How MRK (Merck & Co.) Makes Money in 2025: A Deep-Dive With Income Statement

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Understanding how a global pharmaceutical leader like Merck & Co., Inc. (MRK) makes money is essential for investors and anyone interested in the business of healthcare innovation. In this post, we break down Merck's quarterly income statement (Q2 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick Merck & Co., Inc. Overview

Merck & Co., Inc. operates as a leading global pharmaceutical company, developing and manufacturing innovative prescription medicines, vaccines, biologic therapies, and animal health products. Revenue comes primarily from human health pharmaceuticals, with oncology, vaccines, and hospital acute care as major segments. The company also has a significant animal health division, contributing to a diversified revenue base.

Revenue Breakdown

• Total Revenue (Q2 2025): $16.8B (+7% YoY)
  • Pharmaceuticals: $14.6B (87% of total)
  • Animal Health: $1.5B (9% of total)
  • Other Revenues: $0.7B (4% of total)
  • Growth is powered by Keytruda (oncology), Gardasil (vaccines), and robust performance in animal health.

Gross Profit and Margins

• Gross Profit: $12.1B (72% gross margin)
  • Cost of Revenue: $4.7B (+5% YoY)
  • Merck maintains robust margins due to its high-value, patent-protected drug portfolio and efficient manufacturing.
• Most costs come from manufacturing, procurement of raw materials, and royalties.

Operating Income and Expenses

• Operating Income: $5.2B (+9% YoY, 31% margin)
• Operating Expenses: $6.9B (+6% YoY)
  • R&D: $2.7B (+8% YoY, 16% of revenue) — focused on oncology, vaccines, and next-generation therapeutics.
  • SG&A: $4.2B (+5% YoY, 25% of revenue) — includes global salesforce, marketing, and administrative functions.
  • Merck continues to prioritize innovation and invest in growth while maintaining operational efficiency.

Net Income

• Pre-Tax Income: $5.0B (+10% YoY, 30% margin)
• Income Tax: $0.9B (18% effective tax rate)
• Net Income: $4.1B (+11% YoY, 24% net margin)
• Merck converts a significant portion of sales into profit due to its scale, pricing power, and focus on high-margin therapies.

What Drives Merck's Money Machine?

• Keytruda (oncology franchise): Over 40% of revenue, driven by expanding indications and global demand.
• Prescription volume and pricing: Key metrics include double-digit growth in oncology and vaccines.
• R&D investment: Strategic investments in immuno-oncology, vaccines, and pipeline expansion.
• Future growth areas: mRNA vaccines and next-generation immunotherapies, though not yet profitable.

Visualizing Merck's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially SG&A and R&D) taking the largest chunk.
• Even after large investments in R&D and global commercialization, 24% of revenue drops to the bottom line.

Key Takeaways

• Merck's money comes overwhelmingly from innovative pharmaceuticals, especially oncology and vaccines.
• High gross and net margins illustrate the power of Merck's patent-protected, high-value drug portfolio.
• Heavy investment in R&D, balanced by efficiency in operating costs.
• Ongoing growth is driven by Keytruda, Gardasil, and pipeline expansion.

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FAQ About Merck's Income Statement

1. What is the main source of Merck's revenue in 2025?

Merck generates over 87% of its revenue from human health pharmaceuticals, led by oncology (Keytruda) and vaccines (Gardasil). Animal health and other revenues are smaller but growing contributors.

2. How profitable is Merck in Q2 2025?

Merck reported net income of $4.1B in Q2 2025, with a net margin of approximately 24%, reflecting strong profitability driven by high-margin products and operational efficiency.

3. What are the largest expense categories for Merck?

The biggest expenses on Merck's income statement are operating expenses, particularly Research & Development (R&D) at $2.7B in Q2 2025, as Merck prioritizes oncology, vaccines, and pipeline innovation. SG&A is also significant at $4.2B.

4. Why does the Animal Health segment operate at a loss?

Animal Health, despite generating $1.5B in revenue, posted an operating loss of over $0.1B in Q2 2025. This is because Merck aggressively invests in expanding its animal health portfolio and global reach, believing these will drive long-term growth—even if the division is unprofitable today.

5. How does Merck's effective tax rate compare to previous years?

Merck's effective tax rate in Q2 2025 was 18%, consistent with previous years. This moderate rate is primarily due to tax benefits from international structuring and R&D tax credits.