What changed in this filing

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Item 1A. Risk Factors

2025-02-25 compared with 2024-02-26 · 133 added, 109 removed, 348 unchanged (41% of the section changed)

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Summary Risk Factors

The Company is subject to a number of risks that if realized could materially adversely affect its business, results of operations, cash flow, financial condition or prospects.

The Company is subject to a number of risks that if realized could materially adversely affect its business, results of operations, cash flows, financial condition or prospects.

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

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

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

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

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

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

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

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

• Environmental, social and governance matters may impact the Company’s business and reputation.

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

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• The Company may experience difficulties and delays in manufacturing certain of its products, including vaccines.

• The Company’s business in China has grown in the past few years, and the importance of China to the Company’s overall pharmaceutical and vaccines business has increased accordingly.

In 2024, the Company experienced lower sales of Gardasil/Gardasil 9 in China and expects that sales of Gardasil/Gardasil 9 in China will decline significantly in 2025.

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

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and international laws and regulations.

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

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• Product liability insurance for products may be limited, cost prohibitive or unavailable.

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

• The Company is increasingly dependent on sophisticated software applications and computing infrastructure, including the use of cloud-based applications and environments.

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

• The Company is increasing its use of artificial intelligence (AI) systems to automate processes, analyze data, and support decision-making which poses inherent risks.

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

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Additional risks not currently known to the Company or that the Company presently deems immaterial may also impair its business operations.

The Company’s business, financial condition, results of operations, cash flow or prospects could be materially adversely affected by any of these risks.

The Company’s business, financial condition, results of operations, cash flows or prospects could be materially adversely affected by any of these risks.

This Form 10-K also contains forward-looking statements that involve risks and uncertainties.

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See “Cautionary Factors that May Affect Future Results” below.

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Risks Related to the Company’s Business

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

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

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Loss of patent protection for one of the Company’s products typically leads to a significant and rapid loss of sales for that product as lower priced generic versions of that drug become available.

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

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

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

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

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

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

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

The Company lost market exclusivity for Bridion in Europe and Japan in 2023 and 2024, respectively, and the Company has experienced a substantial decline in Bridion sales in those markets.

Bridion will lose market exclusivity in the U.S.

in 2026 (subject to patent litigation discussed below) and the Company expects that sales of Bridion in the U.S.

will decline substantially thereafter.

In addition, the Company expects U.S.

sales of Keytruda to decline beginning in January 2028 upon implementation of government pricing under the IRA, and to further decline upon loss of market exclusivity following expiration of the U.S.

compound patent in December 2028.

The Company expects to lose market exclusivity in Europe for Keytruda in 2031 following compound patent expiration.

There may, however, be attempts by one or more companies to challenge the patent or launch a biosimilar product despite the patent in some European jurisdictions following the expiration of data exclusivity in Europe in July 2026.

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

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

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

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

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

These events could include loss of patent protection, increased costs associated with manufacturing, generic or over-the-counter availability of the Company’s product or a competitive product, the discovery of previously unknown side effects, results of post-approval trials, increased competition from the introduction of new, more effective treatments and discontinuation or removal from the market of the product for any reason.

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

In 2024, the Company’s oncology portfolio, led by Keytruda , represented substantially all of the Company’s revenue growth.

In particular, in the aggregate, in 2024, sales of Keytruda represented 46% of the Company’s total sales.

As a result of the Company’s dependence on key products, any event that adversely affects any of these products or the markets for any of these products, such as the slowing demand for Gardasil/Gardasil 9 in China which the Company has experienced, could have a significant adverse impact on results of operations and financial condition.

Other events could include loss of patent protection, increased costs associated with manufacturing, generic or over-the-counter availability of the Company’s product or a competitive product, the discovery of previously unknown side effects, results of post-approval trials, increased competition from the introduction of new, more effective treatments and discontinuation or removal from the market of the product for any reason.

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

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or sales of a new product may be disappointing.

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

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

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

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

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

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• findings of ineffectiveness, superior safety or efficacy of competing products, or harmful side effects in clinical or preclinical testing;

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• failure to receive the necessary regulatory approvals, including delays in the approval of new products and new indications, or the anticipated labeling, and uncertainties about the time required to obtain regulatory approvals and the benefit/risk standards applied by regulatory agencies in determining whether to grant approvals;

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In the future, if certain pipeline programs are cancelled or if the Company believes that their commercial prospects have been reduced, the Company may recognize material non-cash impairment charges for those programs that were measured at fair value and capitalized in connection with acquisitions or certain collaborations.

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

The Company faces continued pricing pressure with respect to its products.

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As noted in Item 1.

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

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

“Competition and the Health Care Environment,” in 2023, HHS selected Januvia for the first year of the IRA’s price setting program, which will result in a government set price becoming effective on January 1, 2026.

Government price setting may also impact pricing in the private market, negatively affecting the Company’s performance.

In January 2025, HHS announced that Janumet and Janumet XR have been selected for government price setting, which will become effective on January 1, 2027.

Furthermore, the Company expects that in 2026 HHS will include Keytruda in a subsequent selection of products to undergo IRA price setting, with such price to become effective on January 1, 2028 and the Company expects that, as a result, U.S.

sales of Keytruda will decline after that time.

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

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Exclusion of a product from a formulary can lead to reduced usage in the managed care organization.

In order to provide information about the Company’s pricing practices, the Company annually posts on its website its Pricing Transparency Report for the U.S.

The report provides the Company’s average annual list price and net price increases across the Company’s U.S.

portfolio dating back to 2010.

In 2023, the Company’s gross U.S.

sales were reduced by 37% as a result of rebates, discounts and returns.

The Company is also facing pricing pressure from purchasers of certain vaccines in highly competitive categories.

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

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

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decision making and budgetary actions with respect to its products.

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

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

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The Company’s business may be adversely affected by local and global economic conditions, including with respect to inflation, interest rates, and costs of raw materials and packaging.

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

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

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As discussed above in Item 1.

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In several international markets, government-mandated pricing actions have reduced prices of generic and patented drugs.

In addition, the Company’s sales performance in 2023 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.

In addition, the Company’s sales performance in 2024 was negatively affected by other cost-reduction measures taken by governments and other third parties to lower health care costs, including in the U.S., the expansion of the Federal 340B Drug Discount Program.

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

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

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

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

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

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

The patent rights that protect its products are of varying strengths and durations.

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Although it is the Company’s policy to actively protect its patent rights, generic challenges to the Company’s products can arise at any time, and the Company’s patents may not prevent the emergence of generic competition for its products.

Loss of patent protection for a product typically is followed promptly by generic substitutes, reducing the Company’s sales of that product.

Availability of generic substitutes for the Company’s drugs may adversely affect its results of operations and cash flow.

Loss of patent protection for a product typically is followed promptly by generic or biosimilar substitutes, reducing the Company’s sales of that product.

Availability of generic substitutes for the Company’s drugs may adversely affect its results of operations and cash flows.

In addition, proposals emerge from time to time in the U.S.

and other countries for legislation to further encourage the early and rapid approval of generic drugs.

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

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

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

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Alternatively, in the case of generic competition, including the generic availability of competitors’ branded products, they may be equally safe and effective products that are sold at a substantially lower price than the Company’s products.

As a result, if the Company fails to maintain its competitive position, this could have a material adverse effect on its business, cash flow, results of operations, financial condition and prospects.

As a result, if the Company fails to maintain its competitive position, this could have a material adverse effect on its business, cash flows, results of operations, financial condition and prospects.

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

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

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• possible nationalization and expropriation.

government has announced plans to significantly increase tariffs on foreign imports into the U.S., particularly from Canada and Mexico and has already increased tariffs on imports from China.

It is too early for the

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Company to assess if, or to what extent, such policies will be implemented or continue to be implemented, and the extent of any measures that have been or will be taken by any impacted countries.

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

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

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

Events like these, such as the ongoing war between Russia and Ukraine, and the conflict in the Middle East, and/or policy changes with respect to international trade protection measures, could result in material adverse effects on macroeconomic conditions, currency exchange rates and financial markets, and may adversely affect the Company’s business, results of operations, cash flows and financial condition.

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

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

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

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

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These risks could disrupt the Company’s operations and its supply chain, which may result in increased costs.

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

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

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

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

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

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

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

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

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

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

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

In addition, some stakeholders may disagree with the Company’s ESG goals and initiatives.

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

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

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

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

Governmental authorities, non-governmental organizations, customers, investors, external stakeholders and employees are sensitive to environmental, social and governance concerns, such as human capital, climate change, water use, recyclability or recoverability of packaging, and plastic waste.

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

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

The Company risks negative shareholder reaction, including from proxy advisory services, as well as damage to its brand and reputation and inability to attract and retain employee talent, if the Company fails to act responsibly, or if the Company is perceived to not be acting responsibly, in key areas, including equitable access to medicines and vaccines, product quality and safety, environmental stewardship, reduction of GHG emissions, support for local communities, corporate governance and transparency, and addressing human capital factors in the Company’s operations.

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

In addition, some governmental authorities, non-governmental organizations, and stakeholders may disagree with the Company’s goals and initiatives.

If the Company does not meet the evolving and varied regulatory requirements and expectations of its investors, customers and other stakeholders, the Company could experience negative impacts to the Company’s business and results of operations.

In addition, the Company is subject to expanding mandatory and voluntary reporting, diligence and disclosure requirements, including the EU’s Corporate

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Sustainability Reporting Directive (CSRD) and potentially the SEC’s climate-related reporting requirements (which are currently stayed), the legislation in California requiring reporting of GHG emissions and climate risk, and similar regulatory requirements in other jurisdictions outside the U.S.

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

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

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and internationally, is intense.

The Company cannot be sure that it will be able to attract and retain quality personnel or that the costs of doing so will not materially increase.

The Company cannot be sure that it will be able to attract and retain qualified personnel or that the costs of doing so will not materially increase.

The Company may experience difficulties and delays in manufacturing certain of its products, including vaccines.

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

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

due to instances of syringe breakage.

Merck from time to time experiences difficulties in manufacturing certain of its products, including vaccines.

For example, the Company is currently experiencing manufacturing delays related to Varivax and ProQuad which will result in supply constraints in 2025.

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

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and (iii) other manufacturing or distribution problems including supply chain delays, shortages in raw materials, changes in manufacturing production sites and limits to manufacturing capacity due to regulatory requirements, changes in types of products produced, or physical limitations that could impact continuous supply.

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

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

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

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

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

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

The Company has been taking steps to increase its sales in emerging markets.

However, there is no guarantee that the Company’s efforts to expand sales in these markets will succeed.

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

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

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

In addition, many of these countries have currencies that fluctuate substantially and, if such currencies devalue and the Company cannot offset the devaluations, the Company’s financial performance within such countries could be adversely affected.

The Company’s business in China has grown rapidly in the past few years, and the importance of China to the Company’s overall pharmaceutical and vaccines business outside the U.S.

has increased accordingly.

The Company’s business in China has grown in the past few years, and the importance of China to the Company’s overall pharmaceutical and vaccines business has increased accordingly.

In 2024, the Company experienced lower sales of Gardasil/Gardasil 9 in China and expects that sales of Gardasil/Gardasil 9 in China will decline significantly in 2025.

The Company’s business in China has grown in the past few years, and the importance of China to the Company’s overall pharmaceutical and vaccines business has increased accordingly.

Beginning in mid-2024, the Company observed a significant decline in shipments from its distributor and commercialization partner in China, Chongqing Zhifei Biological Products Co., Ltd.

(Zhifei), to disease and control prevention institutions and correspondingly into the points of vaccination, resulting in above normal inventory levels at Zhifei.

Accordingly, the Company shipped less than its contracted doses to Zhifei in the latter part of 2024.

Lower demand in China persisted and, at the end of 2024, overall channel inventory levels in China remained elevated at above normal levels.

Therefore, the Company made a decision to temporarily pause shipments to China beginning in February 2025 through at least the middle of the year and as a result, combined sales of G ardasil/Gardasil 9 will decline significantly in 2025 compared with 2024.

Furthermore, the government's anti-corruption campaign, particularly the increased number of inspections and audits, could substantially increase the administrative burden on health care institutions and health care professionals throughout the whole industry in China and potentially have a negative impact on the Company's sales.

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

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

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

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

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

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

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new NRDL was recently completed in which new entries averaged 63% price reductions.

While pricing pressure has always existed in China, health care reform has increased this pressure in part due to the acceleration of generic substitution through the government’s VBP program.

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The Company expects VBP to be a semi-annual process that will have a significant impact on mature products moving forward.

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

The Company has been taking steps to increase its sales in emerging markets.

However, there is no guarantee that the Company’s efforts to expand sales in these markets will succeed.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Any of these events could result in substantial costs.

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Risks Relating to Government Regulation and Legal Proceedings

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

In 2022, Congress passed the IRA, which makes significant changes to how drugs are covered and paid for under the Medicare program, including the creation of financial penalties for drugs whose prices rise faster than the rate of inflation, redesign of the Medicare Part D program to require manufacturers to bear more of the liability for certain drug benefits, and government price-setting for certain Medicare Part D drugs, starting in 2026, and Medicare Part B drugs starting in 2028.

In 2022, Congress passed the IRA, which makes significant changes to how drugs are covered and paid for under the Medicare program, including the creation of financial penalties for drugs whose prices rise faster than the rate of inflation, redesign of the Medicare Part D program to require manufacturers to bear more of the liability for certain drug benefits, which has taken effect in 2025, and government price setting for certain Medicare Part D drugs, starting in 2026, and Medicare Part B drugs starting in 2028.

Furthermore, government price setting may also impact pricing in the private market, negatively affecting the Company’s performance.

As noted in Item 1.

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

On January 17, 2025, HHS announced that Janumet and Janumet XR have been selected for government price setting, which will become effective on January 1, 2027.

sales of Keytruda will decline after that time.

In addition, in 2021, Congress passed the American Rescue Plan Act, which included a provision that eliminates the statutory cap on rebates drug manufacturers pay to Medicaid beginning in January 2024.

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

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

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

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

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

The Company cannot predict what additional future changes in the health care industry in general, or the pharmaceutical industry in particular, will occur;

however, any changes could have a material adverse effect on the Company’s business, cash flow, results of operations, financial condition and prospects.

Additionally, increased utilization of the 340B Federal Drug Discount Program and restrictions on the Company’s ability to identify inappropriate discounts are having a negative impact on the Company’s performance.

Also, t he Company expects that states will continue their focus on pharmaceutical pricing and will increasingly shift to more aggressive price control tools such as Prescription Drug Affordability Boards that have the authority to conduct affordability reviews and establish upper payment limits and that Company products may be selected for such reviews.

In the U.S., members of the government have made public statements in favor of, and may take steps to implement, various regulatory changes that could negatively impact the pharmaceutical industry, including the Company.

Those potential changes include some related to vaccines and vaccine development, as well as personnel and policy changes at the FDA and other government agencies and programs.

For example, HHS could undergo changes that could make it more difficult for the FDA to grant regulatory approvals for drugs and vaccines and the U.S.

Centers for Disease Control and Prevention (CDC) to issue or maintain recommendations for vaccines.

Additionally, if the FDA drug user fee programs were eliminated, that could cause significant delays to facility inspections and approvals of new products.

It is too early for the Company to assess which, if any, of the policy changes that have been publicly referenced would be implemented, and the Company cannot predict what additional future changes in the health care industry in general, or the pharmaceutical industry in particular, will occur;

however, any changes could have a material adverse effect on the Company’s business, cash flows, results of operations, financial condition and prospects.

The Company’s products, including products in development, cannot be marketed unless the Company obtains and maintains regulatory approval.

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

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

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

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

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

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

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

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

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The Company is currently subject to a number of government laws and regulations and, in the future, could become subject to new government laws and regulations.

The costs of compliance with such laws and regulations, or the negative results of non-compliance, could adversely affect the business, cash flow, results of operations, financial condition and prospects of the Company;

The costs of compliance with such laws and regulations, or the negative results of non-compliance, could adversely affect the business, cash flows, results of operations, financial condition and prospects of the Company;

these laws and regulations include (i) additional health care reform initiatives in the U.S.

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

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

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

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

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

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

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

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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 (TCJA).

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

The IRS is also currently conducting examinations of the Company’s tax returns for the years 2021 and 2022.

In addition, various state and foreign tax examinations are in progress.

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

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In addition, the Company may be negatively affected by changes in tax laws, or new tax laws, affecting, for example, tax rates, and/or revised tax law interpretations in domestic or foreign jurisdictions, including, among others, any potential changes to the existing U.S.

tax law by the current U.S.

Presidential administration and Congress, as well as any changes in tax law resulting from the implementation of the OECD’s two-pillar solution to reform the international tax landscape .

The Company has taken the position, based on the opinions of tax counsel, that its distribution of Organon common stock in connection with the 2021 Spin-Off qualifies as a transaction that is tax-free for U.S.

tax law by the Executive Branch and Congress, as well as any changes in tax law resulting from the implementation of the OECD’s two-pillar solution to reform the international tax landscape .

The Company has taken the position, based on the opinions of tax counsel, that its distribution of Organon & Co.

(Organon) common stock in connection with the 2021 spin-off (Spin-Off) qualifies as a transaction that is tax-free for U.S.

federal income tax purposes.

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Adverse outcomes in current or future legal matters could negatively affect Merck’s business.

Current or future litigation, claims, proceedings and government investigations could preclude or delay the commercialization of Merck’s products or could adversely affect Merck’s business, results of operations, cash flow, prospects and financial condition.

Such legal matters may include, but are not limited to:

(i) intellectual property disputes;

(ii) adverse decisions in litigation, including product safety and liability, consumer protection and commercial cases;

(ii) adverse decisions in litigation, including product safety and liability matters, such as the litigation involving Gardasil , consumer protection and commercial cases;

(iii) anti-bribery regulations, such as the FCPA, including compliance with ongoing reporting obligations to the government resulting from any settlements;

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however, there can be no guarantee that insurance coverage will be obtained or, if obtained, will be sufficient to fully cover product liabilities that may arise.

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Risks Related to Technology

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

The Company is increasingly dependent on sophisticated software applications and computing infrastructure, including the use of cloud-based applications and environments.

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

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

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

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the use of which can create new risks.

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

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

The Company is increasing its use of artificial intelligence (AI) systems to automate processes, analyze data, and support decision-making which poses inherent risks.

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

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

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

Ethical and legal challenges may arise, including biases or discrimination in AI outcomes, non-compliance with data protection regulations and laws specifically governing the use of AI systems and tools, and lack of transparency.

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

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Although there are internal Company Social Media and Mobile Messaging Policies that guide employees on appropriate personal and professional use of these platforms for communication about the Company, the processes in place may not completely secure and protect information.

Identifying new points of entry as new communication tools expand also presents new challenges.

Identifying potential new points of unauthorized entry as new communication tools expand also presents new challenges.

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Cautionary Factors that May Affect Future Results

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

A drug candidate can fail at any stage of

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

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

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

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• Legal factors, including product liability claims, antitrust litigation and governmental investigations, including tax disputes, environmental concerns and patent disputes with branded and generic competitors, any of which could preclude commercialization of products or negatively affect the profitability of existing products.

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

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

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

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• Changes in accounting pronouncements promulgated by standard-setting or regulatory bodies, including the Financial Accounting Standards Board and the SEC, that are adverse to the Company.

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• Economic factors over which the Company has no control, including changes in inflation, interest rates and foreign currency exchange rates.

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

What changed 10-K

Item 1A. Risk Factors