53 | | | 53 | | | — | | | — | | | 53 | | | 53 | |
| Restructuring costs | — | | | 481 | | | 15 | | | 496 | | | — | | | 481 | | | 15 | | | 496 | |
| — | | | 481 | | | 168 | | | 649 | | | — | | | 481 | | | 168 | | | 649 | |
| 2024 Restructuring Program | | | | | | | | | | | | | | | |
| Cost of sales | 55 | | | — | | | 10 | | | 65 | | | 96 | | | — | | | 5 | | | 101 | |
| Selling, general and administrative | — | | | — | | | 1 | | | 1 | | | — | | | — | | | 1 | | | 1 | |
| Restructuring costs | — | | | 6 | | | 58 | | | 64 | | | — | | | 7 | | | 126 | | | 133 | |
| 55 | | | 6 | | | 69 | | | 130 | | | 96 | | | 7 | | | 132 | | | 235 | |
| $ | 55 | | | $ | 487 | | | $ | 237 | | | $ | 779 | | | $ | 96 | | | $ | 488 | | | $ | 300 | | | $ | 884 | |
Accelerated depreciation costs primarily relate to manufacturing, research, and administrative facilities to be fully or partially closed or divested, and equipment to be disposed of, as part of the programs. Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the revised useful life of the asset, based upon the anticipated date the site will be closed or divested or the equipment disposed of, and depreciation expense as determined utilizing the useful life prior to the restructuring actions. All the sites will continue to operate up through the respective closure dates and, because future undiscounted cash flows are sufficient to recover the respective book values, Merck is recording accelerated depreciation over the revised useful life of the site assets. Anticipated site closure dates, particularly related to manufacturing locations, have been and may continue to be adjusted to reflect changes resulting from regulatory or other factors.
Separation costs are associated with actual headcount reductions, as well as involuntary headcount reductions which were probable and could be reasonably estimated.
Other exit costs in 2026 and 2025 include asset impairment, facility shut-down, contractual termination, and other related costs, as well as pretax gains and losses resulting from the sales of facilities and related assets. Additionally, other activity includes certain employee-related costs associated with pension and other postretirement benefit plans (see Note 10) and share-based compensation.
The following table summarizes the charges and spending related to restructuring program activities for the six months ended June 30, 2026:
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Accelerated Depreciation | | Separation Costs | | Other Exit Costs | | Total |
| 2025 Restructuring Program | | | | | | | |
Restructuring reserves January 1, 2026 | $ | — | | | $ | 502 | | | $ | 288 | | | $ | 790 | |
Expenses | 88 | | | 186 | | | 216 | | | 490 | |
| (Payments) receipts, net | — | | | (271) | | | (211) | | | (482) | |
| Non-cash activity | (88) | | | (9) | | | (145) | | | (242) | |
Restructuring reserves June 30, 2026 | $ | — | | | $ | 408 | | | $ | 148 | | | $ | 556 | |
| 2024 Restructuring Program | | | | | | | |
Restructuring reserves January 1, 2026 | $ | — | | | $ | 506 | | | $ | — | | | $ | 506 | |
| Expenses | 135 | | | (1) | | | 176 | | | 310 | |
| (Payments) receipts, net | — | | | (109) | | | (121) | | | (230) | |
| Non-cash activity | (135) | | | 12 | | | (55) | | | (178) | |
Restructuring reserves June 30, 2026 | $ | — | | | $ | 408 | | | $ | — | | | $ | 408 | |
5. Financial Instruments
Derivative Instruments and Hedging Activities
The Company manages the impact of foreign exchange rate movements and interest rate movements on its earnings, cash flows and fair values of assets and liabilities through operational means and through the use of various financial instruments, including derivative instruments.
A significant portion of the Company’s revenues and earnings in foreign affiliates is exposed to changes in foreign exchange rates. The objectives of and accounting related to the Company’s foreign currency risk management program, as well as its interest rate risk management activities are discussed below.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Foreign Currency Risk Management
The Company has established revenue hedging, balance sheet risk management and net investment hedging programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by changes in foreign exchange rates.
The objective of the revenue hedging program is to reduce the variability caused by changes in foreign exchange rates that would affect the U.S. dollar value of future cash flows derived from foreign currency denominated sales, primarily the euro, Japanese yen and Chinese renminbi. To achieve this objective, the Company will hedge a portion of its forecasted foreign currency denominated third-party and intercompany distributor entity sales (forecasted sales) that are expected to occur over its planning cycle, typically no more than two years into the future. The Company will layer in hedges over time, increasing the portion of forecasted sales hedged as it gets closer to the expected date of the forecasted sales. The portion of forecasted sales hedged is based on assessments of cost-benefit profiles that consider natural offsetting exposures, revenue and foreign exchange rate volatilities and correlations, and the cost of hedging instruments. The Company manages its anticipated transaction exposure principally with purchased local currency put options, forward contracts, and purchased collar options.
The fair values of these derivative contracts are recorded as either assets (gain positions) or liabilities (loss positions) in the Condensed Consolidated Balance Sheet. Changes in the fair value of derivative contracts are recorded each period in either current earnings or Other comprehensive income (OCI), depending on whether the derivative is designated as part of a hedge transaction and, if so, the type of hedge transaction. For derivatives that are designated as cash flow hedges, the unrealized gains or losses on these contracts are recorded in Accumulated Other Comprehensive Loss (AOCL) and reclassified into Sales when the hedged anticipated revenue is recognized. The amount reclassified into earnings as a result of the discontinuation of cash flow hedges because it was no longer deemed probable the forecasted hedged transactions would occur was not material for the second quarter or first six months of either 2026 or 2025. For those derivatives which are not designated as cash flow hedges, but serve as economic hedges of forecasted sales, unrealized gains or losses are recorded in Sales each period. The cash flows from both designated and non-designated contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows. The Company does not enter into derivatives for trading or speculative purposes.
The Company manages operating activities and net asset positions at each local subsidiary in order to mitigate the effects of foreign exchange on monetary assets and liabilities. Monetary assets and liabilities denominated in a currency other than the functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in spot rates reported in Other (income) expense, net. The Company also uses a balance sheet risk management program to mitigate the exposure of such assets and liabilities from the effects of volatility in foreign exchange. Merck principally utilizes forward exchange contracts to offset the effects of foreign exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the foreign exchange rate and the cost of the hedging instrument (primarily the euro, Swiss franc, Japanese yen, and Chinese renminbi). The forward contracts are not designated as hedges and are marked to market through Other (income) expense, net. Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the remeasured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. These differences are not significant due to the short-term nature of the contracts, which typically have average maturities at inception of less than six months. The cash flows from these contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows.
In the second quarter of 2026, the Company implemented a non-qualified deferred compensation hedging program to reduce earnings volatility associated with certain deferred compensation obligations. The Company utilizes total return swap contracts, which are not designated as hedges, to economically offset changes in the fair value of the related liabilities and the associated compensation expense.
The Company also uses forward exchange contracts to hedge a portion of its net investment in foreign operations against movements in foreign exchange rates. The forward contracts are designated as hedges of the net investment in a foreign operation. The unrealized gains or losses on these contracts are recorded in foreign currency translation adjustment within OCI and remain in AOCL until either the sale or complete or substantially complete liquidation of the subsidiary. The Company excludes certain portions of the change in fair value of its derivative instruments from the assessment of hedge effectiveness (excluded components). Changes in fair value of the excluded components are recognized in OCI. The Company recognizes in earnings the initial value of the excluded components on a straight-line basis over the life of the derivative instrument, rather than using the mark-to-market approach. The cash flows from these contracts are reported as investing activities in the Condensed Consolidated Statement of Cash Flows.
Foreign exchange risk is also managed through the use of foreign currency debt. Certain of the Company’s senior unsecured euro-denominated notes have been designated as, and are effective as, economic hedges of the net investment in a foreign operation. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in foreign currency translation adjustment within OCI.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The effects of the Company’s net investment hedges on OCI and the Condensed Consolidated Statement of Income are shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income (1) | | Amount of Pretax Gain Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing |
| Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| ($ in millions) | 2026 | | 2025 | | 2026 | | 2025 | | 2026 | | 2025 | | 2026 | | 2025 |
| Net Investment Hedging Relationships | | | | | | | | | | | | | | | |
| Foreign exchange contracts | $ | (9) | | | $ | 38 | | | $ | (24) | | | $ | 65 | | | $ | (5) | | | $ | (5) | | | $ | (10) | | | $ | (8) | |
| Euro-denominated notes | (59) | | | 411 | | | (196) | | | 541 | | | — | | | — | | | — | | | — | |
(1) No amounts were reclassified from AOCL into income related to the sale of a subsidiary.
Interest Rate Risk Management
The Company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rate changes and to reduce its overall cost of borrowing. The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal at risk.
At June 30, 2026, the Company was a party to ten pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of a portion of fixed-rate notes as detailed in the table below.
| | | | | | | | | | | | | | | | | |
| June 30, 2026 |
($ in millions) | Par Value of Debt | | Number of Interest Rate Swaps Held | | Total Swap Notional Amount |
4.50% notes due 2033 | $ | 1,500 | | | 6 | | | $ | 1,500 | |
4.75% notes due 2035 | 1,500 | | | 2 | | | 500 | |
5.00% notes due 2053 | 1,500 | | | 2 | | | 500 | |
The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in the benchmark Secured Overnight Financing Rate (SOFR) swap rate. The fair value changes in the notes attributable to changes in the SOFR swap rate are recorded in interest expense along with the offsetting fair value changes in the swap contracts. The cash flows from these contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows. In July 2026, the Company entered into an additional interest rate swap contract with a notional amount of $250 million related to its 5.20% notes due 2036.
The table below presents the location of amounts recorded in the Condensed Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:
| | | | | | | | | | | | | | | | | | | | | | | |
| Carrying Amount of Hedged Liabilities | | Cumulative Amount of Fair Value Hedging Adjustment Increase Included in the Carrying Amount |
($ in millions) | June 30, 2026 | | December 31, 2025 | | June 30, 2026 | | December 31, 2025 |
Balance Sheet Caption | | | | | | | |
Long-Term Debt | $ | 2,508 | | | $ | 1,810 | | | $ | 25 | | | $ | 70 | |
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Presented in the table below is the fair value of derivatives on a gross basis segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2026 | | December 31, 2025 |
| | Fair Value of Derivative | | U.S. Dollar
Notional | | Fair Value of Derivative | | U.S. Dollar
Notional |
| ($ in millions) | | Asset | | Liability | | Asset | | Liability | |
| Derivatives Designated as Hedging Instruments | Balance Sheet Caption | | | | | | | | | | | |
Interest rate swap contracts | Other Assets | $ | 31 | | | $ | — | | | $ | 1,750 | | | $ | 71 | | | $ | — | | | $ | 1,750 | |
| Interest rate swap contracts | Other Noncurrent Liabilities | — | | | 5 | | | 750 | | | — | | | — | | | — | |
| Foreign exchange contracts | Other current assets | 282 | | | — | | | 8,357 | | | 113 | | | — | | | 6,430 | |
| Foreign exchange contracts | Other Assets | 45 | | | — | | | 1,762 | | | 32 | | | — | | | 1,793 | |
| Foreign exchange contracts | Accrued and other current liabilities | — | | | 18 | | | 2,688 | | | — | | | 131 | | | 4,726 | |
| Foreign exchange contracts | Other Noncurrent Liabilities | — | | | 1 | | | 46 | | | — | | | 1 | | | 13 | |
| | $ | 358 | | | $ | 24 | | | $ | 15,353 | | | $ | 216 | | | $ | 132 | | | $ | 14,712 | |
| Derivatives Not Designated as Hedging Instruments | Balance Sheet Caption | | | | | | | | | | | |
| Total return swap contracts | Other current assets | $ | 8 | | | $ | — | | | $ | 486 | | | $ | — | | | $ | — | | | $ | — | |
| Total return swap contracts | Accrued and other current liabilities | — | | | 1 | | | 117 | | | — | | | — | | | — | |
| Foreign exchange contracts | Other current assets | 203 | | | — | | | 9,839 | | | 107 | | | — | | | 11,643 | |
| Foreign exchange contracts | Accrued and other current liabilities | — | | | 227 | | | 11,534 | | | — | | | 191 | | | 13,579 | |
Foreign exchange contracts | Other Noncurrent Liabilities | — | | | — | | | — | | | — | | | 1 | | | 357 | |
| | $ | 211 | | | $ | 228 | | | $ | 21,976 | | | $ | 107 | | | $ | 192 | | | $ | 25,579 | |
| | $ | 569 | | | $ | 252 | | | $ | 37,329 | | | $ | 323 | | | $ | 324 | | | $ | 40,291 | |
As noted above, the Company records its derivatives on a gross basis in the Condensed Consolidated Balance Sheet. The Company has master netting agreements with several of its financial institution counterparties (see Concentrations of Credit Risk below). The following table provides information on the Company’s derivative positions subject to these master netting arrangements as if they were presented on a net basis, allowing for the right of offset by counterparty and cash collateral exchanged per the master agreements and related credit support annexes:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2026 | | December 31, 2025 |
| ($ in millions) | Asset | | Liability | | Asset | | Liability |
| Gross amounts recognized in the condensed consolidated balance sheet | $ | 569 | | | $ | 252 | | | $ | 323 | | | $ | 324 | |
| Gross amounts subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet | (211) | | | (211) | | | (245) | | | (245) | |
Cash collateral received | (154) | | | — | | | (1) | | | — | |
| Net amounts | $ | 204 | | | $ | 41 | | | $ | 77 | | | $ | 79 | |
The table below provides information regarding the location and amount of pretax gains and losses of derivatives designated in fair value or cash flow hedging relationships:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| ($ in millions) | 2026 | | 2025 | | 2026 | | 2025 | | 2026 | | 2025 | | 2026 | | 2025 | | 2026 | | 2025 | | 2026 | | 2025 |
Financial Statement Caption in which Effects of Fair Value or Cash Flow
Hedges are Recorded | Sales | | Other (income) expense, net (1) | | Other comprehensive income (loss) | | Sales | | Other (income) expense, net (1) | | Other comprehensive income (loss) |
| $ | 16,607 | | | $ | 15,806 | | | $ | 99 | | | $ | (7) | | | $ | 118 | | | $ | (456) | | | $ | 32,893 | | | $ | 31,335 | | | $ | 237 | | | $ | (43) | | | $ | 345 | | | $ | (476) | |
(Gain) loss on fair value hedging relationships: | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate swap contracts | | | | | | | | | | | | | | | | | | | | | | | |
| Hedged items | — | | | — | | | (32) | | | 20 | | | — | | | — | | | — | | | — | | | (45) | | | 58 | | | — | | | — | |
| Derivatives designated as hedging instruments | — | | | — | | | 32 | | | (19) | | | — | | | — | | | — | | | — | | | 45 | | | (58) | | | — | | | — | |
| Impact of cash flow hedging relationships: | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign exchange contracts | | | | | | | | | | | | | | | | | | | | | | | |
Amount of gain (loss) recognized in OCI on derivatives | — | | | — | | | — | | | — | | | 41 | | | (542) | | | — | | | — | | | — | | | — | | | 209 | | | (743) | |
(Decrease) increase in Sales as a result of AOCL reclassifications | (34) | | | (23) | | | — | | | — | | | 34 | | | 23 | | | (133) | | | 50 | | | — | | | — | | | 133 | | | (50) | |
| Interest rate contracts | | | | | | | | | | | | | | | | | | | | | | | |
Amount of gain recognized in Other (income) expense, net on derivatives | — | | | — | | | (1) | | | — | | | — | | | — | | | — | | | — | | | (2) | | | (1) | | | — | | | — | |
Amount of gain (loss) recognized in OCI on derivatives | — | | | — | | | — | | | — | | | 19 | | | — | | | — | | | — | | | — | | | — | | | 26 | | | (1) | |
(1) Interest expense is a component of Other (income) expense, net.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The table below provides information regarding the income statement effects of derivatives not designated as hedging instruments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Amount of Derivative Pretax Loss (Gain) Recognized in Income |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| ($ in millions) | | | 2026 | | 2025 | | 2026 | | 2025 |
| Derivatives Not Designated as Hedging Instruments | Income Statement Caption | | | | | | | | |
Foreign exchange contracts (1) | Other (income) expense, net | | $ | 108 | | | $ | (237) | | | $ | 144 | | | $ | (256) | |
Foreign exchange contracts (2) | Sales | | 7 | | | 17 | | | 20 | | | 34 | |
Total return swap contracts (3) | Selling, general and administrative | | (7) | | | — | | | (7) | | | — | |
(1) These derivative contracts primarily mitigate changes in the value of remeasured foreign currency denominated monetary assets and liabilities attributable to changes in foreign currency exchange rates.
(2) These derivative contracts serve as economic hedges of forecasted transactions.
(3) These derivative contracts are utilized to offset changes in the fair value of certain deferred compensation.
At June 30, 2026, the Company estimates $152 million of pretax net unrealized gains on derivatives maturing within the next 12 months that hedge foreign currency denominated sales over that same period will be reclassified from AOCL to Sales. The amount ultimately reclassified to Sales may differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual foreign exchange rates at maturity.
Investments in Debt and Equity Securities
Information on investments in debt and equity securities is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2026 | | December 31, 2025 |
| Amortized
Cost | | Gross Unrealized | | Fair
Value | | Amortized
Cost | | Gross Unrealized | | Fair
Value |
| ($ in millions) | Gains | | Losses | | Gains | | Losses | |
| Commercial paper | $ | 292 | | | $ | — | | | $ | — | | | $ | 292 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Foreign government bonds | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | |
| U.S. government and agency securities | — | | | — | | | — | | | — | | | 100 | | | — | | | — | | | 100 | |
| Total debt securities | $ | 292 | | | $ | — | | | $ | — | | | $ | 292 | | | $ | 101 | | | $ | — | | | $ | — | | | $ | 101 | |
Publicly traded equity securities (1) | | | | | | | 1,274 | | | | | | | | | 1,392 | |
| Total debt and publicly traded equity securities | | | | | | | $ | 1,566 | | | | | | | | | $ | 1,493 | |
(1) Unrealized net losses of $41 million and unrealized net gains of $86 million were recorded in Other (income) expense, net in the second quarter and first six months of 2026, respectively, on equity securities still held at June 30, 2026. Unrealized net gains of $147 million and $262 million were recorded in Other (income) expense, net in the second quarter and first six months of 2025, respectively, on equity securities still held at June 30, 2025.
At June 30, 2026 and June 30, 2025, the Company also had $851 million and $870 million, respectively, of equity investments without readily determinable fair values included in Other Assets. The Company records unrealized gains on these equity investments based on favorable observable price changes from transactions involving similar investments of the same investee and records unrealized losses based on unfavorable observable price changes, which are included in Other (income) expense, net. During the first six months of 2026, the Company recorded unrealized gains of $111 million and unrealized losses of $30 million related to certain of these equity investments still held at June 30, 2026. During the first six months of 2025, the Company recorded unrealized losses of $33 million related to certain of these equity investments still held at June 30, 2025. Cumulative unrealized gains and cumulative unrealized losses based on observable price changes for investments in equity investments without readily determinable fair values still held at June 30, 2026 were $395 million and $172 million, respectively.
At June 30, 2026 and June 30, 2025, the Company also had $248 million and $221 million, respectively, recorded in Other Assets for equity securities held through ownership interests in investment funds. (Gains) losses recorded in Other (income) expense, net relating to these investment funds were $(10) million and $27 million for the second quarter of 2026 and 2025, respectively, and were $(13) million and $50 million for the first six months of 2026 and 2025, respectively.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value with Level 1 having the highest priority and Level 3 having the lowest:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity. Level 3 assets or liabilities are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
unobservable inputs, as well as assets or liabilities for which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities measured at fair value on a recurring basis are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using | | Fair Value Measurements Using |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| ($ in millions) | June 30, 2026 | | December 31, 2025 |
| Assets | | | | | | | | | | | | | | | |
| Investments | | | | | | | | | | | | | | | |
| Commercial paper | $ | — | | | $ | 292 | | | $ | — | | | $ | 292 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Foreign government bonds | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
| Publicly traded equity securities | 1,222 | | | — | | | — | | | 1,222 | | | 955 | | | — | | | — | | | 955 | |
| 1,222 | | | 292 | | | — | | | 1,514 | | | 955 | | | 1 | | | — | | | 956 | |
Other assets (1) | | | | | | | | | | | | | | | |
| U.S. government and agency securities | — | | | — | | | — | | | — | | | 100 | | | — | | | — | | | 100 | |
Publicly traded equity securities (2) | 52 | | | — | | | — | | | 52 | | | 437 | | | — | | | — | | | 437 | |
| 52 | | | — | | | — | | | 52 | | | 537 | | | — | | | — | | | 537 | |
Derivative assets (3) | | | | | | | | | | | | | | | |
| Forward exchange contracts | — | | | 336 | | | — | | | 336 | | | — | | | 168 | | | — | | | 168 | |
| Purchased currency options | — | | | 194 | | | — | | | 194 | | | — | | | 84 | | | — | | | 84 | |
| Interest rate swap contracts | — | | | 31 | | | — | | | 31 | | | — | | | 71 | | | — | | | 71 | |
| Total return swap contracts | — | | | 8 | | | — | | | 8 | | | — | | | — | | | — | | | — | |
| — | | | 569 | | | — | | | 569 | | | — | | | 323 | | | — | | | 323 | |
| Total assets | $ | 1,274 | | | $ | 861 | | | $ | — | | | $ | 2,135 | | | $ | 1,492 | | | $ | 324 | | | $ | — | | | $ | 1,816 | |
| Liabilities | | | | | | | | | | | | | | | |
Derivative liabilities (3) | | | | | | | | | | | | | | | |
| Forward exchange contracts | $ | — | | | $ | 232 | | | $ | — | | | $ | 232 | | | $ | — | | | $ | 293 | | | $ | — | | | $ | 293 | |
| Written currency options | — | | | 14 | | | — | | | 14 | | | — | | | 31 | | | — | | | 31 | |
| Interest rate swap contracts | — | | | 5 | | | — | | | 5 | | | — | | | — | | | — | | | — | |
| Total return swap contracts | — | | | 1 | | | — | | | 1 | | | — | | | — | | | — | | | — | |
| Total liabilities | $ | — | | | $ | 252 | | | $ | — | | | $ | 252 | | | $ | — | | | $ | 324 | | | $ | — | | | $ | 324 | |
(1) Investments included in other assets are restricted as to use, including for the payment of benefits under employee benefit plans.
(2) Balance at June 30, 2026 includes securities with a fair value of $31 million that are subject to a contractual sale restriction that expired in July 2026, and securities with a fair value of $22 million that are subject to a contractual sale restriction that expires in August 2026.
(3) The fair value determination of derivatives includes the impact of the credit risk of counterparties to the derivatives and the Company’s own credit risk, the effects of which were not significant.
As of June 30, 2026 and December 31, 2025, Cash and cash equivalents included $5.9 billion and $13.8 billion of cash equivalents, respectively (which would be considered Level 2 in the fair value hierarchy).
Other Fair Value Measurements
Some of the Company’s financial instruments, such as cash and cash equivalents, receivables and payables, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.
The estimated fair value of loans payable and long-term debt (including current portion) at June 30, 2026, was $49.9 billion compared with a carrying value of $53.9 billion and at December 31, 2025, was $45.6 billion compared with a carrying value of $49.3 billion. Fair value was estimated using recent observable market prices and would be considered Level 2 in the fair value hierarchy.
Concentrations of Credit Risk
On an ongoing basis, the Company monitors concentrations of credit risk associated with corporate and government issuers of securities and financial institutions with which it conducts business. Credit exposure limits are established to limit a concentration with any single issuer or institution. Cash and investments are placed in instruments that meet high credit quality standards as specified in the Company’s investment policy guidelines.
The majority of the Company’s accounts receivable arise from product sales in the U.S. and Europe and are primarily due from drug wholesalers, distributors and retailers, hospitals and government agencies. The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in their credit profile. The Company also continues to monitor global economic conditions, including the volatility associated with international sovereign economies, and associated impacts on the financial markets and its business.
The Company has accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. The Company factored $1.6 billion of accounts receivable as of both June 30, 2026 and December 31,
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
2025 under these factoring arrangements, which reduced outstanding accounts receivable. The cash received from the financial institutions is reported within operating activities in the Condensed Consolidated Statement of Cash Flows. In certain of these factoring arrangements, for ease of administration, the Company will collect customer payments related to the factored receivables, which it then remits to the financial institutions, generally within thirty days after receipt. As of June 30, 2026 and December 31, 2025, the Company had collected $41 million and $45 million, respectively, on behalf of the financial institutions, which is reflected as restricted cash in Other current assets, and the related obligation to remit the cash is recorded in Accrued and other current liabilities. The net cash flows related to these collections are reported as financing activities in the Condensed Consolidated Statement of Cash Flows. The cost of factoring such accounts receivable was de minimis.
Derivative financial instruments are executed under International Swaps and Derivatives Association master agreements. The master agreements with several of the Company’s financial institution counterparties also include credit support annexes. These annexes contain provisions that require collateral to be exchanged depending on the value of the derivative assets and liabilities, the Company’s credit rating, and the credit rating of the counterparty. Cash collateral received by the Company from various counterparties was $154 million and $1 million at June 30, 2026 and December 31, 2025, respectively. The obligation to return such collateral is recorded in Accrued and other current liabilities.
6. Inventories
Inventories consisted of:
| | | | | | | | | | | |
| ($ in millions) | June 30, 2026 | | December 31, 2025 |
| Finished goods | $ | 2,186 | | | $ | 2,275 | |
| Raw materials and work in process | 11,194 | | | 10,645 | |
| Supplies | 309 | | | 331 | |
| Total | 13,689 | | | 13,251 | |
| Decrease to LIFO cost | (1,101) | | | (912) | |
| $ | 12,588 | | | $ | 12,339 | |
| Recognized as: | | | |
| Inventories | $ | 6,207 | | | $ | 6,658 | |
| Other Assets | 6,381 | | | 5,681 | |
Amounts recognized as Other Assets are comprised almost entirely of raw materials and work in process inventories. At June 30, 2026 and December 31, 2025, these amounts included $5.9 billion and $5.5 billion, respectively, of inventories not expected to be sold within one year. In addition, these amounts included $490 million and $211 million at June 30, 2026 and December 31, 2025, respectively, of inventories produced in preparation for product launches.
7. Loans Payable and Long-Term Debt
In April 2026, Merck entered into a delayed draw term loan credit agreement (Credit Agreement) pursuant to which the lenders committed (subject to satisfaction of certain conditions set forth in the Credit Agreement) to provide Merck with financing under a 364-day term loan facility in an aggregate amount not to exceed $6.0 billion. The Company drew down the full $6.0 billion of funds under the facility to fund a portion of the approximately $6.8 billion cash consideration for the acquisition of Terns. The Company has since repaid borrowings under the Credit Agreement.
In May 2026, the Company issued $6.0 billion aggregate principal amount of senior unsecured notes consisting of $500 million of floating rate notes due 2028, $1.0 billion of 4.30% notes due 2028, $500 million of 4.65% notes due 2031, $1.0 billion of 4.95% notes due 2033, $1.5 billion of 5.20% notes due 2036, $500 million of 5.75% notes due 2046, and $1.0 billion of 5.85% notes due 2056. The Company used the net proceeds from the offering to repay borrowings under the Credit Agreement as noted above.
8. Contingencies
The Company is involved in various claims and legal proceedings of a nature considered normal to its business, including product liability, intellectual property, commercial litigation, and securities litigation, as well as certain additional matters including governmental and environmental matters. In the opinion of the Company, it is unlikely that the resolution of these matters will be material to the Company’s financial condition, results of operations or cash flows.
Given the nature of the litigation discussed below and the complexities involved in these matters, the Company is unable to reasonably estimate a possible loss or range of possible loss for such matters until the Company knows, among other factors, (i) what claims, if any, will survive dispositive motion practice, (ii) the extent of the claims, including the size of any potential class, particularly when damages are not specified or are indeterminate, (iii) how the discovery process will affect the litigation, (iv) the settlement posture of the other parties to the litigation and (v) any other factors that may have a material effect on the litigation.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The Company records accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Generally, for product liability claims, a portion of the overall accrual is actuarially determined and considers such factors as past experience, number of claims reported and estimates of claims incurred but not yet reported. Individually significant contingent losses are accrued when probable and reasonably estimable. Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.
The Company’s decision to obtain insurance coverage is dependent on market conditions, including cost and availability, existing at the time such decisions are made. The Company has evaluated its risks and has determined that the cost of obtaining product liability insurance outweighs the likely benefits of the coverage that is available and, as such, has no insurance for most product liabilities.
Product Liability Litigation
Dr. Scholl’s Foot Powder
As previously disclosed, Merck is a defendant in product liability lawsuits in the U.S. arising from consumers’ alleged exposure to talc in Dr. Scholl’s foot powder, which Merck acquired through its merger with Schering-Plough Corporation and sold as part of the divestiture of Merck’s consumer care business to Bayer in 2014. In these actions, plaintiffs allege that they were exposed to asbestos-contaminated talc and developed mesothelioma as a result. As of June 30, 2026, approximately 800 cases were pending against Merck in various state courts.
The Company was recently the defendant in a trial in Chicago, Illinois, in which it was found to be not liable for the plaintiff’s mesothelioma. The Company anticipates that there will be additional trials in the Dr. Scholl’s litigation in the future.
Gardasil/Gardasil 9
As previously disclosed, Merck is a defendant in product liability lawsuits in the U.S. involving Gardasil (Human Papillomavirus Quadrivalent [Types 6, 11, 16 and 18] Vaccine, Recombinant) and Gardasil 9 (Human Papillomavirus 9-valent Vaccine, Recombinant).
In August 2022, the U.S. Judicial Panel on Multidistrict Litigation ordered that Gardasil/Gardasil 9 product liability cases pending in federal courts nationwide be transferred to Judge Robert J. Conrad in the Western District of North Carolina for coordinated pre-trial proceedings. In February 2024, the multidistrict litigation (Gardasil MDL) was reassigned to Judge Kenneth D. Bell. In March 2025, the court granted Merck’s motion for summary judgment in 16 bellwether cases on implied preemption grounds; plaintiffs appealed to the Fourth Circuit.
As previously disclosed, in October 2025, Merck entered into a proposed agreement with plaintiffs’ counsel to substantially resolve the Gardasil product liability litigation. The agreement sets forth various terms and conditions under which Merck would resolve the bulk of all pending Gardasil product liability claims in the U.S. in exchange for a total payment that is considerably less than Merck’s anticipated costs of defense in the litigation and that is not material to Merck. The agreement required that several conditions be met within specified time periods, including participation thresholds, in order for the agreement to result in a final resolution of any pending litigation. Those conditions in the agreement have been met and the agreement is now final.
As previously disclosed, there are fewer than 15 product liability cases pending outside the U.S.
Governmental Proceedings
Civil Investigative Demands
As previously disclosed, in August 2025, the Company received a Civil Investigative Demand (CID) from the U.S. Department of Justice (DOJ), pursuant to a False Claims Act investigation, seeking documents, information, and testimony related to the Company’s programs and practices concerning diversity, equity, and inclusion. The CID states that the DOJ is investigating whether, in connection with the Company’s claims for payments under its federal contracts, the Company falsely certified compliance with federal antidiscrimination laws. The Company is cooperating with the investigation.
As previously disclosed, in June 2024, Merck received a CID from the DOJ, pursuant to a False Claims Act investigation, seeking documents and materials related to Steglatro (ertugliflozin), Januvia (sitagliptin) and certain related drugs. The CID states that it is investigating Merck’s price reporting under the Medicaid Drug Rebate Program as well as compliance with anti-kickback requirements in connection with patient assistance programs. The Company is cooperating with the investigation.
Other Matters
As previously disclosed, from time to time, the Company’s subsidiaries in China receive inquiries regarding their operations from various Chinese governmental agencies. Some of these inquiries may be related to matters involving other multinational pharmaceutical companies, as well as Chinese entities doing business with such companies. The Company’s policy is to cooperate with these authorities and to provide responses as appropriate.
As previously disclosed, from time to time, the Company receives inquiries and is the subject of preliminary investigation activities from competition and other governmental authorities in markets outside the U.S. These authorities may include regulators, administrative authorities, and law enforcement and other similar officials, and these preliminary investigation activities may include site visits, formal or informal requests or demands for documents or materials, inquiries or interviews and
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
similar matters. Certain of these preliminary inquiries or activities may lead to the commencement of formal proceedings. Should those proceedings be determined adversely to the Company, monetary fines and/or remedial undertakings may be required.
Securities Litigation
As previously disclosed, on February 12, 2025, a putative class action was filed against Merck and certain of its officers in the U.S. District Court for the District of New Jersey, captioned Cronin v. Merck & Co., Inc., et al., purportedly on behalf of all purchasers of Merck common stock between October 26, 2023, and February 3, 2025. Plaintiff alleges that Merck violated federal securities laws by making materially false and misleading statements and omissions regarding demand for Gardasil/Gardasil 9 in China. On December 17, 2025, the court appointed AMF Tjänstepension AB, KBC Asset Management NV, and Wayne County Employees’ Retirement System as lead plaintiffs (Lead Plaintiffs). Lead Plaintiffs filed an amended complaint on February 20, 2026, seeking unspecified damages allegedly caused by the purported false or misleading statements. Defendants filed a motion to dismiss on May 1, 2026. The opposition brief was filed on June 30, 2026. The reply brief is due on August 14, 2026.
As previously disclosed, various derivative lawsuits were filed in New Jersey state and federal court against certain current and former Merck officers and board members. The derivative lawsuits assert claims under state and federal securities statutes, as well as New Jersey common law, based on the same allegations as those made in the putative securities class action. These derivative lawsuits seek unspecified monetary damages, corporate governance reforms, injunctive relief, disgorgement of profits, restitution, fees, and costs. All the derivative proceedings are stayed pending further developments in the class action.
Commercial and Other Litigation
RotaTeq Antitrust Litigation
As previously disclosed, in March 2023, the Mayor and City Council of Baltimore filed a putative class action against Merck in the Eastern District of Pennsylvania on behalf of all third-party payers in states that indirectly purchased, paid, and/or provided reimbursement for some or all of the purchase price of RotaTeq (Rotavirus Vaccine, Live Oral, Pentavalent), other than for resale, from March 3, 2019 to the present. Plaintiff alleges that Merck violated federal and state antitrust laws and state consumer protection laws. Plaintiff alleges that Merck has implemented an anticompetitive vaccine bundling scheme whereby Merck leverages its alleged monopoly power in certain pediatric vaccine markets to maintain its alleged monopoly power in the U.S. market for rotavirus vaccines in order to charge supracompetitive prices for RotaTeq. Plaintiff seeks permanent injunctive relief and unspecified monetary damages on purchases of RotaTeq, trebled, and fees and costs. In May 2023, Merck moved to dismiss the complaint. In November 2023, the court granted in part and denied in part the motion to dismiss, dismissing plaintiff’s Idaho and Utah consumer law claims and allowing all other claims to proceed.
On January 20, 2026, plaintiff filed a motion to certify the proposed class. On February 10, 2026, Merck filed an opposition to plaintiff’s motion to certify the proposed class and a motion to exclude plaintiff’s expert’s class certification opinions. Plaintiff filed a reply in support of its request to certify the class and an opposition to the motion to exclude on March 17, 2026. On March 31, 2026, Merck filed a reply in support of the motion to exclude plaintiff’s expert’s opinions. Merck also filed a sur-reply to the class certification motion.
Patent Litigation
From time to time, generic and biosimilar manufacturers of pharmaceutical products file Abbreviated New Drug Applications (ANDAs) and Biologics License Applications, respectively, with the U.S. Food and Drug Administration (FDA) seeking to market generic and biosimilar forms of the Company’s products prior to the expiration of relevant patents owned by the Company. To protect its patent rights, the Company may file patent infringement lawsuits against such generic and biosimilar companies. Similar lawsuits defending the Company’s patent rights may exist in other countries. The Company intends to vigorously defend its patents, which it believes are valid, against infringement by companies attempting to market products prior to the expiration of such patents. As with any litigation, there can be no assurance of the outcomes, which, if adverse, could result in significantly shortened periods of exclusivity for these products and, with respect to products acquired through acquisitions, potentially significant intangible asset impairment charges. In addition to these matters, the Company may be involved in other litigation involving its intellectual property and intellectual property owned or licensed by other companies.
Januvia, Janumet, Janumet XR — As previously disclosed, the FDA granted pediatric exclusivity with respect to Januvia (sitagliptin), Janumet (sitagliptin/metformin HCI), and Janumet XR (sitagliptin and metformin HCl extended-release), which provides a further six months of exclusivity in the U.S. beyond the expiration of all patents listed in the FDA’s Orange Book. Adding this exclusivity to the term of the key patent protection extended exclusivity on these products to January 2023. However, Januvia, Janumet, and Janumet XR contain sitagliptin phosphate monohydrate and the Company has another patent covering certain phosphate salt and polymorphic forms of sitagliptin that expires in May 2027, including pediatric exclusivity (salt/polymorph patent).
As a result of settlement agreements with generic drug companies related to the later expiring 2027 salt/polymorph patent directed to the specific sitagliptin salt form of the products, Januvia and Janumet lost market exclusivity in the U.S. in May 2026 and Janumet XR lost market exclusivity in the U.S. in July 2026.
Keytruda — As previously disclosed, in November 2022, the Company filed a complaint against The Johns Hopkins University (JHU) in the U.S. District Court of Maryland. This action concerns a joint research collaboration between Merck and
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
JHU regarding the use of Keytruda in certain indications. Merck and JHU partnered to design and conduct a clinical study administering Keytruda to cancer patients having tumors that had the genetic biomarker known as microsatellite instability-high (MSI-H) (the Joint Clinical Study). Subsequently JHU obtained a number of U.S. patents specifically relying on the Joint Clinical Study. Merck alleges that JHU breached the collaboration agreement by obtaining issuance of these patents without informing or involving Merck, which were licensed to others, and then trying to enforce these patents against Merck. Merck, therefore, brought an action for breach of contract, declaratory judgment of noninfringement, and promissory estoppel. JHU answered the complaint in April and May 2023, denying Merck’s claims, and counterclaiming for willful infringement of nine issued U.S. patents, including a demand for damages. Between November 30, 2023, and March 13, 2024, the Company filed inter partes review (IPR) petitions with the U.S. Patent Office’s Patent Trial and Appeal Board (PTAB), challenging the patentability of all nine patents asserted in the district court. Between June 2024 and October 2024, the PTAB instituted a review of all nine challenged patents. In June 2024, the district court granted Merck’s motion to stay the case in its entirety pending the outcome of the PTAB proceeding instituted in June 2024.
As previously disclosed, between June and November 2025, the PTAB issued Final Written Decisions (FWDs) finding all challenged claims of the nine patents unpatentable. JHU has filed notices of appeal to the Federal Circuit Court of Appeals. The district court’s stay is expected to continue until at least the issuance of the Federal Circuit decision.
Subcutaneous Pembrolizumab — As previously disclosed, Halozyme, Inc. (Halozyme) has publicly alleged that certain patents in its modified hyaluronidase (MDASE) portfolio cover an ingredient in the Company’s subcutaneous pembrolizumab product. In November 2024, the Company began filing a series of post grant review (PGR) petitions before the PTAB alleging that certain patents in the MDASE portfolio are invalid. In June 2025, the PTAB instituted the first petition filed by the Company, and in the following months instituted 13 additional petitions. The PTAB has since issued FWDs regarding four of the instituted PGR petitions finding every challenged claim unpatentable. Director Review requests filed by Halozyme to date have been denied. Separately, the PTAB denied institution of one PGR petition against a patent not asserted by Halozyme in the district court litigation discussed below due to discretionary and non-merit considerations.
In April 2025, Halozyme filed a complaint in the U.S. District Court for the District of New Jersey alleging that the Company’s activities related to subcutaneous pembrolizumab infringe or will infringe 15 patents belonging to the MDASE portfolio, all of which are the subject of either the Company’s already filed PGR petitions or separately filed IPR petitions. Institution decisions regarding the IPR petitions are pending. The Company believes the three patents challenged via IPR petitions are invalid and suffer from at least the same defects as the patents currently being challenged by the PGR process.
Between August and June 2026, the Company filed revocation actions against EP Patent No. 2 797 622 (the ‘622 patent) owned by Halozyme in the UK, France, Germany, The Netherlands, Denmark, Sweden, and Switzerland. Halozyme counterclaimed for an injunction in the UK under the ‘622 patent as well as EP Patent No. 3 130 347 (the ‘347 patent) but have undertaken not to enforce any injunction there until the validity of both patents, which is in dispute, is finally determined. In May 2026, Halozyme consented to revocation of the ‘622 patent in the UK. In October 2025, the Company accepted service of a preliminary injunction filed by Halozyme under the ‘622 patent in Germany. Following a one day hearing in December 2025, a preliminary injunction was awarded against the Company, prohibiting sales in Germany. The Company has appealed the preliminary injunction decision, and the appeal hearing is set for November 19, 2026. In the Dutch action, in February 2026, Halozyme counterclaimed for infringement including also Belgium, Denmark, France, Ireland, Italy, Sweden and Switzerland. The Dutch action was heard at the end of July 2026 with a decision expected within three months thereof.
Lenvima — As previously disclosed, between 2019 and 2024, Eisai Inc (Eisai) received Paragraph IV Certification Letters under the Hatch-Waxman Act, providing notice that Sun Pharmaceuticals (Sun), Shilpa Medicare Ltd. (Shilpa), Dr. Reddy’s Laboratories (DRL), and Torrent Pharmaceuticals (Torrent) filed separate applications to the FDA seeking pre-patent expiry approval to sell generic versions of Lenvima (lenvatinib) tablets. Between 2019 and 2024, Eisai and the Company filed a series of patent infringement lawsuits in the U.S. District Court for the District of New Jersey against each generic company asserting several Orange-Book listed patents. The Lenvima compound patent expired in April 2026 (including pediatric exclusivity) and was not challenged. Eisai and the Company settled with Sun, DRL, and Torrent regarding the remaining asserted patents covering Lenvima. Eisai has announced publicly, these generic companies can bring their generic versions of Lenvima to the market in the U.S. in July 2030 or earlier under certain circumstances. In May 2025, Eisai and the Company received a favorable trial decision against Shilpa from the U.S. District Court for the District of New Jersey. As a result of the decision, Shilpa is unable to receive approval from the FDA to sell its generic version of Lenvima until February 2036. Shilpa has appealed the district court’s decision to the U.S. Court of Appeals for the Federal Circuit, and the appeal is currently pending.
Lynparza — As previously disclosed, between December 2022 and November 2024, AstraZeneca Pharmaceuticals LP received Paragraph IV Certification Letters under the Hatch-Waxman Act notifying AstraZeneca that Natco Pharma Limited, Sandoz Inc., Cipla USA, Inc and Cipla Limited (collectively, Cipla), and Zydus Pharmaceuticals (USA) Inc. have filed separate applications to the FDA seeking pre-patent expiry approval to sell generic versions of Lynparza (olaparib) tablets. Between February 2023 and January 2025, AstraZeneca and the Company filed a series of patent infringement lawsuits in the U.S. District Court for the District of New Jersey against each generic company asserting a number of Orange-Book listed patents. The filing of the initial infringement suit generally stays FDA approval for 30 months from the date of the Paragraph IV notice or until an adverse court decision, if any, whichever may occur earlier. In these cases, however, none of the generic companies are challenging the patent specifically claiming the olaparib compound which expires in September 2027. Thus, the earliest date the FDA can approve any of the currently pending generic applications is September 2027. All cases have been consolidated and are awaiting a trial date.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
On June 12, 2026, AstraZeneca and the Company received a second Paragraph IV notice from Cipla stating that it is seeking pre-patent expiry approval to sell generic versions of Lynparza tablets based on a second ANDA filing and asserting that certain patents covering Lynparza are invalid or will not be infringed. The Company and AstraZeneca filed a patent infringement lawsuit in the U.S. District Court for the District of New Jersey in July 2026 asserting a number of Orange-Book listed patents. The FDA will stay approval of Cipla’s second ANDA for 30 months from the date of the Paragraph IV notice unless an adverse court decision is received earlier than that date.
Capvaxive — As previously disclosed, in September 2025, Pogona, LLC filed a complaint in the U.S. District Court for the District of New Jersey alleging that the Company’s activities related to Capvaxive infringe U.S. Patent No. 11,058,757 (‘757 patent). Pogona, LLC is asserting the Company’s infringement is willful and is seeking monetary damages. The Company believes the asserted patent is invalid and not infringed. On January 26, 2026, the Company filed an IPR petition with the PTAB, challenging the validity of Pogona’s ‘757 patent. That petition was denied institution for discretionary and non-merits based reasons. The Company, however, has filed a motion requesting to join an already instituted IPR proceeding filed by a third party. The Company has filed a motion to stay the district court proceedings pending the outcome of the third party IPR petition.
Other Litigation
There are various other pending legal proceedings involving the Company, principally product liability and intellectual property lawsuits. While it is not feasible to predict the outcome of such proceedings, in the opinion of the Company, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to the Company’s financial condition, results of operations or cash flows either individually or in the aggregate.
Legal Defense Reserves
Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable. Some of the significant factors considered in the review of these legal defense reserves are as follows: the actual costs incurred by the Company; the development of the Company’s legal defense strategy and structure in light of the scope of its litigation; the number of cases being brought against the Company; the costs and outcomes of completed trials; and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the associated litigation. The amount of legal defense reserves as of June 30, 2026 and December 31, 2025 of approximately $275 million and $245 million, respectively, represents the Company’s best estimate of the minimum amount of defense costs to be incurred in connection with its outstanding litigation; however, events such as additional trials and other events that could arise in the course of its litigation could affect the ultimate amount of legal defense costs to be incurred by the Company. The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to increase the reserves at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.
9. Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| Common Stock | Other
Paid-In
Capital | Retained
Earnings | Accumulated
Other
Comprehensive
Loss | Treasury Stock | Non-
controlling
Interests | Total |
| ($ and shares in millions except per share amounts) | Shares | Par Value | Shares | Cost |
Balance at April 1, 2025 | 3,577 | | $ | 1,788 | | $ | 44,816 | | $ | 66,097 | | $ | (4,965) | | 1,061 | | $ | (59,401) | | $ | 65 | | $ | 48,400 | |
Net income attributable to Merck & Co., Inc. | — | | — | | — | | 4,427 | | — | | — | | — | | — | | 4,427 | |
| Other comprehensive loss, net of taxes | — | | — | | — | | — | | (456) | | — | | — | | — | | (456) | |
Cash dividends declared on common stock ($0.81 per share) | — | | — | | — | | (2,047) | | — | | — | | — | | — | | (2,047) | |
| Treasury stock shares purchased | — | | — | | — | | — | | — | | 17 | | (1,345) | | — | | (1,345) | |
| Share-based compensation plans and other | — | | — | | (172) | | — | | — | | (4) | | 251 | | 1 | | 80 | |
| Net income attributable to noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | 1 | | 1 | |
| | | | | | | | | |
| Balance at June 30, 2025 | 3,577 | | $ | 1,788 | | $ | 44,644 | | $ | 68,477 | | $ | (5,421) | | 1,074 | | $ | (60,495) | | $ | 67 | | $ | 49,060 | |
Balance at April 1, 2026 | 3,577 | | $ | 1,788 | | $ | 45,176 | | $ | 66,721 | | $ | (4,060) | | 1,107 | | $ | (63,747) | | $ | 53 | | $ | 45,931 | |
Net loss attributable to Merck & Co., Inc. | — | | — | | — | | (1,335) | | — | | — | | — | | — | | (1,335) | |
Other comprehensive income, net of taxes | — | | — | | — | | — | | 118 | | — | | — | | — | | 118 | |
Cash dividends declared on common stock ($0.85 per share) | — | | — | | — | | (2,117) | | — | | — | | — | | — | | (2,117) | |
| Treasury stock shares purchased | — | | — | | — | | — | | — | | 6 | | (712) | | — | | (712) | |
| Share-based compensation plans and other | — | | — | | (226) | | — | | — | | (5) | | 327 | | — | | 101 | |
Net loss attributable to noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | (2) | | (2) | |
| | | | | | | | | |
| Balance at June 30, 2026 | 3,577 | | $ | 1,788 | | $ | 44,950 | | $ | 63,269 | | $ | (3,942) | | 1,108 | | $ | (64,132) | | $ | 51 | | $ | 41,984 | |
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| Common Stock | Other
Paid-In
Capital | Retained
Earnings | Accumulated
Other
Comprehensive
Loss | Treasury Stock | Non-
controlling
Interests | Total |
| ($ and shares in millions except per share amounts) | Shares | Par Value | Shares | Cost |
Balance at January 1, 2025 | 3,577 | | $ | 1,788 | | $ | 44,704 | | $ | 63,069 | | $ | (4,945) | | 1,049 | | $ | (58,303) | | $ | 59 | | $ | 46,372 | |
Net income attributable to Merck & Co., Inc. | — | | — | | — | | 9,506 | | — | | — | | — | | — | | 9,506 | |
| Other comprehensive loss, net of taxes | — | | — | | — | | — | | (476) | | — | | — | | — | | (476) | |
Cash dividends declared on common stock ($1.62 per share) | — | | — | | — | | (4,098) | | — | | — | | — | | — | | (4,098) | |
| Treasury stock shares purchased | — | | — | | — | | — | | — | | 29 | | (2,509) | | — | | (2,509) | |
| Share-based compensation plans and other | — | | — | | (60) | | — | | — | | (4) | | 317 | | — | | 257 | |
| Net income attributable to noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | 8 | | 8 | |
| | | | | | | | | |
| Balance at June 30, 2025 | 3,577 | | $ | 1,788 | | $ | 44,644 | | $ | 68,477 | | $ | (5,421) | | 1,074 | | $ | (60,495) | | $ | 67 | | $ | 49,060 | |
Balance at January 1, 2026 | 3,577 | | $ | 1,788 | | $ | 45,029 | | $ | 73,075 | | $ | (4,287) | | 1,102 | | $ | (62,999) | | $ | 56 | | $ | 52,662 | |
| Net loss attributable to Merck & Co., Inc. | — | | — | | — | | (5,575) | | — | | — | | — | | — | | (5,575) | |
| Other comprehensive income, net of taxes | — | | — | | — | | — | | 345 | | — | | — | | — | | 345 | |
Cash dividends declared on common stock ($1.70 per share) | — | | — | | — | | (4,231) | | — | | — | | — | | — | | (4,231) | |
| Treasury stock shares purchased | — | | — | | — | | — | | — | | 14 | | (1,637) | | — | | (1,637) | |
| Share-based compensation plans and other | — | | — | | (79) | | — | | — | | (8) | | 504 | | — | | 425 | |
| Net loss attributable to noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | (5) | | (5) | |
| | | | | | | | | |
| Balance at June 30, 2026 | 3,577 | | $ | 1,788 | | $ | 44,950 | | $ | 63,269 | | $ | (3,942) | | 1,108 | | $ | (64,132) | | $ | 51 | | $ | 41,984 | |
10. Pension and Other Postretirement Benefit Plans
The Company has defined benefit pension plans covering eligible employees in the U.S. and in certain of its international subsidiaries. The net periodic benefit cost (credit) of such plans consisted of the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2026 | | 2025 | | 2026 | | 2025 |
| ($ in millions) | U.S. | | International | | U.S. | | International | | U.S. | | International | | U.S. | | International |
| Service cost | $ | 98 | | | $ | 49 | | | $ | 90 | | | $ | 60 | | | $ | 195 | | | $ | 98 | | | $ | 180 | | | $ | 114 | |
| Interest cost | 145 | | | 79 | | | 141 | | | 75 | | | 290 | | | 160 | | | 282 | | | 146 | |
| Expected return on plan assets | (207) | | | (158) | | | (210) | | | (152) | | | (414) | | | (319) | | | (420) | | | (295) | |
Amortization of unrecognized prior service credit | — | | | (4) | | | — | | | (4) | | | — | | | (7) | | | — | | | (8) | |
Net loss (gain) amortization | 27 | | | (1) | | | 13 | | | 2 | | | 54 | | | (2) | | | 25 | | | 5 | |
| Termination benefits | 2 | | | — | | | — | | | — | | | 4 | | | 14 | | | — | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| $ | 65 | | | $ | (35) | | | $ | 34 | | | $ | (19) | | | $ | 129 | | | $ | (56) | | | $ | 67 | | | $ | (38) | |
The Company provides medical benefits, principally to its eligible U.S. retirees and similar benefits to their dependents, through its other postretirement benefit plans. The net credit of such plans consisted of the following components:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| Service cost | $ | 11 | | | $ | 9 | | | $ | 21 | | | $ | 19 | |
| Interest cost | 16 | | | 16 | | | 32 | | | 31 | |
| Expected return on plan assets | (14) | | | (13) | | | (27) | | | (26) | |
| Amortization of unrecognized prior service credit | (9) | | | (10) | | | (18) | | | (20) | |
| Net gain amortization | (8) | | | (10) | | | (15) | | | (20) | |
| Termination benefits | — | | | — | | | 1 | | | — | |
| | | | | | | |
| $ | (4) | | | $ | (8) | | | $ | (6) | | | $ | (16) | |
In connection with restructuring actions (see Note 4), termination charges were recorded on pension and other postretirement benefit plans related to expanded eligibility for certain employees exiting Merck.
The components of net periodic benefit cost (credit) other than the service cost component are included in Other (income) expense, net (see Note 11), with the exception of certain amounts for termination benefits which are recorded in Restructuring costs if the event giving rise to the termination benefits related to restructuring actions.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
11. Other (Income) Expense, Net
Other (income) expense, net, consisted of:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| Interest income | $ | (35) | | | $ | (69) | | | $ | (70) | | | $ | (178) | |
| Interest expense | 525 | | | 305 | | | 1,004 | | | 618 | |
| Exchange losses | 37 | | | 78 | | | 75 | | | 167 | |
Income from investments in equity securities, net (1) | (242) | | | (100) | | | (411) | | | (189) | |
| Net periodic defined benefit plan (credit) cost other than service cost | (127) | | | (152) | | | (262) | | | (300) | |
| Other, net | (59) | | | (69) | | | (99) | | | (161) | |
| $ | 99 | | | $ | (7) | | | $ | 237 | | | $ | (43) | |
(1) Includes net realized and unrealized gains and losses from investments in equity securities either owned directly or through ownership interests in investment funds. Unrealized gains and losses from investments that are owned directly are determined at the end of the reporting period, while gains and losses from ownership interests in investment funds are accounted for on a one quarter lag.
Interest paid for the six months ended June 30, 2026 and 2025 was $996 million and $616 million, respectively.
12. Income Taxes
The income tax provision of $654 million for the second quarter of 2026 on a pretax loss of $683 million, resulted in an effective income tax rate of (95.9)%. The second quarter 2026 effective income tax rate reflects a 108.9 percentage point unfavorable impact of the charge for the acquisition of Terns, which had no tax benefit, partially offset by the favorable impacts of jurisdictional mix of income and expense. The income tax provision of $1.4 billion for the first six months of 2026 on a pretax loss of $4.2 billion, resulted in an effective income tax rate of (32.3)%. The effective income tax rate for the first six months of 2026 reflects a 45.3 percentage point combined unfavorable impact of the charges for the acquisitions of Cidara and Terns, which had no tax benefits, partially offset by the favorable impacts of jurisdictional mix of income and expense.
The effective income tax rates of 11.4% and 12.7% for the second quarter and first six months of 2025, respectively, reflect a 2.9 percentage point favorable impact and a 1.4 percentage point favorable impact, respectively, due to $146 million of tax benefits resulting primarily from favorable audit reserve adjustments. The effective income tax rates in both the second quarter and first six months of 2025 also reflect the favorable impacts of jurisdictional mix of income and expense, as well as certain discrete items.
The Internal Revenue Service (IRS) is currently conducting examinations of the Company’s tax returns for the years 2017 and 2018, including the one-time transition tax enacted under the Tax Cuts and Jobs Act of 2017. In April 2025, Merck received Notices of Proposed Adjustment (NOPAs) that would increase the amount of the one-time transition tax on certain undistributed earnings of foreign subsidiaries by approximately $1.3 billion. In addition, the NOPAs included penalties of approximately $260 million. These amounts are exclusive of any interest that may be due. The Company disagrees with the proposed adjustments and is vigorously contesting the NOPAs through available administrative proceedings. However, it remains uncertain whether a resolution can be reached during this phase of the audit, and judicial proceedings may be necessary. If the Company is ultimately unsuccessful in resolving or defending its position, the impact could be material to its financial statements. The statute of limitations for assessments with respect to the 2019 and 2020 federal tax return years expired in June 2024 and October 2024, respectively. The IRS is also currently conducting examinations of the Company’s tax returns for the years 2021 and 2022. In addition, various state and foreign tax examinations are in progress.
13. (Loss) Earnings Per Share
The calculations of (loss) earnings per share are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ and shares in millions except per share amounts) | 2026 | | 2025 | | 2026 | | 2025 |
Net (Loss) Income Attributable to Merck & Co., Inc. | $ | (1,335) | | | $ | 4,427 | | | $ | (5,575) | | | $ | 9,506 | |
| Average common shares outstanding | 2,470 | | | 2,510 | | | 2,471 | | | 2,516 | |
Common shares issuable (1) | — | | | 3 | | | — | | | 6 | |
| Average common shares outstanding assuming dilution | 2,470 | | | 2,513 | | | 2,471 | | | 2,522 | |
Basic (Loss) Earnings per Common Share Attributable to Merck & Co., Inc. Common Shareholders | $ | (0.54) | | | $ | 1.76 | | | $ | (2.26) | | | $ | 3.78 | |
(Loss) Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders | $ | (0.54) | | | $ | 1.76 | | | $ | (2.26) | | | $ | 3.77 | |
(1) Issuable primarily under share-based compensation plans.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The Company recorded a net loss for both the second quarter and first six months of 2026; therefore, no potential dilutive common shares were used in the computations of loss per common share assuming dilution because the effects would have been antidilutive. For the second quarter and first six months of 2025, 19 million and 12 million, respectively, of common shares issuable under share-based compensation plans were excluded from the computations of earnings per common share assuming dilution because the effects would have been antidilutive.
14. Other Comprehensive Income (Loss)
Changes in each component of other comprehensive income (loss) are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| ($ in millions) | Derivatives | | Employee
Benefit
Plans | | Foreign Currency
Translation
Adjustment | | Accumulated Other
Comprehensive
Loss |
Balance April 1, 2025, net of taxes | $ | 25 | | | $ | (2,345) | | | $ | (2,645) | | | $ | (4,965) | |
| Other comprehensive income (loss) before reclassification adjustments, pretax | (542) | | | (1) | | | 134 | | | (409) | |
| Tax | 114 | | | (1) | | | (172) | | | (59) | |
| Other comprehensive income (loss) before reclassification adjustments, net of taxes | (428) | | | (2) | | | (38) | | | (468) | |
| Reclassification adjustments, pretax | 23 | | (1) | (8) | | (2) | — | | | 15 | |
| Tax | (5) | | | 2 | | | — | | | (3) | |
| Reclassification adjustments, net of taxes | 18 | |
| (6) | |
| — | | | 12 | |
| Other comprehensive income (loss), net of taxes | (410) | | | (8) | | | (38) | | | (456) | |
Balance June 30, 2025, net of taxes | $ | (385) | | | $ | (2,353) | | | $ | (2,683) | | | $ | (5,421) | |
Balance April 1, 2026, net of taxes | $ | 111 | | | $ | (1,494) | | | $ | (2,677) | | | $ | (4,060) | |
| Other comprehensive income (loss) before reclassification adjustments, pretax | 41 | | | 1 | | | 56 | | | 98 | |
| Tax | (9) | | | — | | | (21) | | | (30) | |
| Other comprehensive income (loss) before reclassification adjustments, net of taxes | 32 | | | 1 | | | 35 | | | 68 | |
| Reclassification adjustments, pretax | 54 | | (1) | 6 | | (2) | — | | | 60 | |
| Tax | (11) | | | 1 | | | — | | | (10) | |
| Reclassification adjustments, net of taxes | 43 | |
| 7 | |
| — | | | 50 | |
| Other comprehensive income (loss), net of taxes | 75 | | | 8 | | | 35 | | | 118 | |
Balance June 30, 2026, net of taxes | $ | 186 | | | $ | (1,486) | | | $ | (2,642) | | | $ | (3,942) | |
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| ($ in millions) | Derivatives | | Employee
Benefit
Plans | | Foreign Currency
Translation
Adjustment | | Accumulated Other
Comprehensive
Loss |
Balance January 1, 2025, net of taxes | $ | 242 | | | $ | (2,327) | | | $ | (2,860) | | | $ | (4,945) | |
| Other comprehensive income (loss) before reclassification adjustments, pretax | (743) | | | (2) | | | 334 | | | (411) | |
| Tax | 156 | | | (1) | | | (157) | | | (2) | |
| Other comprehensive income (loss) before reclassification adjustments, net of taxes | (587) | | | (3) | | | 177 | | | (413) | |
| Reclassification adjustments, pretax | (51) | | (1) | (18) | | (2) | — | | | (69) | |
| Tax | 11 | | | (5) | | | — | | | 6 | |
| Reclassification adjustments, net of taxes | (40) | | | (23) | | | — | | | (63) | |
| Other comprehensive income (loss), net of taxes | (627) | | | (26) | | | 177 | | | (476) | |
Balance June 30, 2025, net of taxes | $ | (385) | | | $ | (2,353) | | | $ | (2,683) | | | $ | (5,421) | |
Balance January 1, 2026, net of taxes | $ | (105) | | | $ | (1,499) | | | $ | (2,683) | | | $ | (4,287) | |
| Other comprehensive income (loss) before reclassification adjustments, pretax | 209 | | | 2 | | | 71 | | | 282 | |
| Tax | (44) | | | 1 | | | (30) | | | (73) | |
| Other comprehensive income (loss) before reclassification adjustments, net of taxes | 165 | | | 3 | | | 41 | | | 209 | |
| Reclassification adjustments, pretax | 159 | | (1) | 11 | | (2) | — | | | 170 | |
| Tax | (33) | | | (1) | | | — | | | (34) | |
| Reclassification adjustments, net of taxes | 126 | | | 10 | | | — | | | 136 | |
| Other comprehensive income (loss), net of taxes | 291 | | | 13 | | | 41 | | | 345 | |
Balance June 30, 2026, net of taxes | $ | 186 | | | $ | (1,486) | | | $ | (2,642) | | | $ | (3,942) | |
(1) Primarily relates to foreign currency cash flow hedges that were reclassified from AOCL to Sales.
(2) Includes net amortization of prior service cost, actuarial gains and losses, settlements and curtailments included in net periodic benefit cost (see Note 10).
15. Segment Reporting
The Company’s operations are principally managed on a product basis and include two operating segments, Pharmaceutical and Animal Health, both of which are reportable segments.
The Pharmaceutical segment includes human health pharmaceutical and vaccine products. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Human health vaccine products consist of preventive pediatric, adolescent and adult vaccines. The Company sells these human health vaccines primarily to physicians, wholesalers, distributors and government entities. A large component of pediatric and adolescent vaccine sales are made to the U.S. Centers for Disease Control and Prevention Vaccines for Children program, which is funded by the U.S. government. Additionally, the Company sells vaccines to the Federal government for placement into vaccine stockpiles. As a result of changes to the Company’s internal reporting structure, certain costs (including IT related costs) that were previously included in the Pharmaceutical segment are now being included as part of non-segment unallocated expenses within corporate support functions. Prior period Pharmaceutical segment profits have been recast to reflect these changes on a comparable basis.
The Animal Health segment discovers, develops, manufactures and markets a wide range of veterinary pharmaceutical and vaccine products, as well as health management solutions and services, for the prevention, treatment and control of disease in all major livestock and companion animal species. The Company also offers an extensive suite of digitally connected identification, traceability and monitoring products. The Company sells its products to veterinarians, distributors, animal producers, farmers and pet owners.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Sales of the Company’s products were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2026 | | 2025 | | 2026 | | 2025 |
| ($ in millions) | U.S. | | Int’l | | Total | | U.S. | | Int’l | | Total | | U.S. | | Int’l | | Total | | U.S. | | Int’l | | Total |
| Pharmaceutical: | | | | | | | | | | | | | | | | | | | | | | | |
| Oncology | | | | | | | | | | | | | | | | | | | | | | | |
| Keytruda | $ | 4,611 | | | $ | 3,293 | | | $ | 7,904 | | | $ | 4,749 | | | $ | 3,207 | | | $ | 7,956 | | | $ | 9,210 | | | $ | 6,600 | | | $ | 15,810 | | | $ | 9,057 | | | $ | 6,104 | | | $ | 15,161 | |
| Keytruda Qlex | 395 | | | 68 | | | 463 | | | — | | | — | | | — | | | 501 | | | 89 | | | 590 | | | — | | | — | | | — | |
Alliance revenue-Lynparza (1) | 167 | | | 198 | | | 365 | | | 174 | | | 195 | | | 370 | | | 315 | | | 391 | | | 706 | | | 319 | | | 363 | | | 682 | |
Alliance revenue-Lenvima (1) | 194 | | | 90 | | | 283 | | | 183 | | | 83 | | | 265 | | | 369 | | | 170 | | | 539 | | | 368 | | | 155 | | | 523 | |
| Welireg | 214 | | | 57 | | | 271 | | | 138 | | | 24 | | | 162 | | | 366 | | | 103 | | | 470 | | | 261 | | | 39 | | | 300 | |
Alliance revenue-Reblozyl (2) | 98 | | | 25 | | | 122 | | | 88 | | | 19 | | | 107 | | | 226 | | | 45 | | | 270 | | | 189 | | | 37 | | | 226 | |
| Vaccines | | | | | | | | | | | | | | | | | | | | | | | |
Gardasil/Gardasil 9 | 542 | | | 626 | | | 1,169 | | | 545 | | | 581 | | | 1,126 | | | 1,027 | | | 1,211 | | | 2,238 | | | 1,082 | | | 1,371 | | | 2,453 | |
ProQuad/M-M-R II/Varivax | 438 | | | 154 | | | 592 | | | 481 | | | 128 | | | 609 | | | 847 | | | 283 | | | 1,130 | | | 903 | | | 245 | | | 1,148 | |
| Vaxneuvance | 69 | | | 80 | | | 148 | | | 136 | | | 93 | | | 229 | | | 192 | | | 158 | | | 350 | | | 275 | | | 184 | | | 459 | |
| RotaTeq | 84 | | | 50 | | | 134 | | | 60 | | | 61 | | | 121 | | | 249 | | | 91 | | | 340 | | | 225 | | | 125 | | | 349 | |
| Capvaxive | 138 | | | 45 | | | 184 | | | 129 | | | — | | | 129 | | | 256 | | | 69 | | | 325 | | | 235 | | | 1 | | | 236 | |
| Cardiometabolic and Respiratory | | | | | | | | | | | | | | | | | | | | | | | |
| Winrevair | 522 | | | 66 | | | 588 | | | 323 | | | 12 | | | 336 | | | 999 | | | 114 | | | 1,114 | | | 591 | | | 24 | | | 615 | |
| Ohtuvayre | 204 | | | — | | | 204 | | | — | | | — | | | — | | | 335 | | | — | | | 335 | | | — | | | — | | | — | |
Alliance revenue-Adempas/Verquvo (3) | 112 | | | 14 | | | 126 | | | 108 | | | 15 | | | 123 | | | 221 | | | 14 | | | 235 | | | 205 | | | 23 | | | 229 | |
| Adempas | — | | | 78 | | | 78 | | | — | | | 80 | | | 80 | | | — | | | 156 | | | 156 | | | — | | | 147 | | | 147 | |
| Infectious Diseases | | | | | | | | | | | | | | | | | | | | | | | |
| Bridion | 460 | | | 37 | | | 497 | | | 411 | | | 50 | | | 461 | | | 887 | | | 82 | | | 969 | | | 789 | | | 113 | | | 902 | |
| Prevymis | 147 | | | 148 | | | 295 | | | 115 | | | 113 | | | 228 | | | 282 | | | 285 | | | 568 | | | 217 | | | 219 | | | 436 | |
| Delstrigo | 13 | | | 88 | | | 101 | | | 14 | | | 70 | | | 83 | | | 23 | | | 153 | | | 176 | | | 29 | | | 121 | | | 150 | |
| Zerbaxa | 44 | | | 34 | | | 77 | | | 45 | | | 29 | | | 74 | | | 95 | | | 64 | | | 159 | | | 87 | | | 57 | | | 145 | |
Isentress/Isentress HD | 36 | | | 24 | | | 60 | | | 48 | | | 38 | | | 86 | | | 71 | | | 49 | | | 119 | | | 99 | | | 77 | | | 176 | |
| Dificid | 11 | | | 12 | | | 22 | | | 83 | | | 13 | | | 96 | | | 35 | | | 21 | | | 56 | | | 155 | | | 24 | | | 179 | |
| Lagevrio | 1 | | | 3 | | | 5 | | | 30 | | | 52 | | | 83 | | | 18 | | | 15 | | | 32 | | | 66 | | | 119 | | | 185 | |
| Diabetes | | | | | | | | | | | | | | | | | | | | | | | |
| Januvia | 149 | | | 109 | | | 258 | | | 216 | | | 155 | | | 372 | | | 401 | | | 224 | | | 625 | | | 561 | | | 360 | | | 921 | |
| Janumet | 28 | | | 143 | | | 171 | | | 68 | | | 184 | | | 251 | | | 96 | | | 283 | | | 378 | | | 133 | | | 366 | | | 498 | |
Other pharmaceutical (4) | 150 | | | 491 | | | 643 | | | 184 | | | 520 | | | 703 | | | 317 | | | 1,101 | | | 1,419 | | | 408 | | | 1,160 | | | 1,568 | |
| Total Pharmaceutical segment sales | 8,827 | | | 5,933 | | | 14,760 | | | 8,328 | | | 5,722 | | | 14,050 | | | 17,338 | | | 11,771 | | | 29,109 | | | 16,254 | | | 11,434 | | | 27,688 | |
| Animal Health: | | | | | | | | | | | | | | | | | | | | | | | |
| Livestock | 202 | | | 838 | | | 1,041 | | | 190 | | | 771 | | | 961 | | | 414 | | | 1,691 | | | 2,105 | | | 384 | | | 1,501 | | | 1,885 | |
| Companion Animal | 333 | | | 402 | | | 734 | | | 309 | | | 376 | | | 685 | | | 640 | | | 821 | | | 1,461 | | | 617 | | | 732 | | | 1,349 | |
| Total Animal Health segment sales | 535 | | | 1,240 | | | 1,775 | | | 499 | | | 1,147 | | | 1,646 | | | 1,054 | | | 2,512 | | | 3,566 | | | 1,001 | | | 2,233 | | | 3,234 | |
| Total segment sales | 9,362 | | | 7,173 | | | 16,535 | | | 8,827 | | | 6,869 | | | 15,696 | | | 18,392 | | | 14,283 | | | 32,675 | | | 17,255 | | | 13,667 | | | 30,922 | |
Other (5) | 5 | | | 67 | | | 72 | | | 9 | | | 100 | | | 110 | | | 140 | | | 78 | | | 218 | | | 104 | | | 310 | | | 413 | |
| $ | 9,367 | | | $ | 7,240 | | | $ | 16,607 | | | $ | 8,836 | | | $ | 6,969 | | | $ | 15,806 | | | $ | 18,532 | | | $ | 14,361 | | | $ | 32,893 | | | $ | 17,359 | | | $ | 13,977 | | | $ | 31,335 | |
U.S. plus international may not equal total due to rounding.(1) Alliance revenue for Lynparza and Lenvima represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs (see Note 3).
(2) Alliance revenue for Reblozyl represents royalties (see Note 3).
(3) Alliance revenue for Adempas/Verquvo represents Merck’s share of profits from sales in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 3).
(4) Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately. Also reflects total alliance revenue for Koselugo of $10 million and $43 million in the second quarter of 2026 and 2025, respectively, and $171 million and $87 million in the first six months of 2026 and 2025, respectively (see Note 3).
(5) Other is primarily comprised of miscellaneous corporate revenue, including revenue hedging activities which (decreased) increased sales by $(153) million and $16 million for the six months ended June 30, 2026 and 2025, respectively, as well as revenue from third-party manufacturing arrangements (including sales to Organon & Co.). Other for the six months ended June 30, 2026 and 2025 also includes $132 million and $100 million, respectively, related to milestone payments received by Merck for out-licensing arrangements.
Product sales are recorded net of the provision for discounts, including chargebacks, which are customer discounts that occur when a contracted customer purchases through an intermediary wholesale purchaser, and rebates that are owed based upon definitive contractual agreements or legal requirements with private sector and public sector (Medicaid and Medicare Part D) benefit providers, after the final dispensing of the product by a pharmacy to a benefit plan participant. These discounts, in the aggregate, reduced U.S. sales by $2.5 billion for both the three months ended June 30, 2026 and 2025, and $5.0 billion and $4.7 billion for the six months ended June 30, 2026 and 2025, respectively.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Consolidated sales by geographic area where derived are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in millions) | 2026 | | 2025 | | 2026 | | 2025 |
| U.S. | $ | 9,367 | | | $ | 8,836 | | | $ | 18,532 | | | $ | 17,359 | |
| Europe, Middle East and Africa | 3,920 | | | 3,659 | | | 7,806 | | | 7,109 | |
| Latin America | 875 | | | 859 | | | 1,749 | | | 1,651 | |
| Asia Pacific (other than China and Japan) | 820 | | | 785 | | | 1,557 | | | 1,474 | |
| Japan | 577 | | | 626 | | | 1,132 | | | 1,295 | |
| China | 408 | | | 446 | | | 797 | | | 1,148 | |
| Other | 640 | | | 595 | | | 1,320 | | | 1,299 | |
| $ | 16,607 | | | $ | 15,806 | | | $ | 32,893 | | | $ | 31,335 | |
A reconciliation of segment profits to (Loss) Income Before Taxes is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2026 | | 2025 | | 2026 | | 2025 |
($ in millions) | Pharma- ceutical | | Animal Health | | Total | | Pharma- ceutical | | Animal Health | | Total | | Pharma-ceutical | | Animal Health | | Total | | Pharma-ceutical | | Animal Health | | Total |
| Segment sales | $ | 14,760 | | | $ | 1,775 | | | $ | 16,535 | | | $ | 14,050 | | | $ | 1,646 | | | $ | 15,696 | | | $ | 29,109 | | | $ | 3,566 | | | $ | 32,675 | | | $ | 27,688 | | | $ | 3,234 | | | $ | 30,922 | |
Less segment costs: (1) | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of sales | 1,731 | | | 715 | | | | | 1,601 | | | 659 | | | | | 3,284 | | | 1,389 | | | | | 3,174 | | | 1,258 | | | |
| Selling, general and administrative | 1,437 | | | 304 | | | | | 1,367 | | | 284 | | | | | 2,750 | | | 585 | | | | | 2,611 | | | 544 | | | |
Research and development (2) | — | | | 120 | | | | | — | | | 110 | | | | | — | | | 232 | | | | | — | | | 205 | | | |
Other segment items (3) | (20) | | | — | | | | | (21) | | | — | | | | | (76) | | | 1 | | | | | (70) | | | 1 | | | |
| Total segment profits | $ | 11,612 | | | $ | 636 | | | $ | 12,248 | | | $ | 11,103 | | | $ | 593 | | | $ | 11,696 | | | $ | 23,151 | | | $ | 1,359 | | | $ | 24,510 | | | $ | 21,973 | | | $ | 1,226 | | | $ | 23,199 | |
| Other profits | | | | | 30 | | | | | | | 30 | | | | | | | 136 | | | | | | | 231 | |
| Unallocated: | | | | | | | | | | | | | | | | | | | | | | | |
| Interest income | | | | | 35 | | | | | | | 69 | | | | | | | 70 | | | | | | | 178 | |
| Interest expense | | | | | (525) | | | | | | | (305) | | | | | | | (1,004) | | | | | | | (618) | |
| Amortization | | | | | (984) | | | | | | | (601) | | | | | | | (1,915) | | | | | | | (1,198) | |
| Depreciation | | | | | (513) | | | | | | | (455) | | | | | | | (1,004) | | | | | | | (896) | |
| Research and development | | | | | (9,577) | | | | | | | (3,844) | | | | | | | (21,981) | | | | | | | (7,321) | |
| Restructuring costs | | | | | (151) | | | | | | | (560) | | | | | | | (346) | | | | | | | (629) | |
| Other unallocated, net | | | | | (1,246) | | | | | | | (1,031) | | | | | | | (2,683) | | | | | | | (2,044) | |
| | | | | $ | (683) | | | | | | | $ | 4,999 | | | | | | | $ | (4,217) | | | | | | | $ | 10,902 | |
(1) The significant expense categories and amounts align with the segment level information that is regularly provided to the chief operating decision maker.
(2) Human health-related research and development expenses incurred by Merck Research Laboratories are not allocated to segment profits as noted below.
(3) Includes equity (income) loss from affiliates and other miscellaneous non-operating expenses.
Pharmaceutical segment profits consist of segment sales less standard costs, as well as selling, general and administrative expenses directly incurred by the segment. Animal Health segment profits consist of segment sales, less all cost of sales, as well as selling, general and administrative expenses and research and development costs directly incurred by the segment. The chief operating decision maker (Merck’s Chief Executive Officer) uses segment profit for the purpose of evaluating performance, allocating resources, informing incentive compensation targets and setting strategic Company goals during the planning and forecasting process. On a quarterly basis, the CEO considers forecast-to-actual variances in segment profit when assessing performance of the segments and making decisions about allocating resources to the segments. For internal management reporting presented to the CEO, Merck does not allocate the remaining cost of sales not included in segment profits as described above, research and development expenses incurred by Merck Research Laboratories, the Company’s research and development division that focuses on human health-related activities, or general and administrative expenses not directly incurred by the segments, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits. In addition, costs related to restructuring activities, as well as the amortization of intangible assets and the recognition of fair value step-up of inventories are not allocated to segments.
Other profits are primarily comprised of miscellaneous corporate profits, as well as operating profits (losses) related to third-party manufacturing arrangements.
Other unallocated, net, includes expenses from corporate and manufacturing cost centers, intangible asset impairment charges, gains or losses on sales of businesses, expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration, and other miscellaneous income or expense items.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Equity income from affiliates and depreciation included in segment profits is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2026 | | 2025 | | 2026 | | 2025 |
| ($ in millions) | Pharma- ceutical | | Animal Health | | Total | | Pharma- ceutical | | Animal Health | | Total | | Pharma-ceutical | | Animal Health | | Total | | Pharma-ceutical | | Animal Health | | Total |
Equity income from affiliates | $ | 29 | | | $ | — | | | $ | 29 | | | $ | 29 | | | $ | — | | | $ | 29 | | | $ | 92 | | | $ | — | | | $ | 92 | | | $ | 86 | | | $ | — | | | $ | 86 | |
Depreciation | 1 | | | 84 | | | 85 | | | 1 | | | 62 | | | 63 | | | 2 | | | 174 | | | 176 | | | 2 | | | 122 | | | 124 | |
Property, plant and equipment, net, by geographic area where located is as follows:
| | | | | | | | | | | |
($ in millions) | June 30, 2026 | | December 31, 2025 |
| U.S. | $ | 15,291 | | | $ | 15,021 | |
| Europe, Middle East and Africa | 9,076 | | | 8,856 | |
Asia Pacific (other than China and Japan) | 850 | | | 898 | |
| China | 210 | | | 218 | |
| Latin America | 131 | | | 128 | |
| Japan | 129 | | | 144 | |
| Other | 50 | | | 51 | |
| $ | 25,737 | | | $ | 25,316 | |
The Company does not disaggregate assets on a products and services basis for internal management reporting and, therefore, such information is not presented.