MRK · 10-Q · 2026Q2 · Full report
Gross Margin Drivers
Merck & Co., Inc. · 2026-08-07 · Importance 59 · Surprise 48 · No source text
Gross margin declined to 73.5% in the second quarter of 2026 from 77.5% in the prior-year quarter and to 73.9% from 77.7% for the first six months. Cost of sales increased 24% in the quarter and 23% year to date, reaching $4.4 billion and $8.6 billion, respectively. Acquisition-related intangible amortization increased to $984 million in the quarter and $1.9 billion year to date, compared with $599 million and $1.2 billion in the prior-year periods. Verona Pharma inventory fair-value step-up charges contributed $83 million in the quarter and $166 million year to date, while restructuring costs in cost of sales rose to $184 million and $421 million. Higher amortization, vaccine inventory write-downs, restructuring costs, and Verona inventory step-up charges reduced margin, partly offset by favorable product mix.
Key facts
- Amortization of intangible assets included in cost of sales totaled $984 million in Q2 2026 and $599 million in Q2 2025, and $1.9 billion and $1.2 billion in the first six months of 2026 and 2025, respectively. source
- Expenses associated with restructuring activities included in cost of sales amounted to $184 million and $165 million in the second quarter of 2026 and 2025, respectively, and $421 million and $201 million in the first six months of 2026 and 2025, respectively. source
- Cost of sales was $4,395 million and $8,590 million in the three months and six months ended June 30, 2026, respectively, representing increases of 24% and 23% versus prior periods. source
- Cost of sales in Q2 and first six months of 2026 include an $83 million and $166 million impact, respectively, for recognition of fair value step-up of inventories related to the October 2025 acquisition of Verona Pharma. source
- Gross margin was 73.5% in Q2 2026 compared with 77.5% in Q2 2025, and 73.9% in the first six months of 2026 compared with 77.7% in the first six months of 2025; the decline was primarily due to higher amortization of intangible assets, higher inventory write-downs (primarily vaccines), increased restructuring costs, and recognition of fair value step-up of inventories related to Verona Pharma. source
Impact estimates
| metric | direction | stage | expected | basis |
|---|---|---|---|---|
| operating_income | negative | realized | -9.7% | Cost of sales was $4,395 million and $8,590 million in the three months and six months ended June 30, 2026, respectively, representing… |
| operating_income | negative | realized | -5.0% | Cost of sales was $4,395 million and $8,590 million in the three months and six months ended June 30, 2026, respectively, representing… |
| operating_income | negative | realized | -4.2% | Amortization of intangible assets included in cost of sales totaled $984 million in Q2 2026 and $599 million in Q2 2025, and $1.9 billion… |
| operating_income | negative | realized | -2.3% | Amortization of intangible assets included in cost of sales totaled $984 million in Q2 2026 and $599 million in Q2 2025, and $1.9 billion… |
| operating_income | negative | realized | -1.3% | Expenses associated with restructuring activities included in cost of sales amounted to $184 million and $165 million in the second… |