What changed in this filing

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Item 1. Financial Statements

2024-05-03 compared with 2023-11-03 · 317 added, 450 removed, 780 unchanged (50% of the section changed)

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Sales $ 15,775 $ 14,487

8 unchanged sentences

Taxes on Income

870 330 2,332 1,423

Net Income 4,767 2,825

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Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net Income Attributable to Merck & Co., Inc.

1 unchanged sentence

Other Comprehensive Loss Net of Taxes:

Net unrealized gain on derivatives, net of reclassifications 159 338 171 584

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

Benefit plan net (loss) gain and prior service (cost) credit, net of amortization ( 5 ) ( 50 )

8 unchanged sentences

(Unaudited, $ in millions except per share amounts)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Current Assets

3 unchanged sentences

and $ 88 in 2023)

11,366 10,349

Inventories (excludes inventories of $ 3,413 in 2024 and $ 3,348 in 2023

43 unchanged sentences

(Unaudited, $ in millions)

Nine Months Ended

September 30,

Three Months Ended

Cash Flows from Operating Activities

3 unchanged sentences

Depreciation 511 448

Intangible asset impairment charges 13 910

(Income) loss from investments in equity securities, net ( 240 ) 1,361

Charge for the acquisition of Prometheus Biosciences, Inc.

Income from investments in equity securities, net

( 143 ) ( 450 )

Charge for the acquisition of Harpoon Therapeutics, Inc.

Charge for the acquisition of Imago BioSciences, Inc.

8 unchanged sentences

Proceeds from sales of securities and other investments 260 500

Acquisition of Prometheus Biosciences, Inc., net of cash acquired ( 10,705 ) —

Acquisition of Harpoon Therapeutics, Inc., net of cash acquired

Acquisition of Imago BioSciences, Inc., net of cash acquired — ( 1,327 )

Other acquisitions, net of cash acquired — ( 121 )

Other ( 14 ) 37

1 unchanged sentence

Cash Flows from Financing Activities

Proceeds from issuance of debt 5,939 —

Payments on debt ( 751 ) ( 1 )

Purchases of treasury stock ( 953 ) —

Dividends paid to stockholders ( 1,950 ) ( 1,853 )

Purchases of treasury stock ( 122 ) ( 149 )

Proceeds from exercise of stock options 87 30

3 unchanged sentences

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash ( 138 ) 87

Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash ( 4,104 ) 3,112

Net Decrease in Cash, Cash Equivalents and Restricted Cash

( 1,238 ) ( 2,987 )

Cash, Cash Equivalents and Restricted Cash at Beginning of Year (includes restricted cash of

1 unchanged sentence

Cash, Cash Equivalents and Restricted Cash at End of Period (includes restricted cash of $ 92

and $ 134 at September 30, 2023 and 2022, respectively, included in Other current assets )

and $ 79 at March 31, 2024 and 2023, respectively, included in Other current assets )

$ 5,671 $ 9,786

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(Merck or the Company) have been prepared pursuant to the rules and regulations for reporting on Form 10-Q.

Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States (U.S.) (GAAP) for complete consolidated financial statements are not included herein.

Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States (U.S.) for complete consolidated financial statements are not included herein.

These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Merck’s Form 10-K filed on February 26, 2024.

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

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.

The adoption of this guidance did not have an impact on the Company’s consolidated financial statements for prior acquisitions;

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

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 Company adopted the guidance effective July 1, 2023.

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

Recently Issued Accounting Standard 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.

Recently Issued Accounting Standards Not Yet Adopted

In August 2023, the Financial Accounting Standards Board (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.

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

Acquisitions, Research Collaborations and Licensing Agreements

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.

The guidance will result in incremental disclosures within the footnotes to the Company’s financial statements.

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 guidance will result in incremental disclosures within the footnotes to the Company’s financial statements.

Acquisitions, Divestitures, 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.

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2024 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 3 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, 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.

MK-7240 is being developed for the treatment of immune-mediated diseases including ulcerative colitis, Crohn’s disease, and other autoimmune conditions.

The transaction was accounted for as an acquisition of an asset since MK-7240 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 the first nine months of 2023 related to the transaction.

In March 2024, Merck acquired Harpoon Therapeutics, Inc.

(Harpoon), a clinical-stage immunotherapy company developing a novel class of T-cell engagers designed to harness the power of the body’s immune system to treat patients suffering from cancer and other diseases, for $ 765 million and also incurred $ 56 million of transaction costs.

Harpoon’s lead candidate, MK-6070 (formerly HPN328), is a T-cell engager targeting delta-like ligand 3 (DLL3), an inhibitory canonical Notch ligand that is expressed at high levels in small-cell lung cancer (SCLC) and neuroendocrine tumors.

MK-6070 is currently being evaluated as monotherapy in a Phase 1/2 clinical trial in certain patients with advanced cancers associated with expression of DLL3.

The study is also evaluating MK-6070 in combination with atezolizumab in certain patients with SCLC.

The transaction was accounted for as an asset acquisition since MK-6070 represented substantially all of the fair value of the gross assets acquired (excluding cash and deferred income taxes).

Merck recorded net assets of $ 165 million, as well as a charge of $ 656 million to Research and development expenses in the first quarter of 2024 related to the transaction.

There are no future contingent payments associated with the acquisition.

In February 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.

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

The Elanco aqua business to be acquired consists of an innovative portfolio of medicines and vaccines, nutritionals and supplements for aquatic species;

two related aqua manufacturing facilities in Canada and Vietnam;

as well as a research facility in Chile.

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

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

In addition to these products, the DNA-based vaccine

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

technology that is a part of the business has the potential to accelerate the development of novel vaccines to address the unmet needs of the aqua industry.

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

The transaction will be accounted for as a business combination.

2023 Transactions

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

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

Merck made an upfront payment of $ 175 million, which was recorded as a charge to Research and development expenses in the first quarter of 2023.

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

Subsequently, in April 2024, Merck notified Kelun-Biotech it was terminating an additional candidate under the agreement.

Kelun-Biotech remains eligible to receive future contingent payments aggregating up to $ 600 million in development-related payments, $ 1.6 billion in regulatory milestones, and $ 3.1 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 shares in January 2023.

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

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.

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 the first nine months of 2023 related to the transaction.

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

There are no future contingent payments associated with the acquisition.

2022 Transactions

In October 2022, Merck and Royalty Pharma plc (Royalty Pharma) entered into a funding arrangement under which Royalty Pharma paid Merck $ 50 million to co-fund Merck’s development costs for a Phase 2b trial of MK-8189, an investigational oral phosphodiesterase 10A (PDE10A) inhibitor, which is being evaluated for the treatment of schizophrenia.

As Royalty Pharma is sharing the risk of technical and regulatory success with Merck, the development funding was recognized by Merck as an obligation to perform contractual services.

Accordingly, the payment received is being recognized by Merck as a reduction to Research and development expenses ratably over the estimated Phase 2b research period.

Under the agreement, Royalty Pharma has no rights to MK-8189 and has no decision-making authority over the program.

If Merck elects to advance MK-8189 into a Phase 3 study, Royalty Pharma has the option to provide additional funding of 50 % of the development costs up to $ 375 million.

Royalty Pharma is eligible to receive royalties on future sales.

If Royalty Pharma elects to provide the additional funding noted above, Royalty Pharma becomes eligible to receive future regulatory milestone payments contingent upon certain marketing approvals, as well as a higher royalty rate.

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 V940 (mRNA-4157), an investigational individualized neoantigen therapy, 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 the third quarter and first nine months of 2022.

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

V940 (mRNA-4157) is currently being evaluated in combination with Keytruda (pembrolizumab), Merck’s anti-PD-1 therapy, as an adjuvant treatment in patients with resected high-risk (Stage IIB-IV) melanoma in a Phase 3 clinical trial being conducted by Moderna.

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 the third quarter and first nine months of 2022.

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 fourth quarter of 2022.

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

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

Merck made an upfront payment to Orion of $ 290 million, which was recorded in Research and development expenses in the third quarter and first nine months of 2022.

Orion is responsible for the manufacture of clinical and commercial supply of MK-5684.

In addition, the contract provides both parties with an option to convert the initial co-development and co-commercialization agreement into a global exclusive license to Merck.

If the option is exercised, Merck would assume full responsibility for all past development and commercialization expenses associated with the program since inception of the agreement, as well as all future development and commercialization expenses.

In addition, Orion would be eligible to receive milestone payments associated with progress in the development and commercialization of MK-5684, as well as tiered double-digit royalties on sales if the product is approved.

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

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

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

development of the investigational ADC.

Merck made an upfront payment of $ 35 million, which was recorded in Research and development expenses in the third quarter and first nine months of 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.

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.

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

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

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

Additionally, Merck agreed to make an additional payment of $ 25 million upon technology transfer, which occurred in the third quarter of 2023 and will be paid in the fourth quarter of 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 September 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.

Spin-Off of Organon & Co.

In connection with the 2021 spin-off of Organon & Co.

(Organon), Merck and Organon 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 on behalf of Organon until such time as the relevant licenses and permits transferred to Organon, with Organon receiving all of the economic benefits and burdens of such activities.

As of March 31, 2024, only one jurisdiction remains under an interim operating agreement.

Additionally, Merck and Organon entered into a number of manufacturing and supply agreements (MSAs) with terms ranging from four years to ten years .

The amounts included in the condensed consolidated statement of income for the above MSAs include sales of $ 107 million and $ 94 million and related cost of sales of $ 110 million and $ 107 million for the first quarter of 2024 and 2023, respectively.

The amounts due from Organon for all spin-off related agreements were $ 462 million and $ 632 million at March 31, 2024 and December 31, 2023, respectively, and are reflected in Other current assets .

The amounts due to Organon under these agreements were $ 193 million and $ 598 million at March 31, 2024 and December 31, 2023, respectively, and are included in Accrued and other current liabilities .

Collaborative Arrangements

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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.

Independently, Merck and AstraZeneca will develop and commercialize Lynparza in combinations with their respective PD-1 and PD-L1 medicines, Keytruda (pembrolizumab) and Imfinzi.

Independently, Merck and AstraZeneca are developing and commercializing Lynparza in combinations with their respective PD-1 and PD-L1 medicines, Keytruda (pembrolizumab) and Imfinzi.

The companies are also jointly developing and commercializing AstraZeneca’s Koselugo (selumetinib) for multiple indications.

Under the terms of the agreement, AstraZeneca and Merck will share the development and commercialization costs for Lynparza and Koselugo monotherapy and non-PD-L1/PD-1 combination therapy opportunities.

Under the terms of the agreement, AstraZeneca and Merck share the development and commercialization costs for Lynparza and Koselugo monotherapy and non-PD-L1/PD-1 combination therapy opportunities.

Profits from Lynparza and Koselugo product sales generated through monotherapies or combination therapies are shared equally.

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Reimbursements received from AstraZeneca for research and development expenses are recognized as reductions to Research and development costs.

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

As part of the agreement, Merck made an upfront payment to AstraZeneca and also made payments over a multi-year period for certain license options.

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

In the first quarter of 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 September 30, 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 the first nine months of 2022.

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

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 March 31, 2024) and a corresponding increase to the intangible asset related to Lynparza.

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 the first quarter of 2023, Merck made a regulatory milestone payment to AstraZeneca of $ 105 million (which had been previously accrued for).

In the second quarter of 2023, Lynparza received a regulatory approval triggering a future milestone payment of up to $ 245 million from Merck to AstraZeneca.

In 2022, Lynparza received regulatory approvals triggering capitalized milestone payments of $ 250 million from Merck to AstraZeneca (all of which were paid in the first nine months of 2022).

Lynparza received regulatory approvals triggering capitalized milestone payments from Merck to AstraZeneca of $ 245 million and $ 105 million in the first quarter of 2024 and 2023, respectively (each of which had been previously accrued for).

Potential future regulatory milestone payments of $ 650 million remain under the agreement.

The intangible asset balance related to Lynparza (which includes capitalized sales-based and regulatory milestone payments) was $ 1.6 billion at September 30, 2023 and is included in Other Intangibles, Net .

The intangible asset balance related to Lynparza (which includes capitalized sales-based and regulatory milestone payments) was $ 1.4 billion at March 31, 2024 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.

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

Summarized financial information related to this collaboration is as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

($ in millions) 2024 2023

3 unchanged sentences

Cost of sales (1)

82 64 230 425

Selling, general and administrative 39 47

Research and development 20 21

($ in millions) September 30, 2023 December 31, 2022

($ in millions) March 31, 2024 December 31, 2023

Receivables from AstraZeneca included in Other current assets

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(1) Represents amortization of capitalized milestone payments.

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

(2) Includes accrued milestone payments.

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(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.

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

Under the agreement, Merck and Eisai are developing and commercializing Lenvima jointly, both as monotherapy and in combination with Keytruda .

Eisai records Lenvima product sales globally (Eisai is the principal on Lenvima sales transactions) and Merck and Eisai share applicable profits equally.

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In the first quarter of 2023, Merck determined it was probable that sales of Lenvima in the future would trigger a $ 125 million sales-based milestone payment from Merck to Eisai.

Similarly, in the third quarter of 2023 an additional $ 125 million sales-based milestone payment to Eisai was deemed to be probable of payment.

Accordingly, Merck recorded $ 250 million of liabilities for these payments and corresponding increases to the intangible asset related to Lenvima.

Merck also recognized $ 81 million and $ 154 million of cumulative amortization catch-up expense related to the recognition of these milestones in the third quarter and first nine months of 2023, respectively.

The sales-based milestone payment that was accrued in the first quarter of 2023 was paid to Eisai in the second quarter of 2023.

In the first nine months of 2022, Merck made sales-based milestone payments to Eisai (which had been previously accrued for) aggregating $ 600 million.

Similarly, in the third quarter of 2023 an additional $ 125 million sales-based milestone payment to Eisai was deemed by the Company to be probable of payment.

Accordingly, Merck recorded $ 250 million of liabilities for these payments (of which $ 125 million was subsequently paid in the second quarter of 2023 and $ 125 million remained accrued at March 31, 2024) and corresponding increases to the intangible asset related to Lenvima.

Merck also recognized $ 72 million and $ 81 million of cumulative amortization catch-up expense related to the recognition of these milestones in the first and third quarters of 2023, respectively.

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, Lenvima received regulatory approvals triggering capitalized milestone payments of $ 50 million from Merck to Eisai (all of which were paid in the first nine months of 2022).

There are no regulatory milestone payments remaining under the agreement.

The intangible asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $ 743 million at September 30, 2023 and is included in Other Intangibles, Net .

The intangible asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $ 623 million at March 31, 2024 and is included in Other Intangibles, Net .

The amount is being amortized over its estimated useful life through 2026 as supported by projected future cash flows, subject to impairment testing.

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

($ in millions) 2024 2023

1 unchanged sentence

Cost of sales (1)

137 53 320 159

Selling, general and administrative 39 51

Research and development 8 39

($ in millions) September 30, 2023 December 31, 2022

($ in millions) March 31, 2024 December 31, 2023

Receivables from Eisai included in Other current assets

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(1) Represents amortization of capitalized milestone payments.

Amounts in the third quarter and first nine months of 2023 include $ 81 million and $ 154 million, respectively, of cumulative amortization catch-up expense as noted above.

Amount in the first quarter of 2023 includes $ 72 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).

The two companies have implemented a joint development and commercialization strategy.

The collaboration also includes development of Bayer’s Verquvo (vericiguat), which was approved in the U.S., the European Union (EU) and Japan in 2021 and has since been approved in several other markets.

Under the agreement, Bayer commercializes Adempas in the Americas, while Merck commercializes in the rest of the world.

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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.

In the first nine months of 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 $ 533 million and $ 51 million, respectively, at September 30, 2023 and are included in Other Intangibles, Net .

There are no sales-based milestone payments remaining under this collaboration.

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 $ 483 million and $ 49 million, respectively, at March 31, 2024 and are included in Other Intangibles, Net .

The assets are being amortized over their estimated useful lives (through 2027 for Adempas and through 2031 for Verquvo) as supported by projected future cash flows, subject to impairment testing.

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

($ in millions) 2024 2023

4 unchanged sentences

Cost of sales (1)

53 55 165 158

Selling, general and administrative 33 33

Research and development 28 25

($ in millions) September 30, 2023 December 31, 2022

($ in millions) March 31, 2024 December 31, 2023

Receivables from Bayer included in Other current assets

Payables to Bayer included in Accrued and other current liabilities

(1) Includes amortization of intangible assets.

(1) Includes amortization of intangible assets, cost of products sold by Merck, as well as Bayer’s share of profits from sales in Merck’s marketing territories.

Ridgeback Biotherapeutics LP

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

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.

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

related molecules.

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

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.

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

($ in millions) 2024 2023

Net sales of Lagevrio recorded by Merck

$ 640 $ 436 $ 1,236 $ 4,859

Cost of sales (1)

348 244 762 2,586

Selling, general and administrative

Research and development

($ in millions) September 30, 2023 December 31, 2022

($ in millions) March 31, 2024 December 31, 2023

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

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

(2) Expenses include an allocation for overhead charges.

(1) Includes cost of products sold by Merck, Ridgeback’s share of profits, 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 .

Bristol-Myers Squibb Company

Reblozyl (luspatercept-aamt) is a first-in-class erythroid maturation recombinant fusion protein that is being commercialized through a global collaboration with Bristol-Myers Squibb Company (BMS).

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.

BMS is the principal on sales transactions for Reblozyl;

however, Merck co-promotes Reblozyl (and will co-promote all future products approved under this collaboration) in North America, which is reimbursed by BMS.

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

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

Merck recorded alliance revenue related to this collaboration of $ 52 million and $ 142 million in the third quarter and first nine months of 2023, respectively, compared with $ 39 million and $ 124 million in the third quarter and first nine months of 2022, respectively.

Daiichi Sankyo

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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.

Under the terms of the agreement, Merck made payments to Daiichi Sankyo totaling $ 4.0 billion in 2023.

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.

Merck may opt out of the collaboration for patritumab deruxtecan and/or raludotatug deruxtecan by electing not to pay the applicable continuation payment.

If Merck opts out of patritumab deruxtecan and/or raludotatug deruxtecan, the non-refundable upfront payments already paid will be retained by Daiichi Sankyo and rights related to such DXd ADCs will be returned to Daiichi Sankyo.

If Merck does not make the continuation payments on the dates noted for either patritumab deruxtecan and/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.

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

Merck and Daiichi Sankyo will equally share research and development costs, except for raludotatug deruxtecan, where Merck will be responsible for 75 % of the first $ 2.0 billion of research and development expenses.

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

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;

the companies will share equally all other

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

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 will record an aggregate pretax charge of $ 5.5 billion to Research and development expenses in the fourth quarter of 2023 for the $ 4.0 billion upfront payments and the $ 1.5 billion in continuation payments.

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, 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.

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 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 condensed consolidated statement of income for the above MSAs include sales of $ 100 million and $ 100 million and related cost of sales of $ 106 million and $ 104 million for the third quarter of 2023 and 2022, respectively, and sales of $ 290 million and $ 293 million and related cost of sales of $ 314 million and $ 312 million for the first nine months of 2023 and 2022, respectively.

Amounts included in the condensed consolidated statement of income for the TSAs were immaterial for the three and nine months ended September 30, 2023 and September 30, 2022.

The amounts due from Organon under all of the above agreements were $ 526 million and $ 511 million at September 30, 2023 and December 31, 2022, respectively, and are reflected in Other current assets .

The amounts due to Organon under these agreements were $ 385 million and $ 345 million at September 30, 2023 and December 31, 2022, respectively, and are included in Accrued and other current liabilities .

Summarized financial information related to this collaboration is as follows:

Three Months Ended

($ in millions) 2024 2023

Selling, general and administrative $ 3 $ —

Research and development

($ in millions) March 31, 2024 December 31, 2023

Payables to Daiichi Sankyo included in Accrued and other current liabilities

Payables to Daiichi Sankyo included in Other Noncurrent Liabilities

Moderna, Inc.

In 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.

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 are recognized as reductions to Research and development costs.

Merck has also capitalized certain of the shared costs, which aggregated $ 110 million at March 31, 2024 and will be amortized over the assets’ estimated useful lives.

Summarized financial information related to this collaboration is as follows:

Three Months Ended

($ in millions) 2024 2023

Selling, general and administrative $ 2 $ 1

Research and development

($ in millions) March 31, 2024 December 31, 2023

Payables to Moderna included in Accrued and other current liabilities

Bristol-Myers Squibb Company

Reblozyl (luspatercept-aamt) is a first-in-class erythroid maturation recombinant fusion protein that is being commercialized through a global collaboration with Bristol-Myers Squibb Company (BMS).

BMS is the principal on sales transactions for Reblozyl;

however, Merck co-promotes Reblozyl (and will co-promote all future products approved under this collaboration) in North America, which is reimbursed by BMS.

Merck receives tiered royalties ranging from 20 % to 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 is eligible to receive future contingent sales-based milestone payments of up to $ 80 million.

Alliance revenue related to this collaboration, consisting of royalties (recorded within Sales ) was $ 71 million and $ 43 million in the first quarter of 2024 and 2023, respectively.

Restructuring

In 2019, Merck approved a global restructuring program (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.

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.

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.

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 $ 199 million and $ 175 million in the third quarter of 2023 and 2022, respectively, and $ 532 million and $ 559 million for the first nine months of 2023 and 2022, respectively, related to restructuring program activities.

Since inception of the Restructuring Program through September 30, 2023, Merck has recorded total pretax accumulated costs of approximately $ 3.9 billion.

For the full year of 2023, the Company expects to record charges of approximately $ 650 million 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 $ 246 million in the first quarter of 2024 related to the 2024 Restructuring Program, bringing total cumulative pretax costs incurred through March 31, 2024 to $ 436 million.

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 $ 97 million in the first quarter of 2023 related to the 2019 Restructuring Program.

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

For segment reporting, restructuring charges are unallocated expenses.

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

The following tables summarize the charges related to restructuring program activities by type of cost:

Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023

($ in millions) Separation

Costs Accelerated

Depreciation Other Total Separation

Costs Accelerated

Depreciation Other Total

The following tables summarize the charges related to the restructuring programs by type of cost:

Three Months Ended March 31, 2024

($ in millions) Accelerated Depreciation

Separation Costs

Other Exit Costs

2024 Restructuring Program

Cost of sales $ 65 $ — $ 51 $ 116

3 unchanged sentences

$ 65 $ 92 $ 89 $ 246

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

($ in millions) Separation

Costs Accelerated

Depreciation Other Total Separation

Costs Accelerated

Depreciation Other Total

Three Months Ended March 31, 2023

($ in millions) Accelerated Depreciation

Separation Costs

Other Exit Costs

2019 Restructuring Program

Cost of sales $ 21 $ — $ 8 $ 29

Selling, general and administrative — — 1 1

Research and development — — 1 1 — 29 1 30

Restructuring costs — 41 26 67

$ 21 $ 41 $ 35 $ 97

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.

All the sites have and will continue to operate up through the respective closure dates and, since future undiscounted cash flows are sufficient to recover the respective book values, Merck is recording accelerated depreciation over the revised useful life of the site assets.

All the sites will continue to operate up through the respective closure dates and, since future undiscounted cash flows are sufficient to recover the respective book values, Merck is recording accelerated depreciation over the revised useful life of the site assets.

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 2023 and 2022 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.

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

Other exit costs in 2024 and 2023 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 9) and share-based compensation.

The following table summarizes the charges and spending relating to restructuring program activities for the nine months ended September 30, 2023:

($ in millions) Separation

Costs Accelerated

Depreciation Other Total

The following table summarizes the charges and spending relating to restructuring program activities for the three months ended March 31, 2024:

($ in millions) Accelerated Depreciation

Other Exit Costs

Restructuring reserves January 1, 2024

3 unchanged sentences

Non-cash activity ( 65 ) — ( 58 ) ( 123 )

Restructuring reserves September 30, 2023 (1)

Restructuring reserves March 31, 2024

$ — $ 706 $ 30 $ 736

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

Financial Instruments

10 unchanged sentences

The Company will layer in hedges over time, increasing the portion of forecasted sales hedged as it gets closer to the expected date of the forecasted sales.

The portion of forecasted sales hedged is based on assessments of cost-benefit profiles that consider natural offsetting exposures, revenue and exchange rate volatilities and correlations, and the cost of hedging instruments.

The portion of forecasted sales hedged is based on assessments of cost-benefit profiles that consider natural offsetting exposures, revenue and foreign exchange rate volatilities and correlations, and the cost of hedging instruments.

The Company manages its anticipated transaction exposure principally with purchased local currency put options, forward contracts, and purchased collar options.

5 unchanged sentences

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

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.

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

Monetary assets and liabilities denominated in a currency other than the functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in spot rates reported in Other (income) expense, net .

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 foreign 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 foreign 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 .

2 unchanged sentences

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

The Company also uses forward exchange contracts to hedge a portion of its net investment in foreign operations against movements in exchange rates.

The Company also uses forward exchange contracts to hedge a portion of its net investment in foreign operations against movements in foreign exchange rates.

The forward contracts are designated as hedges of the net investment in a foreign operation.

7 unchanged sentences

Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in foreign currency translation adjustment within OCI .

The effects of the Company’s net investment hedges on OCI and the Condensed Consolidated Statement of Operations are shown below:

The effects of the Company’s net investment hedges on OCI and the Condensed Consolidated Statement of Income are shown below:

Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income (1)

Amount of Pretax (Gain) Loss Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing

Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30, Nine Months Ended September 30,

Amount of Pretax Loss Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing

Three Months Ended March 31, Three Months Ended March 31,

($ in millions) 2024 2023 2024 2023

3 unchanged sentences

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

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

Interest Rate Risk Management

1 unchanged sentence

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

At September 30, 2023, the Company was a party to three 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.

September 30, 2023

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

At March 31, 2024, 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.

March 31, 2024

($ in millions)

5 unchanged sentences

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

In October 2023, the Company entered into an additional interest rate swap with a notional amount of $ 250 million also related to its 4.50 % notes due 2033.

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

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

The table below presents the location of amounts recorded on the Condensed Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:

In April 2024, the Company entered into two additional interest rate swaps with notional amounts of $ 250 million each also related to its 4.50 % notes due 2033.

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

Carrying Amount of Hedged Liabilities

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

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

($ in millions)

September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022

Balance Sheet Line Item in which Hedged Item is Included

March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023

Balance Sheet Caption

Long-Term Debt

1 unchanged sentence

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:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Fair Value of Derivative U.S.

3 unchanged sentences

Interest rate swap contracts

Other Noncurrent Liabilities $ — $ 8 $ 750 $ — $ — $ —

$ 27 $ — $ 1,000 $ 57 $ — $ 1,000

Foreign exchange contracts Other current assets 175 — 9,082 106 — 6,138

5 unchanged sentences

Foreign exchange contracts Other current assets 121 — 9,428 153 — 9,693

Foreign exchange contracts Other Assets 2 — 43 — — —

Foreign exchange contracts Accrued and other current liabilities — 154 9,282 — 162 8,104

Foreign exchange contracts Other Noncurrent Liabilities — 2 43 — — —

123 156 18,796 153 162 17,797

3 unchanged sentences

The following table provides information on the Company’s derivative positions subject to these master netting arrangements as if they were presented on a net basis, allowing for the right of offset by counterparty and cash collateral exchanged per the master agreements and related credit support annexes:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

($ in millions) Asset Liability Asset Liability

1 unchanged sentence

Gross amounts subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet ( 111 ) ( 111 ) ( 215 ) ( 215 )

Cash collateral received/posted ( 143 ) — ( 66 ) ( 19 )

Cash collateral received

( 58 ) — ( 3 ) —

Net amounts $ 188 $ 56 $ 124 $ 24

1 unchanged sentence

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:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2024 2023 2024 2023 2024 2023

Financial Statement Caption in which Effects of Fair Value or Cash Flow Hedges are Recorded Sales Other (income) expense, net (1)

Other comprehensive income (loss) Sales Other (income) expense, net (1)

Financial Statement Caption in which Effects of Fair Value or Cash Flow

Hedges are Recorded

Sales Other (income) expense, net (1)

Other comprehensive income (loss)

6 unchanged sentences

Foreign exchange contracts

Amount of gain recognized in OCI on derivatives

Amount of gain (loss) recognized in OCI on derivatives

— — — — 209 ( 66 )

4 unchanged sentences

— — — ( 1 ) — —

Amount of (loss) gain recognized in OCI on derivatives

Amount of loss recognized in OCI on derivatives

— — — — — ( 1 )

2 unchanged sentences

Amount of Derivative Pretax (Gain) Loss Recognized in Income

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2024 2023

6 unchanged sentences

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

At September 30, 2023, the Company estimates $ 269 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 March 31, 2024, the Company estimates $ 113 million of pretax net unrealized gains on derivatives maturing within the next 12 months that hedge foreign currency denominated sales over that same period will be reclassified from AOCL to Sales .

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

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

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

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

Investments in Debt and Equity Securities

Information on investments in debt and equity securities is as follows:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Cost Gross Unrealized Fair

8 unchanged sentences

Total debt and publicly traded equity securities $ 1,025 $ 1,101

(1) Unrealized net gains of $ 61 million and $ 327 million were recorded in Other (income) expense, net in the third quarter and first nine months of 2023, respectively, on equity securities still held at September 30, 2023.

Unrealized net losses of $ 221 million and $ 415 million were recorded in Other (income) expense, net in the third quarter and first nine months of 2022, respectively, on equity securities still held at September 30, 2022.

At September 30, 2023 and September 30, 2022, the Company also had $ 863 million and $ 705 million, respectively, of equity investments without readily determinable fair values included in Other Assets .

(1) Unrealized net gains of $ 143 million were recorded in Other (income) expense, net in the first quarter of 2024 on equity securities still held at March 31, 2024.

Unrealized net gains of $ 338 million were recorded in Other (income) expense, net in the first quarter of 2023 on equity securities still held at March 31, 2023.

At March 31, 2024 and March 31, 2023, the Company also had $ 851 million and $ 942 million, respectively, of equity investments without readily determinable fair values included in Other Assets .

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

During the first nine months of 2023 , the Company recorded unrealized gains of $ 7 million and unrealized losses of $ 24 million related to certain of these equity investments still held at September 30, 2023.

During the first nine months of 2022 , the Company recorded unrealized gains of $ 21 million and unrealized losses of $ 12 million related to certain of these equity investments still held at September 30, 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 September 30, 2023 were $ 296 million and $ 40 million, respectively.

At September 30, 2023 and September 30, 2022, the Company also had $ 467 million and $ 655 million, respectively, recorded in Other Assets for equity securities held through ownership interests in investment funds.

Losses recorded in Other (income) expense, net relating to these investment funds were $ 93 million and $ 141 million for the third quarter of 2023 and 2022, respectively, and were $ 66 million and $ 952 million for the first nine months of 2023 and 2022, respectively.

During the first quarter of 2024 , the Company recorded unrealized gains of $ 4 million and unrealized losses of $ 5 million related to certain of these equity investments still held at March 31, 2024.

During the first quarter of 2023 , the Company recorded unrealized gains of $ 1 million and unrealized losses of $ 21 million related to certain of these equity investments still held at March 31, 2023.

Cumulative unrealized gains and cumulative unrealized losses based on observable

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

price changes for investments in equity investments without readily determinable fair values still held at March 31, 2024 were $ 297 million and $ 69 million, respectively.

At March 31, 2024 and March 31, 2023, the Company also had $ 396 million and $ 725 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 $ 2 million and $( 132 ) million for the first quarter of 2024 and 2023, respectively.

Fair Value Measurements

7 unchanged sentences

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.

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

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

2 unchanged sentences

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

($ in millions) September 30, 2023 December 31, 2022

($ in millions) March 31, 2024 December 31, 2023

Commercial paper $ — $ 40 $ — $ 40 $ — $ 252 $ — $ 252

10 unchanged sentences

Purchased currency options — 126 — 126 — 83 — 83

Interest rate swaps

— 27 — 27 — 57 — 57

— 357 — 357 — 342 — 342

Total assets $ 985 $ 397 $ — $ 1,382 $ 849 $ 594 $ — $ 1,443

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Written currency options — 18 — 18 — — — —

Interest rate swaps

— 167 — 167 — 239 — 239

— 176 — 176 — 409 — 409

Total liabilities $ — $ 167 $ 226 $ 393 $ — $ 239 $ 354 $ 593

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

(2) Balance at September 30, 2023 includes securities with a total fair value of $ 132 million, which are subject to a contractual sale restriction that expires in July 2024.

(2) Balance at March 31, 2024 includes securities with a fair value of $ 266 million, which are subject to a contractual sale restriction that expires in July 2024.

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

As of September 30, 2023 and December 31, 2022, Cash and cash equivalents included $ 7.8 billion and $ 11.3 billion of cash equivalents, respectively (which would be considered Level 2 in the fair value hierarchy).

As of March 31, 2024 and December 31, 2023, Cash and cash equivalents included $ 4.6 billion and $ 6.0 billion of cash equivalents, respectively (which would be considered Level 2 in the fair value hierarchy).

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

Contingent Consideration

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Payments ( 126 ) ( 117 )

Other — ( 3 )

Fair value September 30 (2)

Fair value March 31 (2)

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

Includes cumulative translation adjustments.

(2) At September 30, 2023, $ 255 million of the liabilities relate to the termination of the Sanofi Pasteur MSD joint venture in 2016.

(2) Balance at March 31, 2024, includes $ 133 million of current liabilities, all of which relate to the termination of the Sanofi Pasteur MSD joint venture in 2016.

As part of the termination, Merck recorded a liability for contingent future royalty payments of 11.5 % on net sales of all Merck products that were previously sold by the joint venture through December 31, 2024.

The fair value of this liability is determined utilizing the estimated amount and timing of projected cash flows using a risk-adjusted discount rate to present value the cash flows.

Balance at September 30, 2023 includes $ 126 million recorded as a current liability for amounts expected to be paid within the next 12 months.

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

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

Other Fair Value Measurements

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

The estimated fair value of loans payable and long-term debt (including current portion) at September 30, 2023, was $ 29.5 billion compared with a carrying value of $ 34.9 billion and at December 31, 2022, was $ 26.7 billion compared with a carrying value of $ 30.7 billion.

The estimated fair value of loans payable and long-term debt (including current portion) at March 31, 2024, was $ 30.4 billion compared with a carrying value of $ 34.2 billion and at December 31, 2023, was $ 32.0 billion compared with a carrying value of $ 35.1 billion.

Fair value was estimated using recent observable market prices and would be considered Level 2 in the fair value hierarchy.

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The Company has accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable.

The Company factored $ 3.5 billion and $ 2.5 billion of accounts receivable as of September 30, 2023 and December 31, 2022, respectively, under these factoring arrangements, which reduced outstanding accounts receivable.

The Company factored $ 2.7 billion and $ 3.0 billion of accounts receivable as of March 31, 2024 and December 31, 2023, respectively, under these factoring arrangements, which reduced outstanding accounts receivable.

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

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

As of September 30, 2023 and December 31, 2022, the Company had collected $ 39 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 .

As of March 31, 2024 and December 31, 2023, the Company had collected $ 43 million and $ 44 million, respectively, on behalf of the financial institutions, which is reflected as restricted cash in Other current assets and the related obligation to remit the cash within Accrued and other current liabilities .

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

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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 received by the Company from various counterparties was $ 143 million and $ 66 million at September 30, 2023 and December 31, 2022, respectively.

Cash collateral received by the Company from various counterparties was $ 58 million and $ 3 million at March 31, 2024 and December 31, 2023, 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.

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

Inventories consisted of:

($ in millions) September 30, 2023 December 31, 2022

($ in millions) March 31, 2024 December 31, 2023

Finished goods $ 1,902 $ 1,954

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

At both September 30, 2023 and December 31, 2022, these amounts included $ 2.4 billion of inventories not expected to be sold within one year.

In addition, these amounts included $ 756 million and $ 516 million at September 30, 2023 and December 31, 2022, respectively, of inventories produced in preparation for product launches.

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

Other Intangibles

In the third quarter of 2022, the Company recorded $ 887 million of impairment charges within Research and development expenses related to intangible assets obtained in connection with the 2020 acquisition of ArQule, Inc.

Of this amount, $ 807 million represents an in-process research and development (IPR&D) impairment charge related to nemtabrutinib (MK-1026), a novel, oral BTK inhibitor currently being evaluated for the treatment of B-cell malignancies.

Following discussions with regulatory authorities in the third quarter of 2022, the development period for nemtabrutinib was extended, which constituted a triggering event that required the evaluation of the nemtabrutinib intangible asset for impairment.

The Company estimated the fair value of nemtabrutinib utilizing an income approach which uses Level 3 inputs to calculate the present value of projected future cash flows.

The market participant assumptions used to derive the forecasted cash flows were updated to reflect a delay in the anticipated launch date for nemtabrutinib, which resulted in lower cumulative revenue forecasts and a reduction in the estimated fair value.

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

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.

The revised estimated fair value of nemtabrutinib when compared with its then-related carrying value resulted in a $ 780 million impairment charge, which was recorded in the fourth quarter of 2022.

The remaining IPR&D intangible asset related to nemtabrutinib is $ 418 million.

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 remaining $ 80 million intangible asset impairment charge in the third quarter of 2022 related to derazantinib and resulted from the termination of the out-licensing agreement and the decision by Merck not to pursue development of derazantinib.

Long-Term Debt

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, 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.

At both March 31, 2024 and December 31, 2023, these amounts included $ 2.6 billion of inventories not expected to be sold within one year.

In addition, these amounts included $ 861 million and $ 790 million at March 31, 2024 and December 31, 2023, respectively, of inventories produced in preparation for product launches.

Contingencies

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These accruals are adjusted periodically as assessments change or additional information becomes available.

For product liability claims, a portion of the overall accrual is actuarially determined and considers such factors as past experience, number of claims reported and estimates of claims incurred but not yet reported.

Generally, for product liability claims, a portion of the overall accrual is actuarially determined and considers such factors as past experience, number of claims reported and estimates of claims incurred but not yet reported.

Individually significant contingent losses are accrued when probable and reasonably estimable.

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Product Liability Litigation

Scholl’s Foot Powder

Merck is a defendant in product liability lawsuits in the U.S.

arising from consumers’ alleged exposure to talc in Dr.

Scholl’s foot powder, which Merck acquired through its merger with Schering-Plough Corporation and sold as part of the divestiture of Merck’s consumer care business to Bayer in 2014.

In these actions, plaintiffs allege that they were exposed to asbestos-contaminated talc and developed mesothelioma as a result.

As of March 31, 2024, approximately 275 cases were pending against Merck in various state courts.

Gardasil/Gardasil 9

As previously disclosed, Merck is a defendant in product liability lawsuits in the U.S.

involving Gardasil (Human Papillomavirus Quadrivalent [Types 6, 11, 16 and 18] Vaccine, Recombinant) and Gardasil 9 (Human Papillomavirus 9-valent

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

Vaccine, Recombinant).

As of September 30, 2023, approximately 95 cases were filed and pending against Merck in either federal or state court.

involving Gardasil (Human Papillomavirus Quadrivalent [Types 6, 11, 16 and 18] Vaccine, Recombinant) and Gardasil 9 (Human Papillomavirus 9-valent Vaccine, Recombinant).

As of March 31, 2024, approximately 190 cases were filed and pending against Merck in either federal or state court.

In these actions, plaintiffs allege, among other things, that they suffered various personal injuries after vaccination with Gardasil or Gardasil 9, with postural orthostatic tachycardia syndrome as a predominate alleged injury.

In August 2022, the Judicial Panel on Multidistrict Litigation ordered that Gardasil/Gardasil 9 product liability cases pending in federal courts nationwide be transferred to Judge Robert J.

In August 2022, the U.S.

Judicial Panel on Multidistrict Litigation ordered that Gardasil/Gardasil 9 product liability cases pending in federal courts nationwide be transferred to Judge Robert J.

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

In February 2024, the multidistrict litigation was reassigned to Judge Kenneth D.

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

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

Governmental Proceedings

Inflation Reduction Act

As previously disclosed, on June 6, 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 Governmental Proceedings

As previously disclosed, from time to time, the Company’s subsidiaries in China receive inquiries regarding their operations from various Chinese governmental agencies.

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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 the first nine months of 2023.

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

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 were transferred to the Eastern District of Virginia to proceed with the Zetia MDL and remain pending.

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

In 2020 and 2021, United Healthcare Services, Inc.

(United Healthcare), Humana Inc.

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

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

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

In February 2022, the Insurer Plaintiffs filed amended complaints.

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

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

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

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

On March 15, 2024, the Merck Defendants filed motions to dismiss the Humana and Centene cases.

Qui Tam Litigation

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The two former employees are pursuing the lawsuit without the involvement of the U.S.

In addition, as previously disclosed, two putative class action lawsuits on behalf of direct purchasers of the M-M-R II vaccine, which charge that the Company misrepresented the efficacy of the M-M-R II vaccine in violation of federal antitrust laws and various state consumer protection laws, are pending in the Eastern District of Pennsylvania.

In 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 complete, and the parties 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

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

and dismissed relators’ amended complaint in full with prejudice.

In July 2023, 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 October 20, 2023, the Company petitioned the Third Circuit for permission to appeal the antitrust decision.

The Company has appealed the antitrust decision.

Patent Litigation

From time to time, generic manufacturers of pharmaceutical products file abbreviated New Drug Applications (NDAs) with the U.S.

From time to time, generic manufacturers of pharmaceutical products file abbreviated New Drug Applications (ANDAs) with the U.S.

Food and Drug Administration (FDA) seeking to market generic forms of the Company’s products prior to the expiration of relevant patents owned by the Company.

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As with any litigation, there can be no assurance of the outcomes, which, if adverse, could result in significantly shortened periods of exclusivity for these products and, with respect to products acquired through acquisitions accounted for as business combinations, potentially significant intangible asset impairment charges.

Bridion — As previously disclosed, between January and November 2020, the Company received multiple Paragraph IV Certification Letters under the Hatch-Waxman Act notifying the Company that generic drug companies have filed applications to the FDA seeking pre-patent expiry approval to sell generic versions of Bridion (sugammadex) Injection.

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

Bridion — As previously disclosed, between January and November 2020, the Company received multiple Paragraph IV Certification Letters under the Hatch-Waxman Act notifying the Company that generic drug companies had filed applications to the FDA seeking pre-patent expiry approval to sell generic versions of Bridion (sugammadex) Injection.

In March, April and December 2020, the Company filed patent infringement lawsuits in the U.S.

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All actions in the District of New Jersey were consolidated.

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

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 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 on December 19, 2022 on this remaining PTE calculation defense and held closing arguments on February 3, 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 requested dismissal of the action against it and the Company did not oppose this request, which was subsequently granted by the court.

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

On June 13, 2023, the U.S.

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

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

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

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

Patent & Trademark Office correctly granted a full 5-year extension.

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.

Also in June 2023, the U.S.

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

On July 24, 2023, defendants filed a notice of appeal with the Federal Court of Appeals.

In July 2023, defendants filed a notice of appeal with the U.S.

Court of Appeals for the Federal Circuit.

The appeal is currently pending.

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

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

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

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

On March 15, 2024, the Company filed a patent infringement lawsuit in the U.S.

District Court for the District of New Jersey against Hikma, postponing FDA approval of the Hikma generic drug for 30 months or until expiration of the sugammadex patent (January 27, 2026) and any potentially applicable pediatric exclusivity or an adverse court decision, if any, whichever may occur earlier.

Expiration of the patent, and any potentially applicable pediatric exclusivity, will occur earlier than expiry of the 30-month stay.

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

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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.

The Company also filed a patent infringement lawsuit against Mylan in the U.S.

District Court for the Northern District of West Virginia.

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 in April 2022.

In September 2022, the U.S.

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) appealed to the U.S.

Court of Appeals for the Federal Circuit.

The parties have now settled the matter, and Viatris has agreed to voluntarily dismiss the appeal following entry of an amended final judgment by the district court.

In total, the Company has settled with 26 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.

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

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

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

The Company has settled with a total of 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 .

In January 2023, the Company received a Paragraph IV Certification Letter under the Hatch-Waxman Act notifying the Company that Zydus filed a NDA 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 that lawsuit, the Company alleged infringement of the 2027 salt/polymorph patent based on the filing of Zydus’s NDA seeking approval of a form of sitagliptin that is a different form than that used in Januvia .

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

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

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

As a result of these favorable court rulings and 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.

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 .

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

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.

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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 in the fourth quarter of 2023 with a decision in the first quarter of 2024.

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 in March 2023 and an Advocate General Opinion is expected in June 2024 with a decision later in 2024.

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.

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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.

Keytruda — The Company filed a complaint against The Johns Hopkins University (JHU) on November 29, 2022, in the U.S.

In October 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, in November 2022, the Company filed a complaint against The Johns Hopkins University (JHU) in the U.S.

District Court of Maryland.

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

JHU answered the complaint on April 13, 2023, denying Merck’s claims, and counterclaiming for willful infringement of nine issued U.S.

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.

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

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

In February 2023, AstraZeneca and the Company filed a patent infringement lawsuit in the U.S.

District Court for the District of New Jersey against Natco.

District Court for the District of New Jersey/Delaware against Natco.

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

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

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

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

District Court for the District of New Jersey against Sandoz.

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

Other Litigation

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the number of cases being brought against the Company;

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

The amount of legal defense reserves as of September 30, 2023 and December 31, 2022 of approximately $ 220 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;

the costs and outcomes of completed trials;

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

The amount of legal defense reserves as of March 31, 2024 and December 31, 2023 of approximately $ 220 million and $ 210 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.

1 unchanged sentence

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

Three Months Ended September 30,

Three Months Ended March 31,

Common Stock Other

5 unchanged sentences

($ and shares in millions except per share amounts) Shares Par Value Shares Cost

Balance at July 1, 2022 3,577 $ 1,788 $ 44,115 $ 58,437 $ ( 4,327 ) 1,044 $ ( 56,770 ) $ 75 $ 43,318

Net income attributable to Merck & Co., Inc.

— — — 3,248 — — — — 3,248

Other comprehensive loss, net of taxes — — — — ( 416 ) — — — ( 416 )

Cash dividends declared on common stock ($ 0.69 per share)

Balance at January 1, 2023

3,577 $ 1,788 $ 44,379 $ 61,081 $ ( 4,768 ) 1,039 $ ( 56,489 ) $ 67 $ 46,058

Share-based compensation plans and other — — 128 — — — 12 — 140

Net income attributable to noncontrolling interests — — — — — — — 5 5

Distributions attributable to noncontrolling interests — — — — — — — ( 14 ) ( 14 )

Balance at September 30, 2022 3,577 $ 1,788 $ 44,243 $ 59,928 $ ( 4,743 ) 1,044 $ ( 56,758 ) $ 66 $ 44,524

Balance at July 1, 2023 3,577 $ 1,788 $ 44,219 $ 54,198 $ ( 4,900 ) 1,038 $ ( 56,612 ) $ 49 $ 38,742

Net income attributable to Merck & Co., Inc.

1 unchanged sentence

Other comprehensive loss, net of taxes — — — — ( 115 ) — — — ( 115 )

— — — — ( 16 ) — — — ( 16 )

Cash dividends declared on common stock ($ 0.73 per share)

3 unchanged sentences

Net income attributable to noncontrolling interests — — — — — — — 4 4

Balance at September 30, 2023 3,577 $ 1,788 $ 44,358 $ 57,082 $ ( 4,916 ) 1,042 $ ( 57,066 ) $ 54 $ 41,300

Nine Months Ended September 30,

Common Stock Other

Capital Retained

Earnings Accumulated

Comprehensive

Loss Treasury Stock Non-

Interests Total

($ and shares in millions except per share amounts) Shares Par Value Shares Cost

Balance at March 31, 2023 3,577 $ 1,788 $ 44,467 $ 62,039 $ ( 4,883 ) 1,040 $ ( 56,577 ) $ 71 $ 46,905

Balance at January 1, 2024

3 unchanged sentences

Other comprehensive loss, net of taxes

Cash dividends declared on common stock ($ 2.07 per share)

— — — — ( 113 ) — — — ( 113 )

Share-based compensation plans and other — — 5 — — ( 5 ) 351 — 356

Net income attributable to noncontrolling interests — — — — — — — 6 6

Distributions attributable to noncontrolling interests — — — — — — — ( 13 ) ( 13 )

Balance at September 30, 2022 3,577 $ 1,788 $ 44,243 $ 59,928 $ ( 4,743 ) 1,044 $ ( 56,758 ) $ 66 $ 44,524

Balance at January 1, 2023

3,577 $ 1,788 $ 44,379 $ 61,081 $ ( 4,768 ) 1,039 $ ( 56,489 ) $ 67 $ 46,058

Net income attributable to Merck & Co., Inc.

— — — 1,591 — — — — 1,591

Other comprehensive loss, net of taxes — — — — ( 148 ) — — — ( 148 )

Cash dividends declared on common stock ($ 0.77 per share)

3 unchanged sentences

Net income attributable to noncontrolling interests — — — — — — — 5 5

Distributions attributable to noncontrolling interests — — — — — — — ( 25 ) ( 25 )

Balance at September 30, 2023 3,577 $ 1,788 $ 44,358 $ 57,082 $ ( 4,916 ) 1,042 $ ( 57,066 ) $ 54 $ 41,300

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

Balance at March 31, 2024 3,577 $ 1,788 $ 44,598 $ 56,697 $ ( 5,274 ) 1,044 $ ( 57,445 ) $ 60 $ 40,424

Pension and Other Postretirement Benefit Plans

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

($ in millions) U.S.

International U.S.

International

2 unchanged sentences

Expected return on plan assets ( 207 ) ( 139 ) ( 187 ) ( 128 )

Amortization of unrecognized prior service (credit) cost

Amortization of unrecognized prior service credit

— ( 3 ) — ( 3 )

Net (gain) loss amortization — ( 1 ) 10 24 — ( 2 ) 122 73

Net loss (gain) amortization

Termination benefits 3 — — —

6 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

($ in millions) 2024 2023

4 unchanged sentences

Net gain amortization ( 12 ) ( 11 )

Curtailments — — ( 1 ) ( 1 )

$ ( 21 ) $ ( 15 )

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

In connection with restructuring actions (see Note 4), termination charges were recorded on pension plans related to expanded eligibility for certain employees e x iting Merck.

1 unchanged sentence

In addition, lump sum payments to U.S.

pension plan participants triggered partial settlement charges in the third quarter and first nine months of both 2023 and 2022.

These partial settlements triggered remeasurements of some of the Company’s U.S.

pension plan participants triggered a partial settlement resulting in a charge of $ 21 million in the first quarter of 2023.

This partial settlement triggered a remeasurement of some of the Company’s U.S.

pension plans.

The third quarter 2023 remeasurement, which was calculated using discount rates and asset values as of September 30, 2023, resulted in a net decrease of $ 34 million to net pension liabilities and a related adjustment to AOCL .

Remeasurements during the first nine months of 2023 resulted in an increase of $ 13 million to net pension liabilities and a related adjustment to AOCL .

The remeasurement, which was calculated using discount rates and asset values as of March 31, 2023, resulted in a net increase of $ 44 million to net pension liabilities and also resulted in a related adjustment to AOCL .

The components of net periodic benefit cost (credit) other than the service cost component are included in Other (income) expense, net (see Note 10), with the exception of certain amounts for termination benefits, curtailments and settlements, which are recorded in Restructuring costs if the event giving rise to the termination benefits, curtailment or settlement related to restructuring actions.

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

Other (Income) Expense, Net

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

($ in millions) 2024 2023

2 unchanged sentences

Exchange losses 83 61

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

Income from investments in equity securities, net (1)

( 143 ) ( 450 )

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.

Other, net (as reflected in the table above) in the first nine months of 2023 includes a $ 572.5 million charge related to settlements with certain plaintiffs in the Zetia antitrust litigation (see Note 10).

Interest paid for the nine months ended September 30, 2023 and 2022 was $ 678 million and $ 660 million, respectively.

The effective income tax rate of 15.5 % for the third quarter of 2023 reflects the favorable mix of income and expense.

The effective income tax rate of 59.3 % for the first nine months of 2023 includes a 44.0 percentage point combined unfavorable impact of charges for the acquisitions of Prometheus and Imago for which no tax benefits were recognized, as well as higher foreign taxes, the impact of the R&D capitalization provision of the Tax Cuts and Jobs Act of 2017 (TCJA) on the Company’s U.S.

global intangible low-taxed income inclusion, and net unrealized gains from investments in equity securities, which were taxed at the U.S.

tax rate, partially offset by higher foreign tax credits.

The effective income tax rates of 9.2 % for the third quarter of 2022 and 11.0 % for the first nine months of 2022 reflect the favorable mix of income and expense, as well as the favorable impact of net unrealized losses from investments in equity securities and intangible asset impairment charges, which were taxed at the U.S.

The Internal Revenue Service (IRS) is currently conducting examinations of the Company’s tax returns for the years 2017 and 2018, including the one-time transition tax enacted under the TCJA.

Other, net (as reflected in the table above) in the first three months of 2023 includes a $ 572.5 million charge related to settlements with certain plaintiffs in the Zetia antitrust litigation (see Note 7).

Interest paid for the three months ended March 31, 2024 and 2023 was $ 217 million and $ 208 million, respectively.

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

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

The Internal Revenue Service (IRS) is currently conducting examinations of the Company’s tax returns for the years 2017 and 2018, including the one-time transition tax enacted under the Tax Cuts and Jobs Act of 2017.

If the IRS disagrees with the Company’s transition tax position, it may result in a significant tax liability.

The statute of limitations for assessments with respect to the 2019 and 2020 federal return years will expire in June and October of 2024, respectively, unless extended.

Earnings Per Share

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

($ and shares in millions except per share amounts) 2024 2023

9 unchanged sentences

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

For the third quarter of 2023 and 2022, 6 million and 2 million, respectively, and for the first nine months of 2023 and 2022, 5 million and 5 million, respectively, of common shares issuable under share-based compensation plans were excluded from the computations of earnings per common share assuming dilution because the effect would have been antidilutive.

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

For the first quarter of 2024 and 2023, 3 million and 1 million, respectively, of common shares issuable under share-based compensation plans were excluded from the computations of earnings per common share assuming dilution because the effect would have been antidilutive.

Other Comprehensive Income (Loss)

Changes in each component of other comprehensive income (loss) are as follows:

Three Months Ended September 30,

($ in millions) Derivatives Employee

Plans Foreign Currency

Adjustment Accumulated Other

Comprehensive

Balance July 1, 2022, net of taxes $ 390 $ ( 2,465 ) $ ( 2,252 ) $ ( 4,327 )

Other comprehensive income (loss) before reclassification adjustments, pretax 682 ( 294 ) ( 618 ) ( 230 )

Tax ( 143 ) 62 50 ( 31 )

Other comprehensive income (loss) before reclassification adjustments, net of taxes 539 ( 232 ) ( 568 ) ( 261 )

Reclassification adjustments, pretax ( 254 ) (1)

Tax 53 ( 31 ) — 22

Reclassification adjustments, net of taxes ( 201 )

Other comprehensive income (loss), net of taxes 338 ( 186 ) ( 568 ) ( 416 )

Balance September 30, 2022, net of taxes $ 728 $ ( 2,651 ) $ ( 2,820 ) $ ( 4,743 )

Balance July 1, 2023, net of taxes $ 85 $ ( 2,483 ) $ ( 2,502 ) $ ( 4,900 )

Other comprehensive income (loss) before reclassification adjustments, pretax 247 29 ( 252 ) 24

Tax ( 52 ) ( 7 ) 77 18

Other comprehensive income (loss) before reclassification adjustments, net of taxes 195 22 ( 175 ) 42

Reclassification adjustments, pretax ( 45 ) (1)

Reclassification adjustments, net of taxes ( 36 )

Other comprehensive income (loss), net of taxes 159 — ( 175 ) ( 16 )

Balance September 30, 2023, net of taxes $ 244 $ ( 2,483 ) $ ( 2,677 ) $ ( 4,916 )

Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) Derivatives Employee

3 unchanged sentences

Balance January 1, 2023, net of taxes

$ 73 $ ( 2,408 ) $ ( 2,433 ) $ ( 4,768 )

Other comprehensive income (loss) before reclassification adjustments, pretax ( 66 ) ( 47 ) 79 ( 34 )

5 unchanged sentences

Other comprehensive income (loss), net of taxes ( 133 ) ( 50 ) 68 ( 115 )

Balance September 30, 2022, net of taxes $ 728 $ ( 2,651 ) $ ( 2,820 ) $ ( 4,743 )

Balance March 31, 2023, net of taxes

$ ( 60 ) $ ( 2,458 ) $ ( 2,365 ) $ ( 4,883 )

Balance January 1, 2024, net of taxes

$ ( 24 ) $ ( 2,793 ) $ ( 2,344 ) $ ( 5,161 )

Other comprehensive income (loss) before reclassification adjustments, pretax 209 5 ( 225 ) ( 11 )

2 unchanged sentences

Reclassification adjustments, pretax ( 44 ) (1)

Tax 33 10 — 43

Reclassification adjustments, net of taxes ( 35 )

Other comprehensive income (loss), net of taxes 130 ( 5 ) ( 238 ) ( 113 )

Balance September 30, 2023, net of taxes $ 244 $ ( 2,483 ) $ ( 2,677 ) $ ( 4,916 )

Balance March 31, 2024, net of taxes

$ 106 $ ( 2,798 ) $ ( 2,582 ) $ ( 5,274 )

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

(2) Includes net amortization of prior service cost/credit, actuarial gains and losses, settlements and curtailments included in net periodic benefit cost (see Note 12).

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

(2) Includes net amortization of prior service cost, actuarial gains and losses, settlements and curtailments included in net periodic benefit cost (see Note 9).

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.

6 unchanged sentences

Sales of the Company’s products were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

($ in millions) U.S.

Int’l Total U.S.

Pharmaceutical:

11 unchanged sentences

438 133 570 421 107 528

RotaTeq 108 48 156 154 102 256 381 203 584 427 218 644

Vaxneuvance 161 58 219 94 13 106

RotaTeq 149 67 216 180 117 297

6 55 61 40 56 96

Vaqta 32 37 69 27 36 64 91 60 151 72 62 134

Hospital Acute Care

2 unchanged sentences

Dificid 68 5 73 62 3 65

Primaxin — 41 41 — 63 63 2 173 174 1 185 185

Noxafil 4 47 51 13 49 62 29 138 167 39 141 180

Zerbaxa 33 23 56 27 23 50

Noxafil 8 48 56 14 46 60

Cardiovascular

5 unchanged sentences

50 61 111 52 71 123

12 44 56 11 33 44

29 13 42 24 10 34

Belsomra 15 32 46 16 40 56

15 unchanged sentences

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

(2) Alliance revenue for Reblozyl represents royalties and, for the first nine months of 2022, also includes the receipt of a regulatory approval milestone payment (see Note 3).

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

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

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

(5) Other is primarily comprised of miscellaneous corporate revenue, including revenue hedging activities which increased sales by $ 173 million and $ 533 million for the nine months ended September 30, 2023 and 2022, respectively, as well as revenue from third-party manufacturing arrangements (including sales to Organon).

Other for the nine months ended September 30, 2023 and 2022 also includes $ 118 million and $ 156 million, respectively, related to upfront and milestone payments received by Merck for out-licensing arrangements.

(5) Other is primarily comprised of miscellaneous corporate revenue, including revenue hedging activities which increased sales by $ 54 million and $ 99 million for the three months ended March 31, 2024 and 2023, respectively, as well as revenue from third-party manufacturing arrangements (including sales to Organon).

Other for the three months ended March 31, 2024 and 2023 also includes $ 61 million and $ 51 million, respectively, related to upfront and milestone payments received by Merck for out-licensing arrangements.

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

1 unchanged sentence

These discounts, in the aggregate, reduced U.S.

sales by $ 3.1 billion and $ 3.3 billion for the three months ended September 30, 2023 and 2022, respectively, and $ 9.4 billion and $ 9.1 billion for the nine months ended September 30, 2023 and 2022, respectively.

sales by $ 3.2 billion and $ 3.1 billion for the three months ended March 31, 2024 and 2023, respectively.

Consolidated sales by geographic area where derived are as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

($ in millions) 2024 2023

3 unchanged sentences

Japan 821 758

Asia Pacific (other than China and Japan) 781 854 2,475 2,792

Latin America 796 661

Asia Pacific (other than China and Japan) 724 846

Other 621 545

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

($ in millions) 2024 2023

15 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.

For internal management reporting presented to the chief operating decision maker, Merck does not allocate the remaining cost of sales not included in segment profits as described above, research and development expenses incurred by Merck Research Laboratories, the Company’s research and development division that focuses on human health-related activities, or general and administrative expenses not directly incurred by the segments, nor the cost of financing these activities.

Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits.

In addition, costs related to restructuring activities, as well as the amortization of intangible assets and 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.

In addition, costs related to restructuring activities, as well as the amortization of intangible assets and amortization of purchase accounting adjustments are not allocated to segments.

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

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

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

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-Q

Item 1. Financial Statements