Merck & Co., Inc. [MRK] Filings

10-Q 1 mrk-20240630.htm 10-Q mrk-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			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 Jersey	22-1918501
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

126 East Lincoln Avenue
Rahway	New Jersey	07065
(Address of principal executive offices) (zip code)

(Registrant’s telephone number, including area code) (908) 740-4000


			Not Applicable
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.50 par value)	MRK	New York Stock Exchange
0.500% Notes due 2024	MRK 24	New York Stock Exchange
1.875% Notes due 2026	MRK/26	New York Stock Exchange
3.250% Notes due 2032	MRK/32	New York Stock Exchange
2.500% Notes due 2034	MRK/34	New York Stock Exchange
1.375% Notes due 2036	MRK 36A	New York Stock Exchange
3.500% Notes due 2037	MRK/37	New York Stock Exchange
3.700% Notes due 2044	MRK/44	New York Stock Exchange
3.750% Notes due 2054	MRK/54	New 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.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller 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 July 31, 2024: 2,534,809,312

Table of Contents

Page No.

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Statement of Operations

Condensed Consolidated Statement of Comprehensive Income (Loss)

Condensed Consolidated Balance Sheet

Condensed Consolidated Statement of Cash Flows

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

Cautionary Factors That May Affect Future Results

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 5.

Other Information

Item 6.

Exhibits

Signatures

Part I - Financial Information

Item 1. Financial Statements

MERCK & CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited, $ in millions except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Sales	$	16,112	$	15,035	$	31,887	$	29,522
Costs, Expenses and Other
Cost of sales	3,745		4,024		7,285		7,951
Selling, general and administrative	2,739		2,702		5,221		5,182
Research and development	3,500		13,321		7,492		17,597
Restructuring costs	80		151		202		218
Other (income) expense, net	42		172		12		259
	10,106		20,370		20,212		31,207
Income (Loss) Before Taxes	6,006		(5,335)		11,675		(1,685)
Income Tax Provision	545		637		1,447		1,462
Net Income (Loss)	5,461		(5,972)		10,228		(3,147)
Less: Net Income Attributable to Noncontrolling Interests	6		3		11		7
Net Income (Loss) Attributable to Merck & Co., Inc.	$	5,455	$	(5,975)	$	10,217	$	(3,154)
Basic Earnings (Loss) per Common Share Attributable to Merck & Co., Inc. Common Shareholders	$	2.15	$	(2.35)	$	4.03	$	(1.24)
Earnings (Loss) per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders	$	2.14	$	(2.35)	$	4.02	$	(1.24)

MERCK & CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, $ in millions)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net Income (Loss) Attributable to Merck & Co., Inc.	$	5,455	$	(5,975)	$	10,217	$	(3,154)
Other Comprehensive Loss Net of Taxes:
Net unrealized gain on derivatives, net of reclassifications	67		145		197		12
Benefit plan net (loss) gain and prior service (cost) credit, net of amortization	(10)		(25)		(15)		(75)
Cumulative translation adjustment	(144)		(137)		(382)		(69)
	(87)		(17)		(200)		(132)
Comprehensive Income (Loss) Attributable to Merck & Co., Inc.	$	5,368	$	(5,992)	$	10,017	$	(3,286)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MERCK & CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited, $ in millions except per share amounts)


	June 30, 2024		December 31, 2023
Assets
Current Assets
Cash and cash equivalents	$	11,304	$	6,841
Short-term investments	50		252
Accounts receivable (net of allowance for doubtful accounts of $82 in 2024 and $88 in 2023)	11,642		10,349
Inventories (excludes inventories of $3,456 in 2024 and $3,348 in 2023 classified in Other assets - see Note 6)	6,469		6,358
Other current assets	8,740		8,368
Total current assets	38,205		32,168
Investments	357		252
Property, Plant and Equipment, at cost, net of accumulated depreciation of $18,960 in 2024 and $18,266 in 2023	23,221		23,051
Goodwill	21,161		21,197
Other Intangibles, Net	16,984		18,011
Other Assets	12,702		11,996
	$	112,630	$	106,675
Liabilities and Equity
Current Liabilities
Loans payable and current portion of long-term debt	$	3,071	$	1,372
Trade accounts payable	3,519		3,922
Accrued and other current liabilities	14,712		15,766
Income taxes payable	2,777		2,649
Dividends payable	1,981		1,985
Total current liabilities	26,060		25,694
Long-Term Debt	34,717		33,683
Deferred Income Taxes	876		871
Other Noncurrent Liabilities	7,329		8,792
Merck & Co., Inc. Stockholders’ Equity
Common stock, $0.50 par value Authorized - 6,500,000,000 shares Issued - 3,577,103,522 shares in 2024 and 2023	1,788		1,788
Other paid-in capital	44,362		44,509
Retained earnings	60,187		53,895
Accumulated other comprehensive loss	(5,361)		(5,161)
	100,976		95,031
Less treasury stock, at cost: 1,041,454,052 shares in 2024 and 1,045,470,249 shares in 2023	57,394		57,450
Total Merck & Co., Inc. stockholders’ equity	43,582		37,581
Noncontrolling Interests	66		54
Total equity	43,648		37,635
	$	112,630	$	106,675

The accompanying notes are an integral part of this condensed consolidated financial statement.

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MERCK & CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited, $ in millions)


	Six Months Ended June 30,
	2024		2023
Cash Flows from Operating Activities
Net income (loss)	$	10,228	$	(3,147)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization	1,087		1,020
Depreciation	1,029		874
Income from investments in equity securities, net	(200)		(274)
Charge for the acquisition of Harpoon Therapeutics, Inc.	656		—
Charge for the acquisition of Prometheus Biosciences, Inc.	—		10,217
Charge for the acquisition of Imago BioSciences, Inc.	—		1,192
Deferred income taxes	(232)		(632)
Share-based compensation	379		314
Other	174		5
Net changes in assets and liabilities	(4,394)		(4,526)
Net Cash Provided by Operating Activities	8,727		5,043
Cash Flows from Investing Activities
Capital expenditures	(1,652)		(1,972)
Purchases of securities and other investments	(64)		(587)
Proceeds from sales of securities and other investments	320		785
Acquisition of Harpoon Therapeutics, Inc., net of cash acquired	(746)		—
Acquisition of Prometheus Biosciences, Inc., net of cash acquired	—		(10,705)
Acquisition of Imago BioSciences, Inc., net of cash acquired	—		(1,327)
Other	(303)		4
Net Cash Used in Investing Activities	(2,445)		(13,802)
Cash Flows from Financing Activities
Net change in short-term borrowings	—		1,937
Proceeds from issuance of debt	3,600		5,946
Payments on debt	(751)		(1,751)
Dividends paid to stockholders	(3,936)		(3,738)
Purchases of treasury stock	(373)		(487)
Proceeds from exercise of stock options	160		112
Other	(298)		(315)
Net Cash (Used in) Provided by Financing Activities	(1,598)		1,704
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	(220)		(6)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	4,464		(7,061)
Cash, Cash Equivalents and Restricted Cash at Beginning of Year (includes restricted cash of $68 and $79 at January 1, 2024 and 2023, respectively, included in Other current assets)	6,909		12,773
Cash, Cash Equivalents and Restricted Cash at End of Period (includes restricted cash of $69 and $52 at June 30, 2024 and 2023, respectively, included in Other current assets)	$	11,373	$	5,712

The accompanying notes are an integral part of this condensed consolidated financial statement.

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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.) 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 26, 2024.

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. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Recently Adopted Accounting Standard

In August 2023, the Financial Accounting Standards Board (FASB) issued amended guidance that requires a newly formed joint venture to recognize and initially measure its assets and liabilities at fair value upon formation. The amended guidance includes exceptions to fair value measurement that are consistent with the accounting for business combinations guidance. The amended guidance is effective prospectively for all joint ventures with a formation date on or after January 1, 2025, however existing joint ventures have the option to apply the guidance retrospectively. The Company adopted the guidance effective July 1, 2024 on a prospective basis. There was no impact to the Company’s consolidated financial statements upon adoption.

Recently Issued Accounting Standards Not Yet Adopted

In November 2023, the FASB issued guidance intended to improve reportable segment disclosure requirements, primarily through expanded disclosures for significant segment expenses. The guidance is effective for annual periods beginning in 2024, and interim periods beginning in 2025. The guidance will result in incremental disclosures within the footnotes to the Company’s financial statements.

In December 2023, the FASB issued guidance intended to improve the transparency of income tax disclosures by requiring consistent categories and disaggregation of information in the effective income tax rate reconciliation and income taxes paid disclosures by jurisdiction. The guidance also includes other amendments to improve the effectiveness of income tax disclosures by removing certain previously required disclosures. The guidance is effective beginning with 2025 annual reporting. Early adoption is permitted. The guidance will result in incremental disclosures within the footnotes to the Company’s financial statements.

2. Acquisitions, Divestitures, Research Collaborations and Licensing 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; expense reimbursements or payments to the third party; milestone, royalty or profit share arrangements contingent upon the occurrence of certain future events linked to the success of the asset in development; and can also include option and continuation payments. 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.

2024 Transactions

In July 2024, Merck acquired the aqua business of Elanco Animal Health Incorporated (Elanco) for approximately $1.3 billion. The Elanco aqua business consists of an innovative portfolio of medicines and vaccines, nutritionals and supplements for aquatic species; two related aqua manufacturing facilities in Canada and Vietnam; as well as a research facility in Chile. The acquisition broadens Animal Health’s aqua portfolio with products such as Clynav, a new generation DNA-based vaccine that protects Atlantic salmon against pancreas disease, and Imvixa, an anti-parasitic sea lice treatment. This acquisition also brings a portfolio of water treatment products for warm water production, complementing Animal Health’s warm water vaccine portfolio. In addition to these products, the DNA-based vaccine technology that is a part of the business has the potential to accelerate the development of novel vaccines to address the unmet needs of the aqua industry. The Company is in the process of determining the preliminary fair value of assets acquired, liabilities assumed and total consideration transferred in this transaction, which will be accounted for as a business combination.

Also in July 2024, Merck acquired Eyebiotech Limited (EyeBio), a privately held ophthalmology-focused biotechnology company for an upfront payment of $1.3 billion. The acquisition agreement also provides for a further $1.7 billion in potential developmental, regulatory and sales-based milestone payments. EyeBio’s development work focused on candidates for the prevention and treatment of vision loss associated with retinal vascular leakage, a known risk factor for retinal diseases. EyeBio’s lead candidate, Restoret/MK-3000 (formerly EYE103), is an investigational, potentially first-in-class tetravalent, tri-specific antibody that acts as an agonist of the Wingless-related integration site signaling pathway, which is in clinical development for the treatment of diabetic macular edema and neovascular age-related macular degeneration. The transaction

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

will be accounted for as an asset acquisition since Restoret/MK-3000 accounted for substantially all of the fair value of the gross assets acquired (excluding cash and deferred income taxes). Merck will record a charge of approximately $1.3 billion to Research and development expenses in the third quarter of 2024.

Additionally in July 2024, Merck and Orion Corporation (Orion) announced the mutual exercise of an option to convert the companies’ ongoing co-development and co-commercialization agreement for opevesostat (MK-5684/ODM-208), an investigational cytochrome P450 11A1 (CYP11A1) inhibitor, and other candidates targeting CYP11A1, into an exclusive global license for Merck. With the exercise of the option, Merck will assume full responsibility for all past and future development and commercialization expenses associated with the candidates covered by the original agreement. In addition, Orion will become eligible to receive developmental milestone payments up to $30 million, regulatory milestone payments up to $625 million and sales-based milestone payments up to $975 million, as well as annually tiered royalty payments ranging from a low double-digit rate up to a rate in the low twenties on net sales for any commercialized licensed product. Orion will retain responsibility for the manufacture of clinical and commercial supply for Merck. No payment was associated with the exercise of the option. The exclusive global license is expected to become effective in the third quarter of 2024, but is subject to certain conditions, including approval under the Hart-Scott-Rodino Antitrust Improvements Act, and other customary conditions.

In March 2024, Merck acquired Harpoon Therapeutics, Inc. (Harpoon), a clinical-stage immunotherapy company developing a novel class of T-cell engagers designed to harness the power of the body’s immune system to treat patients suffering from cancer and other diseases, for $765 million and also incurred $56 million of transaction costs. Harpoon’s lead candidate, MK-6070 (formerly HPN328), is a T-cell engager targeting delta-like ligand 3 (DLL3), an inhibitory canonical Notch ligand that is expressed at high levels in small-cell lung cancer (SCLC) and neuroendocrine tumors. MK-6070 is currently being evaluated as monotherapy in a Phase 1/2 clinical trial in certain patients with advanced cancers associated with expression of DLL3. The study is also evaluating MK-6070 in combination with atezolizumab in certain patients with SCLC. The transaction was accounted for as an asset acquisition since MK-6070 represented substantially all of the fair value of the gross assets acquired (excluding cash and deferred income taxes). Merck recorded net assets of $165 million, as well as a charge of $656 million to Research and development expenses in the first six months of 2024 related to the transaction. There are no future contingent payments associated with the acquisition.

2023 Transactions

In June 2023, Merck acquired Prometheus Biosciences, Inc. (Prometheus), a clinical-stage biotechnology company pioneering a precision medicine approach for the discovery, development, and commercialization of novel therapeutic and companion diagnostic products for the treatment of immune-mediated diseases. Total consideration paid of $11.0 billion included $1.2 billion of costs to settle share-based equity awards (including $700 million to settle unvested equity awards). Prometheus’ lead candidate, tulisokibart (MK-7240, formerly PRA023), is a humanized monoclonal antibody directed to tumor necrosis factor-like ligand 1A, a target associated with both intestinal inflammation and fibrosis. Tulisokibart is being developed for the treatment of immune-mediated diseases including ulcerative colitis, Crohn’s disease, and other autoimmune conditions. A Phase 3 clinical trial evaluating tulisokibart for ulcerative colitis commenced in 2023. The transaction was accounted for as an acquisition of an asset since tulisokibart accounted for substantially all of the fair value of the gross assets acquired (excluding cash and deferred income taxes). Merck recorded net assets of $877 million, including cash of $368 million, investments of $296 million, deferred tax assets of $218 million and other net liabilities of $5 million, as well as a charge of $10.2 billion to Research and development expenses in the second quarter and first six months of 2023 related to the transaction. There are no future contingent payments associated with the acquisition.

In February 2023, Merck and Kelun-Biotech (a holding subsidiary of Sichuan Kelun Pharmaceutical Co., Ltd.) closed a license and collaboration agreement expanding their relationship in which Merck gained exclusive rights for the research, development, manufacture and commercialization of up to seven investigational preclinical antibody drug conjugates (ADCs) for the treatment of cancer. Kelun-Biotech retained the right to research, develop, manufacture and commercialize certain licensed and option ADCs for Chinese mainland, Hong Kong and Macau. Merck made an upfront payment of $175 million, which was recorded as a charge to Research and development expenses in the first six months of 2023. In October 2023, Merck notified Kelun-Biotech it was terminating two of the seven candidates under the agreement. Subsequently, in April 2024, Merck notified Kelun-Biotech it was terminating an additional candidate under the agreement. In July 2024, Merck notified Kelun-Biotech that it was exercising an existing license option for one of the candidates under the agreement, granting Merck a license for the development, manufacture and commercialization worldwide excluding China. There are now three candidates licensed under the original agreement and one candidate for which the license option remains unexercised. Merck will pay Kelun-Biotech $38 million in connection with the July option exercise, following which Kelun-Biotech remains eligible to receive future contingent payments aggregating up to $540 million in development-related payments, $1.5 billion in regulatory milestones, and $3.1 billion in sales-based milestones if Kelun-Biotech does not retain Chinese mainland, Hong Kong and Macau rights for the remaining option ADC and all remaining candidates achieve regulatory approval. In addition, Kelun-Biotech is eligible to receive tiered royalties ranging from a mid-single-digit rate to a low-double-digit rate on future net sales for any commercialized ADC product. Also, in connection with the agreement, Merck invested $100 million in Kelun-Biotech shares in January 2023.

In January 2023, Merck acquired Imago BioSciences, Inc. (Imago), a clinical stage biopharmaceutical company developing new medicines for the treatment of myeloproliferative neoplasms and other bone marrow diseases, for $1.35 billion (including payments to settle share-based equity awards) and also incurred approximately $60 million of transaction costs. Imago’s lead candidate, bomedemstat (MK-3543, formerly IMG-7289), is an investigational orally available lysine-specific demethylase 1 inhibitor currently being evaluated in multiple clinical trials for the treatment of essential thrombocythemia, myelofibrosis, and polycythemia vera, in addition to other indications. A Phase 3 clinical trial evaluating bomedemstat for the

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

treatment of certain patients with essential thrombocythemia is underway. The transaction was accounted for as an asset acquisition since bomedemstat represented substantially all of the fair value of the gross assets acquired (excluding cash and deferred income taxes). Merck recorded net assets of $219 million, as well as a charge of $1.2 billion to Research and development expenses in the first six months of 2023 related to the transaction. There are no future contingent payments associated with the acquisition.

Spin-Off of Organon & Co.

In connection with the 2021 spin-off of Organon & Co. (Organon), Merck and Organon 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 continued to market, import and distribute such products on behalf of Organon until such time as the relevant licenses and permits transferred to Organon, with Organon receiving all of the economic benefits and burdens of such activities. As of June 30, 2024, only one jurisdiction remains under an interim operating agreement. Additionally, Merck and Organon entered into a number of manufacturing and supply agreements (MSAs) with terms ranging from four years to ten years. The amounts included in the condensed consolidated statement of operations for the above MSAs include sales of $93 million and $96 million and related cost of sales of $92 million and $101 million for the second quarter of 2024 and 2023, respectively, and sales of $201 million and $191 million and related cost of sales of $202 million and $208 million for the first six months of 2024 and 2023, respectively. The amounts due from Organon for all spin-off related agreements were $557 million and $632 million at June 30, 2024 and December 31, 2023, respectively, and are reflected in Other current assets. The amounts due to Organon under these agreements were $102 million and $598 million at June 30, 2024 and December 31, 2023, respectively, and are included in Accrued and other current liabilities.

3. 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.

AstraZeneca PLC

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 are developing and commercializing 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 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 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 (which remained accrued at June 30, 2024) and a corresponding increase to the intangible asset related to Lynparza. 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. Lynparza received regulatory approvals triggering capitalized milestone payments from Merck to AstraZeneca of $245 million and $105 million in the first six months of 2024 and 2023, respectively (each of which had been previously accrued for). In the second quarter of 2024, the partners agreed that no future regulatory milestone payments from Merck to AstraZeneca are likely under the agreement.

The intangible asset balance related to Lynparza (which includes capitalized sales-based and regulatory milestone payments) was $1.3 billion at June 30, 2024 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.

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Summarized financial information related to this collaboration is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
($ in millions)	2024		2023		2024		2023
Alliance revenue - Lynparza	$	317	$	310	$	609	$	585
Alliance revenue - Koselugo	37		25		75		48
Total alliance revenue	$	354	$	335	$	684	$	633

Cost of sales (1)	82		78		163		148
Selling, general and administrative	43		51		82		98
Research and development	18		22		38		43

($ in millions)					June 30, 2024		December 31, 2023
Receivables from AstraZeneca included in Other current assets					$	349	$	341
Payables to AstraZeneca included in Accrued and other current liabilities (2)					615		256
Payables to AstraZeneca included in Other Noncurrent Liabilities (2)					—		600

(1) Represents amortization of capitalized milestone payments.

(2) Includes accrued milestone payments.

Eisai Co., Ltd.

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 are developing and commercializing 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. 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 2023, Merck determined it was probable that sales of Lenvima in the future would trigger a $125 million sales-based milestone payment from Merck to Eisai. Similarly, in the third quarter of 2023 an additional $125 million sales-based milestone payment to Eisai was deemed by the Company to be probable of payment. Accordingly, Merck recorded $250 million of liabilities for these payments (one of which was paid in the second quarter of 2023 and the other was paid in the second quarter of 2024) and corresponding increases to the intangible asset related to Lenvima. Merck also recognized $72 million and $81 million of cumulative amortization catch-up expense related to the recognition of these milestones in the first and third quarters of 2023, respectively. Potential future sales-based milestone payments of $2.3 billion have not yet been accrued as they are not deemed by the Company to be probable at this time. There are no regulatory milestone payments remaining under the agreement.

The intangible asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $563 million at June 30, 2024 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.

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Summarized financial information related to this collaboration is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
($ in millions)	2024		2023		2024		2023
Alliance revenue - Lenvima	$	249	$	242	$	504	$	474

Cost of sales (1)	60		57		121		183
Selling, general and administrative	41		48		80		99
Research and development	6		17		13		56

($ in millions)					June 30, 2024		December 31, 2023
Receivables from Eisai included in Other current assets					$	245	$	226
Payables to Eisai included in Accrued and other current liabilities (2)					—		125

(1) Represents amortization of capitalized milestone payments. Amount in the first six months of 2023 includes $72 million of cumulative amortization catch-up expense as noted above.

(2) Represents an accrued milestone payment.

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) and Verquvo (vericiguat). The two companies have implemented a joint development and commercialization strategy. 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. There are no sales-based milestone payments remaining under this collaboration.

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 $445 million and $47 million, respectively, at June 30, 2024 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 June 30,				Six Months Ended June 30,
($ in millions)	2024		2023		2024		2023
Alliance revenue - Adempas/Verquvo	$	106	$	68	$	203	$	167
Net sales of Adempas recorded by Merck	72		65		142		125
Net sales of Verquvo recorded by Merck	9		9		16		16
Total sales	$	187	$	142	$	361	$	308

Cost of sales (1)	61		56		123		113
Selling, general and administrative	26		34		59		67
Research and development	28		25		55		50

($ in millions)					June 30, 2024		December 31, 2023
Receivables from Bayer included in Other current assets					$	170	$	156
Payables to Bayer included in Accrued and other current liabilities					81		80

(1) Includes amortization of intangible assets, cost of products sold by Merck, as well as Bayer’s share of profits from sales in Merck’s marketing territories.

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 investigational orally available antiviral candidate for the treatment of patients with COVID-19. Merck gained exclusive worldwide rights to develop and commercialize Lagevrio and related molecules. Following initial authorizations in certain markets in the fourth quarter of 2021, Lagevrio has since received multiple additional authorizations.

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

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-sharing 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.

Summarized financial information related to this collaboration is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
($ in millions)	2024		2023		2024		2023
Net sales of Lagevrio recorded by Merck	$	110	$	203	$	460	$	595

Cost of sales (1)	96		193		287		414
Selling, general and administrative	16		24		32		51
Research and development	7		10		2		26

($ in millions)					June 30, 2024		December 31, 2023
Receivables from Ridgeback included in Other current assets					$	8	$	—
Payables to Ridgeback included in Accrued and other current liabilities (2)					24		113

(1) Includes cost of products sold by Merck, Ridgeback’s share of profits, royalty expense, amortization of capitalized milestone payments and inventory reserves.

(2) Includes accrued royalties.

Daiichi Sankyo

In October 2023, Merck and Daiichi Sankyo entered into a global development and commercialization agreement for three of Daiichi Sankyo’s DXd ADC candidates: patritumab deruxtecan (HER3-DXd) (MK-1022), ifinatamab deruxtecan (I-DXd) (MK-2400) and raludotatug deruxtecan (R-DXd) (MK-5909). All three potentially first-in-class DXd ADCs are in various stages of clinical development for the treatment of multiple solid tumors both as monotherapy and/or in combination with other treatments. The companies will jointly develop and potentially commercialize these ADC candidates worldwide, except in Japan where Daiichi Sankyo will maintain exclusive rights. Daiichi Sankyo will be solely responsible for manufacturing and supply.

Under the terms of the agreement, Merck made payments to Daiichi Sankyo totaling $4.0 billion in 2023. These payments included $1.0 billion ($500 million each for patritumab deruxtecan and ifinatamab deruxtecan) which may be refundable on a pro-rated basis in the event of early termination of development with respect to either program. In addition, the agreement provides for a continuation payment of $750 million related to patritumab deruxtecan due from Merck in October 2024 and a continuation payment of $750 million related to raludotatug deruxtecan due from Merck in October 2025. If Merck does not make the continuation payments on the dates noted for either patritumab deruxtecan and/or raludotatug deruxtecan, the rights for the applicable program will revert to Daiichi Sankyo and the non-refundable upfront payments already paid will be retained by Daiichi Sankyo. The agreement also provides for contingent payments from Merck to Daiichi Sankyo of up to an additional $5.5 billion for each DXd ADC upon the successful achievement of certain sales-based milestones. In conjunction with this transaction, Merck recorded an aggregate pretax charge of $5.5 billion to Research and development expenses in the fourth quarter of 2023 for the $4.0 billion of upfront payments and the $1.5 billion of continuation payments.

Merck and Daiichi Sankyo equally share research and development costs, except for raludotatug deruxtecan, where Merck is responsible for 75% of the first $2.0 billion of research and development expenses. Merck includes its share of development costs associated with the collaboration as part of Research and development expenses. Following regulatory approval, Daiichi Sankyo will generally record sales worldwide (Daiichi Sankyo will be the principal on sales transactions) and the companies will equally share expenses as well as profits worldwide except for Japan where Daiichi Sankyo retains exclusive rights and Merck will receive a 5% sales-based royalty. Merck will record its share of product sales, net of cost of sales and commercialization costs, as alliance revenue.

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Summarized financial information related to this collaboration is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
($ in millions)	2024		2023		2024		2023
Selling, general and administrative	$	14	$	—	$	16	$	—
Research and development	65		—		133		—

($ in millions)					June 30, 2024		December 31, 2023
Payables to Daiichi Sankyo included in Accrued and other current liabilities					$	801	$	800
Payables to Daiichi Sankyo included in Other Noncurrent Liabilities					750		750

Moderna, Inc.

In 2022, Merck exercised its option to jointly develop and commercialize V940 (mRNA-4157), an investigational individualized neoantigen therapy, pursuant to the terms of an existing collaboration and license agreement with Moderna, Inc. (Moderna). V940 (mRNA-4157) is currently being evaluated in combination with Keytruda in multiple Phase 3 clinical trials. Merck and Moderna will share costs and any profits equally under this worldwide collaboration. Merck records its share of development costs associated with the collaboration as part of Research and development expenses. Any reimbursements received from Moderna for research and development expenses are recognized as reductions to Research and development costs. Merck has also capitalized certain of the shared costs, which aggregated $135 million at June 30, 2024 and will be amortized over the assets’ estimated useful lives.

Summarized financial information related to this collaboration is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
($ in millions)	2024		2023		2024		2023
Selling, general and administrative	$	4	$	1	$	6	$	2
Research and development	93		60		162		86

($ in millions)					June 30, 2024		December 31, 2023
Payables to Moderna included in Accrued and other current liabilities					$	73	$	63

Bristol-Myers Squibb Company

Reblozyl (luspatercept-aamt) is a first-in-class erythroid maturation recombinant fusion protein that is being commercialized through a global collaboration with Bristol-Myers Squibb Company (BMS). Reblozyl is approved in the U.S., Europe and certain other markets 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 tiered royalties ranging from 20% to 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. Alliance revenue related to this collaboration, consisting of royalties (recorded within Sales) was $90 million and $161 million in the second quarter and first six months of 2024, respectively, compared with $47 million and $90 million in the second quarter and first six months of 2023, respectively.

4. Restructuring

In January 2024, the Company approved a new restructuring program (2024 Restructuring Program) intended to continue the optimization of the Company’s Human Health global manufacturing network as the future pipeline shifts to new modalities and also optimize the Animal Health global manufacturing network to improve supply reliability and increase efficiency. The actions contemplated under the 2024 Restructuring Program are expected to be substantially completed by the end of 2031, with the cumulative pretax costs to be incurred by the Company to implement the program estimated to be approximately $4.0 billion. Approximately 60% of the cumulative pretax costs will be non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested. The remainder of the costs will result in cash outlays, relating primarily to facility shut-down costs. The Company recorded total pretax costs of $177 million and $422 million in the second quarter and first six months of 2024, respectively, related to the 2024 Restructuring Program, bringing total cumulative pretax costs incurred through June 30, 2024 to $613 million.

In 2019, Merck approved a global restructuring program (2019 Restructuring Program) as part of a worldwide initiative focused on optimizing the Company’s manufacturing and supply network, as well as reducing its global real estate footprint. The Company recorded total pretax costs of $236 million and $333 million in the second quarter and first six months of 2023, respectively, related to the 2019 Restructuring Program. The actions under the 2019 Restructuring Program were

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

substantially complete at the end of 2023 and, as of January 1, 2024, any remaining activities are now being accounted for as part of the 2024 Restructuring Program.

For segment reporting, restructuring charges are unallocated expenses.

The following tables summarize the charges related to the restructuring programs by type of cost:


	Three Months Ended June 30, 2024								Six Months Ended June 30, 2024
($ in millions)	Accelerated Depreciation		Separation Costs		Other Exit Costs		Total		Accelerated Depreciation		Separation Costs		Other		Total
2024 Restructuring Program
Cost of sales	$	66	$	—	$	—	$	66	$	131	$	—	$	51	$	182
Selling, general and administrative	—		—		31		31		—		—		36		36
Research and development	—		—		—		—		—		—		2		2
Restructuring costs	—		19		61		80		—		111		91		202