MRK · 10-Q · 2026Q3 · Full report

Gross Margin Drivers

Merck & Co., Inc. · 2026-11-04 · Importance 47 · Surprise 48 · From source text

Gross margin fell to 72.9% in the third quarter of 2026 from 77.7% in the third quarter of 2025, and to 73.6% in the first nine months of 2026 from 77.7% in the year-earlier period. Cost of sales increased 27% in the quarter and 24% year to date. The declines primarily reflected higher amortization of intangible assets, restructuring costs, the $83 million quarterly and $249 million year-to-date inventory fair-value step-up from the Verona Pharma acquisition, and higher production costs; favorable year-to-date product mix partly offset the decline.

Key facts

• Amortization of intangible assets recorded in connection with acquisitions, collaborations, and license agreements was $1.1 billion in Q3 2026 versus $621 million in Q3 2025, and $3.0 billion in the first nine months of 2026 versus $1.8 billion in the same 2025 period. source
• Restructuring expenses included in cost of sales were $396 million in Q3 2026 versus $110 million in Q3 2025, and $817 million in the first nine months of 2026 versus $311 million in the same 2025 period. source
• Gross margin was 72.9% in Q3 2026 versus 77.7% in Q3 2025, and 73.6% in the first nine months of 2026 versus 77.7% in the first nine months of 2025. source
• Cost of sales included fair value step-up inventory charges related to the October 2025 Verona Pharma acquisition of $83 million in Q3 2026 and $249 million in the first nine months of 2026. source
• Cost of sales increased 27% in Q3 2026 and 24% in the first nine months of 2026. source
• Gross margin declines in both periods were primarily due to higher intangible-asset amortization, increased restructuring costs, Verona Pharma acquisition inventory step-up, and higher production costs; favorable product mix partly offset the year-to-date decline. source

Impact estimates