Merck (NYSE: MRK) reports Q2 loss, hikes revenue view as Keytruda Qlex ramps

Merck & Co., Inc., Rahway, N.J., USA (NYSE: MRK), known as MSD outside the United States and Canada, reported a headline second-quarter loss on Tuesday even as its top line accelerated, a paradox that will define investor debate for the rest of 2026. Total worldwide sales reached $16.6 billion, a 5% increase against the prior-year quarter, but the company recorded a GAAP loss per share of $0.54 and a non-GAAP loss per share of $0.13, both carrying a $2.31 per-share charge for the completed acquisition of Terns Pharmaceuticals, Inc. Merck raised the lower and upper bounds of its full-year sales guidance to a range of $66.3 billion to $67.3 billion, but simultaneously halved its non-GAAP earnings-per-share outlook to a range of $2.66 to $2.76, absorbing more than $14.7 billion in one-time research and development charges from back-to-back purchases of Cidara Therapeutics, Inc. and Terns. The central tension for shareholders is now the durability of the post-Keytruda-loss-of-exclusivity franchise, priced against the balance-sheet cost of building it. Whether the market ultimately rewards Merck for accelerating its portfolio transformation or punishes it for compressed near-term earnings will depend on how quickly Lipfendra, Winrevair, Ohtuvayre, Capvaxive, and the subcutaneous Keytruda Qlex convert clinical and regulatory momentum into repeatable cash flow.

How does the Keytruda Qlex subcutaneous transition change the exclusivity math for Merck through the 2028 patent cliff?

The most consequential number in the quarter was neither the headline loss nor the raised revenue guidance. It was the $463 million in second-quarter sales from Keytruda Qlex, the subcutaneous formulation of pembrolizumab paired with berahyaluronidase alfa-pmph. Combined Keytruda and Keytruda Qlex sales reached $8.4 billion, a 5% increase over the prior year, but the underlying story is the pace at which patients and providers are migrating to the subcutaneous option. First-quarter Keytruda Qlex sales were $128 million. Second-quarter sales were $463 million. On a run-rate basis, subcutaneous pembrolizumab is annualising toward $1.85 billion within its first year on the market, and the ramp reflects both physician preference for shorter chair time and Merck’s strategic intent to migrate as much of the franchise as possible onto a formulation with distinct patent protection ahead of the 2028 exclusivity loss for the intravenous form.

The commercial significance is difficult to overstate. Keytruda and Keytruda Qlex together generated $15.8 billion in first-half sales, roughly 48% of pharmaceutical revenue. If Merck can transition even half of the current intravenous demand to Qlex before generic and biosimilar pembrolizumab enters the market, the effective patent cliff softens materially. The near-term investment case now depends less on Keytruda unit growth and more on Qlex conversion velocity, particularly in Europe and Japan where reimbursement dynamics differ.

Why does the Lipfendra approval matter more than a routine cardiometabolic launch for Merck’s post-Keytruda revenue mix?

The July approval of Lipfendra, generic name enlicitide, positions Merck as the first company to market with a once-daily oral PCSK9 inhibitor for lowering LDL cholesterol in adults with hypercholesterolaemia. The commercial significance lies in the delivery route rather than the mechanism. Existing PCSK9 inhibitors, Amgen Inc.’s Repatha and Regeneron Pharmaceuticals, Inc.’s Praluent, require subcutaneous injection every two weeks or monthly, while Novartis AG’s Leqvio is administered by a healthcare professional every six months after an initial loading regimen. A pill removes the largest single barrier to broader use of the class, which is the friction associated with injectable delivery in a chronic ambulatory setting.

The clinical foundation is quantifiable. Two Phase 3 trials from the CORALreef programme, CORALreef Lipids and CORALreef HeFH, demonstrated placebo-adjusted LDL-C reductions of 56% and 59% respectively at week 24. Those numbers place Lipfendra within reach of the LDL-C reduction magnitude previously associated only with injectable therapies. The competitive question is whether cardiologists and primary-care physicians will adopt an oral PCSK9 inhibitor as an add-on to statins for high-risk patients who have not reached target LDL-C. If uptake follows the pattern seen with Novo Nordisk A/S’s oral semaglutide, Lipfendra could generate multi-billion-dollar annual revenue within four to five years. Management framed the approval as a milestone in a nearly 70-year cardiovascular franchise, and the launch will provide the earliest test of whether the cardiometabolic pillar can meaningfully offset the eventual erosion of intravenous Keytruda.

What does the Winrevair, Ohtuvayre, Welireg and Capvaxive momentum say about the diversification strategy?

The second-quarter results contained several data points that individually would qualify as significant, and collectively suggest that the post-Keytruda base is broader than the market has assumed. Winrevair, indicated for pulmonary arterial hypertension, generated $588 million in the quarter, a 75% increase over the prior-year period, with launch uptake accelerating in Japan and Europe. Ohtuvayre, acquired through Merck’s October 2025 acquisition of Verona Pharma plc, contributed $204 million in its first full quarter under Merck ownership, although management noted a favourable specialty-pharmacy timing benefit. Welireg, the belzutifan hypoxia-inducible factor-2 alpha inhibitor, delivered $271 million in the quarter, a 67% increase, benefiting from a new approval in adjuvant clear cell renal cell carcinoma in combination with Keytruda and Keytruda Qlex based on the Phase 3 LITESPARK-022 trial. Capvaxive, the 21-valent pneumococcal conjugate vaccine, added $184 million, a 42% increase.

None of these individually rivals Keytruda in scale, but the aggregate matters. Combined non-Keytruda pharmaceutical growth engines contributed approximately $1.85 billion in the second quarter, a figure that has grown from a much smaller base only two years ago. The strategy visible in the results is deliberate: rather than seek a single Keytruda-scale replacement, Merck is assembling a portfolio of specialty franchises across pulmonology, oncology, respiratory, vaccines, and cardiovascular disease, each with distinct patent horizons and payer dynamics. The counterweight is that the diabetes franchise, particularly Januvia and Janumet, continued to decline 31% in the quarter as generic competition intensified. Lagevrio, the COVID-19 antiviral, effectively collapsed to $5 million, a 95% decrease. Vaxneuvance sales fell 35% under competitive pressure. The diversification is real, but so is the drag.

Why did the market absorb a raised revenue outlook and a halved earnings outlook without a sharp negative reaction?

Merck shares closed the earnings session at $128.85, having traded in a range of $126.22 to $129.99, against a prior close near $130.36. The relatively contained reaction to a substantial cut in non-GAAP earnings guidance reflects the market’s ability to look through the accounting mechanics of business-development charges. The updated full-year non-GAAP earnings-per-share range of $2.66 to $2.76 includes a $3.62 per-share charge for Cidara and a $2.31 per-share charge for Terns, together totalling $5.93 per share of one-time impact. Absent those charges, the underlying earnings power would sit closer to the previous $5.04 to $5.16 range.

Investors familiar with pharmaceutical business-development accounting are conditioned to add back in-process research and development charges when assessing normalised earnings. However, the recurring costs to service and advance those acquisitions, including approximately $0.12 per share in financing and development costs specifically flagged for advancing MK-4208, formerly TERN-701, will not disappear. The market’s current willingness to look past the charges rests on the assumption that Merck can retain analyst confidence in its 2027 and 2028 earnings trajectory. Barclays raised its price target on the stock to $150 from $140 in late July, and Goldman Sachs maintains a Buy rating with a $137 price target citing the emerging HIV franchise. The consensus 12-month price target sits at approximately $135, implying limited near-term upside from current levels. A sustained rerating from here would likely require either accelerated Keytruda Qlex conversion or a Lipfendra launch trajectory that materially exceeds analyst expectations.

What does the pipeline density in oncology, HIV and immunology imply for the strategic direction of the company?

The pipeline update accompanying the earnings release was unusually broad for a single quarter. In oncology, the Phase 3 TroFuse-005 trial evaluating sacituzumab tirumotecan, the anti-TROP2 antibody-drug conjugate being developed with Kelun-Biotech, met its primary endpoints of overall survival and progression-free survival in advanced or recurrent endometrial cancer following platinum-based chemotherapy and anti-PD-1 or PD-L1 immunotherapy. Management characterised the readout as the first Phase 3 result from a programme that currently includes 17 ongoing global Phase 3 trials across multiple tumour types. The scale of the sacituzumab tirumotecan programme signals an intent to build a second immuno-oncology backbone alongside Keytruda.

The FDA also granted Breakthrough Therapy designation to calderasib, formerly MK-1084, an investigational oral KRAS G12C inhibitor, in combination with Keytruda for first-line treatment of advanced or metastatic non-small cell lung cancer patients with KRAS G12C mutations and PD-L1 expression at a tumour proportion score of 1% or greater. That designation places Merck in more direct competition with Amgen’s Lumakras and Bristol Myers Squibb Company’s Krazati, with a differentiated first-line combination positioning.

In HIV, the Phase 3 result for islatravir plus lenacapavir, developed in collaboration with Gilead Sciences, Inc., positions the combination as potentially the first oral once-weekly single-tablet HIV treatment regimen, a category with no existing competition. Coupled with Phase 2b data for islatravir plus ulonivirine and a Phase 3 development programme for alimatravir, formerly MK-8527, as a once-monthly oral pre-exposure prophylaxis, Merck is building an HIV franchise that could generate more than $5 billion in annual revenue by the mid-2030s if regulatory approvals and payer access align.

In immunology, tulisokibart, formerly MK-7240, an investigational humanised monoclonal antibody targeting TL1A, met its primary and key secondary endpoints in the Phase 3 ATLAS-UC induction study in moderately to severely active ulcerative colitis, and met its primary endpoint in a Phase 2 study in hidradenitis suppurativa. However, a Phase 2 study in systemic sclerosis-associated interstitial lung disease did not meet its primary endpoint and will be discontinued. The mixed immunology result illustrates the underlying reality of pipeline economics: even with a Phase 3 backbone, individual indications can and do fail.

How should investors read the Cidara and Terns acquisitions in the context of Merck’s capital allocation discipline?

The completed acquisitions of Cidara Therapeutics, Inc. and Terns Pharmaceuticals, Inc. represent a combined $14.7 billion in one-time research and development charges booked against 2026 non-GAAP earnings. Terns closed for $6.8 billion and added MK-4208, an investigational oral allosteric BCR-ABL1 tyrosine kinase inhibitor with Breakthrough Therapy designation from the FDA for certain adults with Philadelphia chromosome-positive chronic myeloid leukaemia. Cidara added an antifungal and anti-influenza platform.

The capital allocation question is whether these transactions represent value-accretive additions to a portfolio approaching a critical patent transition, or a defensive acquisition strategy responding to the Keytruda cliff. The answer is likely both. Merck is deploying an unusually large share of its capital-allocation capacity toward filling clinical pipeline gaps in oncology, cardiometabolic disease and infectious disease. Management has been explicit that the outlook does not assume additional significant business development transactions during 2026, but the pattern of the past twelve months, including Verona in late 2025, Cidara in early 2026, and Terns mid-year, suggests an acquisition pace that could resume once integration progresses.

The commercial test will come in 2027 and 2028 as revenue from the acquired assets begins to appear in reported results. MK-4208 in chronic myeloid leukaemia and the Cidara antifungal platform will require clinical execution, regulatory approvals and successful launches to justify the aggregate purchase consideration. If any of the three transactions delivers a franchise on the scale of Winrevair or Ohtuvayre, the capital-allocation record will look defensible. If the acquired assets stall in development or fail to secure competitive positioning, the compressed 2026 earnings will look like a warning sign rather than a transitional feature.

What are the next measurable catalysts investors will watch through the remainder of 2026 and into 2027?

The most immediate catalyst is the Oncology Investor Event scheduled for 26 October 2026 in Madrid, coinciding with the European Society for Medical Oncology Congress. Management is expected to provide an updated view on the oncology strategy and programme, and specifically on the sacituzumab tirumotecan development plan and the calderasib combination trials. The second is the Lipfendra commercial launch trajectory, particularly the first two quarters of physician adoption and payer coverage.

The third is the pace of Keytruda Qlex conversion. If subcutaneous pembrolizumab sales continue to grow at the sequential pace seen between the first and second quarter of 2026, the runway ahead of the 2028 intravenous patent expiration will look meaningfully longer than current analyst models assume. The fourth is regulatory progression for the islatravir plus lenacapavir combination in HIV treatment, where a filing decision would set up a potential 2027 approval and launch. Each of these catalysts is measurable, each has a defined timeline, and each will provide evidence about whether the transformation being financed through the current earnings compression is on track.

Where does Merck’s second-quarter 2026 result leave the investment case for the next twelve months?

The second quarter demonstrated a company executing on multiple strategic priorities simultaneously. The revenue guidance was raised. New product launches are contributing at higher-than-expected rates. Pipeline milestones are landing in oncology, HIV, cardiometabolic disease, and immunology. However, the reported financials are absorbing an unusually large volume of business-development-related charges, and the market is being asked to look through those charges to a normalised earnings trajectory that will not fully re-emerge until 2027. The strategic direction is coherent. The commercial execution appears intact. The specific tests investors will watch include the second-half Keytruda Qlex conversion rate, the initial Lipfendra prescription volumes, the pace of European regulatory approvals for expanded Keytruda combinations, and the durability of Winrevair and Ohtuvayre growth as competitive pressure builds. A sustained rerating from the current $128 to $130 share-price range would likely require the underlying earnings power to become visible again in the 2027 non-GAAP earnings-per-share progression, with Lipfendra and Keytruda Qlex providing the two most credible growth catalysts. Whether the company earns that rerating will become measurable rather than debatable over the next three earnings cycles.

Key takeaways from the Merck second-quarter 2026 report and 2026 guidance update

• Merck reported worldwide second-quarter 2026 sales of $16.6 billion, a 5% increase, with pharmaceutical sales of $14.76 billion and animal health sales of $1.78 billion.
• GAAP loss per share of $0.54 and non-GAAP loss per share of $0.13 both include a $2.31 per-share charge for the completed acquisition of Terns Pharmaceuticals.
• Full-year 2026 sales guidance was raised and narrowed to a range of $66.3 billion to $67.3 billion, while non-GAAP earnings-per-share guidance was cut to $2.66 to $2.76 from $5.04 to $5.16 due to acquisition-related one-time charges.
• Keytruda Qlex, the subcutaneous formulation of pembrolizumab, generated $463 million in the quarter, up from $128 million in the first quarter, providing the earliest evidence of a viable transition path before the 2028 intravenous patent cliff.
• The FDA approval of Lipfendra positions Merck as the first company with a once-daily oral PCSK9 inhibitor, placing it in commercial competition with injectable therapies from Amgen, Regeneron, and Novartis.
• Winrevair sales of $588 million grew 75%, Welireg grew 67%, Capvaxive grew 42%, and Ohtuvayre contributed $204 million in its first full quarter under Merck ownership.
• Diabetes franchise revenue continued to decline sharply, with Januvia and Janumet down 31% under generic competition, while Lagevrio effectively wound down at $5 million.
• Positive Phase 3 data from the TroFuse-005 trial for sacituzumab tirumotecan in endometrial cancer marked the first Phase 3 readout from a programme currently spanning 17 global trials.
• The Phase 3 result for islatravir plus lenacapavir with Gilead positions the combination as a potential first-in-class oral once-weekly HIV treatment regimen with no direct competitor.
• The next measurable catalysts include the Oncology Investor Event on 26 October 2026, initial Lipfendra launch trajectory, sequential Keytruda Qlex conversion, and regulatory progression for the HIV combination.