What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-26 compared with 2023-02-24 · 567 added, 492 removed, 1674 unchanged (39% of the section changed)

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The consolidated balance sheet of Merck & Co., Inc.

and subsidiaries as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2022, the notes to consolidated financial statements, and the report dated February 24, 2023 of PricewaterhouseCoopers LLP, independent registered public accounting firm, are as follows:

and subsidiaries as of December 31, 2023 and 2022, and the related consolidated statements of income, of comprehensive (loss) income, of equity and of cash flows for each of the three years in the period ended December 31, 2023, the notes to consolidated financial statements, and the report dated February 26, 2024 of PricewaterhouseCoopers LLP, independent registered public accounting firm, are as follows:

Consolidated Statement of Income

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Net Income $ 0.14 $ 5.71 $ 5.14

Consolidated Statement of Comprehensive Income

Consolidated Statement of Comprehensive (Loss) Income

Merck & Co., Inc.

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Net unrealized (loss) gain on derivatives, net of reclassifications ( 97 ) ( 71 ) 410

Net unrealized loss on investments, net of reclassifications — — ( 18 )

Benefit plan net gain (loss) and prior service credit (cost), net of amortization 335 1,769 ( 279 )

Benefit plan net (loss) gain and prior service (cost) credit, net of amortization

( 385 ) 335 1,769

Cumulative translation adjustment 89 ( 603 ) ( 423 )

( 393 ) ( 339 ) 1,756

Comprehensive Income Attributable to Merck & Co., Inc.

Comprehensive (Loss) Income Attributable to Merck & Co., Inc.

$ ( 28 ) $ 14,180 $ 14,805

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

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Consolidated Balance Sheet

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

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Consolidated Statement of Equity

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— — 13,049 — — — 13,049

Other comprehensive loss, net of taxes — — — ( 441 ) — — ( 441 )

Other comprehensive income, net of taxes — — — 1,756 — — 1,756

Cash dividends declared on common stock ($ 2.64 per share)

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Treasury stock shares purchased — — — — ( 840 ) — ( 840 )

Spin-off of Organon & Co.

— 4,643 — 449 — ( 1 ) 5,091

Net income attributable to noncontrolling interests — — — — — 16 16

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— — 14,519 — — — 14,519

Other comprehensive income, net of taxes — — — 1,756 — — 1,756

Other comprehensive loss, net of taxes — — — ( 339 ) — — ( 339 )

Cash dividends declared on common stock ($ 2.80 per share)

— — ( 7,134 ) — — — ( 7,134 )

Treasury stock shares purchased — — — — ( 840 ) — ( 840 )

Spin-off of Organon & Co.

— 4,643 — 449 — ( 1 ) 5,091

Net income attributable to noncontrolling interests — — — — — 7 7

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— — ( 7,551 ) — — — ( 7,551 )

Treasury stock shares purchased — — — — ( 1,346 ) — ( 1,346 )

Net income attributable to noncontrolling interests — — — — — 12 12

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

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Consolidated Statement of Cash Flows

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Intangible asset impairment charges 792 1,749 302

Loss (income) from investments in equity securities, net 1,419 ( 1,940 ) ( 1,338 )

(Income) loss from investments in equity securities, net

( 340 ) 1,419 ( 1,940 )

Charge for the acquisition of Prometheus Biosciences, Inc.

Charge for the acquisition of Imago BioSciences, Inc.

Charge for the acquisition of Pandion Therapeutics, Inc.

Charge for the acquisition of VelosBio Inc.

Deferred income taxes ( 1,899 ) ( 1,568 ) 187

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Capital expenditures ( 3,863 ) ( 4,388 ) ( 4,448 )

Purchase of Seagen Inc.

common stock — — ( 1,000 )

Purchases of securities and other investments ( 955 ) ( 1,204 ) ( 1 )

Proceeds from sale of Seagen Inc.

common stock 1,145 — —

Proceeds from sales of securities and other investments 1,658 721 1,026

Acquisition of Prometheus Biosciences, Inc., net of cash acquired

( 10,705 ) — —

Acquisition of Imago BioSciences Inc., net of cash acquired

( 1,327 ) — —

Acquisition of Acceleron Pharma Inc., net of cash acquired — — ( 11,174 )

Acquisition of Pandion Therapeutics, Inc., net of cash acquired — — ( 1,554 )

Acquisition of VelosBio Inc., net of cash acquired — — ( 2,696 )

Acquisition of ArQule, Inc., net of cash acquired — — ( 2,545 )

Other acquisitions, net of cash acquired — ( 121 ) ( 179 )

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Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash 23 ( 410 ) ( 133 )

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash 4,606 14 ( 1,769 )

Cash, Cash Equivalents and Restricted Cash at Beginning of Year (includes $ 71 , $ 103 and $ 258 of restricted cash at January 1, 2022, 2021 and 2020 included in Other current assets )

Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash

( 5,864 ) 4,606 14

Cash and cash equivalents related to discontinued operations — — 12

Cash, Cash Equivalents and Restricted Cash at End of Year (includes $ 79 , $ 71 and $ 103 of restricted cash at December 31, 2022, 2021 and 2020 included in Other current assets )

Cash, Cash Equivalents and Restricted Cash at Beginning of Year (includes $ 79 , $ 71 and $ 103 of restricted cash at January 1, 2023, 2022 and 2021, respectively, included in Other current assets )

12,773 8,167 8,153

Cash, Cash Equivalents and Restricted Cash at End of Year (includes $ 68 , $ 79 and $ 71 of restricted cash at December 31, 2023, 2022 and 2021, respectively, included in Other current assets )

$ 6,909 $ 12,773 $ 8,167

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

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Notes to Consolidated Financial Statements

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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.

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(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).

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For those consolidated subsidiaries where Merck ownership is less than 100%, the outside shareholders’ interests are shown as Noncontrolling interests in equity.

Investments in affiliates over which the Company has significant influence but not a controlling interest, such as interests in entities owned equally by the Company and a third party that are under shared control, are carried on the equity basis.

Acquisitions — In a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of the acquisition at their respective fair values with limited exceptions.

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The operating results of the acquired business are reflected in the Company’s consolidated financial statements after the date of the acquisition.

If the Company determines the assets acquired do not meet the definition of a business under the acquisition method of accounting, the transaction will be accounted for as an acquisition of assets rather than a business combination and, therefore, no

goodwill will be recorded.

In an asset acquisition, acquired in-process research and development (IPR&D) with no alternative future use is charged to expense and contingent consideration is not recognized at the acquisition date.

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Foreign Currency Translation — The net assets of international subsidiaries where the local currencies have been determined to be the functional currencies are translated into U.S.

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Inventories consist of currently marketed products, as well as certain inventories produced in preparation for product launches that are considered by the Company to be probable of obtaining regulatory approval.

In evaluating the recoverability of inventories produced in preparation for product launches, the Company considers the likelihood that revenue will be obtained from the future sale of the related inventory together with the status of the product within the regulatory approval process.

Investments — Investments in marketable debt securities classified as available-for-sale are reported at fair value.

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The vast majority of revenues from sales of products are recognized at a point in time when control of the goods is transferred to the customer, which the Company has determined is when title and risks and rewards of ownership transfer to the customer and the Company is entitled to payment.

and BioTerror Countermeasures to the Federal Government for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile .

The Company recognizes revenue from the sales of vaccines to the Federal government for placement into vaccine stockpiles in accordance with Securities and Exchange Commission (SEC) Interpretation, Commission Guidance Regarding Accounting for Sales of Vaccines and BioTerror Countermeasures to the Federal Government for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile .

This interpretation allows companies to recognize revenue for sales of vaccines into U.S.

government stockpiles even though these sales might not meet the criteria for revenue recognition under other accounting guidance.

Some customers have bill-and-hold arrangements with the Company.

Revenue for bill-and-hold arrangements is recognized when control transfers to the customer even though the customer does not yet have physical possession of the goods.

Control transfers when the bill-and-hold arrangement has been requested by the customer, the product is identified as belonging to the customer and is ready for physical transfer, the product cannot be directed for use by anyone but the customer and, in certain circumstances, the customer has inspected and accepted the product at the Company’s facility.

government stockpiles even though these sales might not meet the criteria for revenue recognition under other

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accounting guidance.

For certain services in the Animal Health segment, revenue is recognized over time, generally ratably over the contract term as services are provided.

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Chargebacks are discounts that occur when a contracted customer purchases through an intermediary wholesaler.

The contracted customer generally purchases product from the wholesaler at its contracted price plus a mark-up.

The wholesaler, in turn, charges the Company back for the difference between the price initially paid by the wholesaler and the contract price paid to the wholesaler by the customer.

The wholesaler then charges the Company back for the difference between the price initially paid by the wholesaler and the contract price agreed to between Merck and the customer.

The provision for chargebacks is based on expected sell-through levels by the Company’s wholesale customers to contracted customers, as well as estimated wholesaler inventory levels.

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animal health customers are typically 30 days from receipt of invoice;

however, certain products, including Keytruda , have longer payment terms, some of which are up to 90 days.

however, certain products have longer payment terms, including Keytruda , which has payment terms of 90 days.

Payment terms for vaccines sales in the U.S.

typically range from 30 to 60 days.

Outside of the U.S., payment terms are typically 30 days to 90 days, although certain markets have longer payment terms.

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Depreciation expense was $ 1.8 billion in 2023, $ 1.8 billion in 2022 and $ 1.6 billion in 2021.

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Advertising and Promotion Costs — Advertising and promotion costs are expensed as incurred.

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Goodwill — Goodwill represents the excess of the consideration transferred over the fair value of net assets of businesses acquired.

Goodwill is assigned to reporting units and evaluated for impairment on at least an annual basis, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

Goodwill is assigned to reporting units and evaluated for impairment at least annually, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If the Company concludes it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative fair value test is performed.

If the carrying value of a reporting unit is greater than its fair value, a goodwill impairment charge will be recorded for the difference (up to the carrying value of goodwill).

Acquired Intangibles — Intangibles acquired in a business combination include products and product rights, trade names and patents, licenses and other, which are initially recorded at fair value, assigned an estimated useful life, and amortized primarily on a straight-line basis over their estimated useful lives ranging from 2 to 24 years.

Acquired Intangibles — Intangibles acquired in a business combination include product rights, trade names and patents, licenses and other, which are initially recorded at fair value, assigned an estimated useful life, and amortized primarily on a straight-line basis over their estimated useful lives ranging from 2 to 24 years.

The Company periodically evaluates whether current facts or circumstances indicate that the carrying values of its acquired intangibles may not be recoverable.

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Research and Development — Research and development is expensed as incurred.

Nonrefundable advance payments for goods and services that will be used in future research and development activities are

expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Research and development expenses include restructuring costs and IPR&D impairment charges.

In addition, research and development expenses include expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration associated with IPR&D assets.

Research and development expenses also include upfront and milestone payments related to asset acquisitions and licensing transactions involving clinical development programs that have not yet received regulatory approval.

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development expenses also include upfront and milestone payments related to asset acquisitions and licensing transactions involving clinical development programs that have not yet received regulatory approval.

Collaborative Arrangements — Merck has entered into collaborative arrangements that provide the Company with varying rights to develop, produce and market products together with its collaborative partners.

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Sales-based milestones payable by Merck to collaborative partners are accrued and capitalized, subject to cumulative amortization catch-up, when determined to be probable of being achieved by the Company.

The amortization catch-up is calculated either from the time of the first regulatory approval for indications that were unapproved at the time the collaboration was formed, or from time of the formation of the collaboration for approved products.

The amortization catch-up is calculated either from the time of the first regulatory approval for indications that were unapproved at the time the collaboration was formed, or from the time of the formation of the collaboration for approved products.

The related intangible asset that is recognized is amortized to Cost of sales over its remaining useful life, subject to impairment testing.

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

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Use of Estimates — The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S.

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Estimates are used when accounting for amounts recorded in connection with acquisitions, including initial fair value determinations of assets and liabilities in a business combination (primarily IPR&D, other intangible assets and contingent consideration), as well as subsequent fair value measurements.

Additionally, estimates are used in determining such items as provisions for sales discounts and returns, depreciable and amortizable lives, recoverability of inventories, including those produced in preparation for product launches, amounts recorded for contingencies, environmental liabilities, accruals for contingent sales-based milestone payments and other reserves, pension and other postretirement benefit plan assumptions, share-based compensation assumptions, restructuring costs, impairments of long-lived assets (including intangible assets and goodwill) and investments, and taxes on income.

Additionally, estimates are used in determining such items as provisions for sales discounts, rebates and returns, depreciable and amortizable lives, recoverability of inventories, including those produced in preparation for product launches, amounts recorded for contingencies, environmental liabilities, accruals for contingent sales-based milestone payments and other reserves, pension and other postretirement benefit plan assumptions, share-based compensation assumptions, restructuring costs, impairments of long-lived assets (including intangible assets and goodwill) and investments, and taxes on income.

Because of the uncertainty inherent in such estimates, actual results may differ from these estimates.

Recently Adopted Accounting Standards — In August 2020, the Financial Accounting Standards Board (FASB) issued amended guidance on the accounting for convertible instruments and contracts in an entity’s own equity.

The guidance removes the separation model for convertible debt instruments and preferred stock, amends requirements for conversion options to be classified in equity as well as amends diluted earnings per share (EPS) calculations for certain convertible debt instruments.

The Company adopted the new guidance on January 1, 2022 using a modified retrospective approach.

There was no impact to the Company’s consolidated financial statements upon adoption.

In November 2021, the FASB issued new guidance to increase the transparency of transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.

The guidance requires annual disclosures of such transactions to include the nature of the transactions and the significant terms and conditions, the accounting treatment and the impact to a company’s financial statements.

The Company adopted the new guidance on January 1, 2022 on a prospective basis.

There was no material impact to the Company’s consolidated financial statements upon adoption.

In March 2020, the FASB issued optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and subsequently issued clarifying amendments.

The guidance provides optional expedients and exceptions for accounting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform.

The Company adopted the optional guidance on July 1, 2022 on a prospective basis.

There was no material impact to the Company’s consolidated financial statements upon adoption.

In October 2021, the FASB issued amended guidance that requires acquiring entities to recognize and measure contract assets and liabilities in a business combination in accordance with existing revenue recognition guidance.

Recently Adopted Accounting Standards — In October 2021, the Financial Accounting Standards Board (FASB) issued amended guidance that requires acquiring entities to recognize and measure contract assets and liabilities in a business combination in accordance with existing revenue recognition guidance.

The Company adopted the guidance effective January 1, 2023.

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however, the impact in future periods will be dependent upon the contract assets and contract liabilities acquired in future business combinations.

Recently Issued Accounting Standard Not Yet Adopted — In June 2022, the FASB issued guidance related to the fair value measurement of an equity security subject to contractual restrictions that prohibit the sale of the equity security.

In June 2022, the FASB issued guidance related to the fair value measurement of an equity security subject to contractual restrictions that prohibit the sale of the equity security.

The new guidance also introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value.

The amended guidance is effective for interim and annual periods in 2024 and is to be applied prospectively.

The Company adopted the guidance effective July 1, 2023.

There was no impact to the Company’s consolidated financial statements upon adoption.

Recently Issued Accounting Standards Not Yet Adopted — In August 2023, the FASB issued amended guidance that requires a newly formed joint venture to recognize and initially measure its assets and liabilities at fair value upon formation.

The amended guidance includes exceptions to fair value measurement that are consistent with the accounting for business combinations guidance.

The amended guidance is effective prospectively for all joint ventures with a formation date on or after January 1, 2025, however existing joint ventures have the option to apply the guidance retrospectively.

Early adoption is permitted for both interim and annual periods.

The Company is currently evaluating the impact of adoption on its consolidated financial statements.

Spin-Off of Organon & Co.

On June 2, 2021, Merck completed the spin-off of Organon through a distribution of Organon’s publicly traded stock to Company shareholders.

In connection with the spin-off, each Merck shareholder received one-tenth of a share of Organon’s common stock for each share of Merck common stock held by such shareholder.

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

federal income tax purposes.

Indebtedness of $ 9.5 billion principal amount, consisting of term loans and senior notes, was issued in 2021 in connection with the spin-off and assumed by Organon.

Merck is no longer the obligor of any Organon debt or financing arrangements.

Cash proceeds of $ 9.0 billion were distributed by Organon to Merck in connection with the spin-off.

Also in connection with the spin-off, Merck and Organon entered into a separation and distribution agreement and also entered into various other agreements to effect the spin-off and provide a framework for the relationship between Merck and Organon after the spin-off, including a transition services agreement (TSA), manufacturing and supply agreements (MSAs), trademark license agreements, intellectual property license agreements, an employee matters agreement, a tax matters agreement and certain other commercial agreements.

Under the TSA, Merck is providing Organon various services and, similarly, Organon is providing Merck various services.

The provision of services under the TSA generally will terminate within 25 months following the spin-off;

however, the provision of certain services has been extended to 35 months.

Merck and Organon also entered into a series of interim operating agreements pursuant to which in various jurisdictions where Merck held licenses, permits and other rights in connection with marketing, import and/or distribution of Organon products prior to the separation, Merck is continuing to market, import and distribute such products until such time as the relevant licenses and permits are transferred to Organon.

Under such interim operating agreements and in accordance with the separation and distribution agreement, Merck is continuing operations in the affected markets on behalf of Organon, with Organon receiving all of the economic benefits and burdens of such activities.

Additionally, Merck and Organon entered into a number of MSAs pursuant to which Merck is (a) manufacturing and supplying certain active pharmaceutical ingredients for Organon, (b) manufacturing and supplying certain formulated pharmaceutical products for Organon, and (c) packaging and labeling certain finished pharmaceutical products for Organon.

Similarly, Organon and Merck entered into a number of MSAs pursuant to which Organon is (a) manufacturing and supplying certain formulated pharmaceutical products for Merck, and (b) packaging and labeling certain finished pharmaceutical products for Merck.

The terms of the MSAs range in initial duration from four years to ten years .

The amounts included in the consolidated statement of income for the above MSAs include sales of $ 383 million and $ 219 million in 2022 and 2021, respectively, and related cost of sales of $ 404 million and $ 195 million in 2022 and 2021, respectively.

Amounts included in the consolidated statement of income for the TSAs were immaterial in 2022 and 2021.

The amounts due from Organon under all of the above agreements were $ 511 million and $ 964 million at December 31, 2022 and 2021, respectively, and are reflected in Other current assets .

The amounts due to Organon under these agreements were $ 345 million and $ 400 million at December 31, 2022 and 2021, respectively, and are included in Accrued and other current liabilities .

The results of the women’s health, biosimilars and established brands businesses (previously included in the Pharmaceutical segment) that were contributed to Organon in the spin-off, as well as interest expense related to the debt issuance in 2021, have been reflected as discontinued operations in the Company’s consolidated statement of income as Income from Discontinued Operations, Net of Taxes and Amounts Attributable to Noncontrolling Interests for periods prior to the spin-off on June 2, 2021.

Merck incurred separation costs of $ 556 million in 2021 and $ 743 million in 2020 related to the spin-off of Organon, which are also included in Income from Discontinued Operations, Net of Taxes and Amounts Attributable to Noncontrolling Interests .

These costs primarily relate to professional fees for separation activities within finance, tax, legal and information technology functions, as well as investment banking fees.

Details of Income from Discontinued Operations, Net of Taxes and Amounts Attributable to Noncontrolling Interests are as follows:

Years Ended December 31 2021 (1)

Sales $ 2,512 $ 6,476

Costs, Expenses and Other

Cost of sales 789 1,867

Selling, general and administrative 877 1,513

Research and development 103 161

Restructuring costs 1 3

Other (income) expense, net ( 15 ) 4

Income from discontinued operations before taxes 757 2,928

Tax provision 50 369

Income from discontinued operations, net of taxes 707 2,559

Income of discontinued operations attributable to noncontrolling interests 3 11

$ 704 $ 2,548

(1) Reflects amounts through the June 2, 2021 spin-off date.

The Company anticipates there will be no impact to its consolidated financial statements upon adoption.

In November 2023, the FASB issued guidance intended to improve reportable segment disclosure requirements, primarily through expanded disclosures for significant segment expenses.

The guidance is effective for annual periods beginning in 2024, and interim periods beginning in 2025.

Early adoption is permitted.

The guidance will result in incremental disclosures to the Company’s segment reporting disclosures.

In December 2023, the FASB issued guidance intended to improve the transparency of income tax disclosures by requiring consistent categories and disaggregation of information in the effective income tax rate reconciliation and income taxes paid disclosures by jurisdiction.

The guidance also includes other amendments to improve the effectiveness of income tax disclosures by removing certain previously required disclosures.

The guidance is effective for 2025 annual reporting.

Early adoption is permitted.

The Company is currently evaluating the impact of adoption on the disclosures within its consolidated financial statements.

Acquisitions, Research Collaborations and Licensing Agreements

The Company continues to pursue acquisitions and the establishment of external alliances such as research collaborations and licensing agreements to complement its internal research capabilities.

These arrangements often include upfront payments, as well as expense reimbursements or payments to the third party, and milestone, royalty or profit share arrangements, contingent upon the occurrence of certain future events linked to the success of the asset in development.

These arrangements often include upfront payments;

expense reimbursements or payments to the third party;

milestone, royalty or profit share arrangements contingent upon the occurrence of certain future events linked to the success of the asset in development;

and can also include option and continuation payments.

The Company also reviews its marketed products and pipeline to examine candidates which may provide more value through out-licensing and, as part of its portfolio assessment process, may also divest certain assets.

Pro forma financial information for acquired businesses is not presented if the historical financial results of the acquired entity are not significant when compared with the Company’s financial results.

Recently Completed Transactions

In February 2023, Merck and Sichuan Kelun-Biotech Biopharmaceutical Co., Ltd.

(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 antibody drug conjugates (ADCs) for the treatment of cancer.

Recent Transactions

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

The Elanco aqua business to be acquired consists of an

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innovative portfolio of medicines and vaccines, nutritionals and supplements for aquatic species;

two related aqua manufacturing facilities in Canada and Vietnam;

as well as a research facility in Chile.

Upon closing, the acquisition will broaden Merck Animal Health’s aqua portfolio with products, such as Clynav, a new generation DNA-based vaccine that protects Atlantic salmon against pancreas disease, and Imvixa, an anti-parasitic sea lice treatment.

This acquisition also brings a portfolio of water treatment products for warm water production, complementing Merck Animal Health’s warm water vaccine portfolio.

In addition to these products, the DNA-based vaccine technology that is a part of the business has the potential to accelerate the development of novel vaccines to address the unmet needs of the aqua industry.

The acquisition is expected to be completed by mid-2024, subject to approvals from regulatory authorities and other customary closing conditions.

The transaction will be accounted for as an acquisition of a business.

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 since HPN328 accounts for substantially all of the fair value of the gross assets to be acquired (excluding cash and deferred income taxes).

The Company expects to record a charge of approximately $ 650 million to Research and development expenses upon closing.

2023 Transactions

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

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

See Note 4 for additional information related to this collaboration.

In June 2023, Merck acquired Prometheus Biosciences, Inc.

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

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

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

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

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

The transaction was accounted for as an acquisition of an asset since tulisokibart accounted for substantially all of the fair value of the gross assets acquired (excluding cash and deferred income taxes).

Merck recorded net assets of $ 877 million, including cash of $ 368 million, investments of $ 296 million, deferred tax assets of $ 218 million and other net liabilities of $ 5 million, as well as a charge of $ 10.2 billion to Research and development expenses in 2023 related to the transaction.

There are no future contingent payments associated with the acquisition.

In February 2023, Merck and Kelun-Biotech (a holding subsidiary of Sichuan Kelun Pharmaceutical Co., Ltd.) closed a license and collaboration agreement expanding their relationship in which Merck gained exclusive rights for the research, development, manufacture and commercialization of up to seven investigational preclinical 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 development-related payments aggregating up to $ 1.0 billion, $ 2.8 billion in regulatory milestones, and $ 5.5 billion in sales-based milestones if Kelun-Biotech does not retain Chinese mainland, Hong Kong and Macau rights for the option ADCs and all candidates achieve regulatory approval.

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 payments aggregating up to $ 725 million in development-related payments, $ 1.95 billion in regulatory milestones, and $ 3.9 billion in sales-based milestones if Kelun-Biotech does not retain Chinese mainland, Hong Kong and Macau rights for the option ADCs and all remaining candidates achieve regulatory approval.

In addition, Kelun-Biotech is eligible to receive tiered royalties ranging from a mid-single-digit rate to a low-double-digit rate on future net sales for any commercialized ADC product.

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

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

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In January 2023, Merck acquired Imago BioSciences, Inc.

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

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

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.

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 since bomedemstat represented substantially all of the fair value of the gross assets acquired (excluding cash and deferred income taxes).

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

There are no future contingent payments associated with the acquisition.

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Merck will record the milestone payments as an expense within Other (income) expense, net upon receipt of the related approvals.

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, Inc.

(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 (pembrolizumab), Merck’s anti-PD-1 therapy, 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 September 2022, Merck exercised its option to jointly develop and commercialize V940 (mRNA-4157), an investigational individualized neoantigen therapy, pursuant to the terms of an existing collaboration and license agreement with Moderna, Inc.

See Note 4 for additional information related to this collaboration.

In August 2022, Merck and Orna Therapeutics (Orna), a biotechnology company pioneering a new investigational class of engineered circular RNA (oRNA) therapies, 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 aggregating up to $ 440 million, $ 675 million in regulatory milestones, and $ 2.4 billion in sales-based milestones associated with the progress of the multiple vaccine and therapeutic programs, as well as royalties ranging from a high-single-digit rate to a low-double-digit rate on any approved products derived from the collaboration.

In addition, Orna is eligible to receive future contingent payments aggregating up to $ 440 million in development-related payments, $ 675 million in regulatory milestones, and $ 2.4 billion in sales-based milestones associated with the progress of the multiple vaccine and therapeutic programs, as well as royalties ranging from a high-single-digit rate to a low-double-digit rate on any approved products derived from the collaboration.

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

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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 aggregating up to $ 82 million in developmental milestones, $ 334 million in regulatory milestones, and $ 485 million in sales-based milestones.

Kelun-Biotech is also eligible to receive future contingent milestone payments aggregating up to $ 82 million in developmental milestones, $ 334 million

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in regulatory milestones, and $ 485 million in sales-based milestones.

The agreement also provides for Merck to pay tiered royalties ranging from a mid-single-digit rate to a low-double-digit rate on future net sales.

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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.

exercise, Merck made a payment of $ 30 million, which was recorded in Research and development expenses in 2022, and agreed to make additional payments of $ 30 million upon completion of specified project activities and $ 25 million upon technology transfer.

Merck also agreed to make quarterly payments in 2022 and 2023 aggregating up to $ 111 million to fund Kelun-Biotech’s ongoing research and development activities, of which $ 51 million was paid in 2022.

In addition, Kelun-Biotech is eligible to receive future contingent milestone payments (which includes all program compounds) aggregating up to $ 90 million in developmental milestones, $ 290 million in first commercial sale milestones, and $ 780 million in sales-based milestones.

Upon option exercise, Merck made a payment of $ 30 million, which was recorded in Research and development expenses in 2022.

Additionally, Merck made an additional payment of $ 25 million upon technology transfer in 2023.

Merck also agreed to make quarterly payments in 2022 and 2023 aggregating up to $ 111 million to fund Kelun-Biotech’s ongoing research and development activities, of which $ 95 million has been paid through December 31, 2023.

In addition, Kelun-Biotech is eligible to receive future contingent milestone payments (which include all program compounds) aggregating up to $ 90 million in developmental milestones, $ 290 million in first commercial sale milestones, and $ 780 million in sales-based milestones.

The agreement also provides for Merck to pay tiered royalties ranging from a mid-single-digit rate to a low-double-digit rate on future net sales.

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Acceleron’s lead therapeutic candidate, sotatercept (MK-7962), has a novel mechanism of action with the potential to improve short-term and/or long-term clinical outcomes in patients with pulmonary arterial hypertension (PAH).

Sotatercept is in Phase 3 trials as an add-on to current standard of care for the treatment of PAH.

Under a previous agreement assumed by Merck, Bristol Myers Squibb (BMS) was granted an exclusive license to develop and commercialize sotatercept outside of the pulmonary hypertension (PH) field (for which Merck would be eligible to receive contingent milestones and royalty payments), however, Merck retains the worldwide exclusive rights to develop and commercialize sotatercept in the PH field.

Sotatercept is under priority review in the U.S.

and is also under review in the European Union (EU) for the treatment of certain adult patients with PAH.

Under a previous agreement assumed by Merck, Bristol-Myers Squibb Company (BMS) was granted an exclusive license to develop and commercialize sotatercept outside of the pulmonary hypertension (PH) field (for which Merck would be eligible to receive contingent milestones and royalty payments), however, Merck retains the worldwide exclusive rights to develop and commercialize sotatercept in the PH field.

The agreement provides for Merck to pay 22 % royalties on future sales of sotatercept in the PH field to BMS.

In addition to sotatercept, Acceleron’s portfolio includes Reblozyl (luspatercept), a first-in-class erythroid maturation recombinant fusion protein that is approved in the U.S., Europe, and certain other markets for the treatment of anemia in certain rare blood disorders and is also being evaluated for additional indications for hematology therapies.

Reblozyl is being developed and commercialized through a global collaboration with BMS.

In connection with this ongoing collaboration, Merck receives a 20 % sales royalty from BMS which could increase to a maximum of 24 % based on sales levels.

This royalty will be reduced by 50 % upon the earlier of patent expiry or generic entry on an indication-by-indication basis in each market.

Additionally, Merck received a contingent regulatory milestone payment of $ 20 million in 2022 and remains eligible to receive up to $ 80 million in sales-based milestones.

In addition to sotatercept, Acceleron’s portfolio included Reblozyl (luspatercept), which is being developed and commercialized through a global collaboration with BMS.

See Note 4 for additional information related to this collaboration.

The transaction was accounted for as a business combination.

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IPR&D - sotatercept 6,380

Products and product rights - Reblozyl ( 12 year useful life)

Product rights - Reblozyl ( 12 year useful life)

Deferred income tax liabilities, net ( 1,814 )

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The goodwill is not deductible for tax purposes.

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In April 2021, Merck acquired Pandion Therapeutics, Inc.

(Pandion), a clinical-stage biotechnology company developing novel therapeutics designed to address the unmet needs of patients living with autoimmune diseases.

Pandion’s development work focused on advancing a pipeline of precision immune modulators targeting

critical immune control nodes.

Pandion’s development work focused on advancing a pipeline of precision immune modulators targeting critical immune control nodes.

Total consideration paid of $ 1.9 billion included $ 147 million of costs primarily comprised of share-based compensation payments to settle equity awards.

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

Merck recorded net assets of $ 156 million (primarily cash) and Research and development expenses of $ 1.7 billion in 2021 related to the transaction.

Merck recorded net assets of $ 156 million (primarily cash) and a charge of $ 1.7 billion to Research and development expenses in 2021 related to the transaction.

There are no future contingent payments associated with the acquisition.

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(Gilead) entered into an agreement to jointly develop and commercialize long-acting treatments in HIV that combine Merck’s investigational nucleoside reverse transcriptase translocation inhibitor, islatravir, and Gilead’s investigational capsid inhibitor, lenacapavir.

The collaboration will initially focus on long-acting oral formulations and long-acting injectable formulations of these combination products, with other formulations potentially added to the collaboration as mutually agreed.

There was no upfront payment made by either party upon entering into the agreement.

The initial focus of the collaboration has been on long-acting oral formulations and long-acting injectable formulations of these combination products, with other formulations potentially added to the collaboration as mutually agreed.

The parties continue to study a long-acting oral formulation of these combination products but have terminated the studies of long-acting injectable formulations of these combination products.

Furthermore, Merck and Gilead subsequently amended the agreement to include the joint development and commercialization of a long-acting injectable formulation of lenacapavir with GS-1614, a development candidate resulting from a collaboration between Scripps Research and Gilead that is a novel prodrug of islatravir.

Under the terms of the agreement, Merck and Gilead will share operational responsibilities, as well as development, commercialization and marketing costs, and any future revenues.

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Food and Drug Administration (FDA) placed full or partial clinical holds on investigational new drug applications for certain oral, implant and injectable formulations of islatravir based on observations of decreases in total lymphocyte and CD4+ T-cell counts in some participants receiving islatravir in clinical studies.

In September 2022, Merck announced the Phase 2 clinical trial evaluating an investigational oral once-weekly combination treatment regimen of islatravir and lenacapavir in adults with HIV-1 infection who are virologically suppressed will resume under an amended protocol with a lower dose of islatravir.

The investigational new drug application for the islatravir + lenacapavir once-weekly treatment regimen remains under a partial clinical hold for any studies that would use weekly oral islatravir doses higher than the doses considered for the revised clinical program.

Additionally, Merck announced it will discontinue the development of once-monthly oral islatravir for pre-exposure prophylaxis (PrEP).

In 2023, the Phase 2 clinical trial evaluating an oral once-weekly combination of a lower dose of islatravir and lenacapavir in virologically suppressed adults completed enrollment.

The investigational new drug application for the islatravir + lenacapavir once-weekly treatment regimen remains under a partial clinical hold for any studies that would use islatravir doses higher than the doses considered for the revised clinical program.

The Company remains committed to developing compounds for long-acting HIV prevention and believes in the potential of the nucleoside reverse transcriptase translocation inhibitor (NRTTI) mechanism.

In January 2021, Merck entered into an exclusive license and research collaboration agreement with Artiva Biotherapeutics, Inc.

(Artiva) to discover, develop and manufacture CAR-NK cells that target certain solid tumors using Artiva’s proprietary platform.

Merck and Artiva agreed to engage in up to three different research programs, each covering a collaboration target.

Merck has sole responsibility for all development and commercialization activities (including regulatory filing and approval).

Under the terms of the agreement, Merck made an upfront payment of $ 30 million, which was included in Research and development expenses in 2021, for license and other rights for the first two collaboration targets and agreed to make another upfront payment of $ 15 million for license and other rights for the third collaboration target when it is selected by Merck and accepted by Artiva.

In addition, Artiva is eligible to receive future contingent milestone payments (which span all three collaboration targets), aggregating up to $ 217.5 million in developmental milestones, $ 570 million in regulatory milestones, and $ 1.05 billion in sales-based milestones.

The agreement also provides for Merck to pay tiered royalties ranging from 7 % to 14 % on future sales.

2020 Transactions

In December 2020, Merck acquired OncoImmune, a privately held, clinical-stage biopharmaceutical company, for an upfront payment of $ 423 million.

OncoImmune’s lead therapeutic candidate (MK-7110) was being evaluated for the treatment of patients hospitalized with COVID-19.

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

Under the agreement, prior to the completion of the acquisition, OncoImmune spun-out certain rights and assets unrelated to the MK-7110 program to a new entity owned by the existing shareholders of OncoImmune.

In connection with the closing of the acquisition, Merck invested $ 50 million for a 20 % ownership interest in the new entity, which was valued at $ 33 million resulting in a $ 17 million premium.

Merck also recognized other net liabilities of $ 22 million.

The Company recorded Research and development expenses of $ 462 million in 2020 related to this transaction.

In 2021, Merck received feedback from the FDA that additional data would be needed to support a potential Emergency Use Authorization application and therefore the Company did not expect MK-7110 would become available until the first half of 2022.

Given this timeline and the technical, clinical and regulatory uncertainties, the availability of a number of medicines for patients hospitalized with COVID-19, and the need to concentrate Merck’s resources on accelerating the development and manufacture of the most viable therapeutics and vaccines, Merck decided to discontinue development of MK-7110 for the treatment of COVID-19.

Due to the discontinuation, the Company recorded charges of $ 207 million in 2021, which are reflected in Cost of sales and relate to fixed assets and materials written off, as well as the recognition of liabilities for purchase commitments.

Also in December 2020, Merck acquired VelosBio Inc.

(VelosBio), a privately held, clinical-stage biopharmaceutical company, for $ 2.8 billion.

VelosBio’s lead investigational candidate, zilovertamab vedotin (MK-2140), is an ADC targeting receptor tyrosine kinase-like orphan receptor 1 (ROR1) that is currently being evaluated for the treatment of patients with hematologic malignancies and solid tumors.

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

Merck recorded net assets of $ 180 million (primarily cash) and Research and development expenses of $ 2.7 billion in 2020 related to the transaction.

During 2021, the Company recorded adjustments to these amounts which resulted in a reduction of Research and development expenses of $ 43 million, an increase to total consideration paid of $ 47 million, and an increase to net assets recorded of $ 90 million.

In September 2020, Merck and Seagen Inc.

(Seagen) announced an oncology collaboration to globally develop and commercialize Seagen’s ladiratuzumab vedotin (MK-6440), an investigational ADC targeting LIV-1, which is currently in Phase 2 clinical trials.

The companies will equally share profits worldwide.

Under the terms of the agreement, Merck made an upfront payment of $ 600 million and a $ 1.0 billion equity investment in 5 million shares of Seagen common stock at a price of $ 200 per share.

Merck recorded $ 616 million in Research and development expenses in 2020 related to this transaction reflecting the upfront payment as well as a $ 16 million premium relating to the equity shares based on the price of Seagen common stock on the closing date.

Seagen is also eligible to receive future contingent milestone payments of up to $ 2.6 billion, including $ 850 million in development milestones and $ 1.75 billion in sales-based milestones.

Concurrent with the above transaction, Seagen granted Merck an exclusive license to commercialize Tukysa (tucatinib), a small molecule tyrosine kinase inhibitor, for the treatment of human epidermal growth factor receptor 2 (HER2)-positive cancers, in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe.

Merck will be responsible for marketing applications seeking approval in its territories.

Under the terms of the agreement, Merck made upfront payments aggregating $ 210 million, which were recorded as Research and development expenses in 2020.

Seagen is also eligible to receive future contingent regulatory approval milestones of up to $ 65 million and is receiving tiered royalties ranging from 20 % to 33 % based on annual sales levels of Tukysa in Merck’s territories.

Also in September 2020, Merck acquired a biologics manufacturing facility located in Dunboyne, Ireland from Takeda Pharmaceutical Company Limited for € 256 million ($ 302 million).

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

Merck recorded property, plant and equipment of $ 289 million and other net assets of $ 13 million.

There are no future contingent payments associated with the acquisition.

In July 2020, Merck acquired the U.S.

rights to Sentinel Flavor Tabs and Sentinel Spectrum Chews from Virbac Corporation for $ 410 million.

Sentinel products provide protection against common parasites in dogs.

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

Merck recognized intangible assets of $ 401 million related to currently marketed products and inventory of $ 9 million at the acquisition date.

The estimated fair values of the identifiable intangible assets related to currently marketed products were determined using an income approach.

Actual cash flows are likely to be different than those assumed.

The intangible assets related to currently marketed products are being amortized over their estimated useful lives of 15 years.

There are no future contingent payments associated with the acquisition.

Also in July 2020, Merck and Ridgeback Biotherapeutics LP (Ridgeback), a closely held biotechnology company, closed a collaboration agreement to develop Lagevrio (molnupiravir), an investigational oral antiviral COVID-19 medicine.

See Note 5 for additional information related to this collaboration.

In June 2020, Merck acquired privately held Themis Bioscience GmbH (Themis), a company focused on vaccines (including a COVID-19 vaccine candidate, V591) and immune-modulation therapies for infectious diseases and cancer for $ 366 million.

The acquisition originally provided for Merck to make additional contingent payments.

The transaction was accounted for as a business combination.

The Company determined the fair value of the contingent consideration was $ 85 million at the acquisition date utilizing a probability-weighted estimated cash flow stream using an appropriate discount rate dependent on the nature and timing of the milestone payments.

Merck recognized intangible assets for IPR&D of $ 113 million, cash of $ 59 million, deferred tax assets of $ 72 million and other net liabilities of $ 32 million.

The excess of the consideration transferred over the fair value of net assets acquired of $ 239 million was recorded as goodwill that was allocated to the Pharmaceutical segment and is not deductible for tax purposes.

The fair values of the identifiable intangible assets related to IPR&D were determined using an income approach.

In January 2021, the Company announced it was discontinuing development of V591 as discussed below.

As a result, in 2020, the Company recorded an IPR&D impairment charge of $ 90 million within Research and development expenses.

The Company also recorded a reduction in Research and development expenses resulting from a decrease in the related liability for contingent consideration of $ 45 million.

In 2022, the Company wrote off the remaining IPR&D intangible asset and related contingent consideration liability;

the net impact to Research and development expenses was immaterial.

In May 2020, Merck and the International AIDS Vaccine Initiative, Inc.

(IAVI), a nonprofit scientific research organization dedicated to addressing urgent, unmet global health challenges, announced a collaboration to develop V590, an investigational vaccine against SARS-CoV-2 being studied for the prevention of COVID-19.

The agreement provided for an upfront payment by Merck of $ 6.5 million and also provided for future contingent payments based on sales.

Merck also signed an agreement with the Biomedical Advanced Research and Development Authority (BARDA), part of the office of the Assistant Secretary for Preparedness and Response within an agency of the U.S.

Department of Health and Human Services, to provide initial funding support to Merck for this effort.

In January 2021, the Company announced it was discontinuing development of V590 as discussed below.

In January 2021, the Company announced the discontinuation of the development programs for its COVID-19 vaccine candidates, V590 and V591, following Merck’s review of findings from Phase 1 clinical studies for the vaccines.

In these studies, both V590 and V591 were generally well tolerated, but the immune responses were inferior to those seen following natural infection and those reported for other SARS-CoV-2/COVID-19 vaccines.

Due to the discontinuation, the Company recorded a charge of $ 305 million in 2020, of which $ 260 million was reflected in Cost of sales and related to fixed assets and materials written off, as well as the recognition of liabilities for purchase commitments .

The remaining $ 45 million of costs were reflected in Research and development expenses and represent amounts related to the Themis acquisition noted above (an IPR&D impairment charge, partially offset by a reduction in the related liability for contingent consideration).

In January 2020, Merck acquired ArQule, Inc.

(ArQule), a publicly traded biopharmaceutical company focused on kinase inhibitor discovery and development for the treatment of patients with cancer and other diseases.

Total consideration paid of $ 2.7 billion included $ 138 million of share-based compensation payments to settle equity awards attributable to precombination service and cash paid for transaction costs on behalf of ArQule.

The Company incurred $ 95 million of costs directly related to the acquisition of ArQule, consisting almost entirely of share-based compensation payments to settle non-vested equity awards attributable to postcombination service.

These costs were included in Selling, general and administrative expenses in 2020.

ArQule’s lead investigational candidate, nemtabrutinib (MK-1026), is a novel, oral Bruton’s tyrosine kinase (BTK) inhibitor currently being evaluated for the treatment of B-cell malignancies.

The transaction was accounted for as a business combination.

The estimated fair value of assets acquired and liabilities assumed from ArQule is as follows:

January 16, 2020

Cash and cash equivalents $ 145

IPR&D - nemtabrutinib (1)

Licensing arrangement for derazantinib 80

Deferred income tax liabilities ( 361 )

Other assets and liabilities, net 34

Total identifiable net assets 2,178

Consideration transferred $ 2,690

(1) The estimated fair value of nemtabrutinib was determined using an income approach.

The future probability-weighted net cash flows were discounted to present value utilizing a discount rate of 12.5 %.

(2) The goodwill was allocated to the Pharmaceutical segment and is not deductible for tax purposes.

Merck recorded intangible asset impairment charges in 2022 and 2021 related to nemtabrutinib and in 2022 related to derazantinib (see Note 9).

Collaborative Arrangements

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Merck’s more significant collaborative arrangements are discussed below.

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AstraZeneca PLC

In 2017, Merck and AstraZeneca PLC (AstraZeneca) entered into a global strategic oncology collaboration to co-develop and co-commercialize AstraZeneca’s Lynparza (olaparib) for multiple cancer types.

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In addition, the agreement provides for contingent payments from Merck to AstraZeneca related to the successful achievement of sales-based and regulatory milestones.

In 2022, Merck determined it was probable that sales of Lynparza in the future would trigger a $ 600 million sales-based milestone payment from Merck to AstraZeneca.

Merck made a sales-based milestone payment to AstraZeneca of $ 400 million in 2022 (which had been previously accrued for).

Additionally, in 2022, Merck determined it was probable that sales of Lynparza in the future would trigger a $ 600 million sales-based milestone payment from Merck to AstraZeneca.

Accordingly, Merck recorded a $ 600 million liability (which remained accrued at December 31, 2023) and a corresponding increase to the intangible asset related to Lynparza.

Merck also recognized $ 250 million of cumulative amortization catch-up expense related to the recognition of this milestone in 2022.

Merck made sales-based milestone payments to AstraZeneca aggregating $ 400 million and $ 550 million in 2022 and 2020, respectively.

Potential future sales-based milestone payments of $ 2.1 billion have not yet been accrued as they are not deemed by the Company to be probable at this time.

In 2022 and 2020, Lynparza received regulatory approvals triggering capitalized milestone payments of $ 250 million and $ 160 million, respectively, from Merck to AstraZeneca.

A regulatory milestone of $ 105 million that was accrued at December 31, 2022 was paid in January 2023.

Potential future regulatory milestone payments of $ 1.1 billion remain under the agreement.

Lynparza received regulatory approvals triggering capitalized milestone payments of $ 105 million and $ 250 million in 2023 and 2022, respectively, from Merck to AstraZeneca.

In January 2024, Merck made an additional $ 245 million regulatory milestone payment to AstraZeneca.

Potential future regulatory milestone payments of $ 850 million remain under the agreement.

The intangible asset balance related to Lynparza (which includes capitalized sales-based and regulatory milestone payments) was $ 1.5 billion at December 31, 2023 and is included in Other Intangibles, Net .

The amount is

being amortized over its estimated useful life through 2028 as supported by projected future cash flows, subject to impairment testing.

The amount is being amortized over its estimated useful life through 2028 as supported by projected future cash flows, subject to impairment testing.

Summarized financial information related to this collaboration is as follows:

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Receivables from AstraZeneca included in Other current assets

Payables to AstraZeneca included in Trade a ccounts payable and Accrued and other current liabilities (2)

Payables to AstraZeneca included in Accrued and other current liabilities (2)

Payables to AstraZeneca included in Other Noncurrent Liabilities (2)

(1) Represents amortization of capitalized milestone payments.

Amounts in 2022 and 2020 include $ 250 million and $ 106 million, respectively, of cumulative amortization catch-up expense.

Amount in 2022 includes $ 250 million of cumulative amortization catch-up expense as noted above.

(2) Includes accrued milestone payments.

Eisai Co., Ltd.

In 2018, Merck and Eisai Co., Ltd.

(Eisai) announced a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima (lenvatinib), an orally available tyrosine kinase inhibitor discovered by Eisai.

(Eisai) announced a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima (lenvatinib), an orally available tyrosine kinase inhibitor

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discovered by Eisai.

Under the agreement, Merck and Eisai will develop and commercialize Lenvima jointly, both as monotherapy and in combination with Keytruda .

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Certain expenses incurred solely by Merck or Eisai are not shareable under the collaboration agreement, including costs incurred in excess of agreed upon caps and costs related to certain combination studies of Keytruda and Lenvima.

Under the agreement, Merck made an upfront payment to Eisai and also made payments over a multi-year period for certain option rights (of which the final $ 125 million option payment was made in March 2021).

Under the agreement, Merck made an upfront payment to Eisai and also made payments over a multi-year period for certain option rights.

In addition, the agreement provides for contingent payments from Merck to Eisai related to the successful achievement of sales-based and regulatory milestones.

Merck made sales-based milestone payments to Eisai aggregating $ 125 million, $ 600 million and $ 200 million in 2023, 2022 and 2021, respectively.

In 2023, Merck determined it was probable that sales of Lenvima in the future would trigger $ 250 million of sales-based milestone payments from Merck to Eisai.

Accordingly, Merck recorded $ 250 million of liabilities (of which $ 125 million was subsequently paid in 2023 as noted above and $ 125 million remained accrued at December 31, 2023) and corresponding increases to the intangible asset related to Lenvima.

Merck also recognized $ 154 million of cumulative amortization catch-up expense related to the recognition of these milestones in 2023.

Potential future sales-based milestone payments of $ 2.3 billion have not yet been accrued as they are not deemed by the Company to be probable at this time.

In 2022, 2021 and 2020, Lenvima received regulatory approvals triggering capitalized milestone payments of $ 50 million, $ 75 million and $ 10 million, respectively, from Merck to Eisai.

In 2022 and 2021, Lenvima received regulatory approvals triggering capitalized milestone payments of $ 50 million and $ 75 million, respectively, from Merck to Eisai.

There are no regulatory milestone payments remaining under the agreement.

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(1) Represents amortization of capitalized milestone payments.

(2) Represents accrued milestone payments.

Amount in 2023 includes $ 154 million of cumulative amortization catch-up expense as noted above.

(2) Represents an accrued milestone payment.

In 2014, the Company entered into a worldwide clinical development collaboration with Bayer AG (Bayer) to market and develop soluble guanylate cyclase (sGC) modulators including Bayer’s Adempas (riociguat).

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Cost of sales includes Bayer’s share of profits from sales in Merck’s marketing territories.

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In addition, the agreement provided for contingent payments from Merck to Bayer related to the successful achievement of sales-based milestones.

Merck made sales-based milestone payments to Bayer of $ 400 million and $ 375 million in 2022 and 2020, respectively.

There are no sales-based milestone payments remaining under the agreement.

In 2022, Merck made the final $ 400 million sales-based milestone payment under this collaboration to Bayer.

The intangible asset balances related to Adempas (which includes the acquired intangible asset balance, as well as capitalized sales-based milestone payments attributed to Adempas) and Verquvo (which reflects the portion of the final sales-based milestone payment that was attributed to Verquvo) were $ 526 million and $ 52 million, respectively, at December 31, 2023 and are included in Other Intangibles, Net .

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Amount in 2021 includes $ 153 million of cumulative amortization catch-up expense.

(2) Amount as of December 31, 2021 includes accrued milestone payment.

Ridgeback Biotherapeutics LP

In July 2020, Merck and Ridgeback, a closely held biotechnology company, entered into a collaboration agreement to develop Lagevrio , an investigational orally available antiviral candidate for the treatment of patients with COVID-19.

In 2020, Merck and Ridgeback Biotherapeutics LP (Ridgeback), a closely held biotechnology company, entered into a collaboration agreement to develop Lagevrio (molnupiravir), an investigational orally available antiviral candidate for the treatment of patients with COVID-19.

Merck gained exclusive worldwide rights to develop and commercialize Lagevrio and related molecules.

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

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

Under the terms of the agreement, Ridgeback received an upfront payment and is eligible to receive future contingent payments dependent upon the achievement of certain developmental and regulatory approval milestones.

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Years Ended December 31 2023 2022 2021

Net sales of Lagevrio

Net sales of Lagevrio recorded by Merck

$ 1,428 $ 5,684 $ 952

Cost of sales (1)

852 3,038 502

Selling, general and administrative

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Payables to Ridgeback included in Accrued and other current liabilities (2)

(1) Includes royalty expense and amortization of capitalized milestone payments.

(2) Expenses in all periods now include an allocation for overhead charges.

(3) Amount in 2020 includes upfront payment.

(4) Includes accrued royalty and milestone payments .

Bristol Myers Squibb

Reblozyl (luspatercept-aamt) 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 (BMS).

(1) Includes royalty expense, amortization of capitalized milestone payments and inventory reserves.

(2) Includes accrued royalties.

Amount at December 31, 2022 also includes an accrued milestone payment .

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Bristol-Myers Squibb Company

Reblozyl (luspatercept-aamt) is a first-in-class erythroid maturation recombinant fusion protein obtained as part of Merck’s November 2021 acquisition of Acceleron that is being commercialized through a global collaboration with BMS.

Reblozyl is approved in the U.S., Europe, and certain other markets for the treatment of anemia in certain rare blood disorders and is also being evaluated for additional indications for hematology therapies.

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Additionally, Merck is eligible to receive future contingent sales-based milestone payments of up to $ 80 million.

Merck recorded alliance revenue of $ 166 million in 2022, which includes royalties of $ 146 million and the receipt of a regulatory approval milestone payment of $ 20 million, compared with alliance revenue of $ 17 million in 2021.

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

Merck recorded alliance revenue related to this collaboration of $ 212 million in 2023, $ 166 million in 2022 and $ 17 million in 2021.

Moderna, Inc.

V940 (mRNA-4157) is currently being evaluated in combination with Keytruda in multiple Phase 3 clinical trials.

Merck and Moderna will share costs and any profits equally under this worldwide collaboration.

Merck records its share of development costs associated with the collaboration as part of Research and development expenses.

Any reimbursements received from Moderna for research and development expenses will be recognized as reductions to Research and development costs.

Summarized financial information related to this collaboration is as follows:

Years Ended December 31 2023 2022

Selling, general and administrative

Research and development (1)

December 31 2023 2022

Payables to Moderna included in Accrued and other current liabilities

(1) Expenses in 2022 include the $ 250 million option payment noted above.

Daiichi Sankyo

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

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

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

The companies will jointly develop and potentially commercialize these ADC candidates worldwide, except in Japan where Daiichi Sankyo will maintain exclusive rights.

Daiichi Sankyo will be solely responsible for manufacturing and supply.

Under the terms of the agreement, Merck made payments to Daiichi Sankyo totaling $ 4.0 billion.

These payments included $ 1.0 billion ($ 500 million each for patritumab deruxtecan and ifinatamab deruxtecan) which may be refundable on a pro-rated basis in the event of early termination of development with respect to either program.

In addition, the agreement provides for a continuation payment of $ 750 million related to patritumab deruxtecan due from Merck in October 2024 and a continuation payment of $ 750 million related to raludotatug deruxtecan due from Merck in October 2025.

If Merck does not make the continuation payments on the dates noted for either patritumab deruxtecan or raludotatug deruxtecan, the rights for the applicable program will revert to Daiichi Sankyo and the non-refundable upfront payments already paid will be retained by Daiichi Sankyo.

The agreement also provides for contingent payments from Merck to Daiichi Sankyo of up to an additional $ 5.5 billion for each DXd ADC upon the successful achievement of certain sales-based milestones.

Following regulatory approval, Daiichi Sankyo will generally record sales worldwide (Daiichi Sankyo will be the principal on sales transactions) and the companies will equally share expenses as well as profits worldwide except for Japan where Daiichi Sankyo retains exclusive rights and Merck will receive a 5 % sales-based royalty.

Merck will record its share of product sales, net of cost of sales and commercialization costs, as alliance revenue.

For raludotatug deruxtecan, Merck will be responsible for 75 % of the first $ 2.0 billion of research and development expenses and 50 % of excess allowable research and development expenses;

the companies will share equally all

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other expenses as well as profits worldwide.

Merck will include its share of development costs associated with the collaboration as part of Research and development expenses.

In conjunction with this transaction, Merck recorded an aggregate pretax charge of $ 5.5 billion to Research and development expenses in 2023 for the $ 4.0 billion of upfront payments and the $ 1.5 billion of continuation payments.

Merck determined it was appropriate to expense the $ 1.0 billion refundable portion of the consideration because the significant number of clinical studies currently underway and planned in the near future, as well as certain studies in advanced stages, makes it highly likely that the programs will continue to progress and incur substantial expenses, and therefore the likelihood of the programs terminating before the end of the refundable period is remote.

Merck also determined that it was appropriate to expense the continuation payments upon execution of the agreement because such payments do not result in the Company gaining any additional intellectual property rights.

In addition, the significant number of ongoing and planned clinical studies and the short-term nature of the option period makes the likelihood of Merck not making these payments remote.

Spin-Off of Organon & Co.

On June 2, 2021, Merck completed the spin-off of Organon through a distribution of Organon’s publicly traded stock to Company shareholders.

In connection with the spin-off, each Merck shareholder received one-tenth of a share of Organon’s common stock for each share of Merck common stock held by such shareholder.

The distribution has been treated as tax free to Merck and its shareholders for U.S.

federal income tax purposes.

Indebtedness of $ 9.5 billion principal amount, consisting of term loans and senior notes, was issued in 2021 in connection with the spin-off and assumed by Organon.

Merck is no longer the obligor of any Organon debt or financing arrangements.

Cash proceeds of $ 9.0 billion were distributed by Organon to Merck in connection with the spin-off.

Under the TSA, Merck is providing Organon various services and, similarly, Organon is providing Merck various services.

A majority of the services provided under the TSA terminated within 25 months following the spin-off;

a majority of the remaining services will terminate within 35 months following the spin-off.

Merck and Organon also entered into a series of interim operating agreements pursuant to which in various jurisdictions where Merck held licenses, permits and other rights in connection with marketing, import and/or distribution of Organon products prior to the separation, Merck continued to market, import and distribute such products until such time as the relevant licenses and permits transferred to Organon.

Under such interim operating agreements and in accordance with the separation and distribution agreement, Merck continued operations in the affected markets on behalf of Organon, with Organon receiving all of the economic benefits and burdens of such activities.

As of December 31, 2023, only one jurisdiction remains under an interim operating agreement.

The terms of the MSAs range in initial duration from four years to ten years .

The amounts included in the consolidated statement of income for the above MSAs include sales of $ 394 million, $ 383 million and $ 219 million in 2023, 2022 and 2021, respectively, and related cost of sales of $ 422 million, $ 404 million and $ 195 million in 2023, 2022 and 2021, respectively.

Amounts included in the consolidated statement of income for the TSAs were immaterial in 2023, 2022 and 2021.

The amounts due from Organon under all of the above agreements were $ 632 million and $ 511 million at December 31, 2023 and 2022, respectively, and are reflected in Other current assets .

The amounts due to Organon under these agreements were $ 598 million and $ 345 million at December 31, 2023 and 2022, respectively, and are included in Accrued and other current liabilities .

Merck incurred separation costs of $ 556 million in 2021 related to the spin-off of Organon, which are also included in Income from Discontinued Operations, Net of Taxes and

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Amounts Attributable to Noncontrolling Interests .

These costs primarily relate to professional fees for separation activities within finance, tax, legal and information technology functions, as well as investment banking fees.

Details of Income from Discontinued Operations, Net of Taxes and Amounts Attributable to Noncontrolling Interests are as follows:

Year Ended December 31

Sales $ 2,512

Costs, Expenses and Other

Cost of sales 789

Selling, general and administrative 877

Research and development 103

Restructuring costs 1

Other (income) expense, net ( 15 )

Income from discontinued operations before taxes 757

Tax provision 50

Income from discontinued operations, net of taxes 707

Income of discontinued operations attributable to noncontrolling interests 3

(1) Reflects amounts through the June 2, 2021 spin-off date.

Restructuring

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.

The Company estimates that approximately 70 % of the cumulative pretax costs will result in cash outlays, primarily related to employee separation expense and facility shut-down costs.

2024 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 Company recorded total pretax costs of $ 666 million in 2022, $ 868 million in 2021 and $ 880 million in 2020 related to restructuring program activities.

Since inception of the Restructuring Program through December 31, 2022, Merck has recorded total pretax accumulated costs of approximately $ 3.3 billion.

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

The remainder of the costs will result in cash outlays, relating primarily to facility shut-down costs.

The Company recorded total pretax costs of $ 190 million in 2023 related to the 2024 Restructuring Program.

2019 Restructuring Program

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

The Company recorded total pretax costs of $ 743 million in 2023, $ 666 million in 2022 and $ 868 million in 2021 related to the 2019 Restructuring Program.

Since inception of the 2019 Restructuring Program through December 31, 2023, Merck recorded total pretax accumulated costs of approximately $ 4.1 billion.

Approximately 70 % of the cumulative pretax costs were cash outlays, primarily related to employee separation expense and facility shut-down costs.

Approximately 30 % of the cumulative pretax costs were non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested.

The actions under the 2019 Restructuring Program are substantially complete.

For segment reporting, restructuring charges are unallocated expenses.

The following table summarizes the charges related to restructuring program activities by type of cost:

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The following table summarizes the charges related to the restructuring programs by type of cost:

Costs Accelerated

Depreciation Other Total

Depreciation Other Exit Costs

Year Ended December 31, 2023

2024 Restructuring Program

Cost of sales $ — $ — $ 62 $ 62

Restructuring costs 115 — 13 128

2019 Restructuring Program

Cost of sales — 131 18 149

Selling, general and administrative — 9 113 122

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339 140 264 743

$ 454 $ 140 $ 339 $ 933

Year Ended December 31, 2022

2019 Restructuring Program

Cost of sales $ — $ 72 $ 133 $ 205

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Year Ended December 31, 2021

2019 Restructuring Program

Cost of sales $ — $ 52 $ 108 $ 160

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Separation costs are associated with actual headcount reductions, as well as involuntary headcount reductions which were probable and could be reasonably estimated.

Accelerated depreciation costs primarily relate to manufacturing, research and administrative facilities and equipment to be sold or closed as part of the program.

Accelerated depreciation costs primarily relate to manufacturing, research and administrative facilities and equipment to be sold or closed as part of the programs.

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.

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Anticipated site closure dates, particularly related to manufacturing locations, have been and may continue to be adjusted to reflect changes resulting from regulatory or other factors.

Other activity in 2022, 2021 and 2020 includes asset abandonment, facility shut-down and other related costs, as well as pretax gains and losses resulting from the sales of facilities and related assets.

Other exit costs in 2023, 2022 and 2021 include asset abandonment, facility shut-down and other related costs, as well as pretax gains and losses resulting from the sales of facilities and related assets.

Additionally, other activity includes certain employee-related costs associated with pension and other postretirement benefit plans (see Note 14) and share-based compensation.

The following table summarizes the charges and spending relating to restructuring program activities:

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The following table summarizes the charges and spending relating to restructuring program activities by program:

Costs Accelerated

Depreciation Other Total

Depreciation Other Exit Costs

2024 Restructuring Program

Restructuring reserves January 1, 2023

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Restructuring reserves December 31, 2023

$ 115 $ — $ — $ 115

2019 Restructuring Program

Restructuring reserves January 1, 2022

$ 596 $ — $ 41 $ 637

Expenses 212 120 334 666

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Restructuring reserves December 31, 2022

Expenses 339 140 264 743

(Payments) receipts, net ( 252 ) — ( 145 ) ( 397 )

Non-cash activity — ( 140 ) ( 122 ) ( 262 )

Restructuring reserves December 31, 2023

$ 566 $ — $ 31 $ 597

(1) The remaining cash outlays are expected to be largely completed by the end of 2025.

Financial Instruments

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The Company does not enter into derivatives for trading or speculative purposes.

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The Company manages operating activities and net asset positions at each local subsidiary in order to mitigate the effects of exchange on monetary assets and liabilities.

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The Company also uses a balance sheet risk management program to mitigate the exposure of such assets and liabilities from the effects of volatility in foreign exchange.

Merck principally utilizes forward exchange contracts to offset the effects of exchange in developed country currencies, primarily the euro, Japanese yen, British pound, Canadian dollar, Australian dollar and Swiss franc.

For exposures in developing country currencies, including the Chinese renminbi,

the Company will enter into forward contracts to offset the effects of exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange rate and the cost of the hedging instrument.

Merck principally utilizes forward exchange contracts to offset the effects of exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange rate and the cost of the hedging instrument (primarily the euro, Swiss franc, Japanese yen, and Chinese renminbi).

The forward contracts are not designated as hedges and are marked to market through Other (income) expense, net .

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The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal at risk.

In 2022, nine interest rate swap contracts with a total notional amount of $ 2.25 billion matured.

These swaps effectively converted the Company’s $ 1.0 billion, 2.4 % fixed-rate notes and $ 1.25 billion, 2.35 % fixed-rate notes due 2022 to variable rate debt.

The interest rate swap contracts were designated hedges of the fair value changes in the notes attributable to changes in the benchmark LIBOR swap rate.

The fair value changes in the notes attributable to changes in the LIBOR swap rate were recorded in interest expense along with the offsetting fair value changes in the swap contracts.

At December 31, 2023, the Company was a party to four pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of a portion of fixed-rate notes as detailed in the table below.

Par Value of Debt Number of Interest Rate Swaps Held Total Swap Notional Amount

4.50 % notes due 2033

$ 1,500 4 $ 1,000

The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in the benchmark Secured Overnight Financing Rate (SOFR) swap rate.

The fair value changes in the notes attributable to changes in the SOFR swap rate are recorded in interest expense along with the offsetting fair

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value changes in the swap contracts.

The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows.

The Company is not currently a party to any interest rate swaps.

The table below presents the location of amounts recorded in the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges as of December 31:

Carrying Amount of Hedged Liabilities Cumulative Amount of Fair Value Hedging Adjustment Increase Included in the Carrying Amount

Carrying Amount of Hedged Liabilities Cumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount

2023 2022 2023 2022

Balance Sheet Line Item in which Hedged Item is Included

Loans payable and current portion of long-term debt $ — $ 2,263 $ — $ 13

Balance Sheet Caption

Long-Term Debt $ 1,056 $ — $ 56 $ —

Presented in the table below is the fair value of derivatives on a gross basis segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments as of December 31:

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Derivatives Designated as Hedging Instruments Balance Sheet Caption

Interest rate swap contracts Other current assets $ — $ — $ — $ 14 $ — $ 2,250

Interest rate swap contracts Other Noncurrent Assets

$ 57 $ — $ 1,000 $ — $ — $ —

Foreign exchange contracts Other current assets 106 — 6,138 220 — 4,824

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Net amounts $ 124 $ 24 $ 147 $ 170

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The table below provides information regarding the location and amount of pretax gains and losses of derivatives designated in fair value or cash flow hedging relationships:

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$ 60,115 $ 59,283 $ 48,704 $ 466 $ 1,501 $ ( 1,341 ) $ ( 393 ) $ ( 339 ) $ 1,756

(Gain) loss on fair value hedging relationships:

Loss (gain) on fair value hedging relationships:

Interest rate swap contracts

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Foreign exchange contracts

Amount of gain (loss) recognized in OCI on derivatives

Amount of gain recognized in OCI on derivatives

— — — — — — 114 684 333

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— — — ( 1 ) ( 2 ) ( 2 ) — — —

Amount of loss recognized in OCI on derivatives

Amount of gain (loss) recognized in OCI on derivatives

— — — — — — 13 ( 2 ) ( 2 )

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Sales 5 ( 37 ) 9

Interest rate contracts (3)

Other (income) expense, net — — 9

Forward contract related to Seagen common stock Research and development — — 15

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

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

(3) These derivative contracts serve as economic hedges against rising treasury rates .

At December 31, 2022, the Company estimates $ 104 million of pretax net unrealized gains on derivatives maturing within the next 12 months that hedge foreign currency denominated sales over that same period will be reclassified from AOCL to Sales .

At December 31, 2023, the Company estimates $ 40 million of pretax net unrealized losses on derivatives maturing within the next 12 months that hedge foreign currency denominated sales over that same period will be reclassified from AOCL to Sales .

The amount ultimately reclassified to Sales may differ as foreign exchange rates change.

Realized gains and losses are ultimately determined by actual exchange rates at maturity.

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Investments in Debt and Equity Securities

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Corporate notes and bonds 13 — — 13 3 — — 3

Foreign government bonds — — — — 2 — — 2

Total debt securities $ 337 $ — $ — $ 337 $ 569 $ — $ — $ 569

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Total debt and publicly traded equity securities $ 1,101 $ 1,853

(1) Unrealized net losses of $ 462 million were recorded in Other (income) expense, net in 2022 on equity securities still held at December 31, 2022.

(1) Unrealized net gains of $ 411 million were recorded in Other (income) expense, net in 2023 on equity securities still held at December 31, 2023.

Unrealized net losses of $ 462 million were recorded in Other (income) expense, net in 2022 on equity securities still held at December 31, 2022.

At December 31, 2022 and 2021, the Company also had $ 832 million and $ 596 million, respectively, of equity investments without readily determinable fair values included in Other Assets .

At both December 31, 2023 and 2022, the Company also had $ 832 million of equity investments without readily determinable fair values included in Other Assets .

The Company records unrealized gains on these equity investments based on favorable observable price changes from transactions involving similar investments of the same investee and records unrealized losses based on unfavorable observable price changes, which are included in Other (income) expense, net .

During 2023, the Company recorded unrealized gains of $ 10 million and unrealized losses of $ 61 million related to certain of these equity investments still held at December 31, 2023.

During 2021, the Company recorded unrealized gains of $ 110 million and unrealized losses of $ 1 million related to certain of these investments still held at December 31, 2021.

During 2022, the Company recorded unrealized gains of $ 56 million and unrealized losses of $ 12 million related to certain of these equity investments still held at December 31, 2022.

Cumulative unrealized gains and cumulative unrealized losses based on observable price changes for investments in equity investments without readily determinable fair values still held at December 31, 2023 were $ 299 million and $ 80 million, respectively.

At December 31, 2022, 2021 and 2020, the Company also had $ 598 million, $ 1.7 billion and $ 800 million, respectively, recorded in Other Assets for equity securities held through ownership interests in investment funds.

Losses (gains) recorded in Other (income) expense, net relating to these investment funds were $ 1.0 billion, $( 1.4 ) billion and $( 583 ) million for the years ended December 31, 2022, 2021 and 2020, respectively.

At December 31, 2023, 2022 and 2021, the Company also had $ 417 million, $ 598 million and $ 1.7 billion, respectively, recorded in Other Assets for equity securities held through ownership interests in investment funds.

Losses (gains) recorded in Other (income) expense, net relating to these investment funds were $ 106 million, $ 1.0 billion and $( 1.4 ) billion for the years ended December 31, 2023, 2022 and 2021, respectively.

Fair Value Measurements

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

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

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Commercial paper $ — $ 252 $ — $ 252 $ — $ 498 $ — $ 498

Foreign government bonds — — — — — 2 — 2

Publicly traded equity securities 252 — — 252 1,015 — — 1,015

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512 — — 512 269 — — 269

597 — — 597 340 — — 340

Derivative assets (3)

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

(2) Balance at December 31, 2023 includes securities with a total fair value of $ 177 million, which are subject to a contractual sale restriction that expires in July 2024.

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

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Balance at December 31, 2023 includes $ 128 million recorded as a current liability for amounts expected to be paid within the next 12 months.

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

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Cash and investments are placed in instruments that meet high credit quality standards, as specified in the Company’s investment policy guidelines.

The majority of the Company’s accounts receivable arise from product sales in the U.S., Europe and China and are primarily due from drug wholesalers and retailers, hospitals and government agencies.

The majority of the Company’s accounts receivable arise from product sales in the U.S., Europe and China and are primarily due from drug wholesalers, distributors and retailers, hospitals and government agencies.

The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in their credit profile.

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The Company’s customers with the largest accounts receivable balances are:

McKesson Corporation, AmerisourceBergen Corporation and Cardinal Health, Inc., which represented approximately 21 %, 20 % and 13 %, respectively, of total accounts receivable at December 31, 2022.

McKesson Corporation, Cencora, Inc.

and Cardinal Health, Inc., which represented approximately 21 %, 20 % and 14 %, respectively, of total accounts receivable at December 31, 2023.

The accounts receivable balance at December 31, 2023 for Chongqing Zhifei Biological Products Co., Ltd.

(Zhifei), the sole distributor for the Company’s vaccines products in China, is not significant as China is part of the Company’s factoring program discussed below;

however, vaccine sales distributed by Zhifei represent a substantial portion of total sales in China.

The Company monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business.

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The cash received from the financial institutions is reported within operating activities in the Consolidated Statement of Cash Flows.

In certain of these factoring arrangements, for ease of administration, the Company will collect customer payments related to the factored receivables, which it then remits to the financial institutions.

At December 31, 2023 and 2022, the Company had collected $ 44 million and $ 67 million, respectively, on behalf of the financial institutions, which is reflected as restricted cash in Other current assets and the related obligation to remit the cash within Accrued and other current liabilities .

The Company remitted the cash to the financial institutions in January 2023 and 2022, respectively.

The net cash flows related to these collections are reported as financing activities in the Consolidated Statement of Cash Flows.

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These annexes contain provisions that require collateral to be exchanged depending on the value of the derivative assets and liabilities, the Company’s credit rating, and the credit rating of the counterparty.

Cash collateral advanced by the Company to various counterparties was $ 19 million at December 31, 2022.

Cash collateral received by the Company from various counterparties was $ 3 million and $ 66 million at December 31, 2023 and 2022, respectively.

The obligation to return such collateral is recorded in Accrued and other current liabilities .

Cash collateral advanced by the Company to various counterparties was $ 19 million at December 31, 2022.

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Inventories at December 31 consisted of:

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Supplies 277 238

Total (approximates current cost) 9,142 8,163

Decrease to LIFO cost ( 562 ) ( 293 )

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Other Assets 3,348 2,938

Inventories valued under the LIFO method comprised approximately $ 3.4 billion and $ 3.3 billion at December 31, 2022 and 2021, respectively.

Inventories valued under the LIFO method comprised approximately $ 3.1 billion at both December 31, 2023 and 2022, after reflecting the decrease to LIFO cost.

Amounts recognized as Other Assets are comprised almost entirely of raw materials and work in process inventories.

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$ 17,997 $ 3,267 $ 21,264

Acquisitions 2,431 5 2,436

( 61 ) 1 ( 60 )

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(2) Accumulated goodwill impairment losses were $ 531 million at both December 31, 2023 and 2022.

The additions to goodwill in the Pharmaceutical segment in 2021 were primarily related to the acquisition of Acceleron (see Note 4).

Other acquired intangibles at December 31 consisted of:

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Amortization Net

Products and product rights $ 23,555 $ 16,745 $ 6,810 $ 23,671 $ 15,776 $ 7,895

Product rights

$ 23,643 $ 17,765 $ 5,878 $ 23,555 $ 16,745 $ 6,810

IPR&D 6,816 — 6,816 7,661 — 7,661

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$ 41,603 $ 23,592 $ 18,011 $ 41,746 $ 21,477 $ 20,269

Some of the more significant acquired intangibles included in products and product rights, on a net basis, related to human health marketed products at December 31, 2022 were Reblozyl, $ 3.5 billion;

Some of the more significant acquired intangibles included in product rights, on a net basis, related to human health marketed products at December 31, 2023 were Reblozyl, $ 3.2 billion;

Zerbaxa , $ 333 million;

Sivextro , $ 122 million;

Gardasil/Gardasil 9, $ 120 million;

and Bridion , $ 97 million.

Additionally, the Company had $ 4.6 billion of net acquired intangibles related to animal health at December 31, 2022, of which $ 2.3 billion related to products and product rights and $ 2.2 billion was attributable to trade names, primarily related to Allflex.

At December 31, 2022, IPR&D primarily relates to MK-7962 (sotatercept), $ 6.4 billion, obtained through the acquisition of Acceleron in 2021 (see Note 4);

MK-7264 (gefapixant), $ 832 million, obtained through the acquisition of Afferent Pharmaceuticals in 2016;

and MK-1026 (nemtabrutinib), $ 418 million, obtained through the acquisition of ArQule in

2020 (see below and Note 4).

and Sivextro , $ 106 million.

Additionally, the Company had $ 4.2 billion of net acquired intangibles related to animal health at December 31, 2023, of which $ 2.0 billion related to product rights and $ 2.1 billion was attributable to trade names, primarily related to Allflex.

At December 31, 2023, IPR&D primarily relates to MK-7962 (sotatercept), $ 6.4 billion, obtained through the acquisition of Acceleron in 2021 (see Note 3) and MK-1026 (nemtabrutinib), $ 418 million, obtained through the acquisition of ArQule, Inc.

(ArQule) in 2020 (see below).

Some of the more significant net intangible assets included in licenses and other above at December 31, 2023 include Lynparza, $ 1.5 billion, related to a collaboration with AstraZeneca;

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See Note 4 for additional information related to the intangible assets associated with these collaborations.

In 2020, the Company recorded an impairment charge of $ 1.6 billion within Cost of sales related to Zerbaxa (ceftolozane and tazobactam) for injection, a combination antibacterial and beta-lactamase inhibitor for the treatment of certain bacterial infections.

In December 2020, the Company temporarily suspended sales of Zerbaxa , and subsequently issued a product recall, following the identification of product sterility issues.

The recall constituted a triggering event requiring the evaluation of the Zerbaxa intangible asset for impairment.

The Company revised its cash flow forecasts for Zerbaxa utilizing certain assumptions around the return to market timeline and anticipated uptake in sales thereafter.

These revised cash flow forecasts indicated that the Zerbaxa intangible asset value was not fully recoverable on an undiscounted cash flows basis.

The Company utilized market participant assumptions to determine its best estimate of the fair value of the intangible asset related to Zerbaxa that, when compared with its related carrying value, resulted in the impairment charge noted above.

The Company also wrote-off inventory of $ 120 million to Cost of sales in 2020 related to the Zerbaxa recall.

A phased resupply of Zerbaxa was initiated in the fourth quarter of 2021 and completed during 2022.

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IPR&D that the Company acquires through business combinations represents the fair value assigned to incomplete research projects which, at the time of acquisition, have not reached technological feasibility.

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Upon successful completion of each IPR&D project, the Company will make a separate determination as to the then-useful life of the asset and begin amortization.

In 2022, the Company recorded $ 1.7 billion of intangible impairment charges within Research and development expenses, of which $ 1.6 billion represents IPR&D impairment charges related to nemtabrutinib (MK-1026), a novel, oral BTK inhibitor currently being evaluated for the treatment of B-cell malignancies that was obtained through the 2020 acquisition of ArQule (see Note 4).

In 2023, the Company recorded a $ 779 million IPR&D impairment charge within Research and development expenses related to MK-7264, gefapixant, a non-narcotic, oral selective P2X3 receptor antagonist, in development for the treatment of refractory chronic cough or unexplained chronic cough in adults.

In December 2023, the FDA issued a Complete Response Letter (CRL) regarding the resubmission of Merck’s New Drug Application (NDA) for gefapixant.

In the CRL, the FDA concluded that Merck’s application did not meet substantial evidence of effectiveness for treating refractory chronic cough and unexplained chronic cough.

The CRL was not related to the safety of gefapixant.

The marketing application for gefapixant was based on results from the COUGH-1 and COUGH-2 clinical trials.

In January 2022, the FDA issued a CRL regarding Merck’s original NDA for gefapixant.

In that CRL, the FDA requested additional information related to the cough counting system that was used to assess efficacy.

Receipt of the second CRL from the FDA constituted a triggering event that required the evaluation of the gefapixant intangible asset for impairment.

The Company estimated the current fair value of gefapixant utilizing an income approach, which calculates the present value of projected future cash flows.

The market participant assumptions used to derive the forecasted cash flows were updated to reflect revised market launch plans, resulting in a reduction in the estimated fair value.

The revised estimated fair value of gefapixant when compared with its related carrying value resulted in the impairment charge noted above.

The remaining intangible asset balance related to Lyfnua (gefapixant) of $ 53 million is now included in product rights in the table above as of December 31, 2023 and will be amortized over its expected useful life as supported by projected future cash flows in the markets where it is approved including Japan and the EU.

In 2022, the Company recorded $ 1.7 billion of intangible asset impairment charges within Research and development expenses, of which $ 1.6 billion represents IPR&D impairment charges related to nemtabrutinib (MK-1026), an oral, reversible, non-covalent Bruton’s tyrosine kinase (BTK) inhibitor currently being evaluated for the treatment of hematological malignancies that was obtained through the 2020 acquisition of ArQule.

Following discussions with regulatory authorities in the third quarter, the development period for nemtabrutinib was extended, which constituted a triggering event that required the evaluation of the nemtabrutinib intangible asset for impairment.

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The revised estimated fair value of nemtabrutinib when compared with its related carrying value resulted in a $ 807 million impairment charge recorded in the third quarter of 2022.

In December 2022, regulatory authorities provided additional feedback with respect to clinical study design that led to a further reassessment of the development plan for nemtabrutinib, which is expected to result in changes to the clinical study design, and corresponding delays in the anticipated approval and launch timelines, which constituted a triggering event.

In December 2022, regulatory authorities provided additional feedback with respect to clinical study design that led to a further reassessment of the development plan for nemtabrutinib, which was expected to result in changes to the clinical study design, and corresponding delays in the anticipated approval and launch timelines, which constituted a triggering event.

Utilizing an income approach, the forecasted cash flows were updated to reflect a decline in forecasted revenue coupled with an increase in development cost forecasts, which reduced projected cash flows lowering the estimated current fair value of nemtabrutinib.

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If the assumptions used to estimate the fair value of nemtabrutinib prove to be incorrect and the development of nemtabrutinib does not progress as anticipated thereby adversely affecting projected future cash flows, the Company may record an additional impairment charge in the future and such charge could be material.

The Company also recorded an $ 80 million intangible asset impairment charge related to derazantinib resulting from the termination of the out-licensing agreement and the decision by Merck not to pursue development of derazantinib.

In 2021, the Company recorded a $ 275 million IPR&D impairment charge related to nemtabrutinib.

The Company also recorded an $ 80 million intangible asset impairment charge in 2022 related to derazantinib resulting from the termination of the out-licensing agreement and the decision by Merck not to pursue development of derazantinib.

In 2021, the Company recorded a $ 275 million IPR&D impairment charge within Research and development expenses related to nemtabrutinib.

As part of Merck’s annual impairment assessment of IPR&D intangible assets, the Company estimated the current fair value of nemtabrutinib utilizing projected future cash flows.

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The revised estimated fair value of nemtabrutinib when compared with its related carrying value resulted in the IPR&D impairment charge noted above.

In 2020, the Company recorded a $ 90 million IPR&D impairment charge related to a decision to discontinue the development program for COVID-19 vaccine candidate V591 following Merck’s review of findings from a Phase 1 clinical study for the vaccine.

In the study, V591 was generally well tolerated, but the immune responses were inferior to those seen following natural infection and those reported for other SARS-CoV-2/COVID-19 vaccines.

The discontinuation of this development program also resulted in a reversal of the related liability for contingent consideration of $ 45 million.

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The IPR&D projects that remain in development are subject to the inherent risks and uncertainties in drug development and it is possible that the Company will not be able to successfully develop and complete the IPR&D programs and profitably commercialize the underlying product candidates.

The Company may recognize additional non-cash impairment charges in the future related to other marketed products or pipeline programs and such charges could be material.

The Company may recognize additional non-cash impairment charges in the future related to marketed products or pipeline programs and such charges could be material.

Aggregate amortization expense primarily recorded within Cost of sales was $ 2.0 billion in 2023, $ 2.1 billion in 2022 and $ 1.6 billion in 2021.

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4.15 % notes due 2043

1.45 % notes due 2030

2.45 % notes due 2050

1.875 % euro-denominated notes due 2026

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4.30 % notes due 2030

0.50 % euro-denominated notes due 2024

4.90 % notes due 2044

6.50 % notes due 2033

1.375 % euro-denominated notes due 2036

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6.55 % notes due 2037

5.75 % notes due 2036

5.95 % debentures due 2028

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2.90 % notes due 2024

0.50 % euro-denominated notes due 2024

Other 289 167

$ 33,683 $ 28,745

Other (as presented in the table above) includes borrowings at variable rates that resulted in effective interest rates of 1.40 % and zero for 2022 and 2021, respectively.

Other (as presented in the table above) includes borrowings at variable rates that resulted in effective interest rates of 4.82 % and 1.40 % for 2023 and 2022, respectively.

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With the exception of the 6.30 % debentures due 2026, the notes listed in the table above are redeemable in whole or in part, at Merck’s option at any time, at varying redemption prices.

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

In May 2023, the Company issued $ 6.0 billion principal amount of senior unsecured notes consisting of $ 500 million of 4.05 % notes due 2028, $ 750 million of 4.30 % notes due 2030, $ 1.5 billion of 4.50 % notes due 2033, $ 750 million of 4.90 % notes due 2044, $ 1.5 billion of 5.00 % notes due 2053, and $ 1.0 billion of 5.15 % notes due 2063.

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 (see Note 3), 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.

Certain of the Company’s borrowings require that Merck comply with covenants and, at December 31, 2023, the Company was in compliance with these covenants.

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Interest payments related to these debt obligations are as follows:

2023, $ 882 million;

2024, $ 845 million;

2025, $ 778 million;

2026, $ 751 million;

2027, $ 720 million.

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

2024, $ 1.2 billion;

2025, $ 1.1 billion;

2026, $ 1.1 billion;

2027, $ 1.0 billion;

2028, $ 1.0 billion.

The Company has a $ 6.0 billion credit facility that matures in May 2028.

The facility provides backup liquidity for the Company’s commercial paper borrowing facility and is to be used for general corporate purposes.

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The lease term includes options to extend or terminate the lease when it is reasonably certain that Merck will exercise that option.

Real estate leases for facilities have an average remaining lease term of seven years , which include options to extend the leases for up to four years where applicable.

Real estate leases for facilities have an average remaining lease term of approximately seven years , which include options to extend the leases for up to five years where applicable.

Vehicle leases are generally in effect for four years .

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The updated rates for each asset class are applied prospectively to new leases.

The Company does not separate lease components (e.g.

payments for rent, real estate taxes and insurance costs) from non-lease components (e.g.

The Company does not separate lease components (e.g., payments for rent, real estate taxes and insurance costs) from non-lease components (e.g.

common-area maintenance costs) in the event that the agreement contains both.

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Operating lease assets obtained in exchange for lease obligations were $ 122 million in 2023, $ 57 million in 2022 and $ 117 million in 2021.

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Supplemental balance sheet information related to operating leases is as follows:

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The Company has evaluated its risks and has determined that the cost of obtaining product liability insurance outweighs the likely benefits of the coverage that is available and, as such, has no insurance for most product liabilities.

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Product Liability Litigation

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Conrad in the Western District of North Carolina for coordinated pre-trial proceedings.

There are fewer than 15 product liability cases pending outside the U.S., including one purported class action in Colombia.

There are fewer than 15 product liability cases pending outside the U.S.

Governmental Proceedings

As previously disclosed, in the fall of 2018, the Company received a records subpoena from the U.S.

Attorney’s Office for the District of Vermont (VT USAO) pursuant to Section 248 of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) relating to an investigation of potential health care offenses.

sought information relating to any actual or potential business relationship or arrangement Merck has had with Practice Fusion, Inc.

(PFI), a cloud-based, electronic health records (EHR) company that was acquired by Allscripts in January 2018.

The Company cooperated with the government and responded to that subpoena.

Subsequently, in May 2019, Merck received a second records subpoena from the VT USAO that broadened the government’s information request by seeking information relating to Merck’s relationship with any EHR company.

Shortly thereafter, the VT USAO served a Civil Investigation Demand (CID) upon Merck similarly seeking information on the Company’s relationships with EHR vendors.

The CID explains that the government is conducting a False Claims Act investigation concerning whether Merck and/or PFI submitted claims to federal health care programs that violate the Federal Anti-Kickback Statute.

Merck is cooperating with the government’s investigation.

Inflation Reduction Act

As previously disclosed, in June 2023, Merck filed a complaint in the U.S.

District Court for the District of Columbia against the U.S.

government regarding the Inflation Reduction Act’s “Drug Price Negotiation Program” for Medicare (the Program).

This litigation seeks relief from the Program by challenging its constitutionality as violative of the First and Fifth Amendments to the U.S.

Constitution.

Other Matters

As previously disclosed, in April 2019, Merck received a set of investigative interrogatories from the California Attorney General’s Office pursuant to its investigation of conduct and agreements that allegedly affected or delayed competition to Lantus in the insulin market.

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Merck is cooperating with the California Attorney General’s investigation.

As previously disclosed, in June 2020, Merck received a CID from the U.S.

As previously disclosed, in June 2020, Merck received a Civil Investigative Demand (CID) from the U.S.

Department of Justice.

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Zetia Antitrust Litigation

As previously disclosed, Merck, MSD, Schering Corporation, Schering-Plough Corporation, and MSP Singapore Company LLC (collectively, the Merck Defendants) are defendants in a number of lawsuits filed in 2018 on behalf of direct and indirect purchasers of Zetia (ezetimibe) alleging violations of federal and state antitrust laws, as well as other state statutory and common law causes of action.

As previously disclosed, Merck, MSD, Schering Corporation, Schering-Plough Corporation, and MSP Singapore Company LLC (collectively, the Merck Defendants) were defendants in a number of lawsuits filed in 2018 on behalf of direct and indirect purchasers of Zetia (ezetimibe) alleging violations of federal and state antitrust laws, as well as other state statutory and common law causes of action.

The cases were consolidated in a federal multidistrict litigation (the Zetia MDL) before Judge Rebecca Beach Smith in the Eastern District of Virginia.

In November 2019, the direct purchaser plaintiffs and the indirect purchaser plaintiffs filed motions for class certification.

In August 2020, the district court granted in part the direct purchasers’ motion for class certification and certified a class of 35 direct purchasers.

In August 2021, the Fourth Circuit vacated the district court’s class certification order and remanded for further proceedings consistent with the court’s ruling.

In September 2021, the direct purchaser plaintiffs filed a renewed motion for class certification.

On January 25, 2022, the magistrate judge recommended that the district court deny the motion for class certification.

On February 8, 2022, the direct purchaser plaintiffs filed objections to the recommendation.

On April 13, 2022, the district court denied the direct purchaser plaintiffs’ renewed motion for class certification.

In August 2021, the district court granted certification of a class of indirect purchasers.

In 2020 and 2021, United Healthcare Services, Inc., Humana Inc., Centene Corporation and others, and Kaiser Foundation Health Plan, Inc.

(collectively, the Insurer Plaintiffs), each filed a lawsuit in a jurisdiction outside of the Eastern District of Virginia against the Merck Defendants and others, making similar allegations as those made in the Zetia MDL, as well as additional allegations about Vytorin.

These cases have been transferred to the Eastern District of Virginia to proceed with the Zetia MDL.

On February 9, 2022, the Insurer Plaintiffs filed amended complaints.

On March 2, 2022, the Merck Defendants, jointly with other defendants, moved to dismiss certain aspects of the Insurer Plaintiffs’ complaints, including any claims for Vytorin damages.

That motion to dismiss the Vytorin-related claims is still pending.

In April 2022, the direct purchaser plaintiffs moved for an order setting a deadline for direct purchasers of Zetia not currently parties to the case to file cases against defendants in order for those cases to be coordinated for trial with the existing direct purchaser plaintiffs and other Zetia MDL plaintiff groups.

The court granted that motion, setting a deadline of June 30, 2022 for unnamed direct purchasers to file claims.

On June 30, 2022, 23 new entities, many related, brought new complaints against defendants or otherwise sought to intervene.

On February 10, 2023, the district court denied the Merck Defendants’ and Glenmark defendants’ motions for summary judgment.

In the cases filed by direct purchaser plaintiffs, retailer plaintiffs, and indirect purchaser plaintiffs, plaintiffs seek up to a maximum of $ 12.7 billion in damages after trebling.

The court has scheduled trial for these plaintiffs (all plaintiffs other than the Insurer Plaintiffs) for April 17, 2023.

As previously disclosed, in April 2023, the Merck Defendants reached settlements with the direct purchaser and retailer plaintiffs and a proposed settlement, subject to court approval, with the indirect purchaser class.

Under these agreements, Merck agreed to pay $ 572.5 million to resolve the direct purchaser, retailer, and indirect purchaser plaintiffs’ claims, which was recorded as an expense in the Company’s financial results for 2023.

On October 18, 2023, the court granted final approval of the indirect purchaser class settlement.

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In 2020 and 2021, United Healthcare Services, Inc.

(United Healthcare), Humana Inc.

(Humana), Centene Corporation and others (Centene), and Kaiser Foundation Health Plan, Inc.

(Kaiser) (collectively, the Insurer Plaintiffs), each filed a lawsuit in a jurisdiction outside of the Eastern District of Virginia against the Merck Defendants and others, making similar allegations as those made in the Zetia MDL, as well as additional allegations about Vytorin.

These cases were transferred to the Eastern District of Virginia to proceed with the Zetia MDL.

In February 2022, the Insurer Plaintiffs filed amended complaints.

In March 2022, the Merck Defendants, jointly with other defendants, moved to dismiss certain aspects of the Insurer Plaintiffs’ complaints, including any claims for Vytorin damages.

On December 4, 2023, prior to a decision on the motion to dismiss, the U.S.

Judicial Panel on Multidistrict Litigation remanded the four Insurer Plaintiff cases to the transferor courts in the Northern District of California (Kaiser), the District of Minnesota (United Healthcare), and the District of New Jersey (Humana and Centene).

RotaTeq Antitrust Litigation

As previously disclosed, in March 2023, the Mayor and City Council of Baltimore filed a putative class action against MSD in the Eastern District of Pennsylvania on behalf of all third-party payors in 35 states that indirectly purchased, paid, and/or provided reimbursement for some or all of the purchase price of RotaTeq (Rotavirus Vaccine, Live Oral, Pentavalent), other than for resale, from March 3, 2019 to the present.

Plaintiff alleges that MSD violated federal and state antitrust laws and state consumer protection laws.

Plaintiff alleges that MSD has implemented an anticompetitive vaccine bundling scheme whereby MSD leverages its alleged monopoly power in certain pediatric vaccine markets to maintain its alleged monopoly power in the U.S.

market for rotavirus vaccines in order to charge supracompetitive prices for RotaTeq .

Plaintiff seeks permanent injunctive relief and unspecified monetary damages on purchases of RotaTeq , trebled, and fees and costs.

In May 2023, MSD moved to dismiss the complaint.

On November 20, 2023, the court granted in part and denied in part the motion to dismiss, dismissing plaintiff’s Idaho and Utah consumer law claims and allowing all other claims to proceed.

Bravecto Litigation

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The Company and plaintiffs each appealed the class certification decision.

The Court of Appeal of Quebec heard the appeal on February 7, 2022 and took the matter under advisement.

The Court of Appeal of Quebec heard the appeal in February 2022 and issued a decision in April 2022 allowing both parties’ appeals in part.

The Court of Appeal amended the class period to start July 2, 2014, allowed the second plaintiff to serve as a class representative, and modified the list of conditions in the class definition.

The Company sought leave to appeal to the Supreme Court of Canada, which was denied.

The case is proceeding in the Superior Court.

340B Program Litigation

Merck has filed a complaint in the U.S.

As previously disclosed, Merck has filed a complaint in the U.S.

District Court for the District of Columbia to challenge the letter Merck received from the Health Resources and Services Administration (HRSA) in May 2022 regarding Merck’s 340B Program integrity initiative.

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Merck continues to offer all of the Company’s covered outpatient drugs to all 340B covered entities for purchase at or below the 340B ceiling price.

On September 13, 2022, the court stayed the case pending the D.C.

In September 2022, the court stayed the case pending the D.C.

Circuit’s ruling in Novartis Pharmaceuticals Corp.

Johnson and United Therapeutics Corp.

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Qui Tam Litigation

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In September 2014, the court denied Merck’s motion to dismiss the False Claims Act suit and granted in part and denied in part its motion to dismiss the then-pending antitrust suit.

As a result, both the False Claims Act suit and the antitrust suits proceeded into discovery, which is now complete, and the parties have filed and briefed cross-motions for summary judgment, which are currently pending before the court.

As a result, both the False Claims Act suit and the antitrust suits proceeded into discovery, which is now complete, and the parties have filed and briefed cross-motions for summary judgment.

On July 27, 2023, in the False Claims Act case, the court denied relators’ motion for summary judgment, granted two of the Company’s motions for summary judgment, and denied the Company’s remaining motions for summary judgment as moot.

The court entered judgment in favor of the Company and dismissed relators’ amended complaint in full with prejudice.

Relators have appealed that decision.

In the antitrust case, the court granted the Company’s motion for summary judgment as to plaintiffs’ state law claims and denied the motion as to plaintiffs’ antitrust claim.

On November 17, 2023, the Third Circuit granted the Company’s petition for permission to appeal the antitrust decision.

Merck KGaA Litigation

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KGaA has filed suit against the Company in a number of jurisdictions outside of the U.S.

alleging, among other things, unfair competition, trademark infringement

and/or corporate name infringement.

alleging, among other things, unfair competition, trademark infringement and/or corporate name infringement.

In certain of those jurisdictions, KGaA also alleges breach of the parties’ coexistence agreement.

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Patent Litigation

From time to time, generic manufacturers of pharmaceutical products file abbreviated New Drug Applications (NDAs) with the FDA seeking to market generic forms of the Company’s products prior to the expiration of relevant patents owned by the Company.

From time to time, generic manufacturers of pharmaceutical products file abbreviated New Drug Applications (ANDAs) with the FDA seeking to market generic forms of the Company’s products prior to the expiration of relevant patents owned by the Company.

To protect its patent rights, the Company may file patent infringement lawsuits against such generic companies.

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All actions in the District of New Jersey have been consolidated.

These lawsuits, which assert one or more patents covering sugammadex and methods of using sugammadex, automatically stay FDA approval of the generic applications until June 2023 or until adverse court decisions, if any, whichever may occur earlier.

The West Virginia case was jointly dismissed with prejudice on August 8, 2022 in favor of proceeding in New Jersey.

The remaining defendants in the New Jersey action have stipulated to infringement of the asserted claims and have stated they are withdrawing all remaining claims and defenses other than a defense seeking to shorten the patent term extension of the sugammadex patent to December 2022.

District Court for the District of New Jersey held a one-day trial on December 19, 2022 on this remaining patent term extension calculation defense.

The court ordered a post-trial briefing on this defense and held closing arguments on February 3, 2023.

The Company has settled with five generic companies providing that these generic companies can bring their generic versions of Bridion to the market in January 2026 (which may be delayed by any applicable pediatric exclusivity) or earlier under certain circumstances.

The Company has agreed to stay the lawsuit filed against two generic companies, which in exchange agreed to be bound by a judgment on the merits of the consolidated action in the District of New Jersey.

One of the generic companies in the consolidated action requested dismissal of the action against it and the Company did not oppose this request, which was subsequently granted by the court.

The Company does not expect this company to bring its generic version of Bridion to the market before January 2026 or later, depending on any applicable pediatric exclusivity, unless the Company receives an adverse court decision.

The West Virginia case was jointly dismissed with prejudice in August 2022 in favor of proceeding in New Jersey.

The remaining defendants in the New Jersey action have stipulated to infringement of the asserted claims and withdrew all remaining claims and defenses other than a defense seeking to shorten the patent term extension (PTE) of the sugammadex patent to December 2022.

District Court for the District of New Jersey held a one-day trial in December 2022 on this remaining PTE calculation defense.

The court ordered a post-trial briefing on this defense and held closing arguments in February 2023.

While the New Jersey action was pending, the Company settled with five generic companies providing that these generic companies can bring their generic versions of Bridion to the market in January 2026 (which may be delayed by any applicable pediatric exclusivity) or earlier under certain circumstances.

The Company agreed to stay the lawsuit filed against two generic companies, which in exchange agreed to be bound by a judgment on the merits of the consolidated action in the District of New Jersey.

One of the generic companies in the consolidated action

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requested dismissal of the action against it and the Company did not oppose this request, which was subsequently granted by the court.

The Company does not expect this company to bring its generic version of Bridion to the market before January 2026 or later, depending on any applicable pediatric exclusivity.

As previously disclosed, in June 2023, the U.S.

District Court for the District of New Jersey ruled in Merck’s favor.

The court held that Merck’s calculation of PTE for the sugammadex patent covering the compound is not invalid and that the U.S.

Patent & Trademark Office correctly granted a full five-year extension.

This ruling affirms and validates Merck’s U.S.

patent protection for Bridion through at least January 2026.

On June 29, 2023, the U.S.

District Court for the District of New Jersey issued a final judgment prohibiting the FDA from approving any of the pending or tentatively approved generic applications until January 27, 2026, except for any subsequent agreements between defendants and Merck or further order by the court.

In July 2023, defendants filed a notice of appeal with the United States Court of Appeals for the Federal Circuit.

The appeal is currently pending.

On February 5, 2024, the Company received another Paragraph IV Certification Letter under the Hatch-Waxman Act notifying the Company that Hikma Pharmaceuticals USA Inc.

has filed an application to the FDA seeking pre-patent expiry approval to sell a generic version of Bridion Injection.

The Company is currently considering its options.

Januvia, Janumet, Janumet XR — As previously disclosed, the FDA granted pediatric exclusivity with respect to Januvia (sitagliptin), Janumet (sitagliptin/metformin HCl), and Janumet XR (sitagliptin and metformin HCl extended-release), which provides a further six months of exclusivity in the U.S.

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However, Januvia , Janumet , and Janumet XR contain sitagliptin phosphate monohydrate and the Company has another patent covering certain phosphate salt and polymorphic forms of sitagliptin that expires in May 2027, including pediatric exclusivity (2027 salt/polymorph patent).

In 2019, Par Pharmaceutical filed suit against the Company in the U.S.

District Court for the District of New Jersey seeking a declaratory judgment of invalidity of the 2027 salt/polymorph patent.

In response, the Company filed a patent infringement lawsuit in the U.S.

District Court for the District of Delaware against Par Pharmaceutical and additional companies that also indicated an intent to market generic versions of Januvia , Janumet , and Janumet XR following expiration of key patent protection, but prior to the expiration of the 2027 salt/polymorph patent, and a later granted patent owned by the Company covering the Janumet formulation where its term plus the pediatric exclusivity ends in 2029.

The Company also filed a patent infringement lawsuit against Mylan in the Northern District of West Virginia.

The Judicial Panel on Multidistrict Litigation entered an order transferring the Company’s lawsuit against Mylan to the U.S.

District Court for the District of Delaware for coordinated and consolidated pretrial proceedings with the other cases pending in that district.

Prior to the beginning of the scheduled October 2021 trial in the U.S.

District Court for the District of Delaware on invalidity issues, the Company settled with all defendants scheduled to participate in that trial.

In the Company’s case against Mylan, a bench trial was held in December 2021 in the U.S.

District Court for the Northern District of West Virginia, and the closing arguments were held on April 13, 2022.

On September 21, 2022, the District

Court for the Northern District of West Virginia issued a decision in the Company’s favor, upholding all asserted patent claims.

Mylan (now Viatris) has appealed to the U.S.

Court of Appeals for the Federal Circuit.

In total, the Company has settled with 22 generic companies providing that these generic companies can bring their generic versions of Januvia and Janumet to the market in May 2026 or earlier under certain circumstances, and their generic versions of Janumet XR to the market in July 2026 or earlier under certain circumstances.

Additionally, in 2019, Mylan filed a petition for inter partes review (IPR) at the U.S.

Patent and Trademark Office (USPTO) seeking invalidity of some, but not all, of the claims of the 2027 salt/polymorph patent.

The USPTO instituted IPR proceedings in May 2020, finding a reasonable likelihood that the challenged claims are not valid.

A trial was held in February 2021 and a final decision was rendered in May 2021, holding that all of the challenged claims were not invalid.

Mylan appealed the USPTO’s decision to the U.S.

Court of Appeals for the Federal Circuit, and a hearing was held on August 2, 2022.

On September 29, 2022, the U.S.

Court of Appeals for the Federal Circuit ruled in the Company’s favor, upholding the USPTO’s decision.

Mylan submitted a combined petition for panel rehearing and rehearing en banc, for which the Company was invited by the court to provide a response.

On February 3, 2023, the court issued a per curiam decision denying both rehearing requests.

As previously disclosed, beginning in 2019, a number of generic drug companies filed ANDAs seeking approval of generic forms of Januvia and Janumet along with paragraph IV certifications challenging the validity of the 2027 salt/polymorph patent.

The Company responded by filing infringement suits which have all been settled.

The Company has settled with a total 26 generic companies providing that these generic companies can bring their generic versions of Januvia and Janumet to the market in the U.S.

in May 2026 or earlier under certain circumstances, and their generic versions of Janumet XR to the market in July 2026 or earlier under certain circumstances.

In March 2021, the Company filed a patent infringement lawsuit in the U.S.

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(collectively, Zydus).

In that lawsuit, the Company alleged infringement of the 2027 salt/polymorph patent based on the filing of Zydus’s NDA seeking approval of its sitagliptin tablets.

In December 2022, the parties reached settlement that included dismissal of the case without prejudice enabling Zydus to seek final approval of a non-automatically substitutable product containing a different form of sitagliptin than that used in Januvia , Janumet and Janumet XR .

As a result of these favorable court rulings and settlement agreements related to the later expiring patent directed to the specific sitagliptin salt form of the products, the Company expects that these products will not lose market exclusivity in the U.S.

until May 2026.

However, certain of the rulings are currently being appealed, and an unfavorable court decision would likely cause the products to lose exclusivity toward the end of 2023.

Generic companies have sought revocation of the Supplementary Protection Certificate (SPC) for Janumet in a number of European countries.

In February 2022, a Finnish court referred certain questions to the Court of Justice of the European Union that could determine the validity of the Janumet SPCs in Europe, for which there will be an oral hearing on March 8, 2023.

In first instance decisions, the Janumet SPC has been found invalid in Germany and Romania, and has been upheld in Czech Republic and Sweden.

Appeals are pending in Germany, Czech Republic and Sweden.

The Company has filed for injunctive relief in Belgium, Czech Republic, Finland, France, Greece, Hungary, Ireland, Portugal, Switzerland and Slovakia.

An ex-parte preliminary injunction was granted in Finland, which has been subsequently maintained in inter-partes proceedings, Czech Republic and Switzerland, and an inter-partes preliminary injunction has been granted in Ireland.

A preliminary injunction was granted in France and the validity of the SPC and the associated patent were held to be prima facie valid.

Preliminary injunctions have been refused in Portugal, Greece, Belgium and Hungary.

In Belgium, the Company has filed a main infringement action against generic companies and a request for preliminary measures in that action has been refused.

In that lawsuit, the Company alleged infringement of the 2027 salt/polymorph patent based on the filing of Zydus’s NDA seeking approval of a form of sitagliptin that is a different from than that used in Januvia .

In December 2022, the parties reached settlement that included dismissal of the case without prejudice enabling Zydus to seek final approval of a non-automatically substitutable product.

In January 2023, the Company received a Paragraph IV Certification Letter under the Hatch-Waxman Act notifying the Company that Zydus filed an ANDA seeking approval of sitagliptin/metformin HCl tablets and certifying that no valid or enforceable claim of any of the patents listed in FDA’s Orange Book for Janumet will be infringed by the proposed Zydus product.

In March 2023, the parties reached settlement enabling Zydus to seek final approval of a non-automatically substitutable product containing a different form of sitagliptin than that used in Janumet .

In November 2023, the Company received a Paragraph IV Certification Letter under the Hatch-Waxman Act notifying the Company that Zydus filed an ANDA seeking approval of sitagliptin/metformin HCl Extended Release tablets.

In January 2024, the parties reached settlement enabling Zydus to seek final approval of a non-automatically substitutable version containing a different form of sitagliptin than that used in Janumet XR .

As a result of these settlement agreements related to the later expiring 2027 salt/polymorph patent directed to the specific sitagliptin salt form of the products, 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 Zydus has received FDA approval for a non-automatically substitutable form of sitagliptin that differs from the form in the Company’s sitagliptin products.

Supplementary Protection Certificates (SPCs) for Janumet expired in April 2023 for the majority of European countries.

Prior to expiration, generic companies sought revocation of the Janumet SPCs in a number of European countries.

In February 2022, a Finnish court referred certain questions to the Court of Justice of the European Union (CJEU) that could determine the validity of the Janumet SPCs in Europe, for which an oral hearing was held on March 8, 2023, and an Advocate General Opinion is expected on April 15, 2024 with a decision later in

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If the CJEU renders a decision that negatively impacts the validity of the Janumet SPCs throughout Europe, generic companies that were prevented from launching products during the SPC period in certain European countries may have an action for damages.

Those countries include Belgium, Czech Republic, Ireland, Finland, France, Slovakia and Switzerland.

If the Janumet SPCs are ultimately upheld, the Company has reserved its rights related to the pursuit of damages for those countries where a generic launched prior to expiry of the Janumet SPC.

On October 6, 2023, the Company filed a patent infringement lawsuit against Sawai Pharmaceuticals Co., Ltd.

and Medisa Shinyaku Co., Ltd (collectively, Defendants) in the Tokyo District Court seeking an injunction to stop the manufacture, sale and offer for sale of the Defendants’ sitagliptin dihydrogen phosphate product, while the Company’s patents and patent term extensions are in force.

The lawsuit is in response to the Defendants’ application for marketing authorization to sell a generic sitagliptin dihydrogen phosphate product, in the anhydrate form, which was approved on August 15, 2023.

Merck asserts that the Defendants’ activity infringes a patent term extension associated with Merck’s patent directed to the sitagliptin compound patent.

Keytruda — As previously disclosed, the Company filed a complaint against The Johns Hopkins University (JHU) in November 2022, in the U.S.

District Court of Maryland.

This action concerns patents emerging from a joint research collaboration between Merck and JHU regarding the use of pembrolizumab, which Merck sells under the trade name Keytruda .

Merck and JHU partnered to design and conduct a clinical study administering Keytruda to cancer patients having tumors that had the genetic biomarker known as microsatellite instability-high (MSI-H).

After the conclusion of the study, JHU secured U.S.

patents citing the joint research study.

Merck alleges that JHU has breached the collaboration agreement by filing and obtaining these patents without informing or involving Merck and then licensing the patents to others.

Merck therefore brought this action for breach of contract, declaratory judgment of noninfringement, and promissory estoppel.

JHU answered the complaint in April and May 2023, denying Merck’s claims, and counterclaiming for willful infringement of nine issued U.S.

patents, including a demand for damages.

On November 30, 2023, the Company filed an inter partes review with the United States Patent & Trademark Office Patent Trial and Appeal Board, challenging the validity of the patent claims of one of the asserted patents in the case.

Lynparza — In December 2022, AstraZeneca Pharmaceuticals LP received a Paragraph IV Certification Letter under the Hatch-Waxman Act notifying AstraZeneca that Natco Pharma Limited (Natco) has filed an application to the FDA seeking pre-patent expiry approval to sell generic versions of Lynparza (olaparib) tablet.

2 unchanged sentences

This lawsuit, which asserts one or more patents covering olaparib, automatically stays FDA approval of the generic application until June 2025 or until an adverse court decision, if any, whichever may occur earlier.

In December 2023, AstraZeneca Pharmaceuticals LP received a second Paragraph IV Certification Letter under the Hatch-Waxman Act notifying AstraZeneca that Sandoz Inc.

has filed an application to the FDA seeking pre-patent expiry approval to sell generic versions of Lynparza (olaparib) tablet.

In February 2024, AstraZeneca and the Company filed a patent infringement lawsuit in the U.S.

District Court for the District of New Jersey against Sandoz.

This lawsuit, which asserts one or more patents covering olaparib, automatically stays FDA approval of the generic application until June 2026 or until an adverse court decision, if any, whichever may occur earlier.

Other Litigation

8 unchanged sentences

the costs and outcomes of completed trials and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the associated litigation.

The amount of legal defense reserves as of December 31, 2022 and 2021 of approximately $ 230 million represents the Company’s best estimate of the minimum amount of defense costs to be incurred in connection with its outstanding litigation;

The amount of legal defense reserves as of December 31, 2023 and 2022 of approximately $ 210 million and $ 230 million, respectively, represents the Company’s best estimate of the minimum amount of defense costs to be incurred in connection with its outstanding litigation;

however, events such as additional trials and other events that could arise in the course of its litigation could affect the ultimate amount of legal defense costs to be incurred by the Company.

The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to increase the reserves at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.

The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to

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increase the reserves at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.

Environmental Matters

27 unchanged sentences

The Company has share-based compensation plans under which the Company grants restricted stock units (RSUs) and performance share units (PSUs) to certain management level employees.

In addition, employees

and non-employee directors may be granted options to purchase shares of Company common stock at the fair market value at the time of grant.

In addition, employees and non-employee directors may be granted options to purchase shares of Company common stock at the fair market value at the time of grant.

These plans were approved by the Company’s shareholders.

3 unchanged sentences

These awards generally vest one-third each year over a three-year period, with a contractual term of 7 - 10 years.

RSUs are stock awards that are granted to employees and entitle the holder to shares of common stock as the awards vest.

RSUs are stock awards that are granted to employees and entitle the holder to shares of common stock

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as the awards vest.

The fair value of the stock option and RSU awards is determined and fixed on the grant date based on the Company’s stock price.

7 unchanged sentences

Total pretax share-based compensation cost recorded in 2023, 2022 and 2021 was $ 645 million, $ 541 million and $ 498 million, respectively.

The amounts in 2021 and 2020 include $ 479 million and $ 441 million, respectively, related to continuing operations.

The amount in 2021 includes $ 479 million related to continuing operations.

Income tax benefits for share-based compensation expense recognized in 2023, 2022 and 2021 were $ 96 million, $ 78 million and $ 69 million, respectively.

26 unchanged sentences

Outstanding December 31, 2023

13,527 $ 77.54 6.2 $ 442

Vested and expected to vest December 31, 2023 13,119 $ 76.63 6.1 $ 438

5 unchanged sentences

Cash received from the exercise of stock options 125 384 202

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A summary of nonvested RSU and PSU activity (shares in thousands) is as follows:

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Expected return on plan assets ( 735 ) ( 753 ) ( 755 ) ( 517 ) ( 383 ) ( 416 ) ( 64 ) ( 86 ) ( 79 )

Amortization of unrecognized prior service cost ( 32 ) ( 38 ) ( 49 ) ( 14 ) ( 16 ) ( 18 ) ( 57 ) ( 63 ) ( 73 )

Amortization of unrecognized prior service (credit) cost

( 1 ) ( 32 ) ( 38 ) 2 ( 14 ) ( 16 ) ( 49 ) ( 57 ) ( 63 )

Net loss (gain) amortization — 128 298 ( 3 ) 96 142 ( 42 ) ( 43 ) ( 42 )

6 unchanged sentences

Also, in connection with these restructuring activities, curtailments and settlements were recorded on certain pension plans.

An increase in lump sum payments to U.S.

Lump sum payments to U.S.

pension plan participants also contributed to the settlements recorded during 2023, 2022 and 2021.

The components of net periodic benefit cost (credit) other than the service cost component are included in Other (income) expense, net (see Note 15), with the exception of certain amounts for termination benefits, curtailments and settlements, which are recorded in Restructuring costs if the event giving rise to the termination benefits, curtailment or settlement is related to restructuring actions or in Income from Discontinued Operations, Net of Taxes and Amounts Attributable to Noncontrolling Interests if related to the spin-off of Organon (each as noted above).

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Obligations and Funded Status

10 unchanged sentences

Settlements ( 177 ) ( 918 ) ( 53 ) ( 16 ) ( 2 ) —

Spin-off of Organon — — — ( 55 ) — —

Other — — 34 30 6 5

3 unchanged sentences

Interest cost 526 457 299 145 63 46

Actuarial (gains) losses (1)

Actuarial losses (gains) (1)

403 ( 3,851 ) 766 ( 3,283 ) ( 58 ) ( 392 )

5 unchanged sentences

Settlements ( 177 ) ( 918 ) ( 53 ) ( 16 ) ( 2 ) —

Spin-off of Organon — — — ( 118 ) — —

Other — — 34 28 6 5

5 unchanged sentences

Other Noncurrent Liabilities ( 593 ) ( 706 ) ( 480 ) ( 315 ) ( 158 ) ( 202 )

(1) Actuarial (gains) losses primarily reflect changes in discount rates.

(1) Actuarial losses (gains) primarily reflect changes in discount rates.

At December 31, 2023 and 2022, the accumulated benefit obligation was $ 19.1 billion and $ 17.2 billion, respectively, for all pension plans, of which $ 10.3 billion and $ 9.7 billion, respectively, related to U.S.

pension plans.

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Information related to the funded status of selected pension plans at December 31 is as follows:

3 unchanged sentences

Projected benefit obligation

$ 10,446 $ 9,186 $ 2,961 $ 2,779

Fair value of plan assets 9,804 8,421 2,462 2,445

10 unchanged sentences

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

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The fair values of the Company’s pension plan assets at December 31 by asset category are as follows:

14 unchanged sentences

Mortgage and asset-backed securities — 21 — — 21 — 22 — — 22

Other investments

Other investments (liabilities)

Derivatives 109 — — — 109 ( 12 ) — — — ( 12 )

6 unchanged sentences

Government and agency obligations 234 3,123 — 166 3,523 177 2,656 — 130 2,963

Emerging markets equities 52 — — 59 111 137 — — 72 209

Corporate obligations 23 8 — 166 197 8 9 — 129 146

Emerging markets equities 44 — — 66 110 52 — — 59 111

Other fixed income obligations 9 8 — 3 20 10 7 — 4 21

14 unchanged sentences

(2) The plans’ Level 3 investments in insurance contracts are generally valued using a crediting rate that approximates market returns and invest in underlying securities whose market values are unobservable and determined using pricing models, discounted cash flow methodologies, or similar techniques.

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The table below provides a summary of the changes in fair value, including transfers in and/or out, of all financial assets measured at fair value using significant unobservable inputs (Level 3) for the Company’s pension plan assets:

Contracts Real

Estate Other Total Insurance

Contracts Real

Estate Other Total

Contracts Other Total Insurance

Contracts Other Total

Pension Plans

21 unchanged sentences

Real estate — — — 12 12 — — — 14 14

Government and agency obligations 1 — — — 1 1 — — — 1

Equity securities —

4 unchanged sentences

Mortgage and asset-backed securities — 2 — — 2 — 2 — — 2

Other Investments

Other Investments (liabilities)

Derivatives 12 — — — 12 ( 1 ) — — — ( 1 )

8 unchanged sentences

The portfolio’s equity weighting is consistent with the long-term nature of the plans’ benefit obligations.

The expected annual standard deviation of

returns of the target portfolio, which approximates 10 %, reflects both the equity allocation and the diversification benefits among the asset classes in which the portfolio invests.

The expected annual standard deviation of returns of the target portfolio, which approximates 11 %, reflects both the equity allocation and the diversification benefits among the asset classes in which the portfolio invests.

For international pension plans, the targeted investment portfolio varies based on the duration of pension liabilities and local government rules and regulations.

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Although a significant percentage of plan assets are invested in U.S.

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Expected benefit payments are based on the same assumptions used to measure the benefit obligations and include estimated future employee service.

Amounts Recognized in Other Comprehensive Income

Amounts Recognized in Other Comprehensive Income (Loss)

Net gain/loss amounts reflect differences between expected and actual returns on plan assets as well as the effects of changes in actuarial assumptions.

6 unchanged sentences

Net (loss) gain arising during the period $ ( 69 ) $ ( 42 ) $ 813 $ ( 438 ) $ 116 $ 772 $ 110 $ — $ 156

Prior service (cost) credit arising during the period — — — ( 4 ) ( 4 ) 64 — — —

Prior service cost arising during the period

— — — ( 16 ) ( 4 ) ( 4 ) — — —

$ ( 69 ) $ ( 42 ) $ 813 $ ( 454 ) $ 112 $ 768 $ 110 $ — $ 156

Net loss (gain) amortization included in benefit cost $ — $ 128 $ 298 $ ( 3 ) $ 96 $ 142 $ ( 42 ) $ ( 43 ) $ ( 42 )

Prior service credit amortization included in benefit cost ( 32 ) ( 38 ) ( 49 ) ( 14 ) ( 16 ) ( 18 ) ( 57 ) ( 63 ) ( 73 )

Prior service (credit) cost amortization included in benefit cost

( 1 ) ( 32 ) ( 38 ) 2 ( 14 ) ( 16 ) ( 49 ) ( 57 ) ( 63 )

Settlements and curtailments 36 251 232 ( 6 ) 1 ( 18 ) ( 1 ) ( 1 ) ( 29 )

$ 35 $ 347 $ 492 $ ( 7 ) $ 83 $ 108 $ ( 92 ) $ ( 101 ) $ ( 134 )

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Actuarial Assumptions

30 unchanged sentences

Total employer contributions to these plans in 2023, 2022 and 2021 were $ 199 million, $ 175 million and $ 158 million, respectively.

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Other (Income) Expense, Net

4 unchanged sentences

Exchange losses 370 237 297

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

(Income) loss from investments in equity securities, net (1)

( 340 ) 1,419 ( 1,940 )

4 unchanged sentences

Unrealized gains and losses from investments that are directly owned are determined at the end of the reporting period, while gains and losses from ownership interests in investment funds are accounted for on a one quarter lag.

The Company estimates gains of approximately $ 140 million will be recorded in the first quarter of 2023 from ownership interests in investment funds.

Interest paid was $ 937 million in 2022, $ 779 million in 2021 and $ 822 million in 2020.

Other, net (as reflected in the table above) in 2023 includes a $ 572.5 million charge related to settlements with certain plaintiffs in the Zetia antitrust litigation (see Note 11).

Interest paid was $ 1.1 billion in 2023, $ 937 million in 2022 and $ 779 million in 2021.

Taxes on Income

5 unchanged sentences

Differential arising from:

Acquisition of Prometheus

2,139 113.3 — — — —

Acquisition of Imago

253 13.4 — — — —

Valuation allowances 70 3.7 108 0.7 102 0.7

Acquisition-related costs, including amortization

42 2.2 ( 3 ) — 8 0.1

Restructuring 41 2.2 11 0.1 61 0.4

Foreign earnings ( 941 ) ( 49.8 ) ( 1,821 ) ( 11.1 ) ( 1,456 ) ( 10.5 )

GILTI and the foreign-derived intangible income deduction ( 80 ) ( 4.3 ) 462 2.8 ( 75 ) ( 0.5 )

State taxes ( 110 ) ( 0.7 ) 2 — 57 1.0

R&D tax credit ( 214 ) ( 11.3 ) ( 117 ) ( 0.7 ) ( 113 ) ( 0.8 )

State taxes ( 117 ) ( 6.2 ) ( 110 ) ( 0.7 ) 2 —

Inventory donations

( 65 ) ( 3.5 ) ( 52 ) ( 0.3 ) ( 41 ) ( 0.3 )

Tax settlements

Valuation allowances 108 0.7 102 0.7 37 0.6

Restructuring 11 0.1 61 0.4 105 1.8

Acquisition of VelosBio — — ( 9 ) ( 0.1 ) 559 9.5

— — ( 10 ) ( 0.1 ) ( 275 ) ( 2.0 )

Acquisition of Pandion — — — — 356 2.6

Acquisition of OncoImmune — — — — 97 1.7

Other ( 13 ) ( 0.7 ) ( 3 ) — 37 0.3

1 unchanged sentence

Where applicable, the impact of changes in uncertain tax positions is reflected in the reconciling items above.

The Company’s remaining transition tax liability under the Tax Cuts and Jobs Act (TCJA) of 2017, which has been reduced by payments and the utilization of foreign tax credits, was $ 2.2 billion at December 31, 2022, of which $ 732 million is included in Income taxes payable and the remainder of $ 1.5 billion is included in Other Noncurrent Liabilities .

The Company’s remaining transition tax liability under the Tax Cuts and Jobs Act (TCJA) of 2017, which has been reduced by payments and the expected utilization of foreign tax credits, was $ 1.5 billion at December 31, 2023, of which $ 976 million is included in Income taxes payable and the remainder of $ 518 million is included in Other Noncurrent Liabilities .

As a result of the transition tax under the TCJA, the Company is no longer indefinitely reinvested with respect to its undistributed earnings from foreign subsidiaries and has provided a deferred tax liability for foreign withholding taxes that would apply.

The Company remains indefinitely reinvested with respect to its financial statement basis in excess of tax basis of its foreign subsidiaries.

The Company remains indefinitely reinvested with respect to its

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financial statement basis in excess of tax basis of its foreign subsidiaries.

A determination of the deferred tax liability with respect to this basis difference is not practicable.

The foreign earnings tax rate differentials in the tax rate reconciliation above primarily reflect the impacts of operations in jurisdictions with different tax rates than the U.S., particularly Ireland and Switzerland, as well as Singapore and Puerto Rico which operate under tax incentive grants (which begin to expire in 2025), thereby yielding

a favorable impact on the effective tax rate compared with the U.S.

statutory rate of 21%.

18 unchanged sentences

$ 1,512 $ 1,918 $ 1,521

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Deferred income taxes at December 31 consisted of:

21 unchanged sentences

In addition, the Company has $ 575 million of deferred tax assets relating to various U.S.

tax credit carryforwards and

NOL carryforwards.

tax credit carryforwards and NOL carryforwards.

Valuation allowances of $ 379 million have been established on these U.S.

tax credit carryforwards and NOL carryforwards.

Income taxes paid in 2022, 2021 and 2020 (including amounts attributable to discontinued operations in 2021 and 2020) were $ 3.2 billion, $ 2.4 billion and $ 2.7 billion, respectively.

Income taxes paid consisted of:

Income taxes paid in 2023, 2022 and 2021 (including amounts attributable to discontinued operations in 2021) consisted of:

Years Ended December 31 2023 2022 2021

17 unchanged sentences

(1) Amount in 2021 reflects a settlement with the IRS discussed below.

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If the Company were to recognize the unrecognized tax benefits of $ 2.4 billion at December 31, 2023, the income tax provision would reflect a favorable net impact of $ 2.3 billion.

11 unchanged sentences

This net benefit reflects reductions in reserves for unrecognized tax benefits and other related liabilities for tax positions relating to the years that were under examination.

The IRS is currently conducting examinations of the Company’s tax returns for the years 2017 and 2018.

The IRS is currently conducting examinations of the Company’s tax returns for the years 2017 and 2018, including the one-time transition tax enacted under the TCJA.

If the IRS disagrees with the Company’s transition tax position, it may result in a significant tax liability.

In addition, various state and foreign tax examinations are in progress and for these jurisdictions, the Company’s income tax returns are open for examination for the period 2003 through 2023.

22 unchanged sentences

In 2023, 2022 and 2021, 5 million, 2 million and 9 million, respectively, of common shares issuable under share-based compensation plans were excluded from the computation of earnings per common share assuming dilution because the effect would have been antidilutive.

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Other Comprehensive Income (Loss)

Changes in each component of other comprehensive income (loss) are as follows:

Derivatives Investments Employee

Derivatives Employee

Plans Foreign Currency

10 unchanged sentences

Other comprehensive income (loss), net of taxes 410 1,769 ( 423 ) 1,756

Spin-off of Organon (see Note 5)

Balance at December 31, 2021, net of taxes 144 ( 2,743 ) ( 1,830 ) ( 4,429 )

6 unchanged sentences

Other comprehensive income (loss), net of taxes ( 71 ) 335 ( 603 ) ( 339 )

Spin-off of Organon (see Note 3)

— — 28 421 449

Balance at December 31, 2022, net of taxes 73 ( 2,408 ) (3)

9 unchanged sentences

$ ( 2,344 ) $ ( 5,161 )

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

(2) Represents net realized gains on the sales of available-for-sale debt securities that were reclassified from AOCL to Other (income) expense, net .

(1) Primarily relates to foreign currency cash flow hedges that were reclassified from AOCL to Sales (see Note 7).

(2) Includes net amortization of prior service cost, actuarial gains and losses, settlements and curtailments included in net periodic benefit cost (see Note 14).

(3) Includes pension plan net loss of $ 3.5 billion and $ 3.1 billion at December 31, 2023 and 2022, respectively, and other postretirement benefit plan net gain of $ 500 million and $ 446 million at December 31, 2023 and 2022, respectively, as well as pension plan prior service credit of $ 141 million and $ 152 million at December 31, 2023 and 2022, respectively, and other postretirement benefit plan prior service credit of $ 95 million and $ 135 million at December 31, 2023 and 2022, respectively.

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Segment Reporting

4 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.

A large component of pediatric and adolescent vaccine sales are made to the U.S.

4 unchanged sentences

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

The Company previously had a Healthcare Services segment that provided services and solutions focused on engagement, health analytics and clinical services to improve the value of care delivered to patients.

The Company divested the remaining businesses in this segment during the first quarter of 2020.

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Sales of the Company’s products were as follows:

8 unchanged sentences

657 303 960 579 297 876 417 287 704

Welireg 209 10 218 123 — 123 13 — 13

Alliance revenue - Reblozyl (2)

4 unchanged sentences

RotaTeq 493 276 769 508 275 783 473 334 807

Vaxneuvance 561 103 665 163 7 170 3 — 3

127 285 412 346 256 602 547 346 893

4 unchanged sentences

Dificid 274 28 302 241 22 263 166 10 175

Primaxin 1 238 239 2 258 259 2 248 251

Noxafil 51 187 238 60 199 259 42 287 329

Invanz 4 185 189 ( 5 ) 207 202 9 202 211

Cancidas 6 168 174 4 208 212 7 207 213

Zerbaxa 119 100 218 89 79 169 4 ( 5 ) ( 1 )

Noxafil 32 181 213 51 187 238 60 199 259

Primaxin 1 211 213 1 238 239 2 258 259

Cardiovascular

14 unchanged sentences

Livestock 700 2,637 3,337 710 2,590 3,300 667 2,628 3,295

Companion Animals 1,112 1,138 2,250 1,091 1,182 2,273 872 892 1,764

Companion Animal 1,104 1,184 2,288 1,112 1,138 2,250 1,091 1,182 2,273

Total Animal Health segment sales 1,804 3,821 5,625 1,822 3,728 5,550 1,758 3,810 5,568

Other segment sales (5)

— — — — — — 23 — 23

Total segment sales 28,343 30,865 59,208 26,811 30,744 57,555 22,159 26,163 48,322

6 unchanged sentences

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

(5) Represents sales for the Healthcare Services segment.

All the businesses in the Healthcare Services segment were fully divested by the first quarter of 2020.

(5) Other is primarily comprised of miscellaneous corporate revenue, including revenue hedging activities which increased (decreased) sales by $ 244 million, $ 810 million and $( 203 ) million in 2023, 2022 and 2021, respectively, as well as revenue from third-party manufacturing arrangements (including sales to Organon).

Other for 2023, 2022 and 2021 also includes $ 118 million, $ 165 million and $ 218 million, respectively, related to upfront and milestone payments received by Merck for out-licensing arrangements.

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Consolidated sales by geographic area where derived are as follows:

13 unchanged sentences

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

Other segments — — 1

Total segment profits 40,617 38,815 32,927

6 unchanged sentences

Restructuring costs ( 599 ) ( 337 ) ( 661 )

Charge for Zetia antitrust litigation settlements

Other unallocated, net ( 3,572 ) ( 5,651 ) ( 3,031 )

2 unchanged sentences

Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as selling, general and administrative expenses and research and development costs directly incurred by the segment.

For internal management reporting presented to the chief operating decision maker, Merck does not allocate the remaining cost of sales not included in segment profits as described above, research and development expenses incurred in Merck Research Laboratories, the Company’s research and development division that focuses on human health-related activities, 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.

In addition, costs related to restructuring activities, as well as the amortization of intangible assets and purchase accounting adjustments are not allocated to segments.

In addition, costs related to restructuring activities, as well as the amortization of intangible assets and amortization of purchase accounting adjustments are not allocated to segments.

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

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

Equity income/loss from affiliates and depreciation included in segment profits is as follows:

Pharmaceutical Animal Health All Other Total

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

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Equity income from affiliates and depreciation included in segment profits is as follows:

Pharmaceutical Animal Health Total

Year Ended December 31, 2023

8 unchanged sentences

Included in segment profits:

Equity loss from affiliates $ 6 $ — $ — $ 6

Equity income from affiliates

$ 11 $ — $ 11

Depreciation 6 158 164

9 unchanged sentences

The Company does not disaggregate assets on a products and services basis for internal management reporting and, therefore, such information is not presented.

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Report of Independent Registered Public Accounting Firm

2 unchanged sentences

We have audited the accompanying consolidated balance sheet of Merck & Co., Inc.

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income, of comprehensive (loss) income, of equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Table of C o ntent s

Critical Audit Matters

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We have served as the Company’s auditor since 2002.

Table of C o ntent s

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data