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

2023Net Investment Hedging Relationships $

(1) No amounts were reclassified from AOCL into income related to the sale of a subsidiary.

Interest Rate Risk Management

The Company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rate changes and to reduce its overall cost of borrowing. The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal at risk.

- 13 -

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

pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of a portion of fixed-rate notes as detailed in the table below.

March 31, 2024

($ in millions)

Par Value of Debt

Number of Interest Rate Swaps Held

Total Swap Notional Amount

% notes due 2033

The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in the benchmark Secured Overnight Financing Rate (SOFR) swap rate. The fair value changes in the notes attributable to changes in the SOFR swap rate are recorded in interest expense along with the offsetting fair value changes in the swap contracts. The cash flows from these contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows. In April 2024, the Company entered into additional interest rate swaps with notional amounts of $ million each also related to its % notes due 2033.

$ $ $ $— $ $ $— $ Foreign exchange contractsOther current assets — — Foreign exchange contractsOther Assets — — Foreign exchange contractsAccrued and other current liabilities— — Foreign exchange contractsOther Noncurrent Liabilities— — Derivatives Not Designated as Hedging InstrumentsBalance Sheet Caption Foreign exchange contractsOther current assets — — Foreign exchange contractsOther Assets — — Foreign exchange contractsAccrued and other current liabilities— — Foreign exchange contractsOther Noncurrent Liabilities— — $ $ $ $ $ $

As noted above, the Company records its derivatives on a gross basis in the Condensed Consolidated Balance Sheet. The Company has master netting agreements with several of its financial institution counterparties (see Concentrations of Credit Risk below).

$ $ $ Gross amounts subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet()()()()

Cash collateral received

() () Net amounts$ $ $ $

- 14 -

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

$ $()$ $()$()(Gain) loss on fair value hedging relationships:Interest rate swap contractsHedged items— — () — — Derivatives designated as hedging instruments— — — — Impact of cash flow hedging relationships:Foreign exchange contracts

Amount of gain (loss) recognized in OCI on derivatives

— — — — ()

Increase in Sales as a result of AOCL reclassifications

— — ()()Interest rate contracts

Amount of gain recognized in Other (income) expense, net on derivatives

— — ()— —

Amount of loss recognized in OCI on derivatives

— — — — ()

(1) Interest expense is a component of Other (income) expense, net.

Foreign exchange contracts (2)

Sales()

(1) These derivative contracts primarily mitigate changes in the value of remeasured foreign currency denominated monetary assets and liabilities attributable to changes in foreign currency exchange rates.

(2) These derivative contracts serve as economic hedges of forecasted transactions.

At March 31, 2024, the Company estimates $ million of pretax net unrealized gains on derivatives maturing within the next 12 months that hedge foreign currency denominated sales over that same period will be reclassified from AOCL to Sales. The amount ultimately reclassified to Sales may differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual foreign exchange rates at maturity.

Investments in Debt and Equity Securities

$ $ $ $ $ $ $ U.S. government and agency securities Corporate notes and bonds Total debt securities$ $ $ $ $ $ $ $

Publicly traded equity securities (1)

Total debt and publicly traded equity securities$ $

(1) Unrealized net gains of $ million were recorded in Other (income) expense, net in the first quarter of 2024 on equity securities still held at March 31, 2024. Unrealized net gains of $ million were recorded in Other (income) expense, net in the first quarter of 2023 on equity securities still held at March 31, 2023.

At March 31, 2024 and March 31, 2023, the Company also had $ million and $ million, respectively, of equity investments without readily determinable fair values included in Other Assets. The Company records unrealized gains on these equity investments based on favorable observable price changes from transactions involving similar investments of the same investee and records unrealized losses based on unfavorable observable price changes, which are included in Other (income) expense, net. During the first quarter of 2024, the Company recorded unrealized gains of $ million and unrealized losses of $ million related to certain of these equity investments still held at March 31, 2024. During the first quarter of 2023, the Company recorded unrealized gains of $ million and unrealized losses of $ million related to certain of these equity investments still held at March 31, 2023. Cumulative unrealized gains and cumulative unrealized losses based on observable

- 15 -

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

million and $ million, respectively.

At March 31, 2024 and March 31, 2023, the Company also had $ million and $ million, respectively, recorded in Other Assets for equity securities held through ownership interests in investment funds. Losses (gains) recorded in Other (income) expense, net relating to these investment funds were $ million and $() million for the first quarter of 2024 and 2023, respectively.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value with Level 1 having the highest priority and Level 3 having the lowest:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity. Level 3 assets or liabilities are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant unobservable inputs, as well as assets or liabilities for which the determination of fair value requires significant judgment or estimation.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

$ $ $ $ $ $ $ Publicly traded equity securities

Other assets (1)

U.S. government and agency securities Corporate notes and bonds

Publicly traded equity securities (2)

Derivative assets (3)

Forward exchange contracts Purchased currency options

Interest rate swaps

Total assets$ $ $ $ $ $ $ $ LiabilitiesOther liabilitiesContingent consideration$ $ $ $ $ $ $ $

Derivative liabilities (3)

Forward exchange contracts Written currency options Total liabilities$ $ $ $ $ $ $ $

(1) Investments included in other assets are restricted as to use, including for the payment of benefits under employee benefit plans.

(2) Balance at March 31, 2024 includes securities with a fair value of $ million, which are subject to a contractual sale restriction that expires in July 2024.

(3) The fair value determination of derivatives includes the impact of the credit risk of counterparties to the derivatives and the Company’s own credit risk, the effects of which were not significant.

As of March 31, 2024 and December 31, 2023, Cash and cash equivalents included $ billion and $ billion of cash equivalents, respectively (which would be considered Level 2 in the fair value hierarchy).

- 16 -

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

Changes in estimated fair value (1)

() Payments()()

Fair value March 31 (2)

$ $

(1) Recorded in Cost of sales, Research and development expenses, and Other (income) expense, net. Includes cumulative translation adjustments.

(2) Balance at March 31, 2024, includes $ million of current liabilities, all of which relate to the termination of the Sanofi Pasteur MSD joint venture in 2016. As part of the termination, Merck recorded a liability for contingent future royalty payments of % on net sales of all Merck products that were previously sold by the joint venture through December 31, 2024. The fair value of this liability is determined utilizing the estimated amount and timing of projected cash flows using a risk-adjusted discount rate to present value the cash flows.

The payments of contingent consideration in both periods relate to the Sanofi Pasteur MSD liabilities described above.

Other Fair Value Measurements

Some of the Company’s financial instruments, such as cash and cash equivalents, receivables and payables, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.

The estimated fair value of loans payable and long-term debt (including current portion) at March 31, 2024, was $ billion compared with a carrying value of $ billion and at December 31, 2023, was $ billion compared with a carrying value of $ billion. Fair value was estimated using recent observable market prices and would be considered Level 2 in the fair value hierarchy.

Concentrations of Credit Risk

On an ongoing basis, the Company monitors concentrations of credit risk associated with corporate and government issuers of securities and financial institutions with which it conducts business. Credit exposure limits are established to limit a concentration with any single issuer or institution. Cash and investments are placed in instruments that meet high credit quality standards as specified in the Company’s investment policy guidelines.

The majority of the Company’s accounts receivable arise from product sales in the U.S., Europe and China and are primarily due from drug wholesalers, distributors and retailers, hospitals and government agencies. The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in their credit profile. The Company also continues to monitor global economic conditions, including the volatility associated with international sovereign economies, and associated impacts on the financial markets and its business.

The Company has accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. The Company factored $ billion and $ billion of accounts receivable as of March 31, 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, generally within thirty days after receipt. As of March 31, 2024 and December 31, 2023, the Company had collected $ million and $ million, respectively, on behalf of the financial institutions, which is reflected as restricted cash in Other current assets and the related obligation to remit the cash within Accrued and other current liabilities. The net cash flows related to these collections are reported as financing activities in the Condensed Consolidated Statement of Cash Flows. The cost of factoring such accounts receivable was de minimis.

million and $ million at March 31, 2024 and December 31, 2023, respectively. The obligation to return such collateral is recorded in Accrued and other current liabilities

- 17 -

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

$ Raw materials and work in process Supplies Total Decrease to LIFO cost()() $ $ Recognized as:Inventories$ $ Other Assets

Amounts recognized as Other Assets are comprised almost entirely of raw materials and work in process inventories. At both March 31, 2024 and December 31, 2023, these amounts included $ billion of inventories not expected to be sold within one year. In addition, these amounts included $ million and $ million at March 31, 2024 and December 31, 2023, respectively, of inventories produced in preparation for product launches.

The Company’s decision to obtain insurance coverage is dependent on market conditions, including cost and availability, existing at the time such decisions are made. The Company has evaluated its risks and has determined that the cost of obtaining product liability insurance outweighs the likely benefits of the coverage that is available and, as such, has no insurance for most product liabilities.

Product Liability Litigation

Dr. Scholl’s Foot Powder

Merck is a defendant in product liability lawsuits in the U.S. arising from consumers’ alleged exposure to talc in Dr. Scholl’s foot powder, which Merck acquired through its merger with Schering-Plough Corporation and sold as part of the divestiture of Merck’s consumer care business to Bayer in 2014. In these actions, plaintiffs allege that they were exposed to asbestos-contaminated talc and developed mesothelioma as a result. As of March 31, 2024, approximately cases were pending against Merck in various state courts.

Gardasil/Gardasil 9

As previously disclosed, Merck is a defendant in product liability lawsuits in the U.S. involving Gardasil (Human Papillomavirus Quadrivalent [Types 6, 11, 16 and 18] Vaccine, Recombinant) and Gardasil 9 (Human Papillomavirus 9-valent Vaccine, Recombinant). As of March 31, 2024, approximately cases were filed and pending against Merck in either federal or state court. In these actions, plaintiffs allege, among other things, that they suffered various personal injuries after vaccination with Gardasil or Gardasil 9, with postural orthostatic tachycardia syndrome as a predominate alleged injury. In August 2022, the U.S. Judicial Panel on Multidistrict Litigation ordered that Gardasil/Gardasil 9 product liability cases pending in federal courts nationwide be transferred to Judge Robert J. Conrad in the Western District of North Carolina for coordinated pre-trial proceedings. In February 2024, the multidistrict litigation was reassigned to Judge Kenneth D. Bell. There are fewer than product liability cases pending outside the U.S.

- 18 -

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

million to resolve the direct purchaser, retailer, and indirect purchaser plaintiffs’ claims, which was recorded as an expense in the Company’s financial results in the first quarter of 2023. In October 2023, the court granted final approval of the indirect purchaser class settlement.

In 2020 and 2021, United Healthcare Services, Inc. (United Healthcare), Humana Inc. (Humana), Centene Corporation and others (Centene), and Kaiser Foundation Health Plan, Inc. (Kaiser) (collectively, the Insurer Plaintiffs), each filed a lawsuit in a jurisdiction outside of the Eastern District of Virginia against the Merck Defendants and others, making similar allegations as those made in the Zetia MDL, as well as additional allegations about Vytorin. These cases were transferred to the Eastern District of Virginia to proceed with the Zetia MDL.

In February 2022, the Insurer Plaintiffs filed amended complaints. In March 2022, the Merck Defendants, jointly with other defendants, moved to dismiss certain aspects of the Insurer Plaintiffs’ complaints, including any claims for Vytorin damages. In December 2023, prior to a decision on the motion to dismiss, the U.S. Judicial Panel on Multidistrict Litigation remanded the four Insurer Plaintiff cases to the transferor courts in the Northern District of California (Kaiser), the District of Minnesota (United Healthcare), and the District of New Jersey (Humana and Centene). On March 15, 2024, the Merck Defendants filed motions to dismiss the Humana and Centene cases.

Qui Tam Litigation

As previously disclosed, in June 2012, the U.S. District Court for the Eastern District of Pennsylvania unsealed a complaint that had been filed against the Company under the federal False Claims Act by former employees alleging, among other things, that the Company defrauded the U.S. government by falsifying data in connection with a clinical study conducted on the mumps component of the Company’s M-M-R II vaccine. The complaint alleges the fraud took place between 1999 and 2001. The U.S. government had the right to participate in and take over the prosecution of this lawsuit but notified the court that it declined to exercise that right. The former employees are pursuing the lawsuit without the involvement of the U.S. government. In July 2023, the court denied relators’ motion for summary judgment, granted of the Company’s motions for summary judgment, and denied the Company’s remaining motions for summary judgment as moot. The court entered judgment in favor of the Company and dismissed relators’ amended complaint in full with prejudice. Relators have appealed that decision. In addition, as previously disclosed, putative class action lawsuits on behalf of direct purchasers of the M-M-R II vaccine, which charge that the Company misrepresented the efficacy of the M-M-R II vaccine in violation of federal antitrust laws and various state consumer protection laws, are pending in the Eastern District of Pennsylvania. In the antitrust case, the court granted the Company’s motion for summary judgment as to plaintiffs’ state law claims and denied the motion as to plaintiffs’ antitrust claim. The Company has appealed the antitrust decision.

Patent Litigation

From time to time, generic manufacturers of pharmaceutical products file abbreviated New Drug Applications (ANDAs) with the U.S. Food and Drug Administration (FDA) seeking to market generic forms of the Company’s products prior to the expiration of relevant patents owned by the Company. To protect its patent rights, the Company may file patent infringement lawsuits against such generic companies. Similar lawsuits defending the Company’s patent rights may exist in other countries. The Company intends to vigorously defend its patents, which it believes are valid, against infringement by companies attempting to market products prior to the expiration of such patents. As with any litigation, there can be no assurance of the outcomes, which, if adverse, could result in significantly shortened periods of exclusivity for these products and, with respect to products acquired through acquisitions accounted for as business combinations, potentially significant intangible asset impairment charges.

- 19 -

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

trial in December 2022 on this remaining PTE calculation defense.

As previously disclosed, in June 2023, the U.S. District Court for the District of New Jersey ruled in Merck’s favor. The court held that Merck’s calculation of PTE for the sugammadex patent covering the compound is not invalid and that the U.S. Patent & Trademark Office correctly granted a full five-year extension. This ruling affirms and validates Merck’s U.S. patent protection for Bridion through at least January 2026. Also in June 2023, the U.S. District Court for the District of New Jersey issued a final judgment prohibiting the FDA from approving any of the pending or tentatively approved generic applications until January 27, 2026, except for any subsequent agreements between defendants and Merck or further order by the court.

In July 2023, defendants filed a notice of appeal with the U.S. Court of Appeals for the Federal Circuit. The appeal is currently pending.

While the New Jersey action was pending, the Company settled with generic companies providing that these generic companies can bring their generic versions of Bridion to the market in January 2026 (which may be delayed by any applicable pediatric exclusivity) or earlier under certain circumstances. The Company agreed to stay the lawsuit filed against generic companies, which in exchange agreed to be bound by a judgment on the merits of the consolidated action in the District of New Jersey. One of the generic companies in the consolidated action requested dismissal of the action against it and the Company did not oppose this request, which was subsequently granted by the court. The Company does not expect this company to bring its generic version of Bridion to the market before January 2026 or later, depending on any applicable pediatric exclusivity.

On February 5, 2024, the Company received another Paragraph IV Certification Letter under the Hatch-Waxman Act notifying the Company that Hikma Pharmaceuticals USA Inc. has filed an application to the FDA seeking pre-patent expiry approval to sell a generic version of Bridion Injection. On March 15, 2024, the Company filed a patent infringement lawsuit in the U.S. District Court for the District of New Jersey against Hikma, postponing FDA approval of the Hikma generic drug for 30 months or until expiration of the sugammadex patent (January 27, 2026) and any potentially applicable pediatric exclusivity or an adverse court decision, if any, whichever may occur earlier. Expiration of the patent, and any potentially applicable pediatric exclusivity, will occur earlier than expiry of the 30-month stay.

Januvia, Janumet, Janumet XR — As previously disclosed, the FDA granted pediatric exclusivity with respect to Januvia (sitagliptin), Janumet (sitagliptin/metformin HCI), and Janumet XR (sitagliptin and metformin HCl extended-release), which provides a further six months of exclusivity in the U.S. beyond the expiration of all patents listed in the FDA’s Orange Book. Adding this exclusivity to the term of the key patent protection extended exclusivity on these products to January 2023. However, Januvia, Janumet, and Janumet XR contain sitagliptin phosphate monohydrate and the Company has another patent covering certain phosphate salt and polymorphic forms of sitagliptin that expires in May 2027, including pediatric exclusivity (2027 salt/polymorph patent).

As previously disclosed, beginning in 2019, a number of generic drug companies filed ANDAs seeking approval of generic forms of Januvia and Janumet along with paragraph IV certifications challenging the validity of the 2027 salt/polymorph patent. The Company responded by filing infringement suits which have all been settled. The Company has settled with a total of generic companies providing that these generic companies can bring their generic versions of Januvia and Janumet to the market in the U.S. in May 2026 or earlier under certain circumstances, and their generic versions of Janumet XR to the market in July 2026 or earlier under certain circumstances.

In March 2021, the Company filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware against Zydus Worldwide DMCC, Zydus Pharmaceuticals (USA) Inc., and Cadila Healthcare Ltd. (collectively, Zydus). In that lawsuit, the Company alleged infringement of the 2027 salt/polymorph patent based on the filing of Zydus’s NDA seeking approval of a form of sitagliptin that is a different form than that used in Januvia. In December 2022, the parties reached settlement that included dismissal of the case without prejudice enabling Zydus to seek final approval of a non-automatically substitutable product.

In January 2023, the Company received a Paragraph IV Certification Letter under the Hatch-Waxman Act notifying the Company that Zydus filed an ANDA seeking approval of sitagliptin/metformin HCl tablets and certifying that no valid or enforceable claim of any of the patents listed in FDA’s Orange Book for Janumet will be infringed by the proposed Zydus product. In March 2023, the parties reached settlement enabling Zydus to seek final approval of a non-automatically substitutable product containing a different form of sitagliptin than that used in Janumet. In November 2023, the Company received a Paragraph IV Certification Letter under the Hatch-Waxman Act notifying the Company that Zydus filed an ANDA seeking approval of sitagliptin/metformin HCl Extended Release tablets. In January 2024, the parties reached settlement enabling Zydus to seek final approval of a non-automatically substitutable version containing a different form of sitagliptin than that used in Janumet XR.

- 20 -

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

issued U.S. patents, including a demand for damages. Between November 30, 2023, and March 13, 2024, the Company filed inter partes review petitions with the United States Patent & Trademark Office Patent Trial and Appeal Board, challenging the validity of all nine patents asserted in the case.

Lynparza — In December 2022, AstraZeneca Pharmaceuticals LP received a Paragraph IV Certification Letter under the Hatch-Waxman Act notifying AstraZeneca that Natco Pharma Limited (Natco) has filed an application to the FDA seeking pre-patent expiry approval to sell generic versions of Lynparza (olaparib) tablet. In February 2023, AstraZeneca and the Company filed a patent infringement lawsuit in the U.S. District Court for the District of New Jersey/Delaware against Natco. This lawsuit, which asserts one or more patents covering olaparib, automatically stays FDA approval of the generic application until June 2025 or until an adverse court decision, if any, whichever may occur earlier.

In December 2023, AstraZeneca Pharmaceuticals LP received a second Paragraph IV Certification Letter under the Hatch-Waxman Act notifying AstraZeneca that Sandoz Inc. has filed an application to the FDA seeking pre-patent expiry approval to sell generic versions of Lynparza (olaparib) tablet. In February 2024, AstraZeneca and the Company filed a patent infringement lawsuit in the U.S. District Court for the District of New Jersey against Sandoz. This lawsuit, which asserts one or more patents covering olaparib, automatically stays FDA approval of the generic application until June 2026 or until an adverse court decision, if any, whichever may occur earlier.

Other Litigation

There are various other pending legal proceedings involving the Company, principally product liability and intellectual property lawsuits. While it is not feasible to predict the outcome of such proceedings, in the opinion of the Company, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to the Company’s financial condition, results of operations or cash flows either individually or in the aggregate.

Legal Defense Reserves

Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable. Some of the significant factors considered in the review of these legal defense reserves are as follows: the actual costs incurred by the Company; the development of the Company’s legal defense strategy and structure in light of the scope of its litigation; the number of cases being brought against the Company; the costs and outcomes of completed trials; and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the associated litigation. The amount of legal defense reserves as of March 31, 2024 and December 31, 2023 of approximately $ million and $ million, respectively, represents the Company’s best estimate of the minimum amount of defense costs to be incurred in connection with its outstanding litigation; however, events such as additional trials and other events that could arise in the course of its litigation could affect the ultimate amount of legal defense costs to be incurred by the Company. The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to increase the reserves at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.

- 21 -

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— — — — — — — Balance at March 31, 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— — — — — — — Balance at March 31, 2024 $ $ $ $() $()$ $

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

Amortization of unrecognized prior service credit

() ()

Net loss (gain) amortization

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

- 22 -

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

million in the first quarter of 2023. This partial settlement triggered a remeasurement of some of the Company’s U.S. pension plans. The remeasurement, which was calculated using discount rates and asset values as of March 31, 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 10), 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.

10.

)$()Interest expense Exchange losses

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 three months of 2023 includes a $ million charge related to settlements with certain plaintiffs in the Zetia antitrust litigation (see Note 7).

Interest paid for the three months ended March 31, 2024 and 2023 was $ million and $ million, respectively.

11.

% for the first quarter of 2024 reflects a percentage point unfavorable discrete impact of a charge for the acquisition of Harpoon for which tax benefit was recognized. The effective income tax rate of % for the first quarter of 2023 reflects a percentage point unfavorable discrete impact of a charge for the acquisition of Imago for which tax benefit was recognized.

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 Tax Cuts and Jobs Act of 2017. 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 return years will expire in June and October of 2024, respectively, unless extended.

12.

$ 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.

- 23 -

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

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.

13.

$()$()$()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 March 31, 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 March 31, 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 9).

14.

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.

- 24 -

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 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 three months ended March 31, 2024 and 2023, respectively, as well as revenue from third-party manufacturing arrangements (including sales to Organon). Other for the three months ended March 31, 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 March 31, 2024 and 2023, respectively. $ Europe, Middle East and Africa China Japan Latin America 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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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

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 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 quarter of 2024 related to the transaction. There are no future contingent payments associated with the acquisition.

In February 2024, Merck entered into a definitive agreement to acquire the aqua business of Elanco Animal Health Incorporated (Elanco) for $1.3 billion in cash. The Elanco aqua business to be acquired 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. Upon closing, the acquisition will broaden Animal Health’s aqua portfolio with products, such as Clynav, a new generation DNA-based vaccine that protects Atlantic salmon against pancreas disease, and Imvixa, an anti-parasitic sea lice treatment. This acquisition also brings a portfolio of water treatment products for warm water production, complementing Animal Health’s warm water vaccine portfolio. In addition to these products, the DNA-based vaccine technology that is a part of the business has the potential to accelerate the development of novel vaccines to address the unmet needs of the aqua industry. The acquisition is expected to be completed by mid-2024, subject to approvals from regulatory authorities and other customary closing conditions. The transaction will be accounted for as a business combination.

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 three months of 2024. In 2022, the U.S. Congress passed the Inflation Reduction Act (IRA), which makes 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 occurred in 2023 and will continue in 2024, with government price-setting becoming effective on January 1, 2026. The Company has sued the U.S. government regarding the IRA’s Program. 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 three 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 March 31,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change
United States	$	7,478	$	6,659	12	%	12	%
International	8,297		7,828		6	%	12	%
Total	$	15,775	$	14,487	9	%	12	%

Worldwide sales were $15.8 billion in the first quarter of 2024, an increase of 9% compared with the first quarter of 2023, or 12% 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 quarter of 2024 was primarily due to higher sales in the

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oncology franchise, largely due to strong growth of Keytruda (pembrolizumab) and Welireg (belzutifan). Higher sales in the vaccines franchise also contributed to revenue growth in the first quarter, primarily attributable to increased combined sales of Gardasil (Human Papillomavirus Quadrivalent [Types 6, 11, 16 and 18] Vaccine, Recombinant)/Gardasil 9 (Human Papillomavirus 9-valent Vaccine, Recombinant) and the ongoing launch of Vaxneuvance (Pneumococcal 15-valent Conjugate Vaccine) for pediatric use, partially offset by lower sales of RotaTeq (Rotavirus Vaccine, Live Oral, Pentavalent) and Pneumovax 23 (pneumococcal vaccine polyvalent). Revenue growth in the first quarter of 2024 was partially offset by lower sales in the diabetes franchise attributable to Januvia and Janumet.

See Note 14 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 services marks are those of their respective owners.

Pharmaceutical Segment

Oncology


	Three Months Ended March 31,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change
Keytruda	$	6,947	$	5,795	20	%	24	%
Alliance Revenue - Lynparza (1)	292		275		6	%	7	%
Alliance Revenue - Lenvima (1)	255		232		10	%	10	%
Welireg	85		42		*		*
Alliance Revenue - Reblozyl (2)	71		43		66	%	66	%

* > 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 35 indications in the U.S., including 17 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 20% in the first quarter of 2024, or 24% excluding the unfavorable effect of foreign exchange. Substantially all of the 4% 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. Keytruda sales growth in the first quarter 2024 was primarily driven by higher demand reflecting the launch of multiple new indications globally coupled with continued uptake in existing indications. 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), as well as certain types of renal cell carcinoma (RCC), and higher demand across the multiple approved metastatic indications, in particular for the treatment of certain types of urothelial, endometrial, microsatellite instability-high (MSI-H) and renal cell cancers, as well as higher pricing. Keytruda sales growth in international markets reflects higher demand predominately for the TNBC and RCC earlier-stage indications, as well as uptake in head and neck squamous cell carcinoma and RCC metastatic indications, particularly in Europe and Latin America.

Keytruda 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 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, then continued as monotherapy as adjuvant treatment, for resectable NSCLC at high risk of recurrence in adults, based on the KEYNOTE-671 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

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termination date of which varies by country; this royalty will expire in the U.S. in September 2024 and 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 6% in the first quarter of 2024 primarily driven by higher demand in certain international markets, particularly in Latin America.

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 grew 10% in the first quarter of 2024 primarily reflecting higher demand in the U.S.

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 the first quarter of 2024 due to higher demand in the U.S. for the treatment of VHL disease-associated tumors and uptake in a supplemental indication approved by the FDA in December 2023 for previously treated advanced RCC. Welireg is under review in the European Union (EU) 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 66% in the first quarter of 2024 due to strong underlying sales performance.

Vaccines


	Three Months Ended March 31,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change
Gardasil/Gardasil 9	$	2,249	$	1,972	14	%	17	%
ProQuad	204		190		8	%	7	%
M-M-R II	104		102		2	%	2	%
Varivax	262		236		11	%	11	%
Vaxneuvance	219		106		*		*
RotaTeq	216		297		(27)	%	(27)	%
Pneumovax 23	61		96		(36)	%	(33)	%

* > 100%

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), grew 14% in the first quarter of 2024 primarily due to strong demand, particularly in China, which also benefited from the timing of shipments, as well as public sector buying patterns in the U.S., and higher pricing.

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 8% in the first quarter of 2024 primarily reflecting higher pricing in the U.S. and higher demand in certain ex-U.S. markets.

Worldwide sales of M-M-R II (Measles, Mumps and Rubella Virus Vaccine Live), a vaccine to help prevent measles, mumps and rubella, were nearly flat in the first quarter of 2024.

Global sales of Varivax (Varicella Virus Vaccine Live), a vaccine to help prevent chickenpox (varicella), increased 11% in the first quarter of 2024 primarily attributable to higher pricing in the U.S. and higher sales in Latin America due in part to the timing of government tenders.

Worldwide sales of Vaxneuvance, a vaccine to help protect against invasive pneumococcal disease, more than doubled in the first quarter of 2024 primarily reflecting continued uptake in the pediatric indication in the U.S. and Europe, as well as new market launches. Sales growth in the U.S. also reflects the beneficial impact of public sector buying patterns.

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Global sales of RotaTeq, a vaccine to help protect against rotavirus gastroenteritis in infants and children, declined 27% in the first quarter of 2024 primarily due to lower sales in China reflecting first quarter 2023 inventory stocking, as well as lower sales in the U.S. due to public sector buying patterns.

Worldwide sales of Pneumovax 23, a vaccine to help prevent pneumococcal disease, declined 36% in the first quarter of 2024 largely due to lower demand in the U.S. as the market has shifted toward newer adult pneumococcal conjugate vaccines following changes in the recommendations of the U.S. Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices in 2021.

Hospital Acute Care


	Three Months Ended March 31,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change
Bridion	$	440	$	487	(10)	%	(8)	%
Prevymis	174		129		35	%	39	%

Worldwide sales of Bridion (sugammadex), for the reversal of two types of neuromuscular blocking agents used during surgery, declined 10% in the first quarter of 2024 driven by lower demand in certain ex-U.S. markets due to generic competition, particularly in the EU, partially offset by higher demand in the U.S. The patent that provided market exclusivity for Bridion in the EU expired in July 2023. Accordingly, the Company is experiencing sales declines of Bridion in these markets and expects the declines to continue. The patent that provided market exclusivity for Bridion in Japan expired in January 2024; the Company anticipates sales of Bridion in Japan will decline in future periods.

Worldwide sales of Prevymis (letermovir), a medicine for prophylaxis (prevention) of cytomegalovirus (CMV) infection and disease in certain high risk adult recipients of an allogenic hematopoietic stem cell transplant and for prophylaxis of CMV disease in certain high risk adult recipients of a kidney transplant, grew 35% in the first quarter of 2024 largely due to higher global demand, particularly in the U.S. and China.

Cardiovascular


	Three Months Ended March 31,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change
Alliance Revenue - Adempas/Verquvo (1)	$	98	$	99	(1)	%	(1)	%
Adempas	70		59		18	%	18	%

(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 in the first quarter of 2024 was nearly flat compared with the corresponding prior year period. Revenue also includes sales of Adempas and Verquvo in Merck’s marketing territories. Sales of Adempas in Merck’s marketing territories grew 18% in the first quarter of 2024 primarily due to higher demand.

In March 2024, the FDA approved Winrevair (sotatercept-csrk) for the treatment of adults with PAH (World Health Organization [WHO] Group 1) to increase exercise capacity, improve WHO functional class, and reduce the risk of clinical worsening events. The approval is based on the STELLAR trial. Winrevair is the subject of a licensing agreement with Bristol-Myers Squibb Company (BMS) and Merck will pay 22% royalties on sales of Winrevair in the PH field to BMS.

Virology


	Three Months Ended March 31,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change
Lagevrio	$	350	$	392	(11)	%	(5)	%

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 11% in the first quarter of 2024 primarily due to lower demand in certain markets in the Asia Pacific region, partially offset by sales in the U.S. and higher demand in Japan.

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Immunology


	Three Months Ended March 31,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change
Simponi	$	184	$	180	2	%	1	%
Remicade	39		51		(24)	%	(21)	%

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

Diabetes


	Three Months Ended March 31,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change
Januvia/Janumet	$	670	$	880	(24)	%	(21)	%

Worldwide combined sales of Januvia and Janumet, medicines that help lower blood sugar levels in adults with type 2 diabetes, declined 24% in the first quarter of 2024 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 quarter 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 occurred in 2023 and will continue in 2024, 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 7 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 March 31,						% Change Excluding Foreign Exchange
($ in millions)	2024		2023		% Change
Livestock	$	850	$	849	—	%	4	%
Companion Animal	661		642		3	%	4	%
	$	1,511	$	1,491	1	%	4	%

Animal Health sales grew 1% in the first quarter of 2024, or 4% excluding the unfavorable impact of foreign exchange. Approximately 3 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. Sales of livestock products were nearly flat in the first quarter of 2024 primarily due to higher pricing, as well as increased demand for swine and poultry products, partially offset by lower demand for ruminant products. Sales of companion animal products grew 3% in the first quarter of 2024 due to higher pricing. Sales of Bravecto (fluralaner), a line of oral and topical parasitic control products, were $332 million for the first quarter of 2024, representing growth of 6% compared with the corresponding prior year period, or 7% excluding the unfavorable effect of foreign exchange.

In February 2024, Merck entered into a definitive agreement to acquire the aqua business of Elanco for $1.3 billion in cash. See “Business Development Transactions” above for additional information related to this transaction.

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Costs, Expenses and Other


	Three Months Ended March 31,
($ in millions)	2024		2023		% Change
Cost of sales	$	3,540	$	3,926	(10)	%
Selling, general and administrative	2,483		2,479		—	%
Research and development	3,992		4,276		(7)	%
Restructuring costs	123		67		84	%
Other (income) expense, net	(33)		89		*
	$	10,105	$	10,837	(7)	%

* > 100%

Cost of Sales

Cost of sales declined 10% in the first quarter of 2024. Cost of sales includes the amortization of intangible assets recorded in connection with acquisitions, collaborations, and licensing arrangements, which totaled $462 million and $532 million in the first quarter of 2024 and 2023, respectively. Amortization expense in the first quarter of 2023 includes $72 million 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 $116 million and $29 million in the first quarter of 2024 and 2023, respectively, primarily reflecting accelerated depreciation and asset write-offs 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 77.6% in the first quarter of 2024 compared with 72.9% in the first quarter of 2023. The gross margin improvement was primarily due to the favorable effects of product mix (including lower royalty rates related to Keytruda and Gardasil/Gardasil 9 sales), foreign exchange and lower amortization of intangible assets, partially offset by higher restructuring costs and inventory write-offs.

Selling, General and Administrative

Selling, general and administrative (SG&A) expenses were nearly flat in the first quarter of 2024 primarily due to higher administrative costs, largely offset by lower promotional spending, reflecting the prioritization of spending on key growth products, and the favorable effect of foreign exchange.

Research and Development

Research and development (R&D) expenses declined 7% in the first quarter of 2024 primarily due to lower charges for business development transactions, which included a $656 million charge for the acquisition of Harpoon in the first quarter of 2024, compared with charges of $1.2 billion for the acquisition of Imago and $175 million for a license and collaboration agreement with Kelun-Biotech in the first quarter of 2023. The decline was partially offset by higher compensation and benefit costs, increased clinical development spending, and higher investments in discovery research and early drug development in the first quarter of 2024.

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 $2.4 billion and $2.1 billion for the first quarter 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 the charges for the Harpoon and Imago acquisitions 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 approximately $1.6 billion and $2.2 billion for the first quarter of 2024 and 2023, respectively.

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 $800 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

- 32 -

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 now being accounted for as part of the 2024 Restructuring Program.

Restructuring costs, primarily representing separation and other costs associated with these restructuring activities, were $123 million and $67 million for the first quarter 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 $246 million and $97 million in the first quarter 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 $33 million of income in the first quarter of 2024 compared with $89 million of expense in the first quarter 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 (see Note 7 to the condensed consolidated financial statements), partially offset by lower income from investments in equity securities and higher interest expense in 2024.

For details on the components of Other (income) expense, net, see Note 10 to the condensed consolidated financial statements.


Segment Profits
Pharmaceutical segment profits	$	10,904	$	9,140
Animal Health segment profits	555		566
Other	(5,789)		(6,056)
Income Before Taxes	$	5,670	$	3,650

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 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 19% in the first quarter of 2024 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 declined 2% in the first quarter of 2024 reflecting higher production costs, increased administrative and promotional costs, as well as the unfavorable effect of foreign exchange.

Taxes on Income

The effective income tax rate of 15.9% for the first quarter of 2024 reflects a 1.6 percentage point unfavorable discrete impact of a charge for the acquisition of Harpoon for which no tax benefit was recognized. The effective income tax rate of 22.6% for the first quarter of 2023 reflects a 5.5 percentage point unfavorable discrete impact of a charge for the acquisition of Imago for which no tax benefit was recognized.

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 Tax Cuts and Jobs Act of 2017 requiring capitalization and amortization of R&D expenses for tax purposes is repealed along the lines recently proposed in the Tax Relief for American Families and

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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 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).

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


	Three Months Ended March 31,
($ in millions except per share amounts)	2024		2023
Income before taxes as reported under GAAP	$	5,670	$	3,650
Increase (decrease) for excluded items:
Acquisition- and divestiture-related costs	496		590
Restructuring costs	246		97
Income from investments in equity securities, net	(116)		(429)
Other items:
Charge for Zetia antitrust litigation settlements	—		573
Non-GAAP income before taxes	6,296		4,481
Income tax provision as reported under GAAP	903		825
Estimated tax benefit on excluded items (1)	109		88
Non-GAAP income tax provision	1,012		913
Non-GAAP net income	5,284		3,568
Less: Net income attributable to noncontrolling interests as reported under GAAP	5		4
Non-GAAP net income attributable to Merck & Co., Inc.	$	5,279	$	3,564
EPS assuming dilution as reported under GAAP (2)	$	1.87	$	1.11
EPS difference	0.20		0.29
Non-GAAP EPS assuming dilution (2)	$	2.07	$	1.40

(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 first quarter of 2024 and 2023 by $0.26 per share and $0.52 per share, respectively, of charges for certain upfront payments related to collaborations and licensing agreements, as well as charges related to pre-approval assets 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 abandonment, facility shut-down and other related costs, as well as employee-related

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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 consist of items that 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 2023 is a charge related to settlements with certain plaintiffs in the Zetia antitrust litigation (see Note 7 to the condensed consolidated financial statements).

Research and Development Update

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

MK-1022, patritumab deruxtecan, a potential first-in-class HER3 directed DXd antibody drug conjugate (ADC), is under priority 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. The FDA set a Prescription Drug User Fee Act (PDUFA), or target action, date of June 26, 2024 for the BLA. The priority review follows receipt of Breakthrough Therapy designation granted by the FDA in December 2021. The BLA is being reviewed under the Real-Time Oncology Review program. Patritumab deruxtecan (HER3-DXd) was discovered by Daiichi Sankyo and is being jointly developed by Daiichi Sankyo and Merck.

V116, the Company’s investigational 21-valent pneumococcal conjugate vaccine designed to help prevent invasive pneumococcal disease and pneumococcal pneumonia in adults, is under priority review by the FDA. The BLA for V116 is 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. The FDA set a PDUFA date of June 17, 2024. V116 was granted Breakthrough Therapy designation from the FDA for the prevention of invasive pneumococcal disease and pneumococcal pneumonia caused by Streptococcus pneumoniae serotypes 3, 6A/C, 7F, 8, 9N, 10A, 11A, 12F, 15A, 15B/C, 16F, 17F, 19A, 20, 22F, 23A, 23B, 24F, 31, 33F, 35B in adults 18 years of age and older. V116 is also under review in the EU.

MK-7962, Winrevair (sotatercept-csrk), Merck’s novel activin signaling inhibitor, is under review in the EU for the treatment of adult patients with PAH (WHO Group 1). The application is based on the results from the Phase 3 STELLAR trial. Winrevair was granted Priority Medicines (PRIME) scheme and Orphan Drug designation by the European Medicines Agency for the treatment of PAH.

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 Complete Response Letter (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 chronic cough and unexplained chronic cough. The CRL was not related to the safety of gefapixant. Merck is reviewing the FDA’s feedback to determine next steps.

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, many of which are currently in Phase 3 clinical development. Further trials are being planned for other cancers.

Keytruda is under priority review by the FDA in combination with chemotherapy (carboplatin and paclitaxel), followed by Keytruda as a single agent for the treatment of patients with primary advanced or recurrent endometrial carcinoma, based on the KEYNOTE-868 trial. The FDA set a PDUFA date of June 21, 2024 for the supplemental BLA. KEYNOTE-868 is also under review in the EU and Japan.

In addition, Keytruda is under review in the EU and Japan in combination with Padcev (enfortumab vedotin-ejfv), an ADC, for the treatment of adult patients with locally advanced or metastatic urothelial carcinoma, based on the KEYNOTE-A39 trial that was conducted in collaboration with Seagen (now Pfizer Inc.) and Astellas.

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

Keytruda is under review in Japan as part of a perioperative treatment regimen for certain patients with resectable stage II, IIIA or IIIB NSCLC based on the KEYNOTE-671 study. A perioperative treatment regimen includes treatment before surgery (neoadjuvant) and continued after surgery (adjuvant).

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Additionally, Keytruda is under review in Japan 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 adenocarcinoma, based on the KEYNOTE-859 trial.

Keytruda is also under review in Japan 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.

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

In March 2024, Merck announced that in the Phase 3 KEYLYNK-006 trial, Keytruda in combination with chemotherapy followed by Keytruda plus maintenance Lynparza did not meet the study’s pre-specified statistical criteria for overall survival or progression-free survival compared to Keytruda in combination with chemotherapy (pemetrexed plus carboplatin or cisplatin) followed by Keytruda plus maintenance chemotherapy (pemetrexed). A full evaluation of the data from this study is ongoing. Merck will work with investigators to share the results with the scientific community.

Also, the Company has discontinued development of MK-5475 in PAH but continues to study MK-5475 in PH associated with chronic obstructive pulmonary disease.

The chart below reflects the Company’s research pipeline as of May 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) Gastric Melanoma MK-1308 (quavonlimab)(2) Non-Small-Cell Lung MK-1308A (quavonlimab+pembrolizumab) Colorectal MK-2140 (zilovertamab vedotin) Hematological Malignancies MK-2400 (ifinatamab deruxtecan)(1) Colorectal Small-Cell Lung MK-2870 (sacituzumab tirumotecan)(1)(3) Neoplasm Malignant MK-3475 Keytruda Advanced Solid Tumors Prostate MK-3475A (pembrolizumab+hyaluronidase subcutaneous) Cutaneous Squamous Cell MK-4280 (favezelimab)(2) Non-Small-Cell Lung MK-4280A (favezelimab+pembrolizumab) Bladder 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) Biliary Bladder Breast Cervical Colorectal Endometrial Esophageal Gastric Head and Neck Hepatocellular Ovarian Prostate Renal V940(1)(2) Cutaneous Squamous Cell Bladder Renal Cell	Cancer MK-7902 Lenvima(1)(2) Head and Neck Dengue Fever Virus Vaccine V181 HIV-1 Infection MK-8591B (islatravir+MK-8507)(4) MK-8591D (islatravir+lenacapavir)(1)(5) HIV-1 Prevention 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 Schizophrenia MK-8189(6) 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)(7) Cancer MK-1022 (patritumab deruxtecan)(1) Non-Small-Cell Lung (May 2022) (EU) MK-1026 (nemtabrutinib) Hematological Malignancies (March 2023) MK-1308A (quavonlimab+pembrolizumab) Renal Cell (April 2021) MK-2870 (sacituzumab tirumotecan)(1)(3) Breast (April 2024) Endometrial (December 2023) Non-Small-Cell Lung (November 2023) MK-3475 Keytruda Cutaneous Squamous Cell (August 2019) (EU) Hepatocellular (May 2016) (EU) Mesothelioma (May 2018) 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) Colorectal (November 2021) 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) Melanoma (January 2023) Non-Small-Cell Lung (April 2021) Small-Cell Lung (March 2022) MK-7902 Lenvima(1)(2) Esophageal (July 2021) Gastric (December 2020) V940(1)(2) Melanoma (July 2023) Non-Small-Cell Lung (December 2023) HIV-1 Infection MK-8591A (doravirine+islatravir) (February 2020)(5) Hypercholesterolemia MK-0616 (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) Non-Small-Cell Lung (U.S.) MK-6482 Welireg Von Hippel-Lindau (VHL) Disease (EU) Cough MK-7264 (gefapixant) (U.S.)(8) Pneumococcal Vaccine Adult V116 (U.S.) (EU) Pulmonary Arterial Hypertension MK-7962 Winrevair (EU)	Certain Supplemental Filings Cancer MK-3475 Keytruda • Primary Advanced or Recurrent Endometrial Carcinoma (KEYNOTE-868) (U.S.) (EU) (JPN) • First-Line Locally Advanced or Metastatic Urothelial Cancer (KEYNOTE-A39) (EU) (JPN) • High-Risk Locally Advanced Cervical Cancer (KEYNOTE-A18) (EU) (JPN) • Resectable Stage II, IIIA or IIIB NSCLC (KEYNOTE-671) (JPN) • First-Line HER2 Negative Locally Advanced Unresectable or Metastatic Gastric Cancer (KEYNOTE-859) (JPN) • First-Line Locally Advanced Unresectable or Metastatic Biliary Tract Cancer (KEYNOTE-966) (JPN) MK-6482 Welireg • Previously Treated Advanced Renal Cell Carcinoma (LITESPARK-005) (EU)
	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) Phase 2b development costs are being co-funded. (7) Available in the U.S. under Emergency Use Authorization. (8) In December 2023, the FDA issued a CRL for the NDA for gefapixant. Merck is reviewing the FDA’s feedback to determine next steps.

Analysis of Liquidity and Capital Resources


($ in millions)	March 31, 2024			December 31, 2023
Cash and investments	$	5,899		$	7,345
Working capital	6,346			6,474
Total debt to total liabilities and equity	32.3		%	32.9		%

Cash provided by operating activities was $3.1 billion in the first three months of 2024 compared with $1.3 billion in the first three months of 2023 reflecting stronger operating performance. Cash provided by operating activities was reduced by milestone and option payments related to certain collaborations of $245 million and $115 million in the first three 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 $1.4 billion in the first three months of 2024 compared with $2.4 billion in the first three 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 higher proceeds from sales of securities and other investments.

Cash used in financing activities was $2.8 billion in the first three months of 2024 compared with $2.1 billion in the first three months of 2023. The higher use of cash in financing activities was primarily due to higher payments on debt and higher dividends paid to shareholders, partially offset by higher proceeds from the exercise of stock options and lower purchases of treasury stock.

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The Company has accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. The Company factored $2.7 billion and $3.0 billion of accounts receivable at March 31, 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 March 2024, the Company’s $750 million, 2.90% notes matured in accordance with their terms and were repaid.

Dividends paid to stockholders were $2.0 billion and $1.9 billion for the first three months of 2024 and 2023, respectively. In November 2023, Merck’s Board of Directors declared a quarterly dividend of $0.77 per share on the Company’s outstanding common stock for the first quarter of 2024 that was paid in January 2024. In January 2024, the Board of Directors declared a quarterly dividend of $0.77 per share on the Company’s outstanding common stock for the second quarter that was paid in April 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 three months of 2024, the Company purchased $122 million (1 million shares) of its common stock for its treasury under this program. As of March 31, 2024, the Company’s remaining share repurchase authorization was $3.6 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. 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 are disclosed 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 March 31, 2024, the Company’s disclosure controls and procedures are effective. For the first 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 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.

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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 7 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 March 31, 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)
January 1 - January 31	147,500	$112.29	147,500	$3,684
February 1 - February 29	209,200	$127.83	209,200	$3,658
March 1 - March 31	633,971	$123.45	633,971	$3,579
Total	990,671	$122.71	990,671

(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 March 31, 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: May 3, 2024						/s/ Jennifer Zachary
						JENNIFER ZACHARY
						Executive Vice President and General Counsel

Date: May 3, 2024						/s/ Dalton Smart
						DALTON SMART
						Senior Vice President Finance - Global Controller

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

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