MRK US Equity☆

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.

•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.

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

•The Company faces intense competition from lower cost generic products.

•The Company faces intense competition from competitors’ products.

•In 2021 and 2020, COVID-19-related disruptions had an adverse impact on the Company’s business, operations and financial performance. The Company is unable to predict the full extent to which the

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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.

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

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

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

•The Company may experience 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 U.S. 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.

•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.

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

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

•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.

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

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.

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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 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 U.S. 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 successfully assert and defend 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 asserts and defends its patents both within and outside the U.S., including by filing claims of infringement against other parties. See Item 8. “Financial Statements and Supplementary Data,” Note 11. “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 asserting its patent with a lawsuit alleging patent 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 U.S. 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 launched commercially successful 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 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

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rapid loss of sales for that product as lower priced generic versions of that drug become available. In the case of products that contribute significantly to the Company’s sales, the loss of market exclusivity can have a material adverse effect on the Company’s business, cash flow, results of operations, financial condition and prospects. Januvia and Janumet will lose market exclusivity in the U.S. in January 2023. Januvia and Janumet will lose market exclusivity in the EU in September 2022 and in China in July 2022. The Company anticipates sales of Januvia and Janumet in these markets will decline substantially after the loss of 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 adverse effect on the Company’s results of operations and financial condition.

The Company’s ability to generate profits and operating cash flow depends largely upon the continued profitability of the Company’s key products, such as Keytruda, Gardasil/Gardasil 9, Lynparza, Bravecto,and Bridion. In particular, in 2021, the Company’s oncology portfolio, led by Keytruda, represented a substantial portion 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 financial condition. These events could include loss of patent protection, increased costs associated with manufacturing, generic or over-the-counter availability of the Company’s product or a competitive product, the discovery of previously unknown side effects, results of post-approval trials, increased competition from the introduction of new, more effective treatments and discontinuation or removal from the market of the product for any reason. Such events could have a material adverse effect on the sales of any such products.

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.

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 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, 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 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

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

The Company’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.

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

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

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

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 sales and profit margins. In the U.S., 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 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.” Changes to the health care system enacted as part of health care reform in the U.S., 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 U.S., 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 U.S. The report provides the Company’s average annual list price and net price increases across the Company’s U.S. portfolio dating back to 2010. In 2021, the Company’s gross U.S. sales were reduced by 43.5% as a result of rebates, discounts and returns.

Outside the U.S., numerous major markets, including the EU, Japan and China have pervasive government involvement in funding health care and, in that regard, fix the pricing and reimbursement of pharmaceutical and vaccine products. Consequently, in those markets, the Company is subject to government decision making and budgetary actions with respect to its products. In Japan, the pharmaceutical industry is subject to government-mandated annual price reductions of pharmaceutical products and certain vaccines. 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.

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The Company expects pricing pressures to continue in the future.

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

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

As discussed above in “Competition and the Health Care Environment,” global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide. Changes to the U.S. health care system as part of health care reform, as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, have contributed to pricing pressure. In several international markets, government-mandated pricing actions have reduced prices of generic and patented drugs. In addition, the Company’s revenue performance in 2021 was negatively affected by other cost-reduction measures taken by governments and other third parties to lower health care costs. The Company anticipates all of these actions, and additional actions in the future, will continue to negatively affect revenue performance.

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.

In addition, the COVID-19 pandemic has caused some disruption and volatility in the Company’s global supply chain network, and the Company may experience disruptions in availability and delays in shipments of raw materials and packaging, as well as related cost inflation. Any such disruptions, delays or costs may result in the Company’s inability to meet demand for the Company’s products.

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 U.S. or in the EU. In the U.S. 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 U.S. and other countries for legislation to further encourage the early and rapid approval of generic drugs. Any such proposal that is enacted into law could worsen this substantial negative effect on the Company’s sales and, potentially, its business, cash flow, results of operations, financial 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 condition and prospects. In addition, if products that were measured at fair value and capitalized in

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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.

In 2021 and 2020, COVID-19-related disruptions had 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’s business and financial results were negatively impacted by COVID-19-related disruptions in 2021 and 2020. The continued duration and severity of the COVID-19 pandemic is uncertain, rapidly changing and difficult to predict. The degree to which COVID-19-related disruptions impact the Company’s results in 2022 will depend on future developments, beyond the Company’s knowledge or control, including, but not limited to, the duration of the pandemic, 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 2021, the COVID-19 pandemic impacted the Company’s business in numerous ways. As expected, within the Company’s human health business, which is comprised largely of physician-administered products, revenue was negatively impacted by social distancing measures and fewer well visits, which negatively affected vaccine and oncology sales in particular. The estimated negative impact of COVID-19-related disruptions to Merck’s revenue for the full year 2021 was approximately $1.3 billion, attributable to the Pharmaceutical segment.

Merck believes that global health systems and patients have largely adapted to the impacts of COVID-19, however, roughly 75% of Merck’s Pharmaceutical segment revenue is comprised of physician-administered products which could be adversely affected by the pandemic if its effects worsen. Despite the Company’s efforts to manage the impacts of the COVID-19 pandemic, their ultimate effect will also depend on factors beyond the Company’s knowledge or control, including the duration of the COVID-19 pandemic as well as governmental and third-party actions taken to contain or prevent the spread and treatment of the virus and mitigate its public health and economic effects. In addition, any future pandemic, epidemic or similar public health threat could present similar risks to the Company’s business, cash flow, results of operations, financial condition and prospects.

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.

The extent of the Company’s operations outside the U.S. 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 U.S. 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. In particular, in February 2022, armed conflict escalated between Russia and Ukraine. It is not possible to predict the broader consequences of this conflict, which could include sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, currency exchange rates and financial markets.

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

The Company believes that climate change has the potential to negatively affect its business and results of operations, cash flows and prospects. The Company is exposed to physical risks (such as extreme weather conditions or rising sea levels), risks in transitioning to a low-carbon economy (such as additional legal or regulatory requirements, changes in technology, market risk and reputational risk) and social and human effects (such as population dislocations and harm to health and well-being) associated with climate change. These risks can be either acute (short-term) or chronic (long-term).

The adverse impacts of climate change include increased frequency and severity of natural disasters and extreme weather events such as hurricanes, tornados, wildfires (exacerbated by drought), flooding, and extreme heat. Extreme weather and sea-level rise pose physical risks to the Company’s facilities as well as those of its suppliers. Such risks include losses incurred as a result of physical damage to facilities, loss or spoilage of inventory, and business interruption caused by such natural disasters and extreme weather events. Other potential physical impacts due to climate change include reduced access to high-quality water in certain regions and the loss of biodiversity, which could impact future product development. These risks could disrupt the Company’s operations and its supply chain, which may result in increased costs.

New legal or regulatory requirements may be enacted to prevent, mitigate, or adapt to the implications of a changing climate and its effects on the environment. These regulations, which may differ across jurisdictions, could result in the Company being subject to new or expanded carbon pricing or taxes, increased compliance costs, restrictions on greenhouse gas emissions, investment in new technologies, increased carbon disclosure and transparency, upgrade of facilities to meet new building codes, and the redesign of utility systems, which could increase the Company’s operating costs, including the cost of electricity and energy used by the Company. The Company’s supply chain would likely be subject to these same transitional risks and would likely pass along any increased costs to the Company.

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

Governmental authorities, non-governmental organizations, customers, investors, external stakeholders and employees are increasingly sensitive to ESG concerns, such as diversity and inclusion, climate change, water use, recyclability or recoverability of packaging, and plastic waste. This focus on ESG concerns may lead to new requirements that could result in increased costs associated with developing, manufacturing and distributing the Company’s products. The Company’s ability to compete could also be affected by changing customer preferences and requirements, such as growing demand for more environmentally friendly products, packaging or supplier practices, or by failure to meet such customer expectations or demand. While the Company strives to improve its ESG performance, the Company risks negative stockholder reaction, including from proxy advisory services, as well as damage to its brand and reputation, if the Company does not act responsibly, or if the Company is perceived to not be acting responsibly in key ESG areas, including equitable access to medicines and vaccines, product quality and safety, diversity and inclusion, environmental stewardship, support for local communities, corporate governance and transparency, and addressing human capital factors in the Company’s operations. If the Company does not meet the ESG expectations of its investors, customers and other stakeholders, the Company could experience reduced demand for its products, loss of customers, and other negative impacts on the Company’s business and results of operations.

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, both in the U.S. and internationally, is intense. The Company cannot be sure that it will be able to attract and retain quality personnel or that the costs of doing so will not materially increase.

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

Merck has, in the past, experienced difficulties in manufacturing certain of its products, including vaccines. For example, in 2020 the Company issued a product recall for Zerbaxa following the identification of product sterility issues. The Company may, in the future, experience other difficulties and delays in manufacturing its products, such as (i) failure of the Company or any of its vendors or suppliers to comply with Current Good Manufacturing Practices and other applicable regulations and quality assurance guidelines that could lead to manufacturing shutdowns, product shortages and delays in product manufacturing; (ii) 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 supply chain delays, shortages in raw materials, changes in manufacturing production sites and limits to manufacturing capacity due to regulatory requirements, changes in types of products produced, or physical limitations that could impact continuous supply. 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, which may affect its ability to realize continued growth and may also increase the Company’s risk exposure. In addition, many of these countries have currencies that fluctuate substantially and, if such currencies devalue and the Company cannot offset the devaluations, the Company’s financial performance within such countries could be adversely affected.

The Company’s business in China has grown rapidly in the past few years, and the importance of China to the Company’s overall pharmaceutical and vaccines business outside the U.S. has increased accordingly. 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 “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 health care reform that has led to the acceleration of generic substitution, where available. While the mechanism for drugs being added to the NRDL evolves, inclusion may require a price negotiation which could impact the outlook in the market for selected brands. In 2021, drugs were added to the NRDL with an average of more than 60% 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 last five rounds of VBP had, on average, a price reduction of more than 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, at the same time macro-economic growth of selected emerging markets is expected to outpace Europe and even the U.S., leading to significant increased health care spending in those countries and access to innovative medicines for patients. A failure to maintain the Company’s presence in emerging markets could therefore have a material adverse effect on the Company’s business, cash flow, results of operations, financial condition and prospects.

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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 condition and prospects.

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.

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 cease to exist entirely in the future. While the Company has begun to implement alternative reference rates as alternatives to LIBOR, the Company cannot predict the consequences and timing of any additional or unexpected developments, which could include an increase in interest expense and will 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 material adverse effect on future results of 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 African Swine Fever, could lead to their widespread death and precautionary destruction as well as the reduced consumption and demand for animals, which could adversely affect the Company’s results of operations. Also, the outbreak of any highly contagious diseases near the Company’s main production sites could require the Company to immediately halt the manufacture of its animal health products at such sites or force the Company to incur substantial expenses in procuring raw materials or products elsewhere. Other risks specific to animal health include epidemics and pandemics, government procurement and pricing practices, weather and global agribusiness economic events. In addition, sales of Bravecto represent a significant portion of the Company’s Animal Health segment sales. Any negative event with respect to Bravecto could have a material adverse effect on the Company’s Animal Health sales. 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.

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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 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 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 U.S. 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.

•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 U.S., a BLA, including both 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 human vaccine 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 U.S. has been, and will continue to be, subject to increasing regulation and political action.

As discussed above in “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 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. On December 21, 2020, the CMS issued a final rule making significant changes to these requirements. 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. PhRMA, a pharmaceutical industry trade group, of which the Company is a member, filed a complaint challenging this rule as invalid asserting that it conflicts with the plain language of the Medicaid drug rebate statute. Should this legal

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

In 2021, Congress passed the American Rescue Plan Act of 2021, which included a provision that eliminates the statutory cap on rebates drug manufacturers pay to Medicaid beginning in January 2024. These rebates act as a discount off the list price and eliminating the cap means that manufacturer discounts paid to Medicaid can increase. Prior to this change, manufacturers have not been required to pay more than 100% of the Average Manufacturer Price (AMP) in rebates to state Medicaid programs for Medicaid-covered drugs. As a result of this provision, beginning in 2024, it is possible that manufacturers may have to pay state Medicaid programs more in rebates than they received on sales of particular products. This change could present a risk to Merck in the future for drugs that have high Medicaid utilization and rebate exposure that is more than 100% of the AMP.

In the U.S., the Biden Administration and Congress continue to discuss legislation designed to control health care costs, including the cost of drugs. The Company cannot predict what additional future changes in the health care industry in general, or the pharmaceutical industry in particular, will occur; however, any changes could have a material adverse effect on the Company’s business, cash flow, results of operations, financial condition and prospects.

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 U.S., including the FDA, and by foreign regulatory authorities, including in the EU, Japan and China. In the U.S., the FDA administers requirements covering the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of prescription pharmaceuticals. In some cases, the FDA requirements have increased the amount of time and resources necessary to develop new products and bring them to market in the U.S. Regulation outside the U.S. 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 the EU, Japan and China, have substantial discretion to require additional testing, to delay or withhold registration and marketing approval and to otherwise preclude distribution and sale of a product.

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.

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;

•scrutiny of advertising and promotion; and

•the withdrawal of indications granted pursuant to accelerated approvals.

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

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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 U.S. 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, the U.S., and China; (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.

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 routinely examined by various tax authorities. In connection with the 2015 Organization for Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting project, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other countries. 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, including, among others, any potential changes to the existing U.S. tax law by the current U.S. Presidential administration and Congress, as well as any changes in tax law resulting from the implementation of the OECD’s two-pillar solution to reform the international tax landscape.

The Company has taken the position, based on the opinions of tax counsel, that its distribution of Organon common stock in connection with the 2021 Spin-Off of Organon qualifies as a transaction that is tax-free for U.S. federal income tax purposes. If any facts, assumptions, representations, and undertakings from the Company and Organon regarding the past and future conduct of their respective businesses and other matters are

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incorrect or not otherwise satisfied, the Spin-Off may not qualify for tax-free treatment, which could result in significant U.S. federal income tax liabilities for the Company and its shareholders.

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

Current or future litigation, claims, proceedings and government investigations could preclude or delay the commercialization of Merck’s products or could adversely affect Merck’s business, results of operations, cash flow, prospects and financial condition. Such legal matters may include, but are not limited to: (i) intellectual property disputes; (ii) adverse decisions in litigation, including product safety and liability, consumer protection and commercial cases; (iii) anti-bribery regulations, such as the U.S. Foreign Corrupt Practices Act, including compliance with ongoing reporting obligations to the government resulting from any settlements; (iv) recalls or withdrawals of pharmaceutical products or forced closings of manufacturing plants; (v) product pricing and promotional matters; (vi) lawsuits, claims and administrative proceedings asserting, or investigations into, violations of securities, antitrust, Federal and state pricing, consumer protection, data privacy and other laws and regulations; (vii) environmental, health, safety and sustainability matters, including regulatory actions in response to climate change; and (viii) tax liabilities resulting from assessments from tax authorities. See Item 8. “Financial Statements and Supplementary Data,” Note 11, “Contingencies and Environmental Liabilities” for more information on the Company’s legal matters.

In 2021, Merck informed the U.S. Department of Health and Human Services, Health Resources and Services Administration (HHS) that Merck was implementing an update to its Section 340b program integrity initiative, pursuant to which Merck required all hospital covered entities to provide 340b claims data for all claims originating from contract pharmacies. For those entities that declined to submit such claims data, Merck’s new initiative provided that it would no longer voluntarily honor 340b discounts or chargebacks for contract pharmacy transactions, except for a single contract pharmacy of the hospital covered entity’s choice.

Also in 2021, HHS sent letters to numerous drug manufacturers stating that it had determined that those manufacturers’ actions restricting contract pharmacy transactions were in violation of the 340b statute and further stating that if those manufacturers did not cease their restrictions, HHS might seek both repayment of overcharges as well as civil monetary penalties. Those manufacturers are now in litigation with the U.S. government seeking to confirm the legality of the restrictions.

Merck did not receive a similar letter from HHS. However, HHS could seek to implement administrative proceedings to recover overcharges and/or impose civil monetary penalties against Merck. If such proceedings were implemented against Merck a negative outcome could have a material adverse effect on Merck’s business, results of operations, cash flow, prospects and financial condition.

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. “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 most product 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 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, complex information technology systems, computing infrastructure, and cloud service providers (collectively, IT systems) to conduct

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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, including data acquisition; 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.

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 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 and mobile messaging platforms present risks and challenges.

The inappropriate and/or unauthorized use of certain social media and mobile messaging 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 are internal Company Social Media and Mobile Messaging Policies that guide employees on appropriate personal and professional use of these platforms for communication about the Company, the processes in place may not completely secure and protect information. Identifying new points of entry as new communication tools expand also presents new challenges.

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 approvals, product potential, development programs, environmental or other sustainability initiatives, and include

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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 U.S. 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.

•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 U.S., the EU, and China. 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 U.S. 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.

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

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

Item 1B.Unresolved Staff Comments.

None.

Item 2.Properties.

The Company’s corporate headquarters is currently located in Kenilworth, New Jersey. The 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. Principal U.S. research facilities are located in Rahway and Kenilworth, New Jersey; West Point, Pennsylvania; Boston and Cambridge, Massachusetts; South San Francisco, California; and Elkhorn, Nebraska (Animal Health). Principal research facilities outside the U.S. 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 seven locations in the U.S. and Puerto Rico. Outside the U.S., 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 were transferred to Organon in the Spin-Off.

Capital expenditures were $4.4 billion in 2021, $4.4 billion in 2020 and $3.4 billion in 2019. In the U.S., these amounted to $2.8 billion in 2021, $2.6 billion in 2020 and $1.9 billion in 2019. Abroad, such expenditures amounted to $1.6 billion in 2021, $1.8 billion in 2020, and $1.5 billion in 2019.

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. 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.

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. “Contingencies and Environmental Liabilities”.

Item 4.Mine Safety Disclosures.

Not Applicable.

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Executive Officers of the Registrant (ages as of February 1, 2022)

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

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On February 16, 2022, the Company announced that Ms. Arpa Garay will lead Human Health Global Marketing and Mr. Jannie Oosthuizen will lead U.S. Human Health. Both Ms. Garay and Mr. Oosthuizen will become Executive Officers of the Company, effective February 28, 2022.

Name Age Offices and Business Experience

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PART II

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, 2022, there were approximately 99,932 shareholders of record of the Company’s Common Stock.

Issuer purchases of equity securities for the three months ended December 31, 2021 were as follows:

Issuer Purchases of Equity Securities

($ in millions)

November 1 — November 30 — — — $5,047

December 1 — December 31 — — — $5,047

(1) All shares purchased during the period were made as part of a plan approved by the Board of Directors in October 2018 to purchase up to $10 billion in Merck shares for its treasury.

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Performance Graph

The following graph assumes a $100 investment on December 31, 2016, and reinvestment of all dividends, in each of the Company’s Common Stock, 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

* Compound Annual Growth Rate

** Peer group average was calculated on a market cap weighted basis as of December 31, 2016.

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.

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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 two operating segments, which are the Pharmaceutical and Animal Health segments, both of which are 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. The Company sells these human health vaccines primarily to physicians, wholesalers, physician distributors and government entities.

The Animal Health segment discovers, develops, manufactures and markets 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. 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 that provided services and solutions 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 during the first quarter of 2020.

Spin-Off of Organon & Co.

On June 2, 2021, Merck completed the spin-off of 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 and has been treated as tax-free to the Company and its shareholders for U.S. federal income tax purposes. The established brands included in the transaction consisted of dermatology, non-opioid pain management, respiratory, select cardiovascular products, as well as the rest of Merck’s diversified brands franchise. Merck’s existing research pipeline programs continue to be owned and developed within Merck as planned. The historical results of the businesses that were contributed to Organon in the spin-off have been reflected as discontinued operations in the Company’s consolidated financial statements through the date of the spin-off (see Note 3 to the consolidated financial statements).

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Overview

Financial Highlights

Net Income from Continuing Operations Attributable to Merck & Co., Inc.:

* Calculation not meaningful.

(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

During 2021, Merck delivered on its strategic priorities by executing commercially to drive strong revenue and earnings growth in the year, completing key business development transactions, accelerating its broad pipeline, and achieving notable regulatory milestones. Also, on June 2, 2021, Merck completed the spin-off of Organon. The historical results of the businesses that were contributed to Organon in the spin-off have been reflected as discontinued operations in the Company’s consolidated financial statements through the date of the spin-off.

Worldwide sales were $48.7 billion in 2021, an increase of 17% compared with 2020, or 16% excluding the favorable effect of foreign exchange. The sales increase was driven primarily by growth in oncology, vaccines, hospital acute care and animal health. Additionally, revenue in 2021 reflects the benefit of sales of molnupiravir, an investigational oral antiviral COVID-19 treatment. As discussed below, COVID-19-related disruptions negatively affected sales in 2021, but to a lesser extent than in 2020, which benefited year-over-year sales growth.

Merck continues to execute scientifically compelling business development opportunities to augment its pipeline. In November 2021, Merck acquired Acceleron Pharma Inc. (Acceleron), a publicly traded biopharmaceutical company evaluating the transforming growth factor (TGF)-beta superfamily of proteins through the development of pulmonary and hematologic therapies. In April 2021, Merck acquired Pandion Therapeutics, Inc. (Pandion), a clinical-stage biotechnology company developing novel therapeutics designed to address the unmet needs of patients living with autoimmune diseases. Additionally, Merck entered into a collaboration with Gilead Sciences, Inc. (Gilead) to jointly develop and commercialize long-acting treatments in HIV.

In 2021, Merck received over 30 approvals and filed over 20 New Drug Applications (NDAs) and supplemental Biologics License Applications (BLAs) across the U.S., the EU, Japan and China. During 2021, the Company received numerous regulatory approvals within oncology. Keytruda received approval for additional indications in the U.S. and/or internationally as monotherapy in the therapeutic areas of breast, colorectal, cutaneous squamous cell, esophageal, melanoma and renal cell cancers, as well as in combination with chemotherapy in the therapeutic areas of breast, cervical, gastric or gastroesophageal junction cancers. Keytruda was also approved in combination with Lenvima both for the treatment of certain adult patients with endometrial cancer and for the treatment of renal cell cancer. Lenvima is being developed in collaboration with Eisai Co., Ltd. (Eisai). Lynparza, which is being developed in collaboration with AstraZeneca PLC (AstraZeneca), received approval in China as monotherapy for the treatment of certain adult patients with metastatic castration resistant prostate cancer. Additionally, the U.S. Food and Drug Administration (FDA) approved Welireg (belzutifan), an oral hypoxia-inducible factor-2 alpha (HIF-2α) inhibitor, for the treatment of adult patients with von Hippel-Lindau (VHL)

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disease who require therapy for associated renal cell carcinoma (RCC), central nervous system hemangioblastomas, or pancreatic neuroendocrine tumors, not requiring immediate surgery.

Also in 2021, as updated in February 2022, the FDA granted Emergency Use Authorization (EUA) for molnupiravir, an investigational oral antiviral COVID-19 treatment being developed in a collaboration with Ridgeback Biotherapuetics LP (Ridgeback). Molnupiravir also received conditional marketing authorization in the United Kingdom (UK) and Special Approval for Emergency in Japan. Also in 2021, the FDA and the European Commission (EC) approved Vaxneuvance (Pneumococcal 15-valent Conjugate Vaccine), a pneumococcal conjugate vaccine for use in adults. Additionally, Verquvo, a medicine to reduce the risk of cardiovascular death and heart failure hospitalization following a hospitalization for heart failure or need for outpatient intravenous diuretics in adults was approved in the U.S., the EU and Japan. Verquvo is being jointly developed with Bayer AG (Bayer). In January 2022, the Japan Ministry of Health, Labor and Welfare (MHLW) approved Lyfnua (gefapixant) for adults with refractory or unexplained chronic cough.

In addition to the recent regulatory approvals discussed above, the Company advanced its late-stage pipeline with several regulatory submissions.

Keytruda is under review in the U.S. and/or internationally for supplemental indications for the treatment of certain patients with triple negative breast, cervical, endometrial, melanoma, renal cell and tumor mutation burden-high (TMBH) cancers. Lynparza is under review for supplemental indications for the treatment of certain patients with breast and prostate cancers. Lenvima is under review in combination with Keytruda for a supplemental indication for the treatment of certain patients with hepatocellular carcinoma (HCC). MK-4482, molnupiravir, is under a rolling review by the European Medicines Agency (EMA); MK-7264, gefapixant, a selective, non-narcotic, orally-administered, investigational P2X3-receptor antagonist being developed for the treatment of refractory, chronic cough is under review in the U.S. and the EU; and Vaxneuvance (V114), a 15-valent pneumococcal conjugate vaccine, is under priority review by the FDA for the prevention of invasive pneumococcal disease in pediatric patients. V114 is also under review in Japan for use in adults.

The Company’s Phase 3 oncology programs include:

•Keytruda in the therapeutic areas of biliary, cutaneous squamous cell, gastric, hepatocellular, mesothelioma, ovarian, prostate and small-cell lung cancers;

•Lynparza as monotherapy for colorectal cancer and in combination with Keytruda for non-small-cell lung and small-cell lung cancers;

•Lenvima in combination with Keytruda for colorectal, esophageal, gastric, head and neck, melanoma and non-small-cell lung cancers;

•Welireg for RCC;

•MK-1308A, the coformulation of quavonlimab, Merck’s novel investigational anti-CTLA-4 antibody, and pembrolizumab for RCC;

•MK-3475, pembrolizumab subcutaneous for non-small-cell lung cancer (NSCLC);

•MK-7119, Tukysa (tucatinib), which is being developed in collaboration with Seagen Inc. (Seagen), for breast cancer;

•MK-4280A, the coformulation of favezelimab, Merck’s novel investigational anti-LAG3 therapy, and pembrolizumab for colorectal cancer; and

•MK-7684A, the coformulation of vibostolimab, an anti-TIGIT therapy, and pembrolizumab for NSCLC.

Additionally, the Company has candidates in Phase 3 clinical development in several other therapeutic areas including:

•MK-7962, sotatercept, for the treatment of pulmonary arterial hypertension (PAH), which was obtained in the Acceleron acquisition;

•MK-1654, clesrovimab, for the prevention of respiratory syncytial virus;

•MK-8591, islatravir, an investigational nucleoside reverse transcriptase translocation inhibitor (NRTTI) for the prevention of HIV-1 infection (which is on clinical hold);

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•MK-8591A, islatravir in combination with doravirine for the treatment of HIV-1 infection (which is on clinical hold); and

•MK-4482, molnupiravir, which is reflected in Phase 3 development in the U.S. as it remains investigational following EUA.

The Company is allocating resources to support its commercial opportunities in the near term while investing heavily in research to support future innovations and long-term growth. Research and development expenses in 2021 reflect higher clinical development spending and increased investment in discovery research and early drug development.

In November 2021, Merck’s Board of Directors approved an increase to the Company’s quarterly dividend, raising it to $0.69 per share from $0.65 per share on the Company’s outstanding common stock. During 2021, the Company returned $7.5 billion to shareholders through dividends and share repurchases.

In December 2021, the Company completed its inaugural issuance of a $1.0 billion sustainability bond, which was part of an $8.0 billion underwritten bond offering. The Company intends to use the net proceeds from the sustainability bond offering to support projects and partnerships in the Company’s priority environmental, social and governance (ESG) areas and contribute to the advancement of the United Nations Sustainable Development Goals.

COVID-19 Update

During the COVID-19 pandemic Merck has remained 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 an antiviral therapy, supporting efforts to expand manufacturing capacity and supply of SARS-CoV-2/COVID-19 medicines and vaccines (see below), and supporting health care providers and Merck’s communities. Although COVID-19-related disruptions negatively affected results in 2021 and 2020, Merck continues to experience strong global underlying demand across its business.

In 2021, Merck’s sales were unfavorably affected by COVID-19-related disruptions, which resulted in an estimated negative impact to Merck’s Pharmaceutical segment sales of approximately $1.3 billion. Roughly 75% of Merck’s Pharmaceutical segment revenue is comprised of physician-administered products, which, despite strong underlying demand, have been affected by social distancing measures and fewer well visits. Merck’s sales were favorably affected by the authorization of molnupiravir in several markets as discussed further below, which resulted in sales of $952 million in 2021. In 2020, the estimated negative impact of COVID-19-related disruptions to Merck’s sales was approximately $2.1 billion, of which approximately $2.0 billion was attributable to the Pharmaceutical segment and approximately $50 million was attributable to the Animal Health segment.

In April 2021, Merck announced it was discontinuing the development of MK-7110 (formerly known as CD24Fc) for the treatment of hospitalized patients with COVID-19, which was obtained as part of Merck’s acquisition of OncoImmune (see Note 4 to the consolidated financial statements). This decision resulted in charges of $207 million to Cost of sales in 2021. In January 2021, the Company announced the discontinuation of the development programs for its COVID-19 vaccine candidates, V590 and V591, following Merck’s review of findings from Phase 1 clinical studies for the vaccines. In these studies, both V590 and V591 were generally well tolerated, but the immune responses were inferior to those seen following natural infection and those reported for other SARS-CoV-2/COVID-19 vaccines. Due to the discontinuation, the Company recorded a charge of $305 million in 2020, of which $260 million was reflected in Cost of sales and the remaining $45 million of costs were reflected in Research and development expenses.

Operating expenses reflect a minor positive effect in 2021 as investments in COVID-19-related research largely offset the favorable impact of lower spending in other areas due to the COVID-19 pandemic. Operating expenses were positively affected in 2020 by approximately $500 million primarily due to lower promotional and selling costs, as well as lower research and development expenses, net of investments in COVID-19-related antiviral and vaccine research programs. In addition, the COVID-19 pandemic has caused some disruption and volatility in the Company’s global supply chain network, and the Company may in the future experience disruptions in availability and delays in shipments of raw materials and packaging, as well as related cost inflation.

In December 2021, the FDA granted EUA for molnupiravir based on positive results from the Phase 3 MOVe-OUT clinical trial. Additionally, in December 2021, Japan’s MHLW granted Special Approval for

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Emergency for molnupiravir. In November 2021, the UK Medicines and Healthcare products Regulatory Agency granted conditional marketing authorization for molnupiravir. In addition, in October 2021, the EMA initiated a rolling review for molnupiravir. Merck plans to work with the Committee for Medicinal Products for Human Use of the EMA to complete the rolling review process to facilitate initiating the formal review of the Marketing Authorization Application. Merck is developing molnupiravir in collaboration with Ridgeback. The companies are actively working with other regulatory agencies worldwide to submit applications for emergency use or marketing authorization. Merck has entered into advance purchase and supply agreements for molnupiravir in more than 30 markets. See Note 5 to the consolidated financial statements for additional information related to the collaboration with Ridgeback.

In March 2021, Merck announced it had entered into multiple agreements to support efforts to expand manufacturing capacity and supply of SARS-CoV-2/COVID-19 medicines and vaccines. The Biomedical Advanced Research and Development Authority (BARDA), a division of the Office of the Assistant Secretary for Preparedness and Response within the U.S. Department of Health and Human Services, is providing Merck with funding to adapt and make available a number of existing manufacturing facilities for the production of SARS-CoV-2/COVID-19 vaccines and medicines. Merck has also entered into agreements to support the manufacturing and supply of Johnson & Johnson’s SARS-CoV-2/COVID-19 vaccine. Merck is using certain of its facilities in the U.S. to produce drug substance, formulate and fill vials of Johnson & Johnson’s vaccine.

Pricing

Global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide. Changes to the U.S. health care system as part of health care reform enacted in prior years, 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 2021 was negatively affected by other cost-reduction measures taken by governments and other third parties to lower health care costs. In the U.S., the Biden Administration and Congress continue to discuss legislation designed to control health care costs, including the cost of drugs. The Company anticipates all of these actions and additional actions in the future will continue to negatively affect revenue performance.

Operating Results

Sales

Worldwide sales grew 17% in 2021 primarily due to higher sales in the oncology franchise largely driven by strong growth of Keytruda and increased alliance revenue from Lynparza and Lenvima, as well as higher sales in the vaccines franchise, primarily attributable to growth in Gardasil/Gardasil 9, Varivax and ProQuad. Also contributing to revenue growth in 2021 were higher sales in the virology franchise attributable to molnupiravir, higher sales in the hospital acute care franchise, reflecting growth in Bridion and Prevymis, as well as higher sales of animal health products. Additionally, sales in 2021 benefited from higher third-party manufacturing sales and the achievement of milestones for an out-licensed product that triggered contingent payments to Merck. As discussed above, COVID-19-related disruptions unfavorably affected sales in 2021, but to a lesser extent than in 2020, which benefited year-over-year sales growth. Sales growth in 2021 was partially offset by lower sales of Pneumovax 23, the suspension of sales in 2020 of hospital acute care product Zerbaxa, and lower sales of virology products Isentress/Isentress HD.

Sales in the U.S. grew 14% in 2021 primarily driven by higher sales of Keytruda, sales of molnupiravir, higher sales of Bridion, Gardasil 9, Varivax and ProQuad,increased alliance revenue from Lynparza and Lenvima,

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as well as higher sales of animal health products. Lower sales of Pneumovax 23, Januvia/Janumet and Zerbaxa partially offset revenue growth in the U.S. in 2021.

International sales increased 20% in 2021 primarily due to growth in Gardasil/Gardasil 9, Keytruda, sales of molnupiravir, increased alliance revenue from Lynparza and Lenvima, as well as higher sales of Januvia/Janumet, Bridion, Prevymis and animal health products. International sales growth in 2021 was partially offset by lower sales of Noxafil, Zerbaxa and Isentress/Isentress HD. International sales represented 54% and 53% of total sales in 2021 and 2020, respectively.

Worldwide sales increased 6% in 2020 primarily due to higher sales in the oncology franchise, as well as growth in certain hospital acute care products and animal health. Growth in these areas was largely offset by the negative effects of the COVID-19 pandemic as discussed above, competitive pressure in the virology franchise and pricing pressure in the diabetes franchise.

See Note 19 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

(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).

Keytruda is an anti-PD-1 (programmed death receptor-1) therapy that has been approved as monotherapy for the treatment of certain patients with cervical cancer, classical Hodgkin lymphoma (cHL), cutaneous squamous cell carcinoma (cSCC), esophageal or gastroesophageal junction (GEJ) carcinoma, head and neck squamous cell carcinoma (HNSCC), HCC, NSCLC, melanoma, Merkel cell carcinoma, microsatellite instability-high (MSI-H) or mismatch repair deficient (dMMR) cancer (solid tumors) including MSI-H/dMMR colorectal cancer, primary mediastinal large B-cell lymphoma, TMB-H cancer (solid tumors), and urothelial carcinoma including non-muscle invasive bladder cancer. Additionally, Keytruda is approved as monotherapy for the adjuvant treatment of certain patients with RCC. Keytruda is also approved for the treatment of certain patients in combination with chemotherapy for metastatic squamous and nonsquamous NSCLC, in combination with chemotherapy, with or without bevacizumab for cervical cancer, in combination with chemotherapy for esophageal cancer, in combination with chemotherapy for gastric cancer, in combination with chemotherapy for HNSCC, in combination with chemotherapy for triple-negative-breast cancer (TNBC), in combination with axitinib for advanced RCC, and in combination with Lenvima for both endometrial carcinoma and RCC. The Keytruda clinical development program includes studies across a broad range of cancer types.

Global sales of Keytruda grew 20% in 2021 driven by higher demand as the Company continues to launch Keytruda with multiple new indications globally, although the COVID-19 pandemic had a dampening effect on growing demand by negatively affecting the number of new patients starting treatment. Sales in the U.S. continue to build across the multiple approved indications, in particular for the treatment of advanced NSCLC as monotherapy, and in combination with chemotherapy for both nonsquamous and squamous metastatic NSCLC, along with continued uptake in the TNBC, RCC, HNSCC, MSI-H cancer, and esophageal cancer indications. Keytruda sales growth in international markets reflects continued uptake predominately for the NSCLC, HNSCC and RCC indications, particularly in Europe. Sales growth in 2021 was partially offset by lower pricing in Europe, China and Japan. Global sales of Keytruda grew 30% in 2020 driven by higher demand globally, particularly in the U.S. and Europe, although the COVID-19 pandemic had an unfavorable effect on growing demand. Sales growth in 2020 was partially offset by lower pricing in Japan and Europe.

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Keytruda received numerous regulatory approvals in 2021 summarized below.

Date Approval

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In March 2021, Merck announced it was voluntarily withdrawing the U.S. indication for Keytruda for the treatment of patients with metastatic small-cell lung cancer with disease progression on or after platinum-based chemotherapy and at least one other prior line of therapy. The withdrawal of this indication was done in consultation with the FDA and does not affect other indications for Keytruda. As announced in January 2020, KEYNOTE-604, the confirmatory Phase 3 trial for this indication, met one of its dual primary endpoints of progression-free survival but did not reach statistical significance for the other primary endpoint of overall survival.

In 2022, Merck initiated the withdrawal of the U.S. accelerated approval indication for Keytruda for the treatment of patients with recurrent locally advanced or metastatic gastric or GEJ adenocarcinoma whose tumors express PD-L1, with disease progression on or after two or more prior lines of therapy. The decision was made in consultation with the FDA following the Oncologic Drugs Advisory Committee evaluation of this third-line gastric cancer indication for Keytruda as a monotherapy because it failed to meet its post-marketing requirement of demonstrating an overall survival benefit in a Phase 3 study. The withdrawal of this indication does not affect other indications for Keytruda.

The Company is a party to certain third-party license agreements pursuant to which the Company pays royalties on sales of Keytruda. Under the terms of the more significant of these agreements, Merck pays a royalty of 6.5% on worldwide sales of Keytruda through 2023 to one third party; this royalty will decline to 2.5% for 2024 through 2026 and will terminate thereafter. The Company pays an additional 2% royalty on worldwide sales of Keytruda to another third party, the termination date of which varies by country; this royalty will expire in the U.S. in 2024 and in major European markets in 2025. The royalties are included in Cost of sales.

Lynparza is an oral poly (ADP-ribose) polymerase (PARP) inhibitor being developed as part of a collaboration with AstraZeneca (see Note 5 to the consolidated financial statements). Lynparza is approved for the treatment of certain types of advanced ovarian, breast, pancreatic and prostate cancers. Alliance revenue related to Lynparza grew 36% in 2021 and 63% in 2020 due to continued uptake across the multiple approved indications in the U.S., Europe, Japan and China. In June 2021, Lynparza was granted conditional approval in China as monotherapy for the treatment of certain previously treated adult patients with germline or somatic BRCA-mutated metastatic castration-resistant prostate cancer based on the results of the PROfound trial.

Lenvima is an oral receptor tyrosine kinase inhibitor being developed as part of a collaboration with Eisai (see Note 5 to the consolidated financial statements). Lenvima is approved for the treatment of certain types of thyroid cancer, HCC, in combination with everolimus for certain patients with RCC, and in combination with Keytruda both for the treatment of certain patients with endometrial carcinoma and for the treatment of certain patients with RCC. Alliance revenue related to Lenvima grew 21% in 2021 and 44% in 2020 primarily due to higher demand in the U.S. and China.

Global sales of Emend (aprepitant), for the prevention of certain chemotherapy-induced nausea and vomiting, declined 13% in 2021 reflecting lower volumes in Europe and China. Worldwide sales of Emend

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decreased 63% in 2020 primarily due to lower demand and pricing in the U.S. due to generic competition for Emend for Injection following U.S. patent expiry in September 2019. Also contributing to the Emend sales decline in 2020 was lower demand in Europe and Japan as a result of generic competition for the oral formulation of Emend following loss of market exclusivity in May 2019 and December 2019, respectively.

In June 2021, Koselugo (selumetinib) was granted conditional approval in the EU for the treatment of pediatric patients three years of age and older with neurofibromatosis type 1 who have symptomatic, inoperable plexiform neurofibromas based on positive results from the National Cancer Institute Cancer Therapy Evaluation Program-sponsored SPRINT Stratum 1 trial. Koselugo was approved by the FDA in April 2020. Koselugo is part of the same collaboration with AstraZeneca referenced above that includes Lynparza.

In August 2021, the FDA approved Welireg, an oral HIF-2α inhibitor, for the treatment of adult patients with VHL disease who require therapy for associated RCC, central nervous system hemangioblastomas, or pancreatic neuroendocrine tumors, not requiring immediate surgery. The approval was based on results from the open-label Study 004 trial. Welireg was obtained as part of Merck’s 2019 acquisition of Peloton Therapeutics, Inc. (Peloton). See Note 4 to the consolidated financial statements.

Vaccines

Worldwide sales of Gardasil/Gardasil 9, vaccines to help prevent certain cancers and other diseases caused by certain types of human papillomavirus (HPV), grew 44% in 2021 driven primarily by strong global demand, particularly in China, as well as increased supply. Higher pricing in China and the U.S. also contributed to sales growth in 2021. Sales growth in 2021 was unfavorably affected by the replenishment in 2020 of doses borrowed from the U.S. Centers for Disease Control and Prevention (CDC) Pediatric Vaccine Stockpile, which favorably affected sales by $120 million in 2020. The timing of public sector purchases in the U.S. also partially offset sales growth in 2021. Global sales of Gardasil/Gardasil 9 grew 5% in 2020 primarily due to higher volumes in China and the replenishment in 2020 of doses borrowed from the CDC Pediatric Vaccine Stockpile in 2019. The replenishment resulted in the recognition of sales of $120 million in 2020, which, when combined with the reduction of sales of $120 million in 2019 due to the borrowing, resulted in a favorable impact to sales of $240 million in 2020 compared with 2019. Lower demand in the U.S. and Hong Kong, SAR, PRC attributable to the COVID-19 pandemic partially offset the increase in sales of Gardasil/Gardasil 9 in 2020.

The Company is a party to certain third-party license agreements pursuant to which the Company pays royalties on sales of Gardasil/Gardasil 9. Under the terms of the more significant of these agreements, Merck pays a 7% royalty on worldwide sales of Gardasil/Gardasil 9 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 U.S. to another third party (these royalty obligations expire in December 2028). The royalties are included in Cost of sales.

Global sales of ProQuad, a pediatric combination vaccine to help protect against measles, mumps, rubella and varicella, grew 14% in 2021 due to higher sales in the U.S. reflecting higher demand driven by the ongoing COVID-19 pandemic recovery, as well as higher pricing. Worldwide sales of ProQuad declined 10% in 2020 driven primarily by lower demand in the U.S. resulting from fewer measles outbreaks in 2020 compared with 2019, coupled with the unfavorable impact of the COVID-19 pandemic, partially offset by higher pricing.

Worldwide sales of M-M-R II, a vaccine to help protect against measles, mumps and rubella, grew 3% in 2021 primarily due to higher sales in the U.S. reflecting the ongoing COVID-19 pandemic recovery inclusive of higher public sector mix of business. Lower demand in Europe partially offset M‐M‐R II sales growth in 2021. Global sales of M-M-R II declined 31% in 2020 driven primarily by lower demand in the U.S. resulting from fewer

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measles outbreaks in 2020 compared with 2019, coupled with the 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 vaccine to help prevent chickenpox (varicella), grew 18% in 2021 primarily reflecting the ongoing COVID-19 pandemic recovery and higher pricing in the U.S. Higher government tenders in Brazil also contributed to Varivax sales growth in 2021. Worldwide sales of Varivax declined 15% in 2020 driven primarily by lower demand in the U.S. resulting from the COVID-19 pandemic, partially offset by higher pricing. The Varivax sales decline in 2020 was also attributable to lower government tenders in Brazil.

Worldwide sales of Pneumovax 23, a vaccine to help prevent pneumococcal disease, declined 18% in 2021 primarily due to lower sales in the U.S. attributable to lower demand reflecting prioritization of COVID-19 vaccination, partially offset by higher pricing. Global sales of Pneumovax 23 grew 17% in 2020 primarily due to higher volumes in Europe and the U.S. attributable in part to heightened awareness of pneumococcal vaccination. Higher pricing in the U.S. also contributed to Pneumovax 23 sales growth in 2020.

In July 2021, the FDA approved Vaxneuvance for active immunization for the prevention of invasive disease caused by 15 Streptococcus pneumoniae serotypes in adults 18 years of age and older. In December 2021, Vaxneuvance was approved by the EC. These approvals were based on data from seven clinical studies assessing safety, tolerability, and immunogenicity in adults. In October 2021, the CDC’s Advisory Committee on Immunization Practices (ACIP) voted to recommend vaccination either with a sequential regimen of Vaxneuvance followed by Pneumovax 23, or with a single dose of 20-valent pneumococcal conjugate vaccine both for adults 65 years and older and for adults ages 19 to 64 with certain underlying medical conditions. These recommendations subsequently were adopted by the director of the CDC and the U.S. Department of Health and Human Services and published in the CDC’s Morbidity and Mortality Weekly Report. In September 2021, Merck announced a settlement and license agreement with Pfizer Inc. (Pfizer), resolving all worldwide patent infringement litigation related to the use of Merck’s investigational and licensed pneumococcal conjugate vaccine (PCV) products, including Vaxneuvance. Under the terms of the agreement, Merck will make certain regulatory milestone payments to Pfizer, as well as royalty payments on the worldwide sales of its PCV products. The Company will pay royalties of 7.25% of net sales of all Merck PCV products through 2026; and 2.5% of net sales of all Merck PCV products from 2027 through 2035.

Vaxelis (Diphtheria and Tetanus Toxoids and Acellular Pertussis, Inactivated Poliovirus, Haemophilus b Conjugate and Hepatitis B Vaccine), developed as part of a U.S.-based partnership between Merck and Sanofi Pasteur, is now available in the U.S. for active immunization of children six weeks through four years of age to help prevent diphtheria, tetanus, pertussis, poliomyelitis, hepatitis B, and invasive disease due to Haemophilus influenzae type b. In February 2021, the CDC’s ACIP included Vaxelis as a combination vaccine option in the CDC’s Recommended Child and Adolescent Immunization Schedule. Sales of Vaxelis in the U.S. are made through the U.S.-based Merck/Sanofi Pasteur partnership, the results of which are reflected in equity income from affiliates included in Other (income) expense, net. Supply sales to the partnership are recorded within Sales. Vaxelis is also approved in the EU where it is marketed directly by Merck and Sanofi Pasteur.

Hospital Acute Care

* Calculation not meaningful.

Global sales of Bridion, for the reversal of two types of neuromuscular blocking agents used during surgery, grew 28% in 2021 due to higher demand globally, particularly in the U.S. and Europe, attributable to the COVID-19 pandemic recovery, as well as increased usage of neuromuscular blockade reversal agents and Bridion’s growing share within the class. Bridion was also approved by the FDA in June 2021 for pediatric patients aged 2 years and older undergoing surgery. Worldwide sales of Bridion grew 6% in 2020 due to higher demand globally,

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particularly in the U.S. However, fewer elective surgeries as a result of the COVID-19 pandemic unfavorably affected demand in 2020.

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 32% in 2021 and increased 70% in 2020 due to continued uptake since launch in several markets, particularly in Europe and the U.S.

Worldwide sales of Noxafil, an antifungal agent for the prevention of certain invasive fungal infections, declined 21% in 2021 primarily due to generic competition in Europe, partially offset by higher demand in China. The patent that provided market exclusivity for Noxafil in a number of major European markets expired in December 2019. As a result, the Company is experiencing lower demand for Noxafil in these markets due to generic competition and expects the decline to continue. Global sales of Noxafil declined 50% in 2020 due to generic competition in the U.S. and in Europe. The patent that provided U.S. market exclusivity for certain forms of Noxafil representing the majority of U.S. Noxafil sales expired in July 2019.

In December 2020, the Company temporarily suspended sales of Zerbaxa, a combination antibacterial and beta-lactamase inhibitor for the treatment of certain bacterial infections, and subsequently issued a product recall, following the identification of product sterility issues. As a result, the Company recorded an intangible asset impairment charge in 2020 related to Zerbaxa (see Note 9 to the consolidated financial statements). A phased resupply of Zerbaxa was initiated in the fourth quarter of 2021, which the Company expects to continue during 2022.

Immunology

Sales of Simponi, a once-monthly subcutaneous treatment for certain inflammatory diseases (marketed by the Company in Europe, Russia and Turkey), declined 2% in 2021 and were nearly flat in 2020. Sales of Simponi are being unfavorably affected by biosimilar competition for competing products. 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), declined 9% in 2021 and decreased 20% in 2020 driven by ongoing biosimilar competition in the Company’s marketing territories in 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.

The Company’s marketing rights with respect to these products will revert to Janssen Pharmaceuticals, Inc. on October 1, 2024.

Virology

Molnupiravir $ 952 — — $ — — — $ —

Molnupiravir is an investigational oral antiviral COVID-19 medicine being developed in a collaboration with Ridgeback (see Note 5 to the consolidated financial statements). The FDA granted an EUA for molnupiravir in December 2021; as updated in February 2022, to authorize molnupiravir for the treatment of mild to moderate COVID-19 in high-risk adults for whom alternative FDA-approved or authorized treatment options are not

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accessible or clinically appropriate. Also in December 2021, Japan’s MHLW granted Special Approval for Emergency for molnupiravir to treat infectious disease caused by SARS-CoV-2. In November 2021, the UK’s MHRA granted conditional marketing authorization for molnupiravir to treat mild to moderate COVID-19 in adults at risk of developing severe illness. Merck has entered into advance purchase and supply agreements for molnupiravir in more than 30 markets and Merck began shipping molnupiravir in the fourth quarter of 2021 to countries where it is approved or authorized. Sales of molnupiravir were $952 million in 2021 primarily consisting of sales in the U.S., the UK and Japan.

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, declined 10% in 2021 and decreased 12% in 2020 primarily due to competitive pressure particularly in Europe and the U.S. The Company expects competitive pressure for Isentress/Isentress HD to continue.

Global sales of Zepatier, a treatment for adult patients with chronic hepatitis C virus genotype (GT) 1 or GT4 infection, declined 23% in 2021 primarily due to lower demand from competitive pressure in the U.S. and Europe. Worldwide sales of Zepatier declined 55% in 2020 driven by lower demand globally due to competition and declining patient volumes, coupled with the impact of the COVID-19 pandemic.

Cardiovascular

(1) Alliance revenue represents Merck’s share of profits from sales in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 5 to the consolidated financial statements).

Adempas and Verquvo are part of a worldwide collaboration with Bayer to market and develop soluble guanylate cyclase (sGC) modulators (see Note 5 to the consolidated financial statements). Adempas is approved for the treatment of certain types of PAH. Verquvo was approved in the U.S. in January 2021 to reduce the risk of cardiovascular death and heart failure hospitalization following a hospitalization for heart failure or need for outpatient intravenous diuretics in adults with symptomatic chronic heart failure and reduced ejection fraction. Verquvo was also approved in Japan in June 2021 and in the EU in July 2021. These approvals were based on the results of the VICTORIA trial. Alliance revenue from the collaboration grew 22% in 2021 and rose 38% in 2020. Revenue from the collaboration also includes sales of Adempas and Verquvo in Merck’s marketing territories. Sales of Adempas in Merck’s marketing territories grew 14% in 2021 primarily reflecting higher demand in Europe.

Diabetes

Worldwide combined sales of Januvia and Janumet, medicines that help lower blood sugar levels in adults with type 2 diabetes, were nearly flat in 2021 and declined 4% in 2020. Sales performance in both periods reflects continued pricing pressure and lower demand in the U.S., largely offset by higher demand in certain international markets, particularly in China. The Company expects U.S. pricing pressure to continue. Januvia and Janumet will lose market exclusivity in the U.S. in January 2023, in the EU in September 2022, and in China in July 2022. The Company anticipates sales of Januvia and Janumet in these markets will decline substantially after the loss of exclusivity. Combined sales of Januvia and Janumet in the U.S., Europe and China represented 33%, 24% and 9%, respectively, of total combined Januvia and Janumet sales in 2021.

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Animal Health Segment

Sales of livestock products grew 12% in 2021 primarily due to higher demand for ruminant products, including animal health intelligence solutions for animal identification, monitoring and traceability, as well as higher demand for poultry and swine products. Sales of livestock products increased 6% in 2020 predominantly due to an additional five months of sales in 2020 related to the April 2019 acquisition of Antelliq, a leader in digital animal identification, traceability and monitoring solutions (see Note 4 to the consolidated financial statements). Sales of companion animal products grew 29% in 2021 and rose 10% in 2020 primarily due to higher demand for parasiticides, including the Bravecto line of products, as well as higher demand for companion animal vaccines.

Costs, Expenses and Other

* Calculation not meaningful.

Cost of Sales

Cost of sales was $13.6 billion in both 2021 and 2020 and was $12.0 billion in 2019. Cost of sales includes the amortization of intangible assets recorded in connection with acquisitions, collaborations, and licensing arrangements, which totaled $1.6 billion in 2021, $1.8 billion in 2020 and $1.7 billion in 2019. Costs in 2021 and 2020 also include charges of $225 million and $260 million, respectively, related to the discontinuation of COVID-19 development programs (see Note 4 to the consolidated financial statements). Additionally, costs in 2020 and 2019 include intangible asset impairment charges of $1.6 billion and $705 million related to marketed products and other intangibles (see Note 9 to the consolidated financial statements). The Company may recognize additional impairment charges in the future related to intangible assets that were measured at fair value and capitalized in connection with business combinations and such charges could be material. Costs in 2020 also include inventory write-offs of $120 million related to a recall for Zerbaxa (see Note 9 to the consolidated financial statements). Also included in cost of sales are expenses associated with restructuring activities, which amounted to $160 million in 2021, $175 million in 2020 and $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 72.0% in 2021 compared with 67.2% in 2020. The gross margin improvement in 2021 reflects lower impairments and amortization of intangible assets (noted above), as well as the favorable effects of product mix and lower inventory write-offs. Partially offsetting the gross margin improvement in 2021 were higher manufacturing costs, the impact of molnupiravir (which has a lower gross margin due to profit sharing with Ridgeback as discussed in Note 5 to the consolidated financial statements), and higher compensation and benefit costs. Gross margin was 67.2% in 2020 compared with 69.3% in 2019. The gross margin decline in 2020 reflects the unfavorable effects of higher impairments and amortization of intangible assets, 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 restructuring costs.

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Selling, General and Administrative

Selling, general and administrative (SG&A) expenses were $9.6 billion in 2021, an increase of 8% compared with 2020. The increase was primarily due to higher administrative costs, including compensation and benefits, higher promotional expenses in support of the Company’s key growth pillars, and higher acquisition-related costs, including costs related to the acquisition of Acceleron. The COVID-19 pandemic drove lower spending in 2020 which contributed to the increase in SG&A expenses in 2021. These increases were partially offset by the favorable effects of foreign exchange and a contribution in 2020 to the Merck Foundation. SG&A expenses were $9.0 billion in 2020, a decline of 5% compared with 2019. The decline was driven primarily by lower administrative, selling and promotional costs, including lower travel and meeting expenses, due in part to the COVID-19 pandemic, and the favorable effect of foreign exchange, partially offset by a contribution to the Merck Foundation.

Research and Development

Research and development (R&D) expenses were $12.2 billion in 2021, a decline of 9% compared with 2020 primarily due to lower upfront payments related to acquisitions and collaborations. The decline was partially offset by higher clinical development spending and increased investment in discovery research and early drug development, net of the reimbursement of a portion of molnupiravir development costs through the partnership with Ridgeback. Higher compensation and benefit costs, higher in-process research and development (IPR&D) impairment charges, as well as costs related to the acquisition of Acceleron also partially offset the decline in R&D expenses in 2021. R&D expenses were $13.4 billion in 2020, an increase of 38% compared with 2019. The increase was driven largely by higher upfront payments related to acquisitions and collaborations, higher clinical development spending 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 IPR&D impairment charges and lower costs resulting from the COVID-19 pandemic, net of spending on COVID-19-related vaccine and antiviral research programs.

R&D expenses are comprised of the costs directly incurred by Merck Research Laboratories (MRL), the Company’s research and development division that focuses on human health-related activities, which were $7.1 billion in 2021, $6.5 billion in 2020 and $6.0 billion in 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, which in the aggregate were $3.0 billion in 2021, $2.6 billion in 2020 and $2.6 billion in 2019. Additionally, R&D expenses in 2021 include a $1.7 billion charge for the acquisition of Pandion. R&D expenses in 2020 include a $2.7 billion charge for the acquisition of VelosBio Inc., a $462 million charge for the acquisition of 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 4 to the consolidated financial statements for more information on these transactions. R&D expenses also include IPR&D impairment charges of $275 million, $90 million and $172 million in 2021, 2020 and 2019, respectively (see Note 9 to the consolidated financial statements). The Company may recognize additional 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 combinations and such charges could be material. In addition, R&D expenses in 2021 and 2020 include $28 million and $83 million, respectively, 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 combinations. The Company recorded $35 million of expenses in 2021 compared with a net reduction in expenses of $95 million and $39 million in 2020 and 2019, respectively, related to changes in these estimates.

Restructuring Costs

In 2019, Merck approved a global restructuring program (Restructuring Program) as part of a worldwide initiative focused on further optimizing the Company’s manufacturing and supply network, as well as reducing its global real estate footprint. This program is a continuation of the Company’s plant rationalization and builds on prior restructuring programs. The actions currently contemplated under the Restructuring Program are expected to be substantially completed by the end of 2023, with the cumulative pretax costs to be incurred by the Company to implement the program estimated to be approximately $3.5 billion. The Company expects to record charges of

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approximately $400 million in 2022 related to the Restructuring Program. The Company anticipates the actions under the Restructuring Program will result in annual net cost savings of approximately $900 million by the end of 2023.

Restructuring costs, primarily representing separation and other related costs associated with these restructuring activities, were $661 million in 2021, $575 million in 2020 and $626 million in 2019. Separation costs incurred were 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. 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 costs. The Company recorded aggregate pretax costs of $868 million in 2021, $880 million in 2020 and $915 million in 2019 related to restructuring program activities (see Note 6 to the consolidated financial statements).

Other (Income) Expense, Net

Other (income) expense, net, was $1.3 billion of income in 2021 compared with $890 million of income in 2020 primarily due to higher income from investments in equity securities, net, largely related to higher realized and unrealized gains on certain investments including the disposition in 2021 of the Company’s ownership interest in Preventice Solutions Inc. (Preventice) as a result of the acquisition of Preventice by Boston Scientific, partially offset by higher foreign exchange losses and pension settlement costs. Other (income) and expense, net, was $890 million of income in 2020 compared with $129 million of expense in 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 15 to the consolidated financial statements.

Segment Profits

Other non-reportable segment profits — 1 (7)

Income from Continuing Operations Before Taxes $ 13,879 $ 5,863 $ 7,171

Pharmaceutical segment profits are comprised of segment sales less standard costs, as well as SG&A expenses directly incurred by the segment. Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as SG&A and R&D expenses directly incurred by the segment. For internal management reporting presented to the chief operating decision maker, Merck does not allocate the remaining cost of sales not included in segment profits as described above, R&D expenses incurred by MRL, or general and administrative expenses, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits. Also excluded from the determination of segment profits are costs related to restructuring activities and acquisition and divestiture-related costs, including the amortization of intangible assets and amortization of purchase accounting adjustments, intangible asset impairment charges, and expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration. Additionally, segment profits do not reflect other expenses from corporate and manufacturing cost centers and other miscellaneous income or expense. These unallocated items are reflected in “Other” in the above table. Also included in “Other” are miscellaneous corporate profits (losses), as well as operating profits (losses) related to third-party manufacturing sales. Beginning in 2021, the amortization of intangible assets previously included as part of the calculation of

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segment profits is now included in unallocated non-segment corporate expenses. Prior period Pharmaceutical and Animal Health segment profits have been recast to reflect this change on a comparable basis.

Pharmaceutical segment profits grew 19% in 2021 primarily due to higher sales and the favorable effect of foreign exchange, partially offset by higher administrative and promotional costs. Pharmaceutical segment profits increased 11% in 2020 driven primarily by higher sales, as well as lower selling and promotional costs. Animal Health segment profits grew 17% in 2021 reflecting higher sales, partially offset by higher promotional, selling and administrative costs. Animal Health segment profits increased 4% in 2020 driven primarily by higher sales and lower promotional and selling costs, partially offset by higher R&D costs and the unfavorable effect of foreign exchange.

Taxes on Income

The effective income tax rates from continuing operations were 11.0% in 2021, 22.9% in 2020 and 21.8% in 2019. The full year effective income tax rate reflects a favorable mix of income and expense, as well as higher foreign tax credits from ordinary business operations that the Company was able to credit in 2021. The effective income tax rate from continuing operations in 2021 also reflects the beneficial impact of the settlement of a foreign tax matter, as well as a net tax benefit of $207 million related to the settlement of certain federal income tax matters (see Note 16 to the consolidated financial statements). The effective income tax rate from continuing operations in 2021 also reflects the unfavorable effect of a charge for the acquisition of Pandion for which no tax benefit was recognized. The effective income tax rate in 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 $106 million net tax benefit related to the settlement of certain federal income tax matters (see Note 16 to the consolidated financial statements) and the reversal of tax reserves established in 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 impact 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) (see Note 16 to the consolidated financial statements).

Net Income (Loss) Attributable to Noncontrolling Interests

Net income (loss) attributable to noncontrolling interests was $13 million in 2021, $4 million in 2020 and $(84) million in 2019. The loss in 2019 was driven primarily by the portion of goodwill impairment charges related to certain businesses in the Healthcare Services segment that were attributable to noncontrolling interests.

Non-GAAP Income and Non-GAAP EPS from Continuing Operations

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, income and losses from investments in equity securities and certain other items. These excluded items are significant components in understanding and assessing financial performance.

Non-GAAP income and non-GAAP EPS are important internal measures for the Company. Senior management receives a monthly analysis of operating results that includes 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. In addition, senior management’s annual compensation is derived in part using non-GAAP 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 U.S. (GAAP).

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A reconciliation between GAAP financial measures and non-GAAP financial measures (from continuing operations) is as follows:

Increase (decrease) for excluded items:

Income from investments in equity securities, net (1,884) (1,292) (132)

Other items:

Charge for the acquisition of Pandion 1,704 — —

Charges for the discontinuation of COVID-19 development programs 225 305

Charge for the acquisition of VelosBio (43) 2,660 —

Charges for the formation of collaborations (2) — 1,076 —

Charge for the acquisition of OncoImmune — 462 —

Charge for the acquisition of Peloton — — 993

Non-GAAP income from continuing operations before taxes 17,229 13,576 11,972

Estimated tax benefit on excluded items (3) 206 793 710

Non-GAAP taxes on income from continuing operations 1,934 2,066 2,350

Non-GAAP net income attributable to Merck & Co., Inc. $ 15,282 $ 11,506 $ 9,617

Non-GAAP EPS assuming dilution from continuing operations $ 6.02 $ 4.53 $ 3.73

(1)Amount in 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 9 to the consolidated financial statements.

(2)Includes $826 million related to transactions with Seagen. See Note 4 to the consolidated financial statements.

(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.

Acquisition and Divestiture-Related Costs

Non-GAAP income and non-GAAP EPS exclude the impact of certain amounts recorded in connection with acquisitions and divestitures. 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 acquisitions and divestitures. Non-GAAP income and non-GAAP EPS also exclude amortization of intangible assets related to collaborations and licensing arrangements.

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Restructuring Costs

Non-GAAP income and non-GAAP EPS exclude costs related to restructuring actions (see Note 6 to the consolidated financial statements). These amounts include employee separation costs and accelerated depreciation associated with facilities to be closed or divested. Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the revised useful life of the asset, based upon the anticipated date the site will be closed or divested or the equipment disposed of, and depreciation expense as determined utilizing the useful life prior to the restructuring actions. Restructuring costs also include asset abandonment, facility shut-down and other related costs, as well as employee-related costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans and share-based compensation costs.

Income and Losses from Investments in Equity Securities

Non-GAAP income and non-GAAP EPS exclude realized and unrealized gains and losses from investments in equity securities either owned directly or through ownership interests in investment funds.

Certain Other Items

Non-GAAP income and non-GAAP EPS exclude certain other items. These items are adjusted for after evaluating them on an individual basis, considering their quantitative and qualitative aspects. Typically, these consist of items that are unusual in nature, significant to the results of a particular period or not indicative of future operating results. Excluded from non-GAAP income and non-GAAP EPS are charges for the acquisitions of Pandion, VelosBio, OncoImmune and Peloton, as well as charges related to collaborations, including transactions with Seagen (see Note 4 to the consolidated financial statements). Also excluded from non-GAAP income and non-GAAP EPS are charges related to the discontinuation of COVID-19 development programs (see Note 4 to the consolidated financial statements). Additionally, excluded from non-GAAP income and non-GAAP EPS are certain tax items, including net tax benefits related to the settlement of certain federal income tax matters, an adjustment to tax benefits recorded in conjunction with the 2015 acquisition of Cubist Pharmaceuticals, Inc., a tax benefit related to the reversal of tax reserves established in connection with the 2014 divestiture of MCC, and a net tax charge related to the finalization of U.S. treasury regulations related to the TCJA (see Note 16 to the consolidated financial statements).

Research and Development

Research Pipeline

The Company currently has several candidates under regulatory review in the U.S. and internationally, as well as in late-stage clinical development. A chart reflecting the Company’s current research pipeline as of February 22, 2022 and related discussion is set forth in Item 1. “Business — Research and Development” above.

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 recent transactions are summarized below; additional details are included in Note 4 to the consolidated financial statements. Merck actively monitors the landscape for growth opportunities that meet the Company’s strategic criteria.

In March 2021, Merck and Gilead entered into an agreement to jointly develop and commercialize long-acting treatments in HIV that combine Merck’s investigational NRTTI, islatravir, and Gilead’s investigational capsid inhibitor, lenacapavir. The collaboration will initially focus on long-acting oral formulations and long-acting injectable formulations of these combination products, with other formulations potentially added to the collaboration as mutually agreed. There was no upfront payment made by either party upon entering into the agreement.

In April 2021, Merck acquired Pandion, a clinical-stage biotechnology company developing novel therapeutics designed to address the unmet needs of patients living with autoimmune diseases, for total consideration of $1.9 billion. Pandion is advancing a pipeline of precision immune modulators targeting critical immune control nodes.

In November 2021, Merck acquired Acceleron, a publicly traded biopharmaceutical company, for total consideration of $11.5 billion. Acceleron is evaluating the TGF-beta superfamily of proteins that is known to play a central role in the regulation of cell growth, differentiation and repair. Acceleron’s lead therapeutic candidate,

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sotatercept (MK-7962), has a novel mechanism of action with the potential to improve short-term and/or long-term clinical outcomes in patients with PAH. Sotatercept is in Phase 3 trials as an add-on to current standard of care for the treatment of PAH. In addition to sotatercept, Acceleron’s portfolio includes Reblozyl (luspatercept), a first-in-class erythroid maturation recombinant fusion protein that is approved in the U.S., Europe, Canada and Australia for the treatment of anemia in certain rare blood disorders and is being evaluated in clinical trials for additional indications for hematology therapies. Reblozyl is being developed and commercialized through a global collaboration with Bristol Myers Squibb.

Acquired In-Process Research and Development

In connection with business combinations, 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, 2021, the balance of IPR&D was $9.3 billion (see Note 9 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 the IPR&D programs require additional clinical trial data than previously anticipated, or if the 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 the acquisition date. If such circumstances were to occur, the Company’s future operating results could be adversely affected and the Company may recognize impairment charges, which could be material.

In 2021, 2020, and 2019 the Company recorded IPR&D impairment charges within Research and development expenses of $275 million, $90 million and $172 million, respectively (see Note 9 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.

Capital Expenditures

Capital expenditures were $4.4 billion in 2021, $4.4 billion in 2020 and $3.4 billion in 2019. Expenditures in the U.S. were $2.8 billion in 2021, $2.6 billion in 2020 and $1.9 billion in 2019. The Company plans to invest approximately $20 billion in capital projects from 2021-2025 including expanding manufacturing capacity for oncology, vaccine and animal health products.

Depreciation expense was $1.6 billion in 2021, $1.7 billion in 2020 and $1.6 billion in 2019, of which $1.1 billion in 2021, $1.2 billion in 2020 and $1.2 billion in 2019, related to locations in the U.S. Total depreciation expense in 2021, 2020 and 2019 included accelerated depreciation of $91 million, $268 million and $233 million, respectively, associated with restructuring activities (see Note 6 to the consolidated financial statements).

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

Total debt to total liabilities and equity 31.3 % 34.7 % 31.2 %

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The increase in working capital in 2021 compared with 2020 is primarily related to decreased short-term debt.

Cash provided by operating activities of continuing operations was $13.1 billion in 2021 compared with $7.6 billion in 2020 and $8.9 billion in 2019. The higher cash provided by operating activities of continuing operations in 2021 reflects stronger operating performance. Cash provided by operating activities of continuing operations includes upfront and milestone payments related to collaborations of $435 million in 2021, $2.9 billion in 2020 and $805 million in 2019. Cash provided by operating activities of continuing operations continues to be the Company’s source of funds to finance operating needs, with excess cash serving as the primary source of funds to finance capital expenditures, treasury stock purchases and dividends paid to shareholders.

Cash used in investing activities of continuing operations was $16.4 billion in 2021 compared with $9.2 billion in 2020. The higher use of cash in investing activities of continuing operations was primarily due to higher cash used for acquisitions, including for the acquisition of Acceleron, and lower proceeds from sales of securities and other investments, partially offset by the 2020 purchase of Seagen common stock. Cash used in investing activities of continuing operations was $9.2 billion in 2020 compared with $2.5 billion in 2019. The increase was driven primarily by lower proceeds from the sales of securities and other investments, higher use of cash for acquisitions, higher capital expenditures and the purchase of Seagen common stock, partially offset by lower purchases of securities and other investments.