
~~N/A:~~Phase 3 Drug Candidate			Currently ~~no marketing approval.~~

	Anticipated Year of Expiration (in the U.S.)
~~Note:~~MK-7264 (gefapixant)			Compound patent unless otherwise noted. Certain of the products listed may be the subject of patent litigation. See Item 8. “Financial Statements and Supplementary Data,” Note 11. “Contingencies and Environmental Liabilities” below.

	2027
⁽¹⁾ V114 (pneumoconjugate vaccine)			The EU date represents the expiration date for the following five countries: France, Germany, Italy, Spain and the United Kingdom (Major EU Markets). If SPC applications have been filed but have not been granted in all Major EU Markets, both the patent expiry date and the SPC expiry date are listed.

	2031 (vaccine composition)
⁽²⁾ MK-7110 (CD24Fc)			~~Eligible for 6 months Pediatric Exclusivity.~~

	2031
⁽³⁾ MK-8591A (islatravir/doravirine)			The PTE system in Japan allows for a patent to be extended more than once provided the later approval is directed to a different indication from that of the previous approval. This may result in multiple PTE approvals for a given patent, each with its own expiration date.

	2032
⁽⁴⁾ MK-6482 (belzutifan)			~~Being commercialized in a U.S.-based joint partnership with Sanofi Pasteur.~~2034


⁽⁵⁾	~~SPCs are granted in four Major EU Markets and pending in one, based on a patent that expired in 2016.~~


⁽⁶⁾	~~The Company has no marketing rights in the U.S. and Japan.~~


⁽⁷⁾	~~Includes Pediatric Exclusivity, which is granted in four Major EU Markets and pending in one.~~


⁽⁸⁾	~~Being developed and commercialized in a global strategic oncology collaboration with Eisai.~~


⁽⁹⁾	~~Being commercialized in a worldwide collaboration with Bayer AG.~~


⁽¹⁰⁾	~~Being developed and commercialized in a global strategic oncology collaboration with AstraZeneca.~~


⁽¹¹⁾	~~Being developed and promoted in a worldwide, except Japan, collaboration with Pfizer.~~


⁽¹²⁾	~~SPC applications to be filed by May 2019.~~

Unless otherwise noted, the patents in the above charts are compound patents. Each patent may be subject to a future patent term restoration of up to five years and six month pediatric market exclusivity, either or both of which may be available. In addition, depending on the circumstances surrounding any final regulatory approval of the compound, there may be other listed patents or patent applications pending that could have relevance to the product as finally approved; the relevance of any such application would depend upon the claims that ultimately may be granted and the nature of the final regulatory approval of the product. Also, regulatory exclusivity tied to the protection of clinical data is complementary to patent protection and, in some cases, may provide more effective or longer lasting marketing exclusivity than a compound’s patent estate. In the United States, the data protection generally runs five years from first marketing approval of a new chemical entity, extended to seven years for an orphan drug indication and 12 years from first marketing approval of a biological product.

While the expiration of a product patent normally results in a loss of market exclusivity for the covered pharmaceutical product, commercial benefits may continue to be derived from: (i) later-granted patents on processes and intermediates related to the most economical method of manufacture of the active ingredient of such product; (ii) patents relating to the use of such product; (iii) patents relating to novel compositions and formulations; and (iv) in the United States and certain other countries, market exclusivity that may be available under relevant law. The effect of product patent expiration on pharmaceutical products also depends upon many other factors such as the nature of the market and the position of the product in it, the growth of the market, the complexities and economics of the process for manufacture of the active ingredient of the product and the requirements of new drug provisions of the Federal Food, Drug and Cosmetic Act or similar laws and regulations in other countries.

Additions to market exclusivity are sought in the United States and other countries through all relevant laws, including laws increasing patent life. Some of the benefits of increases in patent life have been partially offset by an

increase in the number of incentives for and use of generic products. Additionally, improvements in intellectual property laws are sought in the United States and other countries through reform of patent and other relevant laws and implementation of international treaties.

The Company has the following key U.S. patent protection for drug candidates under review in the United States by the FDA. Additional patent term may be provided for these pipeline candidates based on Patent Term Restoration and Pediatric Exclusivity.



~~Under Review (in the U.S.)~~	~~Currently Anticipated~~ ~~Year of Expiration (in the U.S.)~~
~~V920 (ebola vaccine)~~	~~2023~~
~~MK-7655A (relebactam + imipenem/cilastatin)~~	~~2029~~

~~The Company also has the following key U.S. patent protection for drug candidates in Phase 3 development:~~



~~Phase 3 Drug Candidate~~	~~Currently Anticipated~~ ~~Year of Expiration (in the U.S.)~~
~~MK-1242 (vericiguat)~~⁽¹⁾	~~2031~~
~~MK-7264 (gefapixant)~~	~~2027~~
~~V114 (pneumoconjugate vaccine)~~	~~2031~~


⁽¹⁾	~~Being developed in a worldwide clinical development collaboration with Bayer AG.~~

Unless otherwise noted, the patents in the above charts are compound patents. Each patent is subject to any future patent term restoration of up to five years and six month pediatric market exclusivity, either or both of which may be available. In addition, depending on the circumstances surrounding any final regulatory approval of the compound, there may be other listed patents or patent applications pending that could have relevance to the product as finally approved; the relevance of any such application would depend upon the claims that ultimately may be granted and the nature of the final regulatory approval of the product. Also, regulatory exclusivity tied to the protection of clinical data is complementary to patent protection and, in some cases, may provide more effective or longer lasting marketing exclusivity than a compound’s patent estate. In the United States, the data protection generally runs five years from first marketing approval of a new chemical entity, extended to seven years for an orphan drug indication and 12 years from first marketing approval of a biological product.

For further information with respect to the Company’s patents, see Item 1A. “Risk Factors” and Item 8. “Financial Statements and Supplementary Data,” Note ~~11.~~10. “Contingencies and Environmental Liabilities” below.

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Worldwide, all of the Company’s important products are sold under trademarks that are considered in the aggregate to be of material importance. Trademark protection continues in some countries as long as used; in other countries, as long as registered. Registration is for fixed terms and can be renewed indefinitely.

Royalty income in ~~2018~~2020 on patent and know-how licenses and other rights amounted to ~~$135~~$185 million. Merck also incurred royalty expenses amounting to ~~$1.3~~$2.0 billion in ~~2018~~2020 under patent and know-how licenses it holds.

Research and Development

The Company’s business is characterized by the introduction of new products or new uses for existing products through a strong research and development program. At December 31, ~~2018,~~2020, approximately ~~14,500~~16,750 people were employed in the Company’s research activities. The Company prioritizes its research and development efforts and focuses on candidates that it believes represent breakthrough science that will make a difference for patients and payers.

component of its pipeline strategy, with a focus on supplementing its internal research with a licensing and external alliance strategy focused on the entire spectrum of collaborations from early research to late-stage compounds, as well as access to new technologies.

The Company also reviews its pipeline to examine candidates that may provide more value through out-licensing. The Company continues to evaluate certain late-stage clinical development and platform technology assets to determine their out-licensing or sale potential.

~~The~~ Company’s clinical pipeline includes candidates in multiple disease areas, including cancer, cardiovascular diseases, ~~diabetes,~~metabolic diseases, infectious diseases, neurosciences, ~~obesity, pain,~~ respiratory diseases, and vaccines.

In the development of human health products, industry practice and government regulations in the United States and most foreign countries provide for the determination of effectiveness and safety of new chemical compounds through ~~preclinical~~pre-clinical tests and controlled clinical evaluation. Before a new drug or vaccine may be marketed in the United States, recorded data on ~~preclinical~~pre-clinical and clinical experience are included in the New Drug Application (NDA) for a drug or the Biologics License Application (BLA) for a vaccine or biologic submitted to the FDA for the required approval.

Once the Company’s scientists discover a new small molecule compound or biologic that they believe has promise to treat a medical condition, the Company commences ~~preclinical~~pre-clinical testing with that compound. ~~Preclinical~~Pre-clinical testing includes laboratory testing and animal safety studies to gather data on chemistry, pharmacology, immunogenicity and toxicology. Pending acceptable ~~preclinical~~pre-clinical data, the Company will initiate clinical testing in accordance with established regulatory requirements. The clinical testing begins with Phase 1 studies, which are designed to assess safety, tolerability, pharmacokinetics, and preliminary pharmacodynamic activity of the compound in humans. If favorable, additional, larger Phase 2 studies are initiated to determine the efficacy of the compound in the affected population, define appropriate dosing for the compound, as well as identify any adverse effects that could limit the compound’s usefulness. In some situations, the clinical program incorporates adaptive design methodology to use accumulating data to decide how to modify aspects of the ongoing clinical study as it continues, without undermining the validity and integrity of the trial. One type of adaptive clinical trial is an adaptive Phase 2a/2b trial design, a two-stage trial design consisting of a Phase 2a proof-of-concept stage and a Phase 2b dose-optimization finding stage. If data from the Phase 2 trials are satisfactory, the Company commences large-scale Phase 3 trials to confirm the compound’s efficacy and safety. Another type of adaptive clinical trial is an adaptive Phase 2/3 trial design, a study that includes an interim analysis and an adaptation that changes the trial from having features common in a Phase 2 study (e.g. multiple dose groups) to a design similar to a Phase 3 trial. An adaptive Phase 2/3 trial design reduces timelines by eliminating activities which would be required to start a separate study. Upon completion of Phase 3 trials, if satisfactory, the Company submits regulatory filings with the appropriate regulatory agencies around the world to have the product candidate approved for marketing. There can

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be no assurance that a compound that is the result of any particular program will obtain the regulatory approvals necessary for it to be marketed.

Vaccine development follows the same general pathway as for drugs. ~~Preclinical~~Pre-clinical testing focuses on the vaccine’s safety and ability to elicit a protective immune response (immunogenicity). Pre-marketing vaccine clinical trials are typically done in three phases. Initial Phase 1 clinical studies are conducted in normal subjects to evaluate the safety, tolerability and immunogenicity of the vaccine candidate. Phase 2 studies are dose-ranging studies. Finally, Phase 3 trials provide the necessary data on effectiveness and safety. If successful, the Company submits regulatory filings with the appropriate regulatory agencies.

In the United States, the FDA review process begins once a complete NDA or BLA is submitted, received and accepted for review by the agency. Within 60 days after receipt, the FDA determines if the application is sufficiently complete to permit a substantive review. The FDA also assesses, at that time, whether the application will be granted a priority review or standard review. Pursuant to the Prescription Drug User Fee Act V (PDUFA), the FDA review period target for NDAs or original BLAs is either six months, for priority review, or ten months, for a standard review, from the time the application is deemed sufficiently complete. Once the review timelines are determined, the FDA will generally act upon the application within those timelines, unless a major amendment has been submitted (either at the Company’s own initiative or the FDA’s request) to the pending application. If this occurs, the FDA may extend the review period to allow for review of the new information, but by no more than three months. Extensions to the review period are communicated to the Company. The FDA can act on an application either by issuing an approval letter or by issuing a Complete Response Letter (CRL) stating that the application will not be approved in its present form and describing all deficiencies that the FDA has identified. Should the Company wish to pursue an application after receiving

a CRL, it can resubmit the application with information that addresses the questions or issues identified by the FDA in order to support approval. Resubmissions are subject to review period targets, which vary depending on the underlying submission type and the content of the resubmission.

The FDA has four program designations — Fast Track, Breakthrough Therapy, Accelerated Approval, and Priority Review — to facilitate and expedite development and review of new drugs to address unmet medical needs in the treatment of serious or life-threatening conditions. The Fast Track designation provides pharmaceutical manufacturers with opportunities for frequent interactions with FDA reviewers during the product’s development and the ability for the manufacturer to do a rolling submission of the NDA/BLA. A rolling submission allows completed portions of the application to be submitted and reviewed by the FDA on an ongoing basis. The Breakthrough Therapy designation provides manufacturers with all of the features of the Fast Track designation as well as intensive guidance on implementing an efficient development program for the product and a commitment by the FDA to involve senior managers and experienced staff in the review. The Accelerated Approval designation allows the FDA to approve a product based on an effect on a surrogate or intermediate endpoint that is reasonably likely to predict a product’s clinical benefit and generally requires the manufacturer to conduct required post-approval confirmatory trials to verify the clinical benefit. The Priority Review designation means that the FDA’s goal is to take action on the NDA/BLA within six months, compared to ten months under standard review. More than one of these special designations can be granted for a given application (i.e., a product designated as a Breakthrough Therapy may also be eligible for Priority Review).

~~In addition,~~Due to the COVID-19 public health crisis, the United States Secretary of Health and Human Services has exercised statutory authority to determine that a public health emergency exists, and declare these circumstances justify the emergency use of drugs and biological products as authorized by the FDA. While in effect, this declaration enables the FDA to issue Emergency Use Authorizations (EUAs) permitting distribution and use of specific medical products absent NDA/BLA submission or approval, including products to treat or prevent diseases or conditions caused by the SARS-CoV-2 virus, subject to the terms of any such EUAs. The FDA must make certain findings to grant an EUA, including that it is reasonable to believe based on the totality of evidence that the drug or biologic may be effective, and that known or potential benefits when used under the ~~Generating Antibiotic Incentives Now Act,~~terms of the EUA outweigh known or potential risks. Additionally, the FDA ~~may grant Qualified Infectious Disease Product (QIDP) status~~must find that there is no adequate, approved and available alternative to antibacterial or antifungal drugs intended to treat serious or life threatening infections including those caused by antibiotic or antifungal resistant pathogens, novel or emerging infectious pathogens, or other qualifying pathogens. QIDP designation offers certain incentives for development of qualifying drugs, including Priority Review of the ~~NDA when filed, eligibility for Fast Track designation, and a five-year extension of applicable exclusivity provisions under the Food, Drug and Cosmetic Act.~~emergency use.

The primary method the Company uses to obtain marketing authorization of pharmaceutical products in the EU is through the “centralized procedure.” This procedure is compulsory for certain pharmaceutical products, in

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particular those using biotechnological processes, and is also available for certain new chemical compounds and products. A company seeking to market an innovative pharmaceutical product through the centralized procedure must file a complete set of safety data and efficacy data as part of a Marketing Authorization Application (MAA) with the European Medicines Agency (EMA). After the EMA evaluates the MAA, it provides a recommendation to the EC and the EC then approves or denies the MAA. It is also possible for new chemical products to obtain marketing authorization in the EU through a “mutual recognition procedure” in which an application is made to a single member state and, if the member state approves the pharmaceutical product under a national procedure, the applicant may submit that approval to the mutual recognition procedure of some or all other EU member states.

Outside of the United States and the EU, the Company submits marketing applications to national regulatory authorities. Examples of such are the ~~Pharmaceuticals~~Ministry of Health, Labour and ~~Medical Devices Agency~~Welfare in Japan, the National Medical Products Administration in China, Health Canada, Agência Nacional de Vigilância Sanatária in Brazil, Korea Food and Drug Administration in South Korea, and the Therapeutic Goods Administration in ~~Australia and China Food and Drug Administration.~~Australia. Each country has a separate and independent review process and timeline. In many markets, approval times can be longer as the regulatory authority requires approval in a major market, such as the United States or the EU, and issuance of a Certificate of Pharmaceutical Product from that market before initiating their local review process.

Research and Development Update

The Company currently has several candidates under regulatory review in the United States and ~~internationally.~~internationally or in late-stage clinical development.

~~Keytruda~~MK-7655A is combination of relebactum, a beta-lactamase inhibitor, and imipenem/cilastatin (a carbapenem antibiotic) under review in Japan for the treatment of bacterial infection. MK-7655A was approved by the FDA in 2019 and is marketed in the United States as Recarbrio.

MK-1242, vericiguat, is an ~~approved anti-PD-1 therapy~~orally administered soluble guanylate cyclase (sGC) stimulator under review in ~~clinical development for expanded indications~~the EU and in ~~different cancer types.~~

~~In February 2019,~~Japan to reduce the ~~FDA accepted~~risk of cardiovascular death and ~~granted Priority Review for~~heart failure hospitalization following a ~~supplemental BLA for~~ ~~Keytruda~~worsening heart failure event in patients with symptomatic chronic heart failure with reduced ejection fraction, in combination with ~~Inlyta (axitinib), a tyrosine kinase inhibitor, for the first-line treatment of patients with advanced renal cell carcinoma. This supplemental BLA is~~other heart failure therapies. The applications are based on ~~findings~~results from the Phase 3 ~~KEYNOTE-426 trial, which demonstrated that~~ ~~Keytruda~~VICTORIA trial. Vericiguat was approved by the FDA in ~~combination with axitinib, as compared to sunitinib, significantly improved overall survival (OS)~~January 2021 and ~~progression-free survival (PFS)~~will be marketed in the ~~first-line~~United States as Verquvo. Vericiguat is being jointly developed with Bayer. Bayer will commercialize vericiguat in territories outside the United States, if approved.

MK-5618, selumetinib, is under review in the EU for the treatment of ~~advanced renal cell carcinoma. These data were presented at the American Society for Clinical Oncology (ASCO) Genitourinary Cancers Symposium in~~

~~February 2019. The supplemental BLA also included supporting data~~pediatric patients two years of age and older with neurofibromatosis type 1 (NF1) who have symptomatic, inoperable plexiform neurofibromas (PN) based on positive results from the National Cancer Institute Cancer Therapy Evaluation Program-sponsored Phase ~~1b KEYNOTE-035~~2 SPRINT Stratum 1 trial. Selumetinib was approved by the FDA in April 2020 and is marketed in the United States as Koselugo. Selumetinib is being jointly developed and commercialized with AstraZeneca globally.

V114 is an investigational 15-valent pneumococcal conjugate vaccine under priority review by the FDA for the prevention of invasive pneumococcal disease in adults 18 years of age and older. The FDA set a PDUFA date of ~~June 20, 2019. Merck~~July 18, 2021. The EMA is also reviewing an application for licensure of V114 in adults. Additionally, the Company has ~~filed~~several ongoing Phase 3 trials evaluating V114 in pediatric patients. V114 previously received Breakthrough Therapy designation from the FDA for the prevention of invasive pneumococcal disease in pediatric patients 6 weeks to 18 years of age and adults 18 years of age and older. The Company is involved in litigation challenging the validity of several Pfizer Inc. patents that relate to pneumococcal vaccine technology in the United States and several foreign jurisdictions.

Keytruda is an anti-PD-1 therapy approved for the treatment of many cancers that is in clinical development for expanded indications. These approvals were the result of a broad clinical development program that currently consists of more than 1,400 clinical trials, including more than 1,000 trials that combine Keytruda with other cancer treatments. These studies encompass more than 30 cancer types including: biliary tract, cervical, colorectal, cutaneous squamous cell, endometrial, esophageal, estrogen receptor positive breast cancer, gastric, glioblastoma, head and neck, hepatocellular, Hodgkin lymphoma, non-Hodgkin lymphoma, non-small-cell lung, small-cell lung, melanoma, mesothelioma, ovarian, prostate, renal, triple-negative breast, and urothelial, many of which are currently in Phase 3 clinical development. Further trials are being planned for other cancers.

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Keytruda in combination with chemotherapy is under review in the EU for the treatment of locally recurrent unresectable or metastatic triple negative breast cancer (TNBC) in adults whose tumors express PD-L1 with a CPS ≥ 10 and who have not received prior chemotherapy for metastatic disease based on the results of the KEYNOTE-355 trial. Keytruda was approved for this indication under accelerated approval based on progression-free survival (PFS) by the FDA in November 2020. Keytruda in combination with chemotherapy is also under review in Japan for the treatment of patients with locally recurrent unresectable or metastatic TNBC based on data from ~~KEYNOTE-426~~the KEYNOTE-355 trial.

In July 2020, the FDA accepted for standard review a supplemental BLA for Keytruda for the treatment of patients with ~~regulatory authorities worldwide.~~

high-risk, early-stage TNBC in combination with chemotherapy as neoadjuvant (pre-operative) treatment, and then as a single agent as adjuvant (post-operative) treatment after surgery. The application was based on data from the first and second interim analyses of the KEYNOTE-522 trial. In February ~~2019,~~2021, the FDA’s Oncologic Drugs Advisory Committee (ODAC), which discussed the Company’s supplemental BLA for Keytruda,voted that a regulatory decision should be deferred until further data are available from the Phase 3 KEYNOTE-522 trial. The study met one of the dual primary endpoints of pathological complete response and is continuing to evaluate event-free survival. The ODAC provides the FDA with independent, expert advice and recommendations on marketed and investigational medicines for use in the treatment of cancer. The FDA is not bound by the committee’s guidance but takes its advice into consideration. The PDUFA date for this application is March 29, 2021. The next interim analysis is calendar-driven, and data is expected in the third quarter of 2021.

In February 2021, Merck announced that the Committee for Medicinal Products for Human Use (CHMP) of the EMA adopted a positive opinion recommending approval of an expanded label for Keytruda ~~in combination with carboplatin and either paclitaxel or nab-paclitaxel,~~ as monotherapy for the ~~first-line~~ treatment of ~~metastatic squamous NSCLC in adults.~~adult and pediatric patients aged 3 years and older with relapsed or refractory cHL who have failed an earlier line of therapy. This recommendation is based on results from the pivotal Phase 3 ~~KEYNOTE-407~~KEYNOTE-204 trial, in which ~~enrolled patients regardless of PD-L1 tumor expression status. The trial showed~~Keytruda monotherapy demonstrated a significant improvement in ~~OS and~~ PFS ~~for patients taking~~ ~~Keytruda~~ ~~in combination with chemotherapy (carboplatin and either paclitaxel or nab-paclitaxel)~~ compared with ~~chemotherapy alone. If~~brentuximab vedotin, a commonly used treatment. The recommendation is also based on supportive data from an updated analysis of the KEYNOTE-087 trial, which supported EC approval of Keytruda for the treatment of adult patients with relapsed or refractory cHL. The CHMP’s recommendation will now be reviewed by the EC for marketing authorization in the EU. Keytruda was approved for this ~~would mark the first approval in Europe for an anti-PD-1 therapy in combination with chemotherapy for adults with metastatic squamous NSCLC. In October 2018,~~indication by the FDA ~~approved~~ ~~Keytruda~~in ~~combination with carboplatin-paclitaxel or nab-paclitaxel as a first-line treatment for metastatic squamous NSCLC, regardless of PD-L1 expression.~~October 2020.

~~In December 2018, the FDA extended the action date for the supplemental BLA seeking approval for~~ Keytruda is also under review as monotherapy for the first-line treatment of ~~locally advanced~~adult patients with metastatic MSI-H or ~~metastatic NSCLC~~dMMR colorectal cancer in ~~patients whose tumors express PD-L1 (TPS ≥1%) without EGFR or ALK genomic tumor aberrations. The supplemental BLA is~~Japan based on ~~results~~the result of the ~~Phase 3 KEYNOTE-042 trial where~~ KEYNOTE-177 trial. Keytruda ~~monotherapy demonstrated a significant improvement in OS compared with chemotherapy in~~ was approved for this ~~patient population. The Company submitted additional data and analyses to~~indication by the FDA ~~which constituted a major amendment~~in June 2020 and ~~extended~~by the ~~PDUFA date by three months to April 11, 2019. Merck continues to work closely with the FDA during the review of this supplemental BLA.~~EU in January 2021.

In ~~February 2019,~~January 2021, the FDA accepted ~~and granted Priority Review for~~ a supplemental BLA ~~for~~ seeking use of Keytruda ~~as monotherapy~~ for the treatment of patients with locally advanced ~~small-cell lung cancer (SCLC) whose disease has progressed after two~~cSCC that is not curable by surgery or ~~more lines of prior therapy. This supplemental BLA, which is seeking accelerated approval for this new indication, is~~radiation based on ~~data from~~ the ~~SCLC cohorts~~results of the ~~Phase 2 KEYNOTE-158 and Phase 1b KEYNOTE-028 trials.~~KEYNOTE-629 trial. The FDA set a PDUFA date of ~~June 17, 2019.~~ ~~Keytruda~~ ~~is also being studied in combination with chemotherapy in the ongoing Phase 3 KEYNOTE-604 study in patients with newly diagnosed extensive stage SCLC.~~September 9, 2021.

In ~~February 2019,~~December 2020, the FDA accepted and granted priority review for a supplemental BLA for Keytruda ~~as monotherapy or~~ in combination with ~~platinum and 5-fluorouracil~~ chemotherapy for the first-line treatment of patients with ~~recurrent~~locally advanced unresectable or metastatic ~~HNSCC.~~carcinoma of the esophagus and gastroesophageal junction. This supplemental BLA is based ~~in part~~ on data from the pivotal Phase 3 ~~KEYNOTE-048~~KEYNOTE-590 trial, ~~where~~ in which Keytruda plus chemotherapy demonstrated a significant ~~improvement~~improvements in ~~OS compared with~~ the ~~standard~~primary endpoints of ~~care, as monotherapy in patients whose tumors expressed PD-L1 with Combined Positive Score (CPS)≥20~~overall survival (OS) and ~~CPS≥1 and in combination with~~PFS versus chemotherapy in ~~the total patient population.~~these patients regardless of PD-L1 expression status and tumor histology. These data were presented at the European Society ~~for~~of Medical Oncology (ESMO) ~~2018 Congress.~~Virtual Congress 2020. The FDA ~~granted Priority Review to the supplemental BLA and~~ set a PDUFA date of ~~June 10, 2019. KEYNOTE-048 also serves as~~April 13, 2021. In December 2020, the ~~confirmatory trial for KEYNOTE-012,~~CHMP of the EMA announced the start of a ~~Phase 1b study which supported~~procedure to extend the ~~previous accelerated approval for~~ ~~Keytruda~~ ~~as monotherapy for the~~indication to include in combination with chemotherapy, first-line treatment of ~~patients with recurrent~~locally advanced unresectable or metastatic ~~HNSCC with disease progression~~carcinoma of the esophagus or HER-2 negative gastroesophageal junction adenocarcinoma in adults for Keytruda, based on ~~or after platinum-containing chemotherapy.~~the results from KEYNOTE-590. Keytruda is also under review for this indication in Japan.

~~In November 2018, Merck announced that the Phase 3 KEYNOTE-181 trial investigating~~ Keytruda as monotherapy in the second-line treatment of advanced or metastatic esophageal or esophagogastric junction carcinoma met a primary endpoint of OS in patients whose tumors expressed PD-L1 (CPS ≥10). In this pivotal study, treatment with ~~Keytruda~~ resulted in a statistically significant improvement in OS compared to chemotherapy (paclitaxel, docetaxel or irinotecan) in patients with CPS ≥10, regardless of histology. The primary endpoint of OS was also evaluated in patients with squamous cell histology and in the entire intention-to-treat study population. While directionally favorable, statistical significance for OS was not met in these two patient groups. Per the statistical analysis plan, the key secondary endpoints of PFS and objective response rate (ORR) were not formally tested, as OS was not reached in the full intention-to-treat study population. These results were presented in January 2019 at the ASCO Gastrointestinal Cancers Symposium and have been submitted for regulatory review.

~~Additionally,~~ ~~Keytruda~~ ~~has~~ received Breakthrough Therapy designation from the FDA in February 2020 for the combination of Keytruda with Padcev (enfortumab vedotin-ejfv), in the first-line setting for the treatment of ~~high-risk early-stage triple-negative breast~~patients with unresectable locally advanced or metastatic urothelial cancer ~~in combination with neoadjuvant~~who are not eligible for cisplatin-containing chemotherapy. The FDA’s Breakthrough Therapy designation is intended to expedite the development and review of a candidate that is planned for use, alone or in combination, to treat a serious or life-threatening disease or condition when preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints.

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In ~~October 2018,~~January 2021, Merck announced first-time data from the Phase 3 KEYNOTE-598 study evaluating Keytruda in combination with ipilimumab (Yervoy) compared with Keytruda monotherapy as first-line treatment for patients with metastatic NSCLC without EGFR or ALK genomic tumor aberrations and whose tumors express PD-L1 (tumor proportion score ≥50%). Results of the study showed that the addition of ipilimumab to Keytruda did not improve OS or PFS but added toxicity compared with Keytruda monotherapy in these patients. These results were presented in the Presidential Symposium at the IASLC 2020 World Conference on Lung Cancer hosted by the International Association for the Study of Lung Cancer in January 2021 and published in the Journal of Clinical Oncology. As previously announced in November 2020, the study was discontinued due to futility based on the recommendation of an independent Data Monitoring Committee (DMC), which determined the benefit/risk profile of Keytruda in combination with ipilimumab did not support continuing the trial. The DMC also advised that patients in the study discontinue treatment with ipilimumab/placebo.

In February 2021, Merck’s announced that the Phase 3 KEYNOTE-122 trial evaluating Keytruda versus standard of care treatment (capecitabine, gemcitabine, or docetaxel) for the treatment of recurrent or metastatic nasopharyngeal cancer did not meet its primary endpoint of OS. Full results will be presented at a future medical meeting.

In May 2020, Merck and Eisai presented data from analyses of two Phase 2 trials evaluating Keytruda plus Lenvima at the 2020 American Society of Clinical Oncology (ASCO) Annual Meeting in which the Keytruda plus Lenvima combination demonstrated clinically meaningful objective response rates (ORR): the KEYNOTE-524/Study 116 trial in patients with unresectable HCC with no prior systemic therapy; and the KEYNOTE-146/Study 111 trial in patients with metastatic clear cell renal cell carcinoma (ccRCC) who progressed following immune checkpoint inhibitor therapy.

In July 2020, Merck and Eisai announced that the FDA issued a CRL regarding Merck’s and Eisai’s applications seeking accelerated approval for the first-line treatment of patients with unresectable HCC based on this trial, which showed clinically meaningful efficacy in the single-arm setting. These data supported a Breakthrough Therapy designation granted by the FDA in July 2019. Ahead of the PDUFA action dates of Merck’s and Eisai’s applications, another combination therapy was approved based on a randomized, controlled trial that demonstrated improvement in OS versus standard-of-care treatment. Consequently, the CRL stated that Merck’s and Eisai’s applications do not provide evidence that Keytruda in combination with Lenvima represents a meaningful advantage over available therapies for the treatment of unresectable or metastatic HCC with no prior systemic therapy for advanced disease. Since the applications for KEYNOTE-524/Study 116 no longer meet the criteria for accelerated approval, both companies plan to work with the FDA to take appropriate next steps, which include conducting a well-controlled clinical trial that demonstrates substantial evidence of effectiveness and the clinical benefit of the combination. As such, LEAP-002, the Phase 3 trial evaluating the Keytruda plus Lenvima combination as a first-line treatment for advanced HCC, is currently underway and fully enrolled. The CRL does not impact the current approved indications for Keytruda or for Lenvima.

In February 2021, Merck and Eisai announced the first presentation of ~~results~~new investigational data from ~~an interim analysis~~the pivotal Phase 3 CLEAR study (KEYNOTE-581/Study 307) at the 2021 Genitourinary Cancers Symposium (ASCO GU) and published simultaneously in the New England Journal of ~~KEYNOTE-057, a Phase 2~~Medicine. The trial ~~evaluating~~ evaluated the combinations of Keytruda plus Lenvima, and Lenvima plus everolimus versus sunitinib for ~~previously treated~~the first-line treatment of patients with ~~high-risk non-muscle invasive bladder cancer. An interim analysis of~~advanced RCC. Keytruda plus Lenvima demonstrated statistically significant and clinically meaningful improvements in PFS, OS and ORR versus sunitinib. Lenvima plus everolimus also showed significant improvements in PFS and ORR versus sunitinib. Merck and Eisai will discuss these data with regulatory authorities worldwide, with the ~~study’s primary endpoint showed a complete response rate of nearly 40% at three months with~~ ~~Keytruda~~ ~~in patients whose disease was unresponsive~~intent to ~~Bacillus Calmette-Guérin therapy, the current standard of care for this disease,~~submit marketing authorization applications based on these results.

In December 2020, Merck and ~~who were ineligible for or who refused to undergo radical cystectomy. These results, as well as other study findings, were presented at the ESMO 2018 Congress.~~

~~In February 2019, Merck~~Eisai announced that the pivotal Phase 3 ~~KEYNOTE-240~~KEYNOTE-775/Study 309 trial evaluating the investigational use of Keytruda, plus ~~best supportive care,~~Lenvima met its dual primary endpoints of OS and PFS and its secondary efficacy endpoint of ORR in patients with advanced endometrial cancer following at least one prior platinum-based regimen. These positive results were observed in the mismatch repair proficient (pMMR) subgroup and the ITT study population, which includes both patients with endometrial carcinoma that is pMMR as well as patients whose disease is MSI-H/dMMR. Based on an analysis conducted by an independent DMC, Keytruda plus Lenvima demonstrated a statistically significant and clinically meaningful improvement in OS, PFS and ORR versus chemotherapy. Merck and Eisai will discuss these data with regulatory authorities worldwide, with the intent to

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submit marketing authorization applications based on these results, and plan to present these results at an upcoming medical meeting. KEYNOTE-775/Study 309 is the confirmatory trial for KEYNOTE-146/Study 111, which supported accelerated approval by the FDA in 2019 of the Keytruda plus Lenvima combination for the treatment of patients with advanced ~~hepatocellular~~endometrial carcinoma that is not MSI-H or dMMR, who ~~were previously treated with~~have disease progression following prior systemic therapy ~~did~~and are not ~~meet its co-primary endpoints~~candidates for curative surgery or radiation.

Merck and Eisai are continuing to study the Keytruda plus Lenvima combination through the LEAP (LEnvatinib And Pembrolizumab) clinical program across 19 trials in 13 different tumor types (endometrial carcinoma, HCC, melanoma, NSCLC, RCC, squamous cell carcinoma of ~~OS and PFS compared with placebo plus best supportive care. In~~ the ~~final analysis of the study, there was an improvement in OS for patients treated with~~ ~~Keytruda~~ ~~compared to placebo, however these OS results did not meet statistical significance per the pre-specified statistical plan. Results for PFS were also directionally favorable in the~~ ~~Keytruda~~ arm compared with placebo but did not reach statistical significance. The key secondary endpoint of ORR was not formally tested, since superiority was not reached for OS or PFS. Results will be presented at an upcoming medical meeting and have been shared with the FDA for discussion.

~~The~~ ~~Keytruda~~ ~~clinical development program consists of more than 900 clinical trials, including more than 600 trials that combine~~ ~~Keytruda~~ ~~with other cancer treatments. These studies encompass more than 30 cancer types including: bladder, cervical, colorectal, esophageal, gastric,~~ head and neck, ~~hepatocellular, Hodgkin lymphoma, non-Hodgkin lymphoma, melanoma, mesothelioma, nasopharyngeal, NSCLC,~~urothelial cancer, biliary tract cancer, colorectal cancer, gastric cancer, glioblastoma, ovarian ~~PMBCL, prostate, renal, small-cell lung~~cancer, and ~~triple-negative breast, many~~TNBC).

MK-6482, belzutifan, is an investigational hypoxia-inducible factor-2α (HIF-2α) inhibitor being evaluated for the treatment of patients withvon Hippel-Lindau (VHL) disease-associated RCC with nonmetastatic RCC tumors less than three centimeters in size, unless immediate surgery is required. In July 2020, the FDA granted Breakthrough Therapy designation to belzutifan and has also granted orphan drug designation to belzutifan for VHL disease. These designations are based on data from a Phase 2 trial evaluating belzutifan in patients with VHL-associated ccRCC, which ~~are~~were presented at the 2020 ASCO Annual Meeting. Additionally, Phase 2 data showing anti-tumor responses in VHL disease patients with ccRCC and other tumors were presented at the ESMO Virtual Congress 2020.

In February 2021, Merck and Eisai began a Phase 3 trial examining Lenvima in combination with belzutifan in previously treated patients with metastatic RCC.

MK-7119, Tukysa, is a small molecule tyrosine kinase inhibitor, for the treatment of HER2-positive cancers. In September 2020, Seagen granted Merck an exclusive license and entered into a co-development agreement with Merck to accelerate the global reach of Tukysa. Merck and Seagen also announced a collaboration to globally develop and commercialize Seagen’s ladiratuzumab vedotin (MK-6440), an investigational antibody-drug conjugate targeting LIV-1, which is currently in Phase 32 clinical ~~development. Further~~ trials ~~are being planned~~ for breast cancer and other ~~cancers.~~solid tumors. The collaboration will pursue a broad joint development program evaluating ladiratuzumab vedotin as monotherapy and in combination with Keytruda in TNBC, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumors.

MK-7339, Lynparza, is an oral PARP inhibitor currently approved for certain types of advanced ovarian, breast, pancreatic and ~~breast cancer. In July 2017, Merck and AstraZeneca entered into a global strategic oncology collaboration to co-develop and co-commercialize AstraZeneca’s Lynparza~~prostate cancers being co-developed for multiple cancer ~~types.~~types as part of a collaboration with AstraZeneca.

MK-7264, gefapixant, is an investigational, orally administered, selective P2X3 receptor antagonist, for the treatment of refractory or unexplained chronic cough. In ~~April 2018,~~September 2020, Merck ~~and AstraZeneca~~ announced ~~that~~ the ~~EMA validated for review the MAA for Lynparza for use in patients with deleterious or suspected deleterious~~ ~~BRCA~~-mutated, HER2-negative metastatic breast cancer who have been previously treated with chemotherapy in the neoadjuvant, adjuvant or metastatic setting. This was the first regulatory submission for a PARP inhibitor in breast cancer in Europe.

~~Lynparza tablets are also under review in the EU as a maintenance treatment in patients with newly-diagnosed,~~ ~~BRCA-mutated advanced ovarian cancer who were in complete or partial response following first-line standard platinum-based chemotherapy. This submission was based on positive~~ results from ~~the~~two ongoing pivotal Phase 3 ~~SOLO-1 trial. The trial showed a statistically-significant~~trials (COUGH-1 and ~~clinically-meaningful improvement in PFS for Lynparza compared to placebo, reducing~~COUGH-2) evaluating the ~~risk~~efficacy and safety of ~~disease progression or death by 70% in patients with newly-diagnosed,~~ ~~BRCA-mutated advanced ovarian cancer who were in complete or partial response to platinum-based chemotherapy.~~

gefapixant. In December 2018, Merck and AstraZeneca announced positive results from the randomized, open-label, controlled, Phase 3 SOLO-3 trial of Lynparza tablets in patients with relapsed ovarian cancer after two or more lines of treatment. The trial was conducted as a post-approval commitment in agreement with the FDA. Results from the trial showed ~~BRCA-mutated advanced ovarian cancer~~these studies, adult patients treated with ~~Lynparza following two or more prior lines of chemotherapy~~gefapixant 45 mg twice daily demonstrated a statistically significant reduction in 24-hour cough frequency versus placebo at 12 weeks (COUGH-1) and ~~clinically meaningful~~24 weeks (COUGH-2). The gefapixant 15 mg twice daily treatment arms did not meet the primary efficacy endpoint in either Phase 3 study. These results were presented at the Virtual European Respiratory Society International Congress 2020. Merck plans to share data from COUGH-1 and COUGH-2 with regulatory authorities worldwide.

MK-7110 (also known as CD24Fc) is an investigational treatment for patients hospitalized with COVID-19. Merck obtained MK-7110 through the acquisition of OncoImmune. In September 2020, OncoImmune reported topline findings from an interim efficacy analysis of a Phase 3 study evaluating MK-7110. An interim analysis of data from 203 participants (75% of the planned enrollment) indicated that selected hospitalized patients with COVID-19 treated with a single dose of MK-7110 showed a 60% higher probability of improvement in ~~the primary endpoint of ORR and the key secondary endpoint of PFS~~clinical status compared to ~~chemotherapy. Merck and AstraZeneca plan to discuss these~~placebo, as defined by the protocol. The risk of death or respiratory failure was reduced by more than 50%. Full results from this Phase 3 study, which were consistent with the ~~FDA.~~topline results, were received in February 2021 and will be submitted for publication in the future. MK-7110 is also being studied in a Phase 3 trial for the treatment of graft versus host disease.

~~MK-7655A~~Molnupiravir(also known as MK-4482) is an orally available antiviral candidate for the treatment of COVID-19 being developed in collaboration with Ridgeback Biotherapeutics LP. It is currently being evaluated in

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Phase 2/3 clinical trials in both the hospital and outpatient settings. The primary completion date for the Phase 2/3 studies is June 2021. The Company anticipates interim efficacy data in the first quarter of 2021.

MK-8591A is a combination of ~~relebactam, an~~islatravir, the company’s investigational ~~beta-lactamase~~oral nucleoside reverse transcriptase translocation inhibitor (NRTTI), and ~~imipenem/cilastatin (an approved carbapenem antibiotic). In February 2019, Merck announced that the FDA accepted for Priority Review an NDA for MK-7655A~~doravirine (Pifeltro) being evaluated for the treatment of ~~complicated urinary tract infections~~HIV-1 infection. In October 2020, Merck announced Week 96 data from the Phase 2b trial (NCT03272347) evaluating the efficacy and ~~complicated intra-abdominal infections caused by certain susceptible Gram-negative bacteria~~safety of MK-8591A in treatment-naïve adults with ~~limited or~~HIV-1 infection. Week 96 findings demonstrated that the combination of islatravir and doravirine maintained virologic suppression similar to Delstrigo (doravirine/lamivudine/tenofovir disoproxil fumarate), and the findings were consistent with Week 48 results. Additional Week 96 data from the study show low rates of participants meeting the definition of protocol-defined virologic failure in both the islatravir plus doravirine and the Delstrigo treatment arms, and no ~~alternative therapies available. The PDUFA date is July 16, 2019.~~ participants in either arm met the criteria for resistance testing. These data were presented at the virtual 2020 International Congress on Drug Therapy in HIV Infection (HIV Glasgow).

In ~~April 2018,~~November 2020, Merck announced ~~that~~a collaboration with the Bill & Melinda Gates Foundation (the foundation) where the foundation is committing to provide funding to support a pivotal Phase 3 study investigating a once-monthly oral pre-exposure prophylaxis (PrEP) option in women and adolescent girls at high risk for acquiring HIV-1 infection in sub-Saharan Africa. The study, IMPOWER 22, will evaluate the efficacy and safety of ~~MK-7655A demonstrated a favorable overall response~~once-monthly islatravir and is anticipated to begin in early 2021. Merck will be funding the IMPOWER 22 clinical trial in the ~~treatment of certain imipenem-non-susceptible bacterial infections, the primary endpoint,~~United States. Merck also plans to conduct additional studies in HIV prevention with ~~lower treatment-emergent nephrotoxicity (kidney toxicity),~~islatravir in once-monthly oral PrEP. These studies will include IMPOWER 24, a secondary endpoint, compared to a colistin (colistimethate sodium) plus imipenem/cilastatin regimen. The FDA had previously designated this combination a Qualified Infectious Disease Product with designated Fast Track status for the treatment of hospital-

~~acquired bacterial pneumonia, ventilator-associated bacterial pneumonia, complicated intra-abdominal infections and complicated urinary tract infections.~~

~~V920 (rVSV∆G-ZEBOV-GP, live attenuated), is an investigational Ebola Zaire disease vaccine candidate being studied in large scale~~global Phase 2/3 clinical ~~trials. In December 2015, Merck announced that~~trial to evaluate islatravir as a once-monthly oral agent for PrEP at sites across the ~~application for Emergency Use Assessment~~world and ~~Listing (EUAL) for V920 was accepted for review~~among other key populations impacted by the World Health Organization (WHO). According to the WHO, the EUAL process is designed to expedite the availability of vaccines needed for public health emergencies such as another outbreak of Ebola. The WHO decision to grant V920 EUAL status will be based on data regarding quality, safety,epidemic, including men who have sex with men and efficacy/effectiveness; as well as a risk/benefit analysis for emergency use. While EUAL designation allows for emergency use, the vaccine remains investigational and has not yet been licensed for commercial distribution. transgender women.

In July 2016, Merck announced that the FDA granted V920 Breakthrough Therapy designation, and that the EMA granted the vaccine candidate PRIME (PRIority MEdicines) status. In November 2018, Merck announced that it has started the submission of a rolling BLA to the FDA for V920. This rolling submission was made pursuant to the FDA’s Breakthrough Therapy designation. Merck expects the rolling submission of the BLA to be completed in 2019. The Company also intends to file V920 with the EMA in 2019.

~~In February 2019, Merck announced that~~January 2021, the FDA accepted for ~~Priority Review~~standard review a supplemental NDA for ~~Zerbaxa~~Steglatro (ertugliflozin) to ~~treat adult~~incorporate the results of the Phase 3 VERTIS cardiovascular (CV) outcomes trial in the product labeling. The VERTIS CV trial evaluated Steglatro, an oral sodium-glucose cotransporter 2 (SGLT2) inhibitor, versus placebo, added to background standard of care treatment, in patients with ~~nosocomial pneumonia, including ventilator-associated pneumonia, caused by certain susceptible Gram-negative microorganisms.~~type 2 diabetes and atherosclerotic CV disease. The ~~PDUFA date~~study met the primary endpoint of non-inferiority on major adverse CV events (MACE), which is ~~June 3, 2019.~~ ~~Zerbaxa~~ ~~is also under review~~a composite of CV death, nonfatal myocardial infarction or nonfatal stroke, compared to placebo. The key secondary endpoints of superiority for ~~this indication by the EMA.~~ ~~Zerbaxa~~ ~~is currently approved in the United States~~Steglatro versus placebo for the treatment of adult patients with complicated urinary tract infections caused by certain susceptible Gram-negative microorganisms, and is also indicated, in combination with metronidazole, for the treatment of adult patients with complicated intra-abdominal infections caused by certain susceptible Gram-negative and Gram-positive microorganisms.

~~In addition~~time to the ~~candidates under regulatory review,~~first occurrence of the ~~Company has several drug candidates in Phase 3 clinical development in addition to the~~ ~~Keytruda~~ ~~programs discussed above.~~

~~MK-7264, gefapixant, is a selective, non-narcotic, orally-administered P2X3-receptor agonist being investigated in Phase 3 trials for the treatment~~composite of ~~refractory, chronic cough and in a Phase 2 trial for the treatment of women with endometriosis-related pain.~~

Lenvima, is an orally available tyrosine kinase inhibitor currently approved for certain types of thyroid cancer, hepatocellular carcinoma, and in combination for certain patients with renal cell carcinoma. In March 2018, Merck and Eisai entered into a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima. Under the agreement, Merck and Eisai will develop and commercialize Lenvima jointly, both as monotherapy and in combination with ~~Keytruda. Per the agreement, the companies will jointly initiate clinical studies evaluating the~~ ~~Keytruda~~/Lenvima combination to support 11 potential indications in six types of cancer (endometrial cancer, NSCLC, hepatocellular carcinoma, head and neck cancer, bladder cancer and melanoma), as well as a basket trial targeting multiple cancer types. The FDA granted Breakthrough Therapy designation for ~~Keytruda~~ ~~in combination with Lenvima for the potential treatment of patients with advanced and/~~CV death or metastatic renal cell carcinoma and for the potential treatment of certain patients with advanced and/or metastatic non-microsatellite instability high/proficient mismatch repair endometrial carcinoma.

~~MK-1242, vericiguat, is an investigational treatment~~hospitalization for heart failure, ~~being studied~~time to CV death alone and time to the first occurrence of the composite of renal death, dialysis/transplant or doubling of serum creatinine from baseline were not met. While not a pre-specified hypothesis for statistical testing, a reduction in ~~patients suffering from chronic~~hospitalization for heart failure was observed with ~~reduced ejection fracture (Phase 3~~Steglatro. A supplemental application was also submitted to the EMA and is currently under review.

In January 2021, the Company announced the discontinuation of the clinical ~~trial)~~development programs for its COVID-19 vaccine candidates, V590 and V591, following Merck’s review of findings from ~~chronic heart failure with preserved ejection fracture (Phase 2~~Phase 1 clinical ~~trial). The development of vericiguat is part of a worldwide strategic collaboration between Merck and Bayer.~~

~~V114 is an investigational polyvalent conjugate vaccine~~studies for the ~~prevention of pneumococcal disease.~~vaccines. In ~~June 2018, Merck initiated~~these studies, both V590 and V591 were generally well tolerated, but the first Phase 3 study in the adult population for the prevention of invasive pneumococcal disease. Currently five Phase 3 adult studies are ongoing, including studies in healthy adults 50 years of age or older, adults with risk factors for pneumococcal disease,immune responses were inferior to those ~~infected with HIV,~~seen following natural infection and those who are recipients of allogeneic hematopoietic stem cell transplant. In October 2018, Merck began the first Phase 3 study in the pediatric population. Currently, three studies are ongoing, including studies in healthy infants and in children afflicted with sickle cell disease. In January 2019, Merck announced that V114 received Breakthrough Therapy designation from the FDAreported for ~~the prevention of invasive pneumococcal disease caused by the vaccine serotypes in pediatric patients 6 weeks to 18 years of age.~~

~~As a result of changes in the herpes zoster vaccine environment, Merck is ending development of V212, its investigational vaccine for the prevention of shingles in immunocompromised patients.~~other SARS-CoV-2/COVID-19 vaccines.

The chart below reflects the Company’s research pipeline as of February 22, ~~2019.~~2021. Candidates shown in Phase 3 include specific products and the date such candidate entered into Phase 3 development. Candidates shown in Phase 2 include the most advanced compound with a specific mechanism or, if listed compounds have the same mechanism, they are each currently intended for commercialization in a given therapeutic area. Small molecules and biologics are given MK-number designations and vaccine candidates are given V-number designations. Except as otherwise noted, candidates in Phase 1, additional indications in the same therapeutic area (other than with respect to ~~cancer and certain other indications)~~cancer) and additional claims, line extensions or formulations for in-line products are not shown.

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Phase 2			Phase 3 (Phase 3 ~~Entry Date)~~entry date)			Under Review
~~Cancer~~	~~Cancer~~	~~New Molecular Entities/Vaccines~~
~~MK-3475~~ ~~Keytruda~~Antiviral COVID-19			~~MK-3475~~ ~~Keytruda~~MK-4482 (molnupiravir)(1)	~~Bacterial Infection~~
~~MK-3475~~ ~~Keytruda~~Antiviral COVID-19			Cancer MK-1026 Hematological Malignancies MK-1308 (quavonlimab)(2) Melanoma Non-Small-Cell Lung Solid Tumors MK-1454(2) Head and Neck MK-2140 Advanced Solid Tumors	MK-3475 Keytruda Advanced Solid Tumors MK-4280(2) Hematological Malignancies Non-Small-Cell Lung MK-4830 Non-Small-Cell Lung MK-5890(2) Non-Small-Cell Lung MK-6440 (ladiratuzumab vedotin)(1)(3) Advanced Solid Tumors Breast ~~(October 2015)~~	~~MK-7655A relebactam+imipenem/cilastatin~~
MK-7119 Tukysa(1) Advanced Solid Tumors Colorectal Gastric MK-7339 Lynparza(1)(3) Advanced Solid Tumors MK-7684 (vibostolimab)(2) Melanoma Non-Small-Cell Lung MK-7902 Lenvima(1)(2) Advanced Solid Tumors Biliary Tract Colorectal Glioblastoma V937 Breast Cutaneous Squamous Cell ~~Carcinoma~~ Head and Neck Melanoma Solid Tumors Chikungunya virus V184 Cytomegalovirus V160 HIV-1 Prevention MK-8591 (islatravir) Nonalcoholic Steatohepatitis NASH MK-3655 Overgrowth Syndrome MK-7075 (miransertib) Pneumococcal Vaccine Adult V116 Respiratory Syncytial Virus MK-1654 Schizophrenia MK-8189	Cancer MK-3475 Keytruda Biliary Tract (September 2019) Cervical (October 2018) (EU)			~~(U.S.)~~
~~Prostate~~				~~Colorectal (November 2015)~~	~~Ebola Vaccine~~
~~MK-7902 Lenvima~~⁽¹⁾Cutaneous Squamous Cell (August 2019) (EU)	~~Esophageal (December 2015)~~	~~V920~~⁽⁴⁾ ~~(U.S.)~~Endometrial (August 2019) (EU)
~~Biliary Tract~~	Gastric (May 2015) (EU)
~~Non-Small-Cell Lung~~	Hepatocellular (May 2016) (EU)	~~Certain Supplemental Filings~~
~~V937~~ ~~Cavatak~~	Mesothelioma (May 2018)	~~Cancer~~
~~Melanoma~~	~~Nasopharyngeal (April 2016)~~	~~MK-3475~~ ~~Keytruda~~
~~MK-7690~~	Ovarian (December 2018)	• ~~First-Line Advanced Renal Cell Carcinoma~~Prostate (May 2019)
~~Colorectal~~⁽²⁾	~~Renal (October 2016) (EU)~~	~~(KEYNOTE-426) (U.S.)~~
~~MK-7339 Lynparza~~⁽¹⁾	Small-Cell Lung (May 2017) (EU)	•~~First-Line Metastatic Squamous Non-Small-~~MK-6482 (belzutifan)
~~Advanced Solid Tumors~~	Renal Cell (February 2020) MK-7119 Tukysa(1) Breast (October 2019) MK-7339 Lynparza(1)(2) Colorectal(1) (August 2020) Non-Small-Cell Lung(2) (June 2019) Small-Cell Lung(2) (December 2020) MK-7902 Lenvima^(1,2)(1)(2)	~~Cell Lung Cancer (KEYNOTE-407) (EU)~~
~~Cytomegalovirus Vaccine~~	Bladder (May 2019) Endometrial (June 2018)	(EU) •~~First-Line Metastatic Non-Small-Cell Lung~~
~~V160~~	~~MK-7339 Lynparza~~⁽¹⁾	~~Cancer (KEYNOTE-042) (U.S.) (EU)~~
~~Diabetes Mellitus~~	~~Pancreatic~~Gastric (December ~~2014)~~	2020) • ~~Third-Line Advanced Small-Cell Lung~~
~~MK-8521~~⁽³⁾	~~Prostate (April 2017)~~	~~Cancer (KEYNOTE-158) (U.S.)~~
~~HIV-1 Infection~~	~~Cough~~	•~~First-Line~~ Head and Neck ~~Cancer~~(February 2020)
~~MK-8591~~	Melanoma (March 2019) Non-Small-Cell Lung (March 2019) Cough MK-7264 (gefapixant) (March 2018) COVID-19 MK-7110 (December 2020) HIV-1 Infection MK-8591A (doravirine/islatravir) (February 2020)	~~(KEYNOTE-048) (U.S.)~~
New Molecular Entities/Vaccines Bacterial Infection MK-7655A (relebactam+imipenem/cilastatin) (JPN) Heart Failure MK-1242 (vericiguat)(1) (EU) (JPN) Pediatric Neurofibromatosis ~~Type-1~~	~~Heart Failure~~	Type 1 MK-5618 (selumetinib)(1) (EU) Pneumococcal Infection Adult V-114 (U.S.) (EU) Certain Supplemental Filings Cancer MK-3475 Keytruda • ~~Alternative Dosing Regimen~~ Metastatic Triple-Negative Breast Cancer (KEYNOTE-355) (EU) (JPN) • Early-Stage Triple-Negative Breast Cancer (KEYNOTE-522) (U.S.) • Refractory Classical Hodgkin Lymphoma (KEYNOTE-204) (EU) • Unresectable or Metastatic MSI-H or dMMR Colorectal Cancer (KEYNOTE-177) (JPN) • Cutaneous Squamous Cell Cancer (KEYNOTE-629) (U.S.) • Advanced Unresectable Metastatic Esophageal Cancer (KEYNOTE-590) (U.S.) (EU) (JPN) • First-Line Metastatic HER2+ Gastric Cancer (KEYNOTE-811) (U.S.) MK-7902 Lenvima(1) • First-Line Metastatic Hepatocellular Carcinoma (KEYNOTE-524) (U.S.)(2)(4) • Thymic Carcinoma (NCCH1508/REMORA) (JPN)
~~MK-5618 (selumetinib)~~^Footnotes: (1)			~~MK-1242 (vericiguat) (September 2016)~~⁽¹⁾	~~(Q6W) (EU)~~
~~Respiratory Syncytial Virus~~	~~Pneumoconjugate Vaccine~~	~~MK-7339 Lynparza~~⁽¹⁾
~~MK-1654~~	~~V114 (June 2018)~~	•~~Second-Line Metastatic Breast Cancer (EU)~~
~~Schizophrenia~~		•~~First-Line Advanced Ovarian Cancer (EU)~~
~~MK-8189~~		~~HABP/VABP~~⁽⁵⁾
		~~MK-7625A~~ ~~Zerbaxa~~ ~~(U.S.)~~

		~~Footnotes:~~
		⁽¹⁾Being developed in a collaboration.
		⁽²⁾ Being developed in combination withKeytruda.
		(3) Being developed as monotherapy and in combination with Keytruda.
		⁽³⁾ ~~Development is currently on hold.~~(4) In July 2020, the FDA issued a CRL for Merck’s and Eisai’s applications. Merck and Eisai intend to submit additional data when available to the FDA.
		⁽⁴⁾ ~~Rolling submission.~~
		⁽⁵⁾ ~~HABP - Hospital-Acquired Bacterial~~
		~~Pneumonia / VABP - Ventilator-Associated~~
		~~Bacterial Pneumonia~~

~~Employees~~Human Capital

As of December 31, ~~2018,~~2020, the Company had approximately ~~69,000~~74,000 employees worldwide, with approximately ~~25,400~~27,000 employed in the United States, including Puerto ~~Rico.~~Rico, and approximately 26,000 third-party contractors globally. Approximately 73,000 of the Company’s employees are full time-employees. Women and individuals with ethnically diverse backgrounds comprise approximately 50% and 31% of its workforce in the United States, respectively. Women comprise 46% of the members of the Board of Directors. Additionally, the Company’s executive team, which includes individuals up to two structural levels below the Chief Executive

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Officer, is made up of 34% women. Approximately 30% of ~~worldwide~~the Company’s employees ~~of the Company~~ are represented by various collective bargaining groups.

~~Restructuring Activities~~The Company recognizes that its employees are critical to meet the needs of its patients and customers and that its ability to excel depends on the integrity, skill, and diversity of its employees.

~~In 2010~~Talent Acquisition

The Company uses a comprehensive approach to ensure recruiting, retention and ~~2013,~~leadership development goals are systematically executed throughout the Company ~~commenced actions~~and that it hires talented leaders to achieve improved gender parity and representation across all dimensions of diversity. The Company provides training to its managers and external recruiting organizations on strategies to mitigate unconscious bias in the candidate selection and hiring process. In addition, the Company utilizes a comprehensive communications strategy, marketing outreach, social media and strategic alliance partnerships to reach a broad pool of talent in its critical business areas. In 2020, the Company hired approximately 10,000 employees across the globe through various channels including the Company’s external career site, diversity partnerships, employee referrals, universities and other external sources.

Global Diversity and Inclusion

Diversity and inclusion are fundamental to the Company’s success and core to future innovation. The Company fosters a globally diverse and inclusive workforce for its employees by creating an environment of belonging, engagement, equity, and empowerment. The Company is proactive and intentional about diversity hiring and development programs to advance talent. The Company creates competitive advantages by leveraging diversity and inclusion to accelerate business performance. This includes fostering global supplier diversity, integrating diversity and inclusion into the Company’s commercialization strategies and leveraging employee insights to improve performance. In addition to these efforts, the Company has ten Employee Business Resource Groups, that provide opportunities for employees to take an active part in contributing to the Company’s inclusive culture through their work in talent acquisition and development, business and customer insights and social and community outreach.


Gender and Ethnicity Performance Data(1)	2020	2019	2018
Women in the workforce	49%	49%	49%
Women in the workforce in the U.S.	50%	50%	NR
Women on the Board of Directors	46%	33%	23%
Women in executive roles(2)	34%	36%	32%
Women in management roles(3)	43%	43%	41%
Members of underrepresented ethnic groups on the Board of Directors	23%	17%	15%
Members of underrepresented ethnic groups in executive roles (U.S.)	22%	26%	21%
Members of underrepresented ethnic groups in the workforce (U.S.)	31%	29%	27%
Members of underrepresented ethnic groups in management roles (U.S.)	29%	27%	25%
New hires that were female	50%	50%	51%
New hires that were members of underrepresented ethnic groups (U.S.)	42%	33%	36%

NR: Not reported.

(1) As of 12/31.

(2) “Executive” is defined as the chief executive officer and two structural levels below.

(3) “Management role” is defined as all managers with direct reports other than executives defined in note 2.

Compensation and Benefits

The Company provides a valuable total rewards package reflecting its commitment to attract, retain and motivate its talent, and to supporting its employees and their families in every stage of life. The Company continuously monitors and adjusts its compensation and benefit programs to ensure they are competitive, contemporary, helpful and engaging, and that they support strategic imperatives such as diversity and inclusion, equity, flexibility, quality, security and affordability. For example, in 2020, the Company added a personal health care concierge service to assist U.S. employees participating in the Company medical plan with their health care

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needs. Aligned with its business and in support of its cancer care strategy, the Company also improved cancer screening benefits, added resources and provided immediate access to a leading cancer center of excellence for U.S. employees. Globally, the Company implemented a minimum standard of 12 weeks of paid parental leave, which inclusively applies to all parents. In the United States, the Company’s benefits rank in the top quartile of Fortune 100 companies under ~~global restructuring~~the Aon Hewitt 2019 Benefits Index. The Company has been included in the Working Mother 100 Best Companies ranking for 34 consecutive years and was named a Working Mother Best Company for Dads in 2020.

Employee Wellbeing

The Company is committed to helping its employees and their families improve their own health and wellbeing. The Company’s culture of wellbeing is referred to as “Live it”, which includes programs to support preventive health, emotional and financial wellbeing, physical fitness and nutrition. It is designed to ~~streamline~~inspire all employees to pursue, enjoy, and share healthy lifestyles. Live it was launched in the United States in 2011 and today is available in every country in which the Company has employees. In addition, many of the Company’s larger sites offer onsite health clinics that provide an array of services to help its ~~cost structure.~~employees stay or get well, including vaccinations, cancer and biometric screenings, travel medicine and advice, diagnosis and treatment of non-occupational illnesses or injuries, health counseling and referrals. The ~~actions under these~~Company’s overall employee wellbeing program was recognized for excellence in health and wellbeing by receiving the highest-level awards from the Business Group on Health (2019 and 2020), and the American Heart Association (2018-2020).

COVID-19 Response

The Company recognizes that it has a unique responsibility to help in response to the COVID-19 pandemic and is committed to supporting and protecting its employees and their families, ensuring that its supply of medicines and vaccines reaches its patients, contributing its scientific expertise to the development of antiviral approaches and supporting its health care providers and the communities in which they serve. The Company continues to provide employees with easy and regular access to information, including details regarding the Company’s tracking process, guidance around hygiene measures and travel and best practices for working from home. Examples of pandemic support resources and programs available to the Company’s employees include pay continuation for workers who have been sick or exposed, volunteer policy adjustment to enable employees with medical backgrounds to volunteer in SARS-CoV-2-related activities, resources to prioritize physical and mental wellness, adjustments to medical plans to cover 100% of a COVID-19-related diagnosis, testing and treatment, backup childcare and more.

Engaging Employees

The Company strives to foster employee engagement by promoting a safe, positive, diverse and inclusive work environment that provides numerous opportunities for two-way communication with employees. Some of the ~~elimination~~Company’s key programs and initiatives include promoting global employee engagement surveys, ongoing pulse checks to the organization for interim feedback on specific topics, fostering professional networking and collaboration, identifying and providing opportunities for volunteering and establishing positive, cooperative business relations with designated employee representatives.

Talent Management and Development

As the Company pursues its goal of ~~positions in sales, administrative~~becoming the world’s premier research-based biopharmaceutical company, it needs to continuously develop its diverse and ~~headquarters organizations,~~talented people. The Company’s current talent management system supports company-wide performance management, development, talent reviews and succession planning. Annual performance reviews help further the professional development of the Company’s employees and ensure that the Company’s workforce is aligned with the Company’s objectives. The Company seeks to continuously build the skills and capabilities of its workforce to accelerate talent, improve performance and mitigate risk through relevant continuous learning experiences. This includes, but is not limited to, building leadership and management skills, as well as ~~the sale or closure of certain manufacturing~~providing technical and ~~research and~~functional training to all employees.

development sites and the consolidation of office facilities. The Company also continues to reduce its global real estate footprint and improve the efficiency of its manufacturing and supply network. Since inception of the programs through December 31, 2018, Merck has eliminated approximately 45,510 positions comprised of employee separations, as well as the elimination of contractors and vacant positions. The Company has substantially completed the actions under these programs.

Environmental Matters

The Company believes that there are no compliance issues associated with applicable environmental laws and regulations that would have a material adverse effect on the Company. The Company is also remediating environmental contamination resulting from past industrial activity at certain of its sites. Expenditures for

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remediation and environmental liabilities were ~~$16~~$11 million in ~~2018,~~2020 and are estimated at ~~$57~~$46 million in the aggregate for the years ~~2019~~2021 through ~~2023.~~2025. These amounts do not consider potential recoveries from other parties. The Company has taken an active role in identifying and accruing for these costs and, in management’s opinion, the liabilities for all environmental matters that are probable and reasonably estimable have been accrued and totaled ~~$71 million and $82~~$67 million at both December 31, ~~2018~~2020 and ~~2017, respectively.~~2019. Although it is not possible to predict with certainty the outcome of these matters, or the ultimate costs of remediation, management does not believe that any reasonably possible expenditures that may be incurred in excess of the liabilities accrued should exceed ~~$60~~approximately $65 million in the aggregate. Management also does not believe that these expenditures should have a material adverse effect on the Company’s financial ~~position,~~condition, results of operations, liquidity or capital resources for any year.

Merck believes that climate change could present risks to its business. Some of the potential impacts of climate change to its business include increased operating costs due to additional regulatory requirements, physical risks to the Company’s facilities, water limitations and disruptions to its supply chain. These potential risks are integrated into the Company’s business planning including investment in reducing energy usage, water use and greenhouse gas emissions. The Company does not believe these risks are material to its business at this time.

Geographic Area Information

The Company’s operations outside the United States are conducted primarily through subsidiaries. Sales worldwide by subsidiaries outside the United States as a percentage of total Company sales were 56% in both 2020 and 2019 and were 57% ~~of sales~~ in ~~2018, 57% of sales in 2017 and 54% of sales in 2016.~~2018.

The Company’s worldwide business is subject to risks of currency fluctuations, governmental actions and other governmental proceedings abroad. The Company does not regard these risks as a deterrent to further expansion of its operations abroad. However, the Company closely reviews its methods of operations and adopts strategies responsive to changing economic and political conditions.

Merck has operations in countries located in Latin America, the Middle East, Africa, Eastern Europe and Asia Pacific. Business in these developing areas, while sometimes less stable, offers important opportunities for growth over time.

Available Information

The Company’s Internet website address is www.merck.com. The Company will make available, free of charge at the “Investors” portion of its website, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC). The address of that website is ~~http://~~www.sec.gov. In addition, the Company will provide without charge a copy of its Annual Report on Form 10-K, including financial statements and schedules, upon the written request of any shareholder to the Office of the Secretary, Merck & Co., Inc., 2000 Galloping Hill Road, K1-4157, Kenilworth, NJ 07033 U.S.A.

The Company’s corporate governance guidelines and the charters of the Board of Directors’ four standing committees are available on the Company’s website at www.merck.com/~~about/~~company-overview/leadership and all such information is available in print to any shareholder who requests it from the Company.


~~Item 1A.~~	~~Risk Factors.~~

Item 1A.Risk Factors.

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

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

•As the Company’s products lose market exclusivity, the Company generally experiences a significant and rapid loss of sales from those products.

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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 research and development efforts may not succeed in developing commercially successful products and the Company may not be able to acquire commercially successful products in other ways; in consequence, the Company may not be able to replace sales of successful products that lose patent protection.

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

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

•The uncertainty in global 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 lower cost generic products.

•The Company faces intense competition from competitors’ products.

•The global COVID-19 pandemic is having an adverse impact on the Company’s business, operations and financial performance. The Company is unable to predict the full extent to which the COVID-19 pandemic or any future pandemic, epidemic or similar public health threat will adversely impact its business, operations, financial performance, results of operations, and financial condition.

•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.

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

•In the past, the Company has experienced difficulties and delays in manufacturing certain of its products, including vaccines.

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

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

•Pharmaceutical products can develop unexpected safety or efficacy concerns.

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

•Negative events in the animal health industry could have a material adverse effect on future results of operations and financial condition.

•Biologics and vaccines carry unique risks and uncertainties, which could have a material adverse effect on the Company’s future results of operations and financial condition.

•The health care industry in the United States has been, and will continue to be, subject to increasing regulation and political action.

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

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

•The Company is subject to a variety of U.S. 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.

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

•The Company is increasingly dependent on sophisticated software applications, computing infrastructure and cloud service providers. In 2017, the Company experienced a network cyber-attack that led to a disruption of its worldwide operations, including manufacturing, research and sales operations. The Company could be a target of future cyber-attacks.

•Social media platforms present risks and challenges.

•The proposed Spin-Off of Organon may not be completed on the terms or timeline currently contemplated, if at all, and may not achieve the expected results.

•The costs to complete the proposed Spin-Off will be significant. In addition, the Company may be unable to achieve some or all of the strategic and financial benefits that it expects to achieve from the Spin-Off of Organon.

•Following the Spin-Off, the price of shares of the Company’s common stock may fluctuate significantly.

•There could be significant income tax liability if the Spin-Off or certain related transactions are determined to be taxable for U.S. federal income tax purposes.

The above list is not exhaustive, and the Company faces additional challenges and risks. Investors should carefully consider all of the information set forth in this Form 10-K, including the following risk factors, before deciding to invest in any of the Company’s securities.

Risk Factors

The risks below are not the only ones the Company faces. 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. This Form 10-K also contains forward-looking statements that involve risks and uncertainties. The Company’s results could materially differ from those anticipated in these forward-looking statements as a result of certain factors, including the risks it faces described below and elsewhere. See “Cautionary Factors that May Affect Future Results” below.

Risks Related to the Company’s Business

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

Patent protection is considered, in the aggregate, to be of material importance to the Company’s marketing of human health and animal health products in the United States and in most major foreign markets. Patents covering products that it has introduced normally provide market exclusivity, which is important for the successful marketing and sale of its products. The Company seeks patents covering each of its products in each of the markets where it intends to sell the products and where meaningful patent protection is available.

Even if the Company succeeds in obtaining patents covering its products, third parties or government authorities may challenge or seek to invalidate or circumvent its patents and patent applications. It is important for the Company’s business to defend successfully the patent rights that provide market exclusivity for its products. The Company is often involved in patent disputes relating to challenges to its patents or claims by third parties of infringement against the Company. The Company defends its patents both within and outside the United States, including by filing claims of infringement against other parties. See Item 8. “Financial Statements and Supplementary Data,” Note ~~11.~~10. “Contingencies and Environmental Liabilities” below. In particular, manufacturers of generic pharmaceutical products from time to time file abbreviated NDAs with the FDA seeking to market generic forms of the Company’s products prior to the expiration of relevant patents owned or licensed by the Company. The Company normally responds by defending its patent, including by filing lawsuits alleging patent

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infringement. Patent litigation and other challenges to the Company’s patents are costly and unpredictable and may deprive the Company of market exclusivity for a patented product or, in some cases, third-party patents may prevent the Company from marketing and selling a product in a particular geographic area.

Additionally, certain foreign governments have indicated that compulsory licenses to patents may be granted in the case of national emergencies or in other circumstances, which could diminish or eliminate sales and profits from those regions and negatively affect the Company’s results of operations. Further, court decisions relating to other companies’ patents, potential legislation in both the United States and certain foreign markets relating to patents, as well as regulatory initiatives may result in a more general weakening of intellectual property protection.

If one or more important products lose patent protection in profitable markets, sales of those products are likely to decline significantly as a result of generic versions of those products becoming available. The Company’s results of operations may be adversely affected by the lost sales unless and until the Company has ~~successfully~~ launched commercially successful ~~replacement products.~~products that replace the lost sales. 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.

A chart listing the patent protection for certain of the Company’s marketed products, and U.S. patent protection for candidates ~~under review and~~ in Phase 3 clinical development is set forth above in Item 1. “Business — Patents, Trademarks and Licenses.”

As the Company’s products lose market exclusivity, the Company generally experiences a significant and rapid loss of sales from those products.

The Company depends upon patents to provide it with exclusive marketing rights for its products for some period of time. 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 ~~position~~condition and prospects. For example, ~~pursuant to an agreement with a~~the patent that provided U.S. market exclusivity for NuvaRing expired in April 2018 and generic ~~manufacturer, that manufacturer launched in the United States a generic version of~~ ~~Zetia~~competition began in December ~~2016. In addition, the Company lost U.S. patent protection for~~ ~~Vytorin~~ ~~in April 2017. As a result, the~~2019. The Company experienced a ~~significant~~rapid and ~~rapid loss~~substantial decline in U.S. NuvaRing sales in 2020 as a result of ~~sales of~~ ~~Zetia~~this generic competition. In addition, Januvia and ~~Vytorin~~Janumet will lose market exclusivity in the United States in ~~2017, which continued~~January 2023. Januvia will lose market exclusivity in ~~2018. Furthermore,~~ the ~~patents~~EU in September 2022. Finally, the SPC that ~~provide U.S. and EU~~provides market exclusivity for ~~Noxafil~~ ~~will expire~~Janumet in ~~July 2019 and December 2019, respectively, and~~ the EU expires in April 2023. The Company anticipates ~~a significant~~sales of Januvia and Janumet in these markets will decline ~~in U.S. and EU~~ ~~Noxafil~~ ~~sales thereafter.~~substantially after the loss of market exclusivity.

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 ~~and negative impact~~adverse effect on the Company’s results of operations and ~~cash flows.~~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,~~Januvia~~, ~~Janumet~~, Gardasil/Gardasil 9,Januvia, Janumet,and Bridion. In particular, in 2020, the Company’s oncology portfolio, led by Keytruda, represented the vast majority of the Company’s revenue growth. 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 cash flows. 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. Such events could have a material adverse effect on the sales of any such products.

~~For example, in 2018, sales~~

Table of ~~Zepatier~~ ~~were materially unfavorably affected by increasing competition and declining patient volumes. Sales of~~ ~~Zostavax~~ ~~were also materially unfavorably affected due to competition. The Company expects that competition will continue to adversely affect the sales of these products.~~Content s

The Company’s research and development efforts may not succeed in developing commercially successful products and the Company may not be able to acquire commercially successful products in other ways; in consequence, the Company may not be able to replace sales of successful products that ~~have lost~~lose patent protection.

~~Like other major pharmaceutical companies, in~~In order to remain competitive, the Company, like other major pharmaceutical companies, must continue to launch new products. Expected declines in sales of products after the loss of market exclusivity mean that the Company’s future success is dependent on its pipeline of new products, including new products that it may develop through collaborations and joint ventures and products that it is able to obtain through license or acquisition. To accomplish this, the Company commits substantial effort, funds and other resources to research and development, both through its own dedicated resources and through various collaborations with third parties. There is a high rate of failure inherent in the research and development process for new ~~drugs.~~drugs and vaccines. As a result, there is a high risk that funds invested by the Company in research programs will not generate financial returns. This risk profile is compounded by the fact that this research has a long investment cycle. To bring a pharmaceutical compound from the discovery phase to market may take a decade or more and failure can occur at any point in the process, including later in the process after significant funds have been invested.

For a description of the research and development process, see Item 1. “Business — Research and Development” above. Each phase of testing is highly regulated and during each phase there is a substantial risk that the Company will encounter serious obstacles or will not achieve its ~~goals, therefore,~~goals. Therefore, the Company may abandon a product in which it has invested substantial amounts of time and resources. Some of the risks encountered in the research and development process include the following: pre-clinical testing of a new compound may yield disappointing results; competing products from other manufacturers may reach the market first; clinical trials of a new drug may not be successful; a new drug may not be effective or may have harmful side effects; a new drug may not be approved by the regulators for its intended use; it may not be possible to obtain a patent for a new drug; payers may refuse to cover or reimburse the new product; or sales of a new product may be disappointing.

The Company cannot state with certainty when or whether any of its products now under development will be approved or launched; whether it will be able to develop, license or otherwise acquire compounds, product candidates or products; or whether any products, once launched, will be commercially successful. The Company must maintain a continuous flow of successful new products and successful new indications ~~or brand extensions~~ 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 ~~position~~condition and prospects.

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

Products that appear promising in development may fail to reach the market or fail to succeed for numerous reasons, including the following:

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

•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;

•failure in certain markets to obtain reimbursement commensurate with the level of innovation and clinical benefit presented by the product;

•lack of economic feasibility due to manufacturing costs or other factors; and

•preclusion from commercialization by the proprietary rights of others.

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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 ~~position~~condition and prospects.

The ~~Company’s products, including products in development, cannot be marketed unless the~~ Company ~~obtains and maintains regulatory approval.~~faces continued pricing pressure with respect to its products.

The Company faces continued pricing pressure globally and, particularly in mature markets, from managed care organizations, government agencies and programs that could negatively affect the Company’s ~~activities,~~sales and profit margins. In the United States, these include (i) practices of managed care groups and institutional and governmental purchasers, (ii) U.S. federal laws and regulations related to Medicare and Medicaid, including ~~research, preclinical testing, clinical trials~~the Medicare Prescription Drug Improvement and Modernization Act of 2003 and the ~~manufacturing~~ACA, and ~~marketing~~(iii) state activities aimed at increasing price transparency, including new laws as noted above in Item 1. “Competition and the Health Care Environment.” Changes to the health care system enacted as part of ~~its products, are subject to extensive regulation by numerous federal, state and local governmental authorities~~health care reform in the United States, ~~including~~as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, could result in further pricing pressures. In addition, in the ~~FDA,~~United States, larger customers have received higher rebates on drugs in certain highly competitive categories. The Company must also compete to be placed on formularies of managed care organizations. 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 United States. 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 2020, the Company’s gross U.S. sales were reduced by ~~foreign regulatory authorities,~~45.5% as a result of rebates, discounts and returns.

Outside the United States, numerous major markets, including in the EU, Japan and China. In the United States, the FDA administers requirements covering the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of prescription pharmaceuticals. In many cases, the FDA requirementsChina have ~~increased the amount of time and money necessary to develop new products and bring them to market~~pervasive government involvement in ~~the United States. Regulation outside the United States also is primarily focused on drug safety and effectiveness~~funding health care and, in ~~many cases, reduction~~that regard, fix the pricing and reimbursement of pharmaceutical and vaccine products. Consequently, in the cost of drugs. The FDA and foreign regulatory authorities 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.

~~Even if~~those markets, the Company is ~~successful~~subject to government decision making and budgetary actions with respect to its products. In Japan, the pharmaceutical industry is subject to government-mandated biennial price reductions of pharmaceutical products and certain vaccines. Furthermore, the government can order re-pricing for specific products if it determines that use of such product will exceed certain thresholds defined under applicable re-pricing rules. The next government-mandated price reduction will occur in ~~developing new products, it will not~~April 2021 and is expected to impact many Company products.

The Company expects pricing pressures to continue in the future.

The uncertainty in global economic conditions together with cost-reduction measures being taken by certain governments could negatively affect the Company’s operating results.

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 market any of those products unless and until it has obtained all required regulatory approvals in each jurisdiction where it proposes to market the new products. Once obtained, the Company must maintain approval as long as it plans to market its new products in each jurisdiction where approval is required. 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. The Company would not be able to realize revenuespay for ~~those new products in any jurisdiction where it does not have approval.~~

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

~~Even after a product reaches~~products or by reducing the ~~market, certain developments following regulatory approval may decrease~~ demand for the Company’s products, ~~including~~which could in turn negatively impact the ~~following:~~Company’s sales and result in a material adverse effect on the Company’s business, cash flow, results of operations, financial condition and prospects.

~~results~~As discussed above in ~~post-approval Phase 4 trials or other studies;~~

“Competition and the ~~re-review of products that are already marketed;~~

~~the recall or loss of marketing approval of products that are already marketed;~~

~~changing government standards or public expectations regarding safety, efficacy or labeling changes;~~Health Care Environment,” global efforts toward health care cost containment continue to exert pressure on product pricing and

~~greater scrutiny in advertising and promotion.~~

In the past several years, clinical trials and post-marketing surveillance of certain marketed drugs of the Company and of competitors within the industry have raised concerns that have led to recalls, withdrawals or adverse labeling of marketed products. Clinical trials and post-marketing surveillance of certain marketed drugs also have raised concerns among some prescribers and patients relating market access worldwide. Changes to the ~~safety or efficacy~~U.S. health care system as part of ~~pharmaceutical products~~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 several international markets, government-mandated pricing actions have reduced prices of generic and patented drugs. In addition, the Company’s revenue performance in ~~general that have~~2020 was negatively affected ~~the sales~~by other cost-reduction measures taken by governments and other third-parties to lower health care costs. The Company anticipates all of ~~such products. In addition, increased scrutiny of the outcomes of clinical trials has led to increased volatility in market reaction. Further,~~ these ~~matters often attract litigation~~actions, and ~~even where the basis for the litigation is groundless, considerable resources may be needed to respond.~~

~~In addition, following~~additional actions in the ~~wake~~future, will continue to negatively affect revenue performance.

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If credit and ~~other significant safety issues, health authorities such as~~economic conditions worsen, the ~~FDA, the EMA~~resulting economic and Japan’s Pharmaceutical and Medical Device Agency have increased their focus on safety when assessing the benefit/risk balance of drugs. Some health authorities appear to have become more cautious when making decisions about approvability of new products or indications and are re-reviewing select products that are already marketed, adding further to the uncertaintiescurrency impacts in the ~~regulatory processes. There is also greater regulatory scrutiny, especially in the United States,~~affected markets and globally could have a material adverse effect on ~~advertising and promotion and, in particular, direct-to-consumer advertising.~~

~~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.results.

The Company faces intense competition from lower cost generic products.

In general, the Company faces increasing competition from lower-cost generic products. The patent rights that protect its products are of varying strengths and durations. In addition, in some countries, patent protection is significantly weaker than in the United States or in the EU. In the United States and the EU, political pressure to reduce spending on prescription drugs has led to legislation and other measures that encourage the use of generic and biosimilar products. 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. In addition, proposals emerge from time to time in the United States 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 and, potentially, its business, cash flow, results of operations, financial ~~position~~condition and prospects.

The Company faces intense competition from competitors’ products.

The Company’s products face intense competition from competitors’ products. This competition may increase as new products enter the market. In such an event, the competitors’ products may be safer or more effective, more convenient to use, have better insurance coverage or reimbursement levels or be more effectively marketed and sold than the Company’s products. 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 ~~position~~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.

The global COVID-19 pandemic is having an adverse impact on the Company’s business, operations and financial performance. The Company ~~faces~~is unable to predict the full extent to which the COVID-19 pandemic or any future pandemic, epidemic or similar public health threat will adversely impact its business, operations, financial performance, results of operations, and financial condition.

The Company’s business and financial results were negatively impacted by the outbreak of COVID-19 in 2020. The continued ~~pricing pressure~~duration and severity of the COVID-19 pandemic is uncertain, rapidly changing and difficult to predict. The degree to which COVID-19 impacts the Company’s results in 2021 will depend on future developments, beyond the Company’s knowledge or control, including, but not limited to, the duration of the outbreak, its severity, the success of actions taken to contain or prevent the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

In 2020, the COVID-19 pandemic impacted the Company’s business in numerous ways. As expected, within the Company’s human health business, revenue was negatively impacted by reduced access to health care providers given social distancing measures, which negatively affected vaccine and oncology sales in particular. The estimated overall negative impact of the COVID-19 pandemic to Merck’s revenue for the full year 2020 was approximately $2.5 billion, largely attributable to the Pharmaceutical segment, with approximately $50 million attributable to the Animal Health segment.

Roughly two-thirds of Merck’s Pharmaceutical segment revenue is comprised of physician-administered products, which, despite strong underlying demand, have been affected by social distancing measures, fewer well visits and delays in elective surgeries due to the COVID-19 pandemic. These impacts, as well as the prioritization of COVID-19 patients at health care providers, have resulted in reduced administration of many of the Company’s human health products, in particular for its vaccines, including Gardasil 9, as well as for Keytruda and Implanon/

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Nexplanon. In addition, declines in elective surgeries negatively affected the demand for Bridion. However, sales of Pneumovax 23 have increased due to heightened awareness of pneumococcal vaccination.

Merck believes that global health systems and patients have largely adapted to the impacts of COVID-19, but the Company’s assumption is that ongoing residual negative impacts will persist, particularly during the first half of 2021 and most notably with respect to ~~its products.~~

~~The Company faces continued pricing pressure globally and, particularly in mature markets, from managed care organizations, government agencies and programs that could negatively affect~~vaccine sales, with the Company’s sales and profit margins. In the United States, these include (i) practices of managed care groups and institutional and governmental purchasers, (ii) U.S. federal laws and regulations relatedimpact expected to Medicare and Medicaid, including the Medicare Prescription Drug Improvement and Modernization Act of 2003 and the ACA, and (iii) state activities aimed at increasing price transparency, including new laws as noted above in Item 1. “Competition and the Health Care Environment — Health Care Environment and Government Regulations.” Changes to the health care system enacted as part of health care reformbe more acute in the United ~~States,~~States. For the full year of 2021, Merck assumes an unfavorable impact to revenue of approximately 2% due to the COVID-19 pandemic, all of which relates to Pharmaceutical segment sales. In addition, for the full year of 2021, with respect to the COVID-19 pandemic, Merck expects a net negative impact to operating expenses, as spending on the development of its COVID-19 antiviral programs is expected to exceed the favorable impact of lower spending in other areas due to the COVID-19 pandemic. Despite the Company’s efforts to manage these impacts, their ultimate impact will also depend on factors beyond the Company’s knowledge or control, including the duration of the COVID-19 virus as well as ~~increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid,~~governmental and ~~private sector beneficiaries, could result in further pricing pressures.~~third-party actions taken to contain or prevent its spread, treat the virus and mitigate its public health and economic effects. In addition, ~~in the U.S., larger customers may, in the~~any future ~~ask for and receive higher rebates on drugs in certain highly competitive categories. The Company must also compete~~pandemic, epidemic or similar public health threat could present similar risks to ~~be placed on formularies of managed care organizations. Exclusion of a product from a formulary can lead to reduced usage in the managed care organization.~~

Outside the United States, 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 decision making and budgetary actions with respect to its products.

~~The Company expects pricing pressures to continue in the future.~~

~~The health care industry in the United States will continue to be subject to increasing regulation and political action.~~

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 2010, the United States enacted major health care reform legislation in the form of the ACA. Various insurance market reforms have advanced and state and federal insurance exchanges were launched in 2014. With respect to the effect of the law on the pharmaceutical industry, the law increased the mandated Medicaid rebate from 15.1% to 23.1%, expanded the rebate to Medicaid managed care utilization, and increased the types of entities eligible for the federal 340B drug discount program.

The law also requires pharmaceutical manufacturers to pay a 50% point of service discount to Medicare Part D beneficiaries when they are in the Medicare Part D coverage gap (i.e., the so-called “donut hole”). In 2018, the Company’s revenue was reduced by $365 million due to this requirement. Beginning in 2019, the 50% point of service discount will increase to a 70% point of service discount in the coverage gap, as a result of the Balanced Budget Act of 2018. In addition, the 70% point of service discount will be extended to biosimilar products. Also, pharmaceutical manufacturers are now required to pay an annual non-tax deductible health care reform fee. The total annual industry fee was $4.1 billion in 2018 and will be $2.8 billion in 2019. The fee is assessed on each company in proportion to its share of prior year branded pharmaceutical sales to certain government programs, such as Medicare and Medicaid. In 2018, the Company recorded $124 million of costs for this annual fee.

In 2016, the Centers for Medicare & Medicaid Services (CMS) issued the Medicaid rebate final rule that implements provisions of the ACA effective April 1, 2016. The rule provides comprehensive guidance on the calculation of Average Manufacturer Price and Best Price; two metrics utilized to determine the rebates drug manufacturers are required to pay to state Medicaid programs. The impact of changes resulting from the issuance of the rule is not material to Merck, at this time. However, the Company is still awaiting guidance from CMS on two aspects of the rule that were deferred for later implementation. These include a definition of what constitutes a product ‘line extension’ and a delay

~~in the participation of the U.S. Territories in the Medicaid Drug Rebate Program until April 1, 2020. The Company will evaluate the financial impact of these two elements when they become effective.~~

~~The Company cannot predict the likelihood of future changes in the health care industry in general, or the pharmaceutical industry in particular, or what impact they may have on~~ the Company’s business, cash flow, results of operations, financial ~~position~~condition and prospects.

The Company is increasingly dependent on sophisticated software applications and computing infrastructure. In 2017, the Company experienced a network cyber-attack that led to a disruption of its worldwide operations, including manufacturing, research and sales operations. The Company could be a target of future cyber-attacks.

The Company is increasingly dependent on sophisticated software applications and complex information technology systems and computing infrastructure (collectively, “IT systems”) to conduct critical operations. Disruption, degradation, or manipulation of these IT systems through intentional or accidental means could impact key business processes. Cyber-attacks against the Company’s IT systems could result in exposure of confidential information, the modification of critical data, and/or the failure of critical operations. Misuse 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 improve the efficacy and efficiency of its business processes; the use of which can create new risks.

In 2017, the Company experienced a network cyber-attack that led to a disruption of its worldwide operations, including manufacturing, research and sales operations. Due to the cyber-attack, the Company was unable to fulfill orders for certain products in certain markets, which had an unfavorable effect on sales in 2017 of approximately $260 million. In addition, the Company recorded manufacturing-related expenses, primarily unfavorable manufacturing variances, in ~~Cost of sales, as well as expenses related to remediation efforts in~~ ~~Selling, general and administrative~~ ~~expenses and~~ ~~Research and development~~ expenses, which aggregated $285 million in 2017, net of insurance recoveries of approximately $45 million. Due to a residual backlog of orders, 2018 sales were unfavorably affected in certain markets by approximately $150 million from the cyber-attack.

The Company has insurance coverage insuring against costs resulting from cyber-attacks and has received proceeds. However, there are disputes with certain of the insurers about the availability of some of the insurance coverage for claims related to the 2017 cyber-attack.

The Company has implemented a variety of measures to further enhance and modernize its systems to guard against similar attacks in the future, and also is pursuing an enterprise-wide effort to enhance the Company's resiliency against future cyber-attacks, including incidents similar to the 2017 attack. The objective of these efforts is not only to protect against future cyber-attacks, but also to improve the speed of the Company’s recovery from such attacks and enable continued business operations to the greatest extent possible during any recovery period.

Although the aggregate impact of cyber-attacks and network disruptions, including the 2017 cyber-attack, on the Company’s operations and financial condition has not been material to date, the Company continues to be a target of events of this nature and expects them to continue. The Company monitors its data, information technology and personnel usage of Company IT systems to reduce these risks and continues to do so on an ongoing basis for any current or potential threats. There can be no assurance that the Company’s efforts to protect its data and IT systems will be successful in preventing disruptions to its operations, including its manufacturing, research and sales operations. Any such disruption could 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 could also result in financial, legal, business or reputational harm to the Company and potentially substantial remediation costs.

~~The Company is subject to a variety of U.S. and international laws and regulations.~~

decisions affecting pricing, drug reimbursement, and access or marketing within or across jurisdictions; (iv) changes in intellectual property laws; (v) changes in accounting standards; (vi) new and increasing data privacy regulations and enforcement, particularly in the EU and the United States; (vii) legislative mandates or preferences for local manufacturing of pharmaceutical or vaccine products; (viii) emerging and new global regulatory requirements for reporting payments and other value transfers to healthcare professionals; (ix) environmental regulations; and (x) the potential impact of importation restrictions, embargoes, trade sanctions and legislative and/or other regulatory changes.

~~The uncertainty in global economic conditions together with cost-reduction measures being taken by certain governments could negatively affect the Company’s operating results.~~

Global efforts toward health care cost containment continue to exert pressure on product pricing and market access. In the United States, pricing pressures continue on many of the Company’s products and, in several international markets, government-mandated pricing actions have reduced prices of generic and patented drugs. The Company anticipates these pricing actions will continue to negatively affect revenue performance in 2019.

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

The extent of the Company’s operations outside the United States is significant. Risks inherent in conducting a global business include:

•changes in medical reimbursement policies and programs and pricing restrictions in key markets;

•multiple regulatory requirements that could restrict the Company’s ability to manufacture and sell its products in key markets;

•trade protection measures and import or export licensing requirements, including the imposition of trade sanctions or similar restrictions by the United States or other governments;

•foreign exchange fluctuations;

•diminished protection of intellectual property in some countries; and

•possible nationalization and expropriation.

In addition, there may be changes to the Company’s business and political position 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. ~~For example, in 2017, the Company’s lone manufacturing plant in Puerto Rico was negatively affected by Hurricane Maria.~~

In 2016, the United Kingdom (UK) held a referendum in which voters approved an exit from the EU, commonly referred to as “Brexit”. As a result of that referendum, the British government has been in the process of negotiating the terms of the UK’s future relationship with the EU. While the Company has taken actions and made certain contingency plans for scenarios in which the UK and the EU do not reach a mutually satisfactory understanding as to that relationship, it is not possible at this time to predict whether there will be any such understanding, or if such an understanding is reached, whether its terms will vary in ways that result in greater restrictions on imports and exports between the UK and EU countries, increased regulatory complexities, and/or cross border labor issues that could materially adversely impact the Company’s business operations in the UK.

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

The Company’s success is largely dependent on its continued ability to attract and retain highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical research and development, governmental regulation and commercialization. Competition for qualified personnel in the pharmaceutical industry 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.

In the past, the Company has experienced 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. ~~In addition, the network cyber-attack experienced by~~For example, in 2020 the Company ~~in June 2017 led to~~issued a ~~disruption~~product recall for Zerbaxa following the identification of ~~the Company’s operations, including its manufacturing operations.~~product sterility issues. The Company may, in the future, experience other difficulties and delays ~~inherent~~ 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

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manufacturing shutdowns, product shortages and delays in product manufacturing; (ii) ~~construction~~ delays related to the construction of new facilities or the expansion of existing facilities, including those intended to support future demand for the Company’s products; and (iii) other manufacturing or distribution problems including 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. 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.

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 successfully implement its emerging markets strategy, 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. 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 United States has increased accordingly. 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. As noted above in ~~Healthcare~~“Competition and the Health Care Environment,,” pricing pressure in China has increased as the Chinese government has been taking steps to reduce costs, including implementing ~~healthcare~~health care reform that has led to the acceleration of generic substitution, where available. In 2017, the Chinese government updated the NRDL for the first time in eight years. While the mechanism for drugs being added to the list evolves, inclusion may require a price negotiation which could impact the outlook in the market for selected brands. In 2020, drugs were added to the NRDL through double-digit 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. In 2019, the government implemented the VBP program through a tendering process for mature products which have generic substitutes with a Generic Quality Consistency Evaluation approval. Mature products that have entered into the first three rounds of VBP had, on average, a price reduction of 50%. The Company expects VBP to be a semi-annual process that will have a significant impact on mature products moving forward. In addition, the Company anticipates that the reported inquiries made by various governmental authorities involving multinational pharmaceutical companies in China may continue.

For all these reasons, sales within emerging markets carry significant risks. However, aat the same time macro-economic growth of selected emerging markets is expected to outpace Europe and even the United States, leading to significant increased headcount 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 ~~position~~condition and prospects.

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

The Company operates in multiple jurisdictions and virtually all sales are denominated in currencies of the local jurisdiction. 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 fluctuations, fluctuations in currency exchange rates, interest rates and inflation could negatively affect the Company’s business, cash flow, results of operations, financial ~~position~~condition and prospects.

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In order to mitigate against the adverse impact of these market fluctuations, the Company will from time to time enter into hedging agreements. While hedging agreements, such as currency options and forwards and interest rate swaps, may limit some of the exposure to exchange rate and interest rate fluctuations, such attempts to mitigate these risks may be costly and not always successful.

~~The Company~~Certain of the Company’s interest rate derivatives and investments are based on the London Interbank Offered Rate (LIBOR), and a portion of Merck’s indebtedness bears interest at variable interest rates, primarily based on LIBOR. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform, which will cause LIBOR to ~~evolving and complex tax laws, which may result in additional liabilities that may affect results of operations.~~

~~The Company is subject~~cease to ~~evolving and complex tax laws~~exist entirely in the jurisdictions in which it operates. Significant judgment is required for determining the Company’s tax liabilities, and the Company’s tax returns are periodically examined by various tax authorities. 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; however, due to the complexity of tax contingencies, the ultimate resolution of any tax matters may result in payments greater or less than amounts accrued. In addition,future. While the Company expects that reasonable alternatives to LIBOR will be implemented prior to its termination, the Company cannot predict the consequences and timing of these developments, which could include an increase in interest expense and may ~~be 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.~~also require the amendment of contracts that reference LIBOR.

Pharmaceutical products can develop unexpected safety or efficacy concerns.

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.

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

The Company depends on third parties, including suppliers, alliances with other pharmaceutical and biotechnology companies, and third-party service providers, for key aspects of its business including development, manufacture and commercialization of its products and support for its information technology (IT) systems. 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.

Negative events in the animal health industry could have a ~~negative impact~~material adverse effect on future results of ~~operations.~~operations and financial condition.

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 ~~Bovine Spongiform Encephalopathy or mad cow disease,~~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 ~~impact~~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 ~~production~~the manufacture of ~~vaccines~~its animal health products at such sites or force the Company to incur substantial expenses in procuring raw materials or ~~vaccines~~products elsewhere. Other risks specific to animal health include epidemics and pandemics, government procurement and pricing practices, weather and global agribusiness economic events. As the Animal Health segment of the Company’s business becomes more significant, the impact of any such events on future results of operations would also become more significant.

Biologics and vaccines carry unique risks and uncertainties, which could have a ~~negative impact~~material adverse effect on the Company’s future results of ~~operations.~~operations and financial condition.

The successful development, testing, manufacturing and commercialization of biologics and vaccines, particularly human and animal health vaccines, is a long, complex, expensive and uncertain process. There are unique risks and uncertainties ~~with~~related to biologics and vaccines, including:

•There may be limited access to, and supply of, normal and diseased tissue samples, cell lines, pathogens, bacteria, viral strains and other biological materials. In addition, government regulations in multiple

jurisdictions, such as the United States and the EU, could result in restricted access to, or transport or use of, such materials. If the Company loses access to sufficient sources of such materials, or if tighter restrictions are imposed on the use of such materials, the Company may not be able to conduct research activities as planned and may incur additional development costs.

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•The development, manufacturing and marketing of biologics and vaccines are subject to regulation by the FDA, the EMA and other regulatory bodies. These regulations are often more complex and extensive than the regulations applicable to other pharmaceutical products. For example, in the United States, a BLA, including both ~~preclinical~~pre-clinical and clinical trial data and extensive data regarding the manufacturing procedures, is required for human vaccine candidates, and FDA approval is generally required for the release of each manufactured commercial lot.

•Manufacturing biologics and vaccines, especially in large quantities, is often complex and may require the use of innovative technologies to handle living micro-organisms. Each lot of an approved biologic and vaccine must undergo thorough testing for identity, strength, quality, purity and potency. Manufacturing biologics requires facilities specifically designed for and validated for this purpose, and sophisticated quality assurance and quality control procedures are necessary. Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage. When changes are made to the manufacturing process, the Company may be required to provide pre-clinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes.

•Biologics and vaccines are frequently costly to manufacture because production ingredients are derived from living animal or plant material, and most biologics and vaccines cannot be made synthetically. In particular, keeping up with the demand for vaccines may be difficult due to the complexity of producing vaccines.

•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.

Risks Relating to Government Regulation and Legal Proceedings

The health care industry in the United States has been, and will continue to be, subject to increasing regulation and political action.

As discussed above “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 2010, the United States enacted major health care reform legislation in the form of the ACA. Various insurance market reforms have advanced and state and federal insurance exchanges were launched in 2014. The ACA increased the mandated Medicaid rebate from 15.1% to 23.1%, expanded the rebate to Medicaid managed care utilization, and increased the types of entities eligible for the federal 340B drug discount program.

The ACA also requires pharmaceutical manufacturers to pay 70% of the cost of medicine, including biosimilar products, when Medicare Part D beneficiaries are in the Medicare Part D coverage gap (i.e., the so-called “donut hole”). In 2020, the Company’s revenue was reduced by approximately $700 million due to this requirement. Also, pharmaceutical manufacturers are required to pay an annual non-tax deductible health care reform fee. In 2020, the Company recorded $85 million of costs for this annual fee.

In February 2016, the Centers for Medicare & Medicaid Services (CMS) issued the Medicaid rebate final rule that implemented provisions of the ACA effective April 1, 2016. The rule provides comprehensive guidance on the calculation of Average Manufacturer Price and Best Price; two metrics utilized to determine the rebates drug manufacturers are required to pay to state Medicaid programs. More recently, although CMS previously declined to define what constitutes a product “line extension” (beyond the statutory definition), CMS issued a new rule on December 21, 2020 that will significantly expand the definition of the term “line extension” as of January 1, 2022 to include a broad range of products, including products reflecting new strengths, dosage forms, release mechanisms, and routes of administration. This expanded definition will increase the number of drugs subject to a higher Medicaid rebate. Effective January 1, 2023, this final rule also changes the way that manufacturers must calculate Best Price, in relation to certain patient support programs, including coupons, which also may result in an increase in

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the Company’s Medicaid rebates. The impact of these and other provisions in this final rule could adversely impact the Company’s business, cash flow, results of operations, financial condition and prospects.

As discussed above in “Competition and the Health Care Environment,” in November 2020, the Department of Health and Human Services Office of Inspector General (OIG) issued a Final Rule that would, effective January 1, 2023, eliminate the Anti-Kickback Statute safe harbor for rebates paid to Medicare Part D plans or to PBMs on behalf of such plans. While the Company cannot anticipate the effects of this change to the way it currently contracts, this new framework could significantly alter the way it does business with Part D Plan Sponsors and PBMs on behalf of such plans.

On November 20, 2020, CMS also issued the MFN Rule, which was intended to be effective January 1, 2021, to institute a new pricing system for certain prescription drugs and biologic products covered by Medicare Part B in which Medicare would reimburse no more than the “most favored nation price,” meaning the lowest price after adjusting for volume and differences in gross domestic product, for the top fifty Part B reimbursed products, which includes Keytruda, sold in 22 member countries of the OECD, rather than use the current Average Sales Price (“ASP”)-based payment framework for certain physician-administered drugs. Implementation of the MFN Rule could have a material adverse effect on the Company’s business, cash flow, results of operations, financial condition and prospects.

The FDA also recently issued rulemaking allowing the commercial importation of certain prescription drugs from Canada through FDA-authorized, time-limited programs sponsored by states or Native American tribes recognized under the rule, and, in certain future circumstances, pharmacists and wholesalers. The FDA also recently released a final guidance for industry detailing procedures for drug manufacturers to import FDA-approved prescription drug, biological, and combination products that were manufactured abroad and authorized and intended for sale in a foreign country. These changes, if they become effective, could have a material adverse effect on the Company’s business, cash flow, results of operations, financial condition and prospects.

Several organizations, including two trade groups of which Merck is a member, have filed suit challenging the MFN Rule. Those lawsuits remain pending with a preliminary injunction having been entered in one of the cases. A trade organization in which Merck is a member brought suit, which is pending, in federal district court challenging the commercial importation rule.

The Company cannot predict the likelihood of these regulations becoming effective or what additional future changes in the health care industry in general, or the pharmaceutical industry in particular, will occur, however, these changes could have a material adverse effect on the Company’s business, cash flow, 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.

The Company’s activities, including research, pre-clinical testing, clinical trials and the manufacturing and marketing of its products, are subject to extensive regulation by numerous federal, state and local governmental authorities in the United States, including the FDA, and by foreign regulatory authorities, including in the EU, Japan and China. In the United States, the FDA administers requirements covering the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of prescription pharmaceuticals. In many cases, the FDA requirements have increased the amount of time and money necessary to develop new products and bring them to market in the United States. Regulation outside the United States also is primarily focused on drug safety and effectiveness and, in many cases, reduction in the cost of drugs. The FDA and foreign regulatory authorities, including in 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.

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 in each jurisdiction where it proposes to market the new products. Once obtained, the Company must maintain approval as long as it plans to market its new products in each jurisdiction where approval is required. 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. The Company would not be able to realize revenues for those new products in any jurisdiction where it does not have approval.

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

Even after a product reaches the market, certain developments following regulatory approval may decrease demand for the Company’s products, including the following:

•results in post-approval Phase 4 trials or other studies;

•the re-review of products that are already marketed;

•the recall or loss of marketing approval of products that are already marketed;

•changing government standards or public expectations regarding safety, efficacy, quality or labeling changes; and

•scrutiny of advertising and promotion.

In the past, clinical trials and post-marketing surveillance of certain marketed drugs of the Company and of competitors within the industry have raised concerns that have led to recalls, withdrawals or adverse labeling of marketed products. Clinical trials and post-marketing surveillance of certain marketed drugs also have raised concerns among some prescribers and patients relating to the safety or efficacy of pharmaceutical products in general that have negatively affected the sales of such products. In addition, increased scrutiny of the outcomes of clinical trials has led to increased volatility in market reaction. Further, these matters often attract litigation and, even where the basis for the litigation is groundless, considerable resources may be needed to respond.

In addition, following in the wake of product withdrawals and other significant safety issues, health authorities such as the FDA, the EMA, Japan’s PMDA and China’s NMPA have increased their focus on safety when assessing the benefit/risk balance of drugs. Some health authorities appear to have become more cautious when making decisions about approvability of new products or indications.

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

The Company is subject to a variety of U.S. and international laws and regulations.

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; these laws and regulations include (i) additional health care reform initiatives in the United States or in other countries, including additional mandatory discounts or fees; (ii) the U.S. Foreign Corrupt Practices Act or other anti-bribery and corruption laws; (iii) new laws, regulations and judicial or other governmental decisions affecting pricing, drug reimbursement, and access or marketing within or across jurisdictions; (iv) changes in intellectual property laws; (v) changes in accounting standards; (vi) new and increasing data privacy regulations and enforcement, particularly in the EU and the United States; (vii) legislative mandates or preferences for local manufacturing of pharmaceutical or vaccine products; (viii) emerging and new global regulatory requirements for reporting payments and other value transfers to health care professionals; (ix) environmental regulations; 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.

The Company is subject to evolving and complex tax laws in the jurisdictions in which it operates. Significant judgment is required for determining the Company’s tax liabilities, and the Company’s tax returns are periodically examined by various tax authorities. 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; however, due to the complexity of tax contingencies, the ultimate resolution of any tax matters may result in payments greater or less than amounts accrued. 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.

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

As a result of a number of factors, product liability insurance has become less available while the cost of such insurance has increased significantly. The Company is subject to a substantial number of product liability claims. See Item 8. “Financial Statements and Supplementary Data,” Note ~~11.~~10. “Contingencies and Environmental Liabilities” below for more information on the Company’s current product liability litigation. With respect to product liability, the Company self-insures substantially all of its risk, as the availability of commercial insurance has become more restrictive. The Company has evaluated its risks and has determined that the cost of obtaining product liability insurance outweighs the likely benefits of the coverage that is available and, as such, has no insurance for ~~certain~~most product ~~liabilities effective August 1, 2004, including liability for legacy Merck products first sold after that date.~~liabilities. The Company will continually assess the most efficient means to address its risk; 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.

Risks Related to Technology

The Company is increasingly dependent on sophisticated software applications, complex information technology systems, computing infrastructure, and cloud service providers (collectively, IT systems) to conduct critical operations. Certain of these systems are managed, hosted, provided or used by third parties to assist in conducting the Company’s business. Disruption, degradation, or manipulation of these IT systems through intentional or accidental means by the Company’s employees, third parties with authorized access or unauthorized third parties could adversely affect key business processes. Cyber-attacks against the Company’s IT systems or third-party providers’ IT systems, such as cloud-based systems, could result in exposure of confidential information, the modification of critical data, and/or the failure of critical operations. 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 improve the efficacy and efficiency of its business processes; the use of which can create new risks.

In 2017, the Company experienced a network cyber-attack that led to a disruption of its worldwide operations, including manufacturing, research and sales operations, and resulting losses.

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basis for any current or potential threats. There can be no assurance that the Company’s efforts to protect its data and IT systems or the efforts of third-party providers to protect their IT systems will be successful in preventing disruptions to the Company’s operations, including its manufacturing, research and sales operations. 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.

Social media platforms present risks and challenges.

The inappropriate and/or unauthorized use of certain social media ~~vehicles~~channels could cause brand damage or information leakage or could lead to legal implications, including from the improper collection and/or dissemination of personally identifiable information. In addition, negative or inaccurate posts or comments about the Company or its products on any social networking platforms could damage the Company’s reputation, brand image and goodwill. Further, the disclosure of non-public Company-sensitive information by the Company’s workforce or others through external media channels could lead to information loss. Although there is an internal Company Social Media Policy that guides employees on appropriate personal and professional use of social media about the Company, the processes in place may not completely secure and protect information. Identifying new points of entry as social media continues to expand also presents new challenges.

Risks Related to the Proposed Spin-Off of Organon

The proposed Spin-Off of Organon may not be completed on the terms or timeline currently contemplated, if at all, and may not achieve the expected results.

In February 2020, the Company announced its intention to Spin-Off products from its women’s health, biosimilars and established brands businesses into a new, independent, publicly traded company, which has been named Organon & Co. (Organon) through a distribution of Organon’s publicly traded stock to Company shareholders. The distribution is expected to qualify as tax-free to the Company and its shareholders for U.S. federal income tax purposes. The transaction is expected to be completed late in the second quarter of 2021. Completion of the Spin-Off will be subject to a number of factors and conditions, and there can be no assurances that the Company will be able to complete the Spin-Off on the terms or on the timeline that was announced, if at all. Unanticipated developments could delay, prevent or otherwise adversely affect the proposed Spin-Off, including but not limited to disruptions in general or financial market conditions or potential problems or delays in obtaining various regulatory and tax approvals or clearances. In addition, consummation of the proposed Spin-Off will require final approval from the Company’s Board of Directors.

The costs to complete the proposed Spin-Off will be significant. In addition, the Company may be unable to achieve some or all of the strategic and financial benefits that it expects to achieve from the Spin-Off of Organon.

The Company will incur significant expenses in connection with the Spin-Off. In addition, the Company may not be able to achieve the full strategic and financial benefits that are expected to result from the Spin-Off. The anticipated benefits of the Spin-Off are based on a number of assumptions, some of which may prove incorrect.

Following the Spin-Off, the price of shares of the Company’s common stock may fluctuate significantly.

The Company cannot predict the effect of the Spin-Off on the trading price of shares of its common stock, and the market value of shares of its common stock may be less than, equal to or greater than the market value of shares of its common stock prior to the Spin-Off. In addition, the price of Merck’s common stock may be more volatile around the time of the Spin-Off.

There could be significant income tax liability if the Spin-Off or certain related transactions are determined to be taxable for U.S. federal income tax purposes.

The Company expects that prior to completion of the Spin-Off it will receive an opinion from its U.S. tax counsel that concludes, among other things, that the Spin-Off of all of the outstanding Organon shares to Merck

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shareholders and certain related transactions will qualify as tax-free to Merck and its shareholders under Sections 355 and 368 of the U.S. Internal Revenue Code, except to the extent of any cash received in lieu of fractional shares of Organon common stock. Any such opinion is not binding on the Internal Revenue Service (IRS). Accordingly, while the Company believes the risk is low, the IRS may reach conclusions with respect to the Spin-Off that are different from the conclusions reached in the opinion. The opinion will rely on certain facts, assumptions, representations and undertakings from Merck and Organon regarding the past and future conduct of the companies’ respective businesses and other matters, which, if incomplete, incorrect or not satisfied, could alter the conclusions of the party giving such opinion.

If the proposed Spin-Off ultimately is determined to be taxable, which the Company believes is unlikely, the Spin-Off could be treated as a taxable dividend to Merck’s shareholders for U.S. federal income tax purposes, and Merck’s shareholders could incur significant U.S. federal income tax liabilities. In addition, Merck would recognize a taxable gain to the extent that the fair market value of Organon common stock exceeds Merck’s tax basis in such stock on the date of the Spin-Off.

Cautionary Factors that May Affect Future Results

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

This report and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking statements,” all of which are based on management’s current expectations and are subject to risks and uncertainties which may cause results to differ materially from those set forth in the statements. One can identify these forward-looking statements by their use of words such as “anticipates,” “expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and other words of similar meaning, or negative variations of any of the foregoing. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company’s growth strategy, financial results, product ~~development, product~~ approvals, product potential, development programs and ~~development programs.~~include statements related to the expected impact of the COVID-19 pandemic. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from the Company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. The Company does not assume the obligation to update any forward-looking statement. The Company cautions you not to place undue reliance on these forward-looking statements. Although it is not possible to predict or identify all such factors, they may include the following:

•Competition from generic and/or biosimilar products as the Company’s products lose patent protection.

•Increased “brand” competition in therapeutic areas important to the Company’s long-term business performance.

•The difficulties and uncertainties inherent in new product development. The outcome of the lengthy and complex process of new product development is inherently uncertain. 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. Furthermore, the sales of new products may prove to be disappointing and fail to reach anticipated levels.

•Pricing pressures, both in the United States and abroad, including rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and health care reform, pharmaceutical reimbursement and pricing in general.

•The impact of the global COVID-19 pandemic and any future pandemic, epidemic, or similar public health threat, on the Company’s business, operations and financial performance.

•Changes in government laws and regulations, including laws governing intellectual property, and the enforcement thereof affecting the Company’s business.

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•Efficacy or safety concerns with respect to marketed products, whether or not scientifically justified, leading to product recalls, withdrawals or declining sales.

•Significant changes in customer relationships or changes in the behavior and spending patterns of purchasers of health care products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and foregoing health care insurance coverage.

•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.

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

•Increased focus on privacy issues in countries around the world, including the United States and the EU. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been

an increasing amount of focus on privacy and data protection issues with the potential to affect directly the Company’s business, including recently enacted laws in a majority of states in the United States requiring security breach notification.

•Changes in tax laws including changes related to the taxation of foreign earnings.

•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.

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

•The proposed Spin-Off might be delayed or the costs to complete the Spin-Off might be more significant than expected.

This list should not be considered an exhaustive statement of all potential risks and uncertainties. See “Risk Factors” above.


~~Item 1B.~~	~~Unresolved Staff Comments.~~

Item 1B.Unresolved Staff Comments.

None.


~~Item 2.~~	~~Properties.~~

Item 2.Properties.

The Company’s corporate headquarters is currently located in Kenilworth, New Jersey. The ~~Company’s U.S. commercial operations are headquartered~~Company has previously announced that it intends to consolidate its New Jersey campuses into a single corporate headquarters location in Rahway, New Jersey by the end of 2023. The Company also maintains operational or divisional headquarters in Kenilworth, New Jersey; Madison, New Jersey and Upper Gwynedd, Pennsylvania. The Company’s U.S. pharmaceutical business is conducted through divisional headquarters located in Upper Gwynedd, Pennsylvania and Kenilworth, New Jersey. The Company’s vaccines business is conducted through divisional headquarters located in Upper Gwynedd, Pennsylvania. Merck’s Animal Health headquarters is located in Madison, New Jersey. Principal U.S. research facilities are located in Rahway and Kenilworth, New ~~Jersey,~~Jersey; West Point, ~~Pennsylvania, Palo Alto, California,~~Pennsylvania; Boston, ~~Massachusetts,~~Massachusetts; South San Francisco, ~~California~~California; and Elkhorn, Nebraska (Animal Health). Principal research facilities outside the United States are located in the United Kingdom, Switzerland and China. Merck’s manufacturing operations are currently headquartered in Whitehouse Station, New Jersey. The Company also has production facilities for human health products at nine locations in the United States and Puerto Rico. Outside the United States, through subsidiaries, the Company owns or has an interest in manufacturing plants or other properties in Japan, Singapore, South Africa, and other countries in Western Europe, Central and South America, and Asia. A number of properties will be transferred to Organon in the Spin-Off.

Capital expenditures were $4.7 billion in 2020, $3.5 billion in 2019 and $2.6 billion in ~~2018, $1.9 billion in 2017 and $1.6 billion in 2016.~~2018. In the United States, these amounted to $2.7 billion in 2020, $1.9 billion in 2019 and $1.5 billion in ~~2018, $1.2 billion in 2017 and $1.0 billion in 2016.~~2018. Abroad, such expenditures amounted to $2.0 billion in 2020, $1.6 billion in 2019, and $1.1 billion in ~~2018, $728 million in 2017 and $594 million in 2016.~~2018.

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The Company and its subsidiaries own their principal facilities and manufacturing plants under titles that they consider to be satisfactory. The Company believes that its properties are in good operating condition and that its machinery and equipment have been well maintained. ~~Plants~~The Company believes that its plants for the manufacture of products are suitable for their intended purposes and have capacities and projected capacities, including previously-disclosed capital expansion projects, that will be adequate for current and projected needs for existing Company products. Some capacity of the plants is being converted, with any needed modification, to the requirements of newly introduced and future products. In addition, in October 2018, the Company announced it plans to invest approximately $16 billion on new capital projects from 2018-2022. The focus of this investment will primarily be on increasing manufacturing capacity across Merck’s key businesses.


~~Item 3.~~	~~Legal Proceedings.~~

Item 3.Legal Proceedings.

The information called for by this Item is incorporated herein by reference to Item 8. “Financial Statements and Supplementary Data,” Note ~~11.~~10. “Contingencies and Environmental Liabilities”.


~~Item 4.~~	~~Mine Safety Disclosures.~~

Item 4.Mine Safety Disclosures.

Not Applicable.

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Executive Officers of the Registrant (ages as of February 1, ~~2019)~~2021)

All officers listed below serve at the pleasure of the Board of Directors. None of these officers was elected pursuant to any arrangement or understanding between the officer and any other person(s).



Name			Age	Offices and Business Experience
Kenneth C. Frazier			6466	Chairman, President and Chief Executive Officer (since December 2011)
Sanat Chattopadhyay			5961	Executive Vice President and President, Merck Manufacturing Division (since March 2016)~~; Senior Vice President, Operations, Merck Manufacturing Division (November 2009-March 2016)~~
Frank Clyburn			5456	Executive Vice President, Chief Commercial Officer (since January 2019); President, Global Oncology Business Unit (October 2013-December 2018)~~; President, Primary Care and Women’s Health Business Line (September 2011-October 2013)~~
Robert M. Davis			5254	Executive Vice President, Global Services, and Chief Financial Officer (since April 2016); Executive Vice President and Chief Financial Officer (April 2014-April 2016)~~; Corporate Vice President and President, Medical Products, Baxter International, Inc. (October 2010-March 2014)~~
Richard R. DeLuca, Jr.			5658	Executive Vice President and President, Merck Animal Health (since September 2011)
Michael W. Fleming			62	Senior Vice President, Chief Ethics and Compliance Officer (since March 2019); Senior Vice President, International Legal and Compliance (January 2017-March 2019); Vice President, International Legal and Compliance (July 2008-January 2017)
Julie L. Gerberding			6265	Executive Vice President and Chief Patient Officer, Strategic Communications, Global Public Policy and Population Health (since July 2016); Executive Vice President for Strategic Communications, Global Public Policy and Population Health (January 2015-July 2016)~~; President, Merck Vaccines (January 2010-January 2015)~~
Rita A. Karachun			5557	Senior Vice President Finance - Global Controller (since March 2014)~~; Assistant Controller (November 2009-March 2014)~~
Dean Li			58	President, Merck Research Laboratories (since January 2021); Senior Vice President, Discovery Sciences and Translational Medicine, Merck Research Laboratories (November 2017-January 2020); Vice President, Translational Medicine (March 2017-November 2017); Prior to that, Chief Scientific Officer and Associate Vice President, University of Utah Health Sciences
Steven C. Mizell			5860	Executive Vice President, Chief Human Resources Officer ~~Human Resources~~ (since ~~October 2018)~~December 2016); ~~Executive Vice President, Chief Human Resources Officer (December 2016-October 2018) and~~ Executive Vice President, Human Resources, Monsanto Company (August 2011-December 2016)
Michael T. Nally			4345	Executive Vice President, Chief Marketing Officer (since January 2019); President, Global Vaccines, Global Human Health (September 2016-January 2019); Managing Director, United Kingdom and Ireland, Global Human Health (January 2014-September 2016)~~; Managing Director, Sweden, Global Human Health (November 2011-January 2014)~~
~~Roger M. Perlmutter, M.D., Ph.D.~~Jennifer Zachary			6643	Executive Vice President, General Counsel and ~~President, Merck Research Laboratories~~Corporate Secretary (since ~~April 2013)~~
~~Jim Scholefield~~	56	~~Executive Vice President, Chief Information and Digital Officer (since October 2018)~~January 2020); ~~Chief Information Officer, Nike, Inc (July 2015-October 2018); Chief Technology Officer, The Coca-Cola Company, (November 2010-June 2015)~~
~~Jennifer Zachary~~	41	Executive Vice President and General Counsel ~~(since April 2018)~~(April 2018-January 2020); Partner, Covington & Burling LLP (January 2013-March 2018)

In February 2021, Merck announced that Kenneth C. Frazier, chairman and chief executive officer, will retire as chief executive officer, effective June 30, 2021. Mr. Frazier will continue to serve on Merck’s Board of Directors as executive chairman, for a transition period to be determined by the board. The Merck Board of Directors has unanimously elected Robert M. Davis, Merck’s current executive vice president, global services and chief financial officer, as chief executive officer, as well as a member of the board, effective July 1, 2021. Mr. Davis will become president of Merck, effective April 1, 2021, at which time the Company’s operating divisions—Human Health, Animal Health, Manufacturing, and Merck Research Laboratories—will begin reporting to Mr. Davis.

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PART II


~~Item 5.~~	~~Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.~~

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The principal market for trading of the Company’s Common Stock is the New York Stock Exchange (NYSE) under the symbol MRK.

As of January 31, ~~2019,~~2021, there were approximately ~~115,320~~104,900 shareholders of record of the Company’s Common Stock.

Issuer purchases of equity securities for the three months ended December 31, ~~2018~~2020 were as follows:

Issuer Purchases of Equity Securities


			($ in millions)
Period	Total Number of Shares Purchased(1)	Average Price Paid Per Share	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(1)
October 1 — October 31	—	$0.00	$5,888
November 1 — November 30	—	$0.00	$5,888
December 1 — December 31	—	$0.00	$5,888
Total	—	$0.00	$5,888

(1)The Company did not purchase any shares during the three months ended December 31, 2020 under the plan approved by the Board of Directors in October 2018 to purchase up to $10 billion in Merck shares for its treasury.

($ in millions)
Period
Total Number
of Shares
Purchased⁽¹⁾

Average Price
Paid Per
Share

Approximate Dollar Value of Shares
That May Yet Be Purchased
Under the Plans or Programs⁽¹⁾
October 1 — October 31 59,154,075 $70.56
$12,709⁽²⁾
November 1 — November 30 5,279,715 $74.64 $12,315
December 1 — December 31 4,788,526 $76.30 $11,949
Total 69,222,316 $71.27 $11,949

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⁽¹⁾	All shares purchased during the period were made as part of a plan approved by the Board of Directors in November 2017 to purchase up to $10 billion in Merck shares. In October 2018, the Board of Directors authorized additional purchases of up to $10 billion of Merck’s common stock for its treasury. Shares are approximated.


⁽²⁾	~~Amount includes $1.0 billion being held back pending final settlement under the accelerated share repurchase agreements discussed below.~~

Performance Graph

The following graph assumes a $100 investment on December 31, ~~2013,~~2015, and reinvestment of all dividends, in each of the Company’s Common Shares, the S&P 500 Index, and a composite peer group of major U.S. and European-based pharmaceutical companies, which are: AbbVie Inc., Amgen Inc., AstraZeneca plc, Bristol-Myers Squibb Company, Johnson & Johnson, Eli Lilly and Company, GlaxoSmithKline plc, Novartis AG, Pfizer Inc., Roche Holding AG, and Sanofi SA.

Comparison of Five-Year Cumulative Total Return*

Merck & Co., Inc., Composite Peer Group and S&P 500 Index


	End of Period Value	2020/2015 CAGR*
MERCK	$180	12%
PEER GRP.**	157	9%
S&P 500	203	15%

End of
Period Value

2018/2013
CAGR**
MERCK $179 12%
PEER GRP.** 142 7%
S&P 500 150 8%


	2015	2016	2017	2018	2019	2020
MERCK	100.0	115.1	113.4	158.9	194.3	180.1
PEER GRP.	100.0	96.9	116.1	124.1	147.2	157.2
S&P 500	100.0	112.0	136.4	130.4	171.4	203.0

* Compound Annual Growth Rate

** Peer group average was calculated on a market cap weighted basis.

2013 2014 2015 2016 2017 2018
MERCK 100.00 117.10 112.40 129.40 127.40 178.70
PEER GRP. 100.00 111.40 114.80 111.20 133.00 142.20
S&P 500 100.00 113.70 115.20 129.00 157.20 150.30


*	~~Compound Annual Growth Rate~~


**	~~Peer group average was calculated on a market cap weighted basis.~~

This Performance Graph will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference. In addition, the Performance Graph will not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, other than as provided in Regulation S-K, or to the liabilities of section 18 of the Securities Exchange Act of 1934, except to the extent that the Company specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act.


~~Item 6.~~	~~Selected Financial Data.~~

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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following ~~selected financial data should~~section of this Form 10-K generally discusses 2020 and 2019 results and year-to-year comparisons between 2020 and 2019. Discussion of 2018 results and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be ~~read~~found in ~~conjunction with Item 7.~~ “Management’s Discussion and Analysis of Financial Condition and Results of Operations” ~~and consolidated financial statements and notes thereto contained~~ in Part II, Item ~~8. “Financial Statements and Supplementary Data”~~7 of ~~this report.~~the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed on February 26, 2020.

~~Merck & Co., Inc. and Subsidiaries~~

~~($ in millions except per share amounts)~~

2018 ⁽¹⁾

2017⁽²⁾⁽³⁾

2016⁽²⁾⁽⁴⁾

2015⁽²⁾⁽⁵⁾

2014 ⁽²⁾⁽⁶⁾
Results for Year:
Sales $ 42,294
$ 40,122
$ 39,807
$ 39,498
$ 42,237
Cost of sales 13,509
12,912
14,030
15,043
16,903
Selling, general and administrative 10,102
10,074
10,017
10,508
11,816
Research and development 9,752
10,339
10,261
6,796
7,290
Restructuring costs 632
776
651
619
1,013
Other (income) expense, net (402 ) (500 ) 189
1,131
(12,068 )
Income before taxes 8,701
6,521
4,659
5,401
17,283
Taxes on income 2,508
4,103
718
942
5,349
Net income 6,193
2,418
3,941
4,459
11,934
Less: Net (loss) income attributable to noncontrolling interests (27 ) 24
21
17
14
Net income attributable to Merck & Co., Inc. 6,220
2,394
3,920
4,442
11,920
Basic earnings per common share attributable to Merck & Co., Inc. common shareholders $ 2.34
$ 0.88
$ 1.42
$ 1.58
$ 4.12
Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders $ 2.32
$ 0.87
$ 1.41
$ 1.56
$ 4.07
Cash dividends declared 5,313
5,177
5,135
5,115
5,156
Cash dividends declared per common share $ 1.99
$ 1.89
$ 1.85
$ 1.81
$ 1.77
Capital expenditures 2,615
1,888
1,614
1,283
1,317
Depreciation 1,416
1,455
1,611
1,593
2,471
Average common shares outstanding (millions) 2,664
2,730
2,766
2,816
2,894
Average common shares outstanding assuming dilution (millions) 2,679
2,748
2,787
2,841
2,928
Year-End Position:
Working capital $ 3,669
$ 6,152
$ 13,410
$ 10,550
$ 14,198
Property, plant and equipment, net 13,291
12,439
12,026
12,507
13,136
Total assets 82,637
87,872
95,377
101,677
98,096
Long-term debt 19,806
21,353
24,274
23,829
18,629
Total equity 26,882
34,569
40,308
44,767
48,791
Year-End Statistics:
Number of stockholders of record 115,800
121,700
129,500
135,500
142,000
Number of employees 69,000
69,000
68,000
68,000
70,000


⁽¹⁾	~~Amounts for 2018 include a charge related to the formation of a collaboration with Eisai Co., Ltd.~~


⁽²⁾	Amounts have been recast as a result of the adoption, on January 1, 2018, of a new accounting standard related to the classification of certain defined benefit plan costs. There was no impact to net income as a result of adopting the new accounting standard.


⁽³⁾	~~Amounts for 2017 include a provisional net tax charge related to the enactment of U.S. tax legislation and a charge related to the formation of a collaboration with AstraZeneca.~~


⁽⁴⁾	~~Amounts for 2016 include a charge related to the settlement of worldwide patent litigation related to~~ ~~Keytruda~~.


⁽⁵⁾	~~Amounts for 2015 include a net charge related to the settlement of~~ ~~Vioxx~~ ~~shareholder class action litigation, foreign exchange losses related to Venezuela, gains on the dispositions of businesses and other assets, and the favorable benefit of certain tax items.~~


⁽⁶⁾	Amounts for 2014 reflect the divestiture of Merck’s Consumer Care business on October 1, 2014, including a gain on the sale, as well as a gain recognized on an option exercise by AstraZeneca, gains on the dispositions of other businesses and assets, and a loss on extinguishment of debt.


~~Item 7.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

Description of Merck’s Business

Merck & Co., Inc. (Merck or the Company) is a global health care company that delivers innovative health solutions through its prescription medicines, vaccines, biologic therapies and animal health products. The Company’s operations are principally managed on a products basis and include ~~four~~two operating segments, which are the Pharmaceutical ~~Animal Health, Healthcare Services and Alliances segments. The Pharmaceutical~~ and Animal Health segments, both of which are ~~the only~~ reportable segments.

The Pharmaceutical segment includes human health pharmaceutical and vaccine products. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Human health vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices. The Company sells these human health vaccines primarily to physicians, wholesalers, physician distributors and government entities. On December 31, 2016, Merck and Sanofi Pasteur S.A. (Sanofi) terminated their equally-owned joint venture, Sanofi Pasteur MSD (SPMSD), which developed and marketed vaccines in Europe. In 2017, Merck began recording vaccine sales and incurring costs as a result of operating its vaccines business in the European markets that were previously part of the SPMSD joint venture, which was accounted for as an equity method affiliate.

The Animal Health segment discovers, develops, manufactures and markets ~~animal health products, including~~a wide range of veterinary pharmaceutical and vaccine products, as well as health management solutions and services, for the prevention, treatment and control of disease in all major livestock and companion animal ~~species, which the~~species. The Company also offers an extensive suite of digitally connected identification, traceability and monitoring products. The Company sells its products to veterinarians, distributors and animal producers.

The Company previously had a Healthcare Services segment ~~provides~~that provided services and solutions ~~that focus~~focused on engagement, health analytics and clinical services to improve the value of care delivered to patients. The Company divested the remaining businesses in this segment in the first quarter of 2020.

The Company previously had an Alliances segment that primarily ~~includes~~included activity from the Company’s relationship with AstraZeneca LP related to sales of Nexium and Prilosec, which concluded in ~~2018~~2018.

Planned Spin-Off of Women’s Health, Biosimilars and Established Brands into a New Company

In February 2020, Merck announced its intention to spin-off products from its women’s health, biosimilars and established brands businesses into a new, independent, publicly traded company named Organon & Co. (Organon) through a distribution of Organon’s publicly traded stock to Company shareholders. The distribution is expected to qualify as tax-free to the Company and its shareholders for U.S. federal income tax purposes. The established brands included in the transaction consist of dermatology, non-opioid pain management, respiratory, and select cardiovascular products including Zetia and Vytorin, as well as the rest of Merck’s diversified brands franchise. Merck’s existing research pipeline programs will continue to be owned and developed within Merck as planned. Organon will have development capabilities initially focused on late-stage development and life-cycle management and is expected over time to develop research capabilities in selected therapeutic areas. The spin-off is expected to be completed late in the second quarter of 2021, subject to market and certain other conditions.

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Overview

Financial Highlights


($ in millions)	2020		% Change		% Change Excluding Foreign Exchange		2019
Sales	$	47,994	2	%	4	%	$	46,840

Net Income Attributable to Merck & Co., Inc.	7,067		(28)	%	(25)	%	9,843
Non-GAAP Net Income Attributable to Merck & Co., Inc. (1)	15,082		13	%	16	%	13,382

Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders	$2.78		(27)	%	(24)	%	$3.81
Non-GAAP Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders (1)	$5.94		14	%	17	%	$5.19

(1) Non-GAAP net income and non-GAAP earnings per share (EPS) exclude acquisition and divestiture-related costs, restructuring costs and certain other items. For further discussion and a reconciliation of GAAP to non-GAAP net income and EPS (see “Non-GAAP Income and Non-GAAP EPS” below).

Executive Summary

Worldwide sales were $48.0 billion in 2020, an increase of 2% compared with 2019, or 4% excluding the unfavorable effect from foreign exchange. The sales increase was driven primarily by oncology, certain hospital acute care products and animal health. Growth in these areas was largely offset by the negative effects of the coronavirus disease 2019 (COVID-19) pandemic as discussed below, the effects of generic competition, particularly in the diversified brands and women’s health franchises, competitive pressure in the virology franchise and pricing pressure in the diabetes franchise.

During 2020, Merck continued executing on its strategic priorities reporting year-over-year sales growth despite the business challenges posed by the COVID-19 pandemic. Roughly two-thirds of Merck’s Pharmaceutical segment revenue is comprised of physician-administered products, sales of which were negatively affected in 2020 by patients’ inability to access health care providers, fewer well visits, and social distancing measures. However, in the latter part of the year, the Company experienced a partial recovery in the underlying demand for products across its key growth pillars. Despite the pandemic, Merck employees across the organization continued their important work, enrolling and maintaining clinical studies, progressing the pipeline and ensuring the supply of and patient access to the Company’s portfolio of medically important medicines and vaccines. The Company also executed on Merck’s capital allocation priorities by completing business development transactions and investing in its pipeline. Additionally, the Company remains on track to complete the spin-off of Organon late in the second quarter of 2021 thereby creating two companies, each focused on their strengths and portfolios allowing them to pursue their respective market opportunities and business strategies. In 2020, the products that will comprise Organon had total sales of $6.5 billion.

Merck actively monitors the business development landscape for growth opportunities that meet the Company’s strategic criteria. To expand its oncology presence, Merck completed the acquisitions of ArQule, Inc. (ArQule), a biopharmaceutical company focused on kinase inhibitor discovery and development for the treatment of cancer and other diseases; and VelosBio Inc. (VelosBio), a clinical-stage biopharmaceutical company committed to developing first-in-class cancer therapies targeting receptor tyrosine kinase-like orphan receptor 1 (ROR1) currently being evaluated for the treatment of patients with hematologic malignancies and solid tumors. Additionally, Merck entered into strategic collaboration agreements with Seagen to gain access to ladiratuzumab vedotin, an investigational antibody-drug conjugate targeting LIV-1, and Tukysa (tucatinib), a small molecule tyrosine kinase inhibitor for the treatment of human epidermal growth factor receptor 2 (HER2)-positive cancers. To augment Merck’s animal health business, the Company acquired the U.S. rights to Sentinel Flavor Tabs and Sentinel Spectrum Chews.

As part of industry-wide efforts to develop solutions to the pandemic, the Company acquired OncoImmune, a company developing a therapeutic candidate for the treatment of patients hospitalized with COVID-19; and Themis Bioscience GmbH (Themis), a company focused on vaccines and immune-modulation therapies for infectious diseases, including a COVID-19 vaccine candidate. Additionally, Merck entered into

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strategic collaborations with Ridgeback Biotherapeutics LP (Ridgeback Bio) to develop an orally available antiviral candidate in clinical development for the treatment of patients with COVID-19; and with the International AIDS Vaccine Initiative, Inc. (IAVI) to develop an investigational vaccine against SARS-CoV-2 being studied for the prevention of COVID-19. In January 2021, the Company announced it was discontinuing development of the COVID-19 vaccine candidates (see Note 93 to the consolidated financial statements).

~~Overview~~

~~The Company’s performance during 2018 demonstrates execution of its innovation strategy, with revenue growth in oncology, vaccines, hospital acute care and animal health, focused investment~~During 2020, the Company received numerous regulatory approvals within oncology. Keytruda received approval in the research and development pipeline, and disciplined allocation of resources. Additionally, Merck completed several business development transactions, expanded its capital expenditures program primarily to increase future manufacturing capacity, and returned capital to shareholders.

~~Worldwide sales were $42.3 billion in 2018, an increase of 5% compared with 2017. Strong growth~~United States as monotherapy in the ~~oncology franchise reflects the performance~~therapeutic areas of ~~Keytruda~~cutaneous squamous cell carcinoma (cSCC), metastatic microsatellite instability-high (MSI-H) or mismatch repair deficient (dMMR) colorectal cancer, non-muscle invasive bladder cancer (NMIBC) and tumor mutational burden-high (TMB-H) solid tumors, as well as ~~alliance revenue related to Lynparza and Lenvima resulting from Merck’s business development activities. Also contributing to revenue growth were higher sales of vaccines, driven primarily by~~ ~~Gardasil/Gardasil~~ ~~9, and growth in the hospital acute care franchise, largely attributable to~~ ~~Bridion~~ ~~and~~ ~~Noxafil~~. Higher sales of animal health products, reflecting increases in companion animal and livestock products both from in-line and recently launched products, also contributed to revenue growth. Growth in these areas was partially offset by competitive pressures on ~~Zepatier~~ ~~and~~ ~~Zostavax, as well as the ongoing effects of generic and biosimilar competition that resulted in sales declines for products including~~ ~~Zetia~~, ~~Vytorin, and~~ ~~Remicade~~.

Augmenting Merck’s portfolio and pipeline with external innovation remains an important component of the Company’s overall strategy. In 2018, Merck continued executing on this strategy by entering into a strategic collaboration with Eisai Co., Ltd. (Eisai) for the worldwide co-development and co-commercialization of Lenvima. Lenvima is an orally available tyrosine kinase inhibitor discovered by Eisai, which is approved for certain types of thyroid cancer, hepatocellular carcinoma, and in combination for certain patients with renal cell carcinoma. Under the agreement, Merck and Eisai will develop and commercialize Lenvima jointly, both as monotherapy and in combination with ~~Keytruda~~. In addition, Merck acquired Viralytics Limited (Viralytics), a company focused on oncolytic immunotherapy treatments for a range of cancers. Also, the Company announced an agreement to acquire Antelliq Group (Antelliq), a leader in digital animal identification, traceability and monitoring solutions.

~~During 2018, the Company advanced its leadership in oncology through focused commercial execution, the achievement of important regulatory milestones and the presentation of clinical data.~~ ~~Keytruda~~ ~~continues its global launch with multiple new indications~~across several tumor types, including approval from the U.S. Food and Drug Administration (FDA) for the treatment of certain patients with cervical cancer, primary mediastinal large B-cell lymphoma (PMBCL), a type of non-Hodgkin lymphoma, hepatocellular carcinoma, Merkel cell carcinoma, and in combination with chemotherapy for the treatment of ~~certain patients with squamous non-small-cell lung~~triple-negative breast cancer ~~(NSCLC)~~(TNBC). ~~Also during 2018,~~Merck also received approval in the ~~European Commission (EC) approved~~ United States for an every six weeks (Q6W) dosing regimen across all adult indications. Additionally, Keytruda received approval in China for the treatment of certain patients with head and neck squamous cell carcinoma (HNSCC)~~, for the adjuvant treatment of melanoma,~~ and in combination with chemotherapy for the first-line treatment of certain patients with nonsquamous NSCLC. This was the first approval in Europe for an anti-PD-1 therapy in combination with chemotherapy. Also in 2018, ~~Keytruda~~ ~~was approved in~~both China and Japan for the treatment of certain patients with ~~melanoma. Additionally, Merck recently announced the receipt of five new approvals for~~ ~~Keytruda~~ ~~in Japan, including three expanded uses in advanced NSCLC, one in adjuvant melanoma, as well as a new indication in advanced microsatellite instability-high (MSI-H) tumors.~~ ~~Keytruda~~ ~~also continues to launch in many other international markets.~~

~~In 2018,~~ esophageal squamous cell carcinoma (ESCC). Lynparza, which is being developed in a collaboration with AstraZeneca PLC (AstraZeneca), received ~~FDA~~ approval ~~for use~~ in ~~certain patients~~the United States: in combination with ~~metastatic breast cancer who have been previously treated with chemotherapy, and for use~~bevacizumab as a first-line maintenance treatment of certain adult patients with ~~certain types of~~ advanced epithelial ovarian, fallopian tube or primary peritoneal cancer who are in complete or partial response to ~~chemotherapy. Additionally, Lenvima was approved in the United States, European Union (EU), Japan~~first-line platinum-based chemotherapy; and ~~China~~ for the treatment of certain adult patients with ~~hepatocellular carcinoma. The FDA~~metastatic castration-resistant prostate cancer (mCRPC) following progression on prior treatment. Additionally, Lynparza was approved in the European Union (EU): as monotherapy for the treatment of adult patients with mCRPC and ECBRCA1/2 mutations who have progressed following a prior therapy; and for the maintenance treatment of certain adult patients with metastatic adenocarcinoma of the pancreas. Lynparza was also approved ~~two new HIV-1 medicines:~~ ~~Delstrigo~~in Japan for the treatment of three types of advanced cancer: ovarian, prostate and pancreatic cancer. Lenvima, which is being developed in collaboration with Eisai Co., Ltd. (Eisai), received approval in China as monotherapy for the treatment of differentiated thyroid cancer.

Also in 2020, Gardasil 9 was approved for use in women and girls in Japan where it is marketed as Silgard 9. Additionally, in 2020, the U.S. Food and Drug and Administration (FDA) granted accelerated approval for an expanded indication for Gardasil 9 for the prevention of oropharyngeal and other head and neck cancers caused by certain HPV types. In January 2021, the Company received FDA approval for Verquvo (vericiguat), to reduce the risk of cardiovascular death and heart failure hospitalization following a ~~once-daily fixed-dose combination tablet of doravirine, lamivudine and tenofovir disoproxil fumarate; and~~ ~~Pifeltro~~ ~~(doravirine), a new non-nucleoside reverse transcriptase inhibitor to be administered~~hospitalization for heart failure or need for outpatient intravenous diuretics in ~~combination~~adults. Verquvo is being jointly developed with ~~other antiretroviral medicines.~~Bayer AG (Bayer).

~~Merck continues to invest in its pipeline, with an emphasis on being a leader in immuno-oncology and expanding in other areas such as vaccines and hospital acute care.~~ In addition to the recent regulatory approvals discussed above, the Company ~~has continued to advance~~advanced its late-stage pipeline with several regulatory submissions. Keytruda is under review in ~~the~~ United States in combination with axitinib, a tyrosine kinase inhibitor, for the first-line treatment of patients with advanced renal cell carcinoma for which it has been granted Priority Review by the FDA; in the EU for the first-line treatment of certain patients with metastatic squamous NSCLC; in the United States and in the EU as monotherapy for the first-line treatment of certain patients with locally advanced and/or ~~metastatic NSCLC; in the United States as monotherapy~~internationally for the treatment of certain patients with ~~advanced small-cell lung~~TNBC, classical Hodgkin Lymphoma (cHL), colorectal cancer, ~~(SCLC);~~cSCC, esophageal and gastric cancer. Lenvima is under review in ~~the United States~~Japan as monotherapy ~~or in combination with chemotherapy~~ for the ~~first-line~~ treatment of certain patients with recurrent or metastatic HNSCC for which it has been granted Priority Review by the FDA. Additionally, MK-7655A, the combination of relebactam and imipenem/cilastatin, has been accepted for Priority Reviewthymic cancer. V114, an investigational 15-valent pneumococcal conjugate vaccine, is under priority review by the FDA for the ~~treatment~~prevention of ~~complicated urinary tract infections and complicated intra-abdominal infections caused by certain susceptible Gram-negative bacteria~~invasive pneumococcal disease in adults ~~with limited or no alternative therapies available. Merck has~~18 years of age and older. The European Medicines Agency (EMA) is also ~~started~~reviewing an application for licensure of V114 in adults. The Company is involved in litigation challenging the ~~submission~~validity of ~~a rolling Biologics License Application (BLA)~~several Pfizer Inc. patents that relate to pneumococcal vaccine technology in the ~~FDA for V920, an investigational Ebola Zaire disease vaccine candidate.~~United States and several foreign jurisdictions.

The Company’s Phase 3 oncology programs include Keytruda in the therapeutic areas of ~~breast,~~biliary tract, cervical, ~~colorectal, esophageal,~~cutaneous squamous cell, endometrial, gastric, hepatocellular, mesothelioma, ~~nasopharyngeal,~~ ovarian, ~~renal~~prostate and small-cell lung cancers; Lynparza as monotherapy for ~~pancreatic~~colorectal cancer and ~~prostate cancer;~~in combination with Keytruda for non-small-cell lung and small-cell lung cancers; and Lenvima in combination with Keytruda for bladder, endometrial, ~~cancer.~~ gastric, head and neck, melanoma and non-small-cell lung cancers. Also within oncology, MK-6482, belzutifan, an investigational hypoxia-inducible factor-2 alpha (HIF-2α) inhibitor being evaluated for the treatment of patients with von Hippel-Lindau disease-associated renal cell carcinoma (RCC), received Breakthrough Therapy designation from the FDA. Additionally, the Company has candidates in Phase 3 clinical development in several other therapeutic areas, including V114, an investigational polyvalent conjugate vaccine for the prevention of pneumococcal disease that received Breakthrough Therapy designation from the FDA for the prevention of invasive pneumococcal disease caused by the vaccine serotypes in pediatric patients 6 weeks to 18 years of age; MK-7264, gefapixant, a selective, non-narcotic, orally-administered, investigational P2X3-receptor ~~agonist~~antagonist being developed for the treatment of refractory, chronic cough; ~~and MK-1242, vericiguat,~~MK-7110, an investigational treatment for ~~heart failure~~patients hospitalized with COVID-19; MK-8591A, islatravir, an investigational nucleoside reverse transcriptase translocation inhibitor (NRTTI) in combination with doravirine for the treatment of HIV-1 infection; and V114, which is being ~~developed~~evaluated for the prevention of pneumococcal disease in ~~a collaboration (see “Research and Development” below).~~pediatric patients.

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The Company is allocating resources to ~~effectively~~ support its commercial opportunities in the near term while making the necessary investments to support long-term growth. Research and development expenses in ~~2018~~2020 reflect higher costs related to business development activity, higher clinical development spending and increased investment in discovery research and early drug development.

In ~~October 2018,~~November 2020, Merck’s Board of Directors approved ~~a 15%~~an increase to the Company’s quarterly dividend, raising it to ~~$0.55~~$0.65 per share from ~~$0.48~~$0.61 per share on the Company’s outstanding common stock. ~~Also in October 2018, Merck’s Board of Directors approved a $10 billion share repurchase program and the Company entered into $5 billion of accelerated share repurchase (ASR) agreements.~~ During ~~2018,~~2020, the Company returned ~~$14.3~~$7.5 billion to shareholders through dividends and share repurchases.

~~Earnings per common share assuming dilution~~Management

COVID-19

Overall, in response to the COVID-19 pandemic, Merck remains focused on protecting the safety of its employees, ensuring that its supply of medicines and vaccines reaches its patients, contributing its scientific expertise to the development of antiviral approaches, and supporting health care providers and Merck’s communities. Although COVID-19-related disruptions to patients’ ability to access health care providers negatively affected results in 2020, Merck remains confident in the fundamental underlying demand for its products and its prospects for long-term growth.

In 2020, the estimated negative impact of the COVID-19 pandemic to Merck’s sales was approximately $2.5 billion, largely attributable to ~~common shareholders (EPS)~~the Pharmaceutical segment, with approximately $50 million attributable to the Animal Health segment. Roughly two-thirds of Merck’s Pharmaceutical segment revenue is comprised of physician-administered products, which, despite strong underlying demand, have been affected by social distancing measures, fewer well visits and delays in elective surgeries due to the COVID-19 pandemic. These impacts, as well as the prioritization of COVID-19 patients at health care providers, have resulted in reduced administration of many of the Company’s human health products, in particular for ~~2018~~its vaccines, including Gardasil 9, as well as for Keytruda and Implanon/Nexplanon. In addition, declines in elective surgeries negatively affected the demand for Bridion. However, sales of Pneumovax 23 increased due to heightened awareness of pneumococcal vaccination.

Operating expenses were ~~$2.32 compared with $0.87~~positively affected in ~~2017. EPS in both years reflect the impact of acquisition~~2020 by approximately $600 million primarily due to lower promotional and ~~divestiture-related~~selling costs, as well as ~~restructuring costs~~lower research and ~~certain other items. Certain other items~~development expenses, net of investments in ~~2018 include a charge related~~COVID-19-related antiviral and vaccine research programs.

Merck believes that global health systems and patients have largely adapted to the ~~formation~~impacts of COVID-19, but the ~~collaboration~~Company’s assumption is that ongoing residual negative impacts will persist, particularly during the first half of 2021 and most notably with ~~Eisai and~~respect to vaccine sales, with the impact expected to be more acute in ~~2017 include a provisional net tax charge related~~the United States. For the full year of 2021, Merck assumes an unfavorable impact to revenue of approximately 2% due to the ~~enactment~~COVID-19 pandemic, all of ~~U.S. tax legislation and a charge related~~which relates to Pharmaceutical segment sales. In addition, for the full year of 2021, with respect to the ~~formation~~COVID-19 pandemic, Merck expects a net negative impact to operating expenses, as spending on the development of ~~a collaboration with AstraZeneca. Non-GAAP EPS, which exclude these items, were $4.34~~its COVID-19 antiviral programs is expected to exceed the favorable impact of lower spending in ~~2018 and $3.98 in 2017 (see “Non-GAAP Income and Non-GAAP EPS” below).~~other areas due to the COVID-19 pandemic.

Pricing

Global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide. ~~In the United States, pricing pressure continues on many of the Company’s products.~~ 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 several international markets, government-mandated pricing actions have reduced prices of generic and patented drugs. In addition, the Company’s revenue performance in ~~2018~~2020 was negatively

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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 revenue ~~performance in 2019.~~performance.

~~Cyber-attack~~

On June 27, 2017, the Company experienced a network cyber-attack that led to a disruption of its worldwide operations, including manufacturing, research and sales operations. Due to a backlog of orders for certain products as a result of the cyber-attack, the Company was unable to fulfill orders for certain products in certain markets, which had an unfavorable effect on sales in 2018 and 2017 of approximately $150 million and $260 million, respectively. In addition, the Company recorded manufacturing-related expenses, primarily unfavorable manufacturing variances, in ~~Cost of sales, as well as expenses related to remediation efforts in~~ ~~Selling, general and administrative~~ ~~expenses and~~ ~~Research and development~~ ~~expenses, which aggregated approximately $285 million in 2017, net of insurance recoveries of approximately $45 million. Costs in 2018 were immaterial.~~

As referenced above, the Company has insurance coverage insuring against costs resulting from cyber-attacks and has received insurance proceeds. However, there are disputes with certain of the insurers about the availability of some of the insurance coverage for claims related to this incident.

Operating Results

Sales


($ in millions)	2020		% Change		% Change Excluding Foreign Exchange		2019		% Change		% Change Excluding Foreign Exchange		2018
United States	$	21,027	2	%	2	%	$	20,519	12	%	12	%	$	18,346
International	26,967		2	%	5	%	26,321		10	%	13	%	23,949
Total	$	47,994	2	%	4	%	$	46,840	11	%	13	%	$	42,294

U.S. plus international may not equal total due to rounding.

Worldwide sales ~~were $42.3 billion~~grew 2% in ~~2018, an increase of 5% compared with 2017. Sales growth was driven primarily by~~2020 due to higher sales in the oncology franchise reflecting strong growth of Keytruda, as well as increased alliance revenue ~~related to~~from Lynparza and Lenvima. Also contributing to revenue growth were higher sales of certain vaccines, ~~driven primarily by human papillomavirus (HPV) vaccine~~ including Gardasil/Gardasil 9 and Pneumovax 23, as well as ~~higher~~increased sales ~~in the~~of certain hospital acute care ~~franchise, largely attributable to~~ ~~Bridion~~products, including Prevymis and ~~Noxafil~~.Bridion. Higher sales of animal health products also drove revenue growth in ~~2018.~~2020.

Sales growth in ~~2018~~2020 was partially offset by ~~declines in~~ the ~~virology franchise driven primarily by lower sales of hepatitis C virus (HCV) treatment~~ ~~Zepatier, as well as lower sales of shingles (herpes zoster) vaccine~~ ~~Zostavax. The ongoing~~ effects of generic ~~and biosimilar~~ competition for certain products including women’s health product NuvaRing, hospital acute care products Noxafil and Cubicin, oncology products Emend/Emend for Injection, cardiovascular products Zetia and Vytorin, and ~~immunology product~~ ~~Remicade, as well as lower sales of~~ products within the diversified brands franchise, ~~also partially offset revenue growth in 2018.~~particularly Singulair. The diversified brands franchise includes certain products that are approaching the expiration of their marketing exclusivity or that are no longer protected by patents in developed markets. Lower sales of pediatric vaccines, including ProQuad, M-M-R II, and Varivax, as well as lower sales of diabetes products Januvia and Janumet, and virology products Zepatier and Isentress/Isentress HD also partially offset revenue growth in 2020. As discussed above, the COVID-19 pandemic negatively affected sales in 2020.

Sales in the United States ~~were $18.2 billion~~grew 2% in ~~2018, growth of 5% compared with 2017. The increase was~~2020 primarily driven ~~primarily~~ by higher sales of Keytruda, ~~Gardasil/Gardasil~~ 9, ~~NuvaRing, and~~ ~~Bridion, as well as~~increased alliance revenue

from Lynparza and Lenvima, and higher sales of animal health products. ~~Growth~~Revenue growth was ~~partially~~largely offset by lower sales of ~~Zepatier~~NuvaRing, ~~Zetia~~Januvia, Noxafil, Emend/Emend for Injection, M-M-R II, Janumet, ~~Vytorin~~, ~~Zostavax~~, ~~Januvia~~, ~~Janumet~~, ~~Invanz~~,Varivax and ~~products within the diversified brands franchise.~~Implanon/Nexplanon.

International sales ~~were $24.1 billion~~grew 2% in ~~2018, an~~2020. The increase ~~of 6% compared with 2017. The increase~~in international sales primarily reflects growth in Keytruda, Gardasil/Gardasil 9, ~~Januvia, Janumet~~ ~~and~~ ~~Atozet~~,increased alliance revenue from Lynparza, as well as higher sales ofPneumovax 23, Prevymis, Januvia and animal health products. Sales growth was partially offset by lower sales of Zepatier, ~~Remicade~~Vytorin, ~~Zetia~~Noxafil, ~~Vytorin~~Zetia,Remicade, Emend/Emend for Injection and products within the diversified brands ~~franchise.~~franchise, particularly Singulair and Nasonex. International sales represented ~~57%~~56% of total sales in both ~~2018~~2020 and ~~2017.~~

~~Worldwide sales were $40.1 billion in 2017, an increase of 1% compared with 2016. Sales growth in 2017 was driven primarily by higher sales of~~ ~~Keytruda~~, ~~Zepatier~~ ~~and~~ ~~Bridion~~. Additionally, sales in 2017 benefited from the December 31, 2016 termination of SPMSD, which marketed vaccines in most major European markets. In 2017, Merck began recording vaccine sales in the markets that were previously part of the SPMSD joint venture resulting in incremental vaccine sales of approximately $400 million during 2017. Higher sales of ~~Pneumovax~~ ~~23, Adempas, and animal health products also contributed to revenue growth in 2017. These increases were largely offset by the effects of generic competition for certain products including~~ ~~Zetia, which lost U.S. market exclusivity in December 2016,~~ ~~Vytorin, which lost U.S. market exclusivity in April 2017,~~ ~~Cubicin~~ ~~due to U.S. patent expiration in June 2016, and~~ ~~Cancidas, which lost EU patent protection in April 2017. Revenue growth was also offset by continued biosimilar competition for~~ ~~Remicade~~ ~~and ongoing generic erosion for products including~~ ~~Singulair~~ ~~and~~ ~~Nasonex~~. Collectively, the sales decline attributable to the above products affected by generic and biosimilar competition was $3.3 billion in 2017. Lower sales of other products within the diversified brands franchise, as well as lower combined sales of the diabetes franchise of ~~Januvia~~ ~~and~~ ~~Janumet, and declines in sales of~~ ~~Isentress/Isentress HD~~ also partially offset revenue growth. Additionally, sales in 2017 were reduced by $125 million due to a borrowing the Company made from the U.S. Centers for Disease Control and Prevention (CDC) Pediatric Vaccine Stockpile of doses of ~~Gardasil~~ 9 as discussed below. Also, the Company was unable to fulfill orders for certain products in certain markets due to the cyber-attack, which had an unfavorable effect on sales in 2017 of approximately $260 million.2019.

See Note 1918 to the consolidated financial statements for details on sales of the Company’s products. A discussion of performance for select products in the franchises follows.

Pharmaceutical Segment

Oncology


($ in millions)	2020		% Change		% Change Excluding Foreign Exchange		2019		% Change		% Change Excluding Foreign Exchange		2018
Keytruda	$	14,380	30	%	30	%	$	11,084	55	%	58	%	$	7,171
Alliance Revenue - Lynparza (1)	725		63	%	62	%	444		137	%	141	%	187
Alliance Revenue - Lenvima (1)	580		44	%	43	%	404		171	%	173	%	149
Emend	145		(63)	%	(62)	%	388		(26)	%	(24)	%	522

(1) Alliance revenue represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs (see Note 4 to the consolidated financial statements).

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Keytruda is an anti-PD-1 (programmed death receptor-1) therapy that has been approved ~~in the United States and in the EU~~ as monotherapy for the treatment of certain patients with ~~NSCLC,~~cervical cancer, cHL, cSCC, ESCC, gastric or gastroesophageal junction adenocarcinoma, HNSCC, hepatocellular carcinoma (HCC), non-small-cell lung cancer (NSCLC), small-cell lung cancer (SCLC), melanoma, ~~classical Hodgkin~~Merkel cell carcinoma, MSI-H or dMMR cancer including MSI-H/dMMR colorectal cancer, primary mediastinal large B-cell lymphoma ~~(cHL)~~(PMBCL), ~~HNSCC~~TMB-H cancer, and urothelial carcinoma ~~a type~~including NMIBC. Keytruda is also approved for the treatment of ~~bladder cancer, and~~certain patients: in combination with chemotherapy for ~~certain patients with~~metastatic squamous and nonsquamous ~~NSCLC.~~ ~~Keytruda~~ is also approved in the United States as monotherapy for the treatment of certain patients with gastric or gastroesophageal junction adenocarcinoma and MSI-H or mismatch repair deficient cancer. In addition, the FDA recently approved ~~Keytruda~~ ~~for the treatment of certain patients with cervical cancer, PMBCL, hepatocellular carcinoma, Merkel cell carcinoma, and~~NSCLC, in combination with chemotherapy for ~~patients~~HNSCC, in combination with ~~squamous NSCLC (see below).~~ ~~Keytruda~~ ~~is approved~~chemotherapy for TNBC, in ~~Japan~~combination with axitinib for ~~the treatment of certain patients with NSCLC, both as monotherapy~~RCC, and in combination with ~~chemotherapy, melanoma, cHL, MSI-H tumors, and urothelial~~Lenvima for endometrial carcinoma. ~~Additionally,~~ ~~Keytruda~~ ~~has been approved in China for the treatment of certain patients with melanoma.~~ ~~Keytruda~~ ~~is also approved in many other international markets.~~ The Keytruda clinical development program includes studies across a broad range of cancer ~~types (see “Research and Development” below).~~types.

~~In August 2018, the FDA approved an expanded label for~~ ~~Keytruda~~ in combination with pemetrexed and platinum chemotherapy for the first-line treatment of patients with metastatic nonsquamous NSCLC, with no EGFR or ALK genomic tumor aberrations, based on results of the KEYNOTE-189 trial. ~~Keytruda~~ in combination with pemetrexed and carboplatin was first approved in 2017 under the FDA’s accelerated approval process for the first-line treatment of patients with metastatic nonsquamous NSCLC, based on tumor response rates and progression-free survival (PFS) data from a Phase 2 study (KEYNOTE-021, Cohort G1). In accordance with the accelerated approval process, continued approval was contingent upon verification and description of clinical benefit, which was demonstrated in KEYNOTE-189 and resulted in the FDA converting the accelerated approval to full (regular) approval. Also, in September 2018, the EC approved ~~Keytruda~~ ~~in combination with pemetrexed and platinum chemotherapy for the first-line treatment of metastatic nonsquamous NSCLC in adults whose tumors have no EGFR or ALK positive mutations.~~

~~In June 2018, the FDA approved~~ ~~Keytruda~~ ~~for the treatment of patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy whose tumors express PD-L1 as determined by an FDA-~~

~~approved test. Also in June 2018, the FDA approved~~ ~~Keytruda~~ ~~for the treatment of adult and pediatric patients with refractory PMBCL, or who have relapsed after two or more prior lines of therapy.~~

~~In September 2018, the EC approved~~ ~~Keytruda~~ as monotherapy for the treatment of recurrent or metastatic HNSCC in adults whose tumors express PD-L1 with a tumor proportion score (TPS) of ≥50%, and who progressed on or after platinum-containing chemotherapy, based on data from the Phase 3 KEYNOTE-040 trial.

~~In October 2018, the FDA approved~~ ~~Keytruda~~, in combination with carboplatin and either paclitaxel or nab-paclitaxel, for the first-line treatment of patients with metastatic squamous NSCLC based on results from the KEYNOTE-407 trial. This approval marks the first time an anti-PD-1 regimen has been approved for the first-line treatment of squamous NSCLC regardless of tumor PD-L1 expression status.

~~In November 2018, the FDA approved~~ ~~Keytruda~~ ~~for the treatment of patients with hepatocellular carcinoma who have been previously treated with sorafenib based on data from the KEYNOTE-224 trial.~~

~~In December 2018, the FDA approved~~ ~~Keytruda~~ for the treatment of adult and pediatric patients with recurrent locally advanced or metastatic Merkel cell carcinoma, based on the results of the Cancer Immunotherapy Trials Network’s CITN-09/KEYNOTE-017 trial.

~~Also in December 2018, the EC approved~~ ~~Keytruda~~ ~~for the adjuvant treatment of adults with stage III melanoma and lymph node involvement who have undergone complete resection.~~ ~~Keytruda~~ was approved for this indication by the FDA in February 2019. These approvals were based on data from the pivotal Phase 3 EORTC1325/KEYNOTE-054 trial, conducted in collaboration with the European Organisation for Research and Treatment of Cancer.

Global sales of Keytruda ~~were $7.2 billion~~ grew 30% in ~~2018, $3.8 billion in 2017 and $1.4 billion in 2016. The year-over-year increases were~~2020 driven by ~~volume growth~~higher demand as the Company continues to launch Keytruda with multiple new indications ~~globally.~~globally, although the COVID-19 pandemic had a dampening effect on growing demand. Sales in the United States continue to build across the multiple approved indications, in particular for the treatment of advanced NSCLC ~~reflecting~~as monotherapy, and in combination with chemotherapy for both ~~the continued adoption of~~ ~~Keytruda~~nonsquamous and squamous metastatic NSCLC, along with uptake in the ~~first-line setting~~RCC, adjuvant melanoma, HNSCC, bladder cancer and endometrial carcinoma indications. Uptake of the every six weeks (Q6W) adult dosing regimen in the United States benefited sales in 2020. Keytruda sales growth in international markets was driven by continued uptake in approved indications, particularly in the EU. Sales growth was partially offset by declines in Japan due to pricing. Pursuant to a re-pricing rule, the Japanese government reduced the price of Keytruda by 17.5% effective February 2020. Additionally, Keytruda was subject to another price reduction of 20.9% in April 2020 under a provision of the Japanese pricing rules.

In January 2020, the FDA approved Keytruda as monotherapy for the treatment of certain patients with Bacillus Calmette-Guerin (BCG)-unresponsive, high-risk, NMIBC based on the results of the KEYNOTE-057 trial.

In April 2020, the FDA granted accelerated approval for an additional recommended dosage of 400 mg every six weeks (Q6W) for Keytrudaacross all adult indications, including monotherapy and combination therapy. This new dosage option is available in addition to the current dose of 200 mg every three weeks (Q3W).

In June 2020, the FDA granted accelerated approval for Keytruda as monotherapy for the treatment of adult and pediatric patients with unresectable or metastatic ~~NSCLC whose~~TMB-H solid tumors, as determined by an FDA-approved test, that have ~~high PD-L1 expression,~~progressed following prior treatment and who have no satisfactory alternative treatment options based in part on the results of the KEYNOTE-158 trial.

Also in June 2020, the FDA approved Keytruda as ~~well~~monotherapy for the treatment of patients with recurrent or metastatic cSCC that is not curable by surgery or radiation based on data from the KEYNOTE-629 trial.

Additionally in June 2020, the FDA approved Keytruda as ~~the uptake of~~ ~~Keytruda~~ ~~in combination with pemetrexed and carboplatin, a commonly used chemotherapy regimen,~~ monotherapy for the first-line treatment of patients with unresectable or metastatic ~~nonsquamous NSCLC with~~MSI-H or ~~without PD-L1 expression. Other indications contributing to sales growth include HNSCC, bladder, and melanoma. Recently~~dMMR colorectal cancer based on results from the KEYNOTE-177 trial.

In October 2020, the FDA approved ~~indications, including squamous NSCLC and MSI-H cancer, also contributed to growth in 2018. Sales growth in international markets reflects continued uptake~~an expanded label for Keytruda as monotherapy for the treatment of ~~NSCLC as the Company has secured reimbursement in most major markets. Sales growth in international markets in 2018 also includes contributions~~adult patients with relapsed or refractory cHL based on results from the ~~more recently~~KEYNOTE-204 trial. The FDA also approved ~~indications as described above, including~~an updated pediatric indication for Keytruda for the treatment of ~~HNSCC, bladder cancer~~pediatric patients with refractory cHL or cHL that has relapsed after two or more lines of therapy. Keytruda was previously approved under the FDA’s accelerated approval process for the treatment of adult and pediatric patients with refractory cHL, or who have relapsed after three or more prior lines of therapy based on data from the KEYNOTE-087 trial. In accordance with accelerated approval regulations, continued approval was contingent upon verification and description of clinical benefit; these accelerated approval requirements have been fulfilled with the data from KEYNOTE-204.

In November 2020, the FDA granted accelerated approval for Keytruda in combination with chemotherapy for the treatment of ~~NSCLC~~patients with locally recurrent unresectable or metastatic TNBC whose tumors express PD-L1 (Combined Positive Score [CPS] ≥10) as determined by an FDA-approved test. The approval is based on results from the KEYNOTE-355 trial.

In June 2020, Keytruda was approved by the National Medical Products Administration (NMPA) in China as monotherapy for the ~~EU, multiple new indications~~second-line treatment of patients with locally advanced or metastatic ESCC whose

Table of Content s

tumors express PD-L1 (CPS ≥10). This indication was granted based on the KEYNOTE-181 trial, including data from an extension of the global study in ~~Japan,~~Chinese patients. In December 2020, China’s NMPA approved Keytruda as monotherapy for the first-line treatment of patients with metastatic or with unresectable, recurrent HNSCC whose tumors express PD-L1 (CPS ≥20) as determined by a fully validated test.

In August 2020, Keytruda was approved by Japan’s Pharmaceuticals and Medical Devices Agency (PMDA) as monotherapy for the treatment of ~~melanoma~~patients whose tumors are PD-L1-positive, and have radically unresectable, advanced or recurrent ESCC who have progressed after chemotherapy. The approval was based on results from the KEYNOTE-181 trial. Additionally, Keytruda was approved by Japan’s PMDA for use at an additional recommended dosage of 400 mg Q6W, including monotherapy and combination therapy. This new dosage option is available in ~~China.~~addition to the current dose of 200 mg Q3W.

In January ~~2017, Merck entered into~~2021, Keytruda was approved by the European Commission (EC) as a ~~settlement and~~first-line treatment in adult patients with MSI-H or dMMR colorectal cancer based on the results of the KEYNOTE-177 study.

The Company is a party to certain third-party license ~~agreement~~agreements pursuant to ~~resolve worldwide patent infringement litigation related to~~ ~~Keytruda. Pursuant to the settlement,~~which the Company ~~will pay~~pays royalties on sales of Keytruda. Under the terms of the more significant of these agreements, Merck pays a royalty of 6.5% on ~~net~~worldwide sales of Keytruda ~~in 2017~~ through ~~2023;~~2023 to one third party; this royalty will decline to 2.5% for 2024 through 2026 and ~~2.5%~~will terminate thereafter. The Company pays an additional 2% royalty on ~~net~~worldwide sales of Keytruda ~~in 2024 through 2026.~~

~~Global sales~~ to another third party, the termination date of ~~Emend~~, for the prevention of chemotherapy-induced and post-operative nausea and vomiting, were $522 million in 2018, a decline of 6% compared with 2017 including a 1% favorable effect from foreign exchange. The decline primarily reflects lower demandwhich varies by country; this royalty will expire in the United States ~~due to competition. Worldwide sales of~~ ~~Emend~~ ~~were $556 million~~ in ~~2017, an increase of 1% compared with 2016. The patent that provided U.S. market exclusivity for~~ ~~Emend~~ ~~expired in 2015~~2024 and ~~the patent that provides market exclusivity in most major European markets will expire in May 2019. The patent that provides U.S. market exclusivity for~~ ~~Emend~~ ~~for Injection expires in September 2019 and the patent that provides market exclusivity~~ in major European markets ~~expires~~ in ~~February 2020 (although six-month pediatric exclusivity may extend this date).~~2025. The ~~Company anticipates that~~royalties are included in Cost of sales of ~~Emend~~ ~~in these markets will decline significantly after these patent expiries.~~.

Lynparza, an oral poly (ADP-ribose) polymerase (PARP) inhibitor being developed as part of a collaboration with AstraZeneca ~~entered into in July 2017~~ (see Note 4 to the consolidated financial statements), is ~~currently~~ approved for the treatment of certain types of advanced ovarian, breast, pancreatic and ~~breast cancer. Merck recorded alliance~~prostate cancers. Alliance revenue ~~of $187 million in 2018 and $20 million in 2017~~ related to ~~Lynparza. The revenue increase reflects~~Lynparza grew 63% in 2020 due to continued uptake across the ~~approval of new~~multiple approved indications ~~as well as a full year of activity~~ in ~~2018.~~ the United States, the EU, China and Japan.

In ~~January 2018,~~May 2020, the FDA approved Lynparza ~~for use~~ in ~~patients~~combination with ~~BRCA-mutated, human epidermal growth factor receptor 2 (HER2)-negative metastatic breast cancer who have been previously treated with chemotherapy,~~

~~triggering a $70 million capitalized milestone payment from Merck to AstraZeneca. Lynparza was also approved in Japan in July 2018 for use in patients with unresectable or recurrent~~ ~~BRCA-mutated, HER2-negative breast cancer who have received prior chemotherapy. Additionally, Lynparza was approved for use~~bevacizumab as a ~~maintenance therapy in patients with platinum-sensitive relapsed ovarian cancer, regardless of~~ ~~BRCA~~ ~~mutation status in Japan in January 2018 and in the EU in May 2018. In December 2018, the FDA approved Lynparza for use as~~first-line maintenance treatment of certain adult patients with ~~deleterious or suspected deleterious germline or somatic~~ ~~BRCA-mutated~~ advanced epithelial ovarian, fallopian tube or primary peritoneal cancer who are in complete or partial response to first-line platinum-based chemotherapy. In November 2020, Lynparza was approved in the EU for the maintenance treatment of adult patients with advanced high-grade epithelial ovarian, fallopian tube or primary peritoneal cancer who are in complete or partial response following completion of first-line platinum-based chemotherapy in combination with bevacizumab and whose cancer is associated with homologous recombination deficiency (HRD)-positive status. These approvals were based on the results from the PAOLA-1 trial.

Also in May 2020, the FDA approved Lynparza for the treatment of adult patients with deleterious or suspected deleterious germline or somatic homologous recombination repair (HRR) gene-mutated mCRPC who have progressed following prior treatment. In November 2020, Lynparza was approved in the EU as monotherapy for the treatment of adult patients with mCRPC and BRCA1/2 mutations (germline and/or somatic) who have progressed following a prior therapy. These approvals were based on the results from the PROfound trial.

In July 2020, Lynparza was approved in the EU as a monotherapy for the maintenance treatment of adult patients with germline BRCA1/2 mutations who have metastatic adenocarcinoma of the ~~SOLO-1 clinical trial, triggering~~pancreas and have not progressed after a ~~$70 million capitalized milestone payment~~first-line chemotherapy regimen. This approval was based on the results from ~~Merck to AstraZeneca.~~the POLO trial.

In December 2020, Lynparza was approved in Japan for the treatment of three types of advanced cancer: ovarian, prostate and pancreatic cancer. The three approvals authorize Lynparza for use as maintenance treatment after first-line chemotherapy containing bevacizumab (genetical recombination) in patients with HRD ovarian cancer; the treatment of patients with BRCA gene-mutated (BRCAm) mCRPC; and maintenance treatment after platinum-based chemotherapy for patients with BRCAm curatively unresectable pancreas cancer. The concurrent approvals by the Japanese Ministry of Health, Labor, and Welfare are based on results from the PAOLA-1, PROfound and POLO trials.

Lenvima, an oral receptor tyrosine kinase inhibitor being developed as part of a collaboration with Eisai ~~entered into in March 2018~~ (see Note 4 to the consolidated financial statements), is approved for the treatment of certain types of thyroid cancer, ~~hepatocellular carcinoma, and~~HCC, in combination with everolimus for certain patients with ~~renal cell carcinoma. Merck recorded alliance revenue~~RCC, and in combination with Keytruda for the

Table of ~~$149 million in 2018 related to Lenvima. In 2018, Lenvima was approved for the~~ Content s

treatment of certain patients with ~~hepatocellular carcinoma~~endometrial carcinoma. Alliance revenue related to Lenvima grew 44% in 2020 due to higher demand in the United States, China and the EU.

In November 2020, China’s NMPA approved Lenvima as a monotherapy for the treatment of differentiated thyroid cancer.

Global sales of Emend, for the prevention of certain chemotherapy-induced nausea and vomiting, declined 63% in 2020 primarily due to lower demand and pricing in the United States due to generic competition for Emend for Injection following U.S. patent expiry in September 2019. Also contributing to the Emend sales decline was lower demand in the EU and Japan as a result of generic competition for the oral formulation of Emend following loss of market exclusivity in May 2019 and ~~China, triggering capitalized milestone payments~~December 2019, respectively. U.S. market exclusivity for the oral formulation of ~~$250 million~~Emend previously expired in 2015.

In April 2020, the ~~aggregate~~FDA approved Koselugo (selumetinib) for the treatment of pediatric patients two years of age and older with neurofibromatosis type 1 (NF1) who have symptomatic, inoperable plexiform neurofibromas (PN). The FDA approval is based on positive results from ~~Merck~~the National Cancer Institute (NCI) Cancer Therapy Evaluation Program (CTEP)-sponsored Phase 2 SPRINT Stratum 1 trial coordinated by the NCI’s Center for Cancer Research, Pediatric Oncology Branch. This is the first regulatory approval of a medicine for the treatment of NF1 PN, a rare and debilitating genetic condition. Koselugo is being jointly developed and commercialized with AstraZeneca globally (see Note 4 to ~~Eisai.~~the consolidated financial statements).

Vaccines

On December 31, 2016, Merck and Sanofi terminated their equally-owned joint venture, SPMSD, which developed and marketed vaccines in Europe. Accordingly, vaccine sales in 2018 and 2017 include sales of Merck vaccines in the European markets that were previously part of the SPMSD joint venture, whereas sales in periods prior to 2017 do not. Prior to 2017, vaccine sales in these European markets were sold through the SPMSD joint venture, the results of which were reflected in equity income from affiliates included in ~~Other (income) expense, net~~. Supply sales to SPMSD, however, are included in vaccine sales in periods prior to 2017. Incremental vaccine sales resulting from the termination of the SPMSD joint venture were approximately $400 million in 2017, of which approximately $215 million relate to ~~Gardasil/Gardasil~~ 9.


($ in millions)	2020		% Change		% Change Excluding Foreign Exchange		2019		% Change		% Change Excluding Foreign Exchange		2018
Gardasil/Gardasil 9	$	3,938	5	%	6	%	$	3,737	19	%	21	%	$	3,151
ProQuad	678		(10)	%	(10)	%	756		27	%	29	%	593
M-M-R II	378		(31)	%	(31)	%	549		28	%	29	%	430
Varivax	823		(15)	%	(15)	%	970		25	%	28	%	774
Pneumovax 23	1,087		17	%	18	%	926		2	%	3	%	907

Worldwide sales of Gardasil/Gardasil 9, vaccines to help prevent certain cancers and other diseases caused by certain types of HPV, ~~were $3.2 billion~~grew 5% in ~~2018, growth of 37% compared with 2017 including a 1% favorable effect from foreign exchange. Sales growth was driven~~2020 primarily bydue to higher ~~sales in the Asia Pacific region, particularly~~volumes in China ~~reflecting continued uptake since launch, as well as higher demand in certain European markets. The sales increase was also attributable to~~and the replenishment in ~~2018~~2020 of doses borrowed from the ~~CDC~~U.S. Centers for Disease Control and Prevention (CDC) Pediatric Vaccine Stockpile in ~~2017 as discussed below. In April 2018, China’s Food and Drug Administration approved~~ ~~Gardasil~~ 9 for use in girls and women ages 16 to 26. In October 2018, the FDA approved an expanded age indication for use in women and men ages 27 to 45 for the prevention of certain cancers and diseases caused by the nine HPV types covered by the vaccine.

~~During 2017, the Company made a request to borrow doses of~~ ~~Gardasil~~ ~~9 from the CDC Pediatric Vaccine Stockpile, which the CDC granted.~~2019. The Company’s decision to borrow the doses from the CDC was driven in part by the temporary shutdown resulting from the cyber-attack that occurred in June 2017, as well as by overall higher demand than expected. As a result of the borrowing, the Company reversed the sales related to the borrowed doses and recognized a corresponding liability. The Company subsequently replenished a portion of the doses borrowed from the stockpile. The net effect of the borrowing and subsequent partial replenishment ~~was a reduction in sales of $125 million in 2017. The Company replenished the remaining borrowed doses in 2018 resulting~~resulted in the recognition of sales of ~~$125~~$120 million in ~~2018 and a reversal~~2020, which, when combined with the reduction of ~~the related liability.~~

~~Global~~ sales of ~~Gardasil/Gardasil~~ ~~9 were $2.3 billion~~$120 million in 2017, growth of 6% compared with 2016. Sales growth was driven primarily by higher sales in Europe resulting from the termination of the SPMSD joint venture noted above, as well as higher demand in the Asia Pacific region2019 due ~~in part~~ to the ~~launch~~borrowing, resulted in ~~China, partially offset by lower~~a favorable impact to sales of $240 million in ~~the United States.~~2020. Lower ~~sales~~demand in the United States ~~reflect~~and Hong Kong, SAR, PRC attributable to the ~~timing~~COVID-19 pandemic partially offset the increase in sales of ~~public sector purchases~~Gardasil/Gardasil 9.

In June 2020, the FDA approved an expanded indication for Gardasil 9 for the prevention of oropharyngeal and other head and neck cancers caused by HPV Types 16, 18, 31, 33, 45, 52, and 58. The oropharyngeal and head and neck cancer indication was approved under accelerated approval based on effectiveness in preventing HPV-related anogenital disease.

In July 2020, Gardasil 9 was approved by the ~~CDC stockpile borrowing~~PMDA in Japan for use in women and girls nine years and older for the prevention of cervical cancer, certain cervical, vaginal and vulvar precancers, and genital warts caused by the HPV types covered by the vaccine. In December 2020, Silgard 9 was also approved in Japan for the prevention of anal cancer and precursor lesions caused by HPV types 6, 11, 16 and 18 for individuals nine years and older and for genital warts for men nine years and older. Gardasil 9 is marketed in Japan as ~~described above.~~Silgard 9.

The Company is a party to certain third-party license agreements ~~with respect to~~ ~~Gardasil/Gardasil~~ 9 pursuant to which the Company pays royalties on ~~worldwide~~ sales of Gardasil/Gardasil 9. Under the terms of the more significant of these agreements, Merck pays a 7% royalty on worldwide sales of Gardasil/Gardasil9 ~~sales.~~to one third party (royalty obligations under this agreement expire in December 2023) and an additional 7% royalty on sales of Gardasil/Gardasil 9 in the United States to another third party (these royalty obligations expire in December 2028). The royalties ~~which vary by country and range from 7% to 13%,~~ are included in Cost of sales.

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Global sales of ProQuad, a pediatric combination vaccine to help protect against measles, mumps, rubella and varicella, ~~were $593 million~~declined 10% in ~~2018, an increase of 12% compared with 2017,~~2020 driven primarily by ~~higher volumes~~

~~and pricing~~lower demand in the United States ~~and volume growth~~resulting from fewer measles outbreaks in ~~certain European markets.~~ 2020 compared with 2019, coupled with the unfavorable impact of the COVID-19 pandemic, partially offset by higher pricing.

Worldwide sales of ~~ProQuad~~ were $528 million in 2017, an increase of 7% compared with $495 million in 2016. Sales growth in 2017 was driven primarily by higher pricing and volumes in the United States, as well as volume growth in international markets, particularly in Europe. Foreign exchange favorably affected global sales performance by 1% in 2017.

~~Worldwide sales of~~ M-M-R II, a vaccine to help protect against measles, mumps and rubella, ~~were $430 million~~declined 31% in ~~2018, an increase of 13% compared with 2017, driven primarily by volume growth in Latin America. Global sales of~~ ~~M-M-R~~ II were $382 million in 2017, an increase of 8% compared with $353 million in 2016. Sales growth in 2017 was largely attributable to higher sales in Europe resulting from the termination of the SPMSD joint venture. Foreign exchange favorably affected global sales performance by 1% in 2018 and unfavorably affected global sales performance by 1% in 2017.

~~Global sales of~~ ~~Varivax,~~ a vaccine to help prevent chickenpox (varicella), were $774 million in 2018, an increase of 1% compared with 2017, reflecting volume growth in Latin America and the Asia Pacific region, along with higher pricing in the United States, largely offset by volume declines in Turkey from the loss of a government tender due to competition. Worldwide sales of ~~Varivax~~ were $767 million in 2017, a decline of 3% compared with $792 million in 2016. The sales decline in 2017 was driven primarily by lower volumes in Brazil due to the loss of a government tender, as well as lower sales in the United States reflecting lower demand that was partially offset by higher pricing. Higher sales in Europe resulting from the termination of the SPMSD joint venture partially offset the sales decline in 2017.

~~Worldwide sales of~~ ~~Pneumovax~~ 23, a vaccine to help prevent pneumococcal disease, were $907 million in 2018, an increase of 10% compared with 2017. Sales growth was driven primarily by higher pricing in the United States and volume growth in Europe. Global sales of ~~Pneumovax~~ 23 were $821 million in 2017, an increase of 28% compared with 2016, driven primarily by higher demand and pricing in the United States, as well as higher sales in Europe resulting from the termination of the SPMSD joint venture. Foreign exchange unfavorably affected sales performance by 1% in 2017.

~~Global sales of~~ ~~RotaTeq,~~ a vaccine to help protect against rotavirus gastroenteritis in infants and children, were $728 million in 2018, an increase of 6% compared with 2017, driven primarily by the launch in China. Worldwide sales of ~~RotaTeq~~ ~~were $686 million in 2017, an increase of 5% compared with 2016, driven primarily by higher sales in Europe resulting from the termination of the SPMSD joint venture.~~

~~Worldwide sales of~~ ~~Zostavax,~~ a vaccine to help prevent shingles (herpes zoster) in adults 50 years of age and older, were $217 million in 2018, a decline of 68% compared with 2017, driven by lower volumes in most markets, particularly in the United States. Lower demand in the United States reflects the launch of a competing vaccine that received a preferential recommendation from the CDC’s Advisory Committee on Immunization Practices in October 2017 for the prevention of shingles over ~~Zostavax. The declines were partially offset by higher demand in certain European markets. The Company anticipates competition will continue to have an adverse effect on sales of~~ ~~Zostavax~~ ~~in future periods. Global sales of~~ ~~Zostavax~~ ~~were $668 million in 2017, a decline of 2% compared with 2016 including a 1% favorable effect from foreign exchange. The sales decline was~~2020 driven primarily by lower demand in the United States ~~reflecting~~resulting from fewer measles outbreaks in 2020 compared with 2019, coupled with the ~~approval~~unfavorable impact of the COVID-19 pandemic. Lower demand in Brazil also contributed to the M-M-R II sales decline in 2020.

Global sales of Varivax,a ~~competing~~ vaccine ~~as noted above,~~to help prevent chickenpox (varicella), declined 15% in 2020 driven primarily by lower demand in the United States resulting from the COVID-19 pandemic, partially offset by higher pricing. The Varivax sales decline was also attributable to lower government tenders in Brazil.

Worldwide sales of Pneumovax 23, a vaccine to help prevent pneumococcal disease, grew 17% in 2020 primarily due to higher volumes in the EU and in the United States attributable in part to heightened awareness of pneumococcal vaccination. Higher pricing in the United States also contributed to Pneumovax 23 sales growth in ~~Europe resulting from the termination of the SPMSD joint venture and volume growth in the Asia Pacific region.~~

~~In 2018, the FDA approved~~ ~~Vaxelis~~ (Diphtheria and Tetanus Toxoids and Acellular Pertussis Adsorbed, Inactivated Poliovirus, Haemophilus b Conjugate [Meningococcal Protein Conjugate] and Hepatitis B [Recombinant] Vaccine) for use in children from 6 weeks through 4 years of age (prior to the 5th birthday). ~~Vaxelis, which is currently being marketed in Europe, was developed as part of a joint-partnership between Merck and Sanofi. Merck and Sanofi are working to maximize production of~~ ~~Vaxelis~~ ~~to allow for a sustainable supply to meet anticipated U.S. demand. Commercial supply will not be available prior to~~ 2020.

Hospital Acute Care


($ in millions)	2020		% Change		% Change Excluding Foreign Exchange		2019		% Change		% Change Excluding Foreign Exchange		2018
Bridion	$	1,198	6	%	7	%	$	1,131	23	%	26	%	$	917
Noxafil	329		(50)	%	(50)	%	662		(11)	%	(7)	%	742
Prevymis	281		70	%	69	%	165		128	%	131	%	72
Cubicin	152		(41)	%	(40)	%	257		(30)	%	(28)	%	367
Zerbaxa	130		8	%	10	%	121		39	%	42	%	87

Global sales of Bridion, for the reversal of two types of neuromuscular blocking agents used during surgery, ~~were $917 million~~grew 6% in ~~2018, growth~~2020 due to higher demand globally, particularly in the United States. However, fewer elective surgeries as a result of ~~30% compared with 2017, driven primarily by volume growth~~the COVID-19 pandemic unfavorably affected demand in 2020.

Worldwide sales of Noxafil, an antifungal agent for the prevention of certain invasive fungal infections, declined 50% in 2020 due to generic competition in the United States and ~~certain European markets. Worldwide sales of~~ ~~Bridion~~ ~~were $704 million in 2017, growth of 46% compared with 2016, driven by strong global demand, particularly~~ in the ~~United States.~~

~~Worldwide sales of~~ ~~Noxafil~~, for the prevention of invasive fungal infections, were $742 million in 2018, an increase of 17% compared with 2017 including a 2% favorable effect from foreign exchange. Sales growth primarily reflects higher demand in the United States, certain European markets and China. Global sales of ~~Noxafil~~ ~~were $636 million in 2017, an increase of 7% compared with 2016, primarily reflecting higher demand and pricing in the United States, as well as volume growth in Europe.~~EU. The patent that ~~provides~~provided U.S. market exclusivity for certain forms of Noxafil ~~expires~~ representing the majority of U.S. Noxafil sales expired in July 2019. Additionally, the patent for Noxafil ~~will expire~~ expired in a number of major European markets in December 2019. ~~The~~As a result, the Company ~~anticipates~~is experiencing volume and pricing declines in Noxafil sales of ~~Noxafil~~ in these markets ~~will decline significantly thereafter.~~as a result of generic competition and expects the declines to continue.

Worldwide sales of Prevymis, a medicine for prophylaxis (prevention) of cytomegalovirus (CMV) infection and disease in adult CMV-seropositive recipients of an allogenic hematopoietic stem cell transplant, grew 70% in 2020 due to continued uptake since launch in the EU and in the United States. Prevymis was approved by the EC in January 2018 and by the FDA in November 2017.

Global sales of ~~Invanz~~,Cubicin for injection, an antibiotic for the treatment of certain bacterial infections, ~~were $496 million~~declined 41% in ~~2018, a decline of 18% compared with 2017 including a 1% unfavorable effect from foreign exchange. The sales decline was driven by lower volumes~~2020 primarily due to ongoing generic competition in the EU and in the United States. ~~The patent that provided U.S. market exclusivity~~

In December 2020, the Company temporarily suspended sales of Zerbaxa, a combination antibacterial and beta-lactamase inhibitor for ~~Invanz~~ ~~expired in November 2017~~the treatment of certain bacterial infections, and ~~generic competition began in~~subsequently issued a product recall, following the ~~second half~~identification of ~~2018.~~product sterility issues. As a result, the Company recorded an intangible asset impairment charge related to Zerbaxa (see Note 8 to the consolidated financial statements). The Company ~~is experiencing~~does not anticipate that Zerbaxa will return to the market before 2022.

In June 2020, the FDA approved a ~~significant decline in U.S.~~ ~~Invanz~~ ~~sales as a result~~supplemental New Drug Application (NDA) for Recarbrio (imipenem, cilastatin, and relebactam) for the treatment of ~~this generic competition~~patients 18 years of age and ~~expects the decline to continue. Worldwide sales~~older with hospital-acquired

Table of ~~Invanz~~ were $602 million in 2017, an increase of 7% compared with 2016, driven primarily by higher sales in the United States, reflecting higher pricing that was partially offset by lower demand, as well as higher demand in Brazil.Content s

~~Global sales of~~ ~~Cubicin, an I.V. antibiotic for complicated skin~~bacterial pneumonia and ~~skin structure infections or bacteremia when~~ventilator-associated bacterial pneumonia caused by ~~designated~~certain susceptible ~~organisms, were $367 million in 2018, a decline of 4% compared with 2017 including a 1% favorable effect from foreign exchange. Worldwide sales of~~ ~~Cubicin~~ ~~were $382 million in 2017, a decline of 65% compared with 2016, resulting from generic competition in the United States following expiration of the U.S. composition patent for~~ ~~Cubicin~~ ~~in June 2016.~~

~~Global sales of~~ ~~Cancidas~~, an anti-fungal product sold primarily outside of the United States, were $326 million in 2018, a decline of 23% compared with 2017, and were $422 million in 2017, a decline of 24% compared with 2016. Foreign exchange favorably affected global sales performance by 2% in 2018. The sales declines were driven primarily by generic competition in certain European markets. The EU compound patent for ~~Cancidas~~ ~~expired in April 2017. Accordingly, the Company is experiencing a significant decline in~~ ~~Cancidas~~ ~~sales in these European markets and expects the decline to continue.~~Gram-negative microorganisms.

Immunology


($ in millions)	2020		% Change		% Change Excluding Foreign Exchange		2019		% Change		% Change Excluding Foreign Exchange		2018
Simponi	$	838	1	%	1	%	$	830	(7)	%	(2)	%	$	893
Remicade	330		(20)	%	(20)	%	411		(29)	%	(25)	%	582

Sales of Simponi, a once-monthly subcutaneous treatment for certain inflammatory diseases (marketed by the Company in Europe, Russia and Turkey), were ~~$893 million~~nearly flat in ~~2018, growth of 9% compared with 2017 including a 4% favorable effect from foreign exchange.~~2020. Sales of Simponiwere $819 million in 2017, growth of 7% compared with 2016 including a 1% favorable effect from foreign exchange. Sales growth in both years was driven by higher demand in Europe. The Company anticipates sales of ~~Simponi~~ ~~will be~~ are being unfavorably affected ~~in future periods~~ by the ~~recent~~ launch of biosimilars for a competing product. The Company expects this competition will continue to unfavorably affect sales of Simponi.

Sales of Remicade, a treatment for inflammatory diseases (marketed by the Company in Europe, Russia and Turkey), ~~were $582 million~~declined 20% in ~~2018, a decline of 31% compared with 2017, and were $837 million~~2020 driven by ongoing biosimilar competition in ~~2017, a decline of 34% compared with 2016. Foreign exchange favorably affected sales performance by 2%~~the Company’s marketing territories in ~~2018.~~Europe. The Company lost market exclusivity for Remicade in major European markets in 2015 and no longer has market exclusivity in any of its marketing territories. The Company is experiencing pricing and volume declines in these markets as a result of biosimilar competition and expects the declines to continue.

~~Virology~~The Company’s marketing rights with respect to these products will revert to Janssen Pharmaceuticals, Inc. in the second half of 2024.

Virology


($ in millions)	2020		% Change		% Change Excluding Foreign Exchange		2019		% Change		% Change Excluding Foreign Exchange		2018
Isentress/Isentress HD	$	857	(12)	%	(11)	%	$	975	(15)	%	(10)	%	$	1,140
Zepatier	167		(55)	%	(54)	%	370		(19)	%	(16)	%	455

Worldwide sales of Isentress/Isentress HD, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, ~~were $1.1 billion~~declined 12% in 2018, a decline of 5% compared with 2017, and were $1.2 billion in 2017, a decline of 13% compared with 2016. Foreign exchange favorably affected global sales performance by 1% in 2017. The sales declines2020 primarily ~~reflect~~due to competitive pressure in the United States and ~~Europe.~~in the EU. The Company expects competitive pressures for Isentress/Isentress HD to continue.

~~In August 2018, the FDA approved two new HIV-1 medicines:~~ ~~Delstrigo, a once-daily fixed-dose combination tablet of doravirine, lamivudine and tenofovir disoproxil fumarate; and~~ ~~Pifeltro~~ ~~(doravirine), a new non-nucleoside reverse transcriptase inhibitor to be administered in combination with other antiretroviral medicines. Both~~ ~~Delstrigo~~ ~~and~~ ~~Pifeltro~~ ~~are indicated for the treatment of HIV-1 infection in adult patients with no prior antiretroviral treatment experience.~~ ~~Delstrigo~~ ~~and~~ ~~Pifeltro~~ ~~were also approved by the~~ ~~EC in November 2018~~. ~~In January 2019, the FDA accepted for review supplemental New Drug Applications (NDA) for~~ ~~Pifeltro~~ ~~and~~ ~~Delstrigo~~ ~~seeking approval for~~

use in patients living with HIV-1 who are switching from a stable antiretroviral regimen and whose virus is suppressed. The Prescription Drug User Fee Act (PDUFA) date for the supplemental NDAs is September 20, 2019.

Global sales of Zepatier, a treatment for adult patients with ~~certain types of~~ chronic hepatitis C virus ~~(HCV)~~genotype (GT) 1 or GT4 infection, ~~were $455 million~~declined 55% in ~~2018, a decline of 73% compared with 2017. The sales decline was~~2020 driven ~~primarily~~ by ~~the unfavorable effects of increasing~~lower demand globally due to competition and declining patient volumes, ~~particularly in~~coupled with the ~~United States, Europe and Japan. The Company anticipates that sales~~impact of ~~Zepatier~~ in the ~~future will continue to be adversely affected by competition and lower patient volumes. Worldwide sales~~COVID-19 pandemic.

Cardiovascular


($ in millions)	2020		% Change		% Change Excluding Foreign Exchange		2019		% Change		% Change Excluding Foreign Exchange		2018
Zetia/Vytorin	$	664	(24)	%	(24)	%	$	874	(35)	%	(34)	%	$	1,355
Atozet	453		16	%	16	%	391		13	%	18	%	347
Rosuzet	130		8	%	9	%	120		107	%	115	%	58
Alliance revenue - Adempas (1)	281		38	%	38	%	204		47	%	47	%	139
Adempas	220		3	%	2	%	215		13	%	17	%	190

(1) Alliance revenue represents Merck’s share of ~~Zepatier~~ ~~were $1.7 billion in 2017 compared with $555 million in 2016. Sales growth in 2017 was driven primarily by higher~~profits from sales in ~~Europe,~~Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 4 to the ~~United States and Japan following product launch in 2016.~~consolidated financial statements).

~~Cardiovascular~~

Combined global sales of Zetia (marketed in most countries outside the United States as Ezetrol), and Vytorin (marketed outside the United States as Inegy)~~, as well as~~ ~~Atozet~~ ~~and~~ ~~Rosuzet~~ ~~(both marketed in certain countries outside of the United States)~~, medicines for lowering LDL cholesterol, ~~were $1.8 billion~~declined 24% in ~~2018, a decline of 26% compared with 2017 including a 3% favorable effect from foreign exchange. The sales decline was~~2020 driven primarily by lower ~~demand~~sales of Ezetrol in Japan and Ezetrol and Inegy in the ~~United States and Europe.~~ ~~Zetia~~ ~~and~~ ~~Vytorin~~ ~~lost~~EU. The patent that provided market exclusivity for Ezetrolin ~~the United States~~Japan expired in ~~December 2016~~September 2019 and generic competition began in June 2020. The

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EU patents for Ezetrol and Inegy expired in April 2018 and April ~~2017,~~2019, respectively. Accordingly, the Company ~~experienced a rapid and substantial decline in U.S.~~ ~~Zetia~~ ~~and~~ ~~Vytorin~~ ~~sales as a result of generic competition and has lost nearly all U.S. sales of these products. In addition, the Company lost market exclusivity in major European markets for~~ ~~Ezetrol~~ ~~in April 2018 and has also lost market exclusivity in certain European markets for~~ ~~Inegy~~ ~~(see Note 11 to the consolidated financial statements). Accordingly, the Company~~ is experiencing ~~significant~~ sales declines in these markets as a result of generic competition and expects the declines to continue. ~~These declines were partially offset by higher sales in Japan due in part to the launch of~~ ~~Atozet. Combined worldwide sales of the ezetimibe family were $2.4 billion in 2017, a decline of 39% compared with 2016.~~ The sales decline in 2020 was ~~driven by~~also attributable to lower ~~volumes and~~ pricing following loss of ~~Zetia~~ ~~and~~ ~~Vytorin~~exclusivity in Australia. Higher demand for Ezetrol in China partially offset the sales decline in 2020. Merck lost market exclusivity in the United States for Zetia in 2016 and Vytorin in 2017 and subsequently lost nearly all U.S. sales of these products as a result of generic ~~competition due~~competition.

Sales of Atozet (marketed outside of the United States), a medicine for lowering LDL cholesterol, grew 16% in 2020, primarily driven by higher demand in most markets, particularly in the EU, Japan and other countries in the Asia Pacific region.

Zetia, Vytorin, Atozet and Rosuzet will be contributed to Organon in connection with the ~~loss of U.S. market exclusivity as described above.~~

~~Pursuant to a collaboration with Bayer AG (Bayer)~~spin-off (see Note 41 to the consolidated financial statements)~~, Merck has lead commercial rights for~~ .

Adempas, a cardiovascular drug for the treatment of pulmonary arterial hypertension, ~~in countries outside~~is part of a worldwide collaboration with Bayer to market and develop soluble guanylate cyclase (sGC) modulators including Adempas (see Note 4 to the Americas while Bayer has lead rights in the Americas, including the United States. The companies share profits equally under the collaboration. In 2016, Merck began promoting and distributing Adempas in Europe. Transition from Bayer in other Merck territories, including Japan, continued in 2017.consolidated financial statements). Revenue from Adempas includes ~~sales in Merck’s marketing territories, as well as~~ Merck’s share of profits from the sale of Adempas in Bayer’s marketing ~~territories. Merck recorded revenue related to Adempas of $329 million~~territories, which grew 38% in ~~2018, an increase of 10% compared with 2017, reflecting higher~~2020, as well as sales in Merck’s marketing territories, partially offset by lower profit sharing from Bayer due in part to lower pricing in the United States. Revenue related to Adempas was $300 million in 2017, an increase of 78% compared with 2016, reflecting both higher sales in Merck’s marketing territories, as well as the recognition of higher profit sharing from Bayer. Foreign exchange favorably affected global sales performance bywhich grew 3% in ~~2018~~2020.

In January 2021, the FDA approved Verquvo (vericiguat), an sGC stimulator, to reduce the risk of cardiovascular death and ~~by 1%~~heart failure hospitalization following a hospitalization for heart failure or need for outpatient intravenous diuretics in ~~2017.~~adults with symptomatic chronic heart failure and reduced ejection fraction. The approval was based on the results of the pivotal Phase 3 VICTORIA trial and follows a priority regulatory review. Verquvo is part of the same worldwide clinical development collaboration with Bayer that includes Adempas referenced above.

Diabetes


($ in millions)	2020		% Change		% Change Excluding Foreign Exchange		2019		% Change		% Change Excluding Foreign Exchange		2018
Januvia/Janumet	$	5,276	(4)	%	(4)	%	$	5,524	(7)	%	(4)	%	$	5,914

Worldwide combined sales of Januvia and Janumet, medicines that help lower blood sugar levels in adults with type 2 diabetes, ~~were $5.9 billion~~declined 4% in ~~2018, essentially flat compared with 2017. Global combined sales~~2020 as a result of ~~Januvia~~ ~~and~~ ~~Janumet~~ were $5.9 billion in 2017, a decline of 3% compared with 2016. Foreign exchange favorably affected sales performance by 1% in both 2018 and 2017. Sales performance in both periods was driven primarily by ongoingcontinued pricing pressure ~~particularly~~ in the United States, partially offset by higher demand in ~~most~~certain international ~~markets.~~markets, particularly in China. The Company expects U.S. pricing pressure to continue.Januvia and Janumet will lose market exclusivity in the United States in January 2023. The supplementary patent certificates that provide market exclusivity for Januvia and Janumet in the EU expire in September 2022 and April 2023, respectively. The Company anticipates sales of Januvia and Janumet in these markets will decline substantially after loss of market exclusivity.

Women’s Health


($ in millions)	2020	% Change		% Change Excluding Foreign Exchange		2019	% Change		% Change Excluding Foreign Exchange		2018
Implanon/Nexplanon	680	(14)	%	(13)	%	787	12	%	14	%	703
NuvaRing	236	(73)	%	(73)	%	879	(3)	%	(2)	%	902

Worldwide sales of Implanon/Nexplanon, a single-rod subdermal contraceptive implant, declined 14% in 2020, primarily driven by lower demand in the United States and in the EU resulting from the COVID-19 pandemic.

Worldwide sales of NuvaRing, a vaginal contraceptive product, ~~were $902 million~~declined 73% in ~~2018, an increase of 19% compared with 2017 including a 1% favorable effect from foreign exchange. Sales growth was driven primarily by higher pricing~~2020 due to generic competition in the United States. The patent that provided U.S. market exclusivity for NuvaRing expired in April 2018 and generic competition began in December 2019. Accordingly, the Company ~~anticipates~~is experiencing a ~~significant~~rapid and substantial decline in U.S. NuvaRing sales and expects the decline to continue.

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Implanon/Nexplanon and NuvaRing will be contributed to Organon in ~~future periods as~~connection with the spin-off (see Note 1 to the consolidated financial statements).

Biosimilars


($ in millions)	2020		% Change		% Change Excluding Foreign Exchange		2019		% Change	% Change Excluding Foreign Exchange	2018
Biosimilars	$	330	31	%	31	%	$	252	*	*	$	64

* Calculation not meaningful.

Biosimilar products are marketed by the Company pursuant to an agreement with Samsung Bioepis Co., Ltd. (Samsung) to develop and commercialize multiple pre-specified biosimilar candidates. Currently, the Company markets Renflexis (infliximab-abda), a ~~result~~biosimilar to Remicade (infliximab) for the treatment of ~~generic competition. Global sales~~certain inflammatory diseases; Ontruzant (trastuzumab-dttb), a biosimilar to Herceptin (trastuzumab) for the treatment of ~~NuvaRing~~ ~~were $761 million~~HER2-positive breast cancer and HER2 overexpressing gastric cancer; Brenzys (etanercept biosimilar), a biosimilar to Enbrel for the treatment of certain inflammatory diseases; and Aybintio (bevacizumab) for the treatment of certain types of cancer. Merck’s commercialization territories under the agreement vary by product. Sales growth of biosimilars in ~~2017, a decline~~2020 was primarily due to continued post-launch uptake of ~~2% compared with 2016 including a 1% favorable effect from foreign exchange. The sales decline was driven primarily by lower sales~~Renflexis in the United States ~~reflecting lower volumes that were partially offset by higher pricing,~~ and ~~lower demand~~Canada and the launch of Ontruzant in ~~Europe.~~Brazil in 2020.

In August 2020, the EC granted marketing authorization for Aybintio for the treatment of metastatic carcinoma of the colon or rectum, metastatic breast cancer, NSCLC, advanced and/or metastatic RCC, epithelial ovarian, fallopian tube and primary peritoneal cancer and cervical cancer. An application seeking approval of Aybintio in the United States was filed in September 2019.

The above biosimilar productswill be contributed to Organon in connection with the spin-off (see Note 1 to the consolidated financial statements).

Animal Health Segment

~~Global sales~~


($ in millions)	2020		% Change		% Change Excluding Foreign Exchange		2019		% Change		% Change Excluding Foreign Exchange		2018
Livestock	$	2,939	6	%	9	%	$	2,784	6	%	11	%	$	2,630
Companion Animal	1,764		10	%	11	%	1,609		2	%	5	%	1,582

Sales of Animal Health products were $4.2 billion in 2018, an increase of 9% compared with 2017, reflecting growth from both in-line and recently launched companion animal and livestock products. Higher sales of companion animal products reflect growth in the ~~Bravecto~~ ~~line of products that kill fleas and ticks in dogs and cats for up to 12 weeks, as well as higher sales of companion animal vaccines. Growth in~~ livestock products ~~reflects higher~~grew 6% in 2020 predominantly due to an additional five months of sales ~~of ruminant, poultry and swine products. Worldwide sales of Animal Health products were $3.9 billion~~ in ~~2017, an increase~~2020 related to the April 2019 acquisition of ~~11% compared with 2016, primarily reflecting higher sales of companion animal products, largely driven by growth in~~ ~~Bravecto~~, reflecting both growth in the oral formulation and continued uptake in the topical formulation, which was launched in 2016. Animal Health sales growth in 2017 was also driven by higher sales of ruminant, poultry and swine products.

~~In December 2018, the Company signed an agreement to acquire~~ Antelliq, a leader in digital animal identification, traceability and monitoring solutions (see Note 3 to the consolidated financial statements). Sales of companion animal products grew 10% in 2020 driven primarily by higher demand for the Bravecto line of products for parasitic control, as well as higher demand for companion animal vaccines.

Costs, Expenses and Other


($ in millions)	2018			Change		2017			Change		2016		($ in millions)	2020		% Change		2019		% Change		2018
Cost of sales	$	13,509		5	%	$	12,912		-8	%	$	14,030	Cost of sales	$	15,485	10	%	$	14,112	4	%	$	13,509
Selling, general and administrative	10,102			—	%	10,074			1	%	10,017		Selling, general and administrative	10,468		(1)	%	10,615		5	%	10,102
Research and development	9,752			-6	%	10,339			1	%	10,261		Research and development	13,558		37	%	9,872		1	%	9,752
Restructuring costs	632			-19	%	776			19	%	651		Restructuring costs	578		(9)	%	638		1	%	632
Other (income) expense, net	(402		)	-20	%	(500		)	*		189		Other (income) expense, net	(886)		*		139		*		(402)
	$	33,593		—	%	$	33,601		-4	%	$	35,148		$	39,203	11	%	$	35,376	5	%	$	33,593

* ~~Greater than 100%.~~Calculation not meaningful.

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Cost of Sales

Cost of sales was ~~$13.5~~$15.5 billion in ~~2018, $12.9~~2020 compared with $14.1 billion in 2017 and $14.0 billion in 2016. Costs in 2018 include a $423 million charge related to the termination of a collaboration agreement with Samsung Bioepis Co., Ltd. (Samsung) for insulin glargine (see Note 3 to the consolidated financial statements). Also in 2018, the Company recorded $188 million of cumulative amortization expense for amounts capitalized in connection with the recognition of liabilities for potential future milestone payments related to collaborations (see Note 4 to the consolidated financial statements).2019. Cost of sales includes ~~expenses for~~ the amortization of intangible assets recorded in connection with ~~business~~ acquisitions, collaborations, and licensing arrangements, which totaled ~~$2.7~~$1.8 billion in ~~2018, $3.1~~2020 compared with $2.0 billion in ~~2017~~2019, respectively. Additionally, costs in 2020 and ~~$3.7 billion in 2016. Costs in 2017 and 2016 also~~2019 include intangible asset impairment charges of ~~$58~~$1.6 billion and $705 million ~~and $347 million, respectively,~~ related to marketed products and other intangibles ~~recorded in connection with business acquisitions~~ (see Note 8 to the consolidated financial statements). ~~Costs in 2017 also include a $76 million intangible asset impairment charge related to a licensing agreement.~~ The Company may recognize additional ~~non-cash~~ impairment charges in the future related to intangible assets that were measured at fair value and capitalized in connection with business acquisitions and such charges could be material. Costs in 2020 also include a charge of $260 million in connection with the discontinuation of COVID-19 vaccine development programs (see Note 3 to the consolidated financial statements) and inventory write-offs of $120 million related to a recall for Zerbaxa (see Note 8 to the consolidated financial statements). Also included in cost of sales are expenses associated with restructuring activities which amounted to ~~$21 million, $138 million and $181~~$175 million in ~~2018, 2017 and 2016, respectively,~~2020 compared with $251 million in 2019, primarily reflecting accelerated depreciation and asset write-offs related to the planned sale or closure of manufacturing facilities. Separation costs associated with manufacturing-related headcount reductions have been incurred and are reflected in Restructuring costs as discussed below.

Gross margin was ~~68.1%~~67.7% in ~~2018~~2020 compared with ~~67.8%~~69.9% in 2017 and 64.5% in 2016. The year-over-year improvements in gross margin reflect a lower net impact from the amortization of intangible assets and intangible asset impairment charges related to business acquisitions, as well as restructuring costs as noted above, which reduced gross margin by 6.3 percentage points in 2018, 8.3 percentage points in 2017 and 10.6 percentage points in 2016.2019. The gross margin ~~improvement~~decline in ~~2018 compared with 2017 also~~2020 reflects the unfavorable effects of higher impairment charges (noted above), pricing pressure, a charge related to the discontinuation of COVID-19 vaccine development programs, and higher inventory write-offs related to the recall of Zerbaxa (noted above), partially offset by the favorable effects of product mix, ~~and~~lower amortization of unfavorable manufacturing variances recorded in 2017, resulting in part from the June 2017 cyber-attack. The gross margin improvement in 2018 was partially offset by a charge associated with the termination of a collaboration agreement

~~with Samsung, as well as the unfavorable effects of pricing pressure~~intangible assets and cumulative amortization expense for potential future milestone payments related to collaborations as noted above. The gross margin improvement in 2017 compared with 2016 also reflects the favorable effects of product mix. Manufacturing-related costs associated with the cyber-attack partially offset the gross margin improvement in 2017.lower restructuring costs.

Selling, General and Administrative

Selling, general and administrative (SG&A) expenses were ~~$10.1~~$10.5 billion in 2018, essentially flat compared with 2017, reflecting higher administrative costs and the unfavorable effect of foreign exchange, offset by lower selling and promotional expenses. SG&A expenses were $10.1 billion in 2017, an increase2020, a decline of 1% compared with ~~2016. Higher~~2019. The decline was driven primarily by lower administrative, selling and promotional costs, including ~~costs associated with the Company operating its vaccines business~~lower travel and meeting expenses, due in ~~the European markets that were previously~~ part ~~of the SPMSD joint venture, remediation costs related~~ to the ~~cyber-attack, and higher promotional expenses related to product launches, were partially offset by lower restructuring and acquisition and divestiture-related costs, lower selling expenses~~COVID-19 pandemic, and the favorable effect of foreign ~~exchange.~~exchange, partially offset by higher costs related to the spin-off of Organon and a contribution to the Merck Foundation. SG&A expenses in ~~2016~~2020 include $710 million of costs related to the spin-off of Organon. SG&A expenses in 2020 and 2019 include restructuring costs of ~~$95~~$47 million and $34 million, respectively, related primarily to accelerated depreciation for facilities to be closed or divested. Separation costs associated with sales force reductions have been incurred and are reflected in Restructuring costs as discussed below. SG&A expenses also include acquisition and divestiture-related costs of $32 million, $44 million and $78 million in 2018, 2017 and 2016, respectively, consisting of integration, transaction, and certain other costs related to business acquisitions and divestitures.

Research and Development

Research and development (R&D) expenses were ~~$9.8~~$13.6 billion in ~~2018, a decline~~2020, an increase of 6%37% compared with ~~2017.~~2019. The ~~decrease~~increase was driven primarily ~~reflects lower expenses in 2018 for~~by higher upfront ~~and license option~~ payments related to acquisitions and collaborations, including a $2.7 billion charge in 2020 related to the ~~formation~~acquisition of ~~oncology collaborations,~~VelosBio (see Note 3 to the consolidated financial statements), as well as higher expenses related to clinical development and increased investment in discovery research and early drug development. Higher restructuring costs also contributed to the increase in R&D expenses in 2020. The increase in R&D expenses in 2020 was partially offset by lower in-process research and development (IPR&D) impairment charges and ~~a reduction in expenses associated with a decrease in~~lower costs resulting from the ~~estimated fair value measurement~~COVID-19 pandemic, net of ~~liabilities for contingent consideration, partially offset by higher clinical development~~ spending on COVID-19-related vaccine and investment in discovery and early drug development, as well as higher expenses related to other business development activities, including a charge in 2018 for the acquisition of Viralytics. R&D expenses were $10.3 billion in 2017, an increase of 1% compared with 2016. The increase was driven primarily by a charge in 2017 related to the formation of a collaboration with AstraZeneca, an unfavorable effect from changes in the estimated fair value measurement of liabilities for contingent consideration, and higher clinical development spending, largely offset by lower IPR&D impairment charges and lower restructuring costs.antiviral research programs.

R&D expenses are comprised of the costs directly incurred by ~~Merck Research Laboratories (MRL),~~MRL, the Company’s research and development division that focuses on human health-related activities, which were ~~$5.1~~$6.6 billion in ~~2018, $4.6~~2020 compared with $6.1 billion in ~~2017 and $4.4 billion in 2016.~~2019. Also included in R&D expenses are Animal Health research costs, licensing costs and costs incurred by other divisions in support of R&D activities, including depreciation, production and general and administrative, ~~as well as licensing activity, and certain costs from operating segments, including the Pharmaceutical and Animal Health segments,~~ which in the aggregate were ~~$2.8~~$2.7 billion ~~$2.9 billion~~in 2020 and $2.6 billion ~~for 2018, 2017 and 2016, respectively.~~in 2019. Additionally, R&D expenses in ~~2018~~2020 include a ~~$1.4~~$2.7 billion charge ~~related to~~for the ~~formation~~acquisition of VelosBio (noted above), a ~~collaboration with Eisai (see Note 4 to the consolidated financial statements), as well as a $344~~$462 million charge for the acquisition of ~~Viralytics (see~~OncoImmune and charges of $826 million related to transactions with Seagen. R&D expenses in 2019 include a $993 million charge for the acquisition of Peloton. See Note 3 to the consolidated financial ~~statements). R&D expenses in 2017 include a $2.35 billion charge related to the formation of a collaboration with AstraZeneca (see Note 4 to the consolidated financial statements).~~statements for more information on these transactions. R&D expenses also include IPR&D impairment charges of ~~$152 million, $483~~$90 million and ~~$3.6 billion~~$172 million in ~~2018, 2017~~2020 and ~~2016,~~2019, respectively (see Note 8 to the consolidated financial statements). The Company may recognize additional ~~non-cash~~ impairment charges in the future related to the cancellation or delay of other pipeline programs that were measured at fair value and capitalized in connection with business acquisitions and such

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charges could be material. In addition, R&D expenses in 2020 include $83 million of costs associated with restructuring activities, primarily relating to accelerated depreciation. R&D expenses also include expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration recorded in connection with business acquisitions. During ~~2018~~2020 and ~~2016,~~2019, the Company recorded a net reduction in expenses of ~~$54~~$95 million and ~~$402~~$39 million, respectively, ~~to decrease the estimated fair value of liabilities for contingent consideration~~ related to the discontinuation or delay of certain programs (see Note 6 to the consolidated financial statements). During 2017, the Company recorded charges of $27 million to increase the estimated fair value of liabilities for contingent consideration. R&D expenseschanges in ~~2016 also reflect $142 million of accelerated depreciation and asset abandonment costs associated with restructuring activities.~~

these estimates.

Restructuring Costs

In ~~2010 and 2013, the Company commenced actions under~~early 2019, Merck approved a new global restructuring ~~programs designed to streamline its cost structure. The actions under these programs include~~program (Restructuring Program) as part of a worldwide initiative focused on further optimizing the ~~elimination of positions in sales, administrative~~Company’s manufacturing and ~~headquarters organizations,~~supply network, as well as ~~the sale or closure of certain manufacturing and research and development sites and the consolidation of office facilities. The Company also continues to reduce~~reducing its global real estate footprint. This program is a continuation of the Company’s plant rationalization, builds on prior restructuring programs and does not include any actions associated with the planned spin-off of Organon. As the Company continues to evaluate its global footprint and ~~improve~~overall operating model, it subsequently identified additional actions under the ~~efficiency~~Restructuring Program, and could identify further actions over time. The actions currently contemplated under the Restructuring Program are expected to be substantially completed by the end of ~~its manufacturing and supply network.~~2023, with the cumulative pretax costs to be incurred by the Company to implement the program now estimated to be approximately $3.0 billion. The Company expects to record charges of approximately $700 million in 2021 related to the Restructuring Program. The Company anticipates the actions under the Restructuring Program to result in annual net cost savings of approximately $900 million by the end of 2023. Actions under previous global restructuring programs have been substantially completed.

Restructuring costs, primarily representing separation and other related costs associated with these restructuring activities, were ~~$632 million, $776 million and $651~~$578 million in ~~2018, 2017~~2020 and ~~2016, respectively. In 2018, 2017 and 2016, separation~~$638 million in 2019. Separation costs ~~of $473 million, $552 million and $216 million, respectively,~~incurred were ~~incurred~~ associated with actual headcount reductions, as well as estimated expenses under existing severance programs for headcount reductions that were probable and could be reasonably estimated. ~~Merck eliminated approximately 2,160 positions in 2018, 2,450 positions in 2017 and 2,625 positions in 2016 related to these restructuring activities.~~ Also included in restructuring costs are asset abandonment, 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 ~~as discussed above.~~costs. The Company recorded aggregate pretax costs of ~~$658~~$883 million in ~~2018,~~2020 and $927 million in ~~2017 and $1.1 billion in 2016~~2019 related to restructuring program activities (see Note 5 to the consolidated financial statements). ~~The Company has substantially completed the actions under these programs.~~

Other (Income) Expense, Net

Other (income) expense, net, was ~~$402~~$886 million of income in ~~2018, $500 million of income in 2017 and $189~~2020 compared with $139 million of expense in ~~2016.~~2019, primarily due to higher income from investments in equity securities, net, largely related to Moderna, Inc. For details on the components of Other (income) expense, net, see Note 1514 to the consolidated financial statements.


Segment Profits

($ in millions)	2020		2019		2018
Pharmaceutical segment profits	$	29,722	$	28,324	$	24,871
Animal Health segment profits	1,650		1,609		1,659
Other non-reportable segment profits	1		(7)		103
Other	(22,582)		(18,462)		(17,932)
Income Before Taxes	$	8,791	$	11,464	$	8,701

Segment Profits
($ in millions) 2018 2017 2016
Pharmaceutical segment profits $ 24,292
$ 22,495
$ 22,141
Animal Health segment profits 1,659
1,552
1,357
Other non-reportable segment profits 103
275
146
Other (17,353 )
(17,801 )
(18,985 )
Income before taxes $ 8,701
$ 6,521
$ 4,659

Pharmaceutical segment profits are comprised of segment sales less standard costs, as well as SG&A ~~and R&D~~ expenses directly incurred by the segment. Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as SG&A and R&D expenses directly incurred by the segment. For internal management reporting presented to the chief operating decision maker, Merck does not allocate the remaining cost of sales not included in segment profits as described above, research and development expenses incurred inby MRL, or general and administrative expenses, nor the cost of financing these activities. Separate divisions maintain responsibility for

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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, ~~(amortization~~including the amortization of purchase accounting adjustments, intangible asset impairment charges, and ~~expense or income related to~~ changes in the estimated fair value measurement of liabilities for contingent ~~consideration), restructuring costs, and a portion of equity income.~~consideration. Additionally, segment profits do not reflect other expenses from corporate and manufacturing cost centers and other miscellaneous income or expense. These unallocated items including a charge related to the termination of a collaboration agreement with Samsung for insulin glargine in 2018, a loss on the extinguishment of debt in 2017, and a charge related to the settlement of worldwide ~~Keytruda~~ ~~patent litigation and gains on divestitures in 2016,~~ are reflected in “Other” in the above table. Also included in “Other” are miscellaneous corporate profits (losses), as well as operating profits (losses) related to third-party manufacturing sales. In the first quarter of 2018, the Company adopted a new accounting standard related to the classification of certain defined benefit plan costs, which resulted in a change to the measurement of segment profits (see Note 19 to the consolidated financial statements). Prior period amounts have been recast to conform to the new presentation.

Pharmaceutical segment profits grew 8%5% in ~~2018~~2020 compared with ~~2017~~2019 driven primarily ~~reflecting~~by higher sales, ~~and~~as well as lower selling and promotional costs. ~~Pharmaceutical segment profits grew 2% in 2017 compared with 2016 primarily reflecting higher sales and the favorable effects of product mix.~~ Animal Health segment profits grew 7%3% in ~~2018 and 14% in 2017~~2020 driven primarily by higher sales and lower promotional and selling costs, partially offset by ~~increased selling~~higher R&D costs and ~~promotional costs.~~the unfavorable effect of foreign exchange.

Taxes on Income

The effective income tax rates of ~~28.8%~~19.4% in ~~2018, 62.9%~~2020 and 14.7% in ~~2017 and 15.4% in 2016~~2019 reflect the impacts of acquisition and divestiture-related costs and restructuring costs, ~~and~~partially offset by the beneficial impact of foreign ~~earnings.~~earnings, including product mix. The effective income tax rate in ~~2018 includes measurement-period adjustments~~2020 reflects the unfavorable impact of a charge for the acquisition of VelosBio for which no tax benefit was recognized. The effective income tax rate in 2019 reflects the favorable impact of a $364 million net tax benefit related to the ~~provisional amounts recorded~~settlement of certain federal income tax matters (see Note 15 to the consolidated financial statements) and the reversal of tax reserves established in ~~2017~~connection with the 2014 divestiture of Merck’s Consumer Care (MCC) business due to the lapse in the statute of limitations. In addition, the effective income tax rate in 2019 reflects the unfavorable impacts of a charge for the acquisition of Peloton for which no tax benefit was recognized and charges of $117 million related to the finalization of treasury regulations for the transition tax associated with the 2017 enactment of U.S. tax legislation known as the Tax Cuts and Jobs Act (TCJA)~~, including $124 million related to the transition tax~~ (see Note 1615 to the consolidated financial statements). In addition, the effective income tax rate for 2018 reflects the unfavorable impacts of a $1.4 billion pretax charge recorded in connection with the formation of a collaboration with Eisai and a $423 million pretax charge related to the termination of a collaboration agreement with Samsung for which no tax benefits were recognized. The effective income tax rate for 2017 includes a provisional net charge of $2.6 billion related to the enactment of the TCJA. The effective income tax rate for 2017 also reflects the unfavorable impact of a $2.35 billion pretax charge recorded in connection with the formation of a collaboration with AstraZeneca for which no tax benefit was recognized, partially offset by the favorable impact of a net tax benefit of $234 million related to the settlement of certain federal income tax issues (see Note 16 to the consolidated financial statements), and a benefit of $88 million related to the settlement of a state income tax issue.

Net Income (Loss) ~~Income~~ Attributable to Noncontrolling Interests

Net income (loss) ~~income~~ attributable to noncontrolling interests was ~~$(27)~~$15 million in ~~2018~~2020 compared with ~~$24~~$(66) million in ~~2017 and~~ ~~$21 million~~ ~~in 2016.~~2019. The loss in ~~2018~~2019 was driven primarily ~~reflects~~by the portion of goodwill impairment charges related to certain ~~business~~businesses in the Healthcare Services segment that ~~are~~were attributable to noncontrolling interests.

Net Income and Earnings per Common Share

Net income attributable to Merck & Co., Inc. was ~~$6.2~~$7.1 billion in ~~2018, $2.4~~2020 and $9.8 billion in ~~2017 and $3.9 billion in 2016.~~2019. EPS was ~~$2.32~~$2.78 in ~~2018, $0.87~~2020 and $3.81 in ~~2017 and $1.41 in 2016.~~2019.

Non-GAAP Income and Non-GAAP EPS

Non-GAAP income and non-GAAP EPS are alternative views of the Company’s performance that Merck is providing because management believes this information enhances investors’ understanding of the Company’s results as it permits investors to understand how management assesses performance. Non-GAAP income and non-GAAP EPS exclude certain items because of the nature of these items and the impact that they have on the analysis of underlying business performance and trends. The excluded items (which should not be considered non-recurring) consist of acquisition and divestiture-related costs, restructuring costs and certain other items. These excluded items are significant components in understanding and assessing financial performance.

Non-GAAP income and non-GAAP EPS are important internal measures for the Company. Senior management receives a monthly analysis of operating results that includes non-GAAP EPS. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the Company along with other metrics. ~~Senior~~In addition, senior management’s annual compensation is derived in part using non-GAAP ~~income and non-GAAP EPS.~~pretax income. Since non-GAAP income and non-GAAP EPS are not measures determined in accordance with GAAP, they have no standardized meaning prescribed by GAAP and, therefore, may not be comparable to the calculation of similar measures of other companies. The information on non-GAAP income and non-GAAP EPS should be considered in addition to, but not as a substitute for or superior to, net income and EPS prepared in accordance with generally accepted accounting principles in the United States (GAAP).

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A reconciliation between GAAP financial measures and non-GAAP financial measures is as follows:


($ in millions except per share amounts)	2020		2019		2018
Income before taxes as reported under GAAP	$	8,791	$	11,464	$	8,701
Increase (decrease) for excluded items:
Acquisition and divestiture-related costs (1)	3,704		2,681		3,066
Restructuring costs	883		927		658
Other items:
Charge for the acquisition of VelosBio	2,660		—		—
Charges for the formation of collaborations (2)	1,076		—		1,400
Charge for the acquisition of OncoImmune	462		—		—
Charge for the discontinuation of COVID-19 vaccine development programs	305		—		—
Charge for the acquisition of Peloton	—		993		—
Charge related to the termination of a collaboration with Samsung	—		—		423
Charge for the acquisition of Viralytics Limited	—		—		344
Other	(20)		55		(57)
Non-GAAP income before taxes	17,861		16,120		14,535
Taxes on income as reported under GAAP	1,709		1,687		2,508
Estimated tax benefit on excluded items (3)	1,122		695		535
Adjustment to tax benefits recorded in conjunction with the 2015 Cubist Pharmaceuticals, Inc. acquisition	(67)		—		—
Net tax benefit from the settlement of certain federal income tax matters	—		364		—
Tax benefit from the reversal of tax reserves related to the divestiture of MCC	—		86		—
Net tax charge related to the finalization of treasury regulations related to the enactment of the TCJA	—		(117)		(160)
Non-GAAP taxes on income	2,764		2,715		2,883
Non-GAAP net income	15,097		13,405		11,652
Less: Net income (loss) attributable to noncontrolling interests as reported under GAAP	15		(66)		(27)
Acquisition and divestiture-related costs attributable to noncontrolling interests	—		(89)		(58)
Non-GAAP net income attributable to noncontrolling interests	15		23		31
Non-GAAP net income attributable to Merck & Co., Inc.	$	15,082	$	13,382	$	11,621
EPS assuming dilution as reported under GAAP	$	2.78	$	3.81	$	2.32
EPS difference	3.16		1.38		2.02
Non-GAAP EPS assuming dilution	$	5.94	$	5.19	$	4.34

($ in millions except per share amounts) 2018 2017 2016
Income before taxes as reported under GAAP $ 8,701
$ 6,521
$ 4,659
Increase (decrease) for excluded items:
Acquisition and divestiture-related costs 3,066
3,760
7,312
Restructuring costs 658
927
1,069
Other items:
Charge related to the formation of an oncology collaboration with Eisai 1,400
—
—
Charge related to the termination of a collaboration with Samsung 423
—
—
Charge for the acquisition of Viralytics 344
—
—
Charge related to the formation of an oncology collaboration with AstraZeneca —
2,350
—
Charge related to the settlement of worldwide Keytruda patent litigation
—
—
625
Other (57 ) (16 ) (67 )
Non-GAAP income before taxes 14,535
13,542
13,598
Taxes on income as reported under GAAP 2,508
4,103
718
Estimated tax benefit on excluded items ⁽¹⁾
535
785
2,321
Net tax charge related to the enactment of the TCJA ⁽²⁾
(160 ) (2,625 ) —
Net tax benefit from the settlement of certain federal income tax issues —
234
—
Tax benefit related to the settlement of a state income tax issue —
88
—
Non-GAAP taxes on income 2,883

2,585

3,039
Non-GAAP net income 11,652
10,957
10,559
Less: Net (loss) income attributable to noncontrolling interests as reported under GAAP (27 ) 24
21
Acquisition and divestiture-related costs attributable to noncontrolling interests (58 ) —
—
Non-GAAP net income attributable to noncontrolling interests 31

24

21
Non-GAAP net income attributable to Merck & Co., Inc. $ 11,621

$ 10,933

$ 10,538
EPS assuming dilution as reported under GAAP $ 2.32
$ 0.87
$ 1.41
EPS difference ⁽³⁾
2.02
3.11
2.37
Non-GAAP EPS assuming dilution $ 4.34
$ 3.98
$ 3.78


⁽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⁾(1)Amount in ~~2017 was provisional~~2020 includes a $1.6 billion intangible asset impairment charge related to Zerbaxa. Amount in 2019 includes a $612 million intangible asset impairment charge related to Sivextro. See Note 8 to the consolidated financial statements.

(2)Amount in 2020 includes $826 million related to transactions with Seagen (see Note 163 to the consolidated financial statements). Amount in 2018 represents charge for the formation of a collaboration with Eisai (see Note 4 to the consolidated financial statements).


⁽³⁾ (3) The estimated tax impact on the excluded items is determined by applying the statutory rate of the originating territory of the non-GAAP adjustments.	Represents the difference between calculated GAAP EPS and calculated non-GAAP EPS, which may be different than the amount calculated by dividing the impact of the excluded items by the weighted-average shares for the applicable year.

Acquisition and Divestiture-Related Costs

Non-GAAP income and non-GAAP EPS exclude the impact of certain amounts recorded in connection with business acquisitions and divestitures. These amounts include the amortization of intangible assets and amortization of purchase accounting adjustments to 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 business acquisitions and divestitures.

Restructuring Costs

Non-GAAP income and non-GAAP EPS exclude costs related to restructuring actions (see Note 5 to the consolidated financial statements). These amounts include employee separation costs and accelerated depreciation

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associated with facilities to be closed or divested. Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the revised useful life of the asset, based upon the anticipated date the site will be closed or divested or the equipment disposed of, and depreciation expense as determined utilizing the useful

life prior to the restructuring actions. Restructuring costs also include asset abandonment, facility shut-down and other related costs, as well as employee-related costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans and share-based compensation costs.

Certain Other Items

~~Non-GAAP income and non-GAAP EPS exclude certain other items.~~ These items are adjusted for after evaluating them on an individual basis considering their quantitative and qualitative ~~aspects, and typically~~aspects. Typically, these consist of items that are unusual in nature, significant to the results of a particular period or not indicative of future operating results. Excluded from non-GAAP income and non-GAAP EPS in 2020 are charges for the acquisitions of VelosBio and OncoImmune, charges related to collaborations, including transactions with Seagen (see Note 3 to the consolidated financial statements), a charge for the discontinuation of COVID-19 vaccine development programs, and an adjustment to tax benefits recorded in conjunction with the 2015 Cubist Pharmaceuticals, Inc. acquisition. Excluded from non-GAAP income and non-GAAP EPS in 2019 is a charge for the acquisition of Peloton (see Note 3 to the consolidated financial statements), tax charges related to the finalization of U.S. treasury regulations related to the TCJA, a net tax benefit related to the settlement of certain federal income tax matters, and a tax benefit related to the reversal of tax reserves established in connection with the 2014 divestiture of MCC (see Note 15 to the consolidated financial statements). Excluded from non-GAAP income and non-GAAP EPS in 2018 is a charge related to the formation of a collaboration with Eisai (see Note 4 to the consolidated financial statements), a charge related to the termination of a collaboration agreement with Samsung for insulin glargine (see Note 3 to the consolidated financial statements), a charge for the acquisition of Viralytics (see Note 3 to the consolidated financial statements), and measurement-period adjustments related to the provisional amounts recorded for the TCJA (see Note 1615 to the consolidated financial statements). ~~Excluded~~

Beginning in 2021, the Company will be changing the treatment of certain items for the purposes of its non-GAAP reporting. Historically, Merck’s non-GAAP results excluded the amortization of intangible assets recognized in connection with business acquisitions (reflected as part of acquisition and divestiture-related costs) but did not exclude the amortization of intangibles originating from collaborations, asset acquisitions or licensing arrangements. Beginning in 2021, Merck’s non-GAAP ~~income~~results will no longer differentiate between the nature of the intangible assets being amortized and will exclude all amortization of intangible assets. Also, beginning in 2021, Merck’s non-GAAP ~~EPS~~results will exclude gains and losses on investments in ~~2017 is a charge related~~equity securities. Prior period amounts will be recast to conform to the formation of a collaboration with AstraZeneca (see Note 4 to the consolidated financial statements), as well as a provisional net tax charge related to the enactment of the TCJA, a net tax benefit related to the settlement of certain federal income tax issues and a tax benefit related to the settlement of a state income tax issue (see Note 16 to the consolidated financial statements). Excluded from non-GAAP income and non-GAAP EPS in 2016 is a charge to settle worldwide patent litigation related to ~~Keytruda~~.new presentation.

Research and Development

~~A chart reflecting the Company’s current research pipeline as of February 22, 2019 is set forth in Item 1. “Business~~ —Research ~~and Development” above.~~Pipeline

~~Research and Development Update~~

The Company currently has several candidates under regulatory review in the United States and ~~internationally.~~

~~Keytruda~~ ~~is an approved anti-PD-1 therapy in clinical development for expanded indications in different cancer types.~~

~~In February 2019, the FDA accepted and granted Priority Review for a supplemental BLA for~~ ~~Keytruda~~ in combination with Inlyta (axitinib), a tyrosine kinase inhibitor, for the first-line treatment of patients with advanced renal cell carcinoma. This supplemental BLA is based on findings from the Phase 3 KEYNOTE-426 trial, which demonstrated that ~~Keytruda~~ in combination with axitinib, as compared to sunitinib, significantly improved overall survival (OS) and PFS in the first-line treatment of advanced renal cell carcinoma. These data were presented at the American Society for Clinical Oncology (ASCO) Genitourinary Cancers Symposium in February 2019. The supplemental BLA also included supporting data from the Phase 1b KEYNOTE-035 trial. The FDA set a PDUFA date of June 20, 2019. Merck has filed data from KEYNOTE-426 with regulatory authorities worldwide.

~~In February 2019, the Committee for Medicinal Products for Human Use of the European Medicines Agency (EMA) adopted a positive opinion recommending~~ ~~Keytruda~~, in combination with carboplatin and either paclitaxel or nab-paclitaxel, for the first-line treatment of metastatic squamous NSCLC in adults. This recommendation is based on results from the pivotal Phase 3 KEYNOTE-407 trial, which enrolled patients regardless of PD-L1 tumor expression status. The trial showed a significant improvement in OS and PFS for patients taking ~~Keytruda~~ in combination with chemotherapy (carboplatin and either paclitaxel or nab-paclitaxel) compared with chemotherapy alone. If approved, this would mark the first approval in Europe for an anti-PD-1 therapy in combination with chemotherapy for adults with metastatic squamous NSCLC. In October 2018, the FDA approved ~~Keytruda~~ ~~in combination with carboplatin-paclitaxel or nab-paclitaxel as a first-line treatment for metastatic squamous NSCLC, regardless of PD-L1 expression.~~

~~In December 2018, the FDA extended the action date for the supplemental BLA seeking approval for~~ ~~Keytruda~~ as monotherapy for the first-line treatment of locally advanced or metastatic NSCLC in patients whose tumors express PD-L1 (TPS ≥1%) without EGFR or ALK genomic tumor aberrations. The supplemental BLA is based on results of the Phase 3 KEYNOTE-042 trial where ~~Keytruda~~ ~~monotherapy demonstrated a significant improvement in OS compared with chemotherapy in this patient population. The Company submitted additional data and analyses to~~

~~the FDA, which constituted a major amendment and extended the PDUFA date by three months to April 11, 2019. Merck continues to work closely with the FDA during the review of this supplemental BLA.~~

~~In February 2019, the FDA accepted and granted Priority Review for a supplemental BLA for~~ ~~Keytruda~~ as monotherapy for the treatment of patients with advanced SCLC whose disease has progressed after two or more lines of prior therapy. This supplemental BLA, which is seeking accelerated approval for this new indication, is based on data from the SCLC cohorts of the Phase 2 KEYNOTE-158 and Phase 1b KEYNOTE-028 trials. The FDA set a PDUFA date of June 17, 2019. ~~Keytruda~~ ~~is also being studied in combination with chemotherapy in the ongoing Phase 3 KEYNOTE-604 study in patients with newly diagnosed extensive stage SCLC.~~

~~In February 2019, the FDA accepted a supplemental BLA for~~ ~~Keytruda~~ as monotherapy or in combination with platinum and 5-fluorouracil chemotherapy for the first-line treatment of patients with recurrent or metastatic HNSCC. This supplemental BLA is based in part on data from the pivotal Phase 3 KEYNOTE-048 trial where ~~Keytruda~~ demonstrated a significant improvement in OS compared with the standard of care, as monotherapy in patients whose tumors expressed PD-L1 with Combined Positive Score (CPS)≥20 and CPS≥1 and in combination with chemotherapy in the total patient population. These data were presented at the European Society for Medical Oncology (ESMO) 2018 Congress. The FDA granted Priority Review to the supplemental BLA and set a PDUFA date of June 10, 2019. KEYNOTE-048 also serves as the confirmatory trial for KEYNOTE-012, a Phase 1b study which supported the previous accelerated approval for ~~Keytruda~~ ~~as monotherapy for the treatment of patients with recurrent or metastatic HNSCC with disease progression on or after platinum-containing chemotherapy.~~

~~In November 2018, Merck announced that the Phase 3 KEYNOTE-181 trial investigating~~ ~~Keytruda~~ as monotherapy in the second-line treatment of advanced or metastatic esophageal or esophagogastric junction carcinoma met a primary endpoint of OS in patients whose tumors expressed PD-L1 (CPS ≥10). In this pivotal study, treatment with ~~Keytruda~~ resulted in a statistically significant improvement in OS compared to chemotherapy (paclitaxel, docetaxel or irinotecan) in patients with CPS ≥10, regardless of histology. The primary endpoint of OS was also evaluated in patients with squamous cell histology and in the entire intention-to-treat study population. While directionally favorable, statistical significance for OS was not met in these two patient groups. Per the statistical analysis plan, the key secondary endpoints of PFS and objective response rate (ORR) were not formally tested, as OS was not reached in the full intention-to-treat study population. These results were presented in January 2019 at the ASCO Gastrointestinal Cancers Symposium and have been submitted for regulatory review.

~~Additionally,~~ ~~Keytruda~~ has received Breakthrough Therapy designation from the FDA for the treatment of high-risk early-stage triple-negative breast cancer in combination with neoadjuvant chemotherapy. The FDA’s Breakthrough Therapy designation is intended to expedite the development and review of a candidate that is planned for use, alone or in combination, to treat a serious or life-threatening disease or condition when preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints.

~~In October 2018, Merck announced the first presentation of results from an interim analysis of KEYNOTE-057, a Phase 2 trial evaluating~~ ~~Keytruda~~ for previously treated patients with high-risk non-muscle invasive bladder cancer. An interim analysis of the study’s primary endpoint showed a complete response rate of nearly 40% at three months with ~~Keytruda~~ in patients whose disease was unresponsive to Bacillus Calmette-Guérin therapy, the current standard of care for this disease, and who were ineligible for or who refused to undergo radical cystectomy. These results,internationally, as well as ~~other study findings, were presented at the ESMO 2018 Congress.~~

~~In February 2019, Merck announced that the pivotal Phase 3 KEYNOTE-240 trial evaluating~~ ~~Keytruda~~, plus best supportive care, for the treatment of patients with advanced hepatocellular carcinoma who were previously treated with systemic therapy, did not meet its co-primary endpoints of OS and PFS compared with placebo plus best supportive care. In the final analysis of the study, there was an improvement in ~~OS for patients treated with~~ ~~Keytruda~~ ~~compared to placebo, however these OS results did not meet statistical significance per the pre-specified statistical plan. Results for PFS were also directionally favorable in the~~ ~~Keytruda~~ arm compared with placebo but did not reach statistical significance. The key secondary endpoint of ORR was not formally tested, since superiority was not reached for OS or PFS. Results will be presented at an upcoming medical meeting and have been shared with the FDA for discussion.

~~The~~ ~~Keytruda~~ ~~clinical development program consists of more than 900 clinical trials, including more than 600 trials that combine~~ ~~Keytruda~~ with other cancer treatments. These studies encompass more than 30 cancer types including: bladder, cervical, colorectal, esophageal, gastric, head and neck, hepatocellular, Hodgkin lymphoma, non-Hodgkin lymphoma, melanoma, mesothelioma, nasopharyngeal, NSCLC, ovarian, PMBCL, prostate, renal, small-cell lung and triple-negative breast, many of which are currently in Phase 3late-stage clinical development. ~~Further trials are being planned for other cancers.~~

Lynparza, is an oral PARP inhibitor currently approved for certain types of ovarian and breast cancer. In July 2017, Merck and AstraZeneca entered into a global strategic oncology collaboration to co-develop and co-commercialize AstraZeneca’s Lynparza for multiple cancer types (see Note 4 to the consolidated financial statements).

~~In April 2018, Merck and AstraZeneca announced that the EMA validated for review the Marketing Authorization Application for Lynparza for use in patients with deleterious or suspected deleterious~~ ~~BRCA~~-mutated, HER2-negative metastatic breast cancer who have been previously treated with chemotherapy in the neoadjuvant, adjuvant or metastatic setting. This was the first regulatory submission for a PARP inhibitor in breast cancer in Europe.

~~Lynparza tablets are also under review in the EU as a maintenance treatment in patients with newly-diagnosed,~~ ~~BRCA~~-mutated advanced ovarian cancer who were in complete or partial response following first-line standard platinum-based chemotherapy. This submission was based on positive results from the pivotal Phase 3 SOLO-1 trial. The trial showed a statistically-significant and clinically-meaningful improvement in PFS for Lynparza compared to placebo, reducing the risk of disease progression or death by 70% in patients with newly-diagnosed, ~~BRCA-mutated advanced ovarian cancer who were in complete or partial response to platinum-based chemotherapy.~~

In December 2018, Merck and AstraZeneca announced positive results from the randomized, open-label, controlled, Phase 3 SOLO-3 trial of Lynparza tablets in patients with relapsed ovarian cancer after two or more lines of treatment. The trial was conducted as a post-approval commitment in agreement with the FDA. Results from the trial showed ~~BRCA~~-mutated advanced ovarian cancer patients treated with Lynparza following two or more prior lines of chemotherapy demonstrated a statistically significant and clinically meaningful improvement in the primary endpoint of ORR and the key secondary endpoint of PFS compared to chemotherapy. Merck and AstraZeneca plan to discuss these results with the FDA.

MK-7655A is a combination of relebactam, an investigational beta-lactamase inhibitor, and imipenem/cilastatin (an approved carbapenem antibiotic). In February 2019, Merck announced that the FDA accepted for Priority Review an NDA for MK-7655A for the treatment of complicated urinary tract infections and complicated intra-abdominal infections caused by certain susceptible Gram-negative bacteria in adults with limited or no alternative therapies available. The PDUFA date is July 16, 2019. In April 2018, Merck announced that a pivotal Phase 3 study of MK-7655A demonstrated a favorable overall response in the treatment of certain imipenem-non-susceptible bacterial infections, the primary endpoint, with lower treatment-emergent nephrotoxicity (kidney toxicity), a secondary endpoint, compared to a colistin (colistimethate sodium) plus imipenem/cilastatin regimen. The FDA had previously designated this combination a Qualified Infectious Disease Product with designated Fast Track status for the treatment of hospital-acquired bacterial pneumonia, ventilator-associated bacterial pneumonia, complicated intra-abdominal infections and complicated urinary tract infections.

V920 (rVSV∆G-ZEBOV-GP, live attenuated), is an investigational Ebola Zaire disease vaccine candidate being studied in large scale Phase 2/3 clinical trials. In December 2015, Merck announced that the application for Emergency Use Assessment and Listing (EUAL) for V920 was accepted for review by the World Health Organization (WHO). According to the WHO, the EUAL process is designed to expedite the availability of vaccines needed for public health emergencies such as another outbreak of Ebola. The WHO decision to grant V920 EUAL status will be based on data regarding quality, safety, and efficacy/effectiveness; as well as a risk/benefit analysis for emergency use. While EUAL designation allows for emergency use, the vaccine remains investigational and has not yet been licensed for commercial distribution. In July 2016, Merck announced that the FDA granted V920 Breakthrough Therapy designation, and that the EMA granted the vaccine candidate PRIME (PRIority MEdicines) status. In November 2018, Merck announced that it has started the submission of a rolling BLA to the FDA for V920. This rolling submission was made pursuant to the FDA’s Breakthrough Therapy designation. Merck expects the rolling submission of the BLA to be completed in 2019. The Company also intends to file V920 with the EMA in 2019.

~~In February 2019, Merck announced that the FDA accepted for Priority Review a supplemental NDA for~~ ~~Zerbaxa~~ ~~to treat adult patients with nosocomial pneumonia, including ventilator-associated pneumonia, caused by certain susceptible Gram-negative microorganisms. The PDUFA date is June 3, 2019.~~ ~~Zerbaxa~~ ~~is also under review for this indication by the EMA.~~ ~~Zerbaxa~~ is currently approved in the United States for the treatment of adult patients with complicated urinary tract infections caused by certain susceptible Gram-negative microorganisms, and is also indicated, in combination with metronidazole, for the treatment of adult patients with complicated intra-abdominal infections caused by certain susceptible Gram-negative and Gram-positive microorganisms.

~~In addition to the candidates under regulatory review, the Company has several drug candidates in Phase 3 clinical development in addition to the~~ ~~Keytruda~~ ~~programs discussed above.~~

MK-7264, gefapixant, is a selective, non-narcotic, orally-administered P2X3-receptor agonist being investigated in Phase 3 trials for the treatment of refractory, chronic cough and in a Phase 2 trial for the treatment of women with endometriosis-related pain.

Lenvima, is an orally available tyrosine kinase inhibitor currently approved for certain types of thyroid cancer, hepatocellular carcinoma, and in combination for certain patients with renal cell carcinoma. In March 2018, Merck and Eisai entered into a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima (see Note 4 to the consolidated financial statements). Under the agreement, Merck and Eisai will develop and commercialize Lenvima jointly, both as monotherapy and in combination with ~~Keytruda. Per the agreement, the companies will jointly initiate clinical studies evaluating the~~ ~~Keytruda~~/Lenvima combination to support 11 potential indications in six types of cancer (endometrial cancer, NSCLC, hepatocellular carcinoma, head and neck cancer, bladder cancer and melanoma), as well as a basket trial targeting multiple cancer types. The FDA granted Breakthrough Therapy designation for ~~Keytruda~~ in combination with Lenvima for the potential treatment of patients with advanced and/or metastatic renal cell carcinoma and for the potential treatment of certain patients with advanced and/or metastatic non-microsatellite instability high/proficient mismatch repair endometrial carcinoma.

MK-1242, vericiguat, is an investigational treatment for heart failure being studied in patients suffering from chronic heart failure with reduced ejection fracture (Phase 3 clinical trial) and from chronic heart failure with preserved ejection fracture (Phase 2 clinical trial). The development of vericiguat is part of a worldwide strategic collaboration between Merck and Bayer (see Note 4 to the consolidated financial statements).

V114 is an investigational polyvalent conjugate vaccine for the prevention of pneumococcal disease. In June 2018, Merck initiated the first Phase 3 study in the adult population for the prevention of invasive pneumococcal disease. Currently five Phase 3 adult studies are ongoing, including studies in healthy adults 50 years of age or older, adults with risk factors for pneumococcal disease, those infected with HIV, and those who are recipients of allogeneic hematopoietic stem cell transplant. In October 2018, Merck began the first Phase 3 study in the pediatric population. Currently, three studies are ongoing, including studies in healthy infants and in children afflicted with sickle cell disease. In January 2019, Merck announced that V114 received Breakthrough Therapy designation from the FDA for the prevention of invasive pneumococcal disease caused by the vaccine serotypes in pediatric patients 6 weeks to 18 years of age.

~~As a result of changes in the herpes zoster vaccine environment, Merck is ending development of V212, its investigational vaccine for the prevention of shingles in immunocompromised patients.~~

The Company maintains a number of long-term exploratory and fundamental research programs in biology and chemistry as well as research programs directed toward product development. The Company’s research and development model is designed to increase productivity and improve the probability of success by prioritizingA chart reflecting the Company’s current research pipeline as of February 22, 2021 and ~~development resources on candidates the Company believes are capable of providing unambiguous, promotable advantages to patients~~related discussion is set forth in Item 1. “Business — Research and payers and delivering the maximum value of its approved medicines and vaccines through new indications and new formulations. Merck is pursuing emerging product opportunities independent of therapeutic area or modality (small molecule, biologics and vaccines) and is building its biologics capabilities. The Company is committed to ensuring that externally sourced programs remain an important component of its pipeline strategy, with a focus on supplementing its internal research with a licensing and external alliance strategy focused on the entire spectrum of collaborations from early research to late-stage compounds, as well as access to new technologies.Development” above.

The Company’s clinical pipeline includes candidates in multiple disease areas, including cancer, cardiovascular diseases, diabetes, infectious diseases, neurosciences, obesity, pain, respiratory diseases, and vaccines.

Acquired In-Process Research and Development

In connection with business acquisitions, the Company has recorded the fair value of in-process research projects which, at the time of acquisition, had not yet reached technological feasibility. At December 31, ~~2018,~~2020, the balance of IPR&D was ~~$1.1 billion.~~$3.2 billion (see Note 8 to the consolidated financial statements).

The IPR&D projects that remain in development are subject to the inherent risks and uncertainties in drug development and it is possible that the Company will not be able to successfully develop and complete the IPR&D programs and profitably commercialize the underlying product candidates. The time periods to receive approvals from the FDA and other regulatory agencies are subject to uncertainty. Significant delays in the approval process, or the Company’s failure to obtain approval at all, would delay or prevent the Company from realizing revenues from these products. Additionally, if certain of the IPR&D programs fail or are abandoned during development, then the Company will not realize the future cash flows it has estimated and recorded as IPR&D as of

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the acquisition ~~date, and the Company may also not recover the research and development expenditures made since the acquisition to further develop such programs.~~date. If such circumstances were to occur, the Company’s future operating results could be adversely affected and the Company may recognize impairment charges and such charges could be material.

In ~~2018, 2017,~~2020, 2019, and ~~2016~~2018 the Company recorded IPR&D impairment charges within Research and development expenses of ~~$152~~$90 million, ~~$483~~$172 million and ~~$3.6 billion,~~$152 million, respectively (see Note 8 to the consolidated financial statements).

Additional research and development will be required before any of the remaining programs reach technological feasibility. The costs to complete the research projects will depend on whether the projects are brought to their final stages of development and are ultimately submitted to the FDA or other regulatory agencies for approval.

Acquisitions, Research Collaborations and License Agreements

Merck continues to remain focused on pursuing opportunities that have the potential to drive both near- and long-term growth. Certain ~~of the more~~ recent transactions are ~~described below.~~summarized below; additional details are included in Note 3 to the consolidated financial statements. Merck is actively monitoring the landscape for growth opportunities that meet the Company’s strategic criteria.

In ~~March 2018,~~January 2020, Merck acquired ArQule, a publicly traded biopharmaceutical company focused on kinase inhibitor discovery and development for the treatment of patients with cancer and other diseases for $2.7 billion. ArQule’s lead investigational candidate, MK-1026 (formerly ARQ 531), is a novel, oral Bruton’s tyrosine kinase (BTK) inhibitor currently being evaluated for the treatment of B-cell malignancies. The transaction was accounted for as an acquisition of a business. The Company recorded IPR&D of $2.3 billion (related to MK-1026), goodwill of $512 million and other net liabilities of $102 million.

In July 2020, Merck and ~~Eisai announced~~Ridgeback Bio, a ~~strategic~~closely held biotechnology company, closed a collaboration ~~for the worldwide co-development and co-commercialization of Lenvima,~~agreement to develop molnupiravir (MK-4482, also known as EIDD-2801), an orally available ~~tyrosine kinase inhibitor discovered by Eisai. Under~~antiviral candidate in clinical development for the ~~agreement,~~treatment of patients with COVID-19. Merck ~~and Eisai will~~gained exclusive worldwide rights to develop and commercialize ~~Lenvima jointly,~~molnupiravir and related molecules. Under the terms of the agreement, Ridgeback Bio received an upfront payment and also is eligible to receive future contingent payments dependent upon the achievement of certain developmental and regulatory approval milestones, as well as a share of the net profits of molnupiravir and related molecules, if approved. Molnupiravir is currently being evaluated in Phase 2/3 clinical trials in both ~~as monotherapy~~the hospital and outpatient settings. The primary completion date for the Phase 2/3 studies is June 2021. The Company anticipates interim efficacy data in ~~combination with Merck’s anti-PD-1 therapy,~~ ~~Keytruda~~.the first quarter of 2021.

In September 2020, Merck and Seagen announced an oncology collaboration to globally develop and commercialize Seagen’s ladiratuzumab vedotin (MK-6440), an investigational antibody-drug conjugate targeting LIV-1, which is currently in Phase 2 clinical trials for breast cancer and other solid tumors. Under the terms of the agreement, Merck made an upfront payment ~~to Eisai~~ of ~~$750~~$600 million and a $1.0 billion equity investment in 5 million shares of Seagen common stock at a price of $200 per share. Merck recorded $616 million in Research and development expenses in 2020 related to this transaction. Seagen is also eligible to receive future contingent milestone payments dependent upon the achievement of certain developmental and sales-based milestones.

Concurrent with the above transaction, Seagen granted Merck an exclusive license to commercialize Tukysa (tucatinib), a small molecule tyrosine kinase inhibitor, for the treatment of HER2-positive cancers, in Asia, the Middle East and Latin America and other regions outside of the United States, Canada and Europe. Under the terms of the agreement, Merck made upfront payments aggregating $210 million, which were recorded as Research and development expenses in 2020. Seagen is also eligible to receive future contingent regulatory approval milestones and tiered royalties based on annual sales levels of Tukysa in Merck’s territories.

In December 2020, Merck acquired OncoImmune, a privately held, clinical-stage biopharmaceutical company, for an upfront payment of $423 million. In addition, OncoImmune shareholders will ~~make~~be eligible to receive future contingent regulatory approval milestone payments and tiered royalties. OncoImmune’s lead therapeutic candidate MK-7110 (also known as CD24Fc) is being evaluated for the treatment of uppatients hospitalized with COVID-19. Topline results from a pre-planned interim efficacy analysis from a Phase 3 study of MK-7110 were released in September 2020. Full results from this Phase 3 study, which were consistent with the topline results, were received in February 2021 and will be submitted for publication in the future. The transaction was accounted

Table of Content s

for as an acquisition of an asset. Under the agreement, prior to ~~$650~~the completion of the acquisition, OncoImmune spun-out certain rights and assets unrelated to the MK-7110 program to a new entity owned by the existing shareholders of OncoImmune. In connection with the closing of the acquisition, Merck invested $50 million for ~~certain option rights through 2021 (of~~a 20% ownership interest in the new entity, which ~~$325~~was valued at $33 million ~~will be paid~~resulting in ~~March 2019, $200~~a $17 million ~~is expected to be paid in 2020 and $125 million is expected to be paid in 2021).~~premium. Merck also recognized other net liabilities of $22 million. The Company recorded ~~a charge of $1.4 billion in~~ Research and development expenses of $462 million in ~~2018~~2020 related to this transaction.

In December 2020, Merck announced it had entered into an agreement with the ~~upfront payment~~U.S. Government to support the development, manufacture and ~~future option payments. In addition,~~initial distribution of MK-7110 upon approval or Emergency Use Authorization (EUA) from the FDA by June 30, 2021. Under the agreement, ~~provides for Eisai~~Merck was to receive up to ~~$385~~approximately $356 million ~~associated with the achievement~~for manufacturing and supply of ~~certain clinical and regulatory milestones and up to $3.97 billion for the achievement~~approximately 60,000-100,000 doses of ~~milestones associated with sales of Lenvima (see Note 4~~MK-7110 to the ~~consolidated financial statements).~~U.S. government by June 30, 2021 to help meet the government’s pandemic response goals. Following the execution of this agreement, Merck received feedback from the FDA that additional data, beyond the study conducted by OncoImmune, would be needed to support a potential EUA application. Based on this FDA feedback, Merck no longer expects to supply the U.S. government with MK-7110 in the first half of 2021. Merck is actively working with FDA to address the agency’s comments.

In ~~June 2018,~~December 2020, Merck acquired ~~Viralytics Limited (Viralytics)~~VelosBio, a privately held clinical-stage biopharmaceutical company, for $2.8 billion. VelosBio’s lead investigational candidate is MK-2140 (formerly known as VLS-101), an ~~Australian publicly traded company focused on oncolytic immunotherapy treatments for a range of cancers, for AUD 502 million ($378 million). The transaction provided Merck with full rights to~~ ~~Cavatak~~ ~~(V937, formerly CVA21), Viralytics’s investigational oncolytic immunotherapy.~~ ~~Cavatak~~ ~~is based on Viralytics’s proprietary formulation of an oncolytic virus (Coxsackievirus Type A21)~~antibody-drug conjugate targeting receptor tyrosine kinase-like orphan receptor 1 (ROR1) that ~~has been shown to preferentially infect and kill cancer cells.~~ ~~Cavatak~~ is currently being evaluated ~~in multiple Phase 1~~for the treatment of patients with hematologic malignancies and ~~Phase 2 clinical trials, both as an intratumoral and intravenous agent, including in combination with~~ ~~Keytruda. Under a previous agreement between Merck and Viralytics, a study is investigating the use of the~~ ~~Keytruda~~ ~~and~~ ~~Cavatak~~ ~~combination in melanoma, prostate, lung and bladder cancers.~~solid tumors. The transaction was accounted for as an acquisition of an asset. Merck recorded net assets of ~~$34~~$180 million (primarily cash) ~~at the acquisition date~~ and Research

and development expenses of ~~$344 million~~$2.7 billion in ~~2018~~2020 related to the transaction. ~~There are no future contingent payments associated with the acquisition.~~

In February ~~2019,~~2021, Merck and ~~Immune Design~~Pandion Therapeutics, Inc. (Pandion) entered into a definitive agreement under which Merck will acquire ~~Immune Design~~Pandion, a clinical-stage biotechnology company developing novel therapeutics designed to address the unmet needs of patients living with autoimmune diseases, for ~~$5.85~~$60 per share in cash ~~for~~representing an approximate total equity value of ~~$300 million. Immune Design~~$1.85 billion. Pandion is advancing a ~~late-stage immunotherapy company employing next-generation~~ ~~in vivo~~ ~~approaches to enable the body’s~~pipeline of precision immune ~~system to fight disease. Immune Design’s proprietary technologies, GLAAS and ZVex, are engineered to activate the~~modulators targeting critical immune ~~system’s natural ability to generate and/or expand antigen-specific cytotoxic immune cells to fight cancer and other chronic diseases.~~control nodes. Under the terms of the acquisition agreement, Merck, through a subsidiary, will initiate a tender offer to acquire all outstanding shares of ~~Immune Design.~~Pandion. The closing of the tender offer ~~will be~~is subject to certain conditions, including the tender of shares representing at least a majority of the total number of ~~Immune Design’s outstanding~~Pandion’s shares of fully-diluted common stock, the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other customary conditions. The transaction is expected to close ~~early~~ in the ~~second quarter~~first half of ~~2019.~~2021.

Capital Expenditures

Capital expenditures were $4.7 billion in 2020, $3.5 billion in 2019 and $2.6 billion in ~~2018, $1.9 billion in 2017 and $1.6 billion in 2016.~~2018. Expenditures in the United States were $2.7 billion in 2020, $1.9 billion in 2019 and $1.5 billion in 2018. The increased capital expenditures in 2020 and 2019 reflect investment in new capital projects focused primarily on increasing manufacturing capacity for Merck’s key products. The increased capital expenditures in 2020 also reflect the purchase of a manufacturing facility in Dunboyne, Ireland to support upcoming product launches (see Note 3 to the consolidated financial statements). The Company plans to invest more than $20 billion in new capital projects from 2020-2024.

Depreciation expense was $1.7 billion in 2020, $1.7 billion in 2019 and $1.4 billion in 2018, of which $1.2 billion in ~~2017~~2020, $1.2 billion in 2019 and $1.0 billion in ~~2016. In October~~ 2018, the Company announced it plans to invest approximately $16 billion on new capital projects from 2018-2022. The focus of this investment will primarily be on increasing manufacturing capacity across Merck’s key businesses.

~~Depreciation expense was $1.4 billion in 2018, $1.5 billion in 2017 and $1.6 billion in 2016. In each of these years, $1.0 billion of the depreciation expense applied~~related to locations in the United States. Total depreciation expense in ~~2017~~2020 and ~~2016~~2019 included accelerated depreciation of ~~$60~~$268 million and ~~$227~~$233 million, respectively, associated with restructuring activities (see Note 5 to the consolidated financial statements).

Table of Content s

Analysis of Liquidity and Capital Resources

Merck’s strong financial profile enables it to fund research and development, focus on external alliances, support in-line products and maximize upcoming launches while providing significant cash returns to shareholders.


Selected Data										Selected Data
($ in millions)	2018			2017			2016			($ in millions)	2020			2019			2018
Working capital	$	3,669		$	6,152		$	13,410		Working capital	$	437		$	5,263		$	3,669
Total debt to total liabilities and equity	30.4		%	27.8		%	26.0		%	Total debt to total liabilities and equity	34.7		%	31.2		%	30.4		%
Cash provided by operations to total debt	0.4:1			0.3:1			0.4:1			Cash provided by operations to total debt	0.3:1			0.5:1			0.4:1

	~~For the Fiscal Year Ended December 31, 2018~~
		☐	or
☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	~~For the transition period from~~ to



New Jersey			22-1918501
(State or other jurisdiction of incorporation)			(I.R.S Employer Identification No.)


Securities Registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
Common Stock ($0.50 par value)	MRK	New York Stock Exchange
1.125% Notes due 2021	MRK/21	New York Stock Exchange
0.500% Notes due 2024	MRK 24	New York Stock Exchange
1.875% Notes due 2026	MRK/26	New York Stock Exchange
2.500% Notes due 2034	MRK/34	New York Stock Exchange
1.375% Notes due 2036	MRK 36A	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



Documents Incorporated by Reference:
Document						Part of Form 10-K
Proxy Statement for the Annual Meeting of Shareholders to be held May ~~28, 2019,~~25, 2021, to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this report						Part III



			☒			Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



					Page
Part I
Item 1.		Business			1
Item 1A.		Risk Factors			2026
		Cautionary Factors that May Affect Future Results			3041
Item 1B.		Unresolved Staff Comments			3142
Item 2.		Properties			3142
Item 3.		Legal Proceedings			3143
Item 4.		Mine Safety Disclosures			3143
		Executive Officers of the Registrant			3244
Part II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			3345
Item 6.7.		~~Selected Financial Data~~			35
~~Item 7.~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3647
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			6778
Item 8.		Financial Statements and Supplementary Data			6879
		(a)		Financial Statements	6879
				Notes to Consolidated Financial Statements	7283
				Report of Independent Registered Public Accounting Firm	~~127~~136
		~~(b)~~Item 9.	~~Supplementary Data~~			~~129~~
~~Item 9.~~	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~130~~138
Item 9A.		Controls and Procedures			~~130~~138
		Management’s Report			~~130~~138
Item 9B.		Other Information			~~131~~139
Part III
Item 10.		Directors, Executive Officers and Corporate Governance			~~132~~140
Item 11.		Executive Compensation			~~132~~140
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			~~133~~141
Item 13.		Certain Relationships and Related Transactions, and Director Independence			~~133~~141
Item 14.		Principal Accountant Fees and Services			~~133~~141
Part IV
Item 15.		Exhibits and Financial Statement Schedules			~~134~~142

Item 16.		Form 10-K Summary			~~137~~146
		Signatures			~~138~~147


⁽¹⁾	~~Other revenues are primarily comprised of Healthcare Services segment revenue, third-party manufacturing sales, and miscellaneous corporate revenues, including revenue hedging activities.~~



Product		Date	Approval
~~Keytruda~~ Dificid (1)		~~December 2018~~January 2020	~~The Japanese Ministry of Health, Labor and Welfare (JMHLW) approved~~ ~~Keytruda~~ ~~for three expanded uses in unresectable, advanced or recurrent NSCLC, one in malignant melanoma, as well as a new indication in high microsatellite instability solid tumors.~~
~~December 2018~~	~~The~~ U.S. Food and Drug Administration (FDA) approved Dificidas an oral suspension, and Dificid tablets for the treatment of Clostridioides (formerly Clostridium) difficile-associated diarrhea in children aged six months and older.
Gardasil		November 2020	China’s National Medical Products Administration (NMPA) granted expanded approval for Gardasil for use in girls and women from 9 to 45 years of age.
Gardasil 9		December 2020	Japan’s Ministry of Health, Labour and Welfare (MHLW) approved additional indication, dosage and administrations of Gardasil 9 (marketed as Silgard 9) for the prevention of anal cancer (squamous cell cancer) and precursor lesions (anal intraepithelial neoplasia (AIN) grade 1/2/3) caused by HPV types 6, 11, 16 and 18 for individuals 9 years and older and for Genital Warts (condyloma acuminate) for men 9 years and older.
		July 2020	Japan’s Pharmaceuticals and Medical Devices Agency (PMDA) approved Gardasil 9 for use in girls and women 9 years and older for the prevention of cervical cancer, certain cervical, vaginal and vulvar precancers, and genital warts caused by the HPV types covered by the vaccine.
		June 2020	FDA granted accelerated approval for an expanded indication for Gardasil 9for the prevention of oropharyngeal and other head and neck cancers caused by HPV Types 16, 18, 31, 33, 45, 52, and 58.


Keytruda	December 2020	NMPA approved Keytruda as monotherapy for the first-line treatment of patients with metastatic or with unresectable, recurrent HNSCC whose tumors express PD-L1 (Combined Positive Score CPS ≥20) as determined by a fully validated test.
	November 2020	FDA granted accelerated approval for Keytruda in combination with chemotherapy for patients with locally recurrent unresectable or metastatic triple‑negative breast cancer whose tumors express PD-L1 (CPS ≥10).
	October 2020	FDA approved an expanded label for Keytruda, as monotherapy for the treatment of adult patients with relapsed or refractory cHL.
	August 2020	PMDA approved Keytruda for use at an additional recommended dosage of 400 mg every six weeks (Q6W) administered as an intravenous infusion over 30 minutes across all adult indications, including Keytruda monotherapy and combination therapy.
	August 2020	PMDA approved Keytruda for the treatment of patients whose tumors are PD-L1-positive, and have radically unresectable, advanced or recurrent esophageal squamous cell carcinoma (ESCC) who have progressed after chemotherapy.
	June 2020	FDA approved Keytruda as monotherapy for the first-line treatment of patients with unresectable or metastatic MSI-H or dMMR colorectal cancer.
	June 2020	FDA approved Keytrudaas monotherapy for the treatment of patients with recurrent or metastatic cSCC that is not curable by surgery or radiation.
	June 2020	NMPA approved Keytruda as monotherapy for the treatment of patients with locally advanced or metastatic ESCC whose tumors express PD-L1 (CPS ≥10) as determined by a fully validated test, following failure of one prior line of systemic therapy.
	June 2020	FDA granted accelerated approval for Keytrudaas monotherapy for the treatment of adult and pediatric patients with ~~recurrent locally advanced~~unresectable or metastatic ~~Merkel cell carcinoma.~~TMB-H [≥10 mutations/megabase (mut/Mb)] solid tumors, as determined by an FDA-approved test, that have progressed following prior treatment and who have no satisfactory alternative treatment options.
	~~December 2018~~April 2020	~~The European Commission (EC)~~FDA granted accelerated approval for Keytruda for use at an additional recommended dose of 400 mg every six weeks (Q6W) for all approved adult indications.
	January 2020	FDA approved Keytruda for patients with Bacillus Calmette-Guerin (BCG)-unresponsive, high-risk, non-muscle invasive bladder cancer with carcinoma in situ with or without papillary tumors who are ineligible for or have elected not to undergo cystectomy.
Koselugo(2)	April 2020	FDA approved the kinase inhibitor Koselugo for the ~~adjuvant~~ treatment of ~~adults~~pediatric patients two years of age and older with ~~stage III melanoma and lymph node involvement~~neurofibromatosis type 1 (NF1) who have ~~undergone complete resection.~~symptomatic, inoperable plexiform neurofibromas (PN).
Lenvima	November ~~2018~~2020	NMPA approved Lenvima as a monotherapy for the treatment of differentiated thyroid cancer.


Lynparza(2)		December 2020		~~FDA~~PMDA approved ~~Keytruda~~Lynparza for the treatment of patients with ~~hepatocellular carcinoma who have been previously treated~~BRCA gene-mutated (BRCAm) castration-resistant prostate cancer with ~~sorafenib.~~distant metastasis.
		~~October 2018~~December 2020		~~FDA~~PMDA approved ~~Keytruda~~,Lynparza as maintenance treatment after platinum-based chemotherapy for patients with BRCAm curatively unresectable pancreas cancer.
		December 2020		PMDA approved Lynparza as maintenance treatment after first-line chemotherapy containing bevacizumab (genetical recombination) in patients with homologous recombination repair deficient (HRD) ovarian cancer.
		November 2020		The European Commission (EC) approved Lynparza for the maintenance treatment of adult patients with advanced (FIGO stages III and IV) high-grade epithelial ovarian, fallopian tube or primary peritoneal cancer who are in response (complete or partial) following completion of first-line platinum-based chemotherapy in combination with ~~carboplatin~~bevacizumab and whose cancer is associated with HRD-positive status defined by either ~~paclitaxel~~ a breast cancer susceptibility gene 1/2 (BRCA1/2) mutation and/or ~~nab-paclitaxel, for the first-line treatment of patients with metastatic squamous non-small cell lung cancer (NSCLC).~~genomic instability.
		~~September 2018~~November 2020		EC approved ~~Keytruda~~ ~~in combination with pemetrexed and platinum chemotherapy for the first-line treatment of metastatic nonsquamous NSCLC in adults whose tumors have no EGFR or ALK positive mutations.~~
		~~September 2018~~	~~EC approved~~ ~~Keytruda~~ for the treatment of recurrent or metastatic head and neck squamous cell carcinoma (HNSCC) in adults whose tumors express PD-L1 with a ≥ 50% TPS and progressing on or after platinum-containing chemotherapy.
		~~August 2018~~	~~FDA approved~~ ~~Keytruda~~ ~~in combination with pemetrexed and platinum chemotherapy for the first-line treatment of metastatic nonsquamous NSCLC patients with no EGFR or ALK genomic tumor aberrations.~~
		~~July 2018~~	~~The China National Drug Administration (CNDA) approved~~ ~~Keytruda~~Lynparza as monotherapy for the treatment of adult patients with ~~unresectable~~ metastatic castration-resistant prostate cancer (mCRPC) and BRCA1/2 mutations (germline and/or somatic) who have progressed following a prior therapy that included a new hormonal agent.
July 2020		EC approved Lynparza as a monotherapy for the maintenance treatment of adult patients with germline BRCA1/2 mutations who have metastatic ~~melanoma following failure~~adenocarcinoma of ~~one prior line~~the pancreas and have not progressed after a minimum of ~~therapy.~~16 weeks of platinum treatment within a first-line chemotherapy regimen.
~~June 2018~~May 2020		FDA approved ~~Keytruda~~Lynparza for the treatment of adult ~~and pediatric~~ patients with ~~refractory primary mediastinal large B-cell lymphoma (PMBCL),~~deleterious or ~~who have relapsed after two~~suspected deleterious germline or ~~more prior lines of therapy.~~
~~June 2018~~	~~FDA approved~~ ~~Keytruda~~ ~~for the treatment of patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy whose tumors express PD-L1~~somatic homologous recombination repair (HRR) gene-mutated mCRPC, as determined by an FDA-approved ~~test.~~test, who have progressed following prior treatment with enzalutamide or abiraterone.
~~Lynparza~~⁽¹⁾ May 2020		~~December 2018~~		FDA approved Lynparza ~~for use~~in combination with bevacizumab as a first-line maintenance treatment of ~~certain~~adult patients with advanced epithelial ovarian, fallopian tube or primary peritoneal cancer who are in complete or partial response to first-line platinum-based ~~chemotherapy.~~
~~July 2018~~	~~JMHLW approved Lynparza for use in patients~~chemotherapy and whose cancer is associated with ~~unresectable~~HRD positive status defined by either a deleterious or ~~recurrent~~ suspected deleterious BRCA~~-mutated, human epidermal growth factor receptor 2 (HER2)-negative breast cancer who have received prior chemotherapy.~~ mutation, and/or genomic instability, as determined by an FDA-approved test.
~~May 2018~~Recarbrio		June 2020		EC approved Lynparza for use as a maintenance therapy in patients with platinum-sensitive relapsed high grade epithelial ovarian, fallopian tube, or primary peritoneal cancer, who are in response (complete or partial) to platinum based chemotherapy regardless of ~~BRCA~~ ~~mutation status.~~
~~January 2018~~	FDA approved ~~Lynparza for use in patients with~~ ~~BRCA-mutated, HER2-negative metastatic breast cancer who have been previously treated with chemotherapy.~~
~~January 2018~~	~~JMHLW approved Lynparza for use as a maintenance therapy in patients with platinum-sensitive relapsed ovarian cancer, regardless of~~ ~~BRCA~~ ~~mutation status.~~



~~Lenvima~~⁽²⁾	~~September 2018~~	~~CNDA approved Lenvima~~Recarbrio for the treatment of ~~certain~~ patients 18 years of age and older with ~~hepatocellular carcinoma.~~hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (HABP/VABP).
	~~August 2018~~ Steglatro(3)		~~FDA~~July 2020	NMPA approved ~~Lenvima~~Steglatro 5 mg tablets for the treatment of ~~certain patients with hepatocellular carcinoma.~~
	~~August 2018~~	~~EC approved Lenvima for the treatment of certain patients with hepatocellular carcinoma.~~
	~~March 2018~~	~~JMHLW approved Lenvima for the treatment of certain patients with unresectable hepatocellular carcinoma.~~
~~Gardasil~~ 9	~~October 2018~~	~~FDA approved~~ ~~Gardasil~~ ~~9 for an expanded age indication for use in women and men ages 27 to 45 for the prevention of certain cancers and diseases caused by the nine HPV types covered by the vaccine.~~
~~Gardasil~~ 9	~~April 2018~~	~~CNDA approved~~ ~~Gardasil~~ ~~9 for use in girls and women ages 16 to 26.~~
~~Delstrigo~~	~~November 2018~~	~~EC approved~~ ~~Delstrigo~~ (doravirine, lamivudine, and tenofovir disoproxil fumarate) for the treatment of adults infected with human immunodeficiency virus (HIV-1) without past or present evidence of resistance to the non-nucleoside reverse transcriptase inhibitor (NNRTI) class, lamivudine, or tenofovir.
~~Delstrigo~~	~~August 2018~~	~~FDA approved~~ ~~Delstrigo~~ ~~for the treatment of HIV-1 infection in adult patients with no prior antiretroviral treatment experience.~~
~~Pifeltro~~	~~November 2018~~	~~EC approved~~ ~~Pifeltro~~ ~~(doravirine), in combination with other antiretroviral medicinal products, for the treatment of adults infected with HIV-1 without past or present evidence of resistance to the NNRTI class.~~
~~Pifeltro~~	~~August 2018~~	~~FDA approved~~ ~~Pifeltro~~ ~~for the treatment of HIV-1 infection in adult patients with no prior antiretroviral treatment experience.~~
~~Isentress~~	~~March 2018~~	~~EC approved~~ ~~Isentress~~ ~~for an extension to the existing indication to cover treatment of neonates.~~ ~~Isentress~~ ~~is now indicated in combination with other anti-retroviral medicinal products for the treatment of HIV-1 infection.~~
~~Prevymis~~	~~January 2018~~	~~EC approved~~ ~~Prevymis~~ ~~(letermovir) for the prophylaxis of cytomegalovirus (CMV) reactivation and disease in adult CMV-seropositive recipients [R+] of an allogeneic hematopoietic stem cell transplant.~~
~~Steglatro, Steglujan~~ ~~and~~ ~~Segluromet~~⁽³⁾	~~March 2018~~	~~EC approved~~ ~~Steglatro~~ ~~(ertugliflozin),~~ ~~Steglujan~~ ~~(ertugliflozin and sitagliptin) and~~ ~~Segluromet~~ ~~(ertugliflozin and metformin hydrochloride) for the treatment of adults aged 18 years and older with~~ type 2 diabetes mellitus as an adjunct to diet and exercise to improve glycaemic control (as monotherapy in patients for whom the use of metformin is considered inappropriate due to intolerance or contraindications, and in addition to other medicinal products for the treatment of diabetes).
~~Vaxelis~~	~~December 2018~~	~~FDA approved~~ ~~Vaxelis~~ (Diphtheria and Tetanus Toxoids and Acellular Pertussis Adsorbed, Inactivated Poliovirus, Haemophilus b Conjugate [Meningococcal Protein Conjugate] and Hepatitis B [Recombinant] Vaccine) for use in children from 6 weeks through 4 years of age (prior to the 5th birthday)diabetes.


⁽²⁾	~~In March 2018,~~ ~~Merck and Eisai Co., Ltd. announced a strategic collaboration for the worldwide co-development and co-commercialization of Eisai’s Lenvima.~~


⁽³⁾	~~In 2013, Merck and Pfizer Inc. announced that they entered into a worldwide collaboration, except Japan, for the co-development and co-promotion of ertugliflozin.~~



Product	Year of Expiration (U.S.)	Year of Expiration (EU)⁽¹⁾	Year of Expiration (Japan)⁽³⁾
Emend	Expired	2019	2019
Emend for Injection	2019	2020⁽²⁾	2020
Noxafil	2019	2019	N/A
Vaxelis⁽⁴⁾	2020 (method of making)	2021⁽⁵⁾(SPCs)	Not Marketed
Januvia	2022⁽²⁾	2022⁽²⁾	2025-2026
Janumet	2022⁽²⁾	2023	N/A
Janumet XR	2022⁽²⁾	N/A	N/A
Isentress	2024	2022⁽²⁾	2022
Simponi	N/A⁽⁶⁾	2025⁽⁷⁾	N/A⁽⁶⁾
Lenvima⁽⁸⁾	2025⁽²⁾ (with pending PTE)	2021 (patents), 2026⁽²⁾ (SPCs)	2026
Adempas⁽⁹⁾	2026⁽²⁾	2028⁽²⁾	2027-2028
Bridion	2026⁽²⁾ (with pending PTE)	2023	2024
Nexplanon	2027 (device)	2025 (device)	Not Marketed
Bravecto	2027 (with pending PTE)	2025 (patents), 2029 (SPCs)	2029
Gardasil	2028	2021⁽²⁾	Expired
Gardasil 9	2028	2025 (patents), 2030⁽²⁾ (SPCs)	N/A
Keytruda	2028	2028 (patents), 2030⁽²⁾ (SPCs)	2032
Lynparza⁽¹⁰⁾	2028⁽²⁾(with pending PTE)	2024 (patents), 2029⁽²⁾ (SPCs)	2028-2029 (with pending PTE)
Zerbaxa	2028⁽²⁾ (with pending PTE)	2023 (patents), 2028⁽²⁾ (SPCs)	N/A
Sivextro	2028⁽²⁾	2024 (patents), 2029⁽²⁾ (SPCs)	2029 (with pending PTE)
Belsomra	2029⁽²⁾	N/A	2031
Prevymis	2029⁽²⁾ (with pending PTE)	2024 (patents), 2029⁽²⁾(SPCs)	2029 (with pending PTE)
Steglatro⁽¹¹⁾	2031⁽²⁾ (with pending PTE)	2029 (patents), 2034⁽²⁾ (SPCs)	N/A
Steglujan⁽¹¹⁾	2031(with pending PTE)	2029 (patents), 2034 (SPCs)	N/A
Segluromet⁽¹¹⁾	2031 (with pending PTE)	2029 (patents), 2034 (SPCs)	N/A
Delstrigo	2032 (with pending PTE)	2031⁽¹²⁾	N/A
Pifeltro	2032 (with pending PTE)	2031⁽¹²⁾	N/A


~~Item 1.~~	~~Business.~~



($ in millions)	2018		2017		2016
Total Sales	$	42,294	$	40,122	$	39,807
Pharmaceutical	37,689		35,390		35,151
Keytruda	7,171		3,809		1,402
Januvia/Janumet	5,914		5,896		6,109
Gardasil/Gardasil 9	3,151		2,308		2,173
ProQuad/M-M-R II/Varivax	1,798		1,676		1,640
Zetia/Vytorin	1,355		2,095		3,701
Isentress/Isentress HD	1,140		1,204		1,387
Bridion	917		704		482
Pneumovax 23	907		821		641
NuvaRing	902		761		777
Simponi	893		819		766
Animal Health	4,212		3,875		3,478
Livestock	2,630		2,484		2,287
Companion Animals	1,582		1,391		1,191
Other Revenues⁽¹⁾	393		857		1,178



			($ in millions)
Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs⁽¹⁾
October 1 — October 31	59,154,075	$70.56	$12,709⁽²⁾
November 1 — November 30	5,279,715	$74.64	$12,315
December 1 — December 31	4,788,526	$76.30	$11,949
Total	69,222,316	$71.27	$11,949



	End of Period Value	2018/2013 CAGR**
MERCK	$179	12%
PEER GRP.**	142	7%
S&P 500	150	8%



	2013	2014	2015	2016	2017	2018
MERCK	100.00	117.10	112.40	129.40	127.40	178.70
PEER GRP.	100.00	111.40	114.80	111.20	133.00	142.20
S&P 500	100.00	113.70	115.20	129.00	157.20	150.30



	2018 ⁽¹⁾			2017⁽²⁾⁽³⁾			2016⁽²⁾⁽⁴⁾		2015⁽²⁾⁽⁵⁾		2014 ⁽²⁾⁽⁶⁾
Results for Year:
Sales	$	42,294		$	40,122		$	39,807	$	39,498	$	42,237
Cost of sales	13,509			12,912			14,030		15,043		16,903
Selling, general and administrative	10,102			10,074			10,017		10,508		11,816
Research and development	9,752			10,339			10,261		6,796		7,290
Restructuring costs	632			776			651		619		1,013
Other (income) expense, net	(402		)	(500		)	189		1,131		(12,068		)
Income before taxes	8,701			6,521			4,659		5,401		17,283
Taxes on income	2,508			4,103			718		942		5,349
Net income	6,193			2,418			3,941		4,459		11,934
Less: Net (loss) income attributable to noncontrolling interests	(27		)	24			21		17		14
Net income attributable to Merck & Co., Inc.	6,220			2,394			3,920		4,442		11,920
Basic earnings per common share attributable to Merck & Co., Inc. common shareholders	$	2.34		$	0.88		$	1.42	$	1.58	$	4.12
Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders	$	2.32		$	0.87		$	1.41	$	1.56	$	4.07
Cash dividends declared	5,313			5,177			5,135		5,115		5,156
Cash dividends declared per common share	$	1.99		$	1.89		$	1.85	$	1.81	$	1.77
Capital expenditures	2,615			1,888			1,614		1,283		1,317
Depreciation	1,416			1,455			1,611		1,593		2,471
Average common shares outstanding (millions)	2,664			2,730			2,766		2,816		2,894
Average common shares outstanding assuming dilution (millions)	2,679			2,748			2,787		2,841		2,928
Year-End Position:
Working capital	$	3,669		$	6,152		$	13,410	$	10,550	$	14,198
Property, plant and equipment, net	13,291			12,439			12,026		12,507		13,136
Total assets	82,637			87,872			95,377		101,677		98,096
Long-term debt	19,806			21,353			24,274		23,829		18,629
Total equity	26,882			34,569			40,308		44,767		48,791
Year-End Statistics:
Number of stockholders of record	115,800			121,700			129,500		135,500		142,000
Number of employees	69,000			69,000			68,000		68,000		70,000


Payments Due by Period
($ in millions)	Total		2021		2022—2023		2024—2025		Thereafter
Purchase obligations (1)	$	3,458	$	977	$	1,232	$	668	$	581
Loans payable and current portion of long-term debt	6,432		6,432		—		—		—
Long-term debt	25,437		—		4,000		3,863		17,574
Interest related to debt obligations	10,779		759		1,431		1,254		7,335
Unrecognized tax benefits (2)	305		305		—		—		—
Transition tax related to the enactment of the TCJA (3)	3,006		390		736		1,880		—
Milestone payments related to collaborations (4)	200		200		—		—		—
Leases (5)	1,778		335		521		342		580
	$	51,395	$	9,398	$	7,920	$	8,007	$	26,070


⁽³⁾	In connection with the enactment of the TCJA, the Company is required to pay a one-time transition tax, which the Company has elected to pay over a period of eight years as permitted under the TCJA (see Note 16 to the consolidated financial statements).


($ in millions)	2020
Debt Instrument	Par Value of Debt		Number of Interest Rate Swaps Held	Total Swap Notional Amount
3.875% notes due 2021 (1)	$	1,150	5	$	1,150
2.40% notes due 2022	1,000		4	1,000
2.35% notes due 2022	1,250		5	1,250


~~Item 7A.~~	~~Quantitative and Qualitative Disclosures about Market Risk.~~


																						Common Stock		Other Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Non- controlling Interests		Total
	Common Stock		Other Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Non- controlling Interests			Total
Balance January 1, 2016		$1,788	$	40,222		$	45,348		$	(4,148	)	$	(38,534	)	$	91		$	44,767
Balance January 1, 2018																					Balance January 1, 2018	$1,788		$	39,902	$	41,350	$	(4,910)	$	(43,794)	$	233	$	34,569
Net income attributable to Merck & Co., Inc.	—		—			3,920			—			—			—			3,920			Net income attributable to Merck & Co., Inc.	—		—		6,220		—		—		—		6,220
Other comprehensive loss, net of taxes	—		—			—			(1,078		)	—			—			(1,078		)
Cash dividends declared on common stock ($1.85 per share)	—		—			(5,135		)	—			—			—			(5,135		)
Treasury stock shares purchased	—		—			—			—			(3,434		)	—			(3,434		)
Acquisition of The StayWell Company LLC	—		—			—			—			—			124			124
Net income attributable to noncontrolling interests	—		—			—			—			—			21			21
Distributions attributable to noncontrolling interests	—		—			—			—			—			(16		)	(16		)
Share-based compensation plans and other	—		(283		)	—			—			1,422			—			1,139
Balance December 31, 2016	1,788		39,939			44,133			(5,226		)	(40,546		)	220			40,308
Net income attributable to Merck & Co., Inc.	—		—			2,394			—			—			—			2,394
Other comprehensive income, net of taxes	—		—			—			316			—			—			316
Cash dividends declared on common stock ($1.89 per share)	—		—			(5,177		)	—			—			—			(5,177		)
Treasury stock shares purchased	—		—			—			—			(4,014		)	—			(4,014		)
Acquisition of Vallée S.A.	—		—			—			—			—			7			7
Net income attributable to noncontrolling interests	—		—			—			—			—			24			24
Distributions attributable to noncontrolling interests	—		—			—			—			—			(18		)	(18		)
Share-based compensation plans and other	—		(37		)	—			—			766			—			729
Balance December 31, 2017	1,788		39,902			41,350			(4,910		)	(43,794		)	233			34,569
Net income attributable to Merck & Co., Inc.	—		—			6,220			—			—			—			6,220
Adoption of new accounting standards (see Note 2)	—		—			322			(274		)	—			—			48
Adoption of new accounting standards																					Adoption of new accounting standards	—		—		322		(274)		—		—		48
Other comprehensive loss, net of taxes	—		—			—			(361		)	—			—			(361		)	Other comprehensive loss, net of taxes	—		—		—		(361)		—		—		(361)
Cash dividends declared on common stock ($1.99 per share)	—		—			(5,313		)	—			—			—			(5,313		)	Cash dividends declared on common stock ($1.99 per share)	—		—		(5,313)		—		—		—		(5,313)
Treasury stock shares purchased	—		(1,000		)	—			—			(8,091		)	—			(9,091		)	Treasury stock shares purchased	—		(1,000)		—		—		(8,091)		—		(9,091)
Net loss attributable to noncontrolling interests	—		—			—			—			—			(27		)	(27		)	Net loss attributable to noncontrolling interests	—		—		—		—		—		(27)		(27)
Distributions attributable to noncontrolling interests	—		—			—			—			—			(25		)	(25		)	Distributions attributable to noncontrolling interests	—		—		—		—		—		(25)		(25)
Share-based compensation plans and other	—		(94		)	—			—			956			—			862			Share-based compensation plans and other	—		(94)		—		—		956		—		862
Balance December 31, 2018	$	1,788	$	38,808		$	42,579		$	(5,545	)	$	(50,929	)	$	181		$	26,882		Balance December 31, 2018	1,788		38,808		42,579		(5,545)		(50,929)		181		26,882
Net income attributable to Merck & Co., Inc.																					Net income attributable to Merck & Co., Inc.	—		—		9,843		—		—		—		9,843
Other comprehensive loss, net of taxes																					Other comprehensive loss, net of taxes	—		—		—		(648)		—		—		(648)
Cash dividends declared on common stock ($2.26 per share)																					Cash dividends declared on common stock ($2.26 per share)	—		—		(5,820)		—		—		—		(5,820)
Treasury stock shares purchased																					Treasury stock shares purchased	—		1,000		—		—		(5,780)		—		(4,780)
Net loss attributable to noncontrolling interests																					Net loss attributable to noncontrolling interests	—		—		—		—		—		(66)		(66)
Distributions attributable to noncontrolling interests																					Distributions attributable to noncontrolling interests	—		—		—		—		—		(21)		(21)
Share-based compensation plans and other																					Share-based compensation plans and other	—		(148)		—		—		759		—		611
Balance December 31, 2019																					Balance December 31, 2019	1,788		39,660		46,602		(6,193)		(55,950)		94		26,001
Net income attributable to Merck & Co., Inc.																					Net income attributable to Merck & Co., Inc.	—		—		7,067		—		—		—		7,067
Other comprehensive loss, net of taxes																					Other comprehensive loss, net of taxes	—		—		—		(441)		—		—		(441)
Cash dividends declared on common stock ($2.48 per share)																					Cash dividends declared on common stock ($2.48 per share)	—		—		(6,307)		—		—		—		(6,307)
Treasury stock shares purchased																					Treasury stock shares purchased	—		—		—		—		(1,281)		—		(1,281)
Net income attributable to noncontrolling interests																					Net income attributable to noncontrolling interests	—		—		—		—		—		15		15
Distributions attributable to noncontrolling interests																					Distributions attributable to noncontrolling interests	—		—		—		—		—		(22)		(22)
Share-based compensation plans and other																					Share-based compensation plans and other	—		(72)		—		—		444		—		372
Balance December 31, 2020																					Balance December 31, 2020	$	1,788	$	39,588	$	47,362	$	(6,634)	$	(56,787)	$	87	$	25,404



Year Ended December 31, 2018	As Reported		Effects of Adopting ASC 606			Amounts Without Adoption of ASC 606
Sales	$	42,294	$	(2	)	$	42,292
Cost of sales	13,509		(6		)	13,503
Income before taxes	8,701		4			8,705
Taxes on income	2,508		1			2,509
Net income attributable to Merck & Co., Inc.	6,220		3			6,223



December 31, 2018	As Reported		Effects of Adopting ASC 606			Amounts Without Adoption of ASC 606
Assets
Accounts receivable	$	7,071	$	(13	)	$	7,058
Inventories	5,440		7			5,447
Liabilities
Accrued and other current liabilities	10,151		(3		)	10,148
Income taxes payable	1,971		(1		)	1,970
Equity
Retained earnings	42,579		(2		)	42,577



($ in millions)	ASU 2014-09 (Revenue)		ASU 2016-01 (Financial Instruments)		ASU 2016-16 (Intra-Entity Transfers of Assets Other than Inventory)		ASU 2017-12 (Derivatives and Hedging)		ASU 2018-02 (Reclassification of Certain Tax Effects)		Total
Assets - Increase (Decrease)
Accounts receivable	$	5									$	5
Liabilities - Increase (Decrease)
Income Taxes Payable							(3	)			(3		)
Debt							14				14
Deferred Income Taxes					(54	)					(54		)
Equity - Increase (Decrease)
Retained earnings	5		8		54		(11	)	266		322
Accumulated other comprehensive loss			(8	)					(266	)	(274		)


($ in millions)	January 16, 2020
Cash and cash equivalents	$	145
IPR&D MK-1026 (formerly ARQ 531) (1)	2,280
Licensing arrangement for ARQ 087	80
Deferred income tax liabilities	(361)
Other assets and liabilities, net	34
Total identifiable net assets	2,178
Goodwill (2)	512
Consideration transferred	$	2,690


($ in millions)	April 1, 2019
Cash and cash equivalents	$	31
Accounts receivable	73
Inventories	93
Property, plant and equipment	60
Identifiable intangible assets (useful lives ranging from 18-24 years) (1)	2,689
Deferred income tax liabilities	(589)
Other assets and liabilities, net	(82)
Total identifiable net assets	2,275
Goodwill (2)	1,376
Consideration transferred	$	3,651


Years Ended December 31	2020		2019		2018
Alliance revenue - Lynparza	$	725	$	444	$	187
Alliance revenue - Koselugo	8		0		0
Total alliance revenue	$	733	$	444	$	187

Cost of sales (1)	247		148		93
Selling, general and administrative	160		138		48
Research and development	133		168		152

December 31	2020		2019
Receivables from AstraZeneca included in Other current assets	$	215	$	128
Payables to AstraZeneca included in Accrued and other current liabilities (2)	423		577



Year Ended December 31	2018
Alliance revenue	$	149

Cost of sales⁽¹⁾	39
Selling, general and administrative	13
Research and development ⁽²⁾	1,489

December 31	2018
Receivables from Eisai included in Other current assets	$	71
Payables to Eisai included in Accrued and other current liabilities ⁽³⁾	375
Payables to Eisai included in Other Noncurrent Liabilities ⁽³⁾	543


											Separation Costs		Accelerated Depreciation		Other		Total
Year Ended December 31, 2020										Year Ended December 31, 2020
Cost of sales										Cost of sales	$	0	$	143	$	32	$	175
Selling, general and administrative										Selling, general and administrative	0		44		3		47
Research and development										Research and development	0		81		2		83
Restructuring costs										Restructuring costs	385		0		193		578
											$	385	$	268	$	230	$	883
Year Ended December 31, 2019										Year Ended December 31, 2019
Cost of sales										Cost of sales	$	0	$	198	$	53	$	251
Selling, general and administrative										Selling, general and administrative	0		33		1		34
Research and development										Research and development	0		2		2		4
Restructuring costs										Restructuring costs	572		0		66		638
	Separation Costs		Accelerated Depreciation			Other		Total			$	572	$	233	$	122	$	927
Year Ended December 31, 2018										Year Ended December 31, 2018
Cost of sales	$	—	$	10		$	11	$	21	Cost of sales	$	0	$	10	$	11	$	21
Selling, general and administrative	—		2			1		3		Selling, general and administrative	0		2		1		3
Research and development	—		(13		)	15		2		Research and development	0		(13)		15		2
Restructuring costs	473		—			159		632		Restructuring costs	473		0		159		632
	$	473	$	(1	)	$	186	$	658		$	473	$	(1)	$	186	$	658
Year Ended December 31, 2017
Cost of sales	$	—	$	52		$	86	$	138
Selling, general and administrative	—		2			—		2
Research and development	—		6			5		11
Restructuring costs	552		—			224		776
	$	552	$	60		$	315	$	927
Year Ended December 31, 2016
Cost of sales	$	—	$	77		$	104	$	181
Selling, general and administrative	—		8			87		95
Research and development	—		142			—		142
Restructuring costs	216		—			435		651
	$	216	$	227		$	626	$	1,069


⁽¹⁾ Table of Content s	~~The remaining cash outlays are expected to be substantially completed by the end of 2020.~~


	Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income (1)						Amount of Pretax (Gain) Loss Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing
Years Ended December 31	2020		2019		2018		2020		2019		2018
Net Investment Hedging Relationships
Foreign exchange contracts	$	26	$	(10)	$	(18)	$	(19)	$	(31)	$	(11)
Euro-denominated notes	385		(75)		(183)		0		0		0



	Carrying Amount of Hedged Liabilities				Cumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount
	2018		2017		2018			2017
Balance Sheet Line Item in which Hedged Item is Included
Loans payable and current portion of long-term debt	$	—	$	983	$	—		$	(17	)
Long-Term Debt ⁽¹⁾	4,560		5,146		(82		)	(41		)