Merck & Co., Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Business Development Transactions Below is a summary of significant business development activity thus far in 2024. In March 2024, Merck acquired Harpoon Therapeutics, Inc. (Harpoon), a clinical-stage immunotherapy company developing a novel class of T-cell engagers designed to harness the power of the body’s immune system to treat patients suffering from cancer and other diseases, for $765 million and also incurred $56 million of transaction costs. Harpoon’s lead candidate, MK-6070 (formerly HPN328), is a T-cell engager targeting delta-like ligand 3 (DLL3), an inhibitory canonical Notch ligand that is expressed at high levels in small-cell lung cancer (SCLC) and neuroendocrine tumors. MK-6070 is currently being evaluated as monotherapy in a Phase 1/2 clinical trial in certain patients with advanced cancers associated with expression of DLL3. The study is also evaluating MK-6070 in combination with atezolizumab in certain patients with SCLC. The transaction was accounted for as an asset acquisition. Merck recorded net assets of $165 million, as well as a charge of $656 million, or $0.26 per share, to Research and development expenses in the first quarter of 2024 related to the transaction. There are no future contingent payments associated with the acquisition. In February 2024, Merck entered into a definitive agreement to acquire the aqua business of Elanco Animal Health Incorporated (Elanco) for $1.3 billion in cash. The Elanco aqua business to be acquired consists of an innovative portfolio of medicines and vaccines, nutritionals and supplements for aquatic species; two related aqua manufacturing facilities in Canada and Vietnam; as well as a research facility in Chile. Upon closing, the acquisition will broaden Animal Health’s aqua portfolio with products, such as Clynav, a new generation DNA-based vaccine that protects Atlantic salmon against pancreas disease, and Imvixa, an anti-parasitic sea lice treatment. This acquisition also brings a portfolio of water treatment products for warm water production, complementing Animal Health’s warm water vaccine portfolio. In addition to these products, the DNA-based vaccine technology that is a part of the business has the potential to accelerate the development of novel vaccines to address the unmet needs of the aqua industry. The acquisition is expected to be completed by mid-2024, subject to approvals from regulatory authorities and other customary closing conditions. The transaction will be accounted for as a business combination. Pricing Global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide. Changes to the U.S. health care system enacted in prior years as part of health care reform, as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, have contributed to pricing pressure. In 2021, the U.S. Congress passed the American Rescue Plan Act, which included a provision that eliminates the statutory cap on rebates drug manufacturers pay to Medicaid beginning in January 2024. Accordingly, manufacturers may have to pay state Medicaid programs more in rebates than they receive on sales of particular products. As a result of this provision, the Company has recognized increased discounts for Januvia (sitagliptin) and Janumet (sitagliptin and metformin HCl) in the first three months of 2024. In 2022, the U.S. Congress passed the Inflation Reduction Act (IRA), which makes significant changes to how drugs are covered and paid for under the Medicare program, including the creation of financial penalties for drugs whose prices rise faster than the rate of inflation, redesign of the Medicare Part D program to require manufacturers to bear more of the liability for certain drug benefits, and government price-setting for certain Medicare Part D drugs (starting in 2026) and Medicare Part B drugs (starting in 2028). In August 2023, the U.S. Department of Health and Human Services (HHS), through the Centers for Medicare & Medicaid Services (CMS), announced that Januvia would be included in the first year of the IRA’s “Drug Price Negotiation Program” (Program). Pursuant to the IRA’s Program, discussions with the government occurred in 2023 and will continue in 2024, with government price-setting becoming effective on January 1, 2026. The Company has sued the U.S. government regarding the IRA’s Program. Furthermore, the Biden Administration and Congress continue to discuss legislation designed to control health care costs, including the cost of drugs. In several international markets, government-mandated pricing actions have reduced prices of generic and patented drugs. In addition, the Company’s sales performance in the first three months of 2024 was negatively affected by other cost-reduction measures taken by governments and other third parties to lower health care costs. The Company anticipates all of these actions and additional actions in the future will negatively affect sales and profits. Operating Results Sales Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2024 2023 % Change United States $ 7,478 $ 6,659 12 % 12 % International 8,297 7,828 6 % 12 % Total $ 15,775 $ 14,487 9 % 12 % Worldwide sales were $15.8 billion in the first quarter of 2024, an increase of 9% compared with the first quarter of 2023, or 12% excluding the unfavorable effect of foreign exchange. Approximately 2 percentage points of the negative impact of foreign exchange was due to the devaluation of the Argentine peso, which was largely offset by inflation-related price increases consistent with practice in that market. Global sales growth in the first quarter of 2024 was primarily due to higher sales in the - 27 - oncology franchise, largely due to strong growth of Keytruda (pembrolizumab) and Welireg (belzutifan). Higher sales in the vaccines franchise also contributed to revenue growth in the first quarter, primarily attributable to increased combined sales of Gardasil (Human Papillomavirus Quadrivalent [Types 6, 11, 16 and 18] Vaccine, Recombinant) /Gardasil 9 (Human Papillomavirus 9-valent Vaccine, Recombinant) and the ongoing launch of Vaxneuvance (Pneumococcal 15-valent Conjugate Vaccine) for pediatric use, partially offset by lower sales of RotaTeq (Rotavirus Vaccine, Live Oral, Pentavalent) and Pneumovax 23 (pneumococcal vaccine polyvalent). Revenue growth in the first quarter of 2024 was partially offset by lower sales in the diabetes franchise attributable to Januvia and Janumet . See Note 14 to the condensed consolidated financial statements for details on sales of the Company’s products. A discussion of performance for select products in the franchises follows. All product or service marks appearing in type form different from that of the surrounding text are trademarks or service marks owned, licensed to, promoted or distributed by Merck, its subsidiaries or affiliates, except as noted. All other trademarks or services marks are those of their respective owners. Pharmaceutical Segment Oncology Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2024 2023 % Change Keytruda $ 6,947 $ 5,795 20 % 24 % Alliance Revenue - Lynparza (1) 292 275 6 % 7 % Alliance Revenue - Lenvima (1) 255 232 10 % 10 % Welireg 85 42 * * Alliance Revenue - Reblozyl (2) 71 43 66 % 66 % * > 100% (1) Alliance revenue for Lynparza and Lenvima represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs (see Note 3 to the condensed consolidated financial statements). (2) Alliance revenue for Reblozyl represents royalties (see Note 3 to the condensed consolidated financial statements). Keytruda is an anti-PD-1 (programmed death receptor-1) therapy that has been approved in over 35 indications in the U.S., including 17 tumor types and 2 tumor-agnostic indications, and has similarly been approved in markets worldwide for many of these indications. The Keytruda clinical development program includes studies across a broad range of cancer types. See “Research and Development Update” below. Global sales of Keytruda grew 20% in the first quarter of 2024, or 24% excluding the unfavorable effect of foreign exchange. Substantially all of the 4% negative impact of foreign exchange was due to the devaluation of the Argentine peso, which was largely offset by inflation-related price increases consistent with practice in that market. Keytruda sales growth in the first quarter 2024 was primarily driven by higher demand reflecting the launch of multiple new indications globally coupled with continued uptake in existing indications. Sales growth in the U.S. reflects increased uptake across earlier-stage indications including in certain types of non-small-cell lung cancer (NSCLC), high-risk early-stage triple-negative breast cancer (TNBC), as well as certain types of renal cell carcinoma (RCC), and higher demand across the multiple approved metastatic indications, in particular for the treatment of certain types of urothelial, endometrial, microsatellite instability-high (MSI-H) and renal cell cancers, as well as higher pricing. Keytruda sales growth in international markets reflects higher demand predominately for the TNBC and RCC earlier-stage indications, as well as uptake in head and neck squamous cell carcinoma and RCC metastatic indications, particularly in Europe and Latin America. Keytruda received the following regulatory approvals thus far in 2024. Date Approval January 2024 U.S. Food and Drug Administration (FDA) approval in combination with chemoradiotherapy for the treatment of patients with FIGO (International Federation of Gynecology and Obstetrics) 2014 Stage III-IVA cervical cancer, based on the KEYNOTE-A18 trial. January 2024 FDA full approval for the treatment of patients with hepatocellular carcinoma (HCC) secondary to hepatitis B who have received prior systemic therapy other than a PD-1/PD-L1 containing regimen. The conversion from an accelerated to full (regular) approval is based on the KEYNOTE-394 trial. February 2024 China’s National Medical Products Administration approval in combination with gemcitabine and cisplatin for the first-line treatment of patients with locally advanced or metastatic biliary tract carcinoma, based on the KEYNOTE-966 trial. March 2024 European Commission (EC) approval in combination with platinum-containing chemotherapy as neoadjuvant treatment, then continued as monotherapy as adjuvant treatment, for resectable NSCLC at high risk of recurrence in adults, based on the KEYNOTE-671 trial. The Company is a party to certain third-party license agreements pursuant to which the Company pays royalties on sales of Keytruda . Under the terms of the more significant of these agreements, Merck paid a royalty of 6.5% on worldwide sales of Keytruda through December 2023 to one third party; this royalty declined to 2.5% in 2024 and will continue through 2026, terminating thereafter. The Company pays an additional 2% royalty on worldwide sales of Keytruda to another third party, the - 28 - termination date of which varies by country; this royalty will expire in the U.S. in September 2024 and on varying dates in major European markets in the second half of 2025. The royalty expenses are included in Cost of sales . Lynparza (olaparib) is an oral poly (ADP-ribose) polymerase (PARP) inhibitor being developed as part of a collaboration with AstraZeneca PLC (AstraZeneca) (see Note 3 to the condensed consolidated financial statements). Lynparza is approved for the treatment of certain types of advanced or recurrent ovarian, early or metastatic breast, metastatic pancreatic and metastatic castration-resistant prostate cancers. Alliance revenue related to Lynparza increased 6% in the first quarter of 2024 primarily driven by higher demand in certain international markets, particularly in Latin America. Lenvima (lenvatinib) is an oral receptor tyrosine kinase inhibitor being developed as part of a collaboration with Eisai Co., Ltd. (Eisai) (see Note 3 to the condensed consolidated financial statements). Lenvima is approved for the treatment of certain types of thyroid cancer, RCC, HCC, in combination with everolimus for certain patients with advanced RCC, and in combination with Keytruda for certain patients with advanced endometrial carcinoma or advanced RCC. Alliance revenue related to Lenvima grew 10% in the first quarter of 2024 primarily reflecting higher demand in the U.S. Sales of Welireg , for the treatment of adult patients with certain von Hippel-Lindau (VHL) disease-associated tumors and certain adult patients with previously treated advanced RCC, more than doubled in the first quarter of 2024 due to higher demand in the U.S. for the treatment of VHL disease-associated tumors and uptake in a supplemental indication approved by the FDA in December 2023 for previously treated advanced RCC. Welireg is under review in the European Union (EU) for the treatment of previously treated advanced RCC based on the LITESPARK-005 clinical trial and for the treatment of VHL disease based on the LITESPARK-004 clinical trial. Reblozyl (luspatercept-aamt) is a first-in-class erythroid maturation recombinant fusion protein that is being commercialized through a global collaboration with Bristol-Myers Squibb Company (BMS) (see Note 3 to the condensed consolidated financial statements). Reblozyl is approved for the treatment of anemia in certain rare blood disorders. Alliance revenue related to this collaboration (consisting of royalties) increased 66% in the first quarter of 2024 due to strong underlying sales performance. Vaccines Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2024 2023 % Change Gardasil/Gardasil 9 $ 2,249 $ 1,972 14 % 17 % ProQuad 204 190 8 % 7 % M-M-R II 104 102 2 % 2 % Varivax 262 236 11 % 11 % Vaxneuvance 219 106 * * RotaTeq 216 297 (27) % (27) % Pneumovax 23 61 96 (36) % (33) % * > 100% Combined worldwide sales of Gardasil and Gardasil 9, vaccines to help prevent certain cancers and other diseases caused by certain types of human papillomavirus (HPV), grew 14% in the first quarter of 2024 primarily due to strong demand, particularly in China, which also benefited from the timing of shipments, as well as public sector buying patterns in the U.S., and higher pricing. The Company is a party to certain third-party license agreements pursuant to which the Company pays royalties on sales of Gardasil/Gardasil 9. Under the terms of the more significant of these agreements, Merck pays a 7% royalty on sales of Gardasil/Gardasil 9 in the U.S. to one third party (this royalty expires in December 2028); Merck paid an additional 7% royalty on worldwide sales of Gardasil/Gardasil 9 to another third party, which expired in December 2023. The royalty expenses are included in Cost of sales . Global sales of ProQuad (Measles, Mumps, Rubella and Varicella Virus Vaccine Live), a pediatric combination vaccine to help protect against measles, mumps, rubella and varicella, grew 8% in the first quarter of 2024 primarily reflecting higher pricing in the U.S. and higher demand in certain ex-U.S. markets. Worldwide sales of M-M-R II (Measles, Mumps and Rubella Virus Vaccine Live), a vaccine to help prevent measles, mumps and rubella, were nearly flat in the first quarter of 2024. Global sales of Varivax (Varicella Virus Vaccine Live), a vaccine to help prevent chickenpox (varicella), increased 11% in the first quarter of 2024 primarily attributable to higher pricing in the U.S. and higher sales in Latin America due in part to the timing of government tenders. Worldwide sales of Vaxneuvance , a vaccine to help protect against invasive pneumococcal disease, more than doubled in the first quarter of 2024 primarily reflecting continued uptake in the pediatric indication in the U.S. and Europe, as well as new market launches. Sales growth in the U.S. also reflects the beneficial impact of public sector buying patterns. - 29 - Global sales of RotaTeq , a vaccine to help protect against rotavirus gastroenteritis in infants and children, declined 27% in the first quarter of 2024 primarily due to lower sales in China reflecting first quarter 2023 inventory stocking, as well as lower sales in the U.S. due to public sector buying patterns. Worldwide sales of Pneumovax 23, a vaccine to help prevent pneumococcal disease, declined 36% in the first quarter of 2024 largely due to lower demand in the U.S. as the market has shifted toward newer adult pneumococcal conjugate vaccines following changes in the recommendations of the U.S. Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices in 2021. Hospital Acute Care Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2024 2023 % Change Bridion $ 440 $ 487 (10) % (8) % Prevymis 174 129 35 % 39 % Worldwide sales of Bridion (sugammadex), for the reversal of two types of neuromuscular blocking agents used during surgery, declined 10% in the first quarter of 2024 driven by lower demand in certain ex-U.S. markets due to generic competition, particularly in the EU, partially offset by higher demand in the U.S. The patent that provided market exclusivity for Bridion in the EU expired in July 2023. Accordingly, the Company is experiencing sales declines of Bridion in these markets and expects the declines to continue. The patent that provided market exclusivity for Bridion in Japan expired in January 2024; the Company anticipates sales of Bridion in Japan will decline in future periods. Worldwide sales of Prevymis (letermovir), a medicine for prophylaxis (prevention) of cytomegalovirus (CMV) infection and disease in certain high risk adult recipients of an allogenic hematopoietic stem cell transplant and for prophylaxis of CMV disease in certain high risk adult recipients of a kidney transplant, grew 35% in the first quarter of 2024 largely due to higher global demand, particularly in the U.S. and China. Cardiovascular Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2024 2023 % Change Alliance Revenue - Adempas/Verquvo (1) $ 98 $ 99 (1) % (1) % Adempas 70 59 18 % 18 % (1) Alliance revenue represents Merck’s share of profits from sales in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 3 to the condensed consolidated financial statements). Adempas (riociguat) and Verquvo (vericiguat) are part of a worldwide collaboration with Bayer AG (Bayer) to market and develop soluble guanylate cyclase (sGC) modulators (see Note 3 to the condensed consolidated financial statements). Adempas is approved for the treatment of certain types of pulmonary arterial hypertension (PAH) and chronic pulmonary hypertension (PH). Verquvo is approved to reduce the risk of cardiovascular death and heart failure hospitalization following a hospitalization for heart failure or need for outpatient intravenous diuretics in adults with symptomatic chronic heart failure and reduced ejection fraction. Alliance revenue from the collaboration in the first quarter of 2024 was nearly flat compared with the corresponding prior year period. Revenue also includes sales of Adempas and Verquvo in Merck’s marketing territories. Sales of Adempas in Merck’s marketing territories grew 18% in the first quarter of 2024 primarily due to higher demand. In March 2024, the FDA approved Winrevair (sotatercept-csrk) for the treatment of adults with PAH (World Health Organization [WHO] Group 1) to increase exercise capacity, improve WHO functional class, and reduce the risk of clinical worsening events. The approval is based on the STELLAR trial. Winrevair is the subject of a licensing agreement with Bristol-Myers Squibb Company (BMS) and Merck will pay 22% royalties on sales of Winrevair in the PH field to BMS. Virology Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2024 2023 % Change Lagevrio $ 350 $ 392 (11) % (5) % Lagevrio is an investigational oral antiviral COVID-19 medicine being developed in a collaboration with Ridgeback Biotherapeutics LP (Ridgeback) (see Note 3 to the condensed consolidated financial statements). Sales of Lagevrio declined 11% in the first quarter of 2024 primarily due to lower demand in certain markets in the Asia Pacific region, partially offset by sales in the U.S. and higher demand in Japan. - 30 - Immunology Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2024 2023 % Change Simponi $ 184 $ 180 2 % 1 % Remicade 39 51 (24) % (21) % Simponi (golimumab) and Remicade (infliximab) are treatments for certain inflammatory diseases that the Company markets in Europe, Russia and Türkiye. The Company’s marketing rights with respect to these products will revert to Johnson & Johnson Innovative Medicine on October 1, 2024. Diabetes Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2024 2023 % Change Januvia/Janumet $ 670 $ 880 (24) % (21) % Worldwide combined sales of Januvia and Janumet , medicines that help lower blood sugar levels in adults with type 2 diabetes, declined 24% in the first quarter of 2024 primarily due to lower sales in the U.S., largely reflecting lower pricing and lower demand due to competitive pressures, as well as the ongoing impact of the loss of exclusivity in most markets in Europe and the Asia Pacific region, as well as in Canada. The American Rescue Plan Act enacted in the U.S. in 2021 included a provision that eliminated the statutory c ap on rebates drug manufacturers pay to Medicaid beginning in January 2024. Accordingly, manufacturers may have to pay state Medicaid programs more in rebates than they receive on sales of particular products. As a result of this provision, the Company has recognized increased discounts for Januvia and Janumet in the first quarter of 2024. In A ugust 2023, the U.S. Department of HHS, through the CMS, announced that Januvia would be included in the first year of the IRA’s Program. Pursuant to the IRA’s Program, discussions with the government occurred in 2023 and will continue in 2024, with government price-setting becoming effective on January 1, 2026. The Company has sued the U.S. government regarding the IRA’s Program. While the key U.S. patent for Januvia and Janumet claiming the sitagliptin compound expired in January 2023, as a result of favorable court rulings and settlement agreements related to a later expiring patent directed to the specific sitagliptin salt form of the products (see Note 7 to the condensed consolidated financial statements), the Company expects that Januvia and Janumet will not lose market exclusivity in the U.S. until May 2026 and Janumet XR will not lose market exclusivity in the U.S. until July 2026, although a non-automatically substitutable form of sitagliptin that differs from the form in the Company’s sitagliptin products has been approved by the FDA . The Company anticipates pricing and volume declines for Januvia and Janumet in the U.S. for the remainder of 2024. The Company lost market exclusivity for Januvia in all of the EU and for Janumet in some European countries in September 2022. Exclusivity for Janumet was lost in other European countries in April 2023. Accordingly, the Company is experiencing sales declines in these markets and expects the declines to continue. Generic equivalents of Januvia and Janumet have also launched in China. Animal Health Segment Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2024 2023 % Change Livestock $ 850 $ 849 — % 4 % Companion Animal 661 642 3 % 4 % $ 1,511 $ 1,491 1 % 4 % Animal Health sales grew 1% in the first quarter of 2024, or 4% excluding the unfavorable impact of foreign exchange. Approximately 3 percentage points of the negative impact of foreign exchange was due to the devaluation of the Argentine peso, which was largely offset by inflation-related price increases consistent with practice in that market. Sales of livestock products were nearly flat in the first quarter of 2024 primarily due to higher pricing, as well as increased demand for swine and poultry products, partially offset by lower demand for ruminant products. Sales of companion animal products grew 3% in the first quarter of 2024 due to higher pricing. Sales of Bravecto (fluralaner), a line of oral and topical parasitic control products, were $332 million for the first quarter of 2024, representing growth of 6% compared with the corresponding prior year period, or 7% excluding the unfavorable effect of foreign exchange. In February 2024, Merck entered into a definitive agreement to acquire the aqua business of Elanco for $1.3 billion in cash. See “Business Development Transactions” above for additional information related to this transaction. - 31 - Costs, Expenses and Other Three Months Ended March 31, ($ in millions) 2024 2023 % Change Cost of sales $ 3,540 $ 3,926 (10) % Selling, general and administrative 2,483 2,479 — % Research and development 3,992 4,276 (7) % Restructuring costs 123 67 84 % Other (income) expense, net (33) 89 * $ 10,105 $ 10,837 (7) % * > 100% Cost of Sales Cost of sales declined 10% in the first quarter of 2024. Cost of sales includes the amortization of intangible assets recorded in connection with acquisitions, collaborations, and licensing arrangements, which totaled $462 million and $532 million in the first quarter of 2024 and 2023, respectively. Amortization expense in the first quarter of 2023 includes $72 million of cumulative catch-up amortization related to Merck’s collaboration with Eisai. See Note 3 to the condensed consolidated financial statements for more information on Merck’s collaborative arrangements. Also included in cost of sales are expenses associated with restructuring activities, which amounted to $116 million and $29 million in the first quarter of 2024 and 2023, respectively, primarily reflecting accelerated depreciation and asset write-offs related to the planned sale or closure of manufacturing facilities. Separation costs associated with manufacturing-related headcount reductions have been incurred and are reflected in Restructuring costs as discussed below. Gross margin was 77.6% in the first quarter of 2024 compared with 72.9% in the first quarter of 2023. The gross margin improvement was primarily due to the favorable effects of product mix (including lower royalty rates related to Keytruda and Gardasil/Gardasil 9 sales), foreign exchange and lower amortization of intangible assets, partially offset by higher restructuring costs and inventory write-offs. Selling, General and Administrative Selling, general and administrative (SG&A) expenses were nearly flat in the first quarter of 2024 primarily due to higher administrative costs, largely offset by lower promotional spending, reflecting the prioritization of spending on key growth products, and the favorable effect of foreign exchange. Research and Development Research and development (R&D) expenses declined 7% in the first quarter of 2024 primarily due to lower charges for business development transactions, which included a $656 million charge for the acquisition of Harpoon in the first quarter of 2024, compared with charges of $1.2 billion for the acquisition of Imago and $175 million for a license and collaboration agreement with Kelun-Biotech in the first quarter of 2023. The decline was partially offset by higher compensation and benefit costs, increased clinical development spending, and higher investments in discovery research and early drug development in the first quarter of 2024. R&D expenses are comprised of the costs directly incurred by Merck Research Laboratories (MRL), the Company’s research and development division that focuses on human health-related activities, which were $2.4 billion and $2.1 billion for the first quarter of 2024 and 2023, respectively. Also included in R&D expenses are Animal Health research costs, upfront payments for collaboration and licensing agreements, charges for transactions accounted for as asset acquisitions (including the charges for the Harpoon and Imago acquisitions as noted above), and costs incurred by other divisions in support of R&D activities, including depreciation, production and general and administrative, which in the aggregate were approximately $1.6 billion and $2.2 billion for the first quarter of 2024 and 2023, respectively. Restructuring Costs In January 2024, the Company approved a new restructuring program (2024 Restructuring Program) intended to continue the optimization of the Company’s Human Health global manufacturing network as the future pipeline shifts to new modalities and also optimize the Animal Health global manufacturing network to improve supply reliability and increase efficiency. The actions contemplated under the 2024 Restructuring Program are expected to be substantially completed by the end of 2031, with the cumulative pretax costs to be incurred by the Company to implement the program estimated to be approximately $4.0 billion. Approximately 60% of the cumulative pretax costs will be non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested. The remainder of the costs will result in cash outlays, relating primarily to facility shut-down costs. The Company expects to record charges of approximately $800 million in 2024 related to the 2024 Restructuring Program. The Company anticipates the actions under the 2024 Restructuring Program will result in cumulative annual net cost savings of approximately $750 million by the end of 2031. In 2019, Merck approved a global restructuring program (2019 Restructuring Program) as part of a worldwide initiative focused on optimizing the Company’s manufacturing and supply network, as well as reducing its global real estate - 32 - footprint. The actions under the 2019 Restructuring Program were substantially complete at the end of 2023 and, as of January 1, 2024, any remaining activities are now being accounted for as part of the 2024 Restructuring Program. Restructuring costs, primarily representing separation and other costs associated with these restructuring activities, were $123 million and $67 million for the first quarter of 2024 and 2023, respectively. Separation costs incurred were associated with actual headcount reductions, as well as estimated expenses under existing severance programs for involuntary headcount reductions that were probable and could be reasonably estimated. Other expenses in Restructuring costs include facility shut-down and other related costs, as well as employee-related costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans and share-based compensation plan costs. For segment reporting, restructuring costs are unallocated expenses. Additional costs associated with the Company’s restructuring activities are included in Cost of sales , Selling, general and administrative expenses and Research and development costs. The Company recorded aggregate pretax costs of $246 million and $97 million in the first quarter of 2024 and 2023, respectively, related to restructuring program activities (see Note 4 to the condensed consolidated financial statements). Other (Income) Expense, Net Other (income) expense, net, was $33 million of income in the first quarter of 2024 compared with $89 million of expense in the first quarter of 2023. The favorability was primarily due to a $572.5 million charge in 2023 related to settlements with certain plaintiffs in the Zetia antitrust litigation (see Note 7 to the condensed consolidated financial statements), partially offset by lower income from investments in equity securities and higher interest expense in 2024. For details on the components of Other (income) expense, net, see Note 10 to the condensed consolidated financial statements. Segment Profits Three Months Ended March 31, ($ in millions) 2024 2023 Pharmaceutical segment profits $ 10,904 $ 9,140 Animal Health segment profits 555 566 Other (5,789) (6,056) Income Before Taxes $ 5,670 $ 3,650 Pharmaceutical segment profits are comprised of segment sales less standard costs, as well as SG&A expenses directly incurred by the segment. Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as SG&A and R&D expenses directly incurred by the segment. For internal management reporting presented to the chief operating decision maker, Merck does not allocate the remaining cost of sales not included in segment profits as described above, R&D expenses incurred by MRL, or general and administrative expenses not directly incurred by the segments, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits. Also excluded from the determination of segment profits are costs related to restructuring activities and acquisition- and divestiture-related costs, including the amortization of intangible assets and amortization of purchase accounting adjustments, intangible asset impairment charges, and expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration. Additionally, segment profits do not reflect other expenses from corporate and manufacturing cost centers and other miscellaneous income or expense. These unallocated items are reflected in “Other” in the above table. Also included in “Other” are miscellaneous corporate profits (losses), as well as operating profits (losses) related to third-party manufacturing arrangements. Pharmaceutical segment profits grew 19% in the first quarter of 2024 primarily due to higher sales, partially offset by higher administrative and promotional costs, as well as the unfavorable effect of foreign exchange. Animal Health segment profits declined 2% in the first quarter of 2024 reflecting higher production costs, increased administrative and promotional costs, as well as the unfavorable effect of foreign exchange. Taxes on Income The effective income tax rate of 15.9% for the first quarter of 2024 reflects a 1.6 percentage point unfavorable discrete impact of a charge for the acquisition of Harpoon for which no tax benefit was recognized. The effective income tax rate of 22.6% for the first quarter of 2023 reflects a 5.5 percentage point unfavorable discrete impact of a charge for the acquisition of Imago for which no tax benefit was recognized. While many jurisdictions in which Merck operates have adopted the global minimum tax provision of the Organisation for Economic Co-operation and Development (OECD) Pillar 2, effective for tax years beginning in January 2024, the Company anticipates there will be a reduced impact to its 2024 tax rate due to the accounting for the tax effects of intercompany transactions. The Company expects the impact of the global minimum tax will increase its tax rate to a greater extent in 2025 and thereafter. Also, in the event that the provision of the Tax Cuts and Jobs Act of 2017 requiring capitalization and amortization of R&D expenses for tax purposes is repealed along the lines recently proposed in the Tax Relief for American Families and - 33 - Workers Act of 2024, the Company will again be able to realize the benefit of U.S. R&D expenses as incurred but expects no material impact to its effective income tax rate. Non-GAAP Income and Non-GAAP EPS Non-GAAP income and non-GAAP EPS are alternative views of the Company’s performance that Merck is providing because management believes this information enhances investors’ understanding of the Company’s results since management uses non-GAAP measures to assess performance. Non-GAAP income and non-GAAP EPS exclude certain items because of the nature of these items and the impact that they have on the analysis of underlying business performance and trends. The excluded items (which should not be considered non-recurring) consist of acquisition- and divestiture-related costs, restructuring costs, income and losses from investments in equity securities, and certain other items. These excluded items are significant components in understanding and assessing financial performance. Non-GAAP income and non-GAAP EPS are important internal measures for the Company. Senior management receives a monthly analysis of operating results that includes a non-GAAP EPS metric. Management uses non-GAAP measures internally for planning and forecasting purposes and to measure the performance of the Company along with other metrics. In addition, annual employee compensation, including senior management’s compensation, is derived in part using a non-GAAP pretax income metric. Since non-GAAP income and non-GAAP EPS are not measures determined in accordance with GAAP, they have no standardized meaning prescribed by GAAP and, therefore, may not be comparable to the calculation of similar measures of other companies. The information on non-GAAP income and non-GAAP EPS should be considered in addition to, but not as a substitute for or superior to, net income and EPS prepared in accordance with generally accepted accounting principles in the U.S. (GAAP). A reconciliation between GAAP financial measures and non-GAAP financial measures is as follows: Three Months Ended March 31, ($ in millions except per share amounts) 2024 2023 Income before taxes as reported under GAAP $ 5,670 $ 3,650 Increase (decrease) for excluded items: Acquisition- and divestiture-related costs 496 590 Restructuring costs 246 97 Income from investments in equity securities, net (116) (429) Other items: Charge for Zetia antitrust litigation settlements — 573 Non-GAAP income before taxes 6,296 4,481 Income tax provision as reported under GAAP 903 825 Estimated tax benefit on excluded items (1) 109 88 Non-GAAP income tax provision 1,012 913 Non-GAAP net income 5,284 3,568 Less: Net income attributable to noncontrolling interests as reported under GAAP 5 4 Non-GAAP net income attributable to Merck & Co., Inc. $ 5,279 $ 3,564 EPS assuming dilution as reported under GAAP (2) $ 1.87 $ 1.11 EPS difference 0.20 0.29 Non-GAAP EPS assuming dilution (2) $ 2.07 $ 1.40 (1) The estimated tax impact on the excluded items is determined by applying the statutory rate of the originating territory of the non-GAAP adjustments. (2) GAAP and non-GAAP EPS were negatively affected in the first quarter of 2024 and 2023 by $0.26 per share and $0.52 per share, respectively, of charges for certain upfront payments related to collaborations and licensing agreements, as well as charges related to pre-approval assets obtained in transactions accounted for as asset acquisitions. Acquisition- and Divestiture-Related Costs Non-GAAP income and non-GAAP EPS exclude the impact of certain amounts recorded in connection with acquisitions and divestitures of businesses. These amounts include the amortization of intangible assets, as well as intangible asset impairment charges, and expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration. Also excluded are integration, transaction, and certain other costs associated with acquisitions and divestitures. Non-GAAP income and non-GAAP EPS also exclude amortization of intangible assets related to collaborations and licensing arrangements. Restructuring Costs Non-GAAP income and non-GAAP EPS exclude costs related to restructuring actions (see Note 4 to the condensed consolidated financial statements). These amounts include employee separation costs and accelerated depreciation associated with facilities to be closed or divested. Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the revised useful life of the asset, based upon the anticipated date the site will be closed or divested or the equipment disposed of, and depreciation expense as determined utilizing the useful life prior to the restructuring actions. Restructuring costs also include asset abandonment, facility shut-down and other related costs, as well as employee-related - 34 - costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans and share-based compensation costs. Income and Losses from Investments in Equity Securities Non-GAAP income and non-GAAP EPS exclude realized and unrealized gains and losses from investments in equity securities either owned directly or through ownership interests in investment funds. Certain Other Items Non-GAAP income and non-GAAP EPS exclude certain other items. These items are adjusted for after evaluating them on an individual basis, considering their quantitative and qualitative aspects. Typically, these consist of items that are unusual in nature, significant to the results of a particular period or not indicative of future operating results. Excluded from non-GAAP income and non-GAAP EPS in 2023 is a charge related to settlements with certain plaintiffs in the Zetia antitrust litigation (see Note 7 to the condensed consolidated financial statements). Research and Development Update The Company currently has several candidates under regulatory review in the U.S. and internationally. MK-1022, patritumab deruxtecan, a potential first-in-class HER3 directed DXd antibody drug conjugate (ADC), is under priority review by the FDA for the treatment of adult patients with locally advanced or metastatic EGFR-mutated NSCLC previously treated with two or more systemic therapies. The Biologics License Application (BLA) is based on the primary results from the HERTHENA-Lung01 pivotal Phase 2 trial and data results presented at the IASLC 2023 World Conference on Lung Cancer, which were simultaneously published in the Journal of Clinical Oncology. The FDA set a Prescription Drug User Fee Act (PDUFA), or target action, date of June 26, 2024 for the BLA. The priority review follows receipt of Breakthrough Therapy designation granted by the FDA in December 2021. The BLA is being reviewed under the Real-Time Oncology Review program. Patritumab deruxtecan (HER3-DXd) was discovered by Daiichi Sankyo and is being jointly developed by Daiichi Sankyo and Merck. V116, the Company’s investigational 21-valent pneumococcal conjugate vaccine designed to help prevent invasive pneumococcal disease and pneumococcal pneumonia in adults, is under priority review by the FDA. The BLA for V116 is supported by results from multiple Phase 3 clinical studies evaluating V116 in both vaccine-naïve and vaccine-experienced adult patient populations, including STRIDE-3, STRIDE-4, STRIDE-5 and STRIDE-6. The FDA set a PDUFA date of June 17, 2024. V116 was granted Breakthrough Therapy designation from the FDA for the prevention of invasive pneumococcal disease and pneumococcal pneumonia caused by Streptococcus pneumoniae serotypes 3, 6A/C, 7F, 8, 9N, 10A, 11A, 12F, 15A, 15B/C, 16F, 17F, 19A, 20, 22F, 23A, 23B, 24F, 31, 33F, 35B in adults 18 years of age and older. V116 is also under review in the EU. MK-7962, Winrevair (sotatercept-csrk), Merck’s novel activin signaling inhibitor, is under review in the EU for the treatment of adult patients with PAH (WHO Group 1). The application is based on the results from the Phase 3 STELLAR trial. Winrevair was granted Priority Medicines (PRIME) scheme and Orphan Drug designation by the European Medicines Agency for the treatment of PAH. MK-7264, gefapixant, is a non-narcotic, oral selective P2X3 receptor antagonist for the treatment of refractory or unexplained chronic cough in adults. In December 2023, the FDA issued a second Complete Response Letter (CRL) regarding the resubmission of Merck’s New Drug Application for gefapixant. In the CRL, the FDA concluded that Merck’s application did not meet substantial evidence of effectiveness for treating refractory chronic cough and unexplained chronic cough. The CRL was not related to the safety of gefapixant. Merck is reviewing the FDA’s feedback to determine next steps. MK-3475, Keytruda , is an anti-PD-1 therapy approved for the treatment of many cancers that is in clinical development for expanded indications. These studies encompass more than 30 cancer types including: biliary, estrogen receptor positive breast cancer, cervical, colorectal, cutaneous squamous cell, endometrial, esophageal, gastric, glioblastoma, head and neck, hepatocellular, Hodgkin lymphoma, non-Hodgkin lymphoma, non-small-cell lung, small-cell lung, melanoma, mesothelioma, ovarian, prostate, renal, triple-negative breast, and urothelial, many of which are currently in Phase 3 clinical development. Further trials are being planned for other cancers. Keytruda is under priority review by the FDA in combination with chemotherapy (carboplatin and paclitaxel), followed by Keytruda as a single agent for the treatment of patients with primary advanced or recurrent endometrial carcinoma, based on the KEYNOTE-868 trial. The FDA set a PDUFA date of June 21, 2024 for the supplemental BLA. KEYNOTE-868 is also under review in the EU and Japan. In addition, Keytruda is under review in the EU and Japan in combination with Padcev (enfortumab vedotin-ejfv), an ADC, for the treatment of adult patients with locally advanced or metastatic urothelial carcinoma, based on the KEYNOTE-A39 trial that was conducted in collaboration with Seagen (now Pfizer Inc.) and Astellas. Keytruda is also under review in the EU and Japan in combination with chemoradiotherapy for the treatment of patients with high-risk locally advanced cervical cancer, based on the KEYNOTE-A18 trial. Keytruda is under review in Japan as part of a perioperative treatment regimen for certain patients with resectable stage II, IIIA or IIIB NSCLC based on the KEYNOTE-671 study. A perioperative treatment regimen includes treatment before surgery (neoadjuvant) and continued after surgery (adjuvant). - 35 - Additionally, Keytruda is under review in Japan in combination with fluoropyrimidine- and platinum-containing chemotherapy for the first-line treatment of patients with locally advanced unresectable or metastatic gastric or gastroesophageal junction adenocarcinoma, based on the KEYNOTE-859 trial. Keytruda is also under review in Japan in combination with standard of care chemotherapy (gemcitabine and cisplatin) for the treatment of patients with locally advanced unresectable or metastatic biliary tract cancer, based on the KEYNOTE-966 trial. Welireg is under review in the EU for the treatment of previously treated advanced RCC based on the LITEPARK-005 clinical trial and for the treatment of VHL disease based on the LITESPARK-004 clinical trial. In March 2024, Merck announced that in the Phase 3 KEYLYNK-006 trial, Keytruda in combination with chemotherapy followed by Keytruda plus maintenance Lynparza did not meet the study’s pre-specified statistical criteria for overall survival or progression-free survival compared to Keytruda in combination with chemotherapy (pemetrexed plus carboplatin or cisplatin) followed by Keytruda plus maintenance chemotherapy (pemetrexed). A full evaluation of the data from this study is ongoing. Merck will work with investigators to share the results with the scientific community. Also, the Company has discontinued development of MK-5475 in PAH but continues to study MK-5475 in PH associated with chronic obstructive pulmonary disease. The chart below reflects the Company’s research pipeline as of May 1, 2024. Candidates shown in Phase 3 include the date such candidate entered into Phase 3 development. Candidates shown in Phase 2 include the most advanced compound with a specific mechanism or, if listed compounds have the same mechanism, they are each currently intended for commercialization in a given therapeutic area. Small molecules and biologics are given MK-number designations and vaccine candidates are given V-number designations. Except as otherwise noted, candidates in Phase 1, additional indications in the same therapeutic area (other than with respect to cancer) and additional claims, line extensions or formulations for in-line products are not shown. Phase 2 Cancer MK-1022 (patritumab deruxtecan) (1) Gastric Melanoma MK-1308 (quavonlimab) (2) Non-Small-Cell Lung MK-1308A (quavonlimab+pembrolizumab) Colorectal MK-2140 (zilovertamab vedotin) Hematological Malignancies MK-2400 (ifinatamab deruxtecan) (1) Colorectal Small-Cell Lung MK-2870 (sacituzumab tirumotecan) (1)(3) Neoplasm Malignant MK-3475 Keytruda Advanced Solid Tumors Prostate MK-3475A (pembrolizumab+hyaluronidase subcutaneous) Cutaneous Squamous Cell MK-4280 (favezelimab) (2) Non-Small-Cell Lung MK-4280A (favezelimab+pembrolizumab) Bladder Cutaneous Squamous Cell Endometrial Esophageal Melanoma Renal Cell MK-5890 (boserolimab) (2) Neoplasm Malignant Cancer MK-5909 (raludotatug deruxtecan) (1) Ovarian MK-6482 Welireg (3) Endometrial Esophageal Hepatocellular Prostate Rare cancers MK-7339 Lynparza (1)(3) Advanced Solid Tumors MK-7684A (vibostolimab+pembrolizumab) Biliary Bladder Breast Cervical Colorectal Endometrial Esophageal Gastric Head and Neck Hepatocellular Ovarian Prostate Renal V940 (1)(2) Cutaneous Squamous Cell Bladder Renal Cell Cancer MK-7902 Lenvima (1)(2) Head and Neck Dengue Fever Virus Vaccine V181 HIV-1 Infection MK-8591B (islatravir+MK-8507) (4) MK-8591D (islatravir+lenacapavir) (1)(5) HIV-1 Prevention MK-8527 Nonalcoholic Steatohepatitis (NASH) MK-6024 (efinopegdutide) Pulmonary Hypertension-Chronic Obstructive Pulmonary Disease MK-5475 Pulmonary Hypertension Due To Left Heart Disease MK-7962 Winrevair Schizophrenia MK-8189 (6) Thrombosis MK-2060 Vitiligo MK-6194 - 36 - Phase 3 (Phase 3 entry date) Under Review Antiviral COVID-19 MK-4482 Lagevrio (U.S.) (May 2021) (1)(7) Cancer MK-1022 (patritumab deruxtecan) (1) Non-Small-Cell Lung (May 2022) (EU) MK-1026 (nemtabrutinib) Hematological Malignancies (March 2023) MK-1308A (quavonlimab+pembrolizumab) Renal Cell (April 2021) MK-2870 (sacituzumab tirumotecan) (1)(3) Breast (April 2024) Endometrial (December 2023) Non-Small-Cell Lung (November 2023) MK-3475 Keytruda Cutaneous Squamous Cell (August 2019) (EU) Hepatocellular (May 2016) (EU) Mesothelioma (May 2018) Ovarian (December 2018) Small-Cell Lung (May 2017) MK-3475A (pembrolizumab+hyaluronidase subcutaneous) Non-Small-Cell Lung (February 2023) MK-3543 (bomedemstat) Myeloproliferative Disorders (December 2023) MK-4280A (favezelimab+pembrolizumab) Colorectal (November 2021) Hematological Malignancies (October 2022) MK-5684 (opevesostat) (1) Prostate (December 2023) MK-7339 Lynparza (1)(2) Non-Small-Cell Lung (June 2019) Small-Cell Lung (December 2020) MK-7684A (vibostolimab+pembrolizumab) Melanoma (January 2023) Non-Small-Cell Lung (April 2021) Small-Cell Lung (March 2022) MK-7902 Lenvima (1)(2) Esophageal (July 2021) Gastric (December 2020) V940 (1)(2) Melanoma (July 2023) Non-Small-Cell Lung (December 2023) HIV-1 Infection MK-8591A (doravirine+islatravir) (February 2020) (5) Hypercholesterolemia MK-0616 (August 2023) Respiratory Syncytial Virus MK-1654 (clesrovimab) (November 2021) Ulcerative Colitis MK-7240 (tulisokibart) (October 2023) New Molecular Entities Ca ncer MK-1022 (patritumab deruxtecan) (1) Non-Small-Cell Lung (U.S.) MK-6482 Welireg Von Hippel-Lindau (VHL) Disease (EU) Cough MK-7264 (gefapixant) (U.S.) (8) Pneumococcal Vaccine Adult V116 (U.S.) (EU) Pulmonary Arterial Hypertension MK-7962 Winrevair (EU) Certain Supplemental Filings Cancer MK-3475 Keytruda • Primary Advanced or Recurrent Endometrial Carcinoma (KEYNOTE-868) (U.S.) (EU) (JPN) • First-Line Locally Advanced or Metastatic Urothelial Cancer (KEYNOTE-A39) (EU) (JPN) • High-Risk Locally Advanced Cervical Cancer (KEYNOTE-A18) (EU) (JPN) • Resectable Stage II, IIIA or IIIB NSCLC (KEYNOTE-671) (JPN) • First-Line HER2 Negative Locally Advanced Unresectable or Metastatic Gastric Cancer (KEYNOTE-859) (JPN) • First-Line Locally Advanced Unresectable or Metastatic Biliary Tract Cancer (KEYNOTE-966) (JPN) MK-6482 Welireg • Previously Treated Advanced Renal Cell Carcinoma (LITESPARK-005) (EU) Footnotes: (1) Being developed in a collaboration. (2) Being developed in combination with Keytruda . (3) Being developed as monotherapy and/or in combination with Keytruda. (4) On FDA clinical hold. (5) On FDA partial clinical hold for higher doses than those used in current clinical trials. (6) Phase 2b development costs are being co-funded. (7) Available in the U.S. under Emergency Use Authorization. (8) In December 2023, the FDA issued a CRL for the NDA for gefapixant. Merck is reviewing the FDA’s feedback to determine next steps. Analysis of Liquidity and Capital Resources ($ in millions) March 31, 2024 December 31, 2023 Cash and investments $ 5,899 $ 7,345 Working capital 6,346 6,474 Total debt to total liabilities and equity 32.3 % 32.9 % Cash provided by operating activities was $3.1 billion in the first three months of 2024 compared with $1.3 billion in the first three months of 2023 reflecting stronger operating performance. Cash provided by operating activities was reduced by milestone and option payments related to certain collaborations of $245 million and $115 million in the first three months of 2024 and 2023, respectively. Cash provided by operating activities continues to be the Company’s primary source of funds to finance operating needs, with excess cash generally serving as the primary source of funds to finance business development transactions, capital expenditures, dividends paid to shareholders and treasury stock purchases. Cash used in investing activities was $1.4 billion in the first three months of 2024 compared with $2.4 billion in the first three months of 2023. The lower use of cash in investing activities was primarily due to lower cash used for acquisitions, lower purchases of securities and other investments, as well as lower capital expenditures, partially offset by higher proceeds from sales of securities and other investments. Cash used in financing activities was $2.8 billion in the first three months of 2024 compared with $2.1 billion in the first three months of 2023. The higher use of cash in financing activities was primarily due to higher payments on debt and higher dividends paid to shareholders, partially offset by higher proceeds from the exercise of stock options and lower purchases of treasury stock. - 37 - The Company has accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. The Company factored $2.7 billion and $3.0 billion of accounts receivable at March 31, 2024 and December 31, 2023, respectively, under these factoring arrangements, which reduced outstanding accounts receivable. The cash received from the financial institutions is reported within operating activities in the Condensed Consolidated Statement of Cash Flows. In certain of these factoring arrangements, for ease of administration, the Company will collect customer payments related to the factored receivables, which it then remits to the financial institutions. The net cash flows relating to these collections are reported as financing activities in the Condensed Consolidated Statement of Cash Flows. In March 2024, the Company’s $750 million, 2.90% notes matured in accordance with their terms and were repaid. Dividends paid to stockholders were $2.0 billion and $1.9 billion for the first three months of 2024 and 2023, respectively. In November 2023, Merck’s Board of Directors declared a quarterly dividend of $0.77 per share on the Company’s outstanding common stock for the first quarter of 2024 that was paid in January 2024. In January 2024, the Board of Directors declared a quarterly dividend of $0.77 per share on the Company’s outstanding common stock for the second quarter that was paid in April 2024. In 2018, Merck’s Board of Directors authorized purchases of up to $10 billion of Merck’s common stock for its treasury. The treasury stock purchase authorization has no time limit and will be made over time in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions. During the first three months of 2024, the Company purchased $122 million (1 million shares) of its common stock for its treasury under this program. As of March 31, 2024, the Company’s remaining share repurchase authorization was $3.6 billion. The Company has a $6.0 billion credit facility that matures in May 2028. The facility provides backup liquidity for the Company’s commercial paper borrowing facility and is to be used for general corporate purposes. The Company has not drawn funding from this facility. Critical Accounting Estimates The Company’s significant accounting policies, which include management’s best estimates and judgments, are included in Note 2 to the consolidated financial statements for the year ended December 31, 2023 included in Merck’s Form 10‑K filed on February 26, 2024. A discussion of accounting estimates considered critical because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates are disclosed in the Critical Accounting Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Merck’s Form 10-K. There have been no significant changes in the Company’s critical accounting estimates since December 31, 2023. Recently Issued Accounting Standards For a discussion of recently issued accounting standards, see Note 1 to the condensed consolidated financial statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in market risk exposures that affect the disclosures presented in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in the Company’s 2023 Form 10-K filed on February 26, 2024.