What changed in this filing

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Item 1A. Risk Factors

2024-02-26 compared with 2023-02-24 · 99 added, 109 removed, 358 unchanged (37% of the section changed)

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The following is a summary of the principal risk factors facing the Company:

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• The Company is dependent on its patent rights, and if its patent rights are invalidated or circumvented, its business could be materially adversely affected.

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• Key products generate a significant amount of the Company’s profits and cash flows, and any events that adversely affect the markets for its leading products could have a material adverse effect on the Company’s results of operations and financial condition.

The Company expects that sales of Lagevrio , which were $5.7 billion in 2022, will decline significantly to approximately $1.0 billion in 2023.

• The Company’s research and development efforts may not succeed in developing commercially successful products and the Company may not be able to acquire commercially successful products in other ways;

in consequence, the Company may not be able to replace sales of successful products that lose patent protection.

consequently, the Company may not be able to replace sales of successful products that lose patent protection.

• The Company’s success is dependent on the successful development and marketing of new products, which are subject to substantial risks.

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• Unfavorable or uncertain economic conditions, together with cost-reduction measures being taken by certain governments, could negatively affect the Company’s operating results.

• The Company faces intense competition from lower cost generic products.

• The Company faces intense competition from competitors’ products.

• COVID-19-related disruptions have had an adverse impact on the Company’s business, operations and financial performance.

The Company is unable to predict the full extent to which the COVID-19 pandemic or any future pandemic, epidemic or similar public health threat will adversely impact its business, operations, financial performance, results of operations, and financial condition.

• The Company faces intense competition from both lower cost generic products and competitors’ products.

• The Company has significant global operations, which expose it to additional risks, and any adverse event could have a material adverse effect on the Company’s results of operations and financial condition.

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• The Company may not be able to realize the expected benefits of its investments in emerging markets.

• The ongoing war between Russia and Ukraine and related global disruptions could adversely affect the Company’s business, results of operations and financial condition.

• The Company is exposed to market risk from fluctuations in currency exchange rates and interest rates.

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• Reliance on third-party relationships and outsourcing arrangements could materially adversely affect the Company’s business.

• Negative events in the animal health industry could have a material adverse effect on future results of operations and financial condition.

• Negative events in the animal health industry could have a material adverse effect on future results of operations and financial condition of the Company or its Animal Health business.

• Biologics and vaccines carry unique risks and uncertainties, which could have a material adverse effect on the Company’s future results of operations and financial condition.

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and international laws and regulations.

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• The Company is subject to evolving and complex tax laws, which may result in additional liabilities that may affect results of operations and financial condition.

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• The Company is increasingly dependent on sophisticated software applications and computing infrastructure.

The Company could be a target of future cyber-attacks that could lead to a disruption of its worldwide operations, including manufacturing, research and sales operations.

The Company continues to be a target of cyber-attacks that could lead to a disruption of its worldwide operations, including manufacturing, research and sales operations.

• Social media and mobile messaging platforms present risks and challenges.

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In addition, if products that were measured at fair value and capitalized in connection with acquisitions experience difficulties in the market that negatively affect product cash flows, the Company may recognize material non-cash impairment charges with respect to the value of those products.

A chart listing the patent protection for certain of the Company’s marketed products, and U.S.

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A chart listing the key patent protection for certain of the Company’s marketed products, and U.S.

patent protection for candidates in Phase 3 clinical development is set forth above in Item 1.

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In the case of products that contribute significantly to the Company’s sales, the loss of market exclusivity can have a material adverse effect on the Company’s business, cash flow, results of operations, financial condition and prospects.

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, the Company expects that these products will not lose market exclusivity in the U.S.

until May 2026.

However, certain of the rulings are currently being appealed, and an unfavorable court decision would likely cause the products to lose exclusivity in the U.S.

toward the end of 2023.

The Company lost market exclusivity for Januvia in all of the EU and for Janumet in some European countries in September 2022.

Merck expects that exclusivity for Janumet will be lost in other European countries in April 2023.

While the Company lost market exclusivity for Januvia in China in 2022 with the approval of a generic equivalent product, the impact on sales in 2023 is expected to be modest.

It is anticipated that a generic equivalent of Janumet will be approved in China in the first quarter of 2023, but the impact to sales in 2023 is also expected to be modest.

As these products lose exclusivity, the Company anticipates that sales of Januvia and Janumet will decline substantially.

In 2023, the Company lost market exclusivity for Bridion in the EU and the Company has experienced a substantial decline in Bridion sales in those markets.

Bridion lost market exclusivity in Japan in January 2024 and will lose market exclusivity in the U.S.

in 2026 (subject to patent litigation discussed below) and the Company expects that sales in those markets will decline substantially thereafter.

In addition, the Company expects to lose market exclusivity in the U.S.

for Keytruda in 2028 and the Company anticipates that sales of Keytruda in the U.S.

will decline substantially thereafter.

Key products generate a significant amount of the Company’s profits and cash flows, and any events that adversely affect the markets for its leading products could have a material adverse effect on the Company’s results of operations and financial condition.

The Company expects that sales of Lagevrio , which were $5.7 billion in 2022, will decline significantly to approximately $1.0 billion in 2023.

The Company’s ability to generate profits and operating cash flow depends largely upon the continued profitability of the Company’s key products, such as Keytruda , Gardasil/Gardasil 9, Lynparza, Bravecto , and Bridion .

In 2023, the Company’s oncology portfolio, led by Keytruda , and its vaccines portfolio, led by Gardasil/Gardasil 9 , represented substantially all of the Company’s revenue growth.

In particular, in the aggregate, in 2023, sales of Keytruda and Gardasil/Gardasil 9 represented 56% of the Company’s total sales.

As a result of the Company’s dependence on key products, any event that adversely affects any of these products or the markets for any of these products could have a significant adverse impact on results of operations and financial condition.

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Such events could have a material adverse effect on the sales of any such products.

In particular, in 2022, sales of Lagevrio , which were $5.7 billion, represented a substantial portion of the Company’s revenue and profit growth.

The Company expects that sales of Lagevrio will decline significantly to approximately $1.0 billion in 2023.

The Company’s research and development efforts may not succeed in developing commercially successful products and the Company may not be able to acquire commercially successful products in other ways;

in consequence, the Company may not be able to replace sales of successful products that lose patent protection.

consequently, the Company may not be able to replace sales of successful products that lose patent protection.

In order to remain competitive, the Company, like other major pharmaceutical companies, must continue to launch new products.

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or sales of a new product may be disappointing.

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The Company cannot state with certainty when or whether any of its products now under development will be approved or launched;

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or whether any products, once launched, will be commercially successful.

The Company must maintain a continuous flow of successful new products and successful new indications for existing products

sufficient both to cover its substantial research and development costs and to replace sales that are lost as profitable products lose market exclusivity or are displaced by competing products or therapies.

The Company must maintain a continuous flow of successful new products and successful new indications for existing products sufficient both to cover its substantial research and development costs and to replace sales that are lost as profitable products lose market exclusivity or are displaced by competing products or therapies.

Failure to do so in the short term or long term would have a material adverse effect on the Company’s business, results of operations, cash flow, financial condition and prospects.

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The Company faces continued pricing pressure globally and, particularly in mature markets, from managed care organizations, government agencies and programs that could negatively affect the Company’s sales and profit margins.

In the U.S., these include (i) practices of managed care groups and institutional and governmental purchasers, (ii) U.S.

federal laws and regulations related to Medicare and Medicaid, including the Medicare Prescription Drug Improvement and Modernization Act of 2003, the ACA, the Inflation Reduction Act, and (iii) state activities aimed at increasing price transparency, including new laws as noted above in Item 1.

In the U.S., these include (i) U.S.

federal laws and regulations related to Medicare and Medicaid, including the Medicare Prescription Drug Improvement and Modernization Act of 2003, the ACA, and the IRA, (ii) practices of managed care groups and institutional and governmental purchasers, and (iii) state activities aimed at increasing price transparency, including new laws as noted above in Item 1.

“Competition and the Health Care Environment.” Changes to the health care system enacted as part of health care reform in the U.S., as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, could result in further pricing pressures.

As noted in Item 1.

“Competition and the Health Care Environment,” in 2023, HHS included Januvia in the first year of the IRA’s price setting program, which absent further legislative or court intervention will result in a government set price becoming effective on January 1, 2026.

Furthermore, the Company anticipates that HHS will include Keytruda in a subsequent selection of products to undergo IRA price setting, with such price likely to be effective in early 2028.

In addition, in the U.S., larger customers have received higher rebates on drugs in certain highly competitive categories.

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Outside the U.S., numerous major markets, including the EU, Japan and China have pervasive government involvement in funding health care and, in that regard, fix the pricing and reimbursement of pharmaceutical and vaccine products.

Consequently, in those markets, the Company is subject to government decision making and budgetary actions with respect to its products.

Consequently, in those markets, the Company is subject to government

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decision making and budgetary actions with respect to its products.

In Japan, the pharmaceutical industry is subject to government-mandated annual price reductions of pharmaceutical products and certain vaccines.

Furthermore, the government can order re-pricing for specific products if it determines that use of such product will exceed certain thresholds defined under applicable re-pricing rules.

Furthermore, the Japanese government can order re-pricing for specific products if it determines that use of such product will exceed certain thresholds defined under applicable re-pricing rules.

The Company expects pricing pressures to continue in the future.

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Uncertainty in global economic and geopolitical conditions may result in a slowdown to the global economy that could affect the Company’s business by reducing the prices that drug wholesalers and retailers, hospitals, government agencies and managed health care providers may be able or willing to pay for the Company’s products or by reducing the demand for the Company’s products, which could in turn negatively impact the Company’s sales and result in a material adverse effect on the Company’s business, cash flow, results of operations, financial condition and prospects.

As discussed above in “Competition and the Health Care Environment,” global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide.

As discussed above in Item 1.

“Competition and the Health Care Environment,” global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide.

Changes to the U.S.

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If credit and economic conditions worsen, the resulting economic and currency impacts in the affected markets and globally could have a material adverse effect on the Company’s results.

As a result of global macroeconomic conditions, the Company is experiencing some minor disruption and volatility in its global supply chain network.

These disruptions could increase in the future and cause delays in shipments of raw materials and packaging, as well as related cost inflation.

Any such disruptions, delays or costs may result in the Company’s inability to meet demand for the Company’s products.

The Company faces intense competition from lower cost generic products.

The Company faces intense competition from both lower cost generic products and competitors’ products.

In general, the Company faces increasing competition from lower-cost generic products.

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Any such proposal that is enacted into law could worsen this substantial negative effect on the Company’s sales, business, cash flow, results of operations, financial condition and prospects.

The Company faces intense competition from competitors’ products.

The Company’s products face intense competition from competitors’ products.

Also, the Company’s products face intense competition from competitors’ products.

This competition may increase as new products enter the market.

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In addition, if products that were measured at fair value and capitalized in connection with acquisitions experience difficulties in the market that negatively impact product cash flows, the Company may recognize material non-cash impairment charges with respect to the value of those products.

COVID-19-related disruptions have had an adverse impact on the Company’s business, operations and financial performance.

The Company’s business and financial results have been negatively impacted by COVID-19-related disruptions since the start of the pandemic.

Merck believes that global health systems and patients have largely adapted to the impacts of COVID-19, however, a substantial portion of Merck’s Pharmaceutical segment revenue is comprised of physician-administered products which could be adversely affected by the pandemic if it continues.

The continued duration and severity of the COVID-19 pandemic is uncertain and difficult to predict.

The degree to which COVID-19-related disruptions impact the Company’s results in 2023 will depend on future developments, beyond the Company’s knowledge or control, including governmental and third-party actions taken to contain or prevent the spread and treatment of the virus and mitigate its public health and economic effects.

In addition, any future pandemic, epidemic or similar public health threat could present similar risks to the Company’s business, cash flow, results of operations, financial condition and prospects.

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The Company has significant global operations, which expose it to additional risks, and any adverse event could have a material adverse effect on the Company’s results of operations and financial condition.

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• possible nationalization and expropriation.

In addition, there may be changes to the Company’s business and political position if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest;

In addition, there may be changes to the Company’s business if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest;

and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease.

Events like these could result in material adverse effects on macroeconomic conditions, currency exchange rates and financial markets.

Events like these, such as the ongoing war between Russia and Ukraine, and rising conflict in the Middle East, could result in material adverse effects on macroeconomic conditions, currency exchange rates and financial markets, and may adversely affect the Company’s business, results of operations and financial condition.

Climate change or legal, regulatory or market measures to address climate change may negatively affect the Company’s business, results of operations, cash flows and prospects.

The Company believes that climate change has the potential to negatively affect its business and results of operations, cash flows and prospects.

The Company is exposed to physical risks (such as extreme weather conditions or rising sea levels), risks in transitioning to a low-carbon economy (such as additional legal or regulatory requirements, changes in technology, market risk and reputational risk) and social and human effects (such as population dislocations and harm to health and well-being) associated with climate change.

The Company believes that climate change has the potential to negatively affect its business and results of operations, cash flow and prospects.

The Company is exposed to physical risks (such as extreme weather conditions, inland flooding or rising sea levels), risks in transitioning to a low-carbon economy (such as additional legal or regulatory requirements, changes in technology, market risk and reputational risk) and social and human effects (such as population dislocations and harm to health and well-being) associated with climate change.

These risks can be either acute (short-term) or chronic (long-term).

The adverse impacts of climate change include increased frequency and severity of natural disasters and extreme weather events such as hurricanes, tornados, wildfires (exacerbated by drought), flooding, and extreme heat.

Extreme weather and sea-level rise pose physical risks to the Company’s facilities as well as those of its suppliers.

Extreme weather, inland flooding and sea-level rise pose physical risks to the Company’s facilities as well as those of its suppliers.

Such risks include losses incurred as a result of physical damage to facilities, loss or spoilage of inventory, and business interruption caused by such natural disasters and extreme weather events.

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New legal or regulatory requirements may be enacted to prevent, mitigate, or adapt to the implications of a changing climate and its effects on the environment.

These regulations, which may differ across jurisdictions, could result in the Company being subject to new or expanded carbon pricing or taxes, increased compliance costs,

restrictions on greenhouse gas emissions, investment in new technologies, increased carbon disclosure and transparency, investments in data gathering and reporting systems, upgrades of facilities to meet new building codes, and the redesign of utility systems, which could increase the Company’s operating costs, including the cost of electricity and energy used by the Company.

The Company’s supply chain would likely be subject to these same transitional risks and would likely pass along any increased costs to the Company, all of which may affect the Company’s ability to procure raw materials or other supplies required for the operation of the Company’s business at the quantities and levels we require.

These regulations, which may differ across jurisdictions, could result in the Company being subject to new or expanded carbon pricing or taxes, increased compliance costs, restrictions on greenhouse gas emissions, investment in new technologies, increased greenhouse gas emission disclosure (including costs resulting from mandatory or voluntary reporting, diligence or disclosure) and transparency, recurring investments in data gathering and reporting systems, upgrades of facilities to meet new building codes, and the redesign of utility systems, which could increase the Company’s operating costs, including the cost of electricity and energy used by the Company.

The Company’s supply chain would likely be subject to these same transitional risks and would likely pass along any increased costs to the Company, which may affect the Company’s ability to procure raw materials or other supplies required for the operation of the Company’s business at the quantities and levels required.

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Environmental, social and governance (ESG) matters may impact the Company’s business and reputation.

Governmental authorities, non-governmental organizations, customers, investors, external stakeholders and employees are increasingly sensitive to ESG concerns, such as diversity and inclusion, climate change, water use, recyclability or recoverability of packaging, and plastic waste.

This focus on ESG concerns may lead to new requirements that could result in increased costs associated with developing, manufacturing and distributing the Company’s products.

The Company’s ability to compete could also be affected by changing customer preferences and requirements, such as growing demand for more environmentally friendly products, packaging or supplier practices, or by failure to meet such customer expectations or demand.

While the Company strives to improve its ESG performance and has set certain ESG goals and initiatives, the Company risks negative stockholder reaction, including from proxy advisory services, as well as damage to its brand and reputation, if the Company fails to meet its goals and initiatives or otherwise does not act responsibly, or if the Company is perceived to not be acting responsibly, in key ESG areas, including equitable access to medicines and vaccines, product quality and safety, diversity and inclusion, environmental stewardship, support for local communities, corporate governance and transparency, and addressing human capital factors in the Company’s operations.

This focus on ESG concerns may lead to new requirements that could result in increased costs associated with developing, manufacturing and distributing the Company’s products, and related reporting obligations.

The Company’s ability to compete could also be affected by changing customer preferences and requirements, such as growing demand for validated net zero greenhouse gas emission targets and more environmentally friendly products, packaging or supplier practices, or by failure to meet such customer expectations or demand.

While the Company strives to improve its ESG performance and has set certain ESG goals and initiatives, the Company risks negative shareholder reaction, including from proxy advisory services, as well as damage to its brand and reputation and inability to attract and retain employee talent, if the Company fails to meet its goals and initiatives or otherwise does not act responsibly, or if the Company is perceived to not be acting responsibly, in key ESG areas, including equitable access to medicines and vaccines, product quality and safety, diversity and inclusion, environmental stewardship, reduction of greenhouse gas emissions, support for local communities, corporate governance and transparency, and addressing human capital factors in the Company’s operations.

Responding to these ESG considerations and implementation of the Company’s ESG goals and initiatives involves risks and uncertainties, requires investments, and depends in part on third-party performance or data that is outside of the Company’s control.

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If the Company does not meet the evolving and varied ESG expectations of its investors, customers and other stakeholders, the Company could experience reduced demand for its products, loss of customers, and other negative impacts on the Company’s business and results of operations.

In addition, the Company is subject to expanding ESG mandatory and voluntary reporting, diligence and disclosure requirements, including the EU’s Corporate Sustainability Reporting Directive (CSRD) and potentially the SEC’s proposed climate-related reporting requirements, the recently enacted legislation in California requiring reporting of greenhouse gas emissions and climate risk, and similar regulatory requirements in other jurisdictions.

These evolving regulatory requirements are likely to result in increased costs and complexities of compliance in order to collect, measure and report on the relevant ESG-related information.

Failure to attract and retain highly qualified personnel could affect the Company’s ability to successfully develop and commercialize products.

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Merck has, in the past, experienced difficulties in manufacturing certain of its products, including vaccines.

For example, in 2020 the Company issued a product recall for Zerbaxa following the identification of product sterility issues.

For example, in 2020 the Company issued a product recall for Zerbaxa following the identification of product sterility issues and in 2023 the Company voluntarily recalled certain batches of Vaxneuvance in the U.S.

due to instances of syringe breakage.

The Company may, in the future, experience other difficulties and delays in manufacturing its products, such as (i) failure of the Company or any of its vendors or suppliers to comply with Current Good Manufacturing Practices and other applicable regulations and quality assurance guidelines that could lead to manufacturing shutdowns, product shortages and delays in product manufacturing;

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As previously disclosed, the Company is working to reduce the level of nitrosamines in its sitagliptin-containing medicines such as Januvia .

Difficulties in reducing those levels, or achieving timely regulatory approvals for required changes, could result in product shortages.

The Company has made significant progress in reducing the level of nitrosamines and is now consistently releasing product in major markets that is expected to comply with the health authorities’ long-term limit.

However, difficulties in reducing those levels, or achieving timely regulatory approvals for required changes, could result in product shortages.

In addition, the Company could experience difficulties or delays in manufacturing its products caused by natural disasters, such as hurricanes.

Manufacturing difficulties can result in product shortages, leading to lost sales and reputational harm to the Company.

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The Company may not be able to realize the expected benefits of its investments in emerging markets.

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Some countries within emerging markets may be especially vulnerable to periods of global financial instability or may have very limited resources to spend on health care.

In order for the Company to successfully implement its emerging markets strategy, it must attract and retain qualified personnel.

In order for the Company to operate successfully in emerging markets, it must attract and retain qualified personnel.

The Company may also be required to increase its reliance on third-party agents within less developed markets, which may affect its ability to realize continued growth and may also increase the Company’s risk exposure.

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has increased accordingly.

In addition to its commercial operations, the Company has significant research and manufacturing operations in China.

In addition to its commercial operations, the Company has significant research and manufacturing operations in China, including working with Chinese entities such as Wuxi Apptech Co., Ltd.

If geopolitical tensions were to increase and disrupt the Company’s operations in China, such disruption could result in a material adverse effect on the Company’s product development, sales, business, cash flow, results of operations, financial condition and prospects.

Also, continued growth of the Company’s business in China is dependent upon ongoing development of a favorable environment for innovative pharmaceutical products and vaccines, sustained access for the Company’s currently marketed products, and the absence of trade impediments or adverse pricing controls.

As noted above in “Competition and the Health Care Environment,” pricing pressure in China has increased as the Chinese government has been taking steps to reduce costs, including implementing health care reform that has led to the acceleration of generic substitution, where available.

As noted above in Item 1.

“Competition and the Health Care Environment,” pricing pressure in China has increased as the Chinese government has been taking steps to reduce costs, including implementing health care reform that has led to the acceleration of generic substitution, where available.

While the mechanism for drugs being added to the NRDL evolves, inclusion may require a price negotiation which could impact the outlook in the market for selected brands.

In 2021, drugs were added to the NRDL with an average of more than 60% price reductions.

A new NRDL was recently completed in which new entries averaged 60% price reductions.

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For all these reasons, sales within emerging markets carry significant risks.

However, at the same time, macro economic growth of selected emerging markets is expected to outpace Europe and even the U.S., leading to significant increased health care spending in those countries and access to innovative medicines for patients.

However, at the same time, macro-economic growth of selected emerging markets is expected to lead to significant increased health care spending in those countries and access to innovative medicines for patients.

A failure to maintain the Company’s presence in emerging markets could therefore have a material adverse effect on the Company’s business, cash flow, results of operations, financial condition and prospects.

The ongoing war between Russia and Ukraine and related global disruptions could adversely affect the Company’s business, results of operations and financial condition.

The ongoing war between Russia and Ukraine, and the financial and economic sanctions imposed by the U.S., the EU and other countries in response, are having pervasive direct and indirect effects on the global economy, and may adversely affect the Company’s business, results of operations and financial condition.

The Company is working cross-functionally across the globe to monitor and mitigate interruptions to business continuity resulting from the war, including its impact on Merck’s supply chain, operations and clinical trials.

For humanitarian reasons, the Company is continuing to supply essential medicines and vaccines in Russia while working to maintain compliance with international sanctions.

Merck is donating profits resulting from its operations in Russia to humanitarian causes.

The Company does not have research or manufacturing facilities in Russia, currently does not plan to make further investments in Russia, and has suspended screening and enrollment in ongoing clinical trials as well as planning for new studies in Russia, although the Company continues to treat patients already enrolled in existing clinical trials and collect data from these studies.

The financial impacts of the war between Russia and Ukraine were immaterial to the Company’s consolidated financial statements in 2022.

However, the degree to which the war and related disruptions will impact the Company’s results in the future is difficult to predict and will depend on developments outside of the Company’s control, including, but not limited to, the duration and severity of the war, ongoing and additional financial and economic sanctions imposed by governments in response, restrictions on travel, regional instability, geopolitical

shifts, and adverse effects on fuel and energy costs, supply chains, macroeconomic conditions, currency exchange rates and financial markets.

Such developments may negatively impact the Company directly or indirectly as well as the parties with which the Company conducts business.

In addition, the effects of the war between Russia and Ukraine could heighten other risks disclosed herein, which could materially adversely affect the Company’s business, results of operations and financial condition.

The Company is exposed to market risk from fluctuations in currency exchange rates and interest rates.

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Additionally, the Company has entered and will enter into business development transactions, borrowings or other financial transactions that may give rise to currency and interest rate exposure.

Since the Company cannot, with certainty, foresee and mitigate against such adverse fluctuations, fluctuations in currency exchange rates, interest rates and inflation could negatively affect the Company’s business, cash flow, results of operations, financial condition and prospects.

Since the Company cannot, with certainty, foresee and mitigate against such adverse changes, fluctuations in currency exchange rates, interest rates and inflation could negatively affect the Company’s business, cash flow, results of operations, financial condition and prospects.

For example, Argentina is currently experiencing hyperinflation, which is affecting the Company’s operations in that market.

In order to mitigate against the adverse impact of these market fluctuations, the Company will from time to time enter into hedging agreements.

While hedging agreements, such as currency options and forwards and interest rate swaps, may limit some of the exposure to exchange rate and interest rate fluctuations, such attempts to mitigate these risks may be costly and not always successful.

A portion of Merck’s indebtedness bears interest at variable interest rates, primarily based on the London Interbank Offered Rate (LIBOR).

LIBOR is the subject of national, international and other regulatory guidance and proposals for reform, which will cause LIBOR to cease to exist entirely in the future.

While the Company has begun to implement alternative reference rates as alternatives to LIBOR, the Company cannot predict the consequences and timing of any additional or unexpected developments, which could include an increase in interest expense.

Pharmaceutical products can develop unexpected safety or efficacy concerns.

Unexpected safety or efficacy concerns can arise with respect to marketed products, whether or not scientifically justified, leading to product recalls, withdrawals, or declining sales, as well as product liability, consumer fraud and/or other claims, including potential civil or criminal governmental actions.

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Reliance on third-party relationships and outsourcing arrangements could materially adversely affect the Company’s business.

The Company depends on third parties, including suppliers, alliances with other pharmaceutical and biotechnology companies, and third-party service providers, for key aspects of its business including development, manufacture and commercialization of its products and support for its information technology (IT) systems.

The Company depends on third parties, including suppliers, distributors, alliances with other pharmaceutical and biotechnology companies, and third-party service providers, for key aspects of its business including development, manufacture and commercialization of its products and support for its information technology (IT) systems.

Failure of these third parties to meet their contractual, regulatory and other obligations to the Company or the development of factors that materially disrupt the relationships between the Company and these third parties could have a material adverse effect on the Company’s business.

Negative events in the animal health industry could have a material adverse effect on future results of operations and financial condition.

Negative events in the animal health industry could have a material adverse effect on future results of operations and financial condition of the Company or its Animal Health business.

Future sales of key animal health products could be adversely affected by a number of risk factors including certain risks that are specific to the animal health business.

For example, the outbreak of disease carried by animals, such as African Swine Fever, could lead to their widespread death and precautionary destruction as well as the reduced consumption and demand for animals, which could adversely affect the Company’s results of operations.

For example, the outbreak of disease carried by animals, such as African Swine Fever or Avian Influenza, could lead to their widespread death and precautionary destruction as well as the reduced consumption and demand for animals, which could adversely affect the Company’s results of operations.

Also, the outbreak of any highly contagious diseases near the Company’s main production sites could require the Company to immediately halt the manufacture of its animal health products at such sites or force the Company to incur substantial expenses in procuring raw materials or products elsewhere.

Other risks specific to animal health include epidemics and pandemics, government procurement and pricing practices, weather and global agribusiness economic events.

In addition, in 2022, sales of Bravecto were $1.0 billion, which represented approximately 19% of the Company’s Animal Health segment sales.

Other risks specific to animal health include epidemics and pandemics affecting livestock, government procurement and pricing practices, weather and global agribusiness economic events.

In addition, in 2023, sales of Bravecto were $1.1 billion, which represented 19% of the Company’s Animal Health segment sales.

Any negative event with respect to Bravecto could have a material adverse effect on the Company’s Animal Health sales.

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For example, in the U.S., a BLA, including both preclinical and clinical trial data and extensive data regarding the manufacturing procedures, is required for human vaccine candidates, and FDA approval is generally required for the release of each manufactured commercial human vaccine lot.

• Manufacturing biologics and vaccines, especially in large quantities, is often complex and may require the use of innovative technologies to handle living micro-organisms.

• Manufacturing biologics and vaccines, especially in large quantities, is complex and may require the use of innovative technologies to handle living micro-organisms.

Each lot of an approved biologic and vaccine must undergo thorough testing for identity, strength, quality, purity and potency.

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Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage.

When changes are made to the manufacturing process, the Company may be required to provide preclinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes.

• Biologics and vaccines are frequently costly to manufacture because production ingredients are derived from living animal or plant material, and most biologics and vaccines cannot be made synthetically.

• Biologics and vaccines are costly to manufacture because production ingredients are derived from living animal or plant material, and most biologics and vaccines cannot be made synthetically.

In particular, keeping up with the demand for vaccines may be difficult due to the complexity of producing vaccines.

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• The use of biologically derived ingredients can lead to variability in the manufacturing process and could lead to allegations of harm, including infections or allergic reactions, which allegations would be reviewed through a standard investigation process that could lead to closure of product facilities due to possible contamination.

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has been, and will continue to be, subject to increasing regulation and political action.

As discussed above in “Competition and the Health Care Environment,” the Company believes that the health care industry will continue to be subject to increasing regulation as well as political and legal action, as future proposals to reform the health care system are considered by the Executive branch, Congress and state legislatures.

In 2022, Congress passed the Inflation Reduction Act, 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.

As discussed above in Item 1.

“Competition and the Health Care Environment,” the Company believes that the health care industry will continue to be subject to increasing regulation as well as political and legal action, as future proposals to reform the health care system are considered by the Executive branch, Congress and state legislatures.

In 2022, Congress passed the 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.

As noted in Item 1.

Furthermore, the Company anticipates that HHS will include Keytruda in a subsequent selection of products to undergo IRA price setting, with such price likely to be effective in early 2028.

In addition, in 2021, 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.

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Prior to this change, manufacturers have not been required to pay more than 100% of the Average Manufacturer Price (AMP) in rebates to state Medicaid programs for Medicaid-covered drugs.

As a result of this provision, beginning in 2024, it is possible that manufacturers may have to pay state Medicaid programs more in rebates than they received on sales of particular products.

This change could present a risk to Merck in the future for drugs that have high Medicaid utilization and rebate exposure that is more than 100% of the AMP.

As a result of this provision, beginning in 2024, manufacturers may have to pay state Medicaid programs more in rebates than they received on sales of particular products.

This change presents a risk to Merck for drugs that have high Medicaid utilization and rebate exposure that is more than 100% of the AMP.

In the U.S., the Biden Administration and Congress continue to discuss legislation designed to control health care costs, including the cost of drugs.

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The FDA and foreign regulatory authorities, including in the EU, Japan and China, have substantial discretion to require additional testing, to delay or withhold registration and marketing approval and to otherwise preclude distribution and sale of a product.

Even if the Company is successful in developing new products, it will not be able to market any of those products unless and until it has obtained all required regulatory approvals in each jurisdiction where it proposes to market the new products.

Even if the Company is successful in developing new products, it will not be able to market any of those products unless and until it has obtained all required regulatory approvals (which in limited circumstances may include authorizations for emergency use) in each jurisdiction where it proposes to market the new products.

Once obtained, the Company must maintain approval as long as it plans to market its new products in each jurisdiction where approval is required.

The Company’s failure to obtain approval, significant delays in the approval process, or its failure to maintain approval in any jurisdiction will prevent it from selling the products in that jurisdiction.

The Company would not be able to realize revenues for those new products in any jurisdiction where it does not have approval.

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Developments following regulatory approval may adversely affect sales of the Company’s products.

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If previously unknown side effects are discovered or if there is an increase in negative publicity regarding known side effects of any of the Company’s products, it could significantly reduce demand for the product or require the Company to take actions that could negatively affect sales, including removing the product from the market, restricting its distribution or applying for labeling changes.

Further, in the current environment in which all pharmaceutical companies operate, the Company is at risk for product liability and consumer protection claims and

civil and criminal governmental actions related to its products, research and/or marketing activities.

Further, in the current environment in which all pharmaceutical companies operate, the Company is at risk for product liability and consumer protection claims and civil and criminal governmental actions related to its products, research and/or marketing activities.

In addition, dissemination of promotional materials through evolving digital channels serves to increase visibility and scrutiny in the marketplace.

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(viii) emerging and new global regulatory requirements for reporting payments and other value transfers to health care professionals;

(ix) environmental regulations;

(ix) environmental regulations, such as the EU’s CSRD;

and (x) the potential impact of importation restrictions, embargoes, trade sanctions and legislative and/or other regulatory changes.

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Significant judgment is required for determining the Company’s tax liabilities, and the Company’s tax returns are routinely examined by various tax authorities.

In connection with the Organization for Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting project, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other countries.

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The Company believes that its accrual for tax contingencies is adequate for all open years based on past experience, interpretations of tax law, and judgments about potential actions by tax authorities;

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and (viii) tax liabilities resulting from assessments from tax authorities.

As previously disclosed, Merck, along with certain subsidiaries, are defendants in a number of lawsuits filed starting in 2018 on behalf of direct and indirect purchasers of Zetia (ezetimibe) alleging violations of federal and state antitrust laws, as well as other state statutory and common law causes of action.

The lawsuits filed on behalf of

twenty-five direct purchasers, eight retailers, and a class of indirect purchasers are scheduled to proceed to trial on April 17, 2023.

In these cases, plaintiffs seek up to a maximum of $12.7 billion in damages after trebling.

“Financial Statements and Supplementary Data,” Note 11, “Contingencies and Environmental Liabilities” for more information on the Company’s legal matters.

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The Company is increasingly dependent on sophisticated software applications and computing infrastructure.

The Company could be a target of future cyber-attacks that could lead to a disruption of its worldwide operations, including manufacturing, research and sales operations.

The Company is increasingly dependent on sophisticated software applications, complex information technology systems, computing infrastructure, and cloud service providers (collectively, IT systems) to conduct critical operations.

The Company continues to be a target of cyber-attacks that could lead to a disruption of its worldwide operations, including manufacturing, research and sales operations.

Certain of these systems are managed, hosted, provided or used by third parties to assist in conducting the Company’s business.

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Misuse of any of these IT systems could result in the disclosure of sensitive personal information or the theft of trade secrets, intellectual property, or other confidential business information.

The Company continues to leverage new and innovative technologies across the enterprise to replace outmoded technology and improve the efficacy and efficiency of its business processes, including data acquisition;

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the use of which can create new risks.

In addition, the Company’s Animal Health business sells technology products that, when deployed, could potentially be compromised by a third party and cause disruption both internally and externally.

Although the aggregate impact of cyber-attacks and network disruptions on the Company’s operations and financial condition has not been material to date, the Company continues to be a target of events of this nature and expects them to continue.

The Company monitors its data, information technology and personnel usage of Company IT systems to reduce these risks and continues to do so on an ongoing basis for any current or potential threats.

The Company monitors its data, information technology and personnel usage of Company IT systems to identify and attempt to reduce these risks and continues to do so on an ongoing basis for any current or potential threats.

There can be no assurance that the Company’s efforts to protect its data and IT systems or the efforts of third-party providers to protect their IT systems will be successful in preventing disruptions to the Company’s operations, including its manufacturing, research, and sales operations.

Such disruptions have in the past and could in the future result in loss of revenue, or the loss of critical or sensitive information from the Company’s or the Company’s third-party providers’ databases or IT systems and have in the past and could in the future also result in financial, legal, business or reputational harm to the Company and substantial remediation costs.

The Company’s growing use of artificial intelligence (AI) systems to automate processes, analyze data, and support decision-making poses inherent risks.

Flaws, biases, or malfunctions in these systems could lead to operational disruptions, data loss, or erroneous decision-making, impacting the Company’s business operations, financial condition, and reputation.

Ethical and legal challenges may arise, including biases or discrimination in AI outcomes, non-compliance with data protection regulations, and lack of transparency.

Furthermore, the deployment of AI systems could expose the Company to increased cybersecurity threats, such as data breaches and unauthorized access leading to financial losses, legal liabilities, and reputational damage.

The Company also faces competitive risks if it fails to adopt AI or other machine learning technologies in a timely fashion.

Social media and mobile messaging platforms present risks and challenges.

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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, and may include statements related to the expected impact of the COVID-19 pandemic.

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.

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The outcome of the lengthy and complex process of new product development is inherently uncertain.

A drug candidate can fail at any stage of the process and one or more late-stage product candidates could fail to receive regulatory approval.

A drug candidate can fail at any stage of

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the process and one or more late-stage product candidates could fail to receive regulatory approval.

New product candidates may appear promising in development but fail to reach the market because of efficacy or safety concerns, the inability to obtain necessary regulatory approvals, the difficulty or excessive cost to manufacture and/or the infringement of patents or intellectual property rights of others.

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and abroad, including rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and health care reform, pharmaceutical reimbursement and pricing in general.

• The impact of the global COVID-19 pandemic and any future pandemic, epidemic, or similar public health threat, on the Company’s business, operations, financial performance and prospects.

• Changes in government laws and regulations, including laws governing intellectual property, and the enforcement thereof affecting the Company’s business.

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• Cyber-attacks on the Company’s or third-party providers’ information technology systems, which could disrupt the Company’s operations.

• Lost market opportunity resulting from delays and uncertainties in the approval process of the FDA and foreign regulatory authorities.

• Lost market opportunity resulting from delays and uncertainties in the approval process of the FDA and/or foreign regulatory authorities.

• Increased focus on privacy issues in countries around the world, including the U.S., the EU, and China.

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See “Risk Factors” above.

Unresolved Staff Comments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors