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 2026. In March 2026, Merck entered into a definitive agreement to acquire Terns Pharmaceuticals, Inc. (Terns), a clinical-stage oncology company, for $53 per share, for a total transaction value of approximately $6.7 billion. Through this acquisition, Merck will acquire Terns’ lead candidate, TERN-701, a novel investigational oral allosteric BCR::ABL1 tyrosine kinase inhibitor (TKI) currently being evaluated in a Phase 1/2 trial for patients with Philadelphia chromosome-positive, chronic phase chronic myeloid leukemia previously treated with at least one prior TKI and who experienced treatment failure, suboptimal response or treatment intolerance. The transaction has been approved by both Merck’s and Terns’ Boards of Directors. The acquisition is subject to a majority of Terns’ stockholders tendering their shares in the tender offer initiated by Merck in April 2026. The consummation of the proposed transaction is also subject to customary closing conditions. Merck anticipates the transaction will be accounted for as an asset acquisition since TERN-701 is expected to account for substantially all of the fair value of the gross assets to be acquired (excluding cash and deferred income taxes). Upon closing of the transaction, which is anticipated in May 2026, Merck expects to record a charge of approximately $5.8 billion to Research and development expenses, or approximately $2.35 per share. There are no future contingent payments associated with the acquisition. In addition, taking into consideration operational investment to advance TERN-701, as well as the cost of financing the transaction, the Company also anticipates a negative impact of approximately $0.12 per share over the remainder of 2026 following the closing of the transaction. In January 2026, Merck acquired Cidara Therapeutics, Inc. (Cidara), a biotechnology company developing drug-Fc conjugate (DFC) therapeutics, for $9.2 billion (including $570 million of payments to settle share-based equity awards of which $406 million related to unvested equity awards). Cidara’s lead DFC candidate, MK-1406 (formerly CD388), is a long-acting antiviral designed to prevent seasonal and pandemic influenza. MK-1406 is currently being evaluated in a Phase 3 trial among adult and adolescent participants who are at higher risk of developing complications from influenza. The transaction was accounted for as an asset acquisition since MK-1406 accounted for substantially all of the fair value of the gross assets acquired (excluding cash and deferred income taxes). Merck recorded a charge of $9.0 billion to Research and development expenses, or $3.62 per share, (which primarily represented acquired in-process research and development with no alternative future use), as well as net assets of $332 million in the first quarter of 2026. Under a previous license agreement between Cidara and J&J Innovative Medicine (a Johnson & Johnson company, previously Janssen Pharmaceuticals, Inc.), which was assumed by Merck, J&J Innovative Medicine is eligible to receive regulatory and sales-based milestones related to MK-1406. 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 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 eliminated the statutory cap on rebates drug manufacturers pay to Medicaid beginning in January 2024. In 2022, the U.S. Congress passed the Inflation Reduction Act (IRA), which made 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 went into effect in 2025), and government price-setting for certain Medicare Part D drugs (starting in 2026) and Medicare Part B drugs (starting in 2028). The U.S. Department of Health and Human Services (HHS), through the Centers for Medicare & Medicaid Services (CMS), selected Januvia (sitagliptin) in 2023 for the first year of the IRA’s “Drug Price Negotiation Program” (Program), and selected Janumet (sitagliptin and metformin HCl) and Janumet XR (sitagliptin and metformin HCl extended release) in 2025 for the second year of the IRA’s Program. Pursuant to the IRA’s Program, the government set a price for Januvia , which became effective on January 1, 2026, and set a price for Janumet and Janumet XR , which will become effective on January 1, 2027. In addition, in January 2026, HHS announced that Lenvima (lenvatinib) has been selected for government price setting, the set price for which will become effective on January 1, 2028. Furthermore, the Company expects that Keytruda (pembrolizumab) will be selected in 2027 for government price setting, which would become effective on January 1, 2029. Government price setting may also impact pricing in the private market negatively affecting the Company’s performance. The Company has sued the U.S. government regarding the IRA’s Program. 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 Company performance. Furthermore, the Executive Branch 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 2026 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 continue to negatively affect sales and profits. In May 2025, the U.S. presidential administration issued an executive order intended to encourage or impose the use of “most-favored-nation” pricing to tie U.S. prescription drug prices to prices in selected comparably developed nations. In July - 29 - 2025, the Company and other pharmaceutical companies received letters from the U.S. presidential administration with a request to agree to the administration’s “most-favored-nation” drug pricing goals by September 29, 2025. Further to the letter received from the administration, in December 2025, the Company announced that it had entered into a three-year agreement (MFN Agreement) with the U.S government that addressed the four policy goals of the administration’s July letter. Included within the MFN Agreement is an obligation by the Company to provide key products through a direct-to-patient program at affordable prices for eligible patients in the U.S. This will initially include Januvia , Janumet and Janumet XR , and will be expanded in the future to include enlicitide decanoate pending FDA approval. The Company also agreed to offer its existing medicines at discounted prices to Medicaid, excluding certain products. Additionally, the Company agreed that products launched during the term of the MFN Agreement (with certain exceptions) will be subject to “most-favored-nation” pricing in reference to prices for such products in a specified group of countries (MFN Countries). Finally, the Company agreed to repatriate and share with the Federal government a portion of foreign revenue received by the Company as a result of the government’s successful trade policy efforts. Additionally, the Company reached an agreement with the U.S. Department of Commerce to delay Section 232 tariffs for three years, enabling the Company to make investments in the U.S. to reshore manufacturing for American patients. Operating Results Sales Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2026 2025 % Change United States $ 9,164 $ 8,522 8 % 8 % International 7,122 7,007 2 % (3) % Total $ 16,286 $ 15,529 5 % 3 % Worldwide sales were $16.3 billion in the first quarter of 2026, an increase of 5% compared with the first quarter of 2025, reflecting growth in oncology, cardiometabolic and respiratory, and animal health, partially offset by declines in vaccines, diabetes, and infectious diseases. Growth in the oncology franchise in the first quarter of 2026 was largely due to the performance of Keytruda and Welireg (belzutifan), as well as higher alliance revenue from Koselugo (selumetinib) resulting from an amendment to the collaboration agreement. Sales growth in the cardiometabolic and respiratory franchise was largely attributable to the continued uptake of Winrevair (sotatercept-csrk), as well as the inclusion of sales of Ohtuvayre (ensifentrine) (which was obtained as part of the October 2025 acquisition of Verona Pharma plc [Verona Pharma]). Animal health sales growth was due to the performance of both livestock and companion animal products. The vaccines revenue decline was primarily due to lower combined Gardasil (Human Papillomavirus Quadrivalent [Types 6, 11, 16 and 18] Vaccine Recombinant) and Gardasil 9 (Human Papillomavirus 9-valent Vaccine, Recombinant) sales. The decline in diabetes was primarily due to lower sales of Januvia , and the decline in infectious diseases was largely due to lower sales of Lagevrio (molnupiravir). See Note 15 to the condensed consolidated financial statements for details on sales of the Company’s products. A discussion of performance for select products in the franchises follows. All product or service marks appearing in type form different from that of the surrounding text are trademarks or service marks owned, licensed to, or distributed by Merck, its subsidiaries or affiliates, except as noted. All other trademarks or service marks are those of their respective owners. Pharmaceutical Segment Oncology Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2026 2025 % Change Keytruda/Keytruda Qlex $ 8,034 $ 7,205 12 % 8 % Alliance Revenue - Lynparza (1) 341 312 9 % 6 % Welireg 199 137 45 % 43 % Alliance Revenue - Koselugo (2) 161 44 * * Alliance Revenue - Reblozyl (3) 148 119 25 % 25 % * > 100% (1) Alliance revenue for Lynparza 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 Koselugo in 2026 primarily includes a $150 million payment received in connection with an amendment to the collaboration agreement with AstraZeneca in August 2025, which revised the payment structure. Alliance revenue in the first quarter of 2025 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 for more information on this collaboration, including the above referenced amendment.) (3) 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 40 indications in the U.S., including 19 tumor types and 2 tumor-agnostic indications, and has similarly been approved in markets worldwide for many of these indications. Keytruda Qlex is a subcutaneously-administered fixed combination of pembrolizumab and berahyaluronidase alfa, which enhances dispersion and permeability to enable subcutaneous administration of pembrolizumab. - 30 - Keytruda Qlex , which was initially approved by the FDA in September 2025, is approved in the U.S. in solid tumor indications approved for Keytruda . In November 2025, the European Commission (EC) approved a new subcutaneous (SC) route of administration and a new pharmaceutical form (solution for injection) of Keytruda (to be marketed as Keytruda SC ) for use across Keytruda indications for adults in Europe. Timing for commercial availability of Keytruda SC in individual European Union (EU) countries for approved indications will vary by country and depend on multiple factors, including the completion of reimbursement procedures and the outcome of litigation with Halozyme, Inc. as discussed in Note 8 to the condensed consolidated financial statements. The Keytruda and Keytruda Qlex clinical development programs include studies across a broad range of cancer types. See “Research and Development Update” below. Combined global sales of Keytruda/Keytruda Qlex grew 12% in the first quarter of 2026. Sales growth in the U.S. reflects an approximate $250 million favorable impact due to the timing of wholesaler purchases, higher net pricing, and increased demand. Demand in the U.S. was driven by higher utilization across earlier-stage indications, including in certain types of cervical cancer, triple-negative breast cancer (TNBC), and renal cell carcinoma (RCC), as well as higher demand across multiple metastatic indications, in particular for the treatment of certain types of urothelial and cervical cancers. Sales growth in international markets reflects higher demand in urothelial, non-small cell lung cancer (NSCLC), gastric, cervical, and endometrial cancer metastatic indications, as well as increased uptake predominately for the TNBC, NSCLC, melanoma, and RCC earlier-stage indications. The launch and reimbursement of new indications for Keytruda in the EU continues to have a negative impact on pricing in those markets. In addition, a biosimilar of Keytruda launched in Argentina in 2025 and the Company expects further launches in smaller international markets during 2026. The Company anticipates the impact of biosimilar erosion to Keytruda sales will be immaterial in 2026. Keytruda has received the following regulatory approvals thus far in 2026. Date Approval February 2026 China’s National Medical Products Administration (NMPA) approval for the first-line treatment of certain patients with primary advanced or recurrent endometrial cancer, based on the KEYNOTE-868 (NRG-GY018) trial. February 2026 U.S. Food and Drug Administration (FDA) approval in combination with paclitaxel, with or without bevacizumab, for the treatment of adult patients with platinum-resistant epithelial ovarian, fallopian tube or primary peritoneal carcinoma whose tumors express programmed death-ligand (PD-L1) Combined Positive Score (CPS) ≥ 1 as determined by an FDA-authorized test, and who have received one or two prior systemic treatment regimens, based on the KEYNOTE-B96 trial. February 2026 Japan’s Ministry of Health, Labor and Welfare (MHLW) approval for neoadjuvant and adjuvant treatment of locally advanced head and neck squamous cell carcinoma, based on the KEYNOTE-689 trial. March 2026 EC approval in combination with paclitaxel, with or without bevacizumab, for the treatment of platinum-resistant epithelial ovarian, fallopian tube or primary peritoneal carcinoma in adults whose tumors express PD-L1 (CPS ≥1) and who have received one or two prior systemic treatment regimens, based on the KEYNOTE-B96 trial. Keytruda Qlex (available in some markets as Keytruda SC ) received the following regulatory approvals thus far in 2026. Date Approval February 2026 FDA approval in combination with paclitaxel, with or without bevacizumab, for the treatment of adult patients with platinum-resistant epithelial ovarian, fallopian tube or primary peritoneal carcinoma whose tumors express PD-L1 (CPS ≥ 1) as determined by an FDA-authorized test, and who have received one or two prior systemic treatment regimens, based on the KEYNOTE-B96 trial. March 2026 EC approval in combination with paclitaxel, with or without bevacizumab, for the treatment of platinum-resistant epithelial ovarian, fallopian tube or primary peritoneal carcinoma in adults whose tumors express PD-L1 (CPS ≥1) and who have received one or two prior systemic treatment regimens, based on the KEYNOTE-B96 trial. April 2026 FDA approval of a label update based on results from the MK-3475A-F11 trial, which evaluated patient reported preference for subcutaneous administration of Keytruda Qlex over intravenous administration of Keytruda in participants with multiple tumor types. The Company is a party to license agreements pursuant to which the Company pays royalties on net sales of Keytruda . Under the terms of the more significant of these agreements, Merck pays a royalty of 2.5% on worldwide net sales of Keytruda ; this royalty (which also applies to net sales of Keytruda Qlex) will continue through 2026, terminating thereafter. The Company pays an additional 2% royalty on worldwide net sales of Keytruda (and on Keytruda Qlex following regulatory approval) to another third party; this royalty expired in the U.S. in 2024, expired in major European markets in the second half of 2025, but will continue to be paid on net sales of Keytruda and Keytruda Qlex in certain other international markets expiring at various dates through 2035. The royalty expenses are included in Cost of sales . The Company may be subject to additional royalties on net sales of Keytruda Qlex in the future under certain circumstances. Lynparza (olaparib) is an oral poly (ADP-ribose) polymerase (PARP) inhibitor being developed and commercialized 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 grew 9% in the first quarter of 2026 largely due to higher demand in the U.S. and many international markets. - 31 - Sales of Welireg , for the treatment of adult patients with certain von Hippel-Lindau (VHL) disease-associated tumors, certain adult patients with previously treated advanced RCC, and certain patients with pheochromocytoma and paraganglioma, rose 45% in the first quarter of 2026 primarily due to higher demand in the U.S. for the RCC indication and continued launch uptake in several international markets, particularly in Japan and certain European markets. Koselugo is an oral, selective MEK inhibitor approved for the treatment of patients with neurofibromatosis type 1 who have symptomatic inoperable plexiform neurofibromas. Koselugo is part of a collaboration with AstraZeneca. The increase in alliance revenue in the first quarter of 2026 is due to a $150 million payment received in connection with an amendment to the collaboration agreement in August 2025 that (subject to an annual election by AstraZeneca) discontinued the revenue and cost sharing provisions of the collaboration, and changed the payment structure. See Note 3 to the condensed consolidated financial statements for additional information. Reblozyl (luspatercept-aamt) is a first-in-class erythroid maturation recombinant fusion protein that is being commercialized through a global collaboration with Bristol-Myers Squibb Company (BMS) (see Note 3 to the condensed consolidated financial statements). Reblozyl is approved for the treatment of anemia in certain rare blood disorders. Alliance revenue related to this collaboration (consisting of royalties) increased 25% in the first quarter of 2026 primarily due to strong underlying sales performance. Vaccines Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2026 2025 % Change Gardasil/Gardasil 9 $ 1,069 $ 1,327 (19) % (22) % ProQuad 198 121 64 % 60 % M-M-R II 105 168 (38) % (39) % Varivax 235 249 (6) % (7) % Vaxneuvance 202 230 (12) % (16) % Capvaxive 142 107 33 % 31 % In January 2026, the acting director of the U.S. Centers for Disease Control and Prevention (CDC) announced changes to the child and adolescent immunization schedule (January announcement), reducing the number of routinely recommended vaccinations and creating three new categories: immunizations recommended for all children; immunizations recommended for certain high-risk groups or populations; and immunizations based on shared clinical decision-making. Immunizations recommended for all children include vaccines for measles, mumps, rubella, polio, pertussis, tetanus, diphtheria, Haemophilus influenzae type B (Hib), pneumococcal disease, human papillomavirus (HPV), and varicella (chickenpox). Immunizations recommended for certain high-risk groups or populations include respiratory syncytial virus (RSV), hepatitis A, hepatitis B, and dengue. Immunizations recommended based on shared clinical decision-making include rotavirus, hepatitis A, and hepatitis B. HHS has stated that immunizations for all of the diseases covered by the previous immunization schedule will still be available to anyone who wants them through Affordable Care Act insurance plans and federal insurance programs, including Medicaid, the Children’s Health Insurance Program, and the Vaccines For Children (VFC) program. Additionally, in September 2025, the trade association representing U.S. health insurers (AHIP) announced that its member health plans would continue to cover all immunizations that had been recommended by the CDC’s Advisory Committee on Immunization Practices (ACIP) as of September 1, 2025, with no cost-sharing for patients through the end of 2026. On March 16, 2026, a federal district court in Massachusetts issued a preliminary injunction staying, among other things, the immunization schedule changes in the CDC’s January announcement. The government is appealing the district court ruling to the U.S. Court of Appeals for the First Circuit. Combined worldwide sales of Gardasil and Gardasil 9, vaccines to help prevent certain cancers and other diseases caused by certain types of HPV, declined 19% in the first quarter of 2026. The sales decline was primarily driven by lower demand in China (discussed below) and in Japan, reflecting in part that the last date to initiate the first dose in Japan’s national immunization program catch-up cohort was in March 2025. The decline also reflects lower sales in the U.S. primarily due to unfavorable CDC purchasing patterns, partially offset by higher net pricing. As previously disclosed, the Company suspended shipments to China beginning in February 2025 given lower demand and elevated channel inventory levels in China. In April 2026, the Company entered into a revised supply contract with its distributor and commercialization partner in China, Chongqing Zhifei Biological Products Co., Ltd. (Zhifei). Subject to agreement between the parties, the Company may make shipments to China in the latter part of 2026; if so, any associated revenue in 2026 is expected to be immaterial. Among the changes in the CDC’s now-stayed January announcement referenced above was a reduction of the recommended doses for HPV vaccination of adolescents to a single dose. Gardasil 9 is currently indicated in the U.S. for a two-dose regimen in adolescents aged 9-14 and a three-dose regimen for those aged 15-45. Previous CDC recommendations for adolescents followed FDA-approved dosing. Many countries outside the U.S. have implemented a reduced dosing schedule for HPV vaccination in certain age groups. The Company anticipates that any negative effect of these recommendations or reduced dosing schedules on sales of Gardasil/Gardasil 9 will not be material. The Company is a party to license agreements pursuant to which the Company pays royalties on net sales of Gardasil/Gardasil 9. Under the terms of the more significant of these agreements, Merck pays a 7% royalty on net sales of - 32 - Gardasil/Gardasil 9 in the U.S. to one third party (this royalty expires in December 2028). 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, increased 64% in the first quarter of 2026 primarily due to higher sales in the U.S. As a result of manufacturing delays, in January 2025, the Company borrowed doses of ProQuad from the CDC Pediatric Vaccine Stockpile, which reduced sales of ProQuad by approximately $70 million in the first quarter of 2025. The Company replenished the borrowing later in 2025. Higher demand in certain European markets also contributed to the growth in ProQuad sales in the first quarter of 2026. Worldwide sales of M-M-R II (Measles, Mumps and Rubella Virus Vaccine Live), a vaccine to help protect against measles, mumps and rubella declined 38% in the first quarter of 2026 primarily due to lower sales in the U.S. largely reflecting unfavorable private sector purchasing patterns and lower demand. Global sales of Varivax (Varicella Virus Vaccine Live), a vaccine to help prevent chickenpox (varicella), declined 6% in the first quarter of 2026 primarily due to lower sales in the U.S. largely driven by lower demand, partially offset by higher net pricing. In September 2025, the ACIP voted to recommend that children under the age of four years receive protection from chickenpox (varicella) as a standalone immunization rather than in combination with measles, mumps, and rubella (MMR) vaccination, eliminating a previous shared clinical decision-making recommendation that allowed parents to choose combined MMR and varicella vaccine first-dose administration. The ACIP also voted to align the VFC program with this change. The acting CDC Director adopted the recommendation in October 2025. These ACIP recommendations are subject to the federal district court’s March 16, 2026 preliminary injunction, as described above. MMR and varicella vaccines remain recommended and funded through the VFC program for both the first and second doses. The Company is the only manufacturer in the U.S. of MMRV vaccine ( ProQuad ) and varicella vaccine ( Varivax ). The Company anticipates that any negative effect of these recommendations on sales of ProQuad will not be material. Worldwide sales of Vaxneuvance (Pneumococcal 15-valent Conjugate Vaccine), a vaccine to help protect against invasive pneumococcal disease caused by certain serotypes, declined 12% in the first quarter of 2026 primarily due to lower demand in the U.S. and most international markets due to competition. Merck is a party to license agreements pursuant to which the Company pays royalties on net sales of Vaxneuvance . Under the most significant of these agreements, Merck pays a royalty of 7.25% on net sales of Vaxneuvance through 2026; this royalty will decline to 2.5% on net sales from 2027 through 2035. The royalty expenses are included in Cost of sales . Sales of Capvaxive (Pneumococcal 21-valent Conjugate Vaccine), a vaccine for the prevention of invasive pneumococcal disease and pneumococcal pneumonia caused by certain serotypes in individuals 18 years of age and older, grew 33% in the first quarter of 2026 largely due to launch uptake in certain international markets, particularly in the EU, and continued uptake in the U.S. Sales growth in the U.S. was negatively impacted by a reduction in wholesaler inventory. Capvaxive was approved in the U.S. in June 2024, in the EU in March 2025 and in Japan in August 2025. Merck is a party to license agreements pursuant to which the Company pays royalties on net sales of Capvaxive . Under the terms of the most significant of these agreements, Merck pays a royalty of 7.25% on net sales of Capvaxive through 2026; this royalty will decline to 2.5% on net sales from 2027 through 2035. The royalty expenses are included in Cost of sales. Enflonsia (clesrovimab-cfor) is a preventive, long-acting monoclonal antibody, for the prevention of RSV lower respiratory tract disease in neonates (newborns) and infants who are born during or entering their first RSV season. Enflonsia was approved in the U.S. in June 2025 and in the EU in April 2026 based on results from the CLEVER and SMART clinical trials. The timing for availability of Enflonsia in individual EU countries will vary by country and depend on multiple factors, including the completion of reimbursement procedures. Sales of Enflonsia were $1 million in the first quarter of 2026 and the Company expects minimal sales of Enflonsia in the second quarter of 2026 given the seasonal nature of the product and continued high levels of RSV monoclonal antibody inventory in the market; however, the Company anticipates that shipments will increase in the second half of 2026. Cardiometabolic and Respiratory Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2026 2025 % Change Winrevair $ 525 $ 280 88 % 87 % Ohtuvayre 131 — — — Alliance Revenue - Adempas/Verquvo (1) 109 106 3 % 3 % Adempas 78 68 15 % 5 % (1) Alliance revenue for Adempas and Verquvo represents Merck’s share of profits from sales in Bayer AG’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 3 to the condensed consolidated financial statements). Winrevair is an activin signaling inhibitor indicated for the treatment of adults with pulmonary arterial hypertension (PAH) (World Health Organization [WHO] Group 1 pulmonary hypertension) to improve exercise capacity and WHO functional class, and reduce the risk of clinical worsening events including hospitalization for PAH, lung transplantation and death. Sales of Winrevair rose to $525 million in the first quarter of 2026 largely due to continued uptake in the U.S. and early launch uptake in certain international markets, particularly in Japan and Europe. Winrevair was originally approved in the U.S. in March 2024, in the EU in August 2024, and in Japan in June 2025 (where it is being marketed as Airwin ). Winrevair was approved for expanded indications in PAH based on the ZENITH trial in the U.S. in October 2025 and in the EU in January 2026. Winrevair is the subject - 33 - of a licensing agreement pursuant to which Merck pays a 22% royalty on net sales of Winrevair to BMS. The royalty expenses are included in Cost of sales . Ohtuvayre is an inhaled phosphodiesterases 3 and 4 (PDE3 and PDE4) inhibitor, which was approved in the U.S. in June 2024 for the maintenance treatment of chronic obstructive pulmonary disease (COPD) in adults. Ohtuvayre was obtained in conjunction with Merck’s October 2025 acquisition of Verona Pharma. 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 PAH and chronic pulmonary hypertension. Verquvo is approved to reduce the risk of cardiovascular death and heart failure hospitalization following a hospitalization for heart failure or need for outpatient intravenous diuretics in adults with symptomatic chronic heart failure and reduced ejection fraction. Alliance revenue from the collaboration grew 3% in the first quarter of 2026 primarily reflecting higher demand in Bayer’s marketing territories. The Company expects alliance revenue to decline for the full year of 2026 reflecting the loss of market exclusivity for Adempas in the U.S. Revenue also includes sales of Adempas and Verquvo in Merck’s marketing territories. Sales of Adempas in Merck’s marketing territories increased 15% in the first quarter of 2026 largely due to higher demand. Infectious Diseases Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2026 2025 % Change Bridion $ 472 $ 441 7 % 7 % Prevymis 272 208 31 % 26 % Dificid 34 83 (59) % (59) % Lagevrio 28 102 (73) % (73) % Global sales of Bridion (sugammadex), for the reversal of two types of neuromuscular blocking agents used during surgery, grew 7% in the first quarter of 2026, as higher demand in the U.S. was partially offset by lower demand in most international markets due to generic competition. Bridion will lose market exclusivity in the U.S. in July 2026 . The Company anticipates U.S. sales of Bridion to decline thereafter, depending upon the availability of generic supply. The Company expects to discontinue U.S. sales of Bridion as market supply stabilizes, potentially into 2027. Worldwide sales of Prevymis (letermovir), a medicine for prophylaxis (prevention) of cytomegalovirus (CMV) infection and disease in certain high risk adult and pediatric recipients of an allogenic hematopoietic stem cell transplant and for prophylaxis of CMV disease in certain high risk adult and pediatric recipients of a kidney transplant, grew 31% in the first quarter of 2026 primarily due to higher demand in the U.S. and certain European markets, reflecting in part the launch of new indications. Worldwide sales of Dificid (fidaxomicin), a medicine for the treatment of C. difficile -associated diarrhea, declined 59% in the first quarter of 2026 due to generic competition in the U.S. Dificid lost market exclusivity in the U.S. in July 2025; accordingly, the Company is experiencing a significant decline in U.S. sales of Dificid and expects the decline to continue. Lagevrio is an investigational oral antiviral COVID-19 medicine being developed in a collaboration with Ridgeback Biotherapeutics LP (see Note 3 to the condensed consolidated financial statements). Sales of Lagevrio decreased 73% in the first quarter of 2026 largely due to lower demand in Japan and the U.S. driven primarily by declining COVID-19 cases. The Company expects the Lagevrio sales decline to continue during 2026. In April 2026, the FDA approved Idvynso , a once-daily, two-drug single-tablet regimen of doravirine, a non-nucleoside reverse transcriptase inhibitor, and islatravir, a next-generation nucleoside analog reverse transcriptase inhibitor, for the treatment of HIV-1 infection in adults to replace the current antiretroviral regimen in those who are virologically suppressed (HIV-1 RNA less than 50 copies per mL) on a stable antiretroviral regimen with no history of virologic treatment failure and no known substitutions associated with resistance to doravarine. Idvynso was also approved in Japan for these patients in March 2026. The approvals were based on the MK-8591A-051 and MK-8591A-052 clinical trials. Diabetes Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2026 2025 % Change Januvia/Janumet $ 574 $ 796 (28) % (29) % Worldwide combined sales of Januvia and Janumet , medicines that help lower blood sugar levels in adults with type 2 diabetes, declined 28% in the first quarter of 2026 primarily due to lower sales in the U.S. reflecting lower net pricing and ongoing volume declines due to competitive pressure. The sales decline was also attributable to lower demand in China and ongoing generic competition in most other international markets. While the key U.S. patent for Januvia , Janumet and Janumet XR 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 - 34 - sitagliptin salt form of the products, Januvia and Janumet will lose market exclusivity in the U.S. in May 2026 and Janumet XR will lose market exclusivity in the U.S. in 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 . See Note 8 to the condensed consolidated financial statements for additional information related to the above-referenced patent litigation. Additionally, HHS, through the CMS, selected Januvia in 2023 for the first year of the IRA’s Program, and selected Janumet and Janumet XR in 2025 for the second year of the IRA’s Program. Pursuant to the IRA’s program, the government set a price for Januvia , which became effective on January 1 2026, and set a price for Janumet and Janumet XR, which will become effective on January 1, 2027. The Company has sued the U.S. government regarding the IRA’s Program. The Company expects a significant decline in sales of Januvia in the first half of 2026 and subsequently, following loss of market exclusivity in May 2026, the Company anticipates it will lose nearly all U.S. sales of Januvia and Janumet . Animal Health Segment Three Months Ended March 31, % Change Excluding Foreign Exchange ($ in millions) 2026 2025 % Change Livestock $ 1,064 $ 924 15 % 8 % Companion Animal 727 664 9 % 4 % $ 1,791 $ 1,588 13 % 6 % Sales of livestock products grew 15% in the first quarter of 2026 primarily due to higher demand for ruminant and poultry products, as well as higher pricing. Sales of companion animal products grew 9% in the first quarter of 2026 primarily due to new product launches and higher pricing, partially offset by lower demand for other products in the portfolio, reflecting a reduction in veterinary visits. Sales of the Bravecto (fluralaner) line of products were $379 million in the first quarter of 2026, representing growth of 16%, or 9% excluding the effect of foreign exchange, compared with the first quarter of 2025. In February 2026, the FDA approved Numelvi (atinvicitinib tablets), the first and only second-generation Janus kinase (JAK) inhibitor indicated for the control of pruritus associated with allergic dermatitis in dogs six months of age and older. Costs, Expenses and Other Three Months Ended March 31, ($ in millions) 2026 2025 % Change Cost of sales $ 4,195 $ 3,419 23 % Selling, general and administrative 2,700 2,552 6 % Research and development 12,592 3,621 * Restructuring costs 195 69 * Other (income) expense, net 138 (35) * $ 19,820 $ 9,626 * * > 100% Cost of Sales Cost of sales increased 23% in the first quarter of 2026. Cost of sales includes the amortization of intangible assets recorded in connection with acquisitions, collaborations, and licensing arrangements, which totaled $931 million and $587 million in the first quarter of 2026 and 2025, respectively. Additionally, cost of sales in the first quarter of 2026 includes an $83 million impact for the recognition of fair value step-up of inventories related to the October 2025 acquisition of Verona Pharma. Also included in cost of sales are expenses associated with restructuring activities, which amounted to $237 million and $36 million in the first quarter of 2026 and 2025, respectively, primarily reflecting accelerated depreciation and asset impairment charges related to manufacturing facilities to be fully or partially closed or divested, as well as contractual termination costs. Separation costs associated with manufacturing-related headcount reductions have been incurred and are reflected in Restructuring costs as discussed below. Gross margin was 74.2% in the first quarter of 2026 compared with 78.0% in the first quarter of 2025. The gross margin decline was primarily due to higher amortization of intangible assets, higher restructuring costs, the recognition of fair value step-up of inventories related to the October 2025 acquisition of Verona Pharma, and the unfavorable effect of foreign exchange, partially offset by the favorable effect of product mix. Selling, General and Administrative Selling, general and administrative (SG&A) expenses increased 6% in the first quarter of 2026 primarily due to higher administrative costs and the unfavorable impact of foreign exchange. - 35 - Research and Development Research and development (R&D) expenses increased to $12.6 billion in the first quarter of 2026 from $3.6 billion in the first quarter of 2025 primarily due to a $9.0 billion charge for the acquisition of Cidara, increased clinical development spending, the unfavorable effect of foreign exchange, and restructuring costs, partially offset by a $200 million reduction in R&D expenses as part of the funding agreement with Blackstone Life Sciences (Blackstone) and a $100 million charge in the first quarter of 2025 for the achievement of a developmental milestone related to the 2024 EyeBiotech Limited (EyeBio) acquisition. See Note 2 to the condensed consolidated financial statements for more information on the acquisition of Cidara and the Blackstone funding agreement. R&D expenses consist 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 $2.5 billion the first quarter of 2026 (inclusive of a $200 million benefit from the Blackstone funding agreement noted above) and $2.5 billion for the first quarter of 2025. Also included in R&D expenses are Animal Health research costs, upfront and milestone payments for collaboration and licensing agreements (including the charge for the EyeBio developmental milestone noted above), charges for transactions accounted for as asset acquisitions (including the charge for the acquisition of Cidara 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 $10.0 billion and $1.1 billion for the first quarter of 2026 and 2025, respectively. R&D expenses also include restructuring costs of $34 million in the first quarter of 2026 primarily associated with contractual termination costs. Restructuring Costs In July 2025, the Company approved a restructuring program (2025 Restructuring Program) designed to position the Company for its next chapter of growth and to successfully advance its pipeline and launch new products across multiple therapeutic areas. As part of this program, the Company expects to eliminate certain positions in sales and administrative organizations, as well as research and development. The Company will, however, continue to hire employees into new roles across all strategic growth areas of the business. In addition, the Company will reduce its global real estate footprint and continue to optimize its manufacturing network, aligning the geography of its global manufacturing footprint to its customers and reflecting changes in the Company’s business. Most actions contemplated under the 2025 Restructuring Program are expected to be largely completed by the end of 2027, with the exception of certain manufacturing actions, which are expected to be substantially completed by the end of 2029. The cumulative pretax costs to be incurred by the Company to implement the program are estimated to be approximately $3.0 billion, of which approximately 60% will be cash, relating primarily to employee separation expense and contractual termination costs. The remainder of the costs will be non-cash, relating primarily to the accelerated depreciation of facilities. The Company expects the actions under the 2025 Restructuring Program to result in annual cost savings of approximately $1.7 billion, which will be substantially realized by the end of 2027. The 2025 Restructuring Program is part of the Company’s multiyear optimization initiative anticipated to achieve $3.0 billion in annual cost savings by the end of 2027, which will be fully reinvested into strategic growth areas of the business. In January 2024, the Company approved a 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 50% 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 anticipates the actions under the 2024 Restructuring Program will result in cumulative annual net cost savings of approximately $750 million by the end of 2031. Restructuring costs of $195 million and $69 million for the first quarter of 2026 and 2025, respectively, primarily include separation and other costs associated with these restructuring activities. Separation costs incurred were associated with actual headcount reductions, as well as estimated expenses under existing severance programs for involuntary headcount reductions that were probable and could be reasonably estimated. 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 $466 million and $105 million in the first quarter of 2026 and 2025, respectively, related to restructuring program activities. See Note 4 to the condensed consolidated financial statements for additional details. Other (Income) Expense, Net Other (income) expense, net, was $138 million of expense in the first quarter of 2026 compared with $35 million of income in the first quarter of 2025. The unfavorable quarter-over-quarter change was primarily due to higher net interest expense, partially offset by higher net income from investments in equity securities (primarily due to the Company’s investment in Sichuan Kelun-Biotech Biopharmaceutical Co., Ltd.). - 36 - For details on the components of Other (income) expense, net see Note 11 to the condensed consolidated financial statements. Segment Profits Three Months Ended March 31, ($ in millions) 2026 2025 Pharmaceutical segment profits $ 11,519 $ 10,712 Animal Health segment profits 722 634 Non-segment activity (15,775) (5,443) (Loss) Income Before Taxes $ (3,534) $ 5,903 Pharmaceutical segment profits consist of segment sales less standard costs, as well as SG&A expenses directly incurred by the segment. Animal Health segment profits consist 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 the recognition of fair value step-up of inventories, 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 “Non-segment activity” in the above table. Also included in “Non-segment activity” are miscellaneous corporate profits (losses), as well as operating profits (losses) related to third-party manufacturing arrangements. Taxes on Income The income tax provision of $709 million for the first quarter of 2026 on a pretax loss of $3.5 billion, resulted in an effective income tax rate of (20.1)%. The first quarter 2026 effective income tax rate reflects a 33.1 percentage point unfavorable impact of the charge for the acquisition of Cidara, which had no tax benefit, partially offset by the favorable impacts of jurisdictional mix of income and expense. The effective income tax rate of 13.9% for the first quarter of 2025 reflects the favorable impacts of jurisdictional mix of income and expense, as well as certain discrete items. 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. In April 2025, Merck received Notices of Proposed Adjustment (NOPAs) that would increase the amount of the one-time transition tax on certain undistributed earnings of foreign subsidiaries by approximately $1.3 billion. In addition, the NOPAs included penalties of approximately $260 million. These amounts are exclusive of any interest that may be due. The Company disagrees with the proposed adjustments and will vigorously contest the NOPAs through all available administrative and, if necessary, judicial proceedings. It may take a number of years to reach resolution of this matter. If the Company is ultimately unsuccessful in defending its position, the impact could be material to its financial statements. The statute of limitations for assessments with respect to the 2019 and 2020 federal tax return years expired in June 2024 and October 2024, respectively. 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. Non-GAAP (Loss) Income and Non-GAAP EPS Non-GAAP (loss) income and non-GAAP (loss) earnings per share (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 (loss) 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 (loss) 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 (loss) 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 (loss) income and non-GAAP EPS should be considered in addition to, but not as a substitute for or superior to, net (loss) income and EPS prepared in accordance with generally accepted accounting principles in the U.S. (GAAP). - 37 - 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) 2026 2025 (Loss) income before taxes as reported under GAAP $ (3,534) $ 5,903 Increase (decrease) for excluded items: Acquisition- and divestiture-related costs 1,046 647 Restructuring costs 466 105 Income from investments in equity securities, net (180) (107) Non-GAAP (loss) income before taxes (2,202) 6,548 Income tax provision as reported under GAAP 709 818 Estimated tax benefit on excluded items (1) 248 113 Non-GAAP income tax provision 957 931 Non-GAAP net (loss) income (3,159) 5,617 Less: Net (loss) income attributable to noncontrolling interests as reported under GAAP (3) 6 Non-GAAP net (loss) income attributable to Merck & Co., Inc. $ (3,156) $ 5,611 EPS assuming dilution as reported under GAAP (2)(3) $ (1.72) $ 2.01 EPS difference 0.44 0.21 Non-GAAP EPS assuming dilution (2)(3) $ (1.28) $ 2.22 (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 2026 by a charge of $3.62 per share for a transaction accounted for as an asset acquisition. See “Business Development Transactions” above for additional information. (3) The Company recorded a net loss on both a GAAP and non-GAAP basis for the first quarter of 2026; therefore, no potential dilutive common shares were used in the computations of loss per common share assuming dilution because the effects would have been antidilutive. Acquisition- and Divestiture-Related Costs Non-GAAP (loss) income and non-GAAP EPS exclude the impact of certain amounts recorded in connection with acquisitions and divestitures of businesses. These amounts include the amortization of intangible assets and the recognition of fair value step-up of inventories, as well as intangible asset impairment charges, and expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration. Also excluded are integration, transaction, and certain other costs associated with acquisitions and divestitures. Non-GAAP income and non-GAAP EPS also exclude amortization of intangible assets related to collaborations, asset acquisitions, and licensing arrangements, as well as the recognition of fair value step-up of inventories related to asset acquisitions. Restructuring Costs Non-GAAP (loss) 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 fully or partially 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 impairment, facility shut-down, contractual termination, and other related costs, as well as employee-related costs such as curtailment, settlement, and termination charges associated with pension and other postretirement benefit plans and share-based compensation costs. Income and Losses from Investments in Equity Securities Non-GAAP (loss) 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 (loss) 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 items are unusual in nature, significant to the results of a particular period or not indicative of future operating results. There were no such items in either the first quarter of 2026 or 2025. Research and Development Update The Company currently has several candidates under regulatory review in the U.S. and internationally. MK-1654, Enflonsia , a prophylactic long-acting monoclonal antibody designed to protect infants from RSV disease during their first RSV season, is under review in Japan. The application is based on results from the Phase 2b/3 CLEVER trial and the Phase 3 SMART trial. MK-2400, ifinatamab deruxtecan (I-DXd), an investigational, potential first-in-class B7-H3 directed DXd antibody drug conjugate (ADC), is under priority review in the U.S. for the treatment of adult patients with previously treated extensive-stage - 38 - small cell lung cancer who experienced disease progression on or after platinum-based chemotherapy. The FDA set a Prescription Drug User Fee Act (PDUFA) target action date of October 10, 2026. The biologics license application (BLA) is based on results from the Phase 2 IDeate-Lung01 trial. I-DXd is being developed as part of a collaboration with Daiichi Sankyo. MK-0616, enlicitide decanoate, an investigational once-daily oral proprotein convertase subtilisin/kexin type 9 (PCSK9) inhibitor, is under review in the EU for the treatment of adults with primary hypercholesterolemia or mixed dyslipidemia. The application is based on the Phase 3 CORALreef Lipids, CORALreef HeFH, and CORALreef AddOn studies. Enlicitide decanoate is in Phase 3 development in the U.S. In December 2025, the FDA selected enlicitide decanoate for the Commissioner’s National Priority Voucher (CNPV) pilot program, which offers the ability to seek expedited approval for a drug or biologic application or efficacy supplement. Pilot program eligibility requires alignment with one or more critical national health priorities, which include addressing a health crisis in the U.S., bringing innovative therapies to the American people, addressing a large unmet medical need, promoting domestic manufacturing, and increasing affordability. The pilot program is intended to enable enhanced communications with the FDA and action on an application within one to two months. The CNPV process for enlicitide decanoate is progressing. MK-3475, Keytruda , is an anti-PD-1 therapy available for intravenous administration. MK-3475A, Keytruda Qlex , combines pembrolizumab with berahyaluronidase alfa to enhance dispersion and permeability to enable subcutaneous administration. Keytruda and Keytruda Qlex each are approved for the treatment of many cancers and continue to be studied in additional Phase 3 trials. Keytruda is under review in Japan in combination with chemotherapy with or without bevacizumab for the treatment of certain patients with platinum-resistant recurrent ovarian cancer. The application is based on data from the Phase 3 KEYNOTE-B96 trial. Keytruda also is under review in the EU and Japan in combination with Padcev (enfortumab vedotin) as neoadjuvant treatment, then continued after radical cystectomy as adjuvant treatment, for patients with muscle invasive bladder cancer (MIBC) who are ineligible for cisplatin-based chemotherapy. The application is based on data from the Phase 3 KEYNOTE-905 trial conducted in collaboration with Pfizer Inc. (Pfizer) and Astellas. Keytruda and Keytruda Qlex are under priority review by the FDA in combination with Padcev as neoadjuvant treatment, then continued after radical cystectomy as adjuvant treatment, for patients with MIBC who are eligible for cisplatin-based chemotherapy. The FDA set a PDUFA date of August 17, 2026. The supplemental BLAs are based on data from the Phase 3 KEYNOTE-B15 trial conducted in collaboration with Pfizer and Astellas. Keytruda and Keytruda Qlex also are under review by the FDA in combination with Gilead Sciences Inc.’s (Gilead) Trodelvy (sacituzumab govitecan) for the first-line treatment of certain patients with unresectable locally advanced or metastatic TNBC whose tumors express PD‑L1. The FDA set PDUFA dates in the second half of 2026 for these applications. The supplemental BLAs are based on data from the Phase 3 KEYNOTE-D19 trial conducted in collaboration with Gilead. MK-6482, Welireg , Merck’s first-in-class oral hypoxia-inducible factor-2 alpha (HIF-2α) inhibitor, in combination with Keytruda or Keytruda Qlex is under priority review by the FDA for the adjuvant treatment of certain patients with clear cell RCC following nephrectomy. The FDA set a PDUFA date of June 19, 2026. The supplemental applications for Welireg , Keytruda and Keytruda Qlex are based on data from the Phase 3 LITESPARK-022 trial. Welireg , in combination with MK-7902, Lenvima, an orally available multiple receptor TKI, is under review in the U.S. and Japan for the treatment of certain previously treated patients with advanced RCC. In the U.S., the FDA set a PDUFA date of October 4, 2026. The supplemental applications for Welireg and Lenvima are based on data from the Phase 3 LITESPARK-011 trial. Lenvima is being developed as part of a collaboration with Eisai Co., Ltd. MK-7962, Winrevair , an activin signaling inhibitor for the treatment of adults with PAH (WHO Group 1 pulmonary hypertension), is under review by the FDA in connection with a proposed update to the U.S. product label based on the results of the Phase 3 HYPERION trial. The FDA set a PDUFA date of September 21, 2026. Additionally, in March 2026, the Company announced the presentation of positive data from the Phase 2, proof-of-concept CADENCE trial of Winrevair ; the Company intends to proceed with Phase 3 development of Winrevair for the treatment of combined post- and precapillary pulmonary hypertension due to heart failure with preserved ejection fraction. A pre-specified interim analysis of the Phase 3 LITESPARK-012 study found that, compared to Keytruda plus Lenvima, the triplet combination regimen of Keytruda plus Lenvima plus Welireg , as well as the combination regimen of MK-1308A (an investigational fixed dose coformulation of Keytruda and the anti-CTLA-4 antibody quanvonlimab) plus Lenvima, did not show a statistically significant improvement in the dual primary endpoints of progression-free survival and overall survival in patients with advanced clear cell RCC. Separately, the Company has decided to end the MK-1308A clinical development program and will prioritize the development of other candidates in its comprehensive and diversified oncology pipeline. This decision is not based on any concerns about the safety of that fixed-dose coformulation. In the Phase 3 KEYNOTE-975 study, compared to placebo plus definitive chemoradiotherapy (dCRT), Keytruda plus dCRT did not show a statistically significant improvement in the primary endpoint of event-free survival (EFS) in certain patients with locally advanced unresectable esophageal carcinoma. Also, a pre-specified interim analysis of the Phase 3 KEYNOTE-866 study found that, compared to perioperative placebo plus neoadjuvant chemotherapy, perioperative Keytruda plus neoadjuvant chemotherapy did not show a statistically significant improvement in the primary endpoint of EFS in patients with cisplatin-eligible MIBC who underwent radical cystectomy and pelvic lymph node dissection. - 39 - The chart below reflects the Company’s research pipeline as of April 30, 2026. 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 generally are given MK-number designations and vaccine candidates generally 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, immunology and certain other indications) and additional claims, line extensions or formulations for in-line products are not shown. Phase 2 Alzheimer’s Disease MK-1167 MK-2214 Atherosclerosis MK-7262 Cancer MK-1022 (patritumab deruxtecan) (1) Biliary Bladder Cervical Endometrial Esophageal Gastric Hepatocellular Melanoma Non-Small Cell Lung Ovarian Pancreatic Prostate MK-1084 (calderasib) (1) Solid Tumors MK-2400 (ifinatamab deruxtecan) (1) Biliary Bladder Breast Cervical Endometrial Head and Neck Hepatocellular Melanoma Non-Small Cell Lung Ovarian Pancreatic Solid Tumors Cancer MK-2870 (sacituzumab tirumotecan) (1) Biliary Esophageal Neoplasm Malignant Pancreatic MK-3120 Bladder MK-3475 Keytruda Prostate MK-3475A Keytruda Qlex Hematological Malignancies (U.S.) MK-5684 (opevesostat) Breast Endometrial Ovarian MK-5909 (raludotatug deruxtecan) (1) Cervical Endometrial Gastric Non-Small Cell Lung Renal Cell Small Cell Lung MK-6070 (gocatamig) (1) Small Cell Lung MK-6482 Welireg Breast Cancer V940 (intismeran autogene) (1) Bladder Renal Cell Chronic Obstructive Pulmonary Diseases MK-5884A (ensifentrine+glycopyrrolate) HIV-1 Infection MK-8591B (islatravir+ulonivirine) Immunology MK-7240 (tulisokibart) Axial Spondyloarthritis Hidradenitis Suppurativa Psoriatic Arthritis Rheumatoid Arthritis Systemic Sclerosis MK-8690 Ulcerative Colitis Metabolic Dysfunction-Associated Steatohepatitis (MASH) MK-6024 (efinopegdutide) Pulmonary Hypertension-Chronic Obstructive Pulmonary Disease MK-5475 Pulmonary Hypertension Due To Left Heart Disease MK-7962 Winrevair - 40 - Phase 3 (Phase 3 entry date) Under Review Cancer MK-1022 (patritumab deruxtecan) (1) Breast (July 2025) MK-1026 (nemtabrutinib) Hematological Malignancies (March 2023) MK-1084 (calderasib) (1) Colorectal (July 2025) Non-Small Cell Lung (May 2024) MK-2140 (zilovertamab vedotin) Hematological Malignancies (September 2024) MK-2400 (ifinatamab deruxtecan) (1) Esophageal (March 2025) Prostate (May 2025) Small Cell Lung (EU) (July 2024) MK-2870 (sacituzumab tirumotecan) (1) Bladder (April 2026) Breast (April 2024) Cervical (July 2024) Endometrial (December 2023) Gastric (May 2024) Non-Small Cell Lung (November 2023) Ovarian (April 2025) MK-3475 Keytruda Small-Cell Lung (May 2017) MK-3543 (bomedemstat) Myeloproliferative Disorders (December 2023) MK-5909 (raludotatug deruxtecan) (1) Ovarian (December 2025) MK-5684 (opevesostat) Prostate (December 2023) MK-7339 Lynparza (1) Non-Small Cell Lung (June 2019) Small Cell Lung (December 2020) V940 (intismeran autogene) (1) Melanoma (July 2023) Non-Small Cell Lung (December 2023) COVID-19 MK-4482 Lagevrio (U.S.) (May 2021) (1)(2) Dengue Fever Virus Vaccine V181 (June 2025) Diabetic Macular Edema MK-3000 (3) HIV-1 Infection MK-8591A (doravirine+islatravir) (February 2020) ( EU ) MK-8591D (islatravir+lenacapavir) (October 2024) (1)(4) HIV-1 Pre-Exposure Prophylaxis MK-8527 (July 2025) Hypercholesterolemia MK-0616 (enlicitide decanoate) (U.S.) (August 2023) Immunology MK-7240 (tulisokibart) Crohn’s Disease (June 2024) Ulcerative Colitis (October 2023) Influenza MK-1406 (September 2025) Neovascular Age-Related Macular Degeneration MK-8748 (5) New Molecular Entities Previously Treated Extensive-Stage Small Cell Lung Cancer MK-2400 (ifinatamab deruxtecan) (U.S.) (1) Primary Hypercholesterolemia or Mixed Dyslipidemia MK-0616 (enlicitide decanoate) (EU) Respiratory Syncytial Virus MK-1654 Enflonsia (JPN) Certain Supplemental Filings Cancer MK-3475 Keytruda • Platinum-Resistant Recurrent Ovarian Cancer (KEYNOTE-B96) (JPN) • Cisplatin-Ineligible Muscle Invasive Bladder Cancer (KEYNOTE-905) (EU) (JPN) • Cisplatin-Eligible Muscle Invasive Bladder Cancer (KEYNOTE-B15) (U.S.) • First-Line Unresectable Locally Advanced or Metastatic Triple Negative Breast Cancer (KEYNOTE-D19) (U.S.) MK-3475A Keytruda Qlex • Cisplatin-Eligible Muscle Invasive Bladder Cancer (KEYNOTE-B15) (U.S.) • First-Line Unresectable Locally Advanced o r Metastatic Triple Negative Breast Cancer (KEYNOTE-D19) (U.S.) MK-6482 Welireg • Clear Cell Renal Cell Carcinoma Following Nephrectomy (LITESPARK-022) (U.S.) (6) • Previously Treated Advanced Renal Cell Carcinoma (LITESPARK-011) (U.S.) (JPN) (1) Pulmonary Arterial Hypertension MK-7962 Winrevair (HYPERION) (U.S.) Footnotes: (1) Being developed in a collaboration. (2) Available in the U.S. under Emergency Use Authorization. (3) Program is in Phase 2/3 studies, the first of which commenced in August 2024. (4) On FDA partial clinical hold for higher doses of islatravir than those used in current clinical trials. (5) Program is in Phase 2/3 studies, the first of which commenced in March 2026. (6) Under review for combination use with Keytruda or Keytruda Qlex. Analysis of Liquidity and Capital Resources ($ in millions) March 31, 2026 December 31, 2025 Cash and investments $ 6,807 $ 15,521 Working capital 8,070 15,189 Total debt to total liabilities and equity 38.2 % 36.0 % Cash provided by operating activities was $3.9 billion in the first three months of 2026 compared with $2.5 billion in the first three months of 2025. Cash provided by operating activities continues to be the Company’s primary source of funds to finance operating needs, with excess cash serving as the primary source of funds to finance business development transactions, capital expenditures, dividends paid to shareholders and treasury stock purchases. Larger business development transactions may be funded with a combination of cash from operating activities and debt. Cash used in investing activities was $10.2 billion in the first three months of 2026 compared with $1.5 billion in the first three months of 2025. The higher use of cash in investing activities was primarily due to the acquisition of Cidara and no proceeds from sales of securities and other investments, partially offset by lower capital expenditures (driven in part by the acquisition of a facility from WuXi Vaccines in 2025) and lower purchases of securities and other investments. Cash used in financing activities was $3.0 billion in the first three months of 2026 compared with $5.8 billion in the first three months of 2025. The lower use of cash in financing activities was primarily due to lower payments on long-term debt, an increase in short-term borrowings, lower purchases of treasury stock and higher proceeds from the exercise of stock options, partially offset by higher dividends paid to shareholders. In January 2026 and February 2026, the Company’s $135 million, 6.30% debentures, and its $1.0 billion, 0.75% notes, respectively, matured in accordance with their terms and were repaid. In February 2025, the Company’s $2.5 billion, 2.75% notes matured in accordance with their terms and were repaid. - 41 - In April 2026, Merck entered into a delayed draw term loan credit agreement (Credit Agreement) pursuant to which the lenders have committed (subject to satisfaction of certain conditions set forth in the Credit Agreement) to provide Merck with financing under a 364-day term loan facility in an aggregate amount not to exceed $6.0 billion. Borrowings under the Credit Agreement will bear interest at an annual rate of the SOFR rate plus 0.50% from the date loans are borrowed (Funding Date) to the date that is 180 days from the Funding Date, and then the SOFR rate plus 0.75% thereafter. The Company has given required notice to the lenders of its intention to draw down the $6.0 billion of funds under the facility, which will be used to fund a portion of the approximately $6.7 billion cash consideration for the acquisition of Terns. The Company intends to use the proceeds from a long-term debt financing to repay borrowings under the Credit Agreement. Dividends paid to stockholders were $2.1 billion in both the first three months of 2026 and 2025. In November 2025, Merck’s Board of Directors declared a quarterly dividend of $0.85 per share on the Company’s outstanding common stock for the first quarter of 2026 that was paid in January 2026. In January 2026, Merck’s Board of Directors declared a quarterly dividend of $0.85 per share on the Company’s outstanding common stock for the second quarter of 2026 that was paid in April 2026. In January 2025, 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 2026, the Company purchased $874 million (8 million shares) of its common stock for its treasury under this program. The Company expects to repurchase approximately $3.0 billion of treasury shares under this program during 2026. As of March 31, 2026, the Company’s remaining share repurchase authorization was $6.4 billion. The Company has a $6.0 billion credit facility that matures in May 2030. 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, 2025 included in Merck’s Form 10‑K filed on February 24, 2026. 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 is included 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, 2025. 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 2025 Form 10-K filed on February 24, 2026.