Merck & Co., Inc. - Quarter Report: 2024 September (Form 10-Q)

Balance at September 30, 2023 $ $ $ $() $()$ $

Balance at July 1, 2024

$ $ $ $() $()$ $ Net income attributable to Merck & Co., Inc.— — — — — — —

Other comprehensive loss, net of taxes

— — — — ()— — — ()

Cash dividends declared on common stock ($ per share)

— — — ()— — — — ()Treasury stock shares purchased— — — — — ()— ()Share-based compensation plans and other— — — — — Net income attributable to noncontrolling interests— — — — — — — Distributions attributable to noncontrolling interests— — — — — — — ()()Balance at September 30, 2024 $ $ $ $() $()$ $

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

$ $ $ $() $()$ $

Net income attributable to Merck & Co., Inc.

— — — — — — — Other comprehensive loss, net of taxes— — — — ()— — — ()

Cash dividends declared on common stock ($ per share)

— — — ()— — — — ()Treasury stock shares purchased— — — — — ()— ()Share-based compensation plans and other— — ()— — () — Net income attributable to noncontrolling interests— — — — — — — Distributions attributable to noncontrolling interests— — — — — — — ()()Balance at September 30, 2023 $ $ $ $() $()$ $

Balance at January 1, 2024

$ $ $ $() $()$ $ Net income attributable to Merck & Co., Inc.— — — — — — — Other comprehensive loss, net of taxes— — — — ()— — — ()

Cash dividends declared on common stock ($ per share)

— — — ()— — — — ()Treasury stock shares purchased— — — — — ()— ()Share-based compensation plans and other— — — — () Net income attributable to noncontrolling interests— — — — — — — Distributions attributable to noncontrolling interests— — — — — — — ()()Balance at September 30, 2024 $ $ $ $() $()$ $

10.

$ $ $ $ $ $ $ Interest cost Expected return on plan assets()()()()()()()()

Amortization of unrecognized prior service (credit) cost

() () ()()

Net loss (gain) amortization

() ()Termination benefits Curtailments Settlements $ $()$ $()$ $()$ $()

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

$ $ $ Interest cost Expected return on plan assets()()()()Amortization of unrecognized prior service credit()()()()Net gain amortization()()()()Curtailments () $()$()$()$()

In connection with restructuring actions (see Note 4), termination charges were recorded on pension plans related to expanded eligibility for certain employees exiting Merck. Also, in connection with these restructuring activities, curtailments were recorded on certain pension plans. In addition, lump sum payments to U.S. pension plan participants triggered partial settlement charges in the third quarter and first nine months of 2023. These partial settlements triggered remeasurements of some of the Company’s U.S. pension plans. The third quarter 2023 remeasurement, which was calculated using discount rates and asset values as of September 30, 2023, resulted in a net decrease of $ million to net pension liabilities and a related adjustment to AOCL. Remeasurements during the first nine months of 2023 resulted in a net increase of $ million to net pension liabilities and also resulted in a related adjustment to AOCL.

The components of net periodic benefit cost (credit) other than the service cost component are included in Other (income) expense, net (see Note 11), with the exception of certain amounts for termination benefits, curtailments and settlements, which are recorded in Restructuring costs if the event giving rise to the termination benefits, curtailment or settlement related to restructuring actions.

11.

)$()$()$()Interest expense Exchange losses

Loss (income) from investments in equity securities, net (1)

()()Net periodic defined benefit plan (credit) cost other than service cost()()()()Other, net()()() $()$ $()$

Other, net (as reflected in the table above) in the first nine months of 2023 includes a $ million charge related to settlements with certain plaintiffs in the Zetia antitrust litigation.

Interest paid for the nine months ended September 30, 2024 and 2023 was $ million and $ million, respectively.

12.

% for the third quarter of 2024 reflects a percentage point combined unfavorable impact of charges related to the acquisitions of EyeBio and MK-1045, which had minimal tax benefits. The effective income tax rate of % for the first nine months of 2024 reflects a percentage point combined unfavorable impact of charges related to the acquisitions of Harpoon, EyeBio and MK-1045, which had minimal tax benefits. The effective income tax rate for the first nine months of 2024 also reflects a percentage point favorable impact due to a $ million reduction in reserves for unrecognized income tax benefits resulting from the expiration in June 2024 of the statute of limitations for assessments related to the 2019 federal tax return year.

The effective income tax rate of % for the third quarter of 2023 reflects the favorable mix of income and expense. The effective income tax rate of % for the first nine months of 2023 includes a percentage point combined unfavorable impact of charges for the acquisitions of Prometheus and Imago for which tax benefits were recognized, as well as higher

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

million in the fourth quarter of 2024 due to a reduction in reserves for unrecognized tax benefits resulting from the expiration of the statute of limitations related to the 2020 federal tax return year.

13.

$ $ $ Average common shares outstanding

Common shares issuable (1)

Average common shares outstanding assuming dilution

Basic Earnings per Common Share Attributable to Merck & Co., Inc. Common Shareholders

$ $ $ $

Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders

$ $ $ $

(1) Issuable primarily under share-based compensation plans.

For the third quarter of 2024 and 2023, million and million, respectively, and for the first nine months of 2024 and 2023, million and million, respectively, of common shares issuable under share-based compensation plans were excluded from the computations of earnings per common share assuming dilution because the effect would have been antidilutive.

14.

$()$()$()Other comprehensive income (loss) before reclassification adjustments, pretax () Tax()() Other comprehensive income (loss) before reclassification adjustments, net of taxes () Reclassification adjustments, pretax()

(1)

()

(2)

()Tax Reclassification adjustments, net of taxes()

()

()Other comprehensive income (loss), net of taxes ()()

Balance September 30, 2023, net of taxes

$ $()$()$()

Balance July 1, 2024, net of taxes

$ $()$()$()Other comprehensive income (loss) before reclassification adjustments, pretax() ()Tax () Other comprehensive income (loss) before reclassification adjustments, net of taxes()() Reclassification adjustments, pretax()

(1)

()

(2)

()Tax Reclassification adjustments, net of taxes()

()

()Other comprehensive income (loss), net of taxes()() ()

Balance September 30, 2024, net of taxes

$()$()$()$()

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

$()$()$()Other comprehensive income (loss) before reclassification adjustments, pretax ()() Tax()() ()Other comprehensive income (loss) before reclassification adjustments, net of taxes ()() Reclassification adjustments, pretax()

(1)

()

(2)

()Tax Reclassification adjustments, net of taxes()() ()Other comprehensive income (loss), net of taxes ()()()

Balance September 30, 2023, net of taxes

$ $()$()$()

Balance January 1, 2024, net of taxes

$()$()$()$()Other comprehensive income (loss) before reclassification adjustments, pretax ()()Tax()() ()Other comprehensive income (loss) before reclassification adjustments, net of taxes ()()Reclassification adjustments, pretax()

(1)

()

(2)

()Tax Reclassification adjustments, net of taxes()() ()Other comprehensive income (loss), net of taxes()()()()

Balance September 30, 2024, net of taxes

$()$()$()$()

(1) Primarily relates to foreign currency cash flow hedges that were reclassified from AOCL to Sales.

(2) Includes net amortization of prior service cost, actuarial gains and losses, settlements and curtailments included in net periodic benefit cost (see Note 10).

15.

operating segments, Pharmaceutical and Animal Health, both of which are reportable segments.

The Pharmaceutical segment includes human health pharmaceutical and vaccine products. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Human health vaccine products consist of preventive pediatric, adolescent and adult vaccines. The Company sells these human health vaccines primarily to physicians, wholesalers, distributors and government entities. A large component of pediatric and adolescent vaccine sales are made to the U.S. Centers for Disease Control and Prevention Vaccines for Children program, which is funded by the U.S. government. Additionally, the Company sells vaccines to the Federal government for placement into vaccine stockpiles.

The Animal Health segment discovers, develops, manufactures and markets a wide range of veterinary pharmaceutical and vaccine products, as well as health management solutions and services, for the prevention, treatment and control of disease in all major livestock and companion animal species. The Company also offers an extensive suite of digitally connected identification, traceability and monitoring products. The Company sells its products to veterinarians, distributors, animal producers, farmers and pet owners.

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

$ $ $ $ $ $ $ $ $ $ $

Alliance revenue-Lynparza (1)

Alliance revenue-Lenvima (1)

Welireg

Alliance revenue-Reblozyl (2)

Vaccines

Gardasil/Gardasil 9

ProQuad/M-M-R II/Varivax

Vaxneuvance RotaTeq

Pneumovax 23

Hospital Acute CareBridion Prevymis Dificid Zerbaxa Noxafil Cardiovascular

Alliance revenue-Adempas/Verquvo (3)

() Adempas

Winrevair

VirologyLagevrio

Isentress/Isentress HD

Delstrigo

Pifeltro

NeuroscienceBelsomra ImmunologySimponi Remicade DiabetesJanuvia Janumet

Other pharmaceutical (4)

Total Pharmaceutical segment sales Animal Health:Livestock Companion Animal Total Animal Health segment sales Total segment sales

Other (5)

$ $ $ $ $ $ $ $ $ $ $ $ U.S. plus international may not equal total due to rounding.

(1) Alliance revenue for Lynparza and Lenvima represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs (see Note 3).

(2) Alliance revenue for Reblozyl represents royalties (see Note 3).

(3) Alliance revenue for Adempas/Verquvo represents Merck’s share of profits from sales in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 3).

(4) Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.

(5) Other is primarily comprised of miscellaneous corporate revenue, including revenue hedging activities which increased sales by $ million and $ million for the nine months ended September 30, 2024 and 2023, respectively, as well as revenue from third-party manufacturing arrangements (including sales to Organon as discussed in Note 2). Other for the nine months ended September 30, 2024 and 2023 also includes $ million and $ million, respectively, related to upfront and milestone payments received by Merck for out-licensing arrangements.

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

billion and $ billion for the three months ended September 30, 2024 and 2023, respectively, and $ billion and $ billion for the nine months ended September 30, 2024 and September 30, 2023, respectively. $ $ $ Europe, Middle East and Africa China Latin America Japan Asia Pacific (other than China and Japan) Other $ $ $ $ $ $ $ Animal Health segment Total segment profits Other profits Unallocated:Interest income Interest expense()()()()Amortization()()()()Depreciation()()()()Research and development()()()()Restructuring costs()()()()Charge for Zetia antitrust litigation settlements ()Other unallocated, net()()()() $ $ $ $

Pharmaceutical segment profits are comprised of segment sales less standard costs, as well as selling, general and administrative expenses directly incurred by the segment. Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as selling, general and administrative expenses and research and development costs directly incurred by the segment. For internal management reporting presented to the chief operating decision maker, Merck does not allocate the remaining cost of sales not included in segment profits as described above, research and development expenses incurred by Merck Research Laboratories, the Company’s research and development division that focuses on human health-related activities, or general and administrative expenses not directly incurred by the segments, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits. In addition, costs related to restructuring activities, as well as the amortization of intangible assets and amortization of purchase accounting adjustments are not allocated to segments.

Other profits are primarily comprised of miscellaneous corporate profits, as well as operating profits (losses) related to third-party manufacturing arrangements.

Other unallocated, net, includes expenses from corporate and manufacturing cost centers, intangible asset impairment charges, gains or losses on sales of businesses, expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration, and other miscellaneous income or expense items.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Development Transactions

Below is a summary of significant business development activity thus far in 2024.

In September 2024, Merck acquired MK-1045 (formally CN201), a novel investigational clinical-stage bispecific antibody for the treatment of B-cell associated diseases, from Curon Biopharmaceutical (Curon) for an upfront payment of $700 million. In addition, Curon is eligible to receive future contingent developmental and regulatory milestone payments. MK-1045 is currently being evaluated in Phase 1 and Phase 1b/2 clinical trials for the treatment of patients with relapsed or refractory non-Hodgkin lymphoma and relapsed or refractory B-cell acute lymphocytic leukemia, respectively. Merck plans to evaluate MK-1045 as a treatment for B-cell malignancies as well as investigate its potential to provide a novel, scalable option for the treatment of autoimmune diseases. The transaction was accounted for as an asset acquisition. Merck recorded a charge of $750 million (reflecting the upfront payment and other related costs) to Research and development expenses, or approximately $0.29 per share in the third quarter and first nine months of 2024. In connection with the agreement, Merck is also obligated to pay a third party future contingent developmental, regulatory and sales-based milestone payments and tiered royalties on future net sales of MK-1045 if approved.

In July 2024, Merck acquired the aqua business of Elanco Animal Health Incorporated (Elanco aqua business) for total consideration of $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. There are no contingent payments associated with the acquisition, which was accounted for as a business combination.

Also in July 2024, Merck acquired Eyebiotech Limited (EyeBio), a privately held ophthalmology-focused biotechnology company for $1.2 billion (including payments to settle share-based equity awards) and also incurred $207 million of transaction costs. The acquisition agreement also provides for former EyeBio shareholders to receive future contingent 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 was accounted for as an asset acquisition. Merck recorded net assets of $21 million, as well as a charge of $1.35 billion to Research and development expenses, or $0.52 per share, in the third quarter and first nine months of 2024 related to the acquisition. Additionally, a $100 million developmental milestone was triggered in the third quarter of 2024 upon initiation of a Phase 2/3 clinical trial evaluating Restoret for the treatment of diabetic macular edema, which was also recorded to Research and development expenses.

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 assumed full responsibility for all past and future development and commercialization expenses associated with the candidates covered by the original agreement. In addition, Orion became eligible to receive developmental, regulatory and sales-based milestone payments, as well as annually tiered royalties on net sales for any commercialized licensed product. Orion retained responsibility for the manufacture of clinical and commercial supply for Merck. No payment was associated with the exercise of the option, which became effective in September of 2024.

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. Merck recorded net assets of $165 million, as well as a charge of $656 million, or $0.26 per share, to Research and development expenses in the first nine months of 2024 related to the transaction. There are no future contingent payments associated with the acquisition. In August 2024, Merck and Daiichi Sankyo expanded their existing global co-development and co-commercialization agreement to include MK-6070.

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Pricing

Global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide. Changes to the U.S. health care system enacted in prior years as part of health care reform, as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, have contributed to pricing pressure. In 2021, the U.S. Congress passed the American Rescue Plan Act, which included a provision that eliminates the statutory cap on rebates drug manufacturers pay to Medicaid beginning in January 2024. Accordingly, manufacturers may have to pay state Medicaid programs more in rebates than they receive on sales of particular products. As a result of this provision, the Company has recognized increased discounts for Januvia (sitagliptin) and Janumet (sitagliptin and metformin HCl) in the first nine months of 2024. In 2022, the U.S. Congress passed the Inflation Reduction Act (IRA), which made significant changes to how drugs are covered and paid for under the Medicare program, including the creation of financial penalties for drugs whose prices rise faster than the rate of inflation, redesign of the Medicare Part D program to require manufacturers to bear more of the liability for certain drug benefits, and government price-setting for certain Medicare Part D drugs (starting in 2026) and Medicare Part B drugs (starting in 2028). In August 2023, the U.S. Department of Health and Human Services (HHS), through the Centers for Medicare & Medicaid Services (CMS), announced that Januvia would be included in the first year of the IRA’s “Drug Price Negotiation Program” (Program). Pursuant to the IRA’s Program, discussions with the government have now concluded, with government price-setting becoming effective on January 1, 2026. The Company has sued the U.S. government regarding the IRA’s Program. Additionally, increased utilization of the 340B Federal Drug Discount Program and restrictions on the Company’s ability to identify inappropriate discounts are having a negative impact on Company performance. Furthermore, the Biden Administration and Congress continue to discuss legislation designed to control health care costs, including the cost of drugs. In several international markets, government-mandated pricing actions have reduced prices of generic and patented drugs. In addition, the Company’s sales performance in the first nine months of 2024 was negatively affected by other cost-reduction measures taken by governments and other third parties to lower health care costs. The Company anticipates all of these actions and additional actions in the future will negatively affect sales and profits.

Operating Results

Sales


	Three Months Ended September 30,						% Change Excluding Foreign Exchange		Nine Months Ended September 30,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change				2024		2023		% Change
United States	$	8,736	$	7,715	13	%	13	%	$	24,089	$	21,393	13	%	13	%
International	7,922		8,247		(4)	%	2	%	24,455		24,092		2	%	8	%
Total	$	16,657	$	15,962	4	%	7	%	$	48,544	$	45,485	7	%	10	%

U.S. plus international may not equal total due to rounding.

Worldwide sales were $16.7 billion in the third quarter of 2024, representing growth of 4% compared with the third quarter of 2023, or 7% excluding the unfavorable effect of foreign exchange. Approximately 2 percentage points of the negative impact of foreign exchange was due to the devaluation of the Argentine peso, which was largely offset by inflation-related price increases consistent with practice in that market. Global sales growth in the third quarter of 2024 was primarily due to higher sales in the oncology franchise, largely due to strong growth of Keytruda (pembrolizumab) and Welireg (belzutifan). Also contributing to revenue growth were higher sales in the cardiovascular franchise, largely attributable to the launch of Winrevair (sotatercept-csrk), and increased sales in the hospital acute care franchise, reflecting in part strong performance of Prevymis (letermovir). Higher sales of animal health products also contributed to revenue growth in the third quarter of 2024. Sales growth in the third quarter of 2024 was partially offset by lower sales in the diabetes franchise attributable to Januvia and Janumet, and lower sales in the vaccines franchise largely due to combined Gardasil (Human Papillomavirus Quadrivalent [Types 6, 11, 16 and 18] Vaccine and Recombinant)/Gardasil 9 (Human Papillomavirus 9-valent Vaccine, Recombinant) sales. Lower sales in the virology franchise largely due to Lagevrio (molnupiravir) also partially offset revenue growth in the third quarter of 2024.

Worldwide sales were $48.5 billion in the first nine months of 2024, an increase of 7% compared with the same period of 2023, or 10% excluding the unfavorable effect of foreign exchange. Approximately 2 percentage points of the negative impact of foreign exchange was due to the devaluation of the Argentine peso, which was largely offset by inflation-related price increases consistent with practice in that market. Global sales growth in the first nine months of 2024 was primarily due to higher sales in the oncology franchise largely due to Keytruda and Welireg, higher sales in the cardiovascular franchise largely attributable to the launch of Winrevair, and increased sales in the vaccines franchise, reflecting continued uptake of Vaxneuvance (Pneumococcal 15-valent Conjugate Vaccine) for pediatric use. Also contributing to revenue growth in the first nine months of 2024 were higher sales of animal health products. Revenue growth in the first nine months of 2024 was partially offset by lower sales in the diabetes franchise attributable to Januvia and Janumet, as well as lower sales in the virology franchise largely due to Lagevrio.

See Note 15 to the condensed consolidated financial statements for details on sales of the Company’s products. A discussion of performance for select products in the franchises follows. All product or service marks appearing in type form different from that of the surrounding text are trademarks or service marks owned, licensed to, promoted or distributed by Merck, its subsidiaries or affiliates, except as noted. All other trademarks or service marks are those of their respective owners.

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Pharmaceutical Segment

Oncology


	Three Months Ended September 30,						% Change Excluding Foreign Exchange		Nine Months Ended September 30,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change				2024		2023		% Change
Keytruda	$	7,429	$	6,338	17	%	21	%	$	21,646	$	18,403	18	%	22	%
Alliance Revenue - Lynparza (1)	337		299		13	%	13	%	947		884		7	%	8	%
Alliance Revenue - Lenvima (1)	251		260		(3)	%	(4)	%	755		734		3	%	3	%
Welireg	139		54		*		*		349		146		*		*
Alliance Revenue - Reblozyl (2)	100		52		91	%	91	%	261		142		84	%	84	%

* > 100%

(1) Alliance revenue for Lynparza and Lenvima represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs (see Note 3 to the condensed consolidated financial statements).

(2) Alliance revenue for Reblozyl represents royalties (see Note 3 to the condensed consolidated financial statements).

Keytruda is an anti-PD-1 (programmed death receptor-1) therapy that has been approved in over 40 indications in the U.S., including 18 tumor types and 2 tumor-agnostic indications, and has similarly been approved in markets worldwide for many of these indications. The Keytruda clinical development program includes studies across a broad range of cancer types. See “Research and Development Update” below.

Global sales of Keytruda grew 17% in the third quarter of 2024 and rose 18% in the first nine months of 2024, or 21% and 22%, respectively, excluding the unfavorable effect of foreign exchange. Approximately 3 percentage points and 4 percentage points of the negative impact of foreign exchange in the third quarter and first nine months of 2024, respectively, was due to the devaluation of the Argentine peso, which was largely offset by inflation-related price increases consistent with practice in that market. Keytruda sales growth in the U.S. reflects increased uptake across earlier-stage indications, including in certain types of non-small-cell lung cancer (NSCLC), high-risk early-stage triple-negative breast cancer (TNBC), and certain types of renal cell carcinoma (RCC), as well as higher demand across the multiple approved metastatic indications, in particular for the treatment of certain types of urothelial, endometrial, and head and neck cancers, and higher pricing. Keytruda sales growth in international markets reflects higher demand predominately for the TNBC, melanoma and RCC earlier-stage indications, as well as uptake in cervical, gastric and renal cancer metastatic indications, particularly in Europe and Latin America.

Keytruda has received the following regulatory approvals thus far in 2024.


Date			Approval
January 2024			U.S. Food and Drug Administration (FDA) approval in combination with chemoradiotherapy for the treatment of patients with FIGO (International Federation of Gynecology and Obstetrics) 2014 Stage III-IVA cervical cancer, based on the KEYNOTE-A18 trial.
January 2024			FDA full approval for the treatment of patients with hepatocellular carcinoma (HCC) secondary to hepatitis B who have received prior systemic therapy other than a PD-1/PD-L1 containing regimen. The conversion from an accelerated to full (regular) approval is based on the KEYNOTE-394 trial.
February 2024			China’s National Medical Products Administration (NMPA) approval in combination with gemcitabine and cisplatin for the first-line treatment of patients with locally advanced or metastatic biliary tract carcinoma, based on the KEYNOTE-966 trial.
March 2024			European Commission (EC) approval in combination with platinum-containing chemotherapy as neoadjuvant treatment, and then continued as monotherapy as adjuvant treatment, for resectable NSCLC at high risk of recurrence in adults, based on the KEYNOTE-671 trial.
May 2024			Japan’s Ministry of Health, Labor and Welfare (MHLW) approval in combination with fluoropyrimidine- and platinum-containing chemotherapy for the first-line treatment of patients with locally advanced unresectable or metastatic gastric or gastroesophageal junction (GEJ) adenocarcinoma, based on the KEYNOTE-859 trial.
May 2024			Japan’s MHLW approval in combination with standard of care chemotherapy (gemcitabine and cisplatin) for the treatment of patients with locally advanced unresectable or metastatic biliary tract cancer, based on the KEYNOTE-966 trial.
June 2024			FDA approval in combination with carboplatin and paclitaxel, followed by Keytruda as a single agent, for the treatment of adult patients with primary advanced or recurrent endometrial carcinoma, based on the KEYNOTE-868 trial.
June 2024			China’s NMPA approval in combination with trastuzumab, fluoropyrimidine- and platinum-containing chemotherapy for the first-line treatment of patients with locally advanced unresectable or metastatic human epidermal growth factor receptor 2 (HER2) positive gastric or GEJ adenocarcinoma whose tumors express PD-L1 as determined by a fully validated test, based on the KEYNOTE-811 trial.
September 2024			EC approval in combination with Padcev (enfortumab vedotin-ejfv), an antibody-drug conjugate, for the first-line treatment of unresectable or metastatic urothelial carcinoma in adults, based on the KEYNOTE-A39 trial that was conducted in collaboration with Seagen (now Pfizer Inc.) and Astellas.
September 2024			FDA approval in combination with pemetrexed and platinum chemotherapy for the first-line treatment of adult patients with unresectable advanced or metastatic malignant pleural mesothelioma based on the IND.227/KEYNOTE-483 trial.

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September 2024			Japan’s MHLW approval in combination with chemotherapy as a neoadjuvant treatment, then continued as monotherapy as an adjuvant treatment, for patients with NSCLC based on the KEYNOTE-671 trial.
September 2024			Japan’s MHLW approval in combination with Padcev for the first-line treatment of patients with radically unresectable urothelial carcinoma based on the KEYNOTE-A39 trial.
September 2024			Japan’s MHLW approval as monotherapy in patients with radically unresectable urothelial carcinoma who are not eligible for any platinum-containing chemotherapy based on the KEYNOTE-052 trial.
September 2024			China’s NMPA approval for the first-line treatment of adult patients with unresectable or metastatic melanoma, and conversion from conditional to full approval for the second-line treatment of adult patients with unresectable or metastatic melanoma following failure of one prior line of therapy, based on the LEAP-003 trial.
October 2024			EC approval in combination with chemoradiotherapy for the treatment of FIGO 2014 Stage III-IVA locally advanced cervical cancer in adults who have not received prior definitive therapy, based on the KEYNOTE-A18 trial.
October 2024			EC approval in combination with carboplatin and paclitaxel followed by Keytruda as a single agent for the first-line treatment of primary advanced or recurrent endometrial carcinoma in adults who are candidates for systemic therapy, based on the KEYNOTE-868 trial.

The Company is a party to certain third-party license agreements pursuant to which the Company pays royalties on sales of Keytruda. Under the terms of the more significant of these agreements, Merck paid a royalty of 6.5% on worldwide sales of Keytruda through December 2023 to one third party; this royalty declined to 2.5% in 2024 and will continue through 2026, terminating thereafter. The Company pays an additional 2% royalty on worldwide sales of Keytruda to another third party, the termination date of which varies by country; this royalty expired in the U.S. in September 2024 and will expire on varying dates in major European markets in the second half of 2025. The royalty expenses are included in Cost of sales.

Lynparza (olaparib) is an oral poly (ADP-ribose) polymerase (PARP) inhibitor being developed as part of a collaboration with AstraZeneca PLC (AstraZeneca) (see Note 3 to the condensed consolidated financial statements). Lynparza is approved for the treatment of certain types of advanced or recurrent ovarian, early or metastatic breast, metastatic pancreatic and metastatic castration-resistant prostate cancers. Alliance revenue related to Lynparza increased 13% and 7% in the third quarter and first nine months of 2024, respectively, primarily due to higher global demand.

Lenvima (lenvatinib) is an oral receptor tyrosine kinase inhibitor being developed as part of a collaboration with Eisai Co., Ltd. (Eisai) (see Note 3 to the condensed consolidated financial statements). Lenvima is approved for the treatment of certain types of thyroid cancer, RCC, HCC, in combination with everolimus for certain patients with advanced RCC, and in combination with Keytruda for certain patients with advanced endometrial carcinoma or advanced RCC. Alliance revenue related to Lenvima declined 3% in the third quarter of 2024 primarily reflecting the timing of sales in China in the prior year, partially offset by higher demand in the U.S. Alliance revenue related to Lenvima grew 3% in the first nine months of 2024 primarily reflecting higher demand and pricing in the U.S., partially offset by the timing of sales in China in the prior year.

Sales of Welireg, for the treatment of adult patients with certain von Hippel-Lindau (VHL) disease-associated tumors and certain adult patients with previously treated advanced RCC, more than doubled in both the third quarter and first nine months of 2024. Sales growth in both periods was primarily due to higher demand in the U.S. largely attributable to the continued uptake of a new indication for previously treated advanced RCC following approval by the FDA in December 2023. Welireg is under review in the European Union (EU) and Japan both for the treatment of previously treated advanced RCC based on the LITESPARK-005 clinical trial and for the treatment of VHL disease based on the LITESPARK-004 clinical trial.

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) (see Note 3 to the condensed consolidated financial statements). Reblozyl is approved for the treatment of anemia in certain rare blood disorders. Alliance revenue related to this collaboration (consisting of royalties) increased 91% and 84% in the third quarter and first nine months of 2024, respectively, due to strong underlying sales performance.

Vaccines


	Three Months Ended September 30,						% Change Excluding Foreign Exchange		Nine Months Ended September 30,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change				2024		2023		% Change
Gardasil/Gardasil 9	$	2,306	$	2,585	(11)	%	(10)	%	$	7,032	$	7,015	—	%	3	%
ProQuad	274		267		3	%	3	%	717		678		6	%	6	%
M-M-R II	129		122		5	%	6	%	346		329		5	%	6	%
Varivax	301		325		(7)	%	(7)	%	828		816		2	%	2	%
Vaxneuvance	239		214		12	%	13	%	647		488		33	%	34	%
RotaTeq	193		156		24	%	25	%	572		584		(2)	%	(1)	%
Pneumovax 23	68		140		(51)	%	(51)	%	188		327		(42)	%	(40)	%

Combined worldwide sales of Gardasil and Gardasil 9, vaccines to help prevent certain cancers and other diseases caused by certain types of human papillomavirus (HPV), declined 11% in the third quarter of 2024 primarily driven by lower demand in China, partially offset by higher sales in the U.S. due to public sector buying patterns, higher pricing and demand, as well as higher demand in most international regions. Combined worldwide sales of Gardasil and Gardasil 9 were nearly flat in the

- 34 -

first nine months of 2024 primarily due to higher sales in the U.S. reflecting public sector buying patterns, higher pricing and demand, as well as higher demand in most international regions, offset by lower demand in China. In the second quarter of 2024, the Company observed a significant decline in shipments from its distributor and commercialization partner in China, Zhifei Biological Products Co., Ltd. (Zhifei), to disease and control prevention institutions and correspondingly into the points of vaccination compared with prior quarters, resulting in above normal inventory levels in China. This lower level of Zhifei shipments continued in the third quarter of 2024. Accordingly, the Company will ship less than its full year 2024 contracted doses to Zhifei and combined sales of Gardasil/Gardasil 9 in China will decline in 2024 compared with 2023, and such sales are also expected to decline in 2025 compared with 2024.

The Company is a party to certain third-party license agreements pursuant to which the Company pays royalties on sales of Gardasil/Gardasil 9. Under the terms of the more significant of these agreements, Merck pays a 7% royalty on sales of Gardasil/Gardasil 9 in the U.S. to one third party (this royalty expires in December 2028); Merck paid an additional 7% royalty on worldwide sales of Gardasil/Gardasil 9 to another third party, which expired in December 2023. The royalty expenses are included in Cost of sales.

Global sales of ProQuad (Measles, Mumps, Rubella and Varicella Virus Vaccine Live), a pediatric combination vaccine to help protect against measles, mumps, rubella and varicella, grew 3% and 6% in the third quarter and first nine months of 2024, respectively, primarily reflecting higher pricing in the U.S.

Worldwide sales of M-M-R II (Measles, Mumps and Rubella Virus Vaccine Live), a vaccine to help prevent measles, mumps and rubella, grew 5% in both the third quarter and first nine months of 2024 largely reflecting timing of tenders in certain international markets, partially offset by lower demand and pricing in the U.S.

Global sales of Varivax (Varicella Virus Vaccine Live), a vaccine to help prevent chickenpox (varicella), declined 7% in the third quarter of 2024 primarily attributable to the timing of sales in Latin America. Global sales of Varivax grew 2% in the first nine months of 2024 primarily due to higher pricing in the U.S., partially offset by the timing of sales in Latin America.

Worldwide sales of Vaxneuvance, a vaccine to help protect against invasive pneumococcal disease, grew 12% and 33% in the third quarter and first nine months of 2024, respectively, primarily reflecting continued uptake following launches in the pediatric indication in Europe, Japan, and other countries in the Asia Pacific region. Lower demand in the U.S. due to competition partially offset Vaxneuvance sales growth in both periods.

Global sales of RotaTeq (Rotavirus Vaccine, Live Oral, Pentavalent), a vaccine to help protect against rotavirus gastroenteritis in infants and children, grew 24% in the third quarter of 2024 largely due to the beneficial impact of public sector buying patterns in the U.S. coupled with the timing of sales in China. Worldwide sales of RotaTeq declined 2% in the first nine months of 2024 primarily due to lower tenders in Europe and the timing of sales in China. The sales decline in the year-to-date period was partially offset by higher sales in the U.S. due to public sector buying patterns and higher pricing, offset in part by lower demand.

Worldwide sales of Pneumovax 23 (pneumococcal vaccine polyvalent), a vaccine to help prevent pneumococcal disease, declined 51% and 42% in the third quarter and first nine months of 2024, respectively, driven by lower global demand, particularly in the U.S. as the market has shifted toward newer adult pneumococcal conjugate vaccines.

In June 2024, the FDA approved Capvaxive (Pneumococcal 21-valent Conjugate Vaccine) for the prevention of invasive pneumococcal disease and pneumococcal pneumonia in individuals 18 years of age and older. The approval was supported by results from multiple Phase 3 clinical studies evaluating Capvaxive in both vaccine-naïve and vaccine-experienced adult patient populations, including STRIDE-3, STRIDE-4, STRIDE-5 and STRIDE-6. In June 2024, the U.S. Centers for Disease Control and Prevention’s (CDC) Advisory Committee on Immunization Practices (ACIP) unanimously voted to recommend Capvaxive as an option for adults age 65 and older, among other cohorts, for pneumococcal vaccination. In October 2024, the CDC’s ACIP voted to update the adult age-based pneumococcal vaccination guidelines and recommended Capvaxive for pneumococcal vaccination in adults 50 years of age and older. These provisional recommendations were adopted by the CDC director and are now official. Merck is a party to certain third-party license agreements pursuant to which the Company pays royalties on sales of Capvaxive. Under the more significant of these agreements, Merck pays a royalty of 7.25% on net sales of Capvaxive through 2026; this royalty will decline to 2.5% on net sales from 2027 through 2035.

Hospital Acute Care


	Three Months Ended September 30,						% Change Excluding Foreign Exchange		Nine Months Ended September 30,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change				2024		2023		% Change
Bridion	$	420	$	424	(1)	%	—	%	$	1,315	$	1,413	(7)	%	(6)	%
Prevymis	208		157		32	%	36	%	570		430		33	%	36	%

Worldwide sales of Bridion (sugammadex), for the reversal of two types of neuromuscular blocking agents used during surgery, declined 1% and 7% in the third quarter and first nine months of 2024, respectively, primarily driven by lower demand in certain international markets due to generic competition, particularly in the EU and the Asia Pacific region including in Japan, largely offset by higher demand and pricing in the U.S. The patents that provided market exclusivity for Bridion in the EU and Japan expired in July 2023 and January 2024, respectively. Accordingly, the Company is experiencing sales declines of Bridion in these markets and expects the declines to continue.

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Worldwide sales of Prevymis, a medicine for prophylaxis (prevention) of cytomegalovirus (CMV) infection and disease in certain high risk adult and pediatric recipients of an allogenic hematopoietic stem cell transplant and for prophylaxis of CMV disease in certain high risk adult and pediatric recipients of a kidney transplant, grew 32% and 33% in the third quarter and first nine months of 2024, respectively, largely due to higher global demand, particularly in the U.S., China, Europe and Japan.

Cardiovascular


	Three Months Ended September 30,						% Change Excluding Foreign Exchange		Nine Months Ended September 30,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change				2024		2023		% Change
Alliance Revenue - Adempas/ Verquvo (1)	$	102	$	92	11	%	11	%	$	306	$	259	18	%	18	%
Adempas	72		65		11	%	13	%	214		189		13	%	15	%
Winrevair	149		—		—		—		219		—		—		—

(1) Alliance revenue represents Merck’s share of profits from sales in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 3 to the condensed consolidated financial statements).

Adempas (riociguat) and Verquvo (vericiguat) are part of a worldwide collaboration with Bayer AG (Bayer) to market and develop soluble guanylate cyclase (sGC) modulators (see Note 3 to the condensed consolidated financial statements). Adempas is approved for the treatment of certain types of pulmonary arterial hypertension (PAH) and chronic pulmonary hypertension (PH). Verquvo is approved to reduce the risk of cardiovascular death and heart failure hospitalization following a hospitalization for heart failure or need for outpatient intravenous diuretics in adults with symptomatic chronic heart failure and reduced ejection fraction. Alliance revenue from the collaboration grew 11% and 18% in the third quarter and first nine months of 2024, respectively, primarily due to higher demand in Bayer’s marketing territories. Revenue also includes sales of Adempas and Verquvo in Merck’s marketing territories. Sales of Adempas in Merck’s marketing territories grew 11% and 13% in the third quarter and first nine months of 2024, respectively, primarily due to higher demand.

In March 2024, the FDA approved Winrevair for the treatment of adults with PAH (World Health Organization [WHO] Group 1) to increase exercise capacity, improve WHO functional class (FC), and reduce the risk of clinical worsening events. In August 2024, the EC approved Winrevair, in combination with other PAH therapies, for the treatment of PAH in adult patients with WHO FC II to III, to improve exercise capacity. The FDA and EC approvals were based on the STELLAR trial. Winrevair has since launched in Germany. Timing for commercial availability of Winrevair in the remaining EU countries will depend on multiple factors, including the completion of national reimbursement procedures, which should occur in most other major EU markets in the second half of 2025. Additional worldwide regulatory filings for Winrevair are underway. Winrevair is the subject of a licensing agreement with BMS pursuant to which Merck pays a 22% royalty on sales of Winrevair to BMS. The royalty expenses are included in Cost of sales.

Virology


	Three Months Ended September 30,						% Change Excluding Foreign Exchange		Nine Months Ended September 30,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change				2024		2023		% Change
Lagevrio	$	383	$	640	(40)	%	(36)	%	$	843	$	1,236	(32)	%	(27)	%

Lagevrio is an investigational oral antiviral COVID-19 medicine being developed in a collaboration with Ridgeback Biotherapeutics LP (Ridgeback) (see Note 3 to the condensed consolidated financial statements). Sales of Lagevrio declined 40% in the third quarter of 2024 primarily due to lower demand and pricing in Japan, partially offset by uptake from commercial distribution in the U.S. Sales of Lagevrio declined 32% in the first nine months of 2024 primarily due to lower demand and pricing in several markets in the Asia Pacific region, particularly in Japan and China, partially offset by uptake from commercial distribution in the U.S.

Immunology


	Three Months Ended September 30,						% Change Excluding Foreign Exchange		Nine Months Ended September 30,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change				2024		2023		% Change
Simponi	$	189	$	179	5	%	7	%	$	545	$	539	1	%	2	%
Remicade	41		45		(9)	%	(5)	%	115		144		(20)	%	(16)	%

Simponi (golimumab) and Remicade (infliximab) are treatments for certain inflammatory diseases that the Company marketed in Europe, Russia and Türkiye. The Company’s marketing rights with respect to these products reverted to Johnson & Johnson Innovative Medicine on October 1, 2024.

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Diabetes


	Three Months Ended September 30,						% Change Excluding Foreign Exchange		Nine Months Ended September 30,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change				2024		2023		% Change
Januvia/Janumet	$	482	$	835	(42)	%	(38)	%	$	1,781	$	2,579	(31)	%	(27)	%

Worldwide combined sales of Januvia and Janumet, medicines that help lower blood sugar levels in adults with type 2 diabetes, declined 42% and 31% in the third quarter and first nine months of 2024, respectively, primarily due to lower sales in the U.S., largely reflecting lower pricing and lower demand due to competitive pressures, as well as the ongoing impact of the loss of exclusivity in most markets in Europe and the Asia Pacific region, as well as in Canada.

The American Rescue Plan Act enacted in the U.S. in 2021 included a provision that eliminated the statutory cap on rebates drug manufacturers pay to Medicaid beginning in January 2024. Accordingly, manufacturers may have to pay state Medicaid programs more in rebates than they receive on sales of particular products. As a result of this provision, the Company has recognized increased discounts for Januvia and Janumet in the first nine months of 2024. In August 2023, the U.S. Department of HHS, through the CMS, announced that Januvia would be included in the first year of the IRA’s Program. Pursuant to the IRA’s Program, discussions with the government have now concluded, with government price-setting becoming effective on January 1, 2026. The Company has sued the U.S. government regarding the IRA’s Program.

While the key U.S. patent for Januvia and Janumet claiming the sitagliptin compound expired in January 2023, as a result of favorable court rulings and settlement agreements related to a later expiring patent directed to the specific sitagliptin salt form of the products (see Note 8 to the condensed consolidated financial statements), the Company expects that Januvia and Janumet will not lose market exclusivity in the U.S. until May 2026 and Janumet XR will not lose market exclusivity in the U.S. until July 2026, although a non-automatically substitutable form of sitagliptin that differs from the form in the Company’s sitagliptin products has been approved by the FDA. The Company anticipates pricing and volume declines for Januvia and Janumet in the U.S. for the remainder of 2024.

The Company lost market exclusivity for Januvia in all of the EU and for Janumet in some European countries in September 2022. Exclusivity for Janumet was lost in other European countries in April 2023. Accordingly, the Company is experiencing sales declines in these markets and expects the declines to continue. Generic equivalents of Januvia and Janumet have also launched in China.

Animal Health Segment


	Three Months Ended September 30,						% Change Excluding Foreign Exchange		Nine Months Ended September 30,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change				2024		2023		% Change
Livestock	$	886	$	874	1	%	7	%	$	2,573	$	2,530	2	%	7	%
Companion Animal	601		526		14	%	17	%	1,907		1,817		5	%	7	%
	$	1,487	$	1,400	6	%	11	%	$	4,480	$	4,347	3	%	7	%

Animal Health sales grew 6% in the third quarter of 2024, or 11% excluding the unfavorable effect of foreign exchange, and increased 3% in the first nine months of 2024, or 7% excluding the unfavorable effect of foreign exchange. Approximately 2 percentage points and 3 percentage points of the negative impact of foreign exchange in the third quarter and first nine months of 2024, respectively, was due to the devaluation of the Argentine peso, which was largely offset by inflation-related price increases consistent with practice in that market.

Sales of livestock products grew 1% and 2% in the third quarter and first nine months of 2024, respectively, primarily due to higher pricing, increased demand for poultry and swine products, as well as the inclusion of sales from the July 2024 acquisition of the Elanco aqua business. Lower sales of ruminant products due to timing partially offset livestock sales growth in both the third quarter and first nine months of 2024.

Sales of companion animal products grew 14% in the third quarter of 2024 primarily due to uptake from new product launches, including the injectable formulation of Bravecto (fluralaner) in certain international markets, as well as higher pricing across the product portfolio. Sales of companion animal products grew 5% in the first nine months of 2024 primarily due to higher pricing. Sales of Bravecto, a line of oral, topical and injectable parasitic control products, were $266 million for the third quarter of 2024, representing growth of 13% compared with the third quarter of 2023, or 16% excluding the unfavorable effect of foreign exchange. Sales of Bravecto were $929 million for the first nine months of 2024, representing growth of 6% compared with the corresponding prior year period, or 8% excluding the unfavorable effect of foreign exchange.

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Costs, Expenses and Other


	Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2024		2023		% Change		2024		2023		% Change
Cost of sales	$	4,080	$	4,264	(4)	%	$	11,365	$	12,214	(7)	%
Selling, general and administrative	2,731		2,519		8	%	7,952		7,700		3	%
Research and development	5,862		3,307		77	%	13,354		20,904		(36)	%
Restructuring costs	56		126		(56)	%	258		344		(25)	%
Other (income) expense, net	(162)		126		*		(151)		388		*
	$	12,567	$	10,342	22	%	$	32,778	$	41,550	(21)	%

*>100%

Cost of Sales

Cost of sales declined 4% and 7% in the third quarter and first nine months of 2024, respectively. Cost of sales includes the amortization of intangible assets recorded in connection with acquisitions, collaborations, and licensing arrangements, which totaled $625 million and $552 million in the third quarter of 2024 and 2023, respectively, and $1.7 billion and $1.6 billion in the first nine months of 2024 and 2023, respectively. Amortization expense in the third quarter and first nine months of 2023 includes $81 million and $154 million, respectively, of cumulative catch-up amortization related to Merck’s collaboration with Eisai. See Note 3 to the condensed consolidated financial statements for more information on Merck’s collaborative arrangements. Also included in Cost of sales are expenses associated with restructuring activities, which amounted to $192 million and $33 million in the third quarter of 2024 and 2023, respectively, and $374 million and $94 million in the first nine months of 2024 and 2023, respectively, primarily reflecting accelerated depreciation and asset impairments related to the planned sale or closure of manufacturing facilities. Separation costs associated with manufacturing-related headcount reductions have been incurred and are reflected in Restructuring costs as discussed below.

Gross margin was 75.5% in the third quarter of 2024 compared with 73.3% in the third quarter of 2023. Gross margin was 76.6% in the first nine months of 2024 compared with 73.1% in the first nine months of 2023. The gross margin improvement in both periods was primarily due to the favorable effect of product mix (including lower royalty rates related to Keytruda and Gardasil/Gardasil 9 sales), partially offset by higher restructuring costs (primarily reflecting asset impairment charges), as well as increased amortization of intangible assets.

Selling, General and Administrative

Selling, general and administrative (SG&A) expenses increased 8% and 3% in the third quarter and first nine months of 2024, respectively, primarily due to higher administrative, selling, promotional and acquisition-related costs, partially offset by the favorable effect of foreign exchange and lower restructuring costs.

Research and Development

Research and development (R&D) expenses grew 77% in the third quarter of 2024 primarily due to higher charges related to business development transactions, which included charges of $1.35 billion for the acquisition of EyeBio and $100 million for a related developmental milestone, as well as $750 million for the acquisition of MK-1045 (formerly CN201) from Curon. Also contributing to the increase in R&D expenses in the third quarter of 2024 were higher compensation and benefit costs, as well as higher clinical development spending. The increase in R&D expenses in the third quarter of 2024 was partially offset by the favorable effect of foreign exchange.

R&D expenses declined 36% in the first nine months 2024 primarily due to lower charges related business development transactions, which in 2024 included charges of $1.35 billion for the acquisition of EyeBio and $100 million for a related developmental milestone, $750 million for the acquisition of MK-1045, as well as $656 million for the acquisition of Harpoon, compared with charges in 2023 of $10.2 billion for the acquisition of Prometheus Biosciences, Inc. (Prometheus), $1.2 billion for the acquisition of Imago BioSciences, Inc. (Imago) and $175 million for a license and collaboration agreement with Kelun-Biotech. The favorable effect of foreign exchange also contributed to the decline in R&D expenses in the first nine months of 2024. The decline in R&D expenses in the first nine months of 2024 was partially offset by increased clinical development spending, as well as higher compensation and benefit costs.

R&D expenses are comprised of the costs directly incurred by Merck Research Laboratories (MRL), the Company’s research and development division that focuses on human health-related activities, which were $2.5 billion and $2.3 billion for the third quarter of 2024 and 2023, respectively, and $7.4 billion and $6.6 billion for the first nine months of 2024 and 2023, respectively. Also included in R&D expenses are Animal Health research costs, upfront payments for collaboration and licensing agreements, charges for transactions accounted for as asset acquisitions (including charges for the acquisitions of EyeBio, MK-1045, Harpoon, Prometheus and Imago as noted above), and costs incurred by other divisions in support of R&D activities, including depreciation, production and general and administrative, which in the aggregate were $3.3 billion and $1.0 billion for the third quarter of 2024 and 2023, respectively, and $5.9 billion and $14.3 billion for the first nine months of 2024 and 2023, respectively.

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Restructuring Costs

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 expects to record charges of approximately $900 million in 2024 related to the 2024 Restructuring Program. The Company anticipates the actions under the 2024 Restructuring Program will result in cumulative annual net cost savings of approximately $750 million by the end of 2031.

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 actions under the 2019 Restructuring Program were substantially complete at the end of 2023 and, as of January 1, 2024, any remaining activities are being accounted for as part of the 2024 Restructuring Program.

Restructuring costs, primarily representing separation and other costs associated with these restructuring activities, were $56 million and $126 million for the third quarter of 2024 and 2023, respectively, and $258 million and $344 million for the first nine months of 2024 and 2023, respectively. Separation costs incurred were associated with actual headcount reductions, as well as estimated expenses under existing severance programs for involuntary headcount reductions that were probable and could be reasonably estimated. Other expenses in Restructuring costs include facility shut-down and other related costs, as well as employee-related costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans and share-based compensation plan costs. For segment reporting, restructuring costs are unallocated expenses.

Additional costs associated with the Company’s restructuring activities are included in Cost of sales, Selling, general and administrative expenses and Research and development costs. The Company recorded aggregate pretax costs of $279 million and $199 million in the third quarter of 2024 and 2023, respectively, and $701 million and $532 million for the first nine months of 2024 and 2023, respectively, related to restructuring program activities (see Note 4 to the condensed consolidated financial statements).

Other (Income) Expense, Net

Other (income) expense, net was $162 million of income in the third quarter of 2024 compared with $126 million of expense in the third quarter of 2023 primarily due to the receipt of a $170 million upfront payment from Daiichi Sankyo in 2024 related to the expansion of the existing development and commercialization agreement. The favorability in Other (income) expense, net in the third quarter of 2024 also reflects lower exchange losses and lower net interest expense in 2024. Other (income) expense, net was $151 million of income in the first nine months of 2024 compared with $388 million of expense in the first nine months of 2023. The favorability was primarily due to a $572.5 million charge in 2023 related to settlements with certain plaintiffs in the Zetia antitrust litigation and the receipt of an upfront payment in 2024 from Daiichi Sankyo as noted above, partially offset by higher net interest expense in 2024.

For details on the components of Other (income) expense, net see Note 11 to the condensed consolidated financial statements.


Segment Profits
	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2024		2023		2024		2023
Pharmaceutical segment profits	$	11,547	$	10,407	$	33,651	$	29,400
Animal Health segment profits	510		421		1,574		1,453
Other	(7,967)		(5,208)		(19,459)		(26,918)
Income Before Taxes	$	4,090	$	5,620	$	15,766	$	3,935

Pharmaceutical segment profits are comprised of segment sales less standard costs, as well as SG&A expenses directly incurred by the segment. Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as SG&A and R&D expenses directly incurred by the segment. For internal management reporting presented to the chief operating decision maker, Merck does not allocate the remaining cost of sales not included in segment profits as described above, R&D expenses incurred by MRL, or general and administrative expenses not directly incurred by the segments, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits. Also excluded from the determination of segment profits are costs related to restructuring activities and acquisition- and divestiture-related costs, including the amortization of intangible assets and amortization of purchase accounting adjustments, intangible asset impairment charges, and expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration. Additionally, segment profits do not reflect other expenses from corporate and manufacturing cost

- 39 -

centers and other miscellaneous income or expense. These unallocated items are reflected in “Other” in the above table. Also included in “Other” are miscellaneous corporate profits (losses), as well as operating profits (losses) related to third-party manufacturing arrangements.

Pharmaceutical segment profits grew 11% and 14% in the third quarter and first nine months of 2024, respectively, primarily due to higher sales, partially offset by higher administrative and promotional costs, as well as the unfavorable effect of foreign exchange. Animal Health segment profits rose 21% and 8% in the third quarter and first nine months of 2024, respectively, primarily due to higher sales and lower manufacturing-related costs, partially offset by increased administrative and promotional costs, as well as the unfavorable effect of foreign exchange.

Taxes on Income

The effective income tax rate of 22.7% for the third quarter of 2024 reflects a 7.2 percentage point combined unfavorable impact of charges related to the acquisitions of EyeBio and MK-1045, which had minimal tax benefits. The effective income tax rate of 15.1% for the first nine months of 2024 reflects a 2.1 percentage point combined unfavorable impact of charges related to the acquisitions of Harpoon, EyeBio and MK-1045, which had minimal tax benefits. The effective income tax rate for the first nine months of 2024 also reflects a 1.6 percentage point favorable impact due to a $259 million reduction in reserves for unrecognized income tax benefits resulting from the expiration in June 2024 of the statute of limitations for assessments related to the 2019 federal tax return year.

The effective income tax rate of 15.5% for the third quarter of 2023 reflects the favorable mix of income and expense. The effective income tax rate of 59.3% for the first nine months of 2023 includes a 44.0 percentage point combined unfavorable impact of charges for the acquisitions of Prometheus and Imago for which no tax benefits were recognized, as well as higher foreign taxes, the impact of the R&D capitalization provision of the Tax Cuts and Jobs Act of 2017 (TCJA) on the Company’s U.S. global intangible low-taxed income inclusion, and net unrealized gains from investments in equity securities, which were taxed at the U.S. tax rate, partially offset by higher foreign tax credits.

The Internal Revenue Service (IRS) is currently conducting examinations of the Company’s tax returns for the years 2017 and 2018, including the one-time transition tax enacted under the TCJA. If the IRS disagrees with the Company’s transition tax position, it may result in a significant tax liability. The statute of limitations for assessments with respect to the 2019 and 2020 federal tax return years expired in June 2024 (as noted above) and October 2024, respectively. Merck expects to record a benefit of approximately $270 million in the fourth quarter of 2024 due to a reduction in reserves for unrecognized tax benefits resulting from the expiration of the statute of limitations related to the 2020 federal tax return year.

While many jurisdictions in which Merck operates have adopted the global minimum tax provision of the Organisation for Economic Co-operation and Development (OECD) Pillar 2, effective for tax years beginning in January 2024, the Company anticipates there will be a reduced impact to its 2024 tax rate due to the accounting for the tax effects of intercompany transactions. The Company expects the impact of the global minimum tax will increase its tax rate to a greater extent in 2025 and thereafter. Also, in the event that the provision of the TCJA requiring capitalization and amortization of R&D expenses for tax purposes is repealed along the lines proposed in the Tax Relief for American Families and Workers Act of 2024, the Company will again be able to realize the benefit of U.S. R&D expenses as incurred but expects no material impact to its effective income tax rate.

Non-GAAP Income and Non-GAAP EPS

Non-GAAP income and non-GAAP earnings per share (EPS) are alternative views of the Company’s performance that Merck is providing because management believes this information enhances investors’ understanding of the Company’s results since management uses non-GAAP measures to assess performance. Non-GAAP income and non-GAAP EPS exclude certain items because of the nature of these items and the impact that they have on the analysis of underlying business performance and trends. The excluded items (which should not be considered non-recurring) consist of acquisition- and divestiture-related costs, restructuring costs, income and losses from investments in equity securities, and certain other items. These excluded items are significant components in understanding and assessing financial performance.

Non-GAAP income and non-GAAP EPS are important internal measures for the Company. Senior management receives a monthly analysis of operating results that includes a non-GAAP EPS metric. Management uses non-GAAP measures internally for planning and forecasting purposes and to measure the performance of the Company along with other metrics. In addition, annual employee compensation, including senior management’s compensation, is derived in part using a non-GAAP pretax income metric. Since non-GAAP income and non-GAAP EPS are not measures determined in accordance with GAAP, they have no standardized meaning prescribed by GAAP and, therefore, may not be comparable to the calculation of similar measures of other companies. The information on non-GAAP income and non-GAAP EPS should be considered in addition to, but not as a substitute for or superior to, net income and EPS prepared in accordance with generally accepted accounting principles in the U.S. (GAAP).

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A reconciliation between GAAP financial measures and non-GAAP financial measures is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions except per share amounts)	2024		2023		2024		2023
Income before taxes as reported under GAAP	$	4,090	$	5,620	$	15,766	$	3,935
Increase (decrease) for excluded items:
Acquisition- and divestiture-related costs	679		555		1,808		1,643
Restructuring costs	279		199		701		532
Loss (income) from investments in equity securities, net	58		17		(107)		(218)
Other items:
Charge for Zetia antitrust litigation settlements	—		—		—		573
Non-GAAP income before taxes	5,106		6,391		18,168		6,465
Income tax provision as reported under GAAP	929		870		2,377		2,332
Estimated tax benefit on excluded items (1)	188		89		445		350
Tax benefit resulting from the expiration of the statute of limitations for assessments related to the 2019 federal tax return year	—		—		259		—
Non-GAAP income tax provision	1,117		959		3,081		2,682
Non-GAAP net income	3,989		5,432		15,087		3,783
Less: Net income attributable to noncontrolling interests as reported under GAAP	4		5		15		12
Non-GAAP net income attributable to Merck & Co., Inc.	$	3,985	$	5,427	$	15,072	$	3,771
EPS assuming dilution as reported under GAAP (2)	$	1.24	$	1.86	$	5.26	$	0.62
EPS difference	0.33		0.27		0.67		0.86
Non-GAAP EPS assuming dilution (2)	$	1.57	$	2.13	$	5.93	$	1.48

(1) The estimated tax impact on the excluded items is determined by applying the statutory rate of the originating territory of the non-GAAP adjustments.

(2) GAAP and non-GAAP EPS were negatively affected in the third quarter of 2024 by $0.79 per share, and for the first nine months of 2024 and 2023 by $1.05 per share and $4.52 per share, respectively, of net charges for certain upfront payments and receipts related to collaborations and licensing agreements, as well as charges related to pre-approval assets (including milestone payments) obtained in transactions accounted for as asset acquisitions.

Acquisition- and Divestiture-Related Costs

Non-GAAP income and non-GAAP EPS exclude the impact of certain amounts recorded in connection with acquisitions and divestitures of businesses. These amounts include the amortization of intangible assets, as well as intangible asset impairment charges, and expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration. Also excluded are integration, transaction, and certain other costs associated with acquisitions and divestitures. Non-GAAP income and non-GAAP EPS also exclude amortization of intangible assets related to collaborations and licensing arrangements.

Restructuring Costs

Non-GAAP income and non-GAAP EPS exclude costs related to restructuring actions (see Note 4 to the condensed consolidated financial statements). These amounts include employee separation costs and accelerated depreciation associated with facilities to be closed or divested. 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. Restructuring costs also include asset impairment, facility shut-down and other related costs, as well as employee-related costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans and share-based compensation costs.

Income and Losses from Investments in Equity Securities

Non-GAAP income and non-GAAP EPS exclude realized and unrealized gains and losses from investments in equity securities either owned directly or through ownership interests in investment funds.

Certain Other Items

Non-GAAP income and non-GAAP EPS exclude certain other items. These items are adjusted for after evaluating them on an individual basis, considering their quantitative and qualitative aspects. Typically, these items are unusual in nature, significant to the results of a particular period or not indicative of future operating results. Excluded from non-GAAP income and non-GAAP EPS in 2024 is a benefit due to a reduction in reserves for unrecognized income tax benefits resulting from the expiration of the statute of limitations for assessments related to the 2019 federal tax return year. Excluded from non-GAAP income and non-GAAP EPS in 2023 is a charge related to settlements with certain plaintiffs in the Zetia antitrust litigation.

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Research and Development Update

The Company currently has several candidates under regulatory review in the U.S. and internationally.

MK-1022, patritumab deruxtecan, is a potential first-in-class HER3 directed DXd antibody drug conjugate (ADC), under review by the FDA for the treatment of adult patients with locally advanced or metastatic EGFR-mutated NSCLC previously treated with two or more systemic therapies. The Biologics License Application (BLA) is based on the primary results from the HERTHENA-Lung01 pivotal Phase 2 trial and data results presented at the IASLC 2023 World Conference on Lung Cancer, which were simultaneously published in the Journal of Clinical Oncology. In June 2024, the FDA issued a complete response letter (CRL) for the BLA due to findings pertaining to an inspection of a third-party manufacturing facility. The CRL did not identify any issues with the efficacy or safety data submitted. Patritumab deruxtecan (HER3-DXd) was discovered by Daiichi Sankyo and is being jointly developed by Daiichi Sankyo and Merck. Merck is working with Daiichi Sankyo to address FDA feedback.

MK-6482, Welireg is under review in the EU and Japan both for the treatment of VHL disease based on the LITESPARK-004 clinical trial and for the treatment of previously treated advanced RCC based on the LITESPARK-005 clinical trial.

V116, Capvaxive, the Company’s 21-valent pneumococcal conjugate vaccine designed to help prevent invasive pneumococcal disease and pneumococcal pneumonia in adults, is under review in the EU and Japan. The applications are supported by results from multiple Phase 3 clinical studies evaluating V116 in both vaccine-naïve and vaccine-experienced adult patient populations, including STRIDE-3, STRIDE-4, STRIDE-5 and STRIDE-6.

MK-3475, Keytruda, is an anti-PD-1 therapy approved for the treatment of many cancers that is in clinical development for expanded indications. These studies encompass more than 30 cancer types including: biliary, estrogen receptor positive breast cancer, cervical, colorectal, cutaneous squamous cell, endometrial, esophageal, gastric, glioblastoma, head and neck, hepatocellular, Hodgkin lymphoma, non-Hodgkin lymphoma, non-small-cell lung, small-cell lung, melanoma, mesothelioma, ovarian, prostate, renal, triple-negative breast, and urothelial, several of which are currently in Phase 3 clinical development. Further trials are being planned for other cancers.

Keytruda is under review in the EU and Japan for the first-line treatment of adult patients with unresectable advanced or metastatic malignant pleural mesothelioma, based on the Phase 2/3 IND.227/KEYNOTE-483 trial.

Additionally, Keytruda is under review in Japan in combination with chemotherapy (carboplatin and paclitaxel), followed by Keytruda as a single agent, for the first-line treatment of adult patients with primary advanced or recurrent endometrial carcinoma, based on the KEYNOTE-868 trial.

Keytruda is also under review in Japan in combination with chemoradiotherapy for the treatment of patients with high-risk locally advanced cervical cancer, based on the KEYNOTE-A18 trial.

In July 2024, Merck acquired EyeBio, a privately held ophthalmology-focused biotechnology company. 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.

MK-7264, gefapixant, is a non-narcotic, oral selective P2X3 receptor antagonist for the treatment of refractory or unexplained chronic cough in adults. In December 2023, the FDA issued a second CRL regarding the resubmission of Merck’s New Drug Application for gefapixant. In the CRL, the FDA concluded that Merck’s application did not meet substantial evidence of effectiveness for treating refractory or unexplained chronic cough. The CRL was not related to the safety of gefapixant. Merck has withdrawn its application for gefapixant from the FDA and does not plan to refile.

The Phase 2b clinical trial for MK-8189 as a monotherapy for acute schizophrenia did not meet its primary efficacy endpoint and further development in schizophrenia, bipolar, and dementia indications has stopped. Potential alternative indications for MK-8189 are being explored.

Merck is currently working to incorporate guidance from regulatory authorities into the Company’s clinical trial design for its two prospective Gardasil 9 single-dose trials. Consequently, the trials will not be started in 2024. The Company will continue to engage with regulatory authorities along with the broader network of critical stakeholders as its clinical development plan matures.

In August 2024, Merck provided updates on two Phase 3 trials, KEYNOTE-867 and KEYNOTE-630. Merck is discontinuing the KEYNOTE-867 trial evaluating Keytruda, in combination with stereotactic body radiotherapy (SBRT) for the treatment of patients with stage I or II (stage IIB N0, M0) NSCLC, including those who are medically inoperable or have refused surgery. This decision is based on the recommendation of an independent Data Monitoring Committee (DMC), which reviewed data from a planned interim analysis. At the pre-specified interim analysis, Keytruda in combination with SBRT did not demonstrate an improvement in event-free survival or overall survival, the study’s primary endpoint and key secondary endpoint, respectively, compared to placebo plus SBRT, and the benefit/risk profile of the combination did not support continuing the trial. Merck is also discontinuing the KEYNOTE-630 trial evaluating Keytruda for the adjuvant treatment of patients with high-risk locally advanced cutaneous squamous cell carcinoma (cSCC) following surgery and radiation, based on the recommendation of an independent DMC. The DMC recommended that the study should be stopped for futility as the risk/benefit profile did not support continuing the trial.

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Also in August 2024, Merck announced the discontinuation of the Phase 3 KeyVibe-008 trial based on the recommendation of an independent DMC. The trial was evaluating the investigational fixed-dose combination (coformulation) of vibostolimab, an anti-TIGIT antibody, and pembrolizumab (Keytruda) in combination with chemotherapy compared to atezolizumab in combination with chemotherapy, for the first-line treatment of patients with extensive-stage SCLC. At a pre-planned analysis, data showed that the primary endpoint of overall survival met the pre-specified futility criteria. Additionally, when compared to patients in the control arm, patients in the vibostolimab and pembrolizumab fixed-dose combination arm experienced a higher rate of adverse events and immune-related adverse events. A comprehensive analysis of this study is ongoing and Merck will work with investigators to share the results with the scientific community.

In September 2024, Merck announced that the Phase 3 KEYFORM-007 trial evaluating the investigational fixed-dose combination of favezelimab, Merck’s anti-LAG-3 antibody, and Keytruda did not meet its primary endpoint of overall survival for the treatment of patients with previously treated PD-L1 positive microsatellite stable metastatic colorectal cancer. At the final pre-specified analysis, the favezelimab and pembrolizumab fixed-dose combination did not demonstrate an improvement in overall survival compared to standard of care (regorafenib or TAS-102 [trifluridine and tipiracil hydrochloride]). A full evaluation of the data is ongoing and Merck will work with investigators to share the results with the scientific community.

The chart below reflects the Company’s research pipeline as of November 1, 2024. Candidates shown in Phase 3 include the date such candidate entered into Phase 3 development. Candidates shown in Phase 2 include the most advanced compound with a specific mechanism or, if listed compounds have the same mechanism, they are each currently intended for commercialization in a given therapeutic area. Small molecules and biologics are given MK-number designations and vaccine candidates are given V-number designations. Except as otherwise noted, candidates in Phase 1, additional indications in the same therapeutic area (other than with respect to cancer) and additional claims, line extensions or formulations for in-line products are not shown.


Phase 2
Cancer MK-1022 (patritumab deruxtecan)(1) Bladder Cervical Endometrial Esophageal Gastric Head and Neck Melanoma Ovarian Pancreatic Prostate MK-1308 (quavonlimab)(2) Non-Small-Cell Lung MK-1308A (quavonlimab+pembrolizumab) Colorectal MK-2400 (ifinatamab deruxtecan)(1) Biliary Bladder Breast Cervical Colorectal Endometrial Esophageal Head and Neck Ovarian MK-2870 (sacituzumab tirumotecan)(1)(3) Biliary Colorectal Neoplasm Malignant Pancreatic MK-3475 Keytruda Advanced Solid Tumors Prostate MK-3475A (pembrolizumab+hyaluronidase subcutaneous) Cutaneous Squamous Cell Hematological Malignancies MK-4280 (favezelimab)(2) Non-Small-Cell Lung MK-4280A (favezelimab+pembrolizumab) Bladder Colorectal Cutaneous Squamous Cell Endometrial Esophageal Melanoma Renal Cell MK-5890 (boserolimab)(2) Neoplasm Malignant	Cancer MK-5909 (raludotatug deruxtecan)(1) Ovarian MK-6482 Welireg(3) Endometrial Esophageal Hepatocellular Prostate Rare cancers MK-7339 Lynparza(1)(3) Advanced Solid Tumors MK-7684A (vibostolimab+pembrolizumab) Bladder Colorectal Endometrial Melanoma Ovarian Prostate Renal Cell V940(1)(2) Bladder Cutaneous Squamous Cell Renal Cell	Dengue Fever Virus Vaccine V181 HIV-1 Infection MK-8591B (islatravir+MK-8507)(4) HIV-1 Pre-Exposure Prophylaxis MK-8527 Nonalcoholic Steatohepatitis (NASH) MK-6024 (efinopegdutide) Pulmonary Hypertension-Chronic Obstructive Pulmonary Disease MK-5475 Pulmonary Hypertension Due To Left Heart Disease MK-7962 Winrevair Thrombosis MK-2060 Vitiligo MK-6194

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Phase 3 (Phase 3 entry date)	Under Review
Antiviral COVID-19 MK-4482 Lagevrio (U.S.) (May 2021)(1)(6) Cancer MK-1022 (patritumab deruxtecan)(1) Non-Small-Cell Lung (May 2022) (EU) MK-1026 (nemtabrutinib) Hematological Malignancies (March 2023) MK-1084(2) Non-Small-Cell Lung (May 2024) MK-1308A (quavonlimab+pembrolizumab) Renal Cell (April 2021) MK-2140 (zilovertamab vedotin) Hematological Malignancies (September 2024) MK-2400 (ifinatamab deruxtecan)(1) Small-Cell Lung (July 2024) MK-2870 (sacituzumab tirumotecan)(1)(3) Breast (April 2024) Cervical (July 2024) Endometrial (December 2023) Gastric (May 2024) Non-Small-Cell Lung (November 2023) MK-3475 Keytruda Hepatocellular (May 2016) (EU) Ovarian (December 2018) Small-Cell Lung (May 2017) MK-3475A (pembrolizumab+hyaluronidase subcutaneous) Non-Small-Cell Lung (February 2023) MK-3543 (bomedemstat) Myeloproliferative Disorders (December 2023) MK-4280A (favezelimab+pembrolizumab) Hematological Malignancies (October 2022) MK-5684 (opevesostat)(1) Prostate (December 2023) MK-7339 Lynparza(1)(2) Non-Small-Cell Lung (June 2019) Small-Cell Lung (December 2020) MK-7684A (vibostolimab+pembrolizumab) Non-Small-Cell Lung (April 2021) MK-7902 Lenvima(1)(2) Esophageal (July 2021) Gastric (December 2020) V940(1)(2) Melanoma (July 2023) Non-Small-Cell Lung (December 2023) Diabetic Macular Edema MK-3000 Restoret(7) HIV-1 Infection MK-8591A (doravirine+islatravir) (February 2020)(5) MK-8591D (islatravir+lenacapavir) (October 2024)(1)(5) Hypercholesterolemia MK-0616 (enlicitide decanoate) (August 2023) Respiratory Syncytial Virus MK-1654 (clesrovimab) (November 2021) Ulcerative Colitis MK-7240 (tulisokibart) (October 2023)	New Molecular Entities Cancer MK-1022 (patritumab deruxtecan)(1)(8) Non-Small-Cell Lung (U.S.) MK-6482 Welireg Renal Cell (EU) (JPN) Von Hippel-Lindau (VHL) Disease (EU) (JPN) Pneumococcal Vaccine Adult V116 Capvaxive (EU) (JPN)	Certain Supplemental Filings Cancer MK-3475 Keytruda • First-Line Unresectable Advanced or Metastatic Malignant Pleural Mesothelioma (KEYNOTE-483) (EU) (JPN) • Primary Advanced or Recurrent Endometrial Carcinoma (KEYNOTE-868) (JPN) • High-Risk Locally Advanced Cervical Cancer (KEYNOTE-A18) (JPN)
	Footnotes: (1) Being developed in a collaboration. (2) Being developed in combination with Keytruda. (3) Being developed as monotherapy and/or in combination with Keytruda. (4) On FDA clinical hold. (5) On FDA partial clinical hold for higher doses than those used in current clinical trials. (6) Available in the U.S. under Emergency Use Authorization. (7) Program is in a Phase 2/3 study that commenced in August 2024. (8) In June 2024, the FDA issued a CRL for the BLA for patritumab deruxtecan. Merck is working with Daiichi Sankyo to address FDA feedback.

Analysis of Liquidity and Capital Resources


($ in millions)	September 30, 2024			December 31, 2023
Cash and investments	$	15,168		$	7,345
Working capital	10,775			6,474
Total debt to total liabilities and equity	32.4		%	32.9		%

Cash provided by operating activities was $18.0 billion in the first nine months of 2024 compared with $12.8 billion in the first nine months of 2023 reflecting stronger operating performance. Cash provided by operating activities was reduced by milestone and option payments related to certain collaborations of $370 million and $240 million in the first nine months of 2024 and 2023, respectively. Cash provided by operating activities continues to be the Company’s primary source of funds to finance operating needs, with excess cash generally serving as the primary source of funds to finance business development transactions, capital expenditures, dividends paid to shareholders and treasury stock purchases.

Cash used in investing activities was $6.3 billion in the first nine months of 2024 compared with $14.1 billion in the first nine months of 2023. The lower use of cash in investing activities was primarily due to lower cash used for acquisitions, lower purchases of securities and other investments, as well as lower capital expenditures, partially offset by lower proceeds from sales of securities and other investments.

Cash used in financing activities was $4.0 billion in the first nine months of 2024 compared with $2.6 billion in the first nine months of 2023. The higher use of cash in financing activities was primarily due to lower proceeds from the issuance of debt

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and higher dividends paid to shareholders, partially offset by lower payments on long-term debt, lower purchases of treasury stock and higher proceeds from the exercise of stock options.

The Company has accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. The Company factored $3.1 billion and $3.0 billion of accounts receivable at September 30, 2024 and December 31, 2023, respectively, under these factoring arrangements, which reduced outstanding accounts receivable. The cash received from the financial institutions is reported within operating activities in the Condensed Consolidated Statement of Cash Flows. In certain of these factoring arrangements, for ease of administration, the Company will collect customer payments related to the factored receivables, which it then remits to the financial institutions. The net cash flows relating to these collections are reported as financing activities in the Condensed Consolidated Statement of Cash Flows.

In May 2024, MSD Netherlands Capital B.V., a wholly-owned finance subsidiary of Merck, completed a registered public offering of €3.4 billion in aggregate principal amount of euro-dominated senior notes comprised of €850 million of 3.25% senior notes due 2032, €850 million of 3.50% senior notes due 2037, €850 million of 3.70% senior notes due 2044 and €850 million of 3.75% senior notes due 2054. The net cash proceeds from the offering were used for general corporate purposes.

In March 2024, the Company’s $750 million, 2.90% notes matured in accordance with their terms and were repaid.

Dividends paid to stockholders were $5.9 billion and $5.6 billion for the first nine months of 2024 and 2023, respectively. In May 2024, Merck’s Board of Directors declared a quarterly dividend of $0.77 per share on the Company’s outstanding common stock for the third quarter that was paid in July 2024. In July 2024, Merck’s Board of Directors declared a quarterly dividend of $0.77 per share on the Company’s outstanding common stock for the fourth quarter that was paid in October 2024.

In 2018, Merck’s Board of Directors authorized purchases of up to $10 billion of Merck’s common stock for its treasury. The treasury stock purchase authorization has no time limit and will be made over time in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions. During the first nine months of 2024, the Company purchased $817 million (7 million shares) of its common stock for its treasury under this program. As of September 30, 2024, the Company’s remaining share repurchase authorization was $2.9 billion.

The Company has a $6.0 billion credit facility that matures in May 2028. The facility provides backup liquidity for the Company’s commercial paper borrowing facility and is to be used for general corporate purposes. The Company has not drawn funding from this facility.

Critical Accounting Estimates

The Company’s significant accounting policies, which include management’s best estimates and judgments, are included in Note 2 to the consolidated financial statements for the year ended December 31, 2023 included in Merck’s Form 10‑K filed on February 26, 2024. See Note 1 to the condensed consolidated financial statements for information on the adoption of a new accounting standard during 2024. A discussion of accounting estimates considered critical because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates is included in the Critical Accounting Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Merck’s Form 10-K. There have been no significant changes in the Company’s critical accounting estimates since December 31, 2023.

Recently Issued Accounting Standards

For a discussion of recently issued accounting standards, see Note 1 to the condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in market risk exposures that affect the disclosures presented in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in the Company’s 2023 Form 10-K filed on February 26, 2024.

Item 4. Controls and Procedures

Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures over financial reporting. Based on their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2024, the Company’s disclosure controls and procedures are effective. For the third quarter of 2024, there were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

This report and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking statements,” all of which are based on management’s current expectations and are subject to risks and uncertainties which may cause results to differ materially from those set forth in the statements. One can identify these forward-looking statements by their use of words such as “anticipates,” “expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and

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other words of similar meaning, or negative variations of any of the foregoing. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company’s growth strategy, financial results, product approvals, product potential, development programs, environmental or other sustainability initiatives. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from the Company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially.

The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors, including risk factors, described in the Company’s filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-Q and 8-K. In Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10‑K for the year ended December 31, 2023, filed on February 26, 2024, the Company discusses in more detail various important risk factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties.

PART II - Other Information

Item 1. Legal Proceedings

The information called for by this Item is incorporated herein by reference to Note 8 included in Part I, Item 1, Financial Statements (unaudited) — Notes to Condensed Consolidated Financial Statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer purchases of equity securities for the three months ended September 30, 2024 were as follows:

ISSUER PURCHASES OF EQUITY SECURITIES


				($ in millions)
Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)
July 1 - July 31	880,451	$126.08	880,451	$3,217
August 1 - August 31	1,391,425	$114.53	1,391,425	$3,058
September 1 - September 30	1,496,936	$116.19	1,496,936	$2,884
Total	3,768,812	$117.89	3,768,812

(1) Shares purchased during the period were made as part of a plan approved by the Board of Directors in October 2018 to purchase up to $10 billion of Merck’s common stock for its treasury.

Item 5. Other Information

Insider Trading Arrangements

During the three months ended September 30, 2024, none of the Company’s directors or executive officers or any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements.

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Item 6. Exhibits


Number		Description

3.1	—	Restated Certificate of Incorporation of Merck & Co., Inc. (November 3, 2009) – Incorporated by reference to Merck & Co., Inc.'s Current Report on Form 8-K filed on November 4, 2009 (No. 1-6571)

3.2	—	By-Laws of Merck & Co., Inc. (effective March 22, 2022) – Incorporated by reference to Merck & Co., Inc.'s Current Report on Form 8-K filed on March 25, 2022 (No. 1-6571)

31.1	—	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Executive Officer

31.2	—	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer

32.1	—	Section 1350 Certification of Chief Executive Officer

32.2	—	Section 1350 Certification of Chief Financial Officer

101.INS	—	XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

101.SCH	—	XBRL Taxonomy Extension Schema Document.

101.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	—	XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB	—	XBRL Taxonomy Extension Label Linkbase Document.

101.PRE	—	XBRL Taxonomy Extension Presentation Linkbase Document.

104	—	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						MERCK & CO., INC.

Date: November 6, 2024						/s/ Jennifer Zachary
						JENNIFER ZACHARY
						Executive Vice President and General Counsel

Date: November 6, 2024						/s/ Dalton Smart
						DALTON SMART
						Senior Vice President Finance - Global Controller

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Merck & Co., Inc. - Quarter Report: 2024 September (Form 10-Q)

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