Merck (MRK): What This Company Actually Does

How Merck makes money

Merck develops prescription drugs and vaccines — most notably Keytruda, an immunotherapy injection that helps the body's own immune cells recognize and attack cancer cells — and sells them mostly through a small number of wholesalers to hospitals, pharmacies, and veterinarians.

FY2025 revenue of $65.0B cycled back into $15.8B of R&D reinvestment plus $13.3B in shareholder returns. Source: 10-K FY2025, p.104 (wholesaler concentration), p.65 (R&D spending).

Where the revenue comes from

*Segment margin is Merck's own definition (direct costs only, excluding taxes and some corporate overhead). Source: 10-K FY2025, p.131 (Note 18).

Geographically, the U.S. share of revenue has climbed from 47.4% (2023) to 56.2% (2025) — a 9-point shift in just three years, meaning growing exposure to U.S. drug-pricing policy (the Inflation Reduction Act and "most favored nation" pricing deals) rather than less.

Source: 10-K FY2025, p.131 (Note 18, 2025/2023 comparison).

Customers and competitors

Merck doesn't sell directly to hospitals or patients — it goes through wholesalers. Just three companies, McKesson (22%), Cencora (21%), and Cardinal Health (13%), account for 56% of Merck's accounts receivable, a concentrated distribution structure. The actual cost of drugs is often borne less by patients directly than by insurers and government programs like U.S. Medicare.

• Bristol-Myers Squibb — competes directly with Keytruda in the PD-1 immunotherapy class through its own drug, Opdivo.
• Pfizer — a similarly large pharmaceutical company needing to fill the revenue gap left as COVID-era demand faded.
• AstraZeneca — has its own oncology and vaccine pipeline, and has recently posted faster revenue growth than Merck.

Source: 10-K FY2025, p.104 (wholesaler concentration).

The metric that matters most in this sector

Keytruda's share of total revenue is both Merck's growth engine and its single biggest risk, since Keytruda's U.S. patent is expected to expire in 2028 — the higher this share climbs, the bigger the shock when that exclusivity ends.

Meanwhile, revenue excluding Keytruda peaked in 2022 (boosted by the COVID treatment Lagevrio) and has declined for three straight years since — a sign that Merck's growth outside its flagship drug has been shrinking, not expanding.

Source: 10-K FY2025, p.131 (Note 18); 10-K FY2022, p.125 (Note 19, prior-year comparatives).

Leadership and ownership

CEO Robert M. Davis has led Merck since July 2021 (about 4 years), having previously served as CFO from 2014; he is not a founder — Merck was founded in 1891. Combined insider ownership across all directors and executives is under 1%. The only shareholder with a disclosed 5%+ stake is BlackRock, at 8.17%.

Source: DEF 14A 2026, p.30-31, p.34.

Capital returns

Merck pays a quarterly dividend of $0.85/share (raised from $0.81 in November 2025), for a $3.40 annualized dividend and a yield of about 2.3%. Buybacks jumped to $5.1B in 2025 (from $1.3B in both 2024 and 2023), and the board approved a new $10B buyback authorization in January 2025.

Source: 10-K FY2025, p.51, p.80 (cash flow statement); p.130 (Note 16, average shares outstanding); 10-K FY2022, p.122 (Note 17).

How this company could fail

• The Keytruda patent cliff (2028) — the U.S. patent is expected to expire in 2028, and biosimilar entry could sharply cut sales in a short period. Merck is trying to extend exclusivity with a subcutaneous version, Keytruda Qlex.
• U.S. drug-pricing policy risk (MFN agreement + IRA) — in December 2025, Merck signed a 3-year "most favored nation" pricing agreement with the U.S. government, requiring future new drugs to be priced closer to what major foreign markets pay and sharing some international revenue with the U.S. government. Separately, the Inflation Reduction Act's Medicare price-setting program phases in from 2026-2028 (Merck is separately suing over its constitutionality). Both policies threaten margins just as Merck's U.S. revenue share keeps rising.
• Dependence on specific overseas markets — international Gardasil revenue fell from $6.8B (2023) to $2.6B (2025), a 62% drop in two years, showing how a single overseas market's distribution and inventory correction can shake results significantly.

Source: industry analysis on the Keytruda patent cliff (web search, page not specified); 10-K FY2025, p.7 (MFN agreement), p.112 area (IRA litigation status), p.131 (Note 18, regional revenue).

Five-year financials

*Operating income isn't separately disclosed by the company; calculated here as revenue minus cost of sales, SG&A, R&D, and restructuring costs. Source: 10-K FY2025, p.77 (income statement), p.80 (cash flow statement), p.78 (balance sheet); 10-K FY2022, p.77-78 (2021-2022 comparatives).

What we still don't know

• How large Ohtuvayre (the COPD drug from the Verona Pharma acquisition, just $178M in FY2025 revenue) will actually grow can't be determined from this data alone.
• How much the subcutaneous Keytruda version (Qlex) can actually delay the 2028 patent cliff depends on ongoing patent litigation and how quickly physicians shift prescribing habits.
• How FY2026 results are tracking against company guidance requires checking the most recent (Q2 FY2026) earnings call.