What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-02-24 · 394 added, 369 removed, 593 unchanged (56% of the section changed)

1 unchanged sentence

The following section of this Form 10-K generally discusses 2023 and 2022 results and year-to-year comparisons between 2023 and 2022.

Discussion of 2020 results and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed on February 25, 2022 .

Discussion of 2021 results and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed on February 24, 2023 .

Description of Merck’s Business

6 unchanged sentences

Human health vaccine products consist of preventive pediatric, adolescent and adult vaccines.

The Company sells these human health vaccines primarily to physicians, wholesalers, physician distributors and government entities.

The Company sells these human health vaccines primarily to physicians, wholesalers, distributors and government entities.

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.

1 unchanged sentence

The Company sells its products to veterinarians, distributors, animal producers, farmers and pet owners.

Spin-Off of Organon & Co.

On June 2, 2021, Merck completed the spin-off of products from its women’s health, biosimilars and established brands businesses into a new, independent, publicly traded company named Organon & Co.

(Organon) through a distribution of Organon’s publicly traded stock to Company shareholders.

The distribution is expected to qualify and has been treated as tax-free to the Company and its shareholders for U.S.

federal income tax purposes.

The established brands included in the transaction consisted of dermatology, non-opioid pain management, respiratory, select cardiovascular products, as well as the rest of Merck’s diversified brands franchise.

Merck’s existing research pipeline programs continue to be owned and developed within Merck as planned.

The historical results of the businesses that were contributed to Organon in the spin-off have been reflected as discontinued operations in the Company’s consolidated financial statements through the date of the spin-off (see Note 5 to the consolidated financial statements).

13 unchanged sentences

$ 1.51 (80) % (75) % $ 7.48 39 % 43 % $ 5.37

(1) Non-GAAP net income and non-GAAP earnings per share (EPS) exclude acquisition and divestiture-related costs, restructuring costs, gains and losses from investments in equity securities, and certain other items from Merck’s results prepared in accordance with generally accepted accounting principles in the U.S.

In 2022, the Company changed the treatment of certain items for purposes of its non-GAAP reporting.

Prior periods have been recast to conform to the current presentation.

(1) Non-GAAP net income and non-GAAP earnings per share (EPS) exclude acquisition- and divestiture-related costs, restructuring costs, income and losses from investments in equity securities, and certain other items from Merck’s results prepared in accordance with generally accepted accounting principles in the U.S.

For further discussion and a reconciliation of GAAP to non-GAAP net income and EPS, see “Non-GAAP Income and Non-GAAP EPS from Continuing Operations” below .

Executive Summary

Merck’s 2022 results reflect sustained strong demand for the Company’s innovative product portfolio benefiting patients globally, enabled by strong operational and commercial execution, the completion of business development transactions to support its science-led strategy, as well as progress in its pipeline across therapeutic areas, modalities and stage of development.

Merck’s performance during 2023 reflects strong execution of its science-led strategy.

The Company benefited from strong underlying demand across its innovative portfolio, made disciplined investments to leverage

Table of C o ntent s

leading edge science, and advanced its broad pipeline which includes growing diversity across new therapeutic areas and modalities.

Additionally, Merck completed several strategic business development transactions and returned capital to shareholders, primarily through dividends.

Worldwide sales were $60.1 billion in 2023, an increase of 1% compared with 2022, or 4% excluding the unfavorable effect of foreign exchange.

The sales increase was primarily due to growth in virology (driven by the benefit of Lagevrio sales), oncology, vaccines and hospital acute care.

Sales within the Animal Health business were consistent with prior year.

As discussed below, COVID-19-related disruptions negatively affected sales in 2022, but to a lesser extent than in 2021, which benefited year-over-year sales growth.

The sales increase was primarily due to growth in oncology, vaccines, hospital acute care and animal health, partially offset by declines in virology (driven by lower sales of COVID-19 medication Lagevrio ) and diabetes.

Merck continues to execute strategic business development opportunities to augment its robust internal pipeline with compelling external science.

Highlights of 2023 activity include the following:

• Exercised an option to jointly develop and commercialize personalized therapeutic cancer vaccine mRNA-4157/V940 under an existing collaboration and license agreement with Moderna, Inc.

• Entered into a collaboration with Orna Therapeutics (Orna), a company pioneering a new investigational class of engineered circular RNA therapies, to discover, develop, and commercialize multiple programs, including vaccines and therapeutics in the areas of infectious disease and oncology.

• Entered into a global co-development and co-commercialization agreement for Orion Corporation’s (Orion) investigational candidate ODM-208 (MK-5684) currently being evaluated for the treatment of patients with metastatic castration-resistant prostate cancer (mCRPC).

• Entered into a license and collaboration agreement with Sichuan Kelun-Biotech Biopharmaceutical Co., Ltd.

(Kelun-Biotech) for the development, manufacture and commercialization of an investigational antibody drug conjugate (ADC) (MK-1200) for the treatment of solid tumors.

• Exercised an option to obtain an exclusive license (outside of Chinese mainland, Hong Kong, Macau and Taiwan) for the development, manufacture and commercialization of Kelun-Biotech’s trophoblast antigen 2 (TROP2)-targeting ADC programs, including its lead compound SKB-264 (MK-2870).

• Entered into a license and collaboration agreement expanding the Company’s relationship with Kelun-Biotech pursuant to which Merck gained exclusive rights for the research, development, manufacture and commercialization of up to seven investigational preclinical ADCs for the treatment of cancer (Kelun-Biotech retained rights for certain licensed and option ADCs for Chinese mainland, Hong Kong and Macau);

the transaction closed in February 2023.

• Entered into agreement to acquire Imago BioSciences, Inc.

• Entered into a global development and commercialization agreement for three of Daiichi Sankyo’s deruxtecan (DXd) antibody drug conjugate (ADC) candidates, which are in various stages of clinical development for the treatment of multiple solid tumors both as monotherapy and/or in combination with other treatments.

• Acquired Prometheus Biosciences, Inc.

(Prometheus), a clinical-stage biotechnology company pioneering a precision medicine approach for the discovery, development, and commercialization of novel therapeutic and companion diagnostic products for the treatment of immune-mediated diseases including ulcerative colitis, Crohn’s disease, and other autoimmune conditions.

• Closed a license and collaboration agreement expanding the Company’s relationship with Kelun-Biotech pursuant to which Merck gained exclusive rights for the research, development, manufacture and commercialization of up to now five investigational preclinical ADCs for the treatment of cancer (Kelun-Biotech retained rights for certain licensed and option ADCs for Chinese mainland, Hong Kong and Macau).

• Acquired Imago BioSciences, Inc.

(Imago), a clinical-stage biopharmaceutical company developing new medicines for the treatment of myeloproliferative neoplasms and other bone marrow diseases.

the acquisition closed in January 2023.

During 2022, the Company received numerous regulatory approvals within oncology.

During 2023, the Company received more than 25 regulatory approvals in major markets, including numerous regulatory approvals within oncology.

Keytruda received approval for additional indications in the U.S.

and/or internationally as monotherapy in the therapeutic areas of biliary, colorectal, endometrial, gastric, melanoma, small intestine and renal cell cancers, as well as in combination with chemotherapy in the therapeutic areas of breast and cervical cancers.

Keytruda was also approved in combination with Lenvima in Japan for the treatment of certain adult patients with radically unresectable or metastatic renal cell carcinoma (RCC).

Lenvima is being developed in collaboration with Eisai Co., Ltd.

Lynparza, which is being developed in collaboration with AstraZeneca PLC (AstraZeneca), received approval in the U.S., the European Union (EU) and Japan for the adjuvant treatment of certain adult patients with high-risk early breast cancer and in the EU for the treatment of certain patients with mCRPC.

Also in 2022, Vaxneuvance , a vaccine to help prevent pneumococcal disease, was approved for expanded indications in the U.S.

and the EU to include use in infants, adolescents and children.

Additionally in 2022, Lyfnua (gefapixant) was approved in Japan for adults with refractory or unexplained chronic cough.

In addition, in 2022, Lagevrio , which is being developed in a collaboration with Ridgeback Biotherapeutics LP (Ridgeback), received emergency conditional approval in China for the treatment of mild to moderate COVID-19 in adults who are at risk for progressing to severe COVID-19.

and/or internationally as monotherapy in the therapeutic areas of non-small-cell lung cancer (NSCLC) and primary mediastinal large B-cell lymphoma (PMBCL), in combination with chemotherapy in the therapeutic areas of biliary tract cancer, gastric or gastroesophageal junction (GEJ) adenocarcinoma and NSCLC, as well as in combination with Padcev (enfortunab vedotin-ejfv) for advanced urothelial cancer.

Lynparza, which is being developed in collaboration with AstraZeneca PLC (AstraZeneca), received approvals in the U.S.

in combination with abiraterone and prednisone or prednisolone and in Japan in combination with abiraterone and prednisolone - both for the treatment of certain adult patients with BRCA -mutated ( BRCA m) metastatic castration-resistant prostate cancer (mCRPC).

Welireg was approved for a supplemental indication in the U.S.

for the treatment of adult patients with advanced renal cell carcinoma (RCC) following a programmed death receptor-1 (PD-1) or programmed death-ligand (PD-L1) inhibitor and a vascular endothelial growth factor tyrosine kinase inhibitor (VEGF-TKI).

Additionally, in 2023, Prevymis was approved for a supplemental indication in both the U.S.

and the EU for prophylaxis (prevention) of cytomegalovirus (CMV) disease in certain adult kidney transplant recipients at high risk.

In addition to the recent regulatory approvals discussed above, the Company advanced its late-stage pipeline with several regulatory submissions.

Keytruda is under review in the U.S.

and/or internationally for supplemental indications for the treatment of certain patients with hepatocellular, Merkel cell, non-small-cell lung and urothelial cancers, as well as primary mediastinal B-cell lymphoma (PMBCL).

Lynparza is under review for supplemental indications in the U.S.

and Japan for the treatment of certain patients with mCRPC.

MK-4482, Lagevrio , an investigational oral antiviral COVID-19 medicine, is under a rolling review by the European Medicines Agency (EMA);

the Committee for Medicinal Products for Human Use of the EMA has recommended the refusal of the marketing authorization, which Merck and Ridgeback intend to appeal.

MK-7264, gefapixant, a selective, non-narcotic, orally-administered, investigational P2X3-receptor antagonist being developed for the treatment of refractory, chronic cough is under review in the U.S.

The Company’s Phase 3 oncology programs include:

• Keytruda in the therapeutic areas of biliary, cutaneous squamous cell, gastric, hepatocellular, mesothelioma, ovarian, prostate and small-cell lung cancers;

• Lynparza in combination with Keytruda for non-small-cell lung and small-cell lung cancers;

• Lenvima in combination with Keytruda for colorectal, esophageal, gastric, head and neck, melanoma and non-small-cell lung cancers;

• MK-7962, sotatercept, a novel investigational activin signaling inhibitor is under priority review by the U.S.

Food and Drug Administration (FDA) and under review by the European Medicines Agency for the treatment of adult patients with pulmonary arterial hypertension (PAH).

Table of C o ntent s

• V116, an investigational 21-valent pneumococcal conjugate vaccine for the prevention of invasive pneumococcal disease and pneumococcal pneumonia in adults, is also under priority review by the FDA.

• MK-1022, patritumab deruxtecan, is an ADC being evaluated for the treatment of certain types of NSCLC under priority review by the FDA.

Patritumab deruxtecan is part of a collaboration with Daiichi Sankyo.

• Additionally, Keytruda is under review in the U.S.

and/or in international markets for supplemental indications for the treatment of certain patients with biliary tract, cervical, endometrial, gastric, non-small-cell lung and urothelial cancers.

• Welireg is under review in the EU for the treatment of certain patients with advanced RCC and for the treatment of von Hippel-Lindau disease.

During 2023, the Company initiated more than 20 Phase 3 studies across multiple asset classes, including the progression of eight novel candidates.

The Company is diversifying its oncology portfolio and executing on its strategy which is broadly based on three strategic pillars:

immuno-oncology, precision molecular targeting and tissue targeting.

Merck’s Phase 3 oncology programs within these pillars are as follows:

Immuno-oncology

• Keytruda in the therapeutic areas of cutaneous squamous cell, hepatocellular, mesothelioma, ovarian and small-cell lung cancers;

• MK-1308A, the coformulation of quavonlimab, Merck’s novel investigational anti-CTLA-4 antibody, and pembrolizumab for RCC;

• MK-3475, subcutaneous pembrolizumab for non-small-cell lung cancer (NSCLC);

• MK-3475A, the subcutaneous coformulation of pembrolizumab with hyaluronidase, for NSCLC;

• MK-3475A, the subcutaneous coformulation of pembrolizumab with hyaluronidase for certain types of NSCLC;

• MK-4280A, the coformulation of favezelimab, Merck’s novel investigational anti-LAG3 therapy, and pembrolizumab for colorectal cancer and hematological malignancies;

• Welireg for RCC;

• MK-7119, Tukysa (tucatinib), which is being developed in collaboration with Seagen Inc.

(Seagen), for breast and colorectal cancers;

• MK-7684A, the coformulation of vibostolimab, an anti-TIGIT therapy, and pembrolizumab for melanoma, non-small-cell and small-cell lung cancers.

• MK-7684A, the coformulation of vibostolimab, an anti-TIGIT therapy, and pembrolizumab for certain types of melanoma, non-small-cell and small-cell lung cancers;

• V940, an investigational individualized neoantigen therapy, in combination with Keytruda , for certain types of melanoma and NSCLC, being developed in collaboration with Moderna.

Precision molecular targeting

• Lynparza in combination with Keytruda for non-small-cell lung and small-cell lung cancers;

• Lenvima, being developed in collaboration with Eisai Co., Ltd.

(Eisai), in combination with Keytruda for certain types of esophageal and gastric cancers;

• MK-1026, nemtabrutinib, an oral, reversible, non-covalent Bruton’s tyrosine kinase (BTK) inhibitor, for hematological malignancies;

• MK-3543, bomedemstat, an investigational orally available lysine-specific demethylase 1 inhibitor for myeloproliferative disorders;

• MK-5684, an investigational cytochrome P450 11A1 (CYP11A1) inhibitor being developed in collaboration with Orion Corporation (Orion) for mCRPC.

Tissue targeting

• MK-2870, an investigational trophoblast cell-surface antigen 2 (TROP2)-directed ADC being developed in collaboration with Kelun-Biotech for endometrial carcinoma and certain types of NSCLC.

Additionally, the Company currently has candidates in Phase 3 clinical development in several other therapeutic areas including:

• V116, an investigational 21-valent pneumococcal conjugate vaccine for the prevention of invasive pneumococcal disease and pneumococcal pneumonia in adults;

• MK-7962, sotatercept, for the treatment of pulmonary arterial hypertension (PAH);

• MK-1654, clesrovimab, for the prevention of respiratory syncytial virus;

• MK-8591A, islatravir in combination with doravirine for the treatment of HIV-1 infection (which is on partial clinical hold for higher doses than those used in current clinical trials);

• MK-0616, an investigational, oral proprotein convertase subtilisin/kexin type 9 (PCSK9) inhibitor for hypercholesterolemia;

• MK-1654, clesrovimab, a human monoclonal antibody for the prevention of respiratory syncytial virus (RSV);

• MK-7240, tulisokibart, a humanized monoclonal antibody directed to tumor necrosis factor-like ligand 1A, a target associated with both intestinal inflammation and fibrosis, for ulcerative colitis;

Table of C o ntent s

• MK-8591A, islatravir, an investigational nucleoside reverse transcriptase translocation inhibitor, in combination with doravirine for the treatment of HIV-1 infection (which is on partial clinical hold for higher doses than those used in current clinical trials);

• MK-4482, Lagevrio , which is reflected in Phase 3 development in the U.S.

as it remains investigational following Emergency Use Authorization in 2021.

Merck’s capital allocation priorities are to make investments in its business to drive near- and long-term growth, including investing in opportunities to address important unmet medical needs and supporting the Company’s commercial opportunities.

In addition, Merck remains committed to its dividend and will continue to pursue the most compelling external science through value-enhancing business development transactions.

Research and development expenses in 2022 reflect higher clinical development spending particularly in the therapeutic areas of oncology, cardiovascular, infectious diseases and vaccines.

as it remains investigational following Emergency Use Authorization (EUA) in 2021.

Merck’s capital allocation strategy continues to prioritize investments in its business to drive near- and long-term growth, including investing in opportunities to address important unmet medical needs and supporting the Company’s commercial opportunities.

In addition, Merck remains committed to its dividend and will continue to pursue the most compelling external science and technologies through value-enhancing business development transactions.

Research and development expenses in 2023 reflect higher charges for business development transactions and increased development spending particularly in the therapeutic areas of oncology, cardiovascular, infectious diseases and vaccines.

In November 2023, Merck’s Board of Directors approved an increase to the Company’s quarterly dividend, raising it to $0.77 per share from $0.73 per share on the Company’s outstanding common stock.

During 2022, the Company returned $7.0 billion to shareholders through dividends.

During 2023, the Company returned $8.8 billion to shareholders through dividends of $7.4 billion and share repurchases of $1.3 billion.

GAAP and Non-GAAP EPS were negatively affected in 2023, 2022 and 2021 by $6.21, $0.22, and $0.65, respectively, of charges for certain upfront and pre-approval milestone payments related to collaborations and licensing agreements, as well as charges related to pre-approval assets obtained in transactions accounted for as asset acquisitions.

War in Ukraine

In February 2022, Russia invaded Ukraine.

The Company’s primary concerns are the safety and well-being of its employees and ensuring patients and customers have continued access to medicines and vaccines needed for patient and public health.

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 Company is also using its resources to help alleviate the humanitarian crisis in Ukraine, including through donations of funds and products.

The financial impacts of the war were immaterial to the Company’s consolidated financial statements for 2022.

Sales to Russia were approximately 1% of total Merck consolidated sales for 2022 and are expected to decline in future periods.

The Company is unable to determine at this time the future direct or indirect impacts of this war on the Company’s business.

Although COVID-19-related disruptions had some negative effect on sales in 2022, Merck continues to believe that global health systems and patients have largely adapted to the impacts of the COVID-19 pandemic.

Merck’s revenue in 2022 benefited from sales of Lagevrio , which were $5.7 billion.

Merck expects sales of Lagevrio will decline significantly in 2023 to approximately $1.0 billion.

In 2021, COVID-19-related disruptions resulted in an estimated negative impact to Pharmaceutical segment sales of approximately $1.3 billion because a substantial portion of Pharmaceutical segment revenue is comprised of physician-administered products, which were unfavorably affected by social distancing measures and fewer well visits.

Sales in 2021 benefited from $952 million of Lagevrio sales.

In April 2021, Merck announced it was discontinuing the development of MK-7110 for the treatment of hospitalized patients with COVID-19, which was obtained as part of Merck’s acquisition of OncoImmune (see Note 4 to the consolidated financial statements).

This decision resulted in charges of $207 million to Cost of sales in 2021.

Operating expenses in 2021 reflect a minor positive effect as investments in COVID-19-related research largely offset the favorable impact of lower spending in other areas due to the COVID-19 pandemic.

In March 2021, Merck announced it had entered into multiple agreements to support efforts to expand manufacturing capacity and supply of SARS-CoV-2/COVID-19 medicines and vaccines.

The Biomedical Advanced Research and Development Authority (BARDA), a division of the Office of the Assistant Secretary for Preparedness and Response within the U.S.

Department of Health and Human Services, provided Merck with $102 million of funding in the first quarter of 2022 to adapt and make available a number of existing manufacturing facilities for the production of SARS-CoV-2/COVID-19 vaccines and medicines.

The funding was recognized as a reduction to Cost of sales over the expected production period, offsetting the depreciation expense related to the amounts that were capitalized in connection with the modification of the manufacturing facilities.

Merck and Johnson & Johnson have commenced an arbitration regarding a dispute concerning two agreements pursuant to which Merck was supporting the manufacturing and supply of Johnson & Johnson’s SARS-CoV-2/COVID-19 vaccine and vaccine drug product.

The amounts included in the consolidated financial statements for these agreements were immaterial in 2022.

Merck does not believe the outcome of the arbitration will have a material impact on the Company’s financial statements.

Global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide.

4 unchanged sentences

In 2022, the U.S.

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).

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

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 will 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 (see Note 11 to the consolidated financial statements).

Furthermore, the Biden

Table of C o ntent s

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

The Company anticipates all of these actions and additional actions in the future will negatively affect sales and profits.

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.

Operating Results

7 unchanged sentences

Total $ 60,115 1 % 4 % $ 59,283 22 % 26 % $ 48,704

Worldwide sales grew 22% in 2022 attributable in part to higher sales in the virology franchise driven by Lagevrio.

Also contributing to revenue growth were higher sales in the oncology franchise largely due to strong growth of Keytruda and increased alliance revenue from Lenvima and Lynparza, as well as higher sales in the vaccines franchise, primarily attributable to growth in Gardasil/Gardasil 9 and the launch of Vaxneuvance for pediatric use.

Higher sales of hospital acute care products, including Bridion , Zerbaxa , Dificid and Prevymis , as well as higher revenue related to third-party manufacturing arrangements also drove revenue growth in 2022.

As discussed above, COVID-19-related disruptions had some negative effects on sales in 2022, but to a lesser extent than in 2021, which benefited year-over-year sales growth.

Sales growth in 2022 was partially offset by lower sales of diabetes products Januvia and Janumet , the Pneumovax 23 vaccine, and virology products Isentress/Isentress HD .

Worldwide sales grew 1% to $60.1 billion in 2023 primarily due to higher sales in the oncology franchise, largely due to strong growth of Keytruda and Welireg , as well as increased alliance revenue from Lenvima and Lynparza.

Also contributing to revenue growth were higher sales in the vaccines franchise, primarily attributable to growth of combined sales of Gardasil/Gardasil 9 and the ongoing launch of Vaxneuvance for pediatric use.

Higher sales of hospital acute care products, including Prevymis and Bridion , as well as higher sales of animal health products also drove revenue growth in 2023.

Sales growth in 2023 was largely offset by lower sales in the virology franchise, largely due to Lagevrio , as well as Isentress/Isentress HD .

Lower sales in the diabetes franchise, due to Januvia and Janumet , lower sales of the Pneumovax 23 vaccine, and lower revenue from third-party manufacturing arrangements also offset sales growth in 2023.

Sales in the U.S.

grew 21% in 2022 primarily driven by higher sales of Keytruda , Lagevrio , Gardasil 9 , as well as increased alliance revenue from Lenvima and Reblozyl (obtained as part of the Acceleron Pharma Inc.

(Acceleron) acquisition in November 2021), and the launch of Vaxneuvance for pediatric use .

Higher sales of Bridion , Welireg , Zerbaxa and Dificid , as well as increased revenue from third-party manufacturing arrangements also contributed to U.S.

sales growth in 2022.

Lower sales of Pneumovax 23 and Januvia partially offset revenue growth in the U.S.

International sales grew 22% in 2022 primarily due to higher sales of Lagevrio , Gardasil/Gardasil 9, Keytruda , and Zerbaxa , as well as increased revenue from third-party manufacturing arrangements, partially offset by lower sales of Januvia/Janumet , Simponi , Isentress/Isentress HD , Remicade , and Pneumovax 23.

International sales represented 54% of total sales in both 2022 and 2021.

grew 5% to $28.5 billion in 2023 primarily driven by higher sales of Keytruda , Vaxneuvance , Bridion and Welireg .

Revenue growth in the U.S.

in 2023 was partially offset by lower sales of Lagevrio , Pneumovax 23, Janumet , Januvia , and lower revenue from third-party manufacturing arrangements.

International sales declined 1% in 2023 primarily due to lower sales of Lagevrio , Januvia, Janumet , and Isentress/Isentress HD .

The international sales decline in 2023 was largely offset by higher combined sales of Gardasil/Gardasil 9, as well as higher sales of Keytruda , Prevymis and Vaxneuvance.

International sales represented 53% and 54% of total sales in 2023 and 2022, respectively.

See Note 19 to the consolidated financial statements for details on sales of the Company’s products.

11 unchanged sentences

960 10 % 11 % 876 24 % 28 % 704

Welireg 218 77 % 77 % 123 * * 13

Alliance Revenue - Reblozyl (2)

2 unchanged sentences

(2) Alliance revenue represents royalties and, for 2022, also includes a payment received related to the achievement of a regulatory approval milestone (see Note 4 to the consolidated financial statements).

Keytruda is an anti-PD-1 (programmed death receptor-1) therapy that has been approved as monotherapy for the treatment of certain patients with cervical cancer, classical Hodgkin lymphoma, cutaneous squamous cell carcinoma, esophageal or gastroesophageal junction (GEJ) carcinoma, head and neck squamous cell carcinoma (HNSCC), hepatocellular carcinoma (HCC), NSCLC, melanoma, Merkel cell carcinoma, microsatellite instability-high (MSI-H) or mismatch repair deficient (dMMR) cancer (solid tumors) including MSI-H/dMMR colorectal cancer, MSI-H/dMMR advanced endometrial carcinoma, PMBCL, tumor mutational burden-high (TMB-H) cancer (solid tumors), and urothelial carcinoma, including non-muscle invasive bladder cancer.

Additionally, Keytruda is approved as monotherapy for the adjuvant treatment of certain patients with RCC at intermediate-high or high risk of recurrence and for certain patients with completely resected stage IIB, IIC or III melanoma, and for adjuvant treatment following resection and platinum-based chemotherapy for adult patients with stage IB (T2a ≥4 cm), II, or IIIA NSCLC.

is also approved for certain patients with high-risk early-stage triple-negative breast cancer (TNBC) in combination with chemotherapy as neoadjuvant treatment, and then continued as a single agent as adjuvant treatment after surgery.

In addition, Keytruda is approved for the treatment of certain patients in combination with chemotherapy for metastatic squamous and nonsquamous NSCLC, in combination with chemotherapy, with or without bevacizumab for advanced cervical cancer, in combination with chemotherapy for esophageal cancer, in combination with trastuzumab, fluoropyrimidine- and platinum-containing chemotherapy for human epidermal growth factor 2 (HER2)-positive gastric or GEJ adenocarcinoma, in combination with chemotherapy for HNSCC, in combination with chemotherapy for locally recurrent unresectable or metastatic TNBC, in combination with axitinib for advanced RCC, and in combination with Lenvima for certain patients with advanced endometrial carcinoma or advanced RCC.

Keytruda is an anti-PD-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.

Global sales of Keytruda grew 22% in 2022 primarily driven by higher demand as the Company continues to launch Keytruda with multiple new indications globally.

Sales in the U.S.

continue to build across the multiple approved metastatic indications, in particular for the treatment of certain types of RCC, HNSCC, and MSI-H cancers.

Keytruda sales growth in the U.S.

also benefited from increased uptake across recent launches in earlier-stage indications including in high-risk early stage TNBC, as well as certain types of RCC and melanoma.

Keytruda sales growth in international markets reflects continued uptake predominately for the NSCLC, HNSCC and RCC indications, particularly in Europe.

Keytruda recently received numerous regulatory approvals summarized below.

Global sales of Keytruda grew 19% in 2023 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 high-risk early-stage triple-negative breast cancer (TNBC), as well as certain types of RCC and melanoma, and higher demand across the multiple approved

Table of C o ntent s

metastatic indications, in particular for the treatment of certain types of RCC, NSCLC, TNBC, head and neck squamous cell carcinoma (HNSCC), endometrial and bladder 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 HNSCC and RCC metastatic indications, particularly in Europe, Latin America, and the Asia Pacific region, including Japan.

Summarized below are the Keytruda regulatory approvals received in 2023 and, to date, in 2024.

Date Approval

January 2022 EC approval as monotherapy for the adjuvant treatment of adults with RCC at increased risk of recurrence following nephrectomy, or following nephrectomy and resection of metastatic lesions, based on the KEYNOTE-564 trial.

February 2022 Japan’s Ministry of Health, Labor and Welfare (MHLW) approval of the combination of Keytruda plus Lenvima for radically unresectable or metastatic RCC, based on the CLEAR (Study 307)/KEYNOTE-581 trial.

February 2022 MHLW approval for the treatment of adult patients with advanced or recurrent TMB-H solid tumors that have progressed after chemotherapy (limited to use when difficult to treat with standard of care), based on the KEYNOTE-158 trial.

March 2022 U.S.

Food and Drug Administration (FDA) approval as a single agent for the treatment of patients with advanced endometrial carcinoma that is MSI-H or dMMR who have disease progression following prior systemic therapy in any setting and are not candidates for curative surgery or radiation, based on the KEYNOTE-158 trial (Cohorts D & K).

April 2022 EC approval in combination with chemotherapy, with or without bevacizumab, for the treatment of persistent, recurrent or metastatic cervical cancer in certain adults whose tumors express PD-L1, based on the KEYNOTE-826 trial.

April 2022 EC approval as monotherapy for the treatment of certain adult patients with unresectable or metastatic MSI-H/dMMR colorectal, gastric, small intestine or biliary cancer, as well as advanced or recurrent MSI-H/dMMR endometrial carcinoma, based on the KEYNOTE-164 and KEYNOTE-158 trials.

May 2022 EC approval in combination with chemotherapy as neoadjuvant treatment, and then continued as monotherapy as adjuvant treatment after surgery for adults with locally advanced or early-stage TNBC at high risk of recurrence, based on the KEYNOTE-522 trial.

June 2022 EC approval as monotherapy for the adjuvant treatment of adults and adolescents aged 12 years and older with stage IIB or IIC melanoma and who have undergone complete resection, based on the KEYNOTE-716 trial.

EC approval expanding the indications in advanced (unresectable or metastatic) melanoma and stage III melanoma with lymph node involvement (as adjuvant treatment following complete resection) to include adolescent patients aged 12 years and older.

August 2022 MHLW approval as monotherapy for the adjuvant treatment of certain patients with RCC at increased risk of recurrence following nephrectomy, or following nephrectomy and resection of metastatic lesions, based on the KEYNOTE-564 trial.

September 2022 MHLW approval in combination with chemotherapy as neoadjuvant treatment, and then continued as monotherapy as adjuvant treatment after surgery for patients with hormone receptor-negative and HER2-negative breast cancer at high risk of recurrence, based on the KEYNOTE-522 trial.

September 2022 MHLW approval in combination with chemotherapy, with or without bevacizumab, for the treatment of patients with advanced or recurrent cervical cancer with no prior chemotherapy who are not amenable to curative treatment, based on the KEYNOTE-826 trial.

September 2022 MHLW approval as monotherapy for the adjuvant treatment of patients with stage IIB or IIC melanoma after complete resection, based on the KEYNOTE-716 trial.

October 2022 China’s National Medical Products Administration (NMPA) approval as monotherapy for the treatment of patients with HCC who have been previously treated with sorafenib or oxaliplatin-based chemotherapy, based on the KEYNOTE-394 trial.

November 2022 NMPA approval for the treatment of patients with high-risk early-stage TNBC whose tumors express PD-L1, in combination with chemotherapy as neoadjuvant treatment, and then continued as a monotherapy as adjuvant treatment after surgery, based on the KEYNOTE-522 trial.

January 2023 FDA approval as a single agent for adjuvant treatment following surgical resection and platinum-based chemotherapy for adult patients with stage IB (T2a ≥4 cm), II, or IIIA NSCLC, based on the KEYNOTE-091 trial.

March 2023 FDA full approval for the treatment of adult and pediatric patients with unresectable or metastatic microsatellite instability-high (MSI-H) or mismatch repair deficient (dMMR) solid tumors that have progressed following prior treatment and who have no satisfactory alternative treatment options.

The conversion from an accelerated to a full (regular) approval is based on the KEYNOTE-158, KEYNOTE-164 and KEYNOTE-051 trials.

2023 FDA accelerated approval in combination with Padcev (enfortumab vedotin-ejfv) for the treatment of adult patients with locally advanced or metastatic urothelial carcinoma who are not eligible for cisplatin-containing chemotherapy, based on the KEYNOTE-869 trial dose escalation cohort, Cohort A and Cohort K, which was conducted in collaboration with Seagen (now Pfizer Inc.

(Pfizer)) and Astellas.

2023 Japan’s Ministry of Health, Labor and Welfare (MHLW) approval for the treatment of patients with relapsed or refractory PMBCL, based on the KEYNOTE-170 and the KEYNOTE-A33 studies.

August 2023 European Commission (EC) approval in combination with trastuzumab, fluoropyrimidine- and platinum-containing chemotherapy, for the first-line treatment of locally advanced unresectable or metastatic human epidermal growth factor receptor 2 (HER2)-positive gastric or GEJ adenocarcinoma in adults whose tumors express PD-L1, based on the KEYNOTE-811 trial.

September 2023 China’s National Medical Products Administration (NMPA) approval as monotherapy for the treatment of adult patients with advanced unresectable or metastatic MSI-H or dMMR solid tumors, including patients with colorectal cancer that have progressed following treatment with fluoropyrimidine, oxaliplatin, or irinotecan, or those with other solid tumors that have progressed following prior therapy and who have no satisfactory alternative treatment options, based on the KEYNOTE 158 and KEYNOTE-164 trials.

October 2023 EC approval as a monotherapy for the adjuvant treatment of adults with NSCLC who are at high risk of recurrence following complete resection and platinum-based chemotherapy, based on the KEYNOTE-091 trial.

October 2023 FDA approval for the treatment of patients with resectable (tumors >=4cm or node positive) NSCLC in combination with platinum-containing chemotherapy as neoadjuvant treatment, and then continued as a single agent as adjuvant treatment after surgery, based on the KEYNOTE-671 trial.

October 2023 FDA full approval for the treatment of adult and pediatric patients with recurrent locally advanced or metastatic Merkel cell carcinoma.

The conversion from an accelerated to a full (regular) approval is based on the KEYNOTE-913 and KEYNOTE-017 trials.

October 2023 FDA approval in combination with gemcitabine and cisplatin for the treatment of patients with locally advanced unresectable or metastatic biliary tract cancer, based on the KEYNOTE-966 trial.

November 2023 FDA approval in combination with fluoropyrimidine- and platinum-containing chemotherapy, for the first-line treatment of adults with locally advanced unresectable or metastatic HER2-negative gastric or GEJ adenocarcinoma, based on the KEYNOTE-859 trial.

December 2023 FDA full approval in combination with Padcev (enfortumab vedotin-ejfv), an ADC, for the treatment of adult patients with locally advanced or metastatic urothelial cancer.

The conversion from an accelerated to a full (regular) approval is based on the KEYNOTE-A39 trial that was conducted in collaboration with Seagen (now Pfizer) and Astellas.

December 2023 EC approval in combination with fluoropyrimidine- and platinum-containing chemotherapy, for the first-line treatment of locally advanced unresectable or metastatic HER2-negative gastric or GEJ adenocarcinoma in adults whose tumors express PD-L1, based on the KEYNOTE-859 trial.

December 2023 EC approval in combination with gemcitabine and cisplatin for the first-line treatment of locally advanced unresectable or metastatic biliary tract carcinoma in adults, based on the KEYNOTE-966 trial.

Table of C o ntent s

December 2023 China’s NMPA approval in combination with fluoropyrimidine- and platinum-containing chemotherapy for the first-line treatment of patients with locally advanced unresectable or metastatic HER2-negative gastric or GEJ adenocarcinoma, based on the KEYNOTE-859 trial.

January 2024 FDA approval in combination with chemoradiotherapy for the treatment of patients with FIGO (International Federation of Gynecology and Obstetrics) 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 NMPA approval in combination with gemcitabine and cisplatin for the first-line treatment of patients with locally advanced or metastatic biliary tract carcinoma, based on the KEYNOTE-966 trial.

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 pays a royalty of 6.5% on worldwide sales of Keytruda through December 2023 to one third party;

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 will decline to 2.5% for 2024 through 2026 and will terminate thereafter.

5 unchanged sentences

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 grew 13% in 2022 largely due to higher demand globally across the multiple approved indications, particularly in the U.S.

largely attributable to uptake in the earlier-stage breast cancer indication following approval by the FDA in March 2022.

Lynparza received several regulatory approvals in 2022 summarized below.

Alliance revenue related to Lynparza grew 7% in 2023 largely due to higher pricing in the U.S., as well as higher demand in several international markets.

Lynparza received the following regulatory approvals in 2023 summarized below.

Date Approval

March 2022 FDA approval for the adjuvant treatment of adult patients with deleterious or suspected deleterious germline BRCA -mutated, HER2-negative high-risk early breast cancer who have been treated with neoadjuvant or adjuvant chemotherapy, based on the OlympiA trial.

August 2022 MHLW approval for the adjuvant treatment of patients with BRCA -mutated, HER2-negative high recurrent risk breast cancer, based on the OlympiA trial.

August 2022 EC approval as monotherapy or in combination with endocrine therapy for the adjuvant treatment of adult patients with germline BRCA 1/2-mutations who have HER2-negative, high-risk early breast cancer previously treated with neoadjuvant or adjuvant chemotherapy, based on the OlympiA trial.

September2022 NMPA approval as first-line maintenance treatment for adult patients with advanced epithelial ovarian, fallopian tube or primary peritoneal cancer who are in complete or partial response to first-line platinum-based chemotherapy in combination with bevacizumab and whose cancer is associated with homologous recombination deficiency (HRD)-positive status, based on the PAOLA-1 trial.

December 2022 EC approval in combination with abiraterone and prednisone or prednisolone for the treatment of adult patients with mCRPC in whom chemotherapy is not clinically indicated, based on the PROpel trial.

FDA approval in combination with abiraterone and prednisone or prednisolone for the treatment of adult patients with deleterious or suspected deleterious BRCA m mCRPC, based on the PROpel trial.

Japan’s MHLW approval in combination with abiraterone and prednisolone for treatment of adult patients with BRCA m mCRPC with distant metastasis, based on the PROpel trial.

Lenvima is an oral receptor tyrosine kinase inhibitor being developed as part of a collaboration with Eisai (see Note 4 to the 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 24% in 2022 reflecting uptake in the advanced RCC and advanced endometrial carcinoma indications, particularly in the U.S.

Reblozyl is a first-in-class erythroid maturation recombinant fusion protein obtained as part of Merck’s November 2021 acquisition of Acceleron that is being developed and commercialized through a global collaboration with Bristol Myers Squibb (see Note 5 to the consolidated financial statements).

Reblozyl is approved for the treatment of certain types of anemia.

Merck recorded alliance revenue of $166 million in 2022, which includes

royalties of $146 million, as well as the receipt of a regulatory approval milestone payment of $20 million, compared with alliance revenue of $17 million in 2021.

Alliance revenue related to Lenvima grew 10% in 2023 reflecting higher demand and pricing in the U.S.

and higher demand in Europe, partially offset by lower demand in China.

Sales of Welireg , for the treatment of adult patients with certain von Hippel-Lindau disease-associated tumors and certain adult patients with previously treated advanced RCC, increased 77% in 2023 due to continued uptake in the U.S.

following launch in 2021.

In December 2023, the FDA approved a supplemental new drug application (NDA) for Welireg for the treatment of adult patients with advanced RCC following a PD-1 or PD-L1 inhibitor and a VEGF-TKI, based on the LITESPARK-005 clinical trial.

Reblozyl is a first-in-class erythroid maturation recombinant fusion protein obtained as part of Merck’s November 2021 acquisition of Acceleron Pharma Inc.

(Acceleron) that is being commercialized through a global collaboration with Bristol Myers Squibb Company (BMS) (see Note 4 to the consolidated financial statements).

Reblozyl is approved for the treatment of anemia in certain rare blood disorders.

Alliance revenue related to this collaboration consists of royalties and, for 2022, also includes the receipt of a regulatory approval milestone payment of $20 million.

Alliance revenue increased 28% in 2023 due to strong underlying sales performance, partially offset by the receipt of the regulatory approval milestone in 2022 as noted above.

Table of C o ntent s

($ in millions) 2023 % Change % Change

8 unchanged sentences

Varivax 1,068 8 % 8 % 991 2 % 4 % 971

Vaxneuvance 665 * * 170 * * 3

412 (32) % (31) % 602 (33) % (30) % 893

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 22% in 2022 driven primarily by strong demand outside of the U.S., particularly in China, which also benefited from increased supply.

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 29% in 2023 driven by strong demand outside of the U.S., particularly in China due in part to continued uptake of the expanded indication of Gardasil 9 for girls and women 9 to 45 years of age.

Sales of Gardasil 9 in the U.S.

increased due to public sector buying patterns and higher pricing, partially offset by lower demand.

In 2022, China’s NMPA expanded the use of Gardasil 9 for use in girls and women ages 9 to 45.

The vaccine was previously approved for use in girls and women ages 16 to 26.

increased slightly due to higher pricing and demand, largely offset by public sector buying patterns.

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 worldwide sales of Gardasil/Gardasil 9 to one third party (which expires in December 2023) and an additional 7% royalty on sales of Gardasil/Gardasil 9 in the U.S.

to another third party (which expires in December 2028).

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 royalties are included in Cost of sales .

Global sales of ProQuad , a pediatric combination vaccine to help protect against measles, mumps, rubella and varicella, grew 9% in 2022 primarily due to higher pricing in the U.S.

and higher demand in Europe.

Worldwide sales of M-M-R II, a vaccine to help protect against measles, mumps and rubella, grew 5% in 2022 primarily due to higher pricing in the U.S.

Global sales of Varivax, a vaccine to help prevent chickenpox (varicella), grew 2% in 2022 primarily reflecting higher pricing in the U.S., partially offset by lower tenders in Latin America.

Worldwide sales of Pneumovax 23, a vaccine to help prevent pneumococcal disease, declined 33% in 2022 primarily reflecting lower demand in the U.S.

Global sales of ProQuad , a pediatric combination vaccine to help protect against measles, mumps, rubella and varicella, grew 4% in 2023 primarily due to higher pricing in the U.S., partially offset by lower demand in Europe.

Worldwide sales of M-M-R II, a vaccine to help protect against measles, mumps and rubella, grew 5% in 2023 primarily due to higher demand in certain international markets and higher pricing in the U.S., partially offset by lower demand in the U.S.

Global sales of Varivax, a vaccine to help prevent chickenpox (varicella), grew 8% in 2023 primarily attributable to higher pricing and demand in the U.S., as well as higher demand in the Asia Pacific region, partially offset by lower demand in Latin America.

Worldwide sales of Vaxneuvance , a vaccine to help protect against invasive pneumococcal disease, increased to $665 million in 2023 primarily due to continued uptake in the pediatric indication in the U.S.

and launches in European markets.

Vaxneuvance is currently launched in 19 markets with additional launches planned.

Merck is a party to a third-party license agreement pursuant to which the Company pays a royalty of 7.25% on net sales of Vaxneuvance through 2026;

this royalty will decline to 2.5% on net sales from 2027 through 2035.

The royalties are included in Cost of sales .

Worldwide sales of Pneumovax 23, a vaccine to help prevent pneumococcal disease, declined 32% in 2023 due to lower demand in the U.S.

as the market continues to shift toward newer adult pneumococcal conjugate vaccines following changes in the recommendations of the U.S.

Centers for Disease Control and Prevention’s (CDC’s) Advisory Committee on Immunization Practices (ACIP) in 2021.

Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices in 2021.

The Company expects the decline in U.S.

sales of Pneumovax 23 to continue.

Lower demand in Europe also contributed to the Pneumovax 23 sales decline in 2022.

In June 2022, the FDA approved an expanded indication for Vaxneuvance to include use in individuals 6 weeks of age and older.

The FDA’s approval was based on data from seven randomized, double-blind clinical studies assessing safety, tolerability and immunogenicity of Vaxneuvance in infants and children.

Also in June 2022, the CDC’s ACIP unanimously voted to include Vaxneuvance as a recommended option for vaccination in infants and children, including routine use in children under 2 years of age.

These recommendations subsequently were adopted by the director of the CDC and the U.S.

Department of Health and Human Services, and published in the CDC’s Morbidity and Mortality Weekly Report ( MMWR ).

The ACIP also unanimously voted to include Vaxneuvance in the Vaccines for Children program.

In October 2022, the EC approved an expanded indication for Vaxneuvance to include use in infants, children and adolescents from 6 weeks to less than 18 years of age.

Vaxneuvance was previously approved for use in the U.S.

and the EU in 2021 for individuals 18 years of age and older.

In September 2022, Vaxneuvance was approved in Japan for use in adult patients.

Vaxneuvance remains under review in Japan for use in pediatric patients.

Sales of Vaxneuvance were $170 million in 2022, largely due to inventory stocking in the U.S.

Merck is party to a third-party licensing agreement pursuant to which the Company pays a royalty of 7.25% on net sales of Vaxneuvance through 2026;

this royalty will decline to 2.5% on net sales from 2027 through 2035.

The royalties are included in Cost of sales .

The Pneumovax 23 U.S.

sales decline in 2023 was partially offset by higher demand in several international markets.

Hospital Acute Care

7 unchanged sentences

Dificid 302 15 % 15 % 263 50 % 50 % 175

Zerbaxa 169 * * (1) * * 130

Welireg 123 ** ** 13 — — —

* Calculation not meaningful.

Global sales of Bridion , for the reversal of two types of neuromuscular blocking agents used during surgery, grew 10% in 2022 due to higher demand globally, particularly in the U.S., largely attributable to Bridion ’s growing share among neuromuscular blockade reversal agents and an increase in surgical procedures.

Bridion will lose market exclusivity in the EU in July 2023 and the Company anticipates sales of Bridion in these markets will decline thereafter.

Worldwide sales of Prevymis , a medicine for prophylaxis (prevention) of cytomegalovirus (CMV) infection and disease in adult CMV-seropositive recipients of an allogenic hematopoietic stem cell transplant, grew 16% in 2022 due to higher demand globally, particularly in the U.S.

In February 2023, the FDA granted priority review for a supplemental New Drug Application for Prevymis for prophylaxis of CMV disease in adult kidney transplant recipients at high risk (D+/R-);

the Prescription Drug User Fee Act (PDUFA), or target action, date is June 5, 2023.

Global sales of Bridion , for the reversal of two types of neuromuscular blocking agents used during surgery, grew 9% in 2023 reflecting higher demand in the U.S., attributable in part to Bridion ’s increased share among neuromuscular blockade reversal agents, as well as higher pricing, partially offset by generic competition in

Table of C o ntent s

international markets, particularly in the EU.

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 , a medicine for prophylaxis (prevention) of 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 41% in 2023 largely due to higher demand in the U.S.

and Europe, as well as continued uptake from the 2022 launch in China.

In June 2023, the FDA approved Prevymis for prophylaxis of CMV disease in certain adult kidney transplant recipients at high risk following priority review, based on the P002 clinical trial.

In November 2023, the EC also approved Prevymis for this indication.

Worldwide sales of Dificid , for the treatment of C.

difficile -associated diarrhea, grew 15% in 2023 due to higher demand in the U.S.

In December 2020, the Company temporarily suspended sales of Zerbaxa , a combination antibacterial and beta-lactamase inhibitor for the treatment of certain bacterial infections, and subsequently issued a product recall, following the identification of product sterility issues.

As a result, the Company recorded an intangible asset impairment charge in 2020 related to Zerbaxa (see Note 9 to the consolidated financial statements).

The phased resupply of Zerbaxa that was initiated in the fourth quarter of 2021 was completed in 2022.

Sales of Welireg , for the treatment of certain adult patients with von Hippel-Lindau disease-associated RCC, increased to $123 million in 2022 due to continued uptake in the U.S.

following launch in 2021.

Cardiovascular

8 unchanged sentences

(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 4 to the consolidated financial statements).

Adempas and Verquvo are part of a worldwide collaboration with Bayer to market and develop soluble guanylate cyclase (sGC) modulators (see Note 5 to the consolidated financial statements).

Adempas is approved for the treatment of certain types of PAH and chronic thromboembolic pulmonary hypertension.

Adempas and Verquvo are part of a worldwide collaboration with Bayer AG (Bayer) to market and develop soluble guanylate cyclase (sGC) modulators (see Note 4 to the consolidated financial statements).

Adempas is approved for the treatment of certain types of PAH and chronic pulmonary hypertension.

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.

Verquvo was approved in the U.S., the EU and Japan in 2021 and has since been approved in several other markets.

Alliance revenue from the collaboration was essentially flat in 2022 compared with 2021 reflecting higher profit share related to Adempas that was partially offset by lower profit share for Verquvo reflecting higher launch costs.

Alliance revenue from the collaboration grew 8% in 2023 reflecting higher profit sharing, which reflects increased demand in Bayer’s marketing territories.

Revenue also includes sales of Adempas and Verquvo in Merck’s marketing territories.

Sales of Adempas in Merck’s marketing territories declined 6% in 2022;

excluding the unfavorable effect of foreign exchange, sales grew 7% primarily reflecting higher demand in Japan.

Sales of Adempas in Merck’s marketing territories grew 7% in 2023 primarily reflecting higher demand.

($ in millions) 2023 % Change % Change

5 unchanged sentences

Isentress/Isentress HD 483 (24) % (23) % 633 (18) % (13) % 769

Lagevrio is an investigational oral antiviral COVID-19 medicine being developed in a collaboration with Ridgeback (see Note 5 to the consolidated financial statements).

Following initial authorizations in certain markets in the fourth quarter of 2021, Lagevrio has since received multiple additional authorizations worldwide.

The increase in sales of Lagevrio in 2022 primarily reflects higher sales in the UK, Japan and the U.S., as well as the launch in Australia.

In December 2022, China’s NMPA granted emergency conditional approval for Lagevrio for the treatment of mild to moderate COVID-19 in adults who are at risk for progressing to severe COVID-19.

Merck expects sales of Lagevrio will decline significantly in 2023 to approximately $1.0 billion reflecting in part the waning impact of the COVID-19 pandemic.

Worldwide sales of Isentress/Isentress HD , an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, declined 18% in 2022 due to lower global demand, reflecting in part competitive pressure particularly in Europe, Latin America and the U.S.

The Company expects competitive pressure for Isentress/Isentress HD to continue.

Isentress/Isentress HD will lose market exclusivity in the EU in July 2023 and the Company anticipates sales declines of Isentress/Isentress HD in these markets will accelerate thereafter.

Lagevrio is an investigational oral antiviral COVID-19 medicine being developed in a collaboration with Ridgeback Biotherapeutics LP (Ridgeback) (see Note 4 to the consolidated financial statements).

Following initial authorizations in certain markets in the fourth quarter of 2021, Lagevrio has since received multiple additional authorizations.

Sales of Lagevrio declined to $1.4 billion in 2023 compared with $5.7 billion in 2022.

The decline in sales of Lagevrio in 2023 primarily reflects sales of Lagevrio in the UK in 2022 that did not recur in 2023, as well as lower sales in the U.S., Japan and Australia.

Sales of Lagevrio in the U.S.

in 2022 consisted of sales to the U.S.

In November 2023, following authorization from the FDA, the Company began the transition from government supply to commercial distribution in the U.S.

for Lagevrio while under EUA.

In April 2023, Japan’s MHLW granted full approval for Lagevrio .

Lagevrio was previously granted Special Approval for Emergency in Japan in December 2021.

Given that the Company has fulfilled government purchase and supply commitments for Lagevrio , as well as the waning impacts of the COVID-19 pandemic, the Company expects sales of Lagevrio will decline in 2024.

Worldwide combined sales of Isentress/Isentress HD , an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, declined 24% in 2023 primarily due to competitive pressure particularly in the U.S.

The patent that provided market exclusivity for Isentress/Isentress HD in

Table of C o ntent s

the EU expired in July 2023.

Accordingly, the Company is experiencing sales declines of Isentress/Isentress HD in these markets as a result of generic competition and expects the declines to continue.

Additionally, the Company anticipates competitive pressure and sales declines of Isentress/Isentress HD in the U.S.

($ in millions) 2023 % Change % Change

3 unchanged sentences

Exchange 2021

$ 710 1 % — % $ 706 (14) % (4) % $ 825

187 (9) % (8) % 207 (31) % (21) % 299

Simponi and Remicade 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.

($ in millions) 2023 % Change % Change

Excluding Foreign

Exchange 2022 % Change % Change

Excluding Foreign

Exchange 2021

Januvia/Janumet $ 3,366 (25) % (23) % $ 4,513 (15) % (9) % $ 5,288

Worldwide combined sales of Januvia and Janumet , medicines that help lower blood sugar levels in adults with type 2 diabetes, declined 15% in 2022 primarily reflecting the loss of exclusivity in several markets in Europe and the Asia Pacific region, as well as lower demand in the U.S.

The sales decline was partially offset by increased demand in Latin America reflecting in part higher government tenders.

Worldwide combined sales of Januvia and Janumet , medicines that help lower blood sugar levels in adults with type 2 diabetes, declined 25% in 2023 primarily reflecting the ongoing impact of the loss of exclusivity in most markets in Europe and the Asia Pacific region, as well as in Canada, coupled with lower demand and lower pricing in the U.S.

due to competitive pressures.

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 11 to the consolidated financial statements), 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.

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 11 to the 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.

As a result of competitive pressures, the Company anticipates pricing and volume declines for Januvia and Janumet in the U.S.

in 2023 and thereafter.

to continue in 2024 and thereafter.

In August 2023, the U.S.

Department of HHS, through the CMS, announced that Januvia will 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 (see Note 11 to the consolidated financial statements).

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.

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.

While the Company lost market exclusivity for Januvia in China in 2022 with the launch of a generic equivalent product and an additional generic equivalent product was launched in 2023, the impact to sales in 2023 was modest.

Several generic equivalents of Janumet have been approved in China, and one launched in December 2023 via a settlement agreement with the Company.

Combined sales of Januvia and Janumet in Europe, China and the U.S.

represented 9%, 14% and 41%, respectively, of total combined Januvia and Janumet sales in 2023.

In response to a request from a regulatory authority, Merck evaluated its sitagliptin-containing products for the presence of nitrosamines.

In response to a request from a regulatory authority in 2022, Merck evaluated its sitagliptin-containing products for the presence of nitrosamines.

Nitrosamines are organic compounds found at trace levels in water and food.

2 unchanged sentences

The Company has engaged with major health authorities around the world and has implemented additional quality controls to ensure its portfolio of sitagliptin-containing products meet health authorities’ interim acceptable NTTP limits for continuing distribution of product to the market.

The Company is making progress in its efforts to reduce the level

of nitrosamines in its sitagliptin-containing medicines.

However, 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 in its sitagliptin-containing medicines and is now consistently releasing product in major markets that is expected to comply with the health authorities’ long-term limit throughout product shelf-life.

The Company does not anticipate product shortages at this time.

Table of C o ntent s

Animal Health Segment

6 unchanged sentences

Companion Animal 2,288 2 % 3 % 2,250 (1) % 4 % 2,273

Sales of livestock products were essentially flat in 2022 primarily due to the unfavorable effect of foreign exchange, offset by higher pricing, as well as increased demand for ruminant and poultry products.

Sales of companion animal products declined 1% in 2022 reflecting the unfavorable effect of foreign exchange and supply constraints for certain vaccines, largely offset by higher pricing in the portfolio, as well as higher demand for the Bravecto line of products, which had sales of $1.0 billion in 2022.

Sales of livestock products grew 1% in 2023 primarily due to higher pricing, as well as increased demand for poultry and swine products, partially offset by lower demand for ruminant products.

Sales of companion animal products grew 2% in 2023 reflecting higher pricing, partially offset by lower demand.

Sales of the Bravecto line of products were $1.1 billion in 2023, an increase of 4% compared with 2022, or 5% excluding the impact of foreign exchange.

In January 2024, the EC approved an injectable formulation of Bravecto for dogs for the persistent killing of fleas and ticks for 12 months after treatment.

In February 2024, Merck entered into a definitive agreement to acquire the aqua business of Elanco Animal Health Incorporated for $1.3 billion in cash.

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 an acquisition of a business.

See Note 3 to the consolidated financial statements for additional information related to this transaction.

Costs, Expenses and Other

6 unchanged sentences

$ 58,226 36 % $ 42,839 23 % $ 34,825

* Calculation not meaningful.

Cost of Sales

Cost of sales was $16.1 billion in 2023 and $17.4 billion in 2022.

Cost of sales includes $3.0 billion and $502 million in 2022 and 2021, respectively, related to the collaboration with Ridgeback for Lagevrio (see Note 5 to the consolidated financial statements).

Cost of sales also includes the amortization of intangible assets recorded in connection with acquisitions, collaborations, and licensing arrangements, which totaled $2.0 billion in 2022 and $1.6 billion in 2021.

Amortization expense in 2022 and 2021 includes $250 million and $153 million, respectively, of cumulative catch-up amortization related to Merck’s collaborations with AstraZeneca and Bayer, respectively (see Note 5 to the consolidated financial statements).

Additionally, costs in 2021 include charges of $225 million related to the discontinuation of COVID-19 development programs (see Note 4 to the consolidated financial statements).

Cost of sales includes $852 million and $3.0 billion in 2023 and 2022, respectively, related to sales of Lagevrio , which is being developed in a collaboration with Ridgeback (see Note 4 to the consolidated financial statements).

Amortization expense in 2023 and 2022 includes $154 million and $250 million, respectively, of cumulative catch-up amortization related to Merck’s collaborations with Eisai and AstraZeneca, respectively (see Note 4 to the consolidated financial statements).

Also included in cost of sales are expenses associated with restructuring activities, which amounted to $211 million in 2023 and $205 million in 2022, primarily reflecting accelerated depreciation and asset write-offs related to the planned sale or closure of manufacturing facilities.

1 unchanged sentence

Gross margin was 73.2% in 2023 compared with 70.6% in 2022.

The gross margin decline primarily reflects the unfavorable impacts of higher amortization of intangible assets (noted above), as well as higher sales of Lagevrio and revenue from third-party manufacturing arrangements, both of which have lower gross margins.

The gross margin decline was partially offset by the favorable effects of product mix, foreign exchange and charges in 2021 related to the discontinuation of COVID-19 development programs (noted above).

The gross margin improvement primarily reflects the favorable impacts of product mix, including lower Lagevrio sales and lower revenue from third-party manufacturing arrangements (both of which have lower gross margins), and lower manufacturing-related costs, partially offset by the unfavorable impact of foreign exchange.

Selling, General and Administrative

Selling, general and administrative (SG&A) expenses were $10.5 billion in 2023, an increase of 5% compared with 2022.

The increase was primarily due to higher administrative costs, as well as higher promotional spending and selling costs, partially offset by the favorable effects of foreign exchange and lower acquisition-related costs.

The increase was primarily due to higher administrative costs, including compensation and benefits, and increased promotional spending and selling costs, partially offset by the favorable effect of foreign exchange and lower acquisition-related costs.

Table of C o ntent s

Research and Development

Research and development (R&D) expenses were $13.5 billion in 2022, an increase of 11% compared with 2021 primarily due to higher intangible asset impairment charges (largely related to nemtabrutinib), higher charges for upfront and option payments related to collaborations and licensing arrangements, higher compensation

and benefit costs reflecting in part increased headcount to support expanded clinical development activity, and increased clinical development spending.

The increase in R&D expenses was partially offset by a charge in 2021 for the acquisition of Pandion Therapeutics, Inc.

Research and development (R&D) expenses were $30.5 billion in 2023 compared with $13.5 billion in 2022.

The increase was primarily due to higher charges for business development activity in 2023, including charges of $10.2 billion for the acquisition of Prometheus, $5.5 billion related to the formation of a collaboration with Daiichi Sankyo and $1.2 billion for the acquisition of Imago, compared with charges of $690 million in aggregate recorded in 2022 related to collaboration and licensing agreements with Moderna, Orna Therapeutics and Orion.

The increase in R&D expenses was also attributable to higher development spending, including for recently acquired programs, and higher compensation and benefit costs (reflecting in part increased headcount).

The increase in R&D expenses was partially offset by lower intangible asset impairment charges in 2023.

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 $9.0 billion in 2023 and $7.7 billion in 2022.

Also included in R&D expenses are Animal Health research costs, licensing costs and costs incurred by other divisions in support of R&D activities, including depreciation, production and general and administrative, which in the aggregate were $4.1 billion in 2022 and $4.7 billion in 2021.

The decrease in these expenses in 2022 largely reflects a $1.7 billion charge in 2021 for the acquisition of Pandion, partially offset by $690 million of upfront and option payments in the aggregate for collaboration and licensing agreements with Moderna, Orna and Orion.

See Note 4 to the consolidated financial statements for additional information related to these business development transactions.

R&D expenses also include impairment charges of $1.7 billion and $275 million in 2022 and 2021, respectively, largely related to nemtabrutinib (see Note 9 to the consolidated financial statements).

Also included in R&D expenses are Animal Health research costs, upfront payments for collaboration and licensing agreements (including charges for the Daiichi Sankyo, Moderna, Orna and Orion transactions noted above), charges for transactions accounted for as asset acquisitions (including the charges for Prometheus and Imago 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 $20.7 billion in 2023 and $4.1 billion in 2022.

R&D expenses also include impairment charges of $779 million in 2023 (related to gefapixant) and $1.7 billion in 2022 (largely related to nemtabrutinib).

See Note 9 to the consolidated financial statements for additional information related to these impairment charges.

The Company may recognize additional impairment charges in the future related to the cancellation or delay of other pipeline programs that were measured at fair value and capitalized in connection with business combinations and such charges could be material.

R&D expenses also include expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration recorded in connection with business combinations.

The Company recorded a net reduction in expenses of $75 million in 2022 compared with $35 million of expenses in 2021 related to changes in these estimates.

Restructuring Costs

In 2019, Merck approved a global restructuring program (Restructuring Program) as part of a worldwide initiative focused on further optimizing the Company’s manufacturing and supply network, as well as reducing its global real estate footprint.

This program is a continuation of the Company’s plant rationalization and builds on prior restructuring programs.

The actions currently contemplated under the Restructuring Program are expected to be substantially completed by the end of 2023, with the cumulative pretax costs to be incurred by the Company to implement the program estimated to be approximately $3.7 billion.

Merck expects to record charges of approximately $400 million in 2023 related to the Restructuring Program.

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 $750 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.

Restructuring costs, primarily representing separation and other related costs associated with these restructuring activities, were $337 million in 2022 and $661 million in 2021.

In 2019, Merck approved a global restructuring program (2019 Restructuring Program) as part of a worldwide initiative focused on optimizing the Company’s manufacturing and supply network, as well as reducing its global real estate footprint.

The actions under the 2019 Restructuring Program are substantially complete.

Restructuring costs of $599 million in 2023 and $337 million in 2022 include separation and other costs associated with these restructuring activities.

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.

Also included in restructuring costs are asset abandonment, 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.

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 $666 million in 2022 and $868 million in 2021 related to restructuring program activities (see Note 6 to the consolidated financial statements).

The Company recorded aggregate pretax costs related to restructuring program activities of $933 million in 2023 (of which $190 million related to the 2024 Restructuring Program) and $666 million in 2022.

See Note 6 to the consolidated financial statements for additional details.

Other (Income) Expense, Net

Other (income) expense, net, was $1.5 billion of expense in 2022 compared with $1.3 billion of income in 2021 primarily due to net unrealized losses from investments in equity securities in 2022 compared with net realized and unrealized gains from investments in equity securities recorded in 2021.

Other (income) expense, net, was $466 million of expense in 2023 compared with $1.5 billion of expense in 2022.

The change was primarily due to net gains from investments in equity securities recorded in 2023, compared with net losses from investments in equity securities recorded in 2022, as well as lower pension settlement costs in 2023, partially offset by a $572.5 million charge in 2023 related to settlements with certain plaintiffs in the Zetia antitrust litigation (see Note 11 to the consolidated financial statements) and higher foreign exchange losses.

Table of C o ntent s

For details on the components of Other (income) expense, net, see Note 15 to the consolidated financial statements.

3 unchanged sentences

Animal Health segment profits 1,737 1,963 1,950

Other non-reportable segment profits — — 1

Other (38,728) (22,371) (19,048)

2 unchanged sentences

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, 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.

4 unchanged sentences

Pharmaceutical segment profits grew 6% in 2023 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 grew 1% in 2022 reflecting lower manufacturing costs, partially offset by higher selling and administrative costs and the unfavorable effect of foreign exchange.

Animal Health segment profits declined 12% in 2023 reflecting higher production costs, higher inventory write-offs, increased administrative and promotional costs, as well as the unfavorable effect of foreign exchange.

Taxes on Income

The effective income tax rates from continuing operations were 80.0% in 2023 and 11.7% in 2022.

The tax rate from continuing operations in 2022 and 2021 reflect a favorable mix of income and expense.

The high tax rate from continuing operations in 2023 includes a 65.6 percentage point combined unfavorable impact of charges for the acquisitions of Prometheus and Imago (for which no tax benefits were recognized) and the Daiichi Sankyo collaboration.

These charges reduced domestic pretax income by approximately $16.9 billion in 2023.

In addition, the tax rate from continuing operations in 2023 reflects higher foreign taxes and the impact of the R&D capitalization provision of the Tax Cuts and Jobs Act of 2017 (TCJA) on the Company’s U.S.

global intangible low-taxed income inclusion, partially offset by a favorable mix of income and expense, as well as higher foreign tax credits.

The tax rate from continuing operations in 2022 reflects a favorable mix of income and expense.

The tax rate from continuing operations in 2022 also reflects the favorable impact of net unrealized losses from investments in equity securities and intangible asset impairment charges, which were taxed at the U.S.

these items reduced domestic pretax income by approximately $2.9 billion in 2022.

The tax rate from continuing operations in 2021 also reflects higher foreign tax credits from ordinary business operations that the Company was able to credit, the beneficial impact of the settlement of a foreign tax matter, as well as a net tax benefit of $207 million related to the settlement of certain federal income tax matters (see Note 16 to the consolidated financial statements).

Additionally, the tax rate from continuing operations in 2021 reflects the unfavorable effect of a charge for the acquisition of Pandion 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 minimal impact to its 2024 tax rate due to the accounting for the tax effects of intercompany transactions.

The Company expects the impact of the global minimum tax will increase its tax rate to a greater extent in 2025 and thereafter.

Also, in the event that the provision of the TCJA requiring capitalization and amortization of R&D expenses for tax purposes is repealed along the lines recently proposed in the Tax Relief for American Families and Workers Act of 2024, the Company will again be able to realize the benefit of U.S.

R&D expenses as incurred, but expects no material impact to its effective income tax rate.

Table of C o ntent s

Non-GAAP Income and Non-GAAP EPS from Continuing Operations

6 unchanged sentences

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, senior management’s annual 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.

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 GAAP.

In 2022, the Company changed the treatment of certain items for purposes of its non-GAAP reporting.

Historically, Merck’s non-GAAP results excluded expenses for upfront and pre-approval milestone payments related to collaborations and licensing agreements, as well as charges related to pre-approval assets obtained in transactions accounted for as asset acquisitions, to the extent the charges were considered by the Company to be significant to the results of a particular period (as well as any related adjustments recorded in a subsequent period).

Merck’s non-GAAP results no longer exclude charges related to these items.

Prior periods have been recast to conform to the current presentation.

A reconciliation between GAAP financial measures and non-GAAP financial measures (from continuing operations) is as follows:

5 unchanged sentences

Restructuring costs 933 666 868

Loss (income) from investments in equity securities, net 1,348 (1,884) (1,292)

(Income) loss from investments in equity securities, net

(279) 1,348 (1,884)

Charge for Zetia antitrust litigation settlements 573 — —

Charges for the discontinuation of COVID-19 development programs — — 225

5 unchanged sentences

Net tax benefit from the settlement of certain federal income tax matters — — 207

Adjustment to tax benefits recorded in conjunction with the 2015 Cubist Pharmaceuticals, Inc.

acquisition — — (67)

Non-GAAP taxes on income from continuing operations 2,143 3,150 1,932

4 unchanged sentences

EPS assuming dilution from continuing operations as reported under GAAP (3)

$ 0.14 $ 5.71 $ 4.86

EPS difference 1.37 1.77 0.51

Non-GAAP EPS assuming dilution from continuing operations (3)

(1) Amounts in 2022, 2021 and 2020 include $1.7 billion, $302 million and $1.7 billion, respectively, of intangible asset impairment charges.

$ 1.51 $ 7.48 $ 5.37

(1) Amounts in 2023, 2022 and 2021 include $792 million, $1.7 billion and $302 million, respectively, of intangible asset impairment charges.

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

(3) GAAP and non-GAAP EPS were negatively affected in 2023, 2022 and 2021 by $6.21, $0.22, and $0.65, respectively, of charges for certain upfront and pre-approval milestone 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 and amortization of purchase accounting adjustments to inventories, 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 of businesses.

These amounts include the amortization of intangible assets and amortization of purchase accounting adjustments to inventories, as well as intangible asset impairment charges, and

Table of C o ntent s

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.

3 unchanged sentences

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 costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans and share-based compensation costs.

Restructuring costs also include asset abandonment, facility shut-down and other related costs, as well as employee-related costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans and share-based compensation costs.

Income and Losses from Investments in Equity Securities

4 unchanged sentences

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 are charges related to the discontinuation of COVID-19 development programs (see Note 4 to the consolidated financial statements), as well as a net tax benefit related to the settlement of certain federal income tax matters (see Note 16 to the consolidated financial statements), and an adjustment to tax benefits recorded in conjunction with the 2015 acquisition of Cubist Pharmaceuticals, Inc.

Excluded from non-GAAP income and non-GAAP EPS is a charge related to settlements with certain plaintiffs in the Zetia antitrust litigation (see Note 11 to the consolidated financial statements), charges related to the discontinuation of COVID-19 development programs, as well as a net tax benefit related to the settlement of certain federal income tax matters (see Note 16 to the consolidated financial statements).

Research and Development

7 unchanged sentences

Certain recent transactions are summarized below;

additional details are included in Note 4 to the consolidated financial statements.

additional details are included in Note 3 and Note 4 to the consolidated financial statements.

Merck actively monitors the landscape for growth opportunities that meet the Company’s strategic criteria.

In January 2024, Merck entered into an agreement to acquire 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.

Under the terms of the agreement, Merck will acquire all outstanding shares of Harpoon for $23 per share in cash, for an approximate total equity value of $680 million.

Harpoon’s lead candidate, 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 and neuroendocrine tumors.

HPN328 is currently being evaluated in a Phase 1/2 clinical trial as a monotherapy in patients with advanced cancers associated with expression of DLL3 and also in combination with atezolizumab in patients with certain types of small-cell lung cancer.

Closing of the acquisition is expected in the first half of 2024, but is subject to certain conditions, including approval of the merger by Harpoon’s stockholders, the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and other customary conditions.

If the proposed transaction closes, the Company anticipates it will be accounted for as an acquisition of an asset.

The Company expects to record a charge of approximately $650 million to Research and development expenses upon closing, or approximately $0.26 per share.

In October 2023, Merck and Daiichi Sankyo entered into a global development and commercialization agreement for three of Daiichi Sankyo’s deruxtecan (DXd) ADC candidates:

patritumab deruxtecan (HER3-DXd) (MK-1022), ifinatamab deruxtecan (I-DXd) (MK-2400) and raludotatug deruxtecan (R-DXd) (MK-5909).

All three potentially first-in-class DXd ADCs are in various stages of clinical development for the treatment of multiple solid tumors both as monotherapy and/or in combination with other treatments.

The companies will jointly develop and

Table of C o ntent s

potentially commercialize these ADC candidates worldwide, except in Japan where Daiichi Sankyo will maintain exclusive rights.

Daiichi Sankyo will be solely responsible for manufacturing and supply.

Under the terms of the agreement, Merck made upfront payments of $4.0 billion and will make two one-time continuation payments of $750 million each to Daiichi Sankyo.

Additionally, Daiichi Sankyo is eligible to receive future contingent sales-based milestone payments.

Merck recorded an aggregate pretax charge of $5.5 billion to Research and development expenses, or $1.69 per share, in 2023 related to the transaction.

In June 2023, Merck acquired Prometheus, a clinical-stage biotechnology company pioneering a precision medicine approach for the discovery, development, and commercialization of novel therapeutic and companion diagnostic products for the treatment of immune-mediated diseases.

Total consideration paid of $11.0 billion included $1.2 billion of costs to settle share-based equity awards (including $700 million to settle unvested equity awards).

Prometheus’ lead candidate, tulisokibart, MK-7240 (formerly PRA023), is a humanized monoclonal antibody directed to tumor necrosis factor-like ligand 1A, a target associated with both intestinal inflammation and fibrosis.

Tulisokibart is being developed for the treatment of immune-mediated diseases including ulcerative colitis, Crohn’s disease, and other autoimmune conditions.

A Phase 3 clinical trial evaluating tulisokibart for ulcerative colitis commenced in 2023.

The transaction was accounted for as an acquisition of an asset.

Merck recorded net assets of $877 million, as well as a charge of $10.2 billion to Research and development expenses, or $4.00 per share, in 2023 related to the transaction.

There are no future contingent payments associated with the acquisition.

In February 2023, Merck and Kelun-Biotech closed a license and collaboration agreement expanding their relationship in which Merck gained exclusive rights for the research, development, manufacture and commercialization of up to seven investigational preclinical ADCs for the treatment of cancer.

Kelun-Biotech retained the right to research, develop, manufacture and commercialize certain licensed and option ADCs for Chinese mainland, Hong Kong and Macau.

Merck will make an upfront payment of $175 million, which will be recorded in Research and development expenses in 2023.

In addition, Kelun-Biotech is eligible to receive future contingent milestone payments and tiered royalties on future net sales for any commercialized ADC product.

Also, in connection with the agreement, Merck invested $100 million in Kelun-Biotech’s Series B preferred shares in January 2023.

Merck made an upfront payment of $175 million, which was recorded in Research and development expenses in 2023.

In October 2023, Merck notified Kelun-Biotech it was terminating two of the seven candidates under the agreement.

Kelun-Biotech remains eligible to receive future contingent milestone payments and tiered royalties on future net sales for any commercialized ADC product.

Also, in connection with the agreement, Merck invested $100 million in Kelun-Biotech shares in January 2023.

In January 2023, Merck acquired Imago, a clinical-stage biopharmaceutical company developing new medicines for the treatment of myeloproliferative neoplasms and other bone marrow diseases, for $1.35 billion (including payments to settle share-based equity awards) and also incurred approximately $60 million of transaction costs.

Imago’s lead candidate bomedemstat, MK-3543 (formerly IMG-7289), is an investigational orally available lysine-specific demethylase 1 inhibitor currently being evaluated in multiple Phase 2 clinical trials for the treatment of essential thrombocythemia, myelofibrosis, and polycythemia vera, in addition to other indications.

Imago’s lead candidate bomedemstat, MK-3543 (formerly IMG-7289), is an investigational orally available lysine-specific demethylase 1 inhibitor currently being evaluated in multiple clinical trials for the treatment of essential thrombocythemia, myelofibrosis, and polycythemia vera, in addition to other indications.

A Phase 3 clinical trial evaluating bomedemstat for the treatment of certain patients with essential thrombocythemia is underway.

The transaction was accounted for as an acquisition of an asset.

Merck will record net assets of approximately $200 million and Research and development expenses of $1.2 billion in 2023 related to the transaction.

Merck recorded net assets of $219 million, as well as a charge of $1.2 billion to Research and development expenses in 2023 related to the transaction.

There are no future contingent payments associated with the acquisition.

In September 2022, Merck exercised its option to jointly develop and commercialize personalized therapeutic cancer vaccine mRNA-4157/V940 pursuant to the terms of an existing collaboration and license agreement with Moderna, which resulted in a $250 million charge to Research and development expenses in 2022.

mRNA-4157/V940 is currently being evaluated in combination with Keytruda as adjuvant treatment for patients with stage III/IV melanoma following complete resection in a Phase 2 clinical trial being conducted by Moderna.

Merck and Moderna will collaborate on development and commercialization and will share costs and any profits equally under this worldwide collaboration.

In February 2023, Merck and Moderna announced that mRNA-4157/V940 was granted Breakthrough Therapy Designation by the FDA for the adjuvant treatment of patients with high-risk melanoma following complete resection.

In August 2022, Merck and Orna entered into a collaboration agreement to discover, develop, and commercialize multiple programs, including vaccines and therapeutics in the areas of infectious disease and oncology.

Under the terms of the agreement, Merck made an upfront payment to Orna of $150 million, which was recorded in Research and development expenses in 2022.

In addition, Orna is eligible to receive future contingent

development-related payments, as well as royalties on any approved products derived from the collaboration.

Merck also invested $100 million in Orna’s Series B preferred shares in 2022.

In July 2022, Merck and Orion announced a global co-development and co-commercialization agreement for Orion’s investigational candidate ODM-208 (MK-5684) and other drugs targeting cytochrome P450 11A1 (CYP11A1), an enzyme important in steroid production.

MK-5684 is an oral, non-steroidal inhibitor of CYP11A1 currently being evaluated in a Phase 2 clinical trial for the treatment of patients with mCRPC.

Merck made an upfront payment to Orion of $290 million, which was recorded in Research and development expenses in 2022.

Also in July 2022, Merck and Kelun-Biotech closed a license and collaboration agreement in which Merck gained exclusive worldwide rights for the development, manufacture and commercialization of an investigational ADC (MK-1200) for the treatment of solid tumors.

Under the terms of the agreement, Merck and Kelun-Biotech will collaborate on the early clinical development of the investigational ADC.

Merck made an upfront payment of $35 million, which was recorded in Research and development expenses in 2022.

Kelun-Biotech is also eligible to receive future contingent milestone payments, as well as tiered royalties on future net sales.

In May 2022, in connection with an existing arrangement, Merck exercised its option to obtain an exclusive license outside of Chinese mainland, Hong Kong, Macau and Taiwan for the development, manufacture and commercialization of Kelun-Biotech’s TROP2-targeting ADC programs, including its lead compound, SKB-264 (MK-2870), which is currently in Phase 2 clinical development.

Under the terms of the agreement, Merck and Kelun-Biotech will collaborate on certain early clinical development plans, including evaluating the potential of MK-2870 as a monotherapy and in combination with Keytruda for advanced solid tumors.

Upon option exercise, Merck made a payment of $30 million, which was recorded in Research and development expenses in 2022, and agreed to make additional payments upon completion of specified project activities, technology transfer, as well as payments to fund Kelun-Biotech’s ongoing research and development activities.

In addition, Kelun-Biotech is eligible to receive future contingent developmental and sales-based milestone payments and royalties on future net sales.

Acquired In-Process Research and Development

In connection with business combinations, the Company has recorded the fair value of in-process research projects which, at the time of acquisition, had not yet reached technological feasibility.

At December 31, 2022, the balance of IPR&D was $7.7 billion, primarily consisting of MK-7962 (sotatercept), $6.4 billion;

MK-7264 (gefapixant), $832 million;

and MK-1026 (nemtabrutinib), $418 million.

Sotatercept is in Phase 3 clinical development and the Company anticipates filing sotatercept with regulatory authorities in 2023.

Gefapixant is under review in the U.S.

In connection with business combinations, the Company records the fair value of in-process research projects which, at the time of acquisition, had not yet reached technological feasibility.

At December 31, 2023, the balance of in-process research and development (IPR&D) was $6.8 billion, primarily consisting of MK-7962 (sotatercept), $6.4 billion and MK-1026 (nemtabrutinib), $418 million.

Sotatercept is under review in the U.S.

Nemtabrutinib is in Phase 3 clinical development.

4 unchanged sentences

If such circumstances were to occur, the Company’s future operating results could be adversely affected and the Company may recognize impairment charges, which could be material.

In 2022, 2021, and 2020 the Company recorded IPR&D impairment charges within Research and development expenses of $1.6 billion, $275 million and $90 million, respectively (see Note 9 to the consolidated financial statements).

In 2023, 2022, and 2021 the Company recorded IPR&D impairment charges within Research and development expenses of $779 million, $1.6 billion and $275 million, respectively (see Note 9 to the consolidated financial statements).

Table of C o ntent s

Additional research and development will be required before any of the remaining programs reach technological feasibility.

4 unchanged sentences

were $2.5 billion in 2023, $2.7 billion in 2022 and $2.8 billion in 2021.

The Company plans to invest approximately $20 billion in capital projects from 2021-2025, approximately half of which relates to investments in the U.S., including expanding manufacturing capacity for oncology, vaccine and animal health products.

The Company invested more than $19 billion in capital expenditures from 2018-2022, more than half of which related to expenditures in the U.S.

The Company plans to invest approximately $18 billion in capital projects from 2023-2027, more than $10 billion of which relates to investments in the U.S., including expanding manufacturing capacity for oncology, vaccine and animal health products.

Depreciation expense was $1.8 billion in 2023, $1.8 billion in 2022 and $1.6 billion in 2021, of which $1.2 billion in 2023, $1.3 billion in 2022 and $1.1 billion in 2021, related to locations in the U.S.

1 unchanged sentence

Analysis of Liquidity and Capital Resources

Merck’s strong financial profile enables it to fund research and development, focus on external alliances, support in-line products and maximize upcoming launches while providing significant cash returns to shareholders.

Merck’s strong financial profile enables it to fund research and development, finance acquisitions and external alliances, support in-line products and maximize upcoming launches while providing significant cash returns to shareholders.

Selected Data

3 unchanged sentences

Cash provided by operating activities of continuing operations to total debt 0.4:1

The increase in working capital in 2022 compared with 2021 is primarily due to increased cash and investments reflecting strong operating performance.

The increase in working capital in 2021 compared with 2020 is primarily related to decreased short-term debt.

The decline in working capital in 2023 compared with 2022 primarily reflects the use of cash and investments to fund business development activity, partially offset by strong operating performance and cash proceeds from the issuance of long-term debt.

Cash provided by operating activities of continuing operations was $13.0 billion in 2023 compared with $19.1 billion in 2022.

The increase in cash provided by operating activities of continuing operations reflects stronger operating performance.

Cash provided by operating activities of continuing operations was reduced by milestone and option payments related to certain collaborations of $2.0 billion in 2022 and $435 million in 2021.

Cash provided by operating activities of continuing operations was reduced by upfront, milestone and option payments related to certain collaborations of $4.2 billion in 2023 (including payments related to the formation of a collaboration with Daiichi Sankyo) compared with $2.0 billion in 2022.

Cash provided by operating activities of continuing operations in 2023 was also reduced by payment of $572.5 million for the previously disclosed Zetia antitrust settlement.

Cash provided by operating activities of continuing operations continues to be the Company’s primary source of funds to finance operating needs, with excess cash serving as the primary source of funds to finance business development transactions, capital expenditures, dividends paid to shareholders and treasury stock purchases.

2 unchanged sentences

Cash used in investing activities of continuing operations was $14.1 billion in 2023 compared with $5.0 billion in 2022.

The lower use of cash in investing activities of continuing operations was primarily due to lower cash used for acquisitions, partially offset by higher purchases of securities and other investments coupled with lower proceeds from sales of securities and other investments.

Cash used in financing activities of continuing operations was $9.1 billion in 2022 compared with cash provided by financing activities of continuing operations of $3.1 billion in 2021.

The change was primarily driven by the cash distribution received in 2021 from Organon in connection with the spin-off (see Note 3 to the consolidated financial statements), proceeds from the issuance of debt in 2021 compared with no such proceeds in 2022, and higher dividends paid to stockholders in 2022, partially offset by net repayments of short-term borrowings and treasury stock purchases in 2021 that did not occur in 2022.

In December 2021, the Company issued $8.0 billion principal amount of senior unsecured notes consisting of $1.5 billion of 1.70% notes due 2027, $1.0 billion of 1.90% notes due 2028, $2.0 billion of 2.15% notes due 2031, $2.0 billion of 2.75% notes due 2051 and $1.5 billion of 2.90% notes due 2061.

Merck used the net proceeds from the offering of the 2027 notes, the 2031 notes, the 2051 notes and the 2061 notes for general corporate purposes, including the repayment of outstanding commercial paper borrowings (including commercial paper borrowings in connection with Merck’s acquisition of Acceleron), and other indebtedness.

Merck has committed to allocate an amount equal to the net proceeds of the offering of the notes due in 2028 to finance or refinance, in whole or in part, projects and partnerships in the Company’s priority environmental, social and governance (ESG) areas.

In June 2020, the Company issued $4.5 billion principal amount of senior unsecured notes consisting of $1.0 billion of 0.75% notes due 2026, $1.25 billion of 1.45% notes due 2030, $1.0 billion of 2.35% notes due 2040 and $1.25 billion of 2.45% notes due 2050.

Merck used the net proceeds from the offering for general corporate purposes, including the repayment of outstanding commercial paper borrowings and other indebtedness.

The higher use of cash in investing activities of continuing operations was primarily due to the acquisitions of Prometheus and Imago, partially offset by higher proceeds from sales of securities and other investments, including proceeds from the sale of Seagen Inc.

common stock, lower capital expenditures and lower purchases of securities and other investments.

Cash used in financing activities of continuing operations was $4.8 billion in 2023 compared with $9.1 billion in 2022.

The lower use of cash in financing activities from continuing operations was primarily due to proceeds from the issuance debt (see below) and lower payments on long-term debt (see below), partially offset by treasury stock purchases, higher dividends paid to shareholders and lower proceeds from the exercise of stock options.

In May 2023, the Company issued $6.0 billion principal amount of senior unsecured notes.

The Company used a portion of the $5.9 billion net proceeds from this offering to fund a portion of the cash consideration paid for the acquisition of Prometheus, including related fees and expenses, and used the remaining net proceeds for general corporate purposes including to repay commercial paper borrowings and other indebtedness with upcoming maturities.

Table of C o ntent s

In December 2021, the Company issued $8.0 billion principal amount of senior unsecured notes.

Merck used a portion the net proceeds from the offering for general corporate purposes, including the repayment of outstanding commercial paper borrowings (including commercial paper borrowings in connection with Merck’s acquisition of Acceleron), and other indebtedness, and also used an allocated amount to finance or refinance, in whole or in part, projects and partnerships in the Company’s priority environmental, social and governance (ESG) areas.

In May 2023, the Company’s $1.75 billion, 2.80% notes matured in accordance with their terms and were repaid.

In 2022, the Company’s $1.25 billion, 2.35% notes and the Company’s $1.0 billion, 2.40% notes matured in accordance with their terms and were repaid.

In 2021, the Company’s $1.15 billion, 3.875% notes and the Company’s €1.0 billion, 1.125% notes matured in accordance with their terms and were repaid.

In 2020, the Company’s $1.25 billion, 1.85% notes and $700 million floating-rate notes matured in accordance with their terms and were repaid.

The Company has a $6.0 billion credit facility that matures in June 2026.

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.

In March 2021, the Company filed a securities registration statement with the U.S.

Securities and Exchange Commission (SEC) under the automatic shelf registration process available to “well-known seasoned issuers” which is effective for three years.

Effective as of November 3, 2009, the Company executed a full and unconditional guarantee of the then existing debt of its subsidiary Merck Sharp & Dohme Corp.

(MSD) and MSD executed a full and unconditional guarantee of the then existing debt of the Company (excluding commercial paper), including for payments of principal and interest.

These guarantees do not extend to debt issued subsequent to that date.

In November 2023, Merck’s Board of Directors increased the quarterly dividend, declaring 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 of 2024 payable 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.

In 2023, the Company purchased $1.3 billion (approximately 13 million shares) of its common stock for its treasury under this program.

As of December 31, 2023, the Company’s remaining share repurchase authorization was $3.7 billion.

The Company did not purchase any shares of its common stock under this program in 2022.

The Company purchased $840 million of its common stock during 2021 under the authorized share repurchase program.

The Company believes it maintains a conservative financial profile.

The Company places its cash and investments in instruments that meet high credit quality standards, as specified in its investment policy guidelines.

These guidelines also limit the amount of credit exposure to any one issuer.

The Company does not participate in any off-balance sheet arrangements involving unconsolidated subsidiaries that provide financing or potentially expose the Company to unrecorded financial obligations.

The Company expects foreseeable liquidity and capital resource requirements to be met through existing cash and cash equivalents and anticipated cash flows from operations, as well as commercial paper borrowings and long-term borrowings if needed.

6 unchanged sentences

Operating Leases — See Note 10 to consolidated financial statements for further details of the Company’s lease obligations and the timing of expected future lease payments.

Contingent Milestone Payments — The Company has an accrued liability for a contingent sales-based milestone payment related to a collaboration with AstraZeneca where payment has been deemed probable by the Company but remains subject to the achievement of the related sales-based milestone.

See Note 5 to the consolidated financial statements for additional information related to this sales-based milestone.

Collaboration-Related Payments — The Company has accrued liabilities for contingent sales-based milestone payments related to collaborations with AstraZeneca and Eisai where payment has been deemed probable by the Company but remains subject to the achievement of the related sales-based milestone.

Additionally, the

Table of C o ntent s

Company has accrued liabilities for future continuation payments related to a collaboration with Daiichi Sankyo.

See Note 4 to the consolidated financial statements for additional information related to these future payments.

Purchase Obligations — Purchase obligations are enforceable and legally binding obligations for purchases of goods and services including minimum inventory contracts, research and development and advertising.

1 unchanged sentence

As of December 31, 2023, the Company had total purchase obligations of $5.8 billion, of which $2.0 billion is estimated to be payable in 2024.