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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 1-6571
Merck & Co., Inc.
(Exact name of registrant as specified in its charter)
New Jersey22-1918501
(State or other jurisdiction of incorporation)
(I.R.S. Employer Identification No.)
126 East Lincoln Avenue
RahwayNew Jersey07065
(Address of principal executive offices) (zip code)
(Registrant’s telephone number, including area code) (908) 740-4000
2000 Galloping Hill Road, Kenilworth, New Jersey 07033
(Former name, former address and former fiscal year, if changed since last report.)
Securities Registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock ($0.50 par value)MRKNew York Stock Exchange
0.500% Notes due 2024MRK 24New York Stock Exchange
1.875% Notes due 2026MRK/26New York Stock Exchange
2.500% Notes due 2034MRK/34New York Stock Exchange
1.375% Notes due 2036MRK 36ANew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No 
The number of shares of common stock outstanding as of the close of business on April 30, 2022: 2,528,805,025





Table of Contents





Part I - Financial Information
Item 1. Financial Statements
MERCK & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited, $ in millions except per share amounts)
 
 Three Months Ended
March 31,
 20222021
Sales$15,901 $10,627 
Costs, Expenses and Other
Cost of sales5,380 3,199 
Selling, general and administrative2,323 2,187 
Research and development2,576 2,412 
Restructuring costs53 297 
Other (income) expense, net708 (455)
 11,040 7,640 
Income from Continuing Operations Before Taxes4,861 2,987 
Taxes on Income from Continuing Operations554 238 
Net Income from Continuing Operations4,307 2,749 
Less: Net (Loss) Income Attributable to Noncontrolling Interests(3)4 
Net Income from Continuing Operations Attributable to Merck & Co., Inc.4,310 2,745 
Income from Discontinued Operations, Net of Taxes and Amounts Attributable to Noncontrolling Interests 434 
Net Income Attributable to Merck & Co., Inc.$4,310 $3,179 
Basic Earnings per Common Share Attributable to Merck & Co., Inc. Common Shareholders:
Income from Continuing Operations$1.70 $1.08 
Income from Discontinued Operations 0.17 
Net Income$1.70 $1.26 
Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders:
Income from Continuing Operations$1.70 $1.08 
Income from Discontinued Operations 0.17 
Net Income$1.70 $1.25 
 
MERCK & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited, $ in millions)
 
 Three Months Ended
March 31,
 20222021
Net Income Attributable to Merck & Co., Inc.$4,310 $3,179 
Other Comprehensive Income Net of Taxes:
Net unrealized gain on derivatives, net of reclassifications63 230 
Benefit plan net gain and prior service credit, net of amortization
32 81 
Cumulative translation adjustment
(35)(299)
 60 12 
Comprehensive Income Attributable to Merck & Co., Inc.$4,370 $3,191 
 The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -



MERCK & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited, $ in millions except per share amounts)
 
March 31, 2022December 31, 2021
Assets
Current Assets
Cash and cash equivalents
$8,556 $8,096 
Short-term investments372  
Accounts receivable (net of allowance for doubtful accounts of $95 in 2022
 and $62 in 2021)
9,828 9,230 
Inventories (excludes inventories of $2,495 in 2022 and $2,194 in 2021
classified in Other assets - see Note 7)
5,774 5,953 
Other current assets
6,654 6,987 
Total current assets31,184 30,266 
Investments316 370 
Property, Plant and Equipment, at cost, net of accumulated depreciation of $18,498
in 2022 and $18,192 in 2021
19,747 19,279 
Goodwill21,258 21,264 
Other Intangibles, Net23,022 22,933 
Other Assets11,141 11,582 
 $106,668 $105,694 
Liabilities and Equity
Current Liabilities
Loans payable and current portion of long-term debt
$1,208 $2,412 
Trade accounts payable
3,715 4,609 
Accrued and other current liabilities
14,051 13,859 
Income taxes payable
1,571 1,224 
Dividends payable
1,771 1,768 
Total current liabilities22,316 23,872 
Long-Term Debt30,586 30,690 
Deferred Income Taxes3,071 3,441 
Other Noncurrent Liabilities9,742 9,434 
Merck & Co., Inc. Stockholders’ Equity
Common stock, $0.50 par value
Authorized - 6,500,000,000 shares
Issued - 3,577,103,522 shares in 2022 and 2021
1,788 1,788 
Other paid-in capital
44,275 44,238 
Retained earnings
56,252 53,696 
Accumulated other comprehensive loss
(4,369)(4,429)
97,946 95,293 
Less treasury stock, at cost:
1,048,727,225 shares in 2022 and 1,049,499,023 shares in 2021
57,063 57,109 
Total Merck & Co., Inc. stockholders’ equity40,883 38,184 
Noncontrolling Interests70 73 
Total equity40,953 38,257 
 $106,668 $105,694 
The accompanying notes are an integral part of this condensed consolidated financial statement.
- 4 -



MERCK & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, $ in millions)
 
 Three Months Ended
March 31,
 20222021
Cash Flows from Operating Activities of Continuing Operations
Net income from continuing operations$4,307 $2,749 
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities of continuing operations:
Amortization699 514 
Depreciation421 378 
Loss (income) from investments in equity securities, net708 (574)
Deferred income taxes
(338)18 
Share-based compensation
120 111 
Other
143 236 
Net changes in assets and liabilities
(1,299)(2,192)
Net Cash Provided by Operating Activities of Continuing Operations4,761 1,240 
Cash Flows from Investing Activities of Continuing Operations
Capital expenditures(984)(1,082)
Purchases of securities and other investments(372)(1)
Proceeds from sales of securities and other investments1 386 
Other182 11 
Net Cash Used in Investing Activities of Continuing Operations(1,173)(686)
Cash Flows from Financing Activities of Continuing Operations
Net change in short-term borrowings 788 
Payments on debt(1,250)(1,153)
Dividends paid to stockholders(1,745)(1,645)
Proceeds from exercise of stock options12 9 
Other(103)(97)
Net Cash Used in Financing Activities of Continuing Operations(3,086)(2,098)
Cash Flows from Discontinued Operations
Net cash provided by operating activities 551 
Net cash used in investing activities (52)
Net Cash Flows Provided by Discontinued Operations 499 
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash(55)(97)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash447 (1,142)
Cash, Cash Equivalents and Restricted Cash at Beginning of Year (includes restricted cash of
$71 and $103 at January 1, 2022 and 2021, respectively, included in Other current assets)
8,167 8,165 
Less: Cash and cash equivalents related to discontinued operations 141 
Cash, Cash Equivalents and Restricted Cash at End of Period (includes restricted cash of $58
and $42 at March 31, 2022 and 2021, respectively, included in Other current assets)
$8,614 $6,882 
The accompanying notes are an integral part of this condensed consolidated financial statement.
- 5 -

Notes to Condensed Consolidated Financial Statements (unaudited)

1.Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Merck & Co., Inc. (Merck or the Company) have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States (U.S.) (GAAP) for complete consolidated financial statements are not included herein. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Merck’s Form 10-K filed on February 25, 2022.
The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. In the Company’s opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature.
Reclassifications — Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Spin-Off of Organon & Co.
On June 2, 2021, Merck completed the spin-off of products from its women’s health, biosimilars and established brands businesses into a new, independent, publicly traded company named Organon & Co. (Organon) through a distribution of Organon’s publicly traded stock to Company shareholders. The distribution is expected to qualify and has been treated as tax-free to the Company and its shareholders for U.S. federal income tax purposes. The established brands included in the transaction consisted of dermatology, non-opioid pain management, respiratory, select cardiovascular products, as well as the rest of Merck’s diversified brands franchise. Merck’s existing research pipeline programs continue to be owned and developed within Merck as planned. The historical results of the businesses that were contributed to Organon in the spin-off have been reflected as discontinued operations in the Company’s consolidated financial statements through the date of the spin-off (see Note 2).
Recently Adopted Accounting Standards
In August 2020, the Financial Accounting Standards Board (FASB) issued amended guidance on the accounting for convertible instruments and contracts in an entity’s own equity. The guidance removes the separation model for convertible debt instruments and preferred stock, amends requirements for conversion options to be classified in equity as well as amends diluted earnings per share (EPS) calculations for certain convertible debt instruments. The Company adopted the new guidance on January 1, 2022 using a modified retrospective approach. There was no impact to the Company’s consolidated financial statements upon adoption.
In November 2021, the FASB issued new guidance to increase the transparency of transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The guidance requires annual disclosures of such transactions to include the nature of the transactions and the significant terms and conditions, the accounting treatment and the impact to a company’s financial statements. The Company adopted the new guidance on January 1, 2022 on a prospective basis. There was no material impact to the Company’s consolidated financial statements upon adoption.
Recently Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and subsequently issued clarifying amendments. The guidance provides optional expedients and exceptions for accounting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The optional guidance is effective upon issuance and can be applied on a prospective basis at any time between January 1, 2020 through December 31, 2022. The Company is currently evaluating the impact of adoption on its consolidated financial statements. The Company is progressing in its evaluation of LIBOR cessation exposures, including the review of debt-related contracts, leases, business development and licensing arrangements, royalty and other agreements. The Company has amended certain agreements and continues to review other agreements for potential impacts. With regard to debt-related exposures in particular, the Company’s four remaining interest rate swaps linked to LIBOR will mature in September 2022. The Company will transition its LIBOR-based debt to an alternative reference rate upon LIBOR discontinuance. Based on its evaluation thus far, the Company does not anticipate a material impact to its consolidated financial statements as a result of reference rate reform.
In October 2021, the FASB issued amended guidance that requires acquiring entities to recognize and measure contract assets and liabilities in a business combination in accordance with existing revenue recognition guidance. The amended guidance is effective for interim and annual periods in 2023 and is to be applied prospectively. Early adoption is permitted on a retrospective basis to the beginning of the fiscal year of adoption. The adoption of this guidance will not have an impact on the
- 6 -

Notes to Condensed Consolidated Financial Statements (unaudited)
Company’s consolidated financial statements for prior acquisitions; however, the impact in future periods will be dependent upon the contract assets and contract liabilities acquired in future business combinations.
2. Spin-Off of Organon & Co.
On June 2, 2021, Merck completed the spin-off of Organon through a distribution of Organon’s publicly traded stock to Company shareholders. In connection with the spin-off, each Merck shareholder received one tenth of a share of Organon’s common stock for each share of Merck common stock held by such shareholder. The distribution is expected to qualify and has been treated as tax free to Merck and its shareholders for U.S. federal income tax purposes. Indebtedness of $9.5 billion principal amount, consisting of term loans and senior notes, was issued in 2021 in connection with the spin-off and assumed by Organon. Merck is no longer the obligor of any Organon debt or financing arrangements. Cash proceeds of $9.0 billion were distributed by Organon to Merck in connection with the spin-off.
Also in connection with the spin-off, Merck and Organon entered into a separation and distribution agreement and also entered into various other agreements to effect the spin-off and provide a framework for the relationship between Merck and Organon after the spin-off, including a transition services agreement (TSA), manufacturing and supply agreements (MSAs), trademark license agreements, intellectual property license agreements, an employee matters agreement, a tax matters agreement and certain other commercial agreements. Under the TSA, Merck is providing Organon various services and, similarly, Organon is providing Merck various services. The provision of services under the TSA generally will terminate within 25 months following the spin-off. Merck and Organon also entered into a series of interim operating agreements pursuant to which in various jurisdictions where Merck held licenses, permits and other rights in connection with marketing, import and/or distribution of Organon products prior to the separation, Merck is continuing to market, import and distribute such products until such time as the relevant licenses and permits are transferred to Organon. Under such interim operating agreements and in accordance with the separation and distribution agreement, Merck is continuing operations in the affected markets on behalf of Organon, with Organon receiving all of the economic benefits and burdens of such activities. Additionally, Merck and Organon entered into a number of MSAs pursuant to which Merck is (a) manufacturing and supplying certain active pharmaceutical ingredients for Organon, (b) manufacturing and supplying certain formulated pharmaceutical products for Organon, and (c) packaging and labeling certain finished pharmaceutical products for Organon. Similarly, Organon and Merck entered into a number of MSAs pursuant to which Organon is (a) manufacturing and supplying certain formulated pharmaceutical products for Merck, and (b) packaging and labeling certain finished pharmaceutical products for Merck. The terms of the MSAs range in initial duration from four years to ten years.
Amounts included in the condensed consolidated statement of income for the above MSAs include sales of $99 million and related cost of sales of $105 million for the first quarter of 2022. Amounts included in the condensed consolidated statement of income for the TSAs were immaterial in the first quarter of 2022.
The amounts due from Organon under all of the above agreements were $719 million and $964 million at March 31, 2022 and December 31, 2021, respectively, and are reflected in Other current assets. The amounts due to Organon under these agreements were $344 million and $400 million at March 31, 2022 and December 31, 2021, respectively, and are included in Accrued and other current liabilities.
The results of the women’s health, biosimilars and established brands businesses (previously included in the Pharmaceutical segment) that were contributed to Organon in the spin-off have been reflected as discontinued operations in the Company’s condensed consolidated statement of income as Income from Discontinued Operations, Net of Taxes and Amounts Attributable to Noncontrolling Interests for periods prior to the spin-off on June 2, 2021. Merck incurred separation costs of $249 million in the first quarter of 2021 related to the spin-off of Organon, which are also included in Income from Discontinued Operations, Net of Taxes and Amounts Attributable to Noncontrolling Interests. These costs primarily relate to professional fees for separation activities within finance, tax, legal and information technology functions, as well as investment banking fees.

- 7 -

Notes to Condensed Consolidated Financial Statements (unaudited)
Details of Income from Discontinued Operations, Net of Taxes and Amounts Attributable to Noncontrolling Interests are as follows:
 Three Months Ended March 31,
($ in millions)2021
Sales$1,453 
Costs, Expenses and Other
Cost of sales471 
Selling, general and administrative446 
Research and development53 
Restructuring costs1 
Other (income) expense, net7 
978 
Income from discontinued operations before taxes475 
Tax provision38 
Income from discontinued operations, net of taxes437 
Less: Income of discontinued operations attributable to noncontrolling interests3 
$434 
3.    Acquisitions, Research Collaborations and License Agreements
The Company continues to pursue acquisitions and the establishment of external alliances such as research collaborations and licensing agreements to complement its internal research capabilities. These arrangements often include upfront payments, as well as expense reimbursements or payments to the third party, and milestone, royalty or profit share arrangements, contingent upon the occurrence of certain future events linked to the success of the asset in development. The Company also reviews its marketed products and pipeline to examine candidates which may provide more value through out-licensing and, as part of its portfolio assessment process, may also divest certain assets. Pro forma financial information for acquired businesses is not presented if the historical financial results of the acquired entity are not significant when compared with the Company’s financial results.
In January 2021, Merck entered into an exclusive license and research collaboration agreement with Artiva Biotherapeutics, Inc. (Artiva) to discover, develop and manufacture CAR-NK cells that target certain solid tumors using Artiva’s proprietary platform. Merck and Artiva agreed to engage in up to three different research programs, each covering a collaboration target. Merck has sole responsibility for all development and commercialization activities (including regulatory filing and approval). Under the terms of the agreement, Merck made an upfront payment of $30 million, which was included in Research and development expenses in the first quarter of 2021, for license and other rights for the first two collaboration targets and agreed to make another upfront payment of $15 million for license and other rights for the third collaboration target when it is selected by Merck and accepted by Artiva. In addition, Artiva is eligible to receive future contingent milestone payments (which span all three collaboration targets), aggregating up to: $217.5 million in developmental milestones, $570 million in regulatory milestones, and $1.05 billion in sales-based milestones. The agreement also provides for Merck to pay tiered royalties ranging from 7% to 14% on future sales.
As part of Merck’s 2020 acquisition of OncoImmune, Merck obtained MK-7110, a therapeutic candidate that was being evaluated for the treatment of patients hospitalized with COVID-19. In 2021, Merck received feedback from the U.S. Food and Drug Administration (FDA) that additional data would be needed to support a potential Emergency Use Authorization application and therefore the Company did not expect MK-7110 would become available until the first half of 2022. Given this timeline and the technical, clinical and regulatory uncertainties, the availability of a number of medicines for patients hospitalized with COVID-19, and the need to concentrate Merck’s resources on accelerating the development and manufacture of the most viable therapeutics and vaccines, Merck decided to discontinue development of MK-7110 for the treatment of COVID-19. Due to the discontinuation, the Company recorded charges of $170 million in the first quarter of 2021, which are reflected in Cost of sales and relate to fixed assets and materials written off, as well as the recognition of liabilities for purchase commitments.

- 8 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
4.    Collaborative Arrangements
Merck has entered into collaborative arrangements that provide the Company with varying rights to develop, produce and market products together with its collaborative partners. Both parties in these arrangements are active participants and exposed to significant risks and rewards dependent on the commercial success of the activities of the collaboration. Merck’s more significant collaborative arrangements are discussed below. For further details refer to Note 4 to the consolidated financial statements included in Merck’s 2021 Form 10‑K.
AstraZeneca
In 2017, Merck and AstraZeneca PLC (AstraZeneca) entered into a global strategic oncology collaboration to co-develop and co-commercialize AstraZeneca’s Lynparza (olaparib) for multiple cancer types. Independently, Merck and AstraZeneca will develop and commercialize Lynparza in combinations with their respective PD-1 and PD-L1 medicines, Keytruda (pembrolizumab) and Imfinzi. The companies are also jointly developing and commercializing AstraZeneca’s Koselugo (selumetinib) for multiple indications. Under the terms of the agreement, AstraZeneca and Merck will share the development and commercialization costs for Lynparza and Koselugo monotherapy and non-PD-L1/PD-1 combination therapy opportunities.
Profits from Lynparza and Koselugo product sales generated through monotherapies or combination therapies are shared equally. AstraZeneca is the principal on Lynparza and Koselugo sales transactions. Merck records its share of Lynparza and Koselugo product sales, net of cost of sales and commercialization costs, as alliance revenue and its share of development costs associated with the collaboration as part of Research and development expenses. Reimbursements received from AstraZeneca for research and development expenses are recognized as reductions to Research and development costs.
As part of the agreement, Merck made an upfront payment to AstraZeneca and also made payments over a multi-year period for certain license options. In addition, the agreement provides for contingent payments from Merck to AstraZeneca related to the successful achievement of sales-based and regulatory milestones.
In the first quarter of 2022, Merck determined it was probable that sales of Lynparza in the future would trigger a $600 million sales-based milestone payment from Merck to AstraZeneca. Accordingly, Merck recorded a $600 million liability and a corresponding increase to the intangible asset related to Lynparza. Merck also recognized $250 million of cumulative amortization catch-up expense related to the recognition of this milestone in the first quarter of 2022. In addition, Merck made a sales-based milestone payment to AstraZeneca (which had been previously accrued for) of $400 million in the first quarter of 2022. Potential future sales-based milestone payments of $2.1 billion have not yet been accrued as they are not deemed by the Company to be probable at this time. In the first quarter of 2022, Lynparza received a regulatory approval triggering a capitalized milestone payment of $175 million from Merck to AstraZeneca, which was paid in April 2022. Potential future regulatory milestone payments of $1.3 billion remain under the agreement.
The intangible asset balance related to Lynparza (which includes capitalized sales-based and regulatory milestone payments) was $1.6 billion at March 31, 2022 and is included in Other Intangibles, Net. The amount is being amortized over its estimated useful life through 2028 as supported by projected future cash flows, subject to impairment testing.
Summarized financial information related to this collaboration is as follows:
Three Months Ended
March 31,
($ in millions)20222021
Alliance revenue - Lynparza$266 $228 
Alliance revenue - Koselugo9 5 
Total alliance revenue$275 $233 
Cost of sales (1)
299 42 
Selling, general and administrative44 40 
Research and development26 29 
($ in millions)March 31, 2022December 31, 2021
Receivables from AstraZeneca included in Other current assets
$275 $271 
Payables to AstraZeneca included in Trade accounts payable and Accrued and other current liabilities (2)
190 415 
Payables to AstraZeneca included in Other Noncurrent Liabilities (2)
600  
(1) Represents amortization of capitalized milestone payments. Amount in the first quarter of 2022 includes $250 million of cumulative amortization catch-up expense as noted above.
(2) Includes accrued milestone payments.
- 9 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Eisai
In 2018, Merck and Eisai Co., Ltd. (Eisai) announced a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima (lenvatinib), an orally available tyrosine kinase inhibitor discovered by Eisai. Under the agreement, Merck and Eisai will develop and commercialize Lenvima jointly, both as monotherapy and in combination with Keytruda. Eisai records Lenvima product sales globally (Eisai is the principal on Lenvima sales transactions) and Merck and Eisai share applicable profits equally. Merck records its share of Lenvima product sales, net of cost of sales and commercialization costs, as alliance revenue. Expenses incurred during co-development are shared by the two companies in accordance with the collaboration agreement and reflected in Research and development expenses. Certain expenses incurred solely by Merck or Eisai are not shareable under the collaboration agreement, including costs incurred in excess of agreed upon caps and costs related to certain combination studies of Keytruda and Lenvima.
Under the agreement, Merck made an upfront payment to Eisai and also made payments over a multi-year period for certain option rights (of which the final $125 million option payment was made in March 2021). In addition, the agreement provides for contingent payments from Merck to Eisai related to the successful achievement of sales-based and regulatory milestones. In the first quarter of 2022, Merck made sales-based milestone payments to Eisai (which had been previously accrued for) aggregating $300 million. In April 2022, Merck made an additional $300 million sales-based milestone payment, which was accrued for as of March 31, 2022. Potential future sales-based milestone payments of $2.6 billion have not yet been accrued as they are not deemed by the Company to be probable at this time. In the first quarter of 2022, Lenvima received a regulatory approval triggering a capitalized milestone payment of $25 million from Merck to Eisai. As of March 31, 2022, regulatory milestone payments accrued but not yet paid totaled $25 million. There are no potential future regulatory milestone payments remaining under the agreement.
The intangible asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $973 million at March 31, 2022 and is included in Other Intangibles, Net. The amount is being amortized over its estimated useful life through 2026 as supported by projected future cash flows, subject to impairment testing.
Summarized financial information related to this collaboration is as follows:
Three Months Ended
March 31,
($ in millions)20222021
Alliance revenue - Lenvima$227 $130 
Cost of sales (1)
53 47 
Selling, general and administrative31 23 
Research and development57 64 
($ in millions)March 31, 2022December 31, 2021
Receivables from Eisai included in Other current assets
$241 $200 
Payables to Eisai included in Accrued and other current liabilities (2)
325 625 
(1) Represents amortization of capitalized milestone payments.
(2) Includes accrued milestone payments.
Bayer AG
In 2014, the Company entered into a worldwide clinical development collaboration with Bayer AG (Bayer) to market and develop soluble guanylate cyclase (sGC) modulators including Bayer’s Adempas (riociguat). The two companies have implemented a joint development and commercialization strategy. The collaboration also includes development of Bayer’s Verquvo (vericiguat), which was approved in the U.S. in January 2021, in Japan in June 2021 and in the EU in July 2021. Under the agreement, Bayer commercializes Adempas in the Americas, while Merck commercializes in the rest of the world. For Verquvo, Merck commercializes in the U.S. and Bayer commercializes in the rest of the world. Both companies share in development costs and profits on sales. Merck records sales of Adempas and Verquvo in its marketing territories, as well as alliance revenue. Alliance revenue represents Merck’s share of profits from sales of Adempas and Verquvo in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs. Cost of sales includes Bayer’s share of profits from sales in Merck’s marketing territories.
In addition, the agreement provided for contingent payments from Merck to Bayer related to the successful achievement of sales-based milestones. In January 2022, Merck made the final $400 million sales-based milestone payment under this collaboration to Bayer.
- 10 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The intangible asset balances related to Adempas (which includes the acquired intangible asset balance, as well as capitalized sales-based milestone payments attributed to Adempas) and Verquvo (which reflects the portion of the final sales-based milestone payment that was attributed to Verquvo) were $758 million and $65 million, respectively, at March 31, 2022 and are included in Other Intangibles, Net. The assets are being amortized over their estimated useful lives (through 2027 for Adempas and through 2031 for Verquvo) as supported by projected future cash flows, subject to impairment testing.
Summarized financial information related to this collaboration is as follows:
Three Months Ended
March 31,
($ in millions)20222021
Alliance revenue - Adempas/Verquvo$72 $74 
Net sales of Adempas recorded by Merck61 55 
Net sales of Verquvo recorded by Merck3  
Total sales$136 $129 
Cost of sales (1)
50 208 
Selling, general and administrative23 17 
Research and development17 7 
($ in millions)March 31, 2022December 31, 2021
Receivables from Bayer included in Other current assets
$129 $114 
Payables to Bayer included in Accrued and other current liabilities (2)
74 472 
(1) Includes amortization of intangible assets. Amount in the first quarter of 2021 includes $153 million of cumulative amortization catch-up expense. In addition, cost of sales includes Bayer’s share of profits from sales in Merck’s marketing territories.
(2) Amount as of December 31, 2021 includes accrued milestone payment.
Ridgeback Biotherapeutics LP
In 2020, Merck and Ridgeback Biotherapeutics LP (Ridgeback), a closely held biotechnology company, entered into a collaboration agreement to develop Lagevrio (molnupiravir), an orally available antiviral candidate in clinical development for the treatment of patients with COVID-19. Merck gained exclusive worldwide rights to develop and commercialize Lagevrio and related molecules.
Under the terms of the agreement, Ridgeback received an upfront payment and is eligible to receive future contingent payments dependent upon the achievement of certain developmental and regulatory approval milestones. The agreement also provides for Merck to reimburse Ridgeback for a portion of certain third-party contingent milestone payments and royalties on net sales, which is part of the profit share calculation. Merck is the principal on sales transactions, recognizing sales and related costs, with profit sharing amounts recorded within Cost of sales. Profits from the collaboration are split equally between the partners. Reimbursements from Ridgeback for its share of research and development costs (deducted from Ridgeback’s share of profits) are reflected as decreases to Research and development expenses.
Lagevrio has received multiple authorizations or approvals worldwide and Merck has entered into advance purchase and supply agreements for Lagevrio in more than 30 markets. As of March 31, 2022, the Company has 3.4 million remaining courses to be supplied under these agreements.
Summarized financial information related to this collaboration is as follows:
Three Months Ended
March 31,
($ in millions)20222021
Lagevrio sales
$3,247 $ 
Cost of sales (1)
1,724 46 
Selling, general and administrative34 3 
Research and development 6 42 
($ in millions)March 31, 2022December 31, 2021
Payables to Ridgeback included in Accrued and other current liabilities (2)
$1,568 $283 
(1) Includes royalty expense and amortization of capitalized milestone payments.
(2) Includes accrued royalty and milestone payments.

- 11 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Bristol Myers Squibb
Reblozyl (luspatercept-aamt) is a first-in-class erythroid maturation recombinant fusion protein obtained as part of Merck’s November 2021 acquisition of Acceleron that is being developed and commercialized through a global collaboration with Bristol Myers Squibb (BMS). Reblozyl is approved in the U.S., Europe, Canada and Australia for the treatment of anemia in certain rare blood disorders and is also being evaluated for additional indications for hematology therapies. BMS is the principal on sales transactions for Reblozyl; however, Merck co-promotes Reblozyl (and will co-promote all future products approved under this collaboration) in North America, which is reimbursed by BMS. Merck receives a 20% sales royalty from BMS which could increase to a maximum of 24% based on sales levels. This royalty will be reduced by 50% upon the earlier of patent expiry or generic entry on an indication-by-indication basis in each market. Additionally, Merck is eligible to receive future contingent sales-based milestone payments of up to $80 million. Merck recorded alliance revenue of $52 million within Sales in the first quarter of 2022 related to this collaboration, which includes royalties of $32 million, as well as the receipt of a regulatory approval milestone payment of $20 million.
5.    Restructuring
In 2019, Merck approved a global restructuring program (Restructuring Program) as part of a worldwide initiative focused on further optimizing the Company’s manufacturing and supply network, as well as reducing its global real estate footprint. This program is a continuation of the Company’s plant rationalization and builds on prior restructuring programs. The actions currently contemplated under the Restructuring Program are expected to be substantially completed by the end of 2023, with the cumulative pretax costs to be incurred by the Company to implement the program estimated to be approximately $3.5 billion. The Company estimates that approximately 70% of the cumulative pretax costs will result in cash outlays, primarily related to employee separation expense and facility shut-down costs. Approximately 30% of the cumulative pretax costs will be non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested.
The Company recorded total pretax costs of $127 million and $334 million in the first quarter of 2022 and 2021, respectively, related to restructuring program activities. Since inception of the Restructuring Program through March 31, 2022, Merck has recorded total pretax accumulated costs of approximately $2.8 billion. For the full year of 2022, the Company expects to record charges of approximately $400 million related to the Restructuring Program. For segment reporting, restructuring charges are unallocated expenses.
The following tables summarize the charges related to restructuring program activities by type of cost:
 Three Months Ended March 31, 2022
($ in millions)Separation
Costs
Accelerated
Depreciation
OtherTotal
Cost of sales$ $18 $28 $46 
Selling, general and administrative 4 17 21 
Research and development 7  7 
Restructuring costs26  27 53 
$26 $29 $72 $127 
 Three Months Ended March 31, 2021
($ in millions)Separation
Costs
Accelerated
Depreciation
OtherTotal
Cost of sales$ $10 $17 $27 
Selling, general and administrative 3  3 
Research and development 7  7 
Restructuring costs229  68 297 
$229 $20 $85 $334 
Separation costs are associated with actual headcount reductions, as well as those headcount reductions which were probable and could be reasonably estimated.
Accelerated depreciation costs primarily relate to manufacturing, research and administrative facilities and equipment to be sold or closed as part of the programs. Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the revised useful life of the asset, based upon the anticipated date the site will be closed or divested or the equipment disposed of, and depreciation expense as determined utilizing the useful life prior to the restructuring actions. All the sites have and will continue to operate up through the respective closure dates and, since future undiscounted cash flows are sufficient to recover the respective book values, Merck is recording accelerated depreciation over the revised useful life of the site assets. Anticipated site closure dates, particularly related to manufacturing locations, have been and may continue to be adjusted to reflect changes resulting from regulatory or other factors.
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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Other activity in 2022 and 2021 includes asset abandonment, facility shut-down and other related costs, as well as pretax gains and losses resulting from the sales of facilities and related assets. Additionally, other activity includes certain employee-related costs associated with pension and other postretirement benefit plans (see Note 10) and share-based compensation.
The following table summarizes the charges and spending relating to restructuring program activities for the three months ended March 31, 2022:
($ in millions)Separation
Costs
Accelerated
Depreciation
OtherTotal
Restructuring reserves January 1, 2022
$596 $ $41 $637 
Expense26 29 72 127 
(Payments) receipts, net(68) (45)(113)
Non-cash activity (29)(39)(68)
Restructuring reserves March 31, 2022 (1)
$554 $ $29 $583 
(1)The remaining cash outlays are expected to be substantially completed by the end of 2023.
6.    Financial Instruments
Derivative Instruments and Hedging Activities
The Company manages the impact of foreign exchange rate movements and interest rate movements on its earnings, cash flows and fair values of assets and liabilities through operational means and through the use of various financial instruments, including derivative instruments.
A significant portion of the Company’s revenues and earnings in foreign affiliates is exposed to changes in foreign exchange rates. The objectives of and accounting related to the Company’s foreign currency risk management program, as well as its interest rate risk management activities are discussed below.
Foreign Currency Risk Management
The Company has established revenue hedging, balance sheet risk management and net investment hedging programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by changes in foreign exchange rates.
The objective of the revenue hedging program is to reduce the variability caused by changes in foreign exchange rates that would affect the U.S. dollar value of future cash flows derived from foreign currency denominated sales, primarily the euro, Japanese yen and Chinese renminbi. To achieve this objective, the Company will hedge a portion of its forecasted foreign currency denominated third-party and intercompany distributor entity sales (forecasted sales) that are expected to occur over its planning cycle, typically no more than two years into the future. The Company will layer in hedges over time, increasing the portion of forecasted sales hedged as it gets closer to the expected date of the forecasted sales. The portion of forecasted sales hedged is based on assessments of cost-benefit profiles that consider natural offsetting exposures, revenue and exchange rate volatilities and correlations, and the cost of hedging instruments. The Company manages its anticipated transaction exposure principally with purchased local currency put options, forward contracts and purchased collar options.
The fair values of these derivative contracts are recorded as either assets (gain positions) or liabilities (loss positions) in the Condensed Consolidated Balance Sheet. Changes in the fair value of derivative contracts are recorded each period in either current earnings or Other comprehensive income (OCI), depending on whether the derivative is designated as part of a hedge transaction and, if so, the type of hedge transaction. For derivatives that are designated as cash flow hedges, the unrealized gains or losses on these contracts are recorded in Accumulated Other Comprehensive Loss (AOCL) and reclassified into Sales when the hedged anticipated revenue is recognized. For those derivatives which are not designated as cash flow hedges, but serve as economic hedges of forecasted sales, unrealized gains or losses are recorded in Sales each period. The cash flows from both designated and non-designated contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows. The Company does not enter into derivatives for trading or speculative purposes.
The Company manages operating activities and net asset positions at each local subsidiary in order to mitigate the effects of exchange on monetary assets and liabilities. The Company also uses a balance sheet risk management program to mitigate the exposure of net monetary assets that are denominated in a currency other than a subsidiary’s functional currency from the effects of volatility in foreign exchange. In these instances, Merck principally utilizes forward exchange contracts to offset the effects of exchange on exposures denominated in developed country currencies, primarily the euro, Japanese yen, British pound, Canadian dollar and Swiss franc. For exposures in developing country currencies, including the Chinese renminbi, the Company will enter into forward contracts to offset the effects of exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange
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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
rate and the cost of the hedging instrument. The cash flows from these contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows.
Monetary assets and liabilities denominated in a currency other than the functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in spot rates reported in Other (income) expense, net. The forward contracts are not designated as hedges and are marked to market through Other (income) expense, net. Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the remeasured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. These differences are not significant due to the short-term nature of the contracts, which typically have average maturities at inception of less than one year.
The Company also uses forward exchange contracts to hedge a portion of its net investment in foreign operations against movements in exchange rates. The forward contracts are designated as hedges of the net investment in a foreign operation. The unrealized gains or losses on these contracts are recorded in foreign currency translation adjustment within OCI and remain in AOCL until either the sale or complete or substantially complete liquidation of the subsidiary. The Company excludes certain portions of the change in fair value of its derivative instruments from the assessment of hedge effectiveness (excluded components). Changes in fair value of the excluded components are recognized in OCI. The Company recognizes in earnings the initial value of the excluded components on a straight-line basis over the life of the derivative instrument, rather than using the mark-to-market approach. The cash flows from these contracts are reported as investing activities in the Condensed Consolidated Statement of Cash Flows.
Foreign exchange risk is also managed through the use of foreign currency debt. The Company’s senior unsecured euro-denominated notes have been designated as, and are effective as, economic hedges of the net investment in a foreign operation. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in foreign currency translation adjustment within OCI.
The effects of the Company’s net investment hedges on OCI and the Consolidated Statement of Income are shown below:
Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income (1)
Amount of Pretax (Gain) Loss Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing
Three Months Ended March 31,Three Months Ended March 31,
($ in millions)2022202120222021
Net Investment Hedging Relationships
Foreign exchange contracts
$(16)$(25)$(1)$(4)
Euro-denominated notes(53)(166)  
(1) No amounts were reclassified from AOCL into income related to the sale of a subsidiary.
Interest Rate Risk Management
The Company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rate changes and to reduce its overall cost of borrowing. The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal capital at risk.
In February 2022, five interest rate swaps with a total notional amount of $1.25 billion matured. These swaps effectively converted the Company’s $1.25 billion, 2.350% fixed-rate notes due 2022 to variable rate debt. At March 31, 2022, the Company was a party to four pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes in which the notional amounts match the amount of the hedged fixed-rate notes as detailed in the table below.
March 31, 2022
($ in millions)Par Value of DebtNumber of Interest Rate Swaps HeldTotal Swap Notional Amount
2.40% notes due 2022
$1,000 4 $1,000 
The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in the benchmark LIBOR swap rate. The fair value changes in the notes attributable to changes in the LIBOR swap rate are recorded in interest expense along with the offsetting fair value changes in the swap contracts. See Note 1 for a discussion of the pending discontinuation of LIBOR as part of reference rate reform. The cash flows from these contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows.

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The table below presents the location of amounts recorded on the Condensed Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:
Carrying Amount of Hedged LiabilitiesCumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount
($ in millions)March 31, 2022December 31, 2021March 31, 2022December 31, 2021
Balance Sheet Line Item in which Hedged Item is Included
Loans payable and current portion of long-term debt$1,003 $2,263 $4 $13 
Presented in the table below is the fair value of derivatives on a gross basis segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments:
  March 31, 2022December 31, 2021
  Fair Value of DerivativeU.S. Dollar
Notional
Fair Value of DerivativeU.S. Dollar
Notional
($ in millions)AssetLiabilityAssetLiability
Derivatives Designated as Hedging Instruments
Balance Sheet Caption
Interest rate swap contractsOther current assets$4 $— $1,000 $14 $— $2,250 
Foreign exchange contractsOther current assets341 — 7,429 271 — 6,778 
Foreign exchange contractsOther Assets