Merck makes prescription medicines, vaccines, and animal health products, and sells them to hospitals, pharmacies, doctors, and governments around the world. Most of its products are things patients take repeatedly over months or years, which means revenue keeps coming in as long as doctors keep prescribing and patients keep refilling. The biggest money-maker by far is Keytruda, a cancer medicine that works by helping the body's own immune system attack tumors. It brought in $31.7 billion in 2025 alone, nearly half of Merck's total sales of $65.0 billion. The diagram below traces where the money goes.
How Merck Makes Money
flowchart TD
A["R&D Investment
$29B/yr"] --> B["Drug Discovery &
Product Pipeline"]
B --> C["Pharmaceutical Products
$58.1B revenue"]
B --> D["Animal Health Products
$6.4B revenue"]
C -->|"Oncology: Keytruda
$31.7B"| E["Total Revenue
$65.0B"]
C -->|"Vaccines: Gardasil
$5.2B"| E
C -->|"Other Pharma
$21.2B"| E
D --> E
E --> F["Operating Cash Flow
$16.5B"]
F --> G["Free Cash Flow
$12.4B"]
G --> A
G --> H["Shareholder Returns &
Debt Service"]
C --> I["Managed Care &
Government Pricing
Pressure"]
I -.->|"Reduces margin growth"| E
D --> J["Veterinarians, Farmers,
Pet Owners"]
C --> K["Hospitals, Physicians,
Pharmacies, Wholesalers"]
K --> C
J --> D
Over the past five years, Merck's revenue has climbed steadily, from $48.7 billion in 2021 to $65.0 billion in 2025. That is a meaningful rise. But the story underneath the top line is more complicated.
Merck Total Revenue (2021 to 2025)
Total revenue in billions of dollars. Growth has been real but slowing, with only 1% growth from 2024 to 2025.
Gross margins have also improved, rising from 72% in 2021 to 76% in 2024, before dipping slightly to 75% in 2025. That tells you the core medicines business is efficient. But free cash flow, the money left over after running the business and spending on equipment, has moved around a lot. It was $14.7 billion in 2022, fell to $9.1 billion in 2023, recovered to $18.1 billion in 2024, and then dropped again to $12.4 billion in 2025. This kind of swinging pattern usually means the company is spending heavily on deals and research, which Merck is. Net debt has also grown sharply, from $18.0 billion in 2022 to $34.8 billion in 2025, as Merck has borrowed to buy new companies and fund a large research pipeline.
$34.8B
Net debt at end of 2025, up from $18.0B in 2022, reflecting heavy acquisition and R&D spending
The clearest sign of financial health is Keytruda's trajectory. It grew 7% in 2025, 18% in 2024, and has become one of the best-selling medicines on the planet. A newer drug called Winrevair, which treats a serious lung condition called pulmonary arterial hypertension, went from $419 million in 2024 to $1.4 billion in 2025, showing that Merck can still launch new products successfully. These are genuine positives.
$1.4B
Winrevair sales in 2025, up from $419M in 2024, demonstrating strong early launch momentum
But the risks facing Merck are specific, documented, and on a tight timeline. They are not vague warnings. They are named products, named dates, and named laws already passed.
What happens when a drug patent expires?
A patent gives a drug company the exclusive right to sell a medicine for a set number of years. When the patent expires, other companies can make cheaper copycat versions called generics or biosimilars. Doctors often switch patients to the cheaper version, and the original company's sales can fall sharply, sometimes by 80% or more within a year or two.
Keytruda's core patents expire between 2028 and 2029. The U.S. government has already signaled it will set a fixed price for Keytruda starting January 1, 2029 under a law called the Inflation Reduction Act, or IRA. Merck's own filings say it expects U.S. sales of Keytruda to decline materially after that date. Keytruda represented 49% of total sales in 2025. That concentration makes the 2029 cliff one of the most significant single-product patent expirations in pharmaceutical history.
2022
crisis
The Inflation Reduction Act changes the rules
In 2022, the U.S. government passed the Inflation Reduction Act, which for the first time gave the government direct power to set prices for certain Medicare drugs. Januvia's price was fixed starting January 1, 2026. Janumet follows in 2027. Lenvima follows in 2028. Keytruda is expected to be selected in 2027, with fixed pricing starting January 1, 2029. This law permanently changed the financial math for Merck's biggest products.
The Keytruda problem is not the only one. Three other major products are losing patent protection very soon. Bridion, a surgery-related drug, is expected to lose nearly all U.S. sales by the end of 2026. Januvia and Janumet, both diabetes medicines, lose U.S. patent protection in May 2026, and Merck expects to lose nearly all U.S. sales of both after that happens. These are not small products: Januvia and Janumet combined made $2.5 billion in 2025.
What is Gardasil and why does China matter?
Gardasil is a vaccine that protects against a virus called HPV, which can cause cervical cancer. China was one of Merck's biggest markets for Gardasil. A local Chinese company recently received approval to sell a competing HPV vaccine. Merck paused shipments to China in February 2025 and does not expect Gardasil sales there to recover materially in 2026.
Gardasil, Merck's cervical cancer vaccine, fell from $8.6 billion in 2024 to $5.2 billion in 2025, a drop of 39%, almost entirely because of the China collapse. A local competitor received approval in China in June 2025, and Merck has not resumed shipments there. This is a real, ongoing loss of revenue, not a temporary blip.
$3.4B
Gardasil revenue lost in a single year, falling from $8.6B in 2024 to $5.2B in 2025, driven by the China market collapse
Merck's response to all of this is a large and active research pipeline. The company has approximately 80 Phase 3 studies underway. It launched Keytruda Qlex in 2025, a version of Keytruda that can be injected under the skin instead of through an IV, which may make it more convenient and harder to replace. It is also developing new cancer drugs, heart drugs, HIV medicines, and a vaccine for dengue fever, among many others. The pipeline is real. Whether it can replace the revenue at risk is the central question.
Merck returned $13.3 billion to shareholders in 2025 through dividends and share repurchases, even as net debt climbed to $34.8 billion. That combination means the company is simultaneously spending to build the future and paying shareholders today, a balance that depends heavily on Keytruda continuing to generate large cash flows through 2028.
What does 'the bet' mean for a drug company?
Every large pharmaceutical company reaches a moment where one blockbuster drug is about to lose patent protection, and the company needs its next set of medicines to be ready to pick up the slack. Whether the new drugs are approved, whether doctors adopt them quickly, and whether they generate enough revenue in time is never guaranteed. That gap between old revenue falling and new revenue rising is the core financial risk.
The Bet
Keytruda accounts for 49% of Merck's total sales, and its revenue is expected to decline materially starting January 1, 2029 when government price-setting kicks in and patent protection ends. The pipeline of roughly 80 Phase 3 studies, including Welireg combinations, new cancer drugs, Winrevair's expanding indications, and a wave of newer medicines, has to generate enough revenue before 2029 to offset that loss. If the pipeline delivers too slowly, or if key trials fail, the revenue gap between Keytruda's decline and the next generation of products could be very large and very hard to close quickly.
Open question
Merck has a growing business today, a pipeline it is actively funding, and multiple new product launches underway. But it also has a documented, dated, unavoidable cliff: Keytruda's patent expiration and government price-setting in 2029, three more major products losing U.S. patent protection by mid-2026, and a $3.4 billion hole left by Gardasil's China collapse. Can Merck's next generation of medicines, built on roughly $34.8 billion in net debt and years of acquisition spending, grow fast enough to replace nearly half of total revenue before the cliff arrives in 2029?
Compiled · 10-K · FY2025
