AI interpretation based on checked source excerpts. Issuer assertions and evidence limitations remain explicit.
Policy quality-scores-2: six equally weighted categories. The overall score requires full coverage. Missing inputs are not zero. Qualitative grades are sourced interpretations, not probabilities. 6/6 · 18/10/2026
Moat50
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
structural advantage · 3/4 · Existing patent rights, completed approvals, differentiated approved products and demonstrated commercial demand support strong product-specific intangible advantages. Evidence does not establish other moat mechanisms or exceptional portfolio dominance.
durability · 1/4 · Protection is finite: Dificid has experienced severe generic erosion, and additional diabetes products have lost exclusivity. New approvals support replenishment capability, but principal-product protection periods and replacement economics are missing.
customer dependency · 2/4 · Demand for important medicines and growing Bravecto sales indicate continued product use indirectly. Gardasil demand weakness and generic substitution show that this is uneven and do not demonstrate broad customer lock-in.
erosion resilience · 2/4 · First-half 2026 sales grew despite therapeutic declines, demonstrating some portfolio resilience. Severe individual-product erosion and new exclusivity losses limit confidence that this resilience will persist.
Pricing power38
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
realized pricing · 2/4 · Higher Gardasil net pricing and U.S. Bridion pricing provide positive realized evidence. Medicaid rebates exceeding sales receipts on specified diabetes products provide direct adverse evidence. Overall pricing power is mixed, with no portfolio-wide price bridge.
retention · 2/4 · Product-demand disclosures and Bravecto growth indirectly support repeat demand, while Gardasil weakness and Dificid substitution demonstrate fragility. No retention rate or causal evidence that customers accepted higher prices without switching is supplied.
margin resilience · 1/4 · First-half cost of sales increased faster than sales, compressing gross margin, while reported operating results deteriorated substantially. Acquisition-related R&D charges complicate the operating comparison; these results do not isolate a pricing effect or establish permanent impairment.
contractual freedom · 1/4 · Agreed most-favored-nation pricing for certain launches and realized Medicaid rebate burdens demonstrate material limits on price-setting freedom. Product exceptions and selective realized increases prevent interpreting these constraints as universal.
Predictability95
Five consecutive annual periods. Equal weights: nondeclining revenue frequency; revenue-growth volatility (5–40pp); positive FCF frequency; FCF-margin volatility (3–20pp). Stability indicator, not a growth forecast.
- Nondeclining revenue years (%)
- 100.00
- Revenue growth volatility (pp)
- 8.34
- Positive FCF years (%)
- 100.00
- FCF margin volatility (pp)
- 4.78
Financial strength72
Equal-weight grades: debt/FCF (1–8x), net debt/earnings before interest and tax (0–5x), interest service (1–12x), current ratio (0.75–2x). Earnings use reported operating income, or reported pretax profit plus reported interest expense when operating income is unavailable. Interest service uses earnings/interest expense; if unavailable, it uses reported operating cash flow/cash interest paid, without relabeling cash paid as accrued expense. Nonpositive cash flow/earnings score 0 for their service component; reported zero interest with a positive numerator scores 100. Net cash scores 100 for net leverage. Missing disclosures remain unavailable. General nonfinancial-company rubric, not a credit rating; exceptional and nonoperating gains are not normalized out. IFRS finance-cost and cash-flow classifications retain their reported scope.
- debtFcfGrade
- 57.26
- netDebtEbitGrade
- 68.99
- interestCoverageGrade
- 100.00
- currentRatioGrade
- 62.90
- Debt / FCF (x)
- 3.99
- Net debt / operating income (x)
- 1.55
- Current ratio (x)
- 1.54
Capital allocation96
Three-year equal-weight indicators: pretax return on average invested capital (0–25%; equity + debt − cash, each year and its prior year), share-count growth (0–5%, lower better), share-based cost/revenue (2–20%, lower better), consolidated FCF/net income (0–1x). Return uses reported operating income or, if unavailable, EBIT calculated from reported pretax profit plus reported interest expense; exceptional/nonoperating gains are not normalized out. Share-based cost uses the reported cash-flow add-back or, if absent, separately reported recognized compensation expense; the latter never becomes an FCF adjustment. Nonpositive net income scores 0 for cash conversion; absent income/FCF stays unavailable. Nonpositive invested capital has no defined return and remains unavailable. Does not establish acquisition quality or buyback timing.
- 3-year pre-tax operating return (%)
- 21.43
- 3-year average dilution (%)
- -0.39
- 3-year average SBC / revenue (%)
- 1.17
- cashConversionGrade
- 100.00
Management56
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
capital discipline · 2/4 · First-half operating cash generation increased, but major acquisitions, capital expenditure and shareholder distributions coincided with debt issuance and substantial cash depletion. This demonstrates financing capacity and material commitments; acquisition returns and repurchase value creation remain unproven.
incentive alignment · 2/4 · Actual 2025 cash payouts were below target, and granted PSUs link compensation to three-year EPS and relative shareholder returns. Broad incentive exclusions weaken accountability for some acquisition and restructuring costs. Future PSU payouts and executive ownership alignment are not established.
execution · 2/4 · Completed approvals and continued aggregate sales growth demonstrate execution. Gardasil shipment suspension, demand declines and inventory issues offset those achievements. Commercial execution is partly assessed indirectly from operating results; future pipeline and acquisition success remains unproven.
governance · 3/4 · Disclosed committee independence, actual audit oversight meetings and private sessions, and existing shareholder proxy access support strong governance processes. These issuer-reported practices do not establish exceptional effectiveness or guarantee prevention of failures.
Evidence
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.
Patent Litigation: generic and biosimilar applications · Filed 07/08/2026
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.
Patent Litigation: applications before expiration of Merck-owned patents · Filed 07/08/2026
Key 2025 milestones included the approvals of KEYTRUDA QLEX, which enables subcutaneous administration of the immunotherapy in KEYTRUDA, additional KEYTRUDA based regimens in earlier stage cancers, and ENFLONSIA, for the prevention of RSV lower respiratory tract disease for infants born during or entering their first RSV season.
Compensation Discussion and Analysis: completed 2025 regulatory approvals · Filed 08/04/2026
In July 2026, the FDA approved Lipfendra tablets as an adjunct to diet and exercise to reduce low-density lipoprotein cholesterol (LDL-C) in adults with hypercholesterolemia, including heterozygous familial hypercholesterolemia (HeFH).
Operating Results: July 2026 Lipfendra approval · Filed 07/08/2026
Lipfendra is a novel macrocyclic peptide and is the first FDA-approved oral PCSK9 inhibitor shown to lower LDL-C, also known as bad cholesterol.
Operating Results: Lipfendra differentiation · Filed 07/08/2026
We delivered revenue growth of 2%(1), driven by continued global demand for KEYTRUDA, strong demand for WINREVAIR, a treatment for certain adults with pulmonary arterial hypertension, and CAPVAXIVE, our 21-valent pneumococcal conjugate vaccine, and robust Animal Health performance.
Compensation Discussion and Analysis: 2025 revenue growth and product demand · Filed 08/04/2026
Sales of the Bravecto line of products were $738 million in the first six months of 2026, representing growth of 11%, or 7% excluding the effect of foreign exchange, compared with the same period of 2025.
Animal Health: first-half 2026 Bravecto sales · Filed 07/08/2026
difficile-associated diarrhea, declined 77% and 69% in the second quarter and first six months of 2026, respectively, due to generic competition in the U.S.
Infectious Diseases: realized Dificid decline from generic competition · Filed 07/08/2026
was partially offset by lower demand in most international markets due to generic competition.
Infectious Diseases: international Bridion demand affected by generics · Filed 07/08/2026
Januvia and Janumet lost market exclusivity in the U.S.
Diabetes: Januvia and Janumet loss of U.S. exclusivity · Filed 07/08/2026
in May 2026 and Janumet XR lost market exclusivity in the U.S.
Diabetes: May 2026 exclusivity loss and Janumet XR disclosure · Filed 07/08/2026
Additionally, the Company agreed that products launched during the term of the MFN Agreement (with certain exceptions) will be subject to “most-favored-nation” pricing in reference to prices for such products in a specified group of countries (MFN Countries).
Pricing agreements: most-favored-nation commitments for launches · Filed 07/08/2026
As a result of this provision, the Company paid state Medicaid programs more in rebates than it received on Medicaid sales of Januvia, Janumet and Janumet XR in 2024.
Pricing: Medicaid rebates exceeding receipts on specified products in 2024 · Filed 24/02/2026
However, the introduction of new products and processes by competitors may result in price reductions and product displacements, even for products protected by patents.
Competition: potential displacement even for patented products · Filed 24/02/2026
primarily due to unfavorable CDC purchasing patterns and lower demand, partially offset by higher net pricing.
Vaccines: higher U.S. Gardasil net pricing partially offsetting lower sales · Filed 07/08/2026
Infectious Diseases Three Months Ended June 30, % Change Excluding Foreign Exchange Six Months Ended June 30, % Change Excluding Foreign Exchange ($ in millions) 2026 2025 % Change 2026 2025 % Change Bridion $ 497 $ 461 8 % 8 % $ 969 $ 902 7 % 7 % Prevymis 295 228 29 % 28 % 568 436 30 % 27 % Dificid 22 96 (77) % (77) % 56 179 (69) % (69) % Lagevrio 5 83 (95) % (95) % 32 185 (82) % (83) % Global sales of Bridion (sugammadex), for the reversal of two types of neuromuscular blocking agents used during surgery, grew 8% and 7% in the second quarter and first six months of 2026, respectively, as higher demand and pricing in the U.S.
Infectious Diseases: Bridion sales growth, U.S. demand and pricing · Filed 07/08/2026
Combined worldwide sales of Gardasil and Gardasil 9 declined 9% in the first six months of 2026 primarily driven by lower demand in China (discussed below) and in Japan, reflecting in part that the last date to initiate the first dose in Japan’s national immunization program catch-up cohort was in March 2025.
Vaccines: first-half 2026 Gardasil sales decline and demand · Filed 07/08/2026
As previously disclosed, the Company suspended shipments to China in February 2025 given lower demand and elevated channel inventory levels in China.
Vaccines: China shipment suspension and elevated channel inventory · Filed 07/08/2026
Worldwide sales were $16.6 billion and $32.9 billion in the second quarter and first six months of 2026, respectively, representing increases of 5% compared with the same periods of 2025, reflecting growth in oncology, cardiometabolic and respiratory, and animal health, partially offset by declines in diabetes and infectious diseases.
Operating Results: 2026 sales growth and offsetting therapeutic declines · Filed 07/08/2026
AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited, $ in millions except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Sales $ 16,607 $ 15,806 $ 32,893 $ 31,335 Costs, Expenses and Other Cost of sales 4,395 3,557 8,590 6,976 Selling, general and administrative 2,904 2,649 5,604 5,202 Research and development 9,741 4,048 22,333 7,669 Restructuring costs 151 560 346 629 Other (income) expense, net 99 (7) 237 (43) 17,290 10,807 37,110 20,433 (Loss) Income Before Taxes (683) 4,999 (4,217) 10,902 Income Tax Provision 654 571 1,363 1,388 Net (Loss) Income (1,337) 4,428 (5,580) 9,514 Less: Net (Loss) Income Attributable to Noncontrolling Interests (2) 1 (5) 8 Net (Loss) Income Attributable to Merck & Co., Inc.
Condensed Consolidated Statement of Operations: first-half 2026 comparative results · Filed 07/08/2026
AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, $ in millions) Six Months Ended June 30, 2026 2025 Cash Flows from Operating Activities Net (loss) income $ (5,580) $ 9,514 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Amortization 1,915 1,198 Depreciation 1,180 1,020 Income from investments in equity securities, net (411) (189) Charges for research and development asset acquisitions 13,811 — Deferred income taxes (859) (634) Share-based compensation 483 411 Other (61) 444 Net changes in assets and liabilities (1,190) (5,971) Net Cash Provided by Operating Activities 9,288 5,793 Cash Flows from Investing Activities Capital expenditures (1,884) (2,092) Purchases of securities and other investments (522) (1,207) Proceeds from sales of securities and other investments 1,303 1,057 Acquisition of Cidara Therapeutics, Inc., net of cash acquired (8,779) — Acquisition of Terns Pharmaceuticals, Inc., net of cash acquired (5,842) — Other (88) (15) Net Cash Used in Investing Activities (15,812) (2,257) Cash Flows from Financing Activities Proceeds from term loan 6,000 — Payments on term loan (6,000) — Proceeds from issuance of debt 5,956 — Payments on debt (1,145) (2,500) Dividends paid to stockholders (4,249) (4,127) Purchases of treasury stock (1,631) (2,509) Proceeds from exercise of stock options 200 31 Other (350) (206) Net Cash Used in Financing Activities (1,219) (9,311) Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash (56) 530 Net Decrease in Cash, Cash Equivalents and Restricted Cash (7,799) (5,245) Cash, Cash Equivalents and Restricted Cash at Beginning of Year (includes restricted cash of $125 and $76 at January 1, 2026 and 2025, respectively, included in Other current assets) 14,690 13,318 Cash, Cash Equivalents and Restricted Cash at End of Period (includes restricted cash of $42 and $66 at June 30, 2026 and 2025, respectively, included in Other current assets) $ 6,891 $ 8,073 The accompanying notes are an integral part of this condensed consolidated financial statement.
Condensed Consolidated Statement of Cash Flows: operating cash, acquisitions, debt and distributions · Filed 07/08/2026
Also included in R&D expenses are Animal Health research costs, upfront and milestone payments for collaboration and licensing agreements (including the charges related to Hengrui Pharma and EyeBio noted above), charges for transactions - 39 - accounted for as asset acquisitions (including the charges for the acquisitions of Terns and Cidara noted above), and costs incurred by other divisions in support of R&D activities, including depreciation, production, and general and administrative, which in the aggregate were $7.0 billion and $1.2 billion for the second quarter of 2026 and 2025, respectively, and $17.0 billion and $2.3 billion for the first six months of 2026 and 2025, respectively.
R&D expenses: acquisition and licensing charges · Filed 07/08/2026
Target Named Executive Officer Annual Base Salary (as of 12/31/25) ($) Annual Incentive (%) Annual Incentive ($) Company Scorecard Result (%) Final Award ($) Davis $1,650,000 150 % $2,475,000 94 % $2,326,500 Litchfield 1,170,000 100 1,170,000 94 1,099,800 Chattopadhyay 979,479 100 979,479 94 920,710 Li 1,456,000 100 1,456,000 94 1,368,640 Zachary 1,059,307 100 1,059,307 94 995,749 Long-Term Equity Incentives The long-term incentive program, which consists of a mix of PSUs, RSUs, and stock options, is designed to provide our NEOs with a meaningful ownership interest in the Company while directly linking a substantial portion of their compensation to the returns realized by our shareholders.
2025 compensation: actual annual incentive payouts and long-term incentive vehicles · Filed 08/04/2026
For PSUs granted in 2025, final awards will be determined based on the following: • 50% of the award will be determined by the Company’s cumulative EPS versus target for the three-year performance period (2025-2027).
2025 PSU grants: cumulative EPS weighting · Filed 08/04/2026
• 50% of the award will be determined by the Company’s average annual TSR (inclusive of reinvested dividends) relative to the median TSR for our primary peer group for the three-year performance period (2025-2027).
2025 PSU grants: relative total shareholder return weighting · Filed 08/04/2026
Merck & Co., Inc., Rahway, NJ, U.S.A., 2026 Proxy Statement Table of Contents ÷ ÷ ÷ ÷ 103 Appendix B—Explanation of Adjustments to Non-GAAP Results For Incentive Plans Incentive Program Financial Metric Weighting of Component Definition Adjustments Pipeline 20% The Company’s Research and Development goals for the Company Scorecard No Adjustments Sustainability 10% The Company’s patient access and employee inclusion and engagement metrics for the Company Scorecard No Adjustments Revenue 35% Excludes charges or items from the measurement of performance relating to (1) the impact of significant acquisitions and/or divestitures; (2) fluctuations in currency exchange rates versus rates budgeted in the annual operating plan; and (3) extraordinary items and other unusual or non-recurring charges and/or events that impact revenue Pre-Tax Income 35% The Company’s target non-GAAP income before taxes Excludes charges or items from the measurement of performance relating to (1) restructurings, discontinued operations, purchase accounting items, merger-related costs, the impact of significant acquisitions and/or divestitures, extraordinary items and other unusual or non-recurring charges and/ or events; (2) an event either not directly related to Company operations or not reasonably within the control of Company management; (3) fluctuations in foreign exchange versus rates budgeted in the annual operating plan; and (4) the effects of accounting changes in accordance with GAAP, or other significant legislative changes, including tariffs Earnings Per Share (or EPS) 50% The Company’s cumulative after-tax non-GAAP net income (attributable to the Company) divided by total shares outstanding assuming dilution, measured at the end of the applicable three-year period All of the adjustments listed for “Pre-Tax Income” above, as well as the impact of share repurchases by the Company above or below planned levels Relative TSR (or R-TSR) 50% The comparison of the Company’s average annual TSR (inclusive of reinvested dividends) to the median TSR for the primary peer group, measured at the end of the applicable three-year period No Adjustments Merck & Co., Inc., Rahway, NJ, U.S.A., 2026 Proxy Statement Table of Contents Our Purpose We use the power of leading-edge science to save and improve lives around the world.
Appendix B: incentive metric definitions and exclusions · Filed 08/04/2026
The Board also has determined that each member of the Audit Committee, the C&MD Committee, and the Governance Committee is independent within the meaning of the NYSE Corporate Governance Listing Standards and the rules of the SEC.
Corporate Governance: committee independence determinations · Filed 08/04/2026
During 2025, at each of its regularly scheduled meetings (which include meetings scheduled in conjunction with the regular Board meetings, as well as meetings to review the quarterly and annual financial statements filed with the SEC), the Audit Committee met as a group with senior members of the Company’s financial management, the independent auditors, and internal auditors.
Audit Committee report: actual 2025 oversight meetings · Filed 08/04/2026
In addition, at each meeting in connection with regular Board meetings, the Audit Committee held separate private sessions with senior management, the independent auditors, internal audit, the Chief Ethics and Compliance Officer, and, at times, the Chief Information Officer to confirm that all were carrying out their respective responsibilities.
Audit Committee report: private oversight sessions · Filed 08/04/2026
Topics Discussed with Shareholders during 2025 • Company strategy • Board leadership, composition, refreshment, and tenure • Board evaluation process • Management succession • Policy environment • Risk oversight • Capital allocation • Human capital management and company culture • Cybersecurity • Artificial Intelligence • Sustainability reporting and goals and the Company’s focus areas • Shareholder proposals • Global access to our Company’s products • Lobbying expenditures • Executive compensation programs Proxy Access Our By-Laws allow a shareholder (or a group of no more than twenty shareholders) who has maintained continuous qualifying ownership of at least 3% of the Company’s outstanding common stock for at least three years to include Director nominees constituting up to 20% of the Board in the Company’s proxy materials for an annual meeting of shareholders.
Corporate Governance: shareholder engagement and existing proxy access · Filed 08/04/2026
and European-based pharmaceutical companies, which are: AbbVie Inc., Amgen Inc., AstraZeneca plc, Bristol-Myers Squibb Company, Johnson & Johnson, Eli Lilly and Company, Gilead Sciences Inc., GlaxoSmithKline plc, Novartis AG, Pfizer Inc., Roche Holding AG, and Sanofi SA.
Performance Graph: named shareholder-return comparison peers · Filed 24/02/2026
