10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File No. 1-6571

Merck & Co., Inc.

(Exact name of registrant as specified in its charter)

New Jersey	22-1918501
(State or other jurisdiction of incorporation)	(I.R.S Employer Identification No.)
2000 Galloping Hill Road
Kenilworth	New Jersey	07033
(Address of principal executive offices) (zip code)

(Registrant’s telephone number, including area code) (908) 740-4000

	Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

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

The number of shares of common stock outstanding as of the close of business on October 31, 2019: 2,545,984,142

Table of Contents

		Page No.
PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Statement of Income	3
	Condensed Consolidated Statement of Comprehensive Income	3
	Condensed Consolidated Balance Sheet	4
	Condensed Consolidated Statement of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 4.	Controls and Procedures	45
	Cautionary Factors That May Affect Future Results	46
PART II	OTHER INFORMATION	46
Item 1.	Legal Proceedings	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 6.	Exhibits	47
Exhibit Index		48
Signatures		49

Part I - Financial Information

Item 1. Financial Statements

MERCK & CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Unaudited, $ in millions except per share amounts)

	Three Months Ended   September 30,					Nine Months Ended   September 30,
	2019		2018			2019			2018
Sales	$	12,397	$	10,794		$	34,972		$	31,296
Costs, Expenses and Other
Cost of sales	3,990		3,619			10,443			10,220
Selling, general and administrative	2,589		2,443			7,726			7,459
Research and development	3,204		2,068			7,324			7,538
Restructuring costs	232		171			444			494
Other (income) expense, net	35		(172		)	362			(512		)
	10,050		8,129			26,299			25,199
Income Before Taxes	2,347		2,665			8,673			6,097
Taxes on Income	440		707			1,259			1,682
Net Income	1,907		1,958			7,414			4,415
Less: Net Income (Loss) Attributable to Noncontrolling Interests	6		8			(73		)	22
Net Income Attributable to Merck & Co., Inc.	$	1,901	$	1,950		$	7,487		$	4,393
Basic Earnings per Common Share Attributable to Merck & Co., Inc. Common Shareholders	$	0.74	$	0.73		$	2.91		$	1.64
Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders	$	0.74	$	0.73		$	2.89		$	1.63

MERCK & CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited, $ in millions)

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	2019			2018			2019			2018
Net Income Attributable to Merck & Co., Inc.	$	1,901		$	1,950		$	7,487		$	4,393
Other Comprehensive (Loss) Income Net of Taxes:
Net unrealized gain (loss) on derivatives, net of reclassifications	91			27			(9		)	223
Net unrealized (loss) gain on investments, net of reclassifications	(17		)	40			109			(56		)
Benefit plan net gain and prior service credit, net of amortization	15			40			41			106
Cumulative translation adjustment	(117		)	(136		)	14			(240		)
	(28		)	(29		)	155			33
Comprehensive Income Attributable to Merck & Co., Inc.	$	1,873		$	1,921		$	7,642		$	4,426

 The accompanying notes are an integral part of these condensed consolidated financial statements.

MERCK & CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited, $ in millions except per share amounts)

 

	September 30, 2019			December 31, 2018
Assets
Current Assets
Cash and cash equivalents	$	7,869		$	7,965
Short-term investments	149			899
Accounts receivable (net of allowance for doubtful accounts of $116 in 2019 and $119 in 2018)	8,442			7,071
Inventories (excludes inventories of $1,515 in 2019 and $1,417 in 2018 classified in Other assets - see Note 6)	5,855			5,440
Other current assets	3,827			4,500
Total current assets	26,142			25,875
Investments	2,111			6,233
Property, Plant and Equipment, at cost, net of accumulated depreciation of $17,281 in 2019 and $16,324 in 2018	14,287			13,291
Goodwill	19,480			18,253
Other Intangibles, Net	12,307			11,431
Other Assets	9,004			7,554
	$	83,331		$	82,637
Liabilities and Equity
Current Liabilities
Loans payable and current portion of long-term debt	$	3,411		$	5,308
Trade accounts payable	3,198			3,318
Accrued and other current liabilities	11,768			10,151
Income taxes payable	873			1,971
Dividends payable	1,434			1,458
Total current liabilities	20,684			22,206
Long-Term Debt	22,677			19,806
Deferred Income Taxes	1,960			1,702
Other Noncurrent Liabilities	11,085			12,041
Merck & Co., Inc. Stockholders’ Equity
Common stock, $0.50 par value Authorized - 6,500,000,000 shares Issued - 3,577,103,522 shares in 2019 and 2018	1,788			1,788
Other paid-in capital	39,561			38,808
Retained earnings	45,804			42,579
Accumulated other comprehensive loss	(5,390		)	(5,545		)
	81,763			77,630
Less treasury stock, at cost: 1,026,214,892 shares in 2019 and 984,543,979 shares in 2018	54,925			50,929
Total Merck & Co., Inc. stockholders’ equity	26,838			26,701
Noncontrolling Interests	87			181
Total equity	26,925			26,882
	$	83,331		$	82,637

The accompanying notes are an integral part of this condensed consolidated financial statement.

- 4 -

MERCK & CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited, $ in millions)

	Nine Months Ended   September 30,
	2019			2018
Cash Flows from Operating Activities
Net income	$	7,414		$	4,415
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,716			3,521
Intangible asset impairment charges	864			—
Charge for acquisition of Peloton Therapeutics, Inc.	982			—
Charge for future payments related to collaboration license options	—			650
Charge for collaboration termination	—			420
Deferred income taxes	(386		)	(391		)
Share-based compensation	306			261
Other	219			488
Net changes in assets and liabilities	(3,469		)	(2,034		)
Net Cash Provided by Operating Activities	8,646			7,330
Cash Flows from Investing Activities
Capital expenditures	(2,336		)	(1,686		)
Purchases of securities and other investments	(2,380		)	(6,899		)
Proceeds from sales of securities and other investments	7,459			11,243
Acquisition of Antelliq Corporation, net of cash acquired	(3,620		)	—
Acquisition of Peloton Therapeutics, Inc., net of cash acquired	(1,040		)	—
Other acquisitions, net of cash acquired	(269		)	(372		)
Other	320			(150		)
Net Cash (Used in) Provided by Investing Activities	(1,866		)	2,136
Cash Flows from Financing Activities
Net change in short-term borrowings	(3,892		)	2,294
Payments on debt	—			(3,007		)
Proceeds from issuance of debt	4,958			—
Purchases of treasury stock	(3,730		)	(3,158		)
Dividends paid to stockholders	(4,290		)	(3,895		)
Proceeds from exercise of stock options	344			461
Other	(240		)	(289		)
Net Cash Used in Financing Activities	(6,850		)	(7,594		)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	(26		)	(140		)
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash	(96		)	1,732
Cash, Cash Equivalents and Restricted Cash at Beginning of Year (includes restricted cash of $2 million at January 1, 2019 included in Other Assets)	7,967			6,096
Cash, Cash Equivalents and Restricted Cash at End of Period (includes restricted cash of $2 million at September 30, 2019 included in Other Assets)	$	7,871		$	7,828

The accompanying notes are an integral part of this condensed consolidated financial statement.

- 5 -

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Merck & Co., Inc. (Merck or the Company) have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements are not included herein. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Merck’s Form 10-K filed on February 27, 2019.

The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. In the Company’s opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature. Certain reclassifications have been made to prior year amounts to conform to the current presentation.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (FASB) issued new accounting guidance for the accounting and reporting of leases (ASU 2016-02) and subsequently issued several updates to the new guidance (ASC 842 or new guidance). The new guidance requires that lessees recognize a right-of-use asset and a lease liability for each of its leases (other than leases that meet the definition of a short-term lease). Leases are classified as either operating or finance. Operating leases result in straight-line expense in the income statement (similar to previous operating leases), while finance leases result in more expense being recognized in the earlier years of the lease term (similar to previous capital leases). The Company adopted the new standard on January 1, 2019 using a modified retrospective approach. Merck elected the transition method that allows for application of the standard at the adoption date rather than at the beginning of the earliest comparative period presented in the financial statements. The Company also elected available practical expedients. Upon adoption, the Company recognized $1.1 billion of additional assets and related liabilities on its consolidated balance sheet (see Note 8). The adoption of the new guidance did not impact the Company’s consolidated statements of income or cash flows.

In April 2018, the FASB issued new guidance on the accounting for costs incurred to implement a cloud computing arrangement that is considered a service arrangement. The new guidance requires the capitalization of such costs, aligning it with the accounting for costs associated with developing or obtaining internal-use software. The Company adopted the new standard in the third quarter of 2019 using prospective application for eligible costs, which were immaterial.

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued amended guidance on the accounting for credit losses on financial instruments. The guidance introduces an expected loss model for estimating credit losses, replacing the incurred loss model. The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use of an allowance to record estimated credit losses (and subsequent recoveries). The new guidance is effective for interim and annual periods beginning in 2020, with earlier application permitted in 2019, including adoption in any interim period. The new guidance is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings in the beginning of the period of adoption. The Company is continuing to assess the impact of adopting the new standard but does not expect the adoption to have a material impact on its consolidated financial statements, subject to the finalization of its assessment.

In November 2018, the FASB issued new guidance for collaborative arrangements intended to reduce diversity in practice by clarifying whether certain transactions between collaborative arrangement participants should be accounted for under revenue recognition guidance (ASC 606). The new guidance is effective for interim and annual periods beginning in 2020. Early adoption is permitted, including adoption in any interim period. The new guidance is to be applied on a retrospective basis through a cumulative-effect adjustment directly to retained earnings. The Company does not anticipate the adoption of this standard will have a material effect on its consolidated financial statements.

2. Acquisitions, Divestitures, Research Collaborations and License Agreements

The Company continues to pursue acquisitions and the establishment of external alliances such as research collaborations and licensing agreements to complement its internal research capabilities. These arrangements often include upfront payments, as well as expense reimbursements or payments to the third party, and milestone, royalty or profit share arrangements, contingent upon the occurrence of certain future events linked to the success of the asset in development. The Company also reviews its marketed products and pipeline to examine candidates which may provide more value through out-licensing and, as part of its portfolio assessment process, may also divest certain assets. Pro forma financial information for acquired businesses is not presented if the historical financial results of the acquired entity are not significant when compared with the Company’s financial results.

In July 2019, Merck acquired Peloton Therapeutics, Inc. (Peloton), a clinical-stage biopharmaceutical company focused on the development of novel small molecule therapeutic candidates targeting hypoxia-inducible factor-2α (HIF-2α) for the treatment of patients with cancer and other non-oncology diseases. Peloton’s lead candidate, MK-6482 (formerly PT2977), is a novel oral

- 6 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

HIF-2α inhibitor in late-stage development for renal cell carcinoma. Merck made an upfront payment of $1.2 billion in cash; additionally, former Peloton shareholders will be eligible to receive $50 million upon U.S. regulatory approval, $50 million upon first commercial sale in the United States, and up to $1.05 billion of sales-based milestones. The transaction was accounted for as an acquisition of an asset. Merck recorded cash of $157 million, deferred tax liabilities of $64 million, and other net liabilities of $6 million at the acquisition date and Research and development expenses of $982 million in the third quarter and first nine months of 2019 related to the transaction.

On April 1, 2019, Merck acquired Antelliq Corporation (Antelliq), a leader in digital animal identification, traceability and monitoring solutions. These solutions help veterinarians, farmers and pet owners gather critical data to improve management, health and well-being of livestock and pets. Merck paid $2.3 billion to acquire all outstanding shares of Antelliq and spent $1.3 billion to repay Antelliq’s debt. The transaction was accounted for as an acquisition of a business.

The estimated fair value of assets acquired and liabilities assumed from Antelliq is as follows:

($ in millions)	April 1, 2019
Cash and cash equivalents	$	31
Accounts receivable	73
Inventories	95
Property, plant and equipment	62
Identifiable intangible assets (useful lives ranging from 18-24 years) (1)	2,689
Deferred income tax liabilities	(563		)
Other assets and liabilities, net	(81		)
Total identifiable net assets	2,306
Goodwill (2)	1,345
Consideration transferred	$	3,651

⁽¹⁾  The estimated fair values of identifiable intangible assets relate primarily to trade names and were determined using an income approach. The future net cash flows were discounted to present value utilizing a discount rate of 11.5%. Actual cash flows are likely to be different than those assumed.

⁽²⁾  The goodwill recognized is largely attributable to anticipated synergies expected to arise after the acquisition and was allocated to the Animal Health segment. The goodwill is not deductible for tax purposes.

The Company’s results for the first nine months of 2019 include five months of activity for Antelliq. The Company incurred $47 million of transaction costs directly related to the acquisition of Antelliq, consisting largely of advisory fees, which are reflected in Selling, general and administrative expenses in the first nine months of 2019.

Also in April 2019, Merck acquired Immune Design, a late-stage immunotherapy company employing next-generation in vivo approaches to enable the body’s immune system to fight disease, for $301 million in cash. The transaction was accounted for as an acquisition of a business. Merck recognized intangible assets for in-process research and development (IPR&D) of $156 million, cash of $83 million and other net assets of $31 million. The excess of the consideration transferred over the fair value of net assets acquired of $31 million was recorded as goodwill that was allocated to the Pharmaceutical segment and is not deductible for tax purposes. The fair values of the identifiable intangible assets related to IPR&D were determined using an income approach. Actual cash flows are likely to be different than those assumed.

In the third quarter of 2018, the Company recorded an aggregate charge of $420 million within Cost of sales in conjunction with the termination of a collaboration agreement entered into in 2014 with Samsung Bioepis Co., Ltd. (Samsung) for insulin glargine. The charge reflects a termination payment of $155 million, which represents the reimbursement of all fees previously paid by Samsung to Merck under the agreement, plus interest, as well as the release of Merck’s ongoing obligations under the agreement. The charge also included fixed asset abandonment charges of $137 million, inventory write-offs of $122 million, as well as other related costs of $6 million. The termination of this agreement has no impact on the Company’s other collaboration with Samsung.

In June 2018, Merck acquired Viralytics Limited (Viralytics), an Australian publicly traded company focused on oncolytic immunotherapy treatments for a range of cancers, for AUD 502 million ($378 million). The transaction provided Merck with full rights to V937 (formerly CVA21), Viralytics’s investigational oncolytic immunotherapy. V937 is based on Viralytics’s proprietary formulation of an oncolytic virus (Coxsackievirus Type A21) that has been shown to preferentially infect and kill cancer cells. V937 is currently being evaluated in multiple Phase 1 and Phase 2 clinical trials, both as an intratumoral and intravenous agent, including in combination with Keytruda. Under a previous agreement between Merck and Viralytics, a study is investigating the use of the Keytruda and V937 combination in melanoma, prostate, lung and bladder cancers. The transaction was accounted for as an acquisition of an asset. Merck recorded net assets of $34 million (primarily cash) at the acquisition date and Research and development expenses of $344 million in the first nine months of 2018 related to the transaction. There are no future contingent payments associated with the acquisition.

- 7 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

In March 2018, Merck and Eisai Co., Ltd. (Eisai) entered into a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima, an orally available tyrosine kinase inhibitor discovered by Eisai (see Note 3).

3.    Collaborative Arrangements

Merck has entered into collaborative arrangements that provide the Company with varying rights to develop, produce and market products together with its collaborative partners. Both parties in these arrangements are active participants and exposed to significant risks and rewards dependent on the commercial success of the activities of the collaboration. Merck’s more significant collaborative arrangements are discussed below.

AstraZeneca

In July 2017, Merck and AstraZeneca PLC (AstraZeneca) entered into a global strategic oncology collaboration to co-develop and co-commercialize AstraZeneca’s Lynparza for multiple cancer types. Lynparza is an oral poly (ADP-ribose) polymerase (PARP) inhibitor currently approved for certain types of ovarian and breast cancer. The companies are jointly developing and commercializing Lynparza, both as monotherapy and in combination trials with other potential medicines. Independently, Merck and AstraZeneca will develop and commercialize Lynparza in combinations with their respective PD-1 and PD-L1 medicines, Keytruda and Imfinzi. The companies will also jointly develop and commercialize AstraZeneca’s selumetinib, an oral, potent, selective inhibitor of MEK, part of the mitogen-activated protein kinase (MAPK) pathway, currently being developed for multiple indications. Under the terms of the agreement, AstraZeneca and Merck will share the development and commercialization costs for Lynparza and selumetinib monotherapy and non-PD-L1/PD-1 combination therapy opportunities.

Gross profits from Lynparza and selumetinib product sales generated through monotherapies or combination therapies are shared equally. Merck will fund all development and commercialization costs of Keytruda in combination with Lynparza or selumetinib. AstraZeneca will fund all development and commercialization costs of Imfinzi in combination with Lynparza or selumetinib. AstraZeneca is the principal on Lynparza sales transactions. Merck records its share of Lynparza product sales, net of cost of sales and commercialization costs, as alliance revenue within the Pharmaceutical segment and its share of development costs associated with the collaboration as part of Research and development costs. Reimbursements received from AstraZeneca for research and development expenses are recognized as reductions to Research and development costs.

As part of the agreement, Merck made an upfront payment to AstraZeneca of $1.6 billion in 2017 and will make payments of up to $750 million over a multi-year period for certain license options (of which $250 million was paid in December 2017, $400 million was paid in December 2018 and $100 million is expected to be paid in December 2019). The Company recorded an aggregate charge of $2.35 billion in Research and development expenses in 2017 related to the upfront payment and license option payments. In addition, the agreement provides for additional contingent payments from Merck to AstraZeneca related to the successful achievement of sales-based and regulatory milestones.

In the second quarter of 2019, Merck determined it was probable that annual sales of Lynparza in the future would trigger a $300 million sales-based milestone payment from Merck to AstraZeneca. Accordingly, in the second quarter of 2019, Merck recorded a $300 million liability and a corresponding increase to the intangible asset related to Lynparza and also recognized $52 million of cumulative amortization expense within Cost of sales. Prior to 2019, Merck accrued sales-based milestone payments aggregating $700 million related to Lynparza. Of these amounts, $450 million has been paid to AstraZeneca. Potential future sales-based milestone payments of $3.1 billion have not yet been accrued as they are not deemed by the Company to be probable at this time.

In April 2019, Lynparza received regulatory approval in the European Union (EU) as a monotherapy for the treatment of certain adult patients with advanced breast cancer, triggering a $30 million capitalized milestone payment from Merck to AstraZeneca. In June 2019, Lynparza received regulatory approval in the EU as a monotherapy for the maintenance treatment of certain adult patients with BRCA-mutated advanced ovarian cancer, triggering a $30 million capitalized milestone payment from Merck to AstraZeneca. In 2018, Lynparza received regulatory approvals triggering capitalized milestone payments of $140 million in the aggregate from Merck to AstraZeneca. Potential future regulatory milestone payments of $1.7 billion remain under the agreement.

The asset balance related to Lynparza (which includes capitalized sales-based and regulatory milestone payments) was $983 million at September 30, 2019 and is included in Other Assets on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2028 as supported by projected future cash flows, subject to impairment testing.

- 8 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Summarized financial information related to this collaboration is as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2019		2018		2019		2018
Alliance revenue	$	123	$	49	$	313	$	125
Cost of sales (1)	28		12		120		48
Selling, general and administrative	36		12		96		28
Research and development	44		47		122		118
($ in millions)					September 30, 2019		December 31, 2018
Receivables from AstraZeneca included in Other current assets					$	119	$	52
Payables to AstraZeneca included in Accrued and other current liabilities (2)					578		405
Payables to AstraZeneca included in Other Noncurrent Liabilities (3)					300		250

⁽¹⁾ Represents amortization of capitalized milestone payments.

⁽²⁾ Includes accrued milestone and license option payments.

⁽³⁾ Includes accrued milestone payments.

Eisai

In March 2018, Merck and Eisai announced a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima, an orally available tyrosine kinase inhibitor discovered by Eisai. Under the agreement, Merck and Eisai will develop and commercialize Lenvima jointly, both as monotherapy and in combination with Merck’s anti-PD-1 therapy, Keytruda. Eisai records Lenvima product sales globally (Eisai is the principal on Lenvima sales transactions), and Merck and Eisai share gross profits equally. Merck records its share of Lenvima product sales, net of cost of sales and commercialization costs, as alliance revenue. Expenses incurred during co-development, including for studies evaluating Lenvima as monotherapy, are shared equally by the two companies and reflected in Research and development costs.

Under the agreement, Merck made an upfront payment to Eisai of $750 million and will make payments of up to $650 million for certain option rights through 2021 (of which $325 million was paid in March 2019, $200 million is expected to be paid in March 2020 and $125 million is expected to be paid in March 2021). The Company recorded an aggregate charge of $1.4 billion in Research and development expenses in the first quarter of 2018 related to the upfront payment and future option payments. In addition, the agreement provides for Eisai to receive up to $385 million associated with the achievement of certain regulatory milestones and up to $3.97 billion for the achievement of milestones associated with sales of Lenvima.

In the first quarter of 2019, Merck determined it was probable that annual sales of Lenvima in the future would trigger $282 million of sales-based milestone payments from Merck to Eisai. Accordingly, in the first quarter of 2019, Merck recorded $282 million of liabilities and corresponding increases to the intangible asset related to Lenvima and also recognized $35 million of cumulative amortization expense within Cost of sales. Merck previously accrued sales-based milestone payments aggregating $268 million related to Lenvima in 2018. Of these amounts, $50 million has been paid to Eisai. Potential future sales-based milestone payments of $3.42 billion have not yet been accrued as they are not deemed by the Company to be probable at this time.

In 2018, Lenvima received regulatory approvals triggering capitalized milestone payments of $250 million in the aggregate from Merck to Eisai. Potential future regulatory milestone payments of $135 million remain under the agreement.

The asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $664 million at September 30, 2019 and is included in Other Assets on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2026 as supported by projected future cash flows, subject to impairment testing.

- 9 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Summarized financial information related to this collaboration is as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2019		2018		2019		2018
Alliance revenue	$	109	$	43	$	280	$	78
Cost of sales (1)	23		8		97		9
Selling, general and administrative	21		5		59		7
Research and development (2)	37		36		146		1,473
($ in millions)					September 30, 2019		December 31, 2018
Receivables from Eisai included in Other current assets					$	109	$	71
Payables to Eisai included in Accrued and other current liabilities (3)					692		375
Payables to Eisai included in Other Noncurrent Liabilities (3)					125		543

⁽¹⁾ Represents amortization of capitalized milestone payments.

⁽²⁾ Amount for the first nine months of 2018 includes the upfront payment and future option payments.

⁽³⁾ Includes accrued milestone and option payments.

Bayer AG

In 2014, the Company entered into a worldwide clinical development collaboration with Bayer AG (Bayer) to market and develop soluble guanylate cyclase (sGC) modulators including Bayer’s Adempas, which is approved to treat pulmonary arterial hypertension and chronic thromboembolic pulmonary hypertension. The two companies have implemented a joint development and commercialization strategy. The collaboration also includes clinical development of Bayer’s vericiguat, which is in Phase 3 trials for worsening heart failure, as well as opt-in rights for other early-stage sGC compounds in development by Bayer. Merck in turn made available its early-stage sGC compounds under similar terms. Under the agreement, Bayer leads commercialization of Adempas in the Americas, while Merck leads commercialization in the rest of the world. For vericiguat and other potential opt-in products, Bayer will lead commercialization in the rest of world and Merck will lead in the Americas. For all products and candidates included in the agreement, both companies will share in development costs and profits on sales and will have the right to co-promote in territories where they are not the lead. Revenue from Adempas includes sales in Merck’s marketing territories, as well as Merck’s share of profits from the sale of Adempas in Bayer’s marketing territories.

In the first quarter of 2018, Merck made a $350 million sales-based milestone payment to Bayer, which was accrued for in 2016 when Merck deemed the payment to be probable. In the second quarter of 2018, Merck determined it was probable that annual worldwide sales of Adempas in the future would trigger a $375 million sales-based milestone payment from Merck to Bayer; accordingly, Merck recorded a $375 million liability and a corresponding increase to the intangible asset related to Adempas and also recognized $106 million of cumulative amortization expense within Cost of sales. There is an additional $400 million potential future sales-based milestone payment that has not yet been accrued as it is not deemed by the Company to be probable at this time.

The intangible asset balance related to Adempas (which includes the acquired intangible asset balance, as well as capitalized sales-based milestone payments) was $893 million at September 30, 2019 and is included in Other Intangibles, Net on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2027 as supported by projected future cash flows, subject to impairment testing.

- 10 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Summarized financial information related to this collaboration is as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2019		2018		2019		2018
Net product sales recorded by Merck	$	57	$	47	$	158	$	138
Merck’s profit share from sales in Bayer’s marketing territories	50		47		144		100
Total sales	107		94		302		238
Cost of sales (1)	28		29		86		188
Selling, general and administrative	12		11		31		26
Research and development	31		34		94		90
($ in millions)					September 30, 2019		December 31, 2018
Receivables from Bayer included in Other current assets					$	44	$	32
Payables to Bayer included in Other Noncurrent Liabilities (2)					375		375

⁽¹⁾ Includes amortization of intangible assets.

⁽²⁾ Represents accrued milestone payment.

4. Restructuring

Merck recently approved a new global restructuring program (2019 Restructuring Program) as part of a worldwide initiative focused primarily 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 Company will continue to evaluate its global footprint and overall operating model, which could result in the identification of additional actions over time. The actions contemplated under the 2019 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 $800 million to $1.2 billion. The Company estimates that approximately 60% of the cumulative pretax costs will result in cash outlays, primarily related to employee separation expense and facility shut-down costs. Approximately 40% of the cumulative pretax costs will be non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested. The Company expects to record charges of approximately $750 million in 2019 related to the program. Actions under previous global restructuring programs have been substantially completed.

The Company recorded total pretax costs of $296 million and $169 million in the third quarter of 2019 and 2018, respectively, and $642 million and $508 million for the first nine months of 2019 and 2018, respectively, related to restructuring program activities. For segment reporting, restructuring charges are unallocated expenses.

The following tables summarize the charges related to restructuring program activities by type of cost:

	Three Months Ended September 30, 2019									Nine Months Ended September 30, 2019
($ in millions)	Separation Costs		Accelerated Depreciation			Other		Total		Separation Costs		Accelerated Depreciation		Other		Total
Cost of sales	$	—	$	41		$	21	$	62	$	—	$	139	$	22	$	161
Selling, general and administrative	—		1			—		1		—		33		—		33
Research and development	—		(1		)	2		1		—		1		3		4
Restructuring costs	205		—			27		232		358		—		86		444
	$	205	$	41		$	50	$	296	$	358	$	173	$	111	$	642

	Three Months Ended September 30, 2018										Nine Months Ended September 30, 2018
($ in millions)	Separation Costs		Accelerated Depreciation			Other		Total			Separation Costs		Accelerated Depreciation			Other		Total
Cost of sales	$	—	$	1		$	1	$	2		$	—	$	1		$	10	$	11
Selling, general and administrative	—		—			—		—			—		1			1		2
Research and development	—		(9		)	5		(4		)	—		(12		)	13		1
Restructuring costs	137		—			34		171			392		—			102		494
	$	137	$	(8	)	$	40	$	169		$	392	$	(10	)	$	126	$	508

Separation costs are associated with actual headcount reductions, as well as those headcount reductions which were probable and could be reasonably estimated.

- 11 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Accelerated depreciation costs primarily relate to manufacturing, research and administrative facilities and equipment to be sold or closed as part of the programs. 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. All the sites have and will continue to operate up through the respective closure dates and, since future undiscounted cash flows are sufficient to recover the respective book values, Merck is recording accelerated depreciation over the revised useful life of the site assets. Anticipated site closure dates, particularly related to manufacturing locations, have been and may continue to be adjusted to reflect changes resulting from regulatory or other factors.

Other activity in 2019 and 2018 includes asset abandonment, shut-down and other related costs, as well as pretax gains and losses resulting from sales of facilities and related assets. Additionally, other activity includes certain employee-related costs associated with pension and other postretirement benefit plans (see Note 12) and share-based compensation.

The following table summarizes the charges and spending relating to restructuring program activities for the nine months ended September 30, 2019:

($ in millions)	Separation Costs			Accelerated Depreciation			Other			Total
Restructuring reserves January 1, 2019	$	443		$	—		$	91		$	534
Expense	358			173			111			642
(Payments) receipts, net	(198		)	—			(158		)	(356		)
Non-cash activity	—			(173		)	20			(153		)
Restructuring reserves September 30, 2019 (1)	$	603		$	—		$	64		$	667

⁽¹⁾  The remaining cash outlays are expected to be substantially completed by the end of 2023.

5. Financial Instruments

Derivative Instruments and Hedging Activities

The Company manages the impact of foreign exchange rate movements and interest rate movements on its earnings, cash flows and fair values of assets and liabilities through operational means and through the use of various financial instruments, including derivative instruments.

A significant portion of the Company’s revenues and earnings in foreign affiliates is exposed to changes in foreign exchange rates. The objectives and accounting related to the Company’s foreign currency risk management program, as well as its interest rate risk management activities are discussed below.

Foreign Currency Risk Management

The Company has established revenue hedging, balance sheet risk management and net investment hedging programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by volatility in foreign exchange rates.

The objective of the revenue hedging program is to reduce the variability caused by changes in foreign exchange rates that would affect the U.S. dollar value of future cash flows derived from foreign currency denominated sales, primarily the euro, Japanese yen and Chinese renminbi. To achieve this objective, the Company will hedge a portion of its forecasted foreign currency denominated third-party and intercompany distributor entity sales (forecasted sales) that are expected to occur over its planning cycle, typically no more than two years into the future. The Company will layer in hedges over time, increasing the portion of forecasted sales hedged as it gets closer to the expected date of the forecasted sales. The portion of forecasted sales hedged is based on assessments of cost-benefit profiles that consider natural offsetting exposures, revenue and exchange rate volatilities and correlations, and the cost of hedging instruments. The Company manages its anticipated transaction exposure principally with purchased local currency put options, forward contracts and purchased collar options.

The fair values of these derivative contracts are recorded as either assets (gain positions) or liabilities (loss positions) in the Condensed Consolidated Balance Sheet. Changes in the fair value of derivative contracts are recorded each period in either current earnings or Other comprehensive income (OCI), depending on whether the derivative is designated as part of a hedge transaction and, if so, the type of hedge transaction. For derivatives that are designated as cash flow hedges, the unrealized gains or losses on these contracts is recorded in Accumulated other comprehensive income (AOCI) and reclassified into Sales when the hedged anticipated revenue is recognized. For those derivatives which are not designated as cash flow hedges, but serve as economic hedges of forecasted sales, unrealized gains or losses are recorded in Sales each period. The cash flows from both designated and non-designated contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows. The Company does not enter into derivatives for trading or speculative purposes.

- 12 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

The Company manages operating activities and net asset positions at each local subsidiary in order to mitigate the effects of exchange on monetary assets and liabilities. The Company also uses a balance sheet risk management program to mitigate the exposure of net monetary assets that are denominated in a currency other than a subsidiary’s functional currency from the effects of volatility in foreign exchange. In these instances, Merck principally utilizes forward exchange contracts to offset the effects of exchange on exposures denominated in developed country currencies, primarily the euro and Japanese yen. For exposures in developing country currencies, the Company will enter into forward contracts to partially offset the effects of exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange rate and the cost of the hedging instrument. The cash flows from these contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows.

Monetary assets and liabilities denominated in a currency other than the functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in spot rates reported in Other (income) expense, net. The forward contracts are not designated as hedges and are marked to market through Other (income) expense, net. Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the remeasured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. These differences are not significant due to the short-term nature of the contracts, which typically have average maturities at inception of less than one year.

The Company also uses forward exchange contracts to hedge its net investment in foreign operations against movements in exchange rates. The forward contracts are designated as hedges of the net investment in a foreign operation. The Company hedges a portion of the net investment in certain of its foreign operations. The unrealized gains or losses on these contracts are recorded in foreign currency translation adjustment within OCI and remain in AOCI until either the sale or complete or substantially complete liquidation of the subsidiary. The Company excludes certain portions of the change in fair value of its derivative instruments from the assessment of hedge effectiveness (excluded component). Changes in fair value of the excluded components are recognized in OCI. The Company recognizes in earnings the initial value of the excluded component on a straight-line basis over the life of the derivative instrument, rather than using the mark-to-market approach. The cash flows from these contracts are reported as investing activities in the Condensed Consolidated Statement of Cash Flows.

Foreign exchange risk is also managed through the use of foreign currency debt. The Company’s senior unsecured euro-denominated notes have been designated as, and are effective as, economic hedges of the net investment in a foreign operation. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in foreign currency translation adjustment within OCI.

The effects of the Company’s net investment hedges on OCI and the Consolidated Statement of Income are shown below:

	Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income (1)												Amount of Pretax (Gain) Loss Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2019			2018			2019			2018			2019			2018			2019			2018
Net Investment Hedging Relationships
Foreign exchange contracts	$	1		$	(10	)	$	8		$	(24	)	$	(8	)	$	(4	)	$	(23	)	$	(7	)
Euro-denominated notes	(150		)	38			(152		)	(54		)	—			—			—			—

⁽¹⁾ No amounts were reclassified from AOCI into income related to the sale of a subsidiary.

Interest Rate Risk Management

The Company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rate changes and to reduce its overall cost of borrowing. The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal capital at risk.

At September 30, 2019, the Company was a party to 19 pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes in which the notional amounts match the amount of the hedged fixed-rate notes as detailed in the table below.

- 13 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

	September 30, 2019
($ in millions)	Par Value of Debt		Number of Interest Rate Swaps Held	Total Swap Notional Amount
1.85% notes due 2020	$	1,250	5	$	1,250
3.875% notes due 2021	1,150		5	1,150
2.40% notes due 2022	1,000		4	1,000
2.35% notes due 2022	1,250		5	1,250

The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in the benchmark London Interbank Offered Rate (LIBOR) swap rate. The fair value changes in the notes attributable to changes in the LIBOR swap rate are recorded in interest expense along with the offsetting fair value changes in the swap contracts. The cash flows from these contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows.

The table below presents the location of amounts recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:

	Carrying Amount of Hedged Liabilities				Cumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount
($ in millions)	September 30, 2019		December 31, 2018		September 30, 2019			December 31, 2018
Balance Sheet Line Item in which Hedged Item is Included
Loans payable and current portion of long-term debt	$	1,247	$	—	$	(3	)	$	—
Long-Term Debt	3,416		4,560		22			(82		)

Presented in the table below is the fair value of derivatives on a gross basis segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments:

		September 30, 2019						December 31, 2018
		Fair Value of Derivative				U.S. Dollar Notional		Fair Value of Derivative				U.S. Dollar Notional
($ in millions)	Balance Sheet Caption	Asset		Liability				Asset		Liability
Derivatives Designated as Hedging Instruments
Interest rate swap contracts	Other Assets	$	22	$	—	$	3,400	$	—	$	—	$	—
Interest rate swap contracts	Accrued and other current liabilities	—		3		1,250		—		—		—
Interest rate swap contracts	Other Noncurrent Liabilities	—		—		—		—		81		4,650
Foreign exchange contracts	Other current assets	252		—		7,144		263		—		6,222
Foreign exchange contracts	Other Assets	56		—		2,073		75		—		2,655
Foreign exchange contracts	Accrued and other current liabilities	—		6		775		—		7		774
Foreign exchange contracts	Other Noncurrent Liabilities	—		1		9		—		1		89
		$	330	$	10	$	14,651	$	338	$	89	$	14,390
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts	Other current assets	$	153	$	—	$	6,802	$	116	$	—	$	5,430
Foreign exchange contracts	Accrued and other current liabilities	—		100		6,906		—		71		9,922
		$	153	$	100	$	13,708	$	116	$	71	$	15,352
		$	483	$	110	$	28,359	$	454	$	160	$	29,742

As noted above, the Company records its derivatives on a gross basis in the Condensed Consolidated Balance Sheet. The Company has master netting agreements with several of its financial institution counterparties (see Concentrations of Credit Risk below). The following table provides information on the Company’s derivative positions subject to these master netting arrangements as if they were presented on a net basis, allowing for the right of offset by counterparty and cash collateral exchanged per the master agreements and related credit support annexes:

	September 30, 2019						December 31, 2018
($ in millions)	Asset			Liability			Asset			Liability
Gross amounts recognized in the condensed consolidated balance sheet	$	483		$	110		$	454		$	160
Gross amounts subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet	(73		)	(73		)	(121		)	(121		)
Cash collateral received	(133		)	—			(107		)	—
Net amounts	$	277		$	37		$	226		$	39

- 14 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

The table below provides information regarding the location and amount of pretax (gains) losses of derivatives designated in fair value or cash flow hedging relationships:

	Sales					Other (income) expense, net (1)						Other comprehensive income (loss)						Sales					Other (income) expense, net (1)						Other comprehensive income (loss)
	Three Months Ended September 30,					Three Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,					Nine Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2019		2018			2019			2018			2019			2018			2019		2018			2019			2018			2019			2018
Financial Statement Line Items in which Effects of Fair Value or Cash Flow Hedges are Recorded	$	12,397	$	10,794		$	35		$	(172	)	$	(28	)	$	(29	)	$	34,972	$	31,296		$	362		$	(512	)	$	155		$	33
(Gain) loss on fair value hedging relationships
Interest rate swap contracts
Hedged items	—		—			13			(9		)	—			—			—		—			101			(86		)	—			—
Derivatives designated as hedging instruments	—		—			(6		)	15			—			—			—		—			(74		)	100			—			—
Impact of cash flow hedging relationships
Foreign exchange contracts
Amount of income (loss) recognized in OCI on derivatives	—		—			—			—			186			29			—		—			—			—			183			113
Increase (decrease) in Sales as a result of AOCI reclassifications	70		(6		)	—			—			(70		)	6			189		(172		)	—			—			(189		)	172
Interest rate contracts
Amount of gain recognized in Other (income) expense, net on derivatives	—		—			(1		)	(1		)	—			—			—		—			(3		)	(3		)	—			—
Amount of loss recognized in OCI on derivatives	—		—			—			—			(1		)	(1		)	—		—			—			—			(6		)	(3		)

⁽¹⁾ Interest expense is a component of Other (income) expense, net.

The table below provides information regarding the income statement effects of derivatives not designated as hedging instruments:

		Amount of Derivative Pretax (Gain) Loss Recognized in Income
		Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	Income Statement Caption	2019			2018			2019			2018
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts (1)	Other (income) expense, net	$	(8	)	$	(57	)	$	112		$	(224	)
Foreign exchange contracts (2)	Sales	(11		)	—			(7		)	(5		)

⁽¹⁾ These derivative contracts mitigate changes in the value of remeasured foreign currency denominated monetary assets and liabilities attributable to changes in foreign currency exchange rates.

⁽²⁾ These derivative contracts serve as economic hedges of forecasted transactions.

At September 30, 2019, the Company estimates $174 million of pretax net unrealized gains on derivatives maturing within the next 12 months that hedge foreign currency denominated sales over that same period will be reclassified from AOCI to Sales. The amount ultimately reclassified to Sales may differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual exchange rates at maturity.

- 15 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Investments in Debt and Equity Securities

Information on investments in debt and equity securities is as follows:

	September 30, 2019								December 31, 2018
	Amortized Cost		Gross Unrealized				Fair Value		Amortized Cost		Gross Unrealized					Fair Value
($ in millions)			Gains		Losses						Gains		Losses
Corporate notes and bonds	$	1,260	$	24	$	—	$	1,284	$	4,985	$	3	$	(68	)	$	4,920
Asset-backed securities	434		3		—		437		1,285		1		(11		)	1,275
U.S. government and agency securities	358		4		—		362		895		2		(5		)	892
Foreign government bonds	32		—		—		32		167		—		(1		)	166
Mortgage-backed securities	—		—		—		—		8		—		—			8
Total debt securities	$	2,084	$	31	$	—	$	2,115	$	7,340	$	6	$	(85	)	$	7,261
Publicly traded equity securities (1)							691									456
Total debt and publicly traded equity securities							$	2,806								$	7,717

⁽¹⁾ Unrealized net losses (gains) recognized in Other (income) expense, net on equity securities still held at September 30, 2019 were $25 million and $(10) million, for the third quarter of 2019 and 2018, respectively, and were $(41) million and $(60) million for the first nine months of 2019 and 2018, respectively.

At September 30, 2019, the Company also had $393 million of equity investments without readily determinable fair values included in Other Assets. During the first nine months of 2019, the Company recognized unrealized gains of $4 million on certain of these equity investments recorded in Other (income) expense, net based on favorable observable price changes from transactions involving similar investments of the same investee. In addition, during the first nine months of 2019, the Company recognized unrealized losses of $12 million in Other (income) expense, net related to certain of these investments based on unfavorable observable price changes. Since January 1, 2018, cumulative unrealized gains and cumulative unrealized losses based on observable prices changes for investments in equity investments without readily determinable fair values were $172 million and $21 million, respectively.

Available-for-sale debt securities included in Short-term investments totaled $129 million at September 30, 2019. Of the remaining debt securities, $1.8 billion mature within five years. At September 30, 2019 and December 31, 2018, there were no debt securities pledged as collateral.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value with Level 1 having the highest priority and Level 3 having the lowest: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities, Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities, Level 3 - Unobservable inputs that are supported by little or no market activity. Level 3 assets or liabilities are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant unobservable inputs, as well as assets or liabilities for which the determination of fair value requires significant judgment or estimation. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

- 16 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements Using								Fair Value Measurements Using
	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
($ in millions)	September 30, 2019								December 31, 2018
Assets
Investments
Corporate notes and bonds	$	—	$	1,284	$	—	$	1,284	$	—	$	4,835	$	—	$	4,835
Asset-backed securities (1)	—		437		—		437		—		1,253		—		1,253
U.S. government and agency securities	—		301		—		301		—		731		—		731
Foreign government bonds	—		32		—		32		—		166		—		166
Publicly traded equity securities	206		—		—		206		147		—		—		147
	206		2,054		—		2,260		147		6,985		—		7,132
Other assets (2)
U.S. government and agency securities	61		—		—		61		55		106		—		161
Corporate notes and bonds	—		—		—		—		—		85		—		85
Mortgage-backed securities	—		—		—		—		—		8		—		8
Asset-backed securities (1)	—		—		—		—		—		22		—		22
Publicly traded equity securities	485		—		—		485		309		—		—		309
	546		—		—		546		364		221		—		585
Derivative assets (3)
Forward exchange contracts	—		259		—		259		—		241		—		241
Purchased currency options	—		202		—		202		—		213		—		213
Interest rate swaps	—		22		—		22		—		—		—		—
	—		483		—		483		—		454		—		454
Total assets	$	752	$	2,537	$	—	$	3,289	$	511	$	7,660	$	—	$	8,171
Liabilities
Other liabilities
Contingent consideration	$	—	$	—	$	755	$	755	$	—	$	—	$	788	$	788
Derivative liabilities (3)
Forward exchange contracts	—		105		—		105		—		74		—		74
Interest rate swaps	—		3		—		3		—		81		—		81
Written currency options	—		2		—		2		—		5		—		5
	—		110		—		110		—		160		—		160
Total liabilities	$	—	$	110	$	755	$	865	$	—	$	160	$	788	$	948

⁽¹⁾  Primarily all of the asset-backed securities are highly-rated (Standard & Poor’s rating of AAA and Moody’s Investors Service rating of Aaa), secured primarily by auto loan, credit card and student loan receivables, with weighted-average lives of primarily 5 years or less.

⁽²⁾  Investments included in other assets are restricted as to use, primarily for the payment of benefits under employee benefit plans.

⁽³⁾  The fair value determination of derivatives includes the impact of the credit risk of counterparties to the derivatives and the Company’s own credit risk, the effects of which were not significant.

There were no transfers between Level 1 and Level 2 during the first nine months of 2019. As of September 30, 2019, Cash and cash equivalents of $7.9 billion included $7.1 billion of cash equivalents (which would be considered Level 2 in the fair value hierarchy).

- 17 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Contingent Consideration

Summarized information about the changes in liabilities for contingent consideration is as follows:

	Nine Months Ended September 30,
($ in millions)	2019			2018
Fair value January 1	$	788		$	935
Changes in estimated fair value (1)	52			144
Additions	—			8
Payments	(85		)	(235		)
Fair value September 30 (2)	$	755		$	852

⁽¹⁾ Recorded in Cost of sales, Research and development expenses, and Other (income) expense, net. Includes cumulative translation adjustments.

⁽²⁾ Balance at September 30, 2019 includes $112 million recorded as a current liability for amounts expected to be paid within the next 12 months.

The payments of contingent consideration in both periods include payments related to liabilities recorded in connection with the 2016 termination of the Sanofi-Pasteur MSD joint venture. The payments of contingent consideration in the first nine months of 2018 also include $175 million related to the achievement of a clinical development milestone for MK-7264 (gefapixant), a program obtained in connection with the acquisition of Afferent Pharmaceuticals.

Other Fair Value Measurements

Some of the Company’s financial instruments, such as cash and cash equivalents, receivables and payables, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.

The estimated fair value of loans payable and long-term debt (including current portion) at September 30, 2019, was $28.7 billion compared with a carrying value of $26.1 billion and at December 31, 2018, was $25.6 billion compared with a carrying value of $25.1 billion. Fair value was estimated using recent observable market prices and would be considered Level 2 in the fair value hierarchy.

Concentrations of Credit Risk

On an ongoing basis, the Company monitors concentrations of credit risk associated with corporate and government issuers of securities and financial institutions with which it conducts business. Credit exposure limits are established to limit a concentration with any single issuer or institution. Cash and investments are placed in instruments that meet high credit quality standards as specified in the Company’s investment policy guidelines.

The majority of the Company’s accounts receivable arise from product sales in the United States and Europe and are primarily due from drug wholesalers and retailers, hospitals, government agencies, managed health care providers and pharmacy benefit managers. The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in their credit profile. The Company also continues to monitor global economic conditions, including the volatility associated with international sovereign economies, and associated impacts on the financial markets and its business. The Company does not expect to have write-offs or adjustments to accounts receivable which would have a material adverse effect on its financial position, liquidity or results of operations.

Derivative financial instruments are executed under International Swaps and Derivatives Association master agreements. The master agreements with several of the Company’s financial institution counterparties also include credit support annexes. These annexes contain provisions that require collateral to be exchanged depending on the value of the derivative assets and liabilities, the Company’s credit rating, and the credit rating of the counterparty. Cash received by the Company from various counterparties was $133 million and $107 million at September 30, 2019 and December 31, 2018, respectively. The obligation to return such collateral is recorded in Accrued and other current liabilities. No cash collateral was advanced by the Company to counterparties as of September 30, 2019 or December 31, 2018.

- 18 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

6. Inventories

Inventories consisted of:

($ in millions)	September 30, 2019			December 31, 2018
Finished goods	$	1,698		$	1,658
Raw materials and work in process	5,526			5,004
Supplies	213			194
Total (approximates current cost)	7,437			6,856
(Decrease) increase to LIFO costs	(67		)	1
	$	7,370		$	6,857
Recognized as:
Inventories	$	5,855		$	5,440
Other assets	1,515			1,417

Amounts recognized as Other Assets are comprised almost entirely of raw materials and work in process inventories. At September 30, 2019 and December 31, 2018, these amounts included $1.4 billion of inventories not expected to be sold within one year. In addition, these amounts included $138 million and $7 million at September 30, 2019 and December 31, 2018, respectively, of inventories produced in preparation for product launches.

7. Other Intangibles

In connection with business acquisitions, the Company measures the fair value of marketed products and research and development pipeline programs and capitalizes these amounts. See Note 2 for information on intangible assets acquired as a result of business acquisitions in the first nine months of 2019 and 2018.

During the third quarter and first nine months of 2019, the Company recorded $612 million and $693 million, respectively, of intangible asset impairment charges related to marketed products within Cost of sales. During the third quarter of 2019, the Company recorded an impairment charge of $612 million related to Sivextro (tedizolid phosphate), a product for the treatment of acute bacterial skin and skin structure infections caused by designated susceptible Gram-positive organisms. In the third quarter of 2019, as part of a reorganization and reprioritization of its internal sales force, the Company made the decision to cease promotion of Sivextro in the U.S. market by the end of 2019. This decision resulted in reduced cash flow projections for Sivextro, which indicated that the Sivextro intangible asset value was not fully recoverable on an undiscounted cash flows basis. The Company utilized market participant assumptions to determine its best estimate of the fair value of the intangible asset related to Sivextro that, when compared with its related carrying value, resulted in the impairment charge noted above. The remaining intangible asset value for Sivextro was $175 million at September 30, 2019.

8. Loans Payable, Long-Term Debt and Leases

Long-Term Debt

In March 2019, the Company issued $5.0 billion principal amount of senior unsecured notes consisting of $750 million of 2.90% notes due 2024, $1.75 billion of 3.40% notes due 2029, $1.0 billion of 3.90% notes due 2039, and $1.5 billion of 4.00% notes due 2049. The Company used the net proceeds from the offering of $5.0 billion for general corporate purposes, including the repayment of outstanding commercial paper borrowings.

Leases

As discussed in Note 1, on January 1, 2019, Merck adopted new guidance for the accounting and reporting of leases. The Company has operating leases primarily for manufacturing facilities, research and development facilities, corporate offices, employee housing, vehicles and certain equipment. As permitted under the transition guidance in ASC 842, the Company elected a package of practical expedients which, among other provisions, allowed the Company to carry forward historical lease classifications. The Company determines if an arrangement is a lease at inception. When evaluating contracts for embedded leases, the Company exercises judgment to determine if there is an explicit or implicit identified asset in the contract and if Merck controls the use of that asset. Embedded leases, primarily associated with contract manufacturing organizations, are immaterial.

Under ASC 842 transition guidance, Merck elected the hindsight practical expedient to determine the lease term for existing leases, which permits companies to consider available information prior to the effective date of the new guidance as to the actual or likely exercise of options to extend or terminate the lease. The lease term includes options to extend or terminate the lease when it is reasonably certain that Merck will exercise that option. Real estate leases for facilities have an average remaining lease term of eight years, which include options to extend the leases for up to four years where applicable. Vehicle leases are

- 19 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

generally in effect for four years. The Company has made an accounting policy election not to record short-term leases (leases with an initial term of 12 months or less) on the balance sheet; however, Merck currently has no short-term leases.

Lease expense for operating lease payments is recognized on a straight-line basis over the term of the lease. Operating lease assets and liabilities are recognized based on the present value of lease payments over the lease term. Since most of the Company’s leases do not have a readily determinable implicit discount rate, the Company uses its incremental borrowing rate to calculate the present value of lease payments. As a practical expedient, the Company has made an accounting policy election not to separate lease components (e.g. payments for rent, real estate taxes and insurance costs) from non-lease components (e.g. common-area maintenance costs) in the event that the agreement contains both. Merck includes both the lease and non-lease components for purposes of calculating the right-of-use asset and related lease liability (if the non-lease components are fixed). For vehicle leases and employee housing, the Company applies a portfolio approach to effectively account for the operating lease assets and liabilities.

Certain of the Company’s lease agreements contain variable lease payments that are adjusted periodically for inflation or for actual operating expense true-ups compared with estimated amounts; however, these amounts are immaterial. Sublease income and activity related to sale and leaseback transactions are immaterial. Merck’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating lease cost was $79 million and $244 million for the third quarter and first nine months of 2019, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $71 million and $209 million for the third quarter and first nine months of 2019, respectively.

Supplemental balance sheet information related to operating leases is as follows:

($ in millions)	September 30, 2019
Assets
Other Assets (1)	$	1,085
Liabilities
Accrued and other current liabilities	$	241
Other Noncurrent Liabilities	779
	$	1,020
Weighted-average remaining lease term (years)	7.5
Weighted-average discount rate	3.3		%

⁽¹⁾ Includes prepaid leases that have no related lease liability.

Maturities of operating leases liabilities are as follows:

($ in millions)	September 30, 2019
2019 (excluding the nine months ended September 30, 2019)	$	71
2020	235
2021	189
2022	155
2023	127
Thereafter	374
Total lease payments	1,151
Less: imputed interest	(131		)
	$	1,020

As of September 30, 2019, the Company had entered into additional real estate operating leases that had not yet commenced. The obligations associated with these leases totaled $444 million, of which $221 million relates to a lease that will commence in April 2020 and has a lease term of 10 years.

As of December 31, 2018, prior to the adoption of ASC 842, the minimum aggregate rental commitments under noncancellable leases were as follows: 2019, $188 million; 2020, $198 million; 2021, $150 million; 2022, $134 million; 2023, $84 million and thereafter, $243 million.

- 20 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

9. Contingencies

The Company is involved in various claims and legal proceedings of a nature considered normal to its business, including product liability, intellectual property, and commercial litigation, as well as certain additional matters including governmental and environmental matters. In the opinion of the Company, it is unlikely that the resolution of these matters will be material to the Company’s financial position, results of operations or cash flows.

Given the nature of the litigation discussed below and the complexities involved in these matters, the Company is unable to reasonably estimate a possible loss or range of possible loss for such matters until the Company knows, among other factors, (i) what claims, if any, will survive dispositive motion practice, (ii) the extent of the claims, including the size of any potential class, particularly when damages are not specified or are indeterminate, (iii) how the discovery process will affect the litigation, (iv) the settlement posture of the other parties to the litigation and (v) any other factors that may have a material effect on the litigation.

The Company records accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. For product liability claims, a portion of the overall accrual is actuarially determined and considers such factors as past experience, number of claims reported and estimates of claims incurred but not yet reported. Individually significant contingent losses are accrued when probable and reasonably estimable. Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.

The Company’s decision to obtain insurance coverage is dependent on market conditions, including cost and availability, existing at the time such decisions are made. 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 effective August 1, 2004.

Product Liability Litigation

Fosamax

As previously disclosed, Merck is a defendant in product liability lawsuits in the United States involving Fosamax (Fosamax Litigation). As of September 30, 2019, approximately 3,900 cases have been filed and either are pending or conditionally dismissed (as noted below) against Merck in either federal or state court. Plaintiffs in the vast majority of these cases generally allege that they sustained femur fractures and/or other bone injuries (Femur Fractures) in association with the use of Fosamax.

All federal cases involving allegations of Femur Fracture have been or will be transferred to a multidistrict litigation in the District of New Jersey (Femur Fracture MDL). In the only bellwether case tried to date in the Femur Fracture MDL, Glynn v. Merck, the jury returned a verdict in Merck’s favor. In addition, in June 2013, the Femur Fracture MDL court granted Merck’s motion for judgment as a matter of law in the Glynn case and held that the plaintiff’s failure to warn claim was preempted by federal law.

In August 2013, the Femur Fracture MDL court entered an order requiring plaintiffs in the Femur Fracture MDL to show cause why those cases asserting claims for a femur fracture injury that took place prior to September 14, 2010, should not be dismissed based on the court’s preemption decision in the Glynn case. Pursuant to the show cause order, in March 2014, the Femur Fracture MDL court dismissed with prejudice approximately 650 cases on preemption grounds. Plaintiffs in approximately 515 of those cases appealed that decision to the U.S. Court of Appeals for the Third Circuit (Third Circuit). In March 2017, the Third Circuit issued a decision reversing the Femur Fracture MDL court’s preemption ruling and remanding the appealed cases back to the Femur Fracture MDL court. Merck filed a petition for a writ of certiorari to the U.S. Supreme Court in August 2017 seeking review of the Third Circuit’s decision. In December 2017, the Supreme Court invited the Solicitor General to file a brief in the case expressing the views of the United States, and in May 2018, the Solicitor General submitted a brief stating that the Third Circuit’s decision was wrongly decided and recommended that the Supreme Court grant Merck’s cert petition. The Supreme Court granted Merck’s petition in June 2018, and an oral argument before the Supreme Court was held on January 7, 2019. On May 20, 2019, the Supreme Court issued its opinion and decided that the Third Circuit had incorrectly concluded that the issue of preemption should be resolved by a jury, and accordingly vacated the judgment of the Third Circuit and remanded the proceedings back to the Third Circuit to address the issue in a manner consistent with the Supreme Court’s opinion. The Third Circuit requested, by August 6, 2019, ten-page letters from each side addressing two specific issues central to the appeal. Both sides submitted their letter briefs and await a decision from the Third Circuit.

Accordingly, as of September 30, 2019, 11 cases were actively pending in the Femur Fracture MDL, and approximately 1,060 cases have either been dismissed without prejudice or administratively closed pending final resolution by the Third Circuit of the appeal of the Femur Fracture MDL court’s preemption order.

As of September 30, 2019, approximately 2,520 cases alleging Femur Fractures have been filed in New Jersey state court and are pending before Judge James Hyland in Middlesex County. The parties selected an initial group of cases to be reviewed

- 21 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

through fact discovery. Merck has continued to select additional cases to be reviewed through fact discovery from 2016 to the present.

As of September 30, 2019, approximately 275 cases alleging Femur Fractures have been filed and are pending in California state court. All of the Femur Fracture cases filed in California state court have been coordinated before a single judge in Orange County, California.

Additionally, there are four Femur Fracture cases pending in other state courts.

Discovery is presently stayed in the Femur Fracture MDL and in the state court cases in California. Merck intends to defend against these lawsuits.

Januvia/Janumet

As previously disclosed, Merck is a defendant in product liability lawsuits in the United States involving Januvia and/or Janumet. As of September 30, 2019, Merck is aware of approximately 1,370 product users alleging that Januvia and/or Janumet caused the development of pancreatic cancer and other injuries.

Most claims have been filed in multidistrict litigation before the U.S. District Court for the Southern District of California (MDL). Outside of the MDL, the majority of claims have been filed in coordinated proceedings before the Superior Court of California, County of Los Angeles (California State Court).

In November 2015, the MDL and California State Court-in separate opinions-granted summary judgment to defendants on grounds of federal preemption.

Plaintiffs appealed in both forums. In November 2017, the U.S. Court of Appeals for the Ninth Circuit vacated the judgment and remanded for further discovery, which is ongoing. In November 2018, the California state appellate court reversed and remanded on similar grounds. In March 2019, the parties in the MDL and the California coordinated proceeding agreed to coordinate and adopt a schedule for completing discovery on general causation and preemption issues and for renewing summary judgment and Daubert motions. Under the stipulated case management schedule, the filing deadline for Daubert and summary judgment motions will take place in May 2020.

As of September 30, 2019, six product users have claims pending against Merck in state courts other than California, including Illinois. In June 2017, the Illinois trial court denied Merck’s motion for summary judgment based on federal preemption. Merck appealed, and the Illinois appellate court affirmed in December 2018. Merck filed a petition for leave to appeal to the Illinois Supreme Court in February 2019. In April 2019, the Illinois Supreme Court stayed consideration of the pending petition to appeal until the United States Supreme Court issued its opinion in Merck Sharp & Dohme Corp. v. Albrecht (relating to the Fosamax matter discussed above). Merck filed the opinion in Albrecht with the Illinois Supreme Court in June 2019. The petition for leave to appeal was decided on September 25, 2019, in which the Illinois Supreme Court directed the intermediate appellate court to reconsider its earlier ruling.

In addition to the claims noted above, the Company has agreed to toll the statute of limitations for approximately 50 additional claims. The Company intends to continue defending against these lawsuits.

Governmental Proceedings

As previously disclosed, in July 2017, Merck received a subpoena from the California Department of Insurance (DOI) pursuant to an investigation of whether, prior to Merck’s acquisition of the company, Cubist Pharmaceuticals unlawfully induced the presentation of false claims for Cubicin to private insurers under the California Insurance Code False Claims Act. By letter dated August 12, 2019, the DOI advised Merck that it was withdrawing the subpoena and closing its investigation.

As previously disclosed, the Company’s subsidiaries in China have, in the past, received and may continue to receive inquiries regarding their operations from various Chinese governmental agencies. Some of these inquiries may be related to matters involving other multinational pharmaceutical companies, as well as Chinese entities doing business with such companies. The Company’s policy is to cooperate with these authorities and to provide responses as appropriate.

As previously disclosed, from time to time, the Company receives inquiries and is the subject of preliminary investigation activities from competition and other governmental authorities in markets outside the United States. These authorities may include regulators, administrative authorities, and law enforcement and other similar officials, and these preliminary investigation activities may include site visits, formal or informal requests or demands for documents or materials, inquiries or interviews and similar matters. Certain of these preliminary inquiries or activities may lead to the commencement of formal proceedings. Should those proceedings be determined adversely to the Company, monetary fines and/or remedial undertakings may be required.

- 22 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Commercial and Other Litigation

Zetia Antitrust Litigation

As previously disclosed, Merck, MSD, Schering Corporation and MSP Singapore Company LLC (collectively, the Merck Defendants) are defendants in putative class action and opt-out lawsuits filed in 2018 on behalf of direct and indirect purchasers of Zetia alleging violations of federal and state antitrust laws, as well as other state statutory and common law causes of action. The cases have been consolidated for pretrial purposes in a federal multidistrict litigation before Judge Rebecca Beach Smith in the Eastern District of Virginia. In December 2018, the court denied the Merck Defendants’ motions to dismiss or stay the direct purchaser putative class actions pending bilateral arbitration. On August 9, 2019, the district court adopted in full the report and recommendation of the magistrate judge, thereby granting in part and denying in part Merck Defendants’ motions to dismiss on non-arbitration issues. In addition, on June 27, 2019, the representatives of the putative direct purchaser class filed an amended complaint, and on August 1, 2019, retailer opt-out plaintiffs filed an amended complaint. The Merck Defendants moved to dismiss the new allegations in both complaints. On October 15, 2019, the magistrate judge issued a report and recommendation recommending that the district judge grant the motions in their entirety. Trial is currently scheduled to begin on October 14, 2020.

Rotavirus Vaccines Antitrust Litigation

As previously disclosed, MSD is a defendant in putative class action lawsuits filed in 2018 on behalf of direct purchasers of RotaTeq, alleging violations of federal antitrust laws. The cases were consolidated in the Eastern District of Pennsylvania. On January 23, 2019, the court denied MSD’s motions to compel arbitration and to dismiss the consolidated complaint. On February 19, 2019, MSD appealed the court’s order on arbitration to the Third Circuit. On October 28, 2019, the Third Circuit vacated the district court’s order and remanded for limited discovery on the issue of arbitrability, after which MSD may file a renewed motion to compel arbitration.

Patent Litigation

From time to time, generic manufacturers of pharmaceutical products file abbreviated New Drug Applications (NDAs) with the U.S. Food and Drug Administration (FDA) seeking to market generic forms of the Company’s products prior to the expiration of relevant patents owned by the Company. To protect its patent rights, the Company may file patent infringement lawsuits against such generic companies. Similar lawsuits defending the Company’s patent rights may exist in other countries. The Company intends to vigorously defend its patents, which it believes are valid, against infringement by companies attempting to market products prior to the expiration of such patents. As with any litigation, there can be no assurance of the outcomes, which, if adverse, could result in significantly shortened periods of exclusivity for these products and, with respect to products acquired through acquisitions, potentially significant intangible asset impairment charges.

Januvia, Janumet, Janumet XR — In February 2019, Par Pharmaceutical, Inc. (Par Pharmaceutical) filed suit against the Company in the U.S. District Court for the District of New Jersey, seeking a declaratory judgment of invalidity of a patent owned by the Company covering certain salt and polymorphic forms of sitagliptin that expires in 2026. In response, the Company filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware against Par Pharmaceutical and additional companies that also indicated an intent to market generic versions of Januvia, Janumet, and Janumet XR following expiration of key patent protection in 2022, but prior to the expiration of the later-granted patent owned by the Company covering certain salt and polymorphic forms of sitagliptin that expires in 2026, and a later granted patent owned by the Company covering the Janumet formulation which expires in 2028. Par Pharmaceutical dismissed its case in the U.S. District Court for the District of New Jersey against the Company and will litigate the action in the U.S. District Court for the District of Delaware. The Company filed a patent infringement lawsuit against Mylan Pharmaceuticals Inc. and Mylan Inc. (Mylan) in the Northern District of West Virginia. The Judicial Panel of Multidistrict Litigation entered an order transferring the Company’s lawsuit against Mylan to the U.S. District Court for the District of Delaware for coordinated and consolidated pretrial proceedings with the other cases pending in that district. The U.S. District Court for the District of Delaware has scheduled the lawsuits for a single 3-day trial on invalidity issues in October 2021. The Court will schedule separate 1-day trials on infringement issues if necessary. In October 2019, Mylan filed a petition for Inter Partes Review (IPR) at the United States Patent and Trademark Office (USPTO) seeking invalidity of the 2026 patent. The USPTO has six months from filing to determine whether it will institute the requested IPR proceeding.

Other Litigation

There are various other pending legal proceedings involving the Company, principally product liability and intellectual property lawsuits. While it is not feasible to predict the outcome of such proceedings, in the opinion of the Company, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to the Company’s financial position, results of operations or cash flows either individually or in the aggregate.

- 23 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Legal Defense Reserves

Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable. Some of the significant factors considered in the review of these legal defense reserves are as follows: the actual costs incurred by the Company; the development of the Company’s legal defense strategy and structure in light of the scope of its litigation; the number of cases being brought against the Company; the costs and outcomes of completed trials and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the associated litigation. The amount of legal defense reserves as of September 30, 2019 and December 31, 2018 of approximately $260 million and $245 million, respectively, represents the Company’s best estimate of the minimum amount of defense costs to be incurred in connection with its outstanding litigation; however, events such as additional trials and other events that could arise in the course of its litigation could affect the ultimate amount of legal defense costs to be incurred by the Company. The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to increase the reserves at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.

10. Equity

	Three Months Ended September 30,
	Common Stock			Other Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock					Non- controlling Interests			Total
($ and shares in millions except per share amounts)	Shares	Par Value										Shares		Cost
Balance at July 1, 2018	3,577	$	1,788	$	39,741	$	41,523		$	(5,122	)	907		$	(45,401	)	$	237		$	32,766
Net income attributable to Merck & Co., Inc.	—	—		—		1,950			—			—		—			—			1,950
Other comprehensive loss, net of taxes	—	—		—		—			(29		)	—		—			—			(29		)
Cash dividends declared on common stock ($0.48 per share)	—	—		—		(1,284		)	—			—		—			—			(1,284		)
Treasury stock shares purchased	—	—		—		—			—			16		(996		)	—			(996		)
Share-based compensation plans and other	—	—		21		—			—			(5	)	231			—			252
Net income attributable to noncontrolling interests	—	—		—		—			—			—		—			8			8
Distributions attributable to noncontrolling interests	—	—		—		—			—			—		—			(11		)	(11		)
Balance at September 30, 2018	3,577	$	1,788	$	39,762	$	42,189		$	(5,151	)	918		$	(46,166	)	$	234		$	32,656
Balance at July 1, 2019	3,577	$	1,788	$	39,484	$	45,295		$	(5,362	)	1,010		$	(53,570	)	$	102		$	27,737
Net income attributable to Merck & Co., Inc.	—	—		—		1,901			—			—		—			—			1,901
Other comprehensive loss, net of taxes	—	—		—		—			(28		)	—		—			—			(28		)
Cash dividends declared on common stock ($0.55 per share)	—	—		—		(1,392		)	—			—		—			—			(1,392		)
Treasury stock shares purchased	—	—		—		—			—			17		(1,405		)	—			(1,405		)
Share-based compensation plans and other	—	—		77		—			—			(1	)	50			—			127
Net income attributable to noncontrolling interests	—	—		—		—			—			—		—			6			6
Distributions attributable to noncontrolling interests	—	—		—		—			—			—		—			(21		)	(21		)
Balance at September 30, 2019	3,577	$	1,788	$	39,561	$	45,804		$	(5,390	)	1,026		$	(54,925	)	$	87		$	26,925

- 24 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

	Nine Months Ended September 30,
	Common Stock			Other Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock					Non- controlling Interests			Total
($ and shares in millions except per share amounts)	Shares	Par Value											Shares		Cost
Balance at January 1, 2018	3,577	$	1,788	$	39,902		$	41,350		$	(4,910	)	880		$	(43,794	)	$	233		$	34,569
Net income attributable to Merck & Co., Inc.	—	—		—			4,393			—			—		—			—			4,393
Adoption of new accounting standards	—	—		—			322			(274		)	—		—			—			48
Other comprehensive income, net of taxes	—	—		—			—			33			—		—			—			33
Cash dividends declared on common stock ($1.44 per share)	—	—		—			(3,876		)	—			—		—			—			(3,876		)
Treasury stock shares purchased	—	—		—			—			—			53		(3,158		)	—			(3,158		)
Share-based compensation plans and other	—	—		(140		)	—			—			(15	)	786			—			646
Net income attributable to noncontrolling interests	—	—		—			—			—			—		—			22			22
Distributions attributable to noncontrolling interests	—	—		—			—			—			—		—			(21		)	(21		)
Balance at September 30, 2018	3,577	$	1,788	$	39,762		$	42,189		$	(5,151	)	918		$	(46,166	)	$	234		$	32,656
Balance at January 1, 2019	3,577	$	1,788	$	38,808		$	42,579		$	(5,545	)	985		$	(50,929	)	$	181		$	26,882
Net income attributable to Merck & Co., Inc.	—	—		—			7,487			—			—		—			—			7,487
Other comprehensive income, net of taxes	—	—		—			—			155			—		—			—			155
Cash dividends declared on common stock ($1.65 per share)	—	—		—			(4,262		)	—			—		—			—			(4,262		)
Treasury stock shares purchased	—	—		1,000			—			—			54		(4,730		)	—			(3,730		)
Share-based compensation plans and other	—	—		(247		)	—			—			(13	)	734			—			487
Net loss attributable to noncontrolling interests	—	—		—			—			—			—		—			(73		)	(73		)
Distributions attributable to noncontrolling interests	—	—		—			—			—			—		—			(21		)	(21		)
Balance at September 30, 2019	3,577	$	1,788	$	39,561		$	45,804		$	(5,390	)	1,026		$	(54,925	)	$	87		$	26,925

On October 25, 2018, the Company entered into accelerated share repurchase (ASR) agreements with two third-party financial institutions (Dealers). Under the ASR agreements, Merck agreed to purchase $5 billion of Merck’s common stock, in total, with an initial delivery of 56.7 million shares of Merck’s common stock, based on the then-current market price, made by the Dealers to Merck, and payments of $5 billion made by Merck to the Dealers on October 29, 2018, which were funded with existing cash and investments, as well as short-term borrowings. The payments to the Dealers were recorded as reductions to shareholders’ equity, consisting of a $4 billion increase in treasury stock, which reflected the value of the initial 56.7 million shares received on October 29, 2018, and a $1 billion decrease in other-paid-in capital, which reflected the value of the stock held back by the Dealers pending final settlement. Upon settlement of the ASR agreements in April 2019, Merck received an additional 7.7 million shares as determined by the average daily volume weighted-average price of Merck’s common stock during the term of the ASR program, less a negotiated discount, bringing the total shares received by Merck under this program to 64.4 million. The receipt of the additional shares was reflected as an increase to treasury stock and an increase to other-paid-in capital in the first nine months of 2019.

11. Share-Based Compensation Plans

The Company has share-based compensation plans under which the Company grants restricted stock units (RSUs) and performance share units (PSUs) to certain management level employees. In addition, employees and non-employee directors may be granted options to purchase shares of Company common stock at the fair market value at the time of grant.

The following table provides the amounts of share-based compensation cost recorded in the Condensed Consolidated Statement of Income:

	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Pretax share-based compensation expense	$	101		$	91		$	306		$	261
Income tax benefit	(14		)	(14		)	(42		)	(42		)
Total share-based compensation expense, net of taxes	$	87		$	77		$	264		$	219

During the first nine months of 2019, the Company granted 5 million RSUs with a weighted-average grant date fair value of $80.03 per RSU and during the first nine months of 2018 granted 7 million RSUs with a weighted-average grant date fair

- 25 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

value of $58.19 per RSU. During the first nine months of 2019, the Company granted 609 thousand PSUs with a weighted-average grant date fair value of $90.50 per PSU and during the first nine months of 2018 granted 855 thousand PSUs with a weighted-average grant date fair value of $56.70 per PSU.

During the first nine months of 2019, the Company granted 3 million stock options with a weighted-average exercise price of $80.05 per option and during the first nine months of 2018 granted 3 million stock options with a weighted-average exercise price of $57.72 per option. The weighted-average fair value of options granted during the first nine months of 2019 and 2018 was $10.63 and $8.19 per option, respectively, and was determined using the following assumptions:

	Nine Months Ended   September 30,
	2019		2018
Expected dividend yield	3.2	%	3.4	%
Risk-free interest rate	2.4	%	2.8	%
Expected volatility	18.7	%	19.1	%
Expected life (years)	5.9		6.1

At September 30, 2019, there was $691 million of total pretax unrecognized compensation expense related to nonvested stock options, RSU and PSU awards which will be recognized over a weighted-average period of 2.0 years. For segment reporting, share-based compensation costs are unallocated expenses.

12. Pension and Other Postretirement Benefit Plans

The Company has defined benefit pension plans covering eligible employees in the United States and in certain of its international subsidiaries. The net periodic benefit cost of such plans consisted of the following components: 

	Three Months Ended   September 30,												Nine Months Ended   September 30,
	2019						2018						2019						2018
($ in millions)	U.S.			International			U.S.			International			U.S.			International			U.S.			International
Service cost	$	76		$	58		$	77		$	56		$	221		$	178		$	245		$	181
Interest cost	115			44			109			43			343			133			324			134
Expected return on plan assets	(202		)	(106		)	(209		)	(106		)	(613		)	(320		)	(634		)	(326		)
Amortization of unrecognized prior service credit	(12		)	(3		)	(12		)	(3		)	(37		)	(9		)	(37		)	(10		)
Net loss amortization	43			16			63			21			113			47			174			64
Termination benefits	3			—			1			—			7			1			18			—
Curtailments	5			—			3			—			6			—			7			(1		)
Settlements	—			—			—			—			—			—			1			3
	$	28		$	9		$	32		$	11		$	40		$	30		$	98		$	45

The Company provides medical benefits, principally to its eligible U.S. retirees and similar benefits to their dependents, through its other postretirement benefit plans. The net credit of such plans consisted of the following components: 

	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Service cost	$	12		$	15		$	36		$	43
Interest cost	17			17			52			52
Expected return on plan assets	(18		)	(21		)	(54		)	(63		)
Amortization of unrecognized prior service credit	(20		)	(21		)	(59		)	(63		)
Net loss amortization	(3		)	—			(7		)	1
Termination benefits	1			—			1			2
Curtailments	(3		)	(1		)	(4		)	(7		)
	$	(14	)	$	(11	)	$	(35	)	$	(35	)

In connection with restructuring actions (see Note 4), termination charges were recorded on pension and other postretirement benefit plans related to expanded eligibility for certain employees exiting Merck. Also, in connection with these

- 26 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

restructuring actions, curtailments and settlements were recorded on pension and other postretirement benefit plans as reflected in the tables above.

The components of net periodic benefit cost (credit) other than the service cost component are included in Other (income) expense, net (see Note 13), with the exception of certain amounts for termination benefits, curtailments and settlements, which are recorded in Restructuring costs if the event giving rise to the termination benefits, curtailment or settlement is related to restructuring actions as noted above.

13. Other (Income) Expense, Net

Other (income) expense, net, consisted of: 

	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Interest income	$	(61	)	$	(92	)	$	(225	)	$	(257	)
Interest expense	231			190			674			569
Exchange losses	38			42			166			119
Income from investments in equity securities, net (1)	(16		)	(198		)	(50		)	(376		)
Net periodic defined benefit plan (credit) cost other than service cost	(128		)	(119		)	(409		)	(384		)
Other, net	(29		)	5			206			(183		)
	$	35		$	(172	)	$	362		$	(512	)

⁽¹⁾  Includes net realized and unrealized gains and losses from investments in equity securities either owned directly or through ownership interests in investments funds.

The higher exchange losses in the first nine months of 2019 reflect losses on forward exchange contracts related to the acquisition of Antelliq.

Other, net (as reflected in the table above) in the first nine months of 2019 includes $162 million of goodwill impairment charges related to certain businesses in the Healthcare Services segment. Other, net in the first nine months of 2018 includes a $115 million gain on the settlement of certain patent litigation and $84 million of income related to AstraZeneca’s option exercise associated with AstraZeneca LP.

Interest paid for the nine months ended September 30, 2019 and 2018 was $629 million and $535 million, respectively.

14. Taxes on Income

The effective income tax rates of 18.7% and 26.5% for the third quarter of 2019 and 2018, respectively, and 14.5% and 27.6% for the first nine months of 2019 and 2018, respectively, reflect the impacts of acquisition and divestiture-related costs and restructuring costs, partially offset by the beneficial impact of foreign earnings. The effective income tax rates in the third quarter and first nine months of 2019 also reflect the unfavorable impact of a charge for the acquisition of Peloton for which no tax benefit was recognized and the favorable impact of product mix on the estimated full-year tax rate. In addition, the effective income tax rate for the first nine months of 2019 reflects the favorable impact of a $360 million net tax benefit related to the settlement of certain federal income tax matters (discussed below). The effective income tax rate for the first nine months of 2018 reflects the unfavorable impact of a charge recorded in connection with the formation of a collaboration with Eisai for which no tax benefit was recognized.

In the first quarter of 2019, the Internal Revenue Service (IRS) concluded its examinations of Merck’s 2012-2014 U.S. federal income tax returns. As a result, the Company was required to make a payment of $107 million. The Company’s reserves for unrecognized tax benefits for the years under examination exceeded the adjustments relating to this examination period and therefore the Company recorded a $360 million net tax benefit in the first nine months of 2019. This net benefit reflects reductions in reserves for unrecognized tax benefits for tax positions relating to the years that were under examination, partially offset by additional reserves for tax positions not previously reserved for.

- 27 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

15. Earnings Per Share

The calculations of earnings per share are as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ and shares in millions except per share amounts)	2019		2018		2019		2018
Net income attributable to Merck & Co., Inc.	$	1,901	$	1,950	$	7,487	$	4,393
Average common shares outstanding	2,558		2,662		2,572		2,680
Common shares issuable (1)	14		16		15		14
Average common shares outstanding assuming dilution	2,572		2,678		2,587		2,694
Basic earnings per common share attributable to Merck & Co., Inc. common shareholders	$	0.74	$	0.73	$	2.91	$	1.64
Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders	$	0.74	$	0.73	$	2.89	$	1.63

⁽¹⁾  Issuable primarily under share-based compensation plans.

For the third quarter of 2019 and 2018, 3 million and 2 million, respectively, and for the first nine months of 2019 and 2018, 2 million and 7 million, respectively, of common shares issuable under share-based compensation plans were excluded from the computation of earnings per common share assuming dilution because the effect would have been antidilutive.

16. Other Comprehensive Income (Loss)

Changes in AOCI by component are as follows:

	Three Months Ended September 30,
($ in millions)	Derivatives				Investments				Employee Benefit Plans				Cumulative Translation Adjustment			Accumulated Other Comprehensive Income (Loss)
Balance July 1, 2018, net of taxes	$	65			$	(164	)		$	(3,065	)		$	(1,958	)	$	(5,122	)
Other comprehensive income (loss) before reclassification adjustments, pretax	29				8				—				(147		)	(110		)
Tax	(6		)		—				—				11			5
Other comprehensive income (loss) before reclassification adjustments, net of taxes	23				8				—				(136		)	(105		)
Reclassification adjustments, pretax	5			(1)	32			(2)	47			(3)	—			84
Tax	(1		)		—				(7		)		—			(8		)
Reclassification adjustments, net of taxes	4				32				40				—			76
Other comprehensive income (loss), net of taxes	27				40				40				(136		)	(29		)
Balance September 30, 2018, net of taxes	$	92			$	(124	)		$	(3,025	)		$	(2,094	)	$	(5,151	)
Balance July 1, 2019, net of taxes	$	66			$	48			$	(3,530	)		$	(1,946	)	$	(5,362	)
Other comprehensive income (loss) before reclassification adjustments, pretax	186				8				(4		)		(84		)	106
Tax	(39		)		—				—				(33		)	(72		)
Other comprehensive income (loss) before reclassification adjustments, net of taxes	147				8				(4		)		(117		)	34
Reclassification adjustments, pretax	(71		)	(1)	(25		)	(2)	21			(3)	—			(75		)
Tax	15				—				(2		)		—			13
Reclassification adjustments, net of taxes	(56		)		(25		)		19				—			(62		)
Other comprehensive income (loss), net of taxes	91				(17		)		15				(117		)	(28		)
Balance September 30, 2019, net of taxes	$	157			$	31			$	(3,515	)		$	(2,063	)	$	(5,390	)

- 28 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

	Nine Months Ended September 30,
($ in millions)	Derivatives				Investments				Employee Benefit Plans				Cumulative Translation Adjustment			Accumulated Other Comprehensive Income (Loss)
Balance January 1, 2018, net of taxes	$	(108	)		$	(61	)		$	(2,787	)		$	(1,954	)	$	(4,910	)
Other comprehensive income (loss) before reclassification adjustments, pretax	113				(125		)		(2		)		(129		)	(143		)
Tax	(24		)		1				4				(111		)	(130		)
Other comprehensive income (loss) before reclassification adjustments, net of taxes	89				(124		)		2				(240		)	(273		)
Reclassification adjustments, pretax	169			(1)	68			(2)	128			(3)	—			365
Tax	(35		)		—				(24		)		—			(59		)
Reclassification adjustments, net of taxes	134				68				104				—			306
Other comprehensive income (loss), net of taxes	223				(56		)		106				(240		)	33
Adoption of ASU 2018-02	(23		)		1				(344		)		100			(266		)
Adoption of ASU 2016-01	—				(8		)		—				—			(8		)
Balance September 30, 2018, net of taxes	$	92			$	(124	)		$	(3,025	)		$	(2,094	)	$	(5,151	)
Balance January 1, 2019, net of taxes	$	166			$	(78	)		$	(3,556	)		$	(2,077	)	$	(5,545	)
Other comprehensive income (loss) before reclassification adjustments, pretax	183				139				(5		)		47			364
Tax	(38		)		—				6				(33		)	(65		)
Other comprehensive income (loss) before reclassification adjustments, net of taxes	145				139				1				14			299
Reclassification adjustments, pretax	(195		)	(1)	(30		)	(2)	49			(3)	—			(176		)
Tax	41				—				(9		)		—			32
Reclassification adjustments, net of taxes	(154		)		(30		)		40				—			(144		)
Other comprehensive income (loss), net of taxes	(9		)		109				41				14			155
Balance September 30, 2019, net of taxes	$	157			$	31			$	(3,515	)		$	(2,063	)	$	(5,390	)

⁽¹⁾  Relates to foreign currency cash flow hedges that were reclassified from AOCI to Sales.

⁽²⁾  Represents net realized (gains) losses on the sales of available-for-sale debt securities that were reclassified from AOCI to Other (income) expense, net.

⁽³⁾  Includes net amortization of prior service cost and actuarial gains and losses included in net periodic benefit cost (see Note 12).

17. Segment Reporting

The Company’s operations are principally managed on a products basis and include four operating segments, which are the Pharmaceutical, Animal Health, Healthcare Services and Alliances segments. The Pharmaceutical and Animal Health segments are the only reportable segments.

The Pharmaceutical segment includes human health pharmaceutical and vaccine products. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Human health vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices. The Company sells these human health vaccines primarily to physicians, wholesalers, physician distributors and government entities. A large component of pediatric and adolescent vaccine sales are made to the U.S. Centers for Disease Control and Prevention Vaccines for Children program, which is funded by the U.S. government. Additionally, the Company sells vaccines to the Federal government for placement into vaccine stockpiles. During 2019, as a result of changes to the Company’s internal reporting structure, certain costs that were previously included in the Pharmaceutical segment are now being included as part of non-segment expenses within Merck Research Laboratories. Prior period Pharmaceutical segment profits have been recast to reflect these changes on a comparable basis.

The Animal Health segment discovers, develops, manufactures and markets animal health products, including pharmaceutical and vaccine products, for the prevention, treatment and control of disease in all major livestock and companion animal species, which the Company sells to veterinarians, distributors and animal producers.

The Healthcare Services segment provides services and solutions that focus on engagement, health analytics and clinical services to improve the value of care delivered to patients.

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

- 29 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Sales of the Company’s products were as follows:

	Three Months Ended September 30,													Nine Months Ended September 30,
	2019							2018						2019						2018
($ in millions)	U.S.			Int’l		Total		U.S.		Int’l		Total		U.S.		Int’l		Total		U.S.		Int’l			Total
Pharmaceutical:
Oncology
Keytruda	$	1,743		$	1,327	$	3,070	$	1,109	$	780	$	1,889	$	4,525	$	3,448	$	7,973	$	2,906	$	2,114		$	5,020
Emend	42			56		98		71		52		123		173		163		336		239		157			396
Alliance revenue - Lynparza	71			53		123		33		15		49		186		126		313		88		37			125
Alliance revenue - Lenvima	65			44		109		30		13		43		169		112		280		49		29			78
Vaccines
Gardasil/Gardasil 9	761			558		1,320		740		308		1,048		1,579		1,464		3,044		1,422		894			2,317
ProQuad/M-M-R II/Varivax	482			141		623		429		96		525		1,325		469		1,794		1,097		246			1,343
Pneumovax 23	179			58		237		160		54		214		428		164		592		394		192			586
RotaTeq	102			78		180		134		57		191		360		203		564		384		156			540
Vaqta	36			26		62		36		30		66		103		65		167		95		72			167
Hospital Acute Care
Bridion	133			151		284		96		120		217		381		437		817		272		389			661
Noxafil	77			100		177		89		99		188		268		291		560		257		294			551
Cubicin	14			38		52		55		40		95		78		129		207		150		137			287
Primaxin	2			75		77		1		71		72		2		204		207		6		206			212
Invanz	(1		)	58		57		74		62		137		30		176		206		252		185			437
Cancidas	—			62		62		2		77		79		5		187		191		10		247			257
Immunology
Simponi	—			203		203		—		210		210		—		625		625		—		673			673
Remicade	—			101		101		—		135		135		—		322		322		—		459			459
Neuroscience
Belsomra	23			57		80		23		43		66		68		155		223		76		115			191
Virology
Isentress/Isentress HD	102			149		250		123		151		275		304		449		752		383		477			860
Zepatier	24			59		83		18		86		104		96		208		304		8		339			347
Cardiovascular
Zetia	5			142		147		9		157		165		11		432		443		34		662			696
Vytorin	5			52		57		—		92		92		11		219		231		11		402			414
Atozet	—			97		97		—		84		84		—		283		283		—		258			258
Adempas	—			107		107		—		94		94		—		302		302		—		238			238
Diabetes
Januvia	367			440		807		498		429		927		1,223		1,317		2,539		1,466		1,291			2,756
Janumet	129			375		503		225		339		563		462		1,105		1,567		625		1,067			1,693
Women’s Health
NuvaRing	202			39		241		193		41		234		593		107		700		550		135			686
Implanon/Nexplanon	136			62		199		133		53		186		421		160		581		375		160			535
Diversified Brands
Singulair	11			140		152		5		156		161		24		479		503		16		505			521
Cozaar/Hyzaar	6			110		116		4		99		103		16		313		329		18		330			348
Nasonex	4			55		58		7		64		71		2		224		226		8		266			274
Arcoxia	—			72		72		—		83		83		—		221		221		—		249			249
Follistim AQ	27			35		62		26		34		60		80		102		182		83		115			198
Other pharmaceutical (1)	385			842		1,229		326		786		1,109		1,142		2,492		3,634		932		2,557			3,486
Total Pharmaceutical segment sales	5,132			5,962		11,095		4,649		5,010		9,658		14,065		17,153		31,218		12,206		15,653			27,859
Animal Health:
Livestock	144			582		726		153		508		660		406		1,601		2,007		383		1,563			1,946
Companion Animals	193			203		396		153		207		361		560		704		1,264		541		689			1,230
Total Animal Health segment sales	337			785		1,122		306		715		1,021		966		2,305		3,271		924		2,252			3,176
Other segment sales (2)	46			—		46		55		—		55		133		1		133		194		1			195
Total segment sales	5,515			6,747		12,263		5,010		5,725		10,734		15,164		19,459		34,622		13,324		17,906			31,230
Other (3)	10			125		134		20		39		60		19		330		350		101		(35		)	66
	$	5,525		$	6,872	$	12,397	$	5,030	$	5,764	$	10,794	$	15,183	$	19,789	$	34,972	$	13,425	$	17,871		$	31,296

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

⁽¹⁾  Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.

⁽²⁾  Represents the non-reportable segments of Healthcare Services and Alliances.

⁽³⁾  Other is primarily comprised of miscellaneous corporate revenues, including revenue hedging activities, as well as third-party manufacturing sales.

- 30 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Product sales are recorded net of the provision for discounts, including chargebacks, which are customer discounts that occur when a contracted customer purchases through an intermediary wholesale purchaser, and rebates that are owed based upon definitive contractual agreements or legal requirements with private sector and public sector (Medicaid and Medicare Part D) benefit providers, after the final dispensing of the product by a pharmacy to a benefit plan participant. These discounts, in the aggregate, reduced U.S. sales by $3.0 billion and $2.6 billion for the three months ended September 30, 2019 and 2018, respectively, and by $8.6 billion and $7.7 billion for the nine months ended September 30, 2019 and 2018, respectively.

Consolidated sales by geographic area where derived are as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2019		2018		2019		2018
United States	$	5,525	$	5,030	$	15,183	$	13,425
Europe, Middle East and Africa	3,189		2,884		9,452		9,218
Japan	919		761		2,639		2,353
China	914		512		2,423		1,556
Asia Pacific (other than Japan and China)	756		666		2,217		2,210
Latin America	671		622		1,889		1,748
Other	423		319		1,169		786
	$	12,397	$	10,794	$	34,972	$	31,296

A reconciliation of segment profits to Income before taxes is as follows:

	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Segment profits:
Pharmaceutical segment	$	7,747		$	6,621		$	21,437		$	18,535
Animal Health segment	423			409			1,243			1,273
Other segments	(2		)	5			(2		)	94
Total segment profits	8,168			7,035			22,678			19,902
Other profits (losses)	101			55			226			(35		)
Unallocated:
Interest income	61			92			225			257
Interest expense	(231		)	(190		)	(674		)	(569		)
Depreciation and amortization	(382		)	(324		)	(1,169		)	(1,006		)
Research and development	(3,110		)	(1,997		)	(7,045		)	(7,304		)
Amortization of purchase accounting adjustments	(329		)	(679		)	(1,105		)	(2,144		)
Restructuring costs	(232		)	(171		)	(444		)	(494		)
Charge related to termination of collaboration agreement with Samsung	—			(420		)	—			(420		)
Other unallocated, net	(1,699		)	(736		)	(4,019		)	(2,090		)
	$	2,347		$	2,665		$	8,673		$	6,097

Pharmaceutical segment profits are comprised of segment sales less standard costs, as well as selling, general and administrative expenses directly incurred by the segment. Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as selling, general and administrative expenses and research and development costs directly incurred by the segment. For internal management reporting presented to the chief operating decision maker, Merck does not allocate the remaining cost of sales not included in segment profits as described above, research and development expenses incurred in Merck Research Laboratories, the Company’s research and development division that focuses on human health-related activities, 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, as well as the amortization of purchase accounting adjustments.

Other profits are primarily comprised of miscellaneous corporate profits, as well as operating profits related to third-party manufacturing sales.

Other unallocated, net, includes expenses from corporate and manufacturing cost centers, goodwill and other intangible asset impairment charges, gains or losses on sales of businesses, expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration, and other miscellaneous income or expense items.

- 31 -

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Recent Developments

Business Developments

In April 2019, Merck acquired Antelliq Corporation (Antelliq), a leader in digital animal identification, traceability and monitoring solutions. These solutions help veterinarians, farmers and pet owners gather critical data to improve management, health and well-being of livestock and pets. Merck paid $2.3 billion to acquire all outstanding shares of Antelliq and spent $1.3 billion to repay Antelliq’s debt (see Note 2 to the condensed consolidated financial statements).

Also in April 2019, Merck acquired Immune Design, a late-stage immunotherapy company employing next-generation in vivo approaches to enable the body’s immune system to fight disease, for $301 million in cash (see Note 2 to the condensed consolidated financial statements).

In July 2019, Merck acquired Peloton Therapeutics, Inc. (Peloton), a clinical-stage biopharmaceutical company focused on the development of novel small molecule therapeutic candidates targeting hypoxia-inducible factor-2α (HIF-2α) for the treatment of patients with cancer and other non-oncology diseases. Peloton’s lead candidate, MK-6482 (formerly PT2977), is a novel oral HIF-2α inhibitor in late-stage development for renal cell carcinoma. Merck made an upfront payment of $1.2 billion in cash; additionally, former Peloton shareholders will be eligible to receive up to an additional $1.15 billion contingent upon successful achievement of future regulatory and sales-based milestones (see Note 2 to the condensed consolidated financial statements).

Restructuring Program

Merck recently approved a new global restructuring program (2019 Restructuring Program) as part of a worldwide initiative focused primarily 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 Company will continue to evaluate its global footprint and overall operating model, which could result in the identification of additional actions over time. The actions contemplated under the 2019 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 $800 million to $1.2 billion. The Company expects to record charges of approximately $750 million in 2019 related to the program. The Company anticipates the actions under the 2019 Restructuring Program to result in annual net cost savings of approximately $500 million by the end of 2023.

Pricing

Global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide. In the United States, pricing pressure continues on many of the Company’s products. Changes to the U.S. health care system as part of health care reform, as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, have contributed to pricing pressure. In several international markets, government-mandated pricing actions have reduced prices of generic and patented drugs. In addition, the Company’s revenue performance in the first nine months of 2019 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 will continue to negatively affect revenue performance in the future.

Operating Results

Sales

Worldwide sales were $12.4 billion for the third quarter of 2019, an increase of 15% compared with the third quarter of 2018 including a 1% unfavorable effect from foreign exchange. Global sales were $35.0 billion for the first nine months of 2019, an increase of 12% compared with the same period of 2018 including a 2% unfavorable effect from foreign exchange. Sales growth in both periods was driven primarily by higher sales in the oncology franchise reflecting strong growth of Keytruda (pembrolizumab), as well as increased alliance revenue from Lenvima (lenvatinib) and Lynparza (olaparib). Also contributing to revenue growth in the third quarter and first nine months of 2019 were higher sales of vaccines, including human papillomavirus (HPV) vaccine Gardasil (Human Papillomavirus Quadrivalent [Types 6, 11, 16 and 18] Vaccine, Recombinant)/Gardasil 9 (Human Papillomavirus 9-valent Vaccine, Recombinant), and combined sales of pediatric vaccines ProQuad (Measles, Mumps, Rubella and Varicella Virus Vaccine Live), M‑M‑R II (Measles, Mumps and Rubella Virus Vaccine Live) and Varivax (Varicella Virus Vaccine Live). Higher sales of certain hospital acute care products, including Bridion (sugammadex) Injection, as well as higher sales of animal health products also drove revenue growth in the third quarter and first nine months of 2019.

Sales growth in both periods was partially offset by the ongoing effects of generic competition for cardiovascular products Zetia (ezetimibe) and Vytorin (ezetimibe and simvastatin), hospital acute care product Invanz (ertapenem sodium), and biosimilar competition for immunology product Remicade (infliximab). Lower sales of diabetes products Januvia (sitagliptin) and

- 32 -

Janumet (sitagliptin/metformin HCl) also partially offset revenue growth in the quarter and year-to-date period. Additionally, sales growth in the first nine months of 2019 was partially offset by lower sales of products within the diversified brands franchise. The diversified brands franchise includes certain products that are approaching the expiration of their marketing exclusivity or that are no longer protected by patents in developed markets.

International sales represented 55% and 57% of total sales in the third quarter and first nine months of 2019, respectively. Performance in international markets was led by China, which had total sales of $914 million and $2.4 billion in the third quarter and first nine months of 2019, respectively, representing growth rates of 79% and 56%, respectively, compared with the same prior year periods. Foreign exchange unfavorably affected sales performance in China by 6% and 8% in the third quarter and first nine months of 2019, respectively.

See Note 17 to the consolidated financial statements for details on sales of the Company’s products.

Pharmaceutical Segment

Oncology

Keytruda is an anti-PD-1 therapy that has been approved for the treatment of multiple malignancies including cervical cancer, classical Hodgkin lymphoma (cHL), esophageal cancer, gastric or gastroesophageal junction adenocarcinoma, head and neck squamous cell carcinoma (HNSCC), hepatocellular carcinoma, non-small-cell lung cancer (NSCLC), small-cell lung cancer (SCLC), melanoma, Merkel cell carcinoma, microsatellite instability-high (MSI-H) or mismatch repair deficient cancer, primary mediastinal large B-cell lymphoma (PMBCL), renal cell carcinoma, and urothelial carcinoma. The Keytruda clinical development program includes studies across a broad range of cancer types (see “Research and Development” below).

In July 2019, the U.S. Food and Drug Administration (FDA) approved Keytruda as monotherapy for the treatment of patients with recurrent locally advanced or metastatic squamous cell carcinoma of the esophagus whose tumors express PD-L1 (Combined Positive Score [CPS] ≥10) as determined by an FDA-approved test, with disease progression after one or more prior lines of systemic therapy based on the results of the KEYNOTE-181 and KEYNOTE-180 trials.

In June 2019, the FDA approved Keytruda as monotherapy or in combination with chemotherapy for the first-line treatment of patients with metastatic or unresectable, recurrent HNSCC based on results from the pivotal Phase 3 KEYNOTE-048 trial. Keytruda was initially approved for the treatment of certain patients with recurrent or metastatic HNSCC under the FDA’s accelerated approval process based on data from the Phase 1b KEYNOTE-012 trial. In accordance with the accelerated approval process, continued approval was contingent upon verification and description of clinical benefit, which has now been demonstrated in KEYNOTE-048 and has resulted in the FDA converting the accelerated approval to a full (regular) approval.

Also in June 2019, the FDA approved Keytruda as monotherapy for the treatment of patients with metastatic SCLC with disease progression on or after platinum-based chemotherapy and at least one other prior line of therapy based on pooled data from the KEYNOTE-158 (cohort G) and KEYNOTE-028 (cohort C1) clinical trials.

In April 2019, the FDA approved Keytruda in combination with Inlyta (axitinib), a tyrosine kinase inhibitor, for the first-line treatment of patients with advanced renal cell carcinoma, the most common type of kidney cancer, based on findings from the pivotal Phase 3 KEYNOTE-426 trial. Keytruda was approved for this indication in the EU in September 2019.

Also in April 2019, the FDA approved an expanded label for Keytruda as monotherapy for the first-line treatment of patients with NSCLC expressing PD-L1 (Tumor Proportion Score [TPS] ≥1%) as determined by an FDA-approved test, with no EGFR or ALK genomic tumor aberrations, and is stage III where patients are not candidates for surgical resection or definitive chemoradiation, or metastatic. The approval was based on results from the Phase 3 KEYNOTE-042 trial.

Additionally, in April 2019, Merck announced that Keytruda was approved by China’s National Medical Products Administration (NMPA) in combination with pemetrexed and platinum chemotherapy for the first-line treatment of patients with metastatic nonsquamous NSCLC, with no EGFR or ALK genomic tumor aberrations, based on data from the pivotal Phase 3 KEYNOTE-189 trial. In October 2019, Merck announced that Keytruda was approved by the NMPA as monotherapy for the first-line treatment of patients with locally advanced or metastatic NSCLC whose tumors express PD-L1 as determined by a NMPA-approved test, with no EGFR or ALK genomic tumor aberrations, based on the results from the Phase 3 KEYNOTE-042 trial, including data from an extension of the global study in Chinese patients. Keytruda is the first anti-PD-1 therapy approved in China as both monotherapy and in combination with chemotherapy for the first-line treatment of appropriate patients with NSCLC.

In March 2019, the European Commission (EC) approved Keytruda in combination with carboplatin and either paclitaxel or nab-paclitaxel for the first-line treatment of adults with metastatic squamous NSCLC based on data from the Phase 3 KEYNOTE-407 trial. Keytruda was approved for this indication in the United States in October 2018.

In April 2019, the EC approved a new extended dosing schedule of 400 mg every six weeks (Q6W) delivered as an intravenous infusion over 30 minutes for all approved monotherapy indications in the European Union (EU). The Q6W dose is available in addition to the formerly approved dose of Keytruda 200 mg every three weeks (Q3W) infused over 30 minutes.

- 33 -

Global sales of Keytruda were $3.1 billion in the third quarter of 2019 and $8.0 billion in the first nine months of 2019, representing growth of 62% and 59%, respectively, compared with the same periods of 2018. Foreign exchange unfavorably affected global sales performance by 2% and 4% in the third quarter and first nine months of 2019, respectively. Sales growth in both periods was driven by volume growth as the Company continues to launch Keytruda with multiple new indications globally. Sales in the United States continue to build across the multiple approved indications, in particular for the treatment of NSCLC both as monotherapy, and in combination with chemotherapy for either nonsquamous or squamous NSCLC, along with uptake in the recently launched renal cell carcinoma and adjuvant melanoma indications. Other indications contributing to U.S. sales growth include HNSCC, bladder cancer, melanoma, and MSI-H cancer. Keytruda sales growth in international markets was driven primarily by increased use in the treatment of NSCLC particularly in Europe, Japan and China.

Global sales of Emend (aprepitant), for the prevention of chemotherapy-induced and post-operative nausea and vomiting, were $98 million in the third quarter of 2019 and $336 million for the first nine months of 2019, declines of 20% and 15%, respectively, compared with the same periods of 2018. Foreign exchange unfavorably affected global sales performance by 1% and 2% in the third quarter and first nine months of 2019, respectively. The sales declines primarily reflect lower demand in the United States due to competition, including recent generic competition for Emend for Injection upon U.S. patent expiry in September 2019. The patent that provided U.S. market exclusivity for Emend expired in 2015 and the patent that provided market exclusivity in most major European markets expired in May 2019. Additionally, the patent that provides market exclusivity for Emend for Injection in major European markets expires in February 2020 (although six-month pediatric exclusivity may extend this date). The Company anticipates that sales of Emend for Injection in these markets will decline significantly after the patent expires.

Lynparza, an oral poly (ADP-ribose) polymerase (PARP) inhibitor being developed as part of a collaboration with AstraZeneca PLC (AstraZeneca) (see Note 3 to the condensed consolidated financial statements), is currently approved for certain types of ovarian and breast cancer. Merck recorded alliance revenue related to Lynparza of $123 million in the third quarter of 2019 compared with $49 million in the third quarter of 2018 and $313 million for the first nine months of 2019 compared with $125 million for the first nine months of 2018. The increase in alliance revenue reflects expanded use in the treatment of ovarian and breast cancer in the United States, Europe, Japan and China. Lynparza received approval for the treatment of certain types of ovarian cancer in the United States in December 2018 and in the EU in June 2019 (which triggered a $30 million milestone payment from Merck to AstraZeneca) based on the results of the Phase 3 SOLO-1 trial. In April 2019, the EC approved Lynparza as a monotherapy for the treatment of certain adult patients with germline BRCA1/2-mutations, and who have human epidermal growth factor receptor 2 (HER2)-negative locally advanced or metastatic breast cancer, triggering a $30 million milestone payment from Merck to AstraZeneca. The approval was based on the results of the Phase 3 OlympiAD trial.

Lenvima, an oral receptor tyrosine kinase inhibitor being developed as part of a collaboration with Eisai entered into in March 2018 (see Note 3 to the condensed consolidated financial statements), is approved for certain types of thyroid cancer, hepatocellular carcinoma, and in combination for certain patients with renal cell carcinoma. Merck recorded alliance revenue related to Lenvima of $109 million and $43 million in the third quarter of 2019 and 2018, respectively, and $280 million and $78 million for the first nine months of 2019 and 2018, respectively. Lenvima sales in 2019 reflect strong performance in hepatocellular carcinoma following recent worldwide launches. In September 2019, Merck and Eisai announced that the FDA approved the combination of Keytruda plus Lenvima for the treatment of patients with advanced endometrial carcinoma that is not MSI-H or mismatch repair deficient, who have disease progression following prior systemic therapy, and are not candidates for curative surgery or radiation. This marks the first U.S. approval for the combination of Keytruda plus Lenvima.

Vaccines

Worldwide sales of Gardasil/Gardasil 9, vaccines to help prevent certain cancers and other diseases caused by certain types of HPV, were $1.3 billion in the third quarter of 2019 and $3.0 billion for the first nine months of 2019, increases of 26% and 31% compared with the same periods of 2018. Foreign exchange unfavorably affected global sales performance by 1% and 3% in the third quarter and first nine months of 2019, respectively. Sales growth in both periods was driven primarily by higher demand in the Asia Pacific region, particularly in China, as well as higher sales in the United States reflecting higher pricing and demand that was partially offset by public sector buying patterns. Higher demand in Europe reflecting increased vaccination rates for both boys and girls also contributed to sales growth in the quarter and year-to-date period.

In October 2019, the Company borrowed doses of Gardasil 9 from the U.S. Centers for Disease Control and Prevention (CDC) Pediatric Vaccine Stockpile. These doses will be allocated to support routine vaccination in the United States and will allow the Company to manufacture doses for other parts of the world, including regions where some of the most vulnerable populations live. The borrowing will reduce sales in the fourth quarter of 2019 by approximately $120 million and the Company will recognize a corresponding liability.

Global sales of ProQuad, a pediatric combination vaccine to help protect against measles, mumps, rubella and varicella, were $232 million in the third quarter of 2019, an increase of 24% compared with $186 million in the third quarter of 2018. Worldwide sales of ProQuad were $588 million in the first nine months of 2019, an increase of 29% compared with $455 million

- 34 -

in the first nine months of 2018. Foreign exchange unfavorably affected global sales performance by 1% and 2% in the third quarter and first nine months of 2019, respectively. Sales growth in both periods was driven primarily by higher volumes and pricing in the United States and volume growth in certain European markets.

Worldwide sales of M‑M‑R II, a vaccine to help protect against measles, mumps and rubella, were $121 million for the third quarter of 2019, essentially flat compared with the third quarter of 2018 including a 1% unfavorable effect from foreign exchange. Higher demand in the United States due to measles outbreaks, as well as higher pricing, was offset by private-sector buy-out. Global sales of M‑M‑R II were $443 million in the first nine months of 2019, an increase of 43% compared with $310 million in the first nine months of 2018. Foreign exchange unfavorably affected global sales performance by 1% in the first nine months of 2018. Sales growth in the year-to-date period was driven primarily by higher sales in the United Sates reflecting increased demand, as well as higher pricing.

Global sales of Varivax, a vaccine to help prevent chickenpox (varicella), were $270 million for the third quarter of 2019, an increase of 25% compared with $217 million for the third quarter of 2018. Worldwide sales of Varivax were $763 million in the first nine months of 2019, an increase of 32% compared with $578 million in the first nine months of 2018. Foreign exchange unfavorably affected global sales performance by 3% in the first nine months of 2019. Sales growth in both periods reflects government tenders in Latin America, as well as volume growth and higher pricing in the United States.

Worldwide sales of RotaTeq (Rotavirus Vaccine, Live Oral, Pentavalent), a vaccine to help protect against rotavirus gastroenteritis in infants and children, were $180 million in the third quarter of 2019, a decline of 5% compared with the third quarter of 2018, reflecting lower sales in the United States due to public sector buying patterns, partially offset by continued uptake from the launch in China. Global sales of RotaTeq were $564 million for the first nine months of 2019, an increase of 4% compared with the same period of 2018 including a 2% unfavorable effect from foreign exchange. Sales growth in the year-to-date period was driven primarily by continued uptake from the launch in China, partially offset by lower sales in the United States due to public sector buying patterns and lower volumes in Latin America.

Hospital Acute Care

Worldwide sales of Bridion, for the reversal of two types of neuromuscular blocking agents used during surgery, were $284 million in the third quarter of 2019 and $817 million for the first nine months of 2019, increases of 31% and 24%, respectively, compared with the same periods of 2018. Foreign exchange unfavorably affected global sales performance by 1% and 3% in the third quarter and first nine months of 2019, respectively. Sales growth in both periods was driven by higher demand globally, particularly in the United States.

Worldwide sales of Noxafil (posaconazole), for the prevention of invasive fungal infections, were $177 million in the third quarter of 2019, a decline of 6% compared with the third quarter of 2018 including a 2% unfavorable effect from foreign exchange. The patent that provided U.S. market exclusivity for Noxafil expired in July 2019; accordingly, the Company anticipates a significant decline in U.S. sales of Noxafil in future periods. Additionally, the patent for Noxafil will expire in a number of major European markets in December 2019. The Company anticipates sales of Noxafil in these markets will decline significantly thereafter. Global sales of Noxafil were $560 million for the first nine months of 2019, an increase of 1% compared with the same period of 2018 including a 4% unfavorable effect from foreign exchange.

Global sales of Invanz, for the treatment of certain infections, were $57 million in the third quarter of 2019 and $206 million for the first nine months of 2019, declines of 58% and 53%, respectively, compared with the same periods of 2018. Foreign exchange unfavorably affected global sales performance by 1% and 3% in the third quarter and first nine months of 2019, respectively. The sales decline in both periods was driven by generic competition in the United States. The patent that provided U.S. market exclusivity for Invanz expired in 2017. Accordingly, the Company is experiencing a significant decline in U.S. Invanz sales and expects the decline to continue.

In June 2019, the FDA approved a supplemental New Drug Application (NDA) for the use of Zerbaxa (ceftolozane and tazobactam) for the treatment of patients 18 years and older with hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (HABP/VABP) caused by certain susceptible Gram-negative microorganisms based on the results of the pivotal Phase 3 ASPECT-NP trial. In August 2019, the EC approved Zerbaxa for the treatment of hospital-acquired pneumonia, including ventilator-associated pneumonia, in adults based on the results of the ASPECT-NP trial. Zerbaxa was previously approved in the United States and EU for the treatment of certain adult patients with complicated urinary tract infections, including pyelonephritis, and complicated intra-abdominal infections.

In July 2019, the FDA approved Recarbrio (imipenem, cilastatin, and relebactam) for injection, a new combination antibacterial for the treatment of complicated urinary tract infections, including pyelonephritis, caused by certain Gram-negative microorganisms in patients 18 years of age and older who have limited or no alternative treatment options. Merck anticipates making Recarbrio available in early 2020. In September 2019, Merck announced that the pivotal Phase 3 Recarbrio RESTORE-IMI 2 trial met its primary endpoint. The trial investigated the efficacy and safety of Recarbrio for use in adult patients with HABP and VABP. Results from the trial showed Recarbrio met both the primary and key secondary endpoints of statistical non-inferiority

- 35 -

compared to piperacillin/tazobactam in Day 28 all-cause mortality and clinical response at early follow up, respectively, in the modified intent-to-treat population. Merck plans to present the full data from the trial at a scientific congress in 2020. Relebactam (the beta lactamase inhibitor component of Recarbrio) has received the FDA’s Qualified Infectious Disease Product (QIDP) designation and Fast Track status for the treatment of HABP/VABP.

In October 2019, the FDA accepted for priority review an NDA for Dificid (fidaxomicin) for oral suspension, and a supplemental NDA for a new indication for use of Dificid tablets and oral suspension for the treatment of Clostridium (also known as Clostridioides) difficile infections in children aged six months or older. The Prescription Drug User Fee Act (PDUFA), or target action, date for both applications is set for January 24, 2020. The investigational pediatric indication for Dificid was granted Orphan Drug Designation in 2010.

Immunology

Sales of Simponi (golimumab), a once-monthly subcutaneous treatment for certain inflammatory diseases (marketed by the Company in Europe, Russia and Turkey), were $203 million in the third quarter of 2019 and $625 million for the first nine months of 2019, declines of 3% and 7%, respectively, compared with the same periods of 2018. Foreign exchange unfavorably affected sales performance by 4% and 6% in the third quarter and first nine months of 2019, respectively. Sales of Simponi are being unfavorably affected by the launch of biosimilars for a competing product.

Sales of Remicade, a treatment for inflammatory diseases (marketed by the Company in Europe, Russia and Turkey), were $101 million in the third quarter of 2019 and $322 million for the first nine months of 2019, declines of 25% and 30%, respectively, compared with the same periods of 2018. Foreign exchange unfavorably affected sales performance by 2% and 5% in the third quarter and first nine months of 2019, respectively. The Company lost market exclusivity for Remicade in major European markets in 2015 and no longer has market exclusivity in any of its marketing territories. The Company is experiencing pricing and volume declines in these markets as a result of biosimilar competition and expects the declines to continue.

Virology

Global combined sales of Isentress/Isentress HD (raltegravir), an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, were $250 million in the third quarter of 2019 and $752 million for the first nine months of 2019, declines of 9% and 13%, respectively, compared with the same periods of 2018. Foreign exchange unfavorably affected global sales performance by 3% and 6% in the third quarter and first nine months of 2019, respectively. The sales declines were driven primarily by lower demand in the United States and Europe due to competitive pressure.

In September 2019, the FDA approved supplemental NDAs for Pifeltro (doravirine) (in combination with other antiretroviral agents) and Delstrigo (doravirine/lamivudine/tenofovir disoproxil fumarate) (as a complete regimen) that expand their indications to include adult patients with HIV-1 infection who are virologically suppressed on a stable antiretroviral regimen with no history of treatment failure and no known substitutions associated with resistance to Pifeltro or the individual components of Delstrigo.

Cardiovascular

Combined global sales of Zetia (marketed in most countries outside the United States as Ezetrol), Vytorin (marketed outside the United States as Inegy), as well as Atozet (ezetimibe and atorvastatin) and Rosuzet (ezetimibe and rosuvastatin) (both marketed in certain countries outside of the United States), medicines for lowering LDL cholesterol, were $332 million in the third quarter of 2019 and $1.1 billion for the first nine months of 2019, declines of 6% and 26%, respectively, compared with the same periods of 2018. Foreign exchange unfavorably affected global sales performance by 2% and 4% in the third quarter and first nine months of 2019, respectively. The sales declines were driven primarily by lower sales in Europe. The EU patents for Ezetrol and Inegy expired in April 2018 and April 2019, respectively. Accordingly, the Company is experiencing sales declines in these markets as a result of generic competition and expects the declines to continue. Merck lost market exclusivity in the United States for Zetia in 2016 and Vytorin in 2017 and has lost nearly all U.S. sales of these products as a result of generic competition. The sales declines were also attributable to loss of exclusivity in Australia. These declines were partially offset by volume growth of Rosuzet and Atozet in certain ex-U.S. markets.

Adempas (riociguat), a cardiovascular drug for the treatment of pulmonary arterial hypertension, is part of a worldwide clinical development collaboration with Bayer AG (Bayer) to market and develop soluble guanylate cyclase (sGC) modulators including Adempas (see Note 3 to the condensed consolidated financial statements). Revenue from Adempas includes sales in Merck’s marketing territories, as well as Merck’s share of profits from the sale of Adempas in Bayer’s marketing territories. Merck recorded revenue related to Adempas of $107 million in the third quarter of 2019 and $302 million for the first nine months of 2019, increases of 14% and 27%, respectively, compared with the same periods of 2018. Foreign exchange unfavorably affected global sales performance by 1% and 3% in the third quarter and first nine months of 2019, respectively. Sales growth in both periods was driven both by higher profit sharing from Bayer and higher sales of Adempas in Merck’s marketing territories.

- 36 -

Diabetes

Worldwide combined sales of Januvia and Janumet, medicines that help lower blood sugar levels in adults with type 2 diabetes, were $1.3 billion in the third quarter of 2019 and $4.1 billion for the first nine months of 2019, declines of 12% and 8%, respectively, compared with the same periods of 2018. Foreign exchange unfavorably affected global sales performance by 1% and 3% in the third quarter and first nine months of 2019, respectively. The sales decline in both periods reflects continued pricing pressure in the United States, partially offset by higher demand globally. The Company expects U.S. pricing pressure to continue.

Women’s Health 

Worldwide sales of NuvaRing (etonogestrel/ethinyl estradiol vaginal ring), a vaginal contraceptive product, were $241 million in the third quarter of 2019 and $700 million for the first nine months of 2019, increases of 3% and 2%, respectively, compared with the same periods of 2018 including a 1% unfavorable effect from foreign exchange in both periods. The patent that provided U.S. market exclusivity for NuvaRing expired in April 2018 and the Company anticipates a significant decline in U.S. NuvaRing sales in future periods as a result of generic competition.

Animal Health Segment

Global sales of Animal Health products totaled $1.1 billion for the third quarter of 2019, growth of 10% compared with the third quarter of 2018 including a 2% unfavorable effect from foreign exchange. Sales growth in the third quarter was primarily driven by higher sales of livestock products as a result of the Antelliq acquisition, as well as higher sales of companion animal products, primarily the Bravecto (fluralaner) line of products for parasitic control. Worldwide sales of Animal Health products totaled $3.3 billion for the first nine months of 2019, an increase of 3% compared with the first nine months of 2018 including a 5% unfavorable effect from foreign exchange. Revenue growth in the year-to-date period was driven by higher sales of livestock products due to the Antelliq acquisition, as well as higher demand for poultry and swine products. Higher demand for companion animal products, primarily the Bravecto line of products, also contributed to sales growth in the year-to-date period.

In April 2019, Merck acquired Antelliq, a leader in digital animal identification, traceability and monitoring solutions (see Note 2 to the condensed consolidated financial statements).

Costs, Expenses and Other

Cost of Sales

Cost of sales were $4.0 billion for the third quarter of 2019, an increase of 10% compared with the third quarter of 2018, and were $10.4 billion for the first nine months of 2019, an increase of 2% compared with the same period of 2018. Costs in the third quarter of 2019 and 2018 include $320 million and $679 million, respectively, and for the first nine months of 2019 and 2018 include $1.1 billion and $2.1 billion, respectively, of expenses for the amortization of intangible assets recorded in connection with business acquisitions. Cost of sales also include expenses for the amortization of amounts capitalized in connection with collaborations of $79 million and $49 million in the third quarter of 2019 and 2018, respectively, and $301 million and $244 million for the first nine months of 2019 and 2018, respectively. These amounts include catch-up amortization from the accrual of sales-based milestones that were deemed by the Company to be probable in each period (see Note 3 to the condensed consolidated financial statements). In addition, cost of sales in the third quarter and first nine months of 2019 include $612 million and $693 million, respectively, of intangible asset impairment charges related to marketed products and other intangibles recorded in connection with business acquisitions (see Note 7 to the condensed consolidated financial statements). The Company may recognize additional non-cash impairment charges in the future related to intangible assets that were measured at fair value and capitalized in connection with business acquisitions and such charges could be material. Additionally, costs in the third quarter and first nine months of 2018 include a $420 million charge related to the termination of a collaboration agreement with Samsung Bioepis Co., Ltd. (Samsung) for insulin glargine (see Note 3 to the condensed consolidated financial statements). Also included in cost of sales are expenses associated with restructuring activities which amounted to $62 million and $2 million in the third quarter of 2019 and 2018, respectively, and $161 million and $11 million for the first nine months of 2019 and 2018, respectively, including 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 67.8% in the third quarter of 2019 compared with 66.5% in the third quarter of 2018 and was 70.1% in the first nine months of 2019 compared with 67.3% for the first nine months of 2018. Gross margin includes the amortization and impairment of intangible assets related to business acquisitions and restructuring costs as noted above, which unfavorably affected gross margin by 8.1 percentage points in the third quarter of 2019 compared with 6.3 percentage points in the third quarter of 2018 and by 5.6 percentage points in the first nine months of 2019 compared with 6.9 percentage points in the first nine months of 2018. The gross margin improvement in both periods reflects the charge recorded in 2018 in connection with the termination of the collaboration agreement with Samsung (noted above), as well as the favorable effects of product mix, partially offset by

- 37 -

higher amortization of unfavorable manufacturing variances, increased amortization of amounts capitalized in connection with collaborations, as well as manufacturing facility start-up costs.

Selling, General and Administrative

Selling, general and administrative (SG&A) expenses were $2.6 billion in the third quarter of 2019, an increase of 6% compared with the third quarter of 2018, reflecting higher promotional and administrative costs primarily in support of strategic brands, and higher acquisition and divestiture-related costs, partially offset by the favorable effect of foreign exchange. Acquisition and divestiture-related costs consist of integration, transaction, and certain other costs related to business acquisitions and divestitures. SG&A expenses were $7.7 billion for the first nine months of 2019, an increase of 4% compared with the same period of 2018, driven by higher administrative costs, acquisition and divestiture-related costs (primarily related to the acquisition of Antelliq), and restructuring costs, partially offset by the favorable effect of foreign exchange and lower selling and promotional costs. SG&A expenses in the first nine months of 2019 include restructuring costs of $33 million related primarily to accelerated depreciation for facilities to be closed or divested.

Research and Development

Research and development (R&D) expenses increased 55% in the third quarter of 2019 to $3.2 billion driven primarily by a $982 million charge related to the acquisition of Peloton (see Note 2 to the condensed consolidated financial statements), as well as higher expenses related to clinical development and increased investment in discovery research and early drug development. R&D expenses were $7.3 billion in the first nine months of 2019, a decline of 3% compared with the same period of 2018. The decline was driven primarily by a $1.4 billion charge recorded in 2018 related to the formation of an oncology collaboration with Eisai (see Note 3 to the condensed consolidated financial statements) and a $344 million charge in 2018 related to the acquisition of Viralytics Limited (Viralytics) (see Note 2 to the condensed consolidated financial statements). Partially offsetting the decline was the charge in 2019 relating to the acquisition of Peloton as noted above, as well as higher expenses related to clinical development and increased investment in discovery research and early drug development.

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 $1.6 billion and $1.4 billion in the third quarter of 2019 and 2018, respectively, and were $4.4 billion and $4.1 billion in the first nine months of 2019 and 2018, respectively. 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 approximately $655 million and $630 million for the third quarter of 2019 and 2018, respectively, and were $1.9 billion and $1.7 billion in the first nine months of 2019 and 2018, respectively. In addition, R&D expenses include expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration recorded in connection with business acquisitions. During the first nine months of 2019, the Company recorded a net reduction in expenses of $36 million to decrease the estimated fair value of liabilities for contingent consideration related to the discontinuation or delay of certain programs.

Restructuring Costs

Merck recently approved a new global restructuring program (2019 Restructuring Program) as part of a worldwide initiative focused primarily 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 Company will continue to evaluate its global footprint and overall operating model, which could result in the identification of additional actions over time. The actions contemplated under the 2019 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 $800 million to $1.2 billion. The Company expects to record charges of approximately $750 million in 2019 related to the program. The Company anticipates the actions under the 2019 Restructuring Program to result in annual net cost savings of approximately $500 million by the end of 2023. Actions under previous global restructuring programs have been substantially completed.

Restructuring costs, primarily representing separation and other related costs associated with these restructuring activities, were $232 million and $171 million for the third quarter of 2019 and 2018, respectively, and $444 million and $494 million for the first nine months of 2019 and 2018, respectively. 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, 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.

- 38 -

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 $296 million and $169 million in the third quarter of 2019 and 2018, respectively, and $642 million and $508 million for the first nine months of 2019 and 2018, respectively, related to restructuring program activities (see Note 4 to the condensed consolidated financial statements).

Other (Income) Expense, Net

Other (income) expense, net was $35 million of expense in the third quarter of 2019 compared with $172 million of income in the third quarter of 2018 and was $362 million of expense in the first nine months of 2019 compared with $512 million of income for the first nine months of 2018. For details on the components of Other (income) expense, net, see Note 13 to the condensed consolidated financial statements.

Segment Profits
	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Pharmaceutical segment profits	$	7,747		$	6,621		$	21,437		$	18,535
Animal Health segment profits	423			409			1,243			1,273
Other non-reportable segment profits	(2		)	5			(2		)	94
Other	(5,821		)	(4,370		)	(14,005		)	(13,805		)
Income before taxes	$	2,347		$	2,665		$	8,673		$	6,097

Pharmaceutical segment profits are comprised of segment sales less standard costs, as well as selling, general and administrative expenses directly incurred by the segment. Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as selling, general and administrative expenses and research and development costs directly incurred by the segment. For internal management reporting presented to the chief operating decision maker, Merck does not allocate the remaining cost of sales not included in segment profits as described above, research and development expenses incurred in 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 purchase accounting adjustments, intangible asset impairment charges and 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.

Pharmaceutical segment profits grew 17% in the third quarter of 2019 and 16% in the first nine months of 2019 compared with the same periods of 2018 driven primarily by higher sales. In the year-to-date period lower selling and promotional costs also contributed to the increase in Pharmaceutical segment profits. Animal Health segment profits grew 4% in the third quarter of 2019 compared with the third quarter of 2018 reflecting higher sales driven by the Antelliq acquisition, partially offset by the unfavorable effect of foreign exchange and higher selling and administrative costs. Animal Health segment profits declined 2% in the first nine months of 2019 compared with the corresponding period of 2018 largely reflecting the unfavorable effect of foreign exchange and higher selling costs, partially offset by higher sales driven primarily by the Antelliq acquisition.

Taxes on Income

The effective income tax rates of 18.7% and 26.5% for the third quarter of 2019 and 2018, respectively, and 14.5% and 27.6% for the first nine months of 2019 and 2018, respectively, reflect the impacts of acquisition and divestiture-related costs and restructuring costs, partially offset by the beneficial impact of foreign earnings. The effective income tax rates in the third quarter and first nine months of 2019 also reflect the unfavorable impact of a charge for the acquisition of Peloton for which no tax benefit was recognized and the favorable impact of product mix on the estimated full-year tax rate. In addition, the effective income tax rate for the first nine months of 2019 reflects the favorable impact of a $360 million net tax benefit related to the settlement of certain federal income tax matters (discussed below). The effective income tax rate for the first nine months of 2018 reflects the unfavorable impact of a charge recorded in connection with the formation of a collaboration with Eisai for which no tax benefit was recognized.

- 39 -

In the first quarter of 2019, the Internal Revenue Service (IRS) concluded its examinations of Merck’s 2012-2014 U.S. federal income tax returns. As a result, the Company was required to make a payment of $107 million. The Company’s reserves for unrecognized tax benefits for the years under examination exceeded the adjustments relating to this examination period and therefore the Company recorded a $360 million net tax benefit in the first nine months of 2019. This net benefit reflects reductions in reserves for unrecognized tax benefits for tax positions relating to the years that were under examination, partially offset by additional reserves for tax positions not previously reserved for.

Net Income (Loss) Attributable to Noncontrolling Interests

Net income (loss) attributable to noncontrolling interests was $6 million for the third quarter of 2019 compared with $8 million for the third quarter of 2018 and was $(73) million for the first nine months of 2019 compared with $22 million for the first nine months of 2018. The losses in the first nine months of 2019 primarily reflect the portion of goodwill impairment charges related to certain businesses in the Healthcare Services segment that are attributable to noncontrolling interests.

Net Income and Earnings per Common Share

Net income attributable to Merck & Co., Inc. was $1.9 billion for the third quarter of 2019 compared with $2.0 billion for the third quarter of 2018 and was $7.5 billion for the first nine months of 2019 compared with $4.4 billion for the first nine months of 2018. Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders (EPS) for the third quarter of 2019 were $0.74 compared with $0.73 in the third quarter of 2018 and were $2.89 for the first nine months of 2019 compared with $1.63 for the first nine months of 2018.

Non-GAAP Income and Non-GAAP EPS

Non-GAAP income and non-GAAP EPS are alternative views of the Company’s performance that Merck is providing because management believes this information enhances investors’ understanding of the Company’s results as it permits investors to understand how management assesses performance. Non-GAAP income and non-GAAP EPS exclude certain items because of the nature of these items and the impact that they have on the analysis of underlying business performance and trends. The excluded items (which should not be considered non-recurring) consist of acquisition and divestiture-related costs, restructuring costs and certain other items. These excluded items are significant components in understanding and assessing financial performance. Non-GAAP income and non-GAAP EPS are important internal measures for the Company. Senior management receives a monthly analysis of operating results that includes non-GAAP EPS. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the Company along with other metrics. Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS. Since non-GAAP income and non-GAAP EPS are not measures determined in accordance with GAAP, they have no standardized meaning prescribed by GAAP and, therefore, may not be comparable to the calculation of similar measures of other companies. The information on non-GAAP income and non-GAAP EPS should be considered in addition to, but not as a substitute for or superior to, net income and EPS prepared in accordance with generally accepted accounting principles in the United States (GAAP).

- 40 -

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

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions except per share amounts)	2019		2018		2019			2018
Income before taxes as reported under GAAP	$	2,347	$	2,665	$	8,673		$	6,097
Increase (decrease) for excluded items:
Acquisition and divestiture-related costs	975		677		2,183			2,265
Restructuring costs	296		169		642			508
Other items:
Charge for the acquisition of Peloton	982		—		982			—
Charge related to the termination of a collaboration with Samsung	—		420		—			420
Charge related to the formation of a collaboration with Eisai	—		—		—			1,400
Charge for the acquisition of Viralytics	—		—		—			344
Other	—		—		48			(54		)
Non-GAAP income before taxes	4,600		3,931		12,528			10,980
Taxes on income as reported under GAAP	440		707		1,259			1,682
Estimated tax benefit on excluded items (1)	281		38		555			400
Net tax benefit from the settlement of certain federal income tax matters	—		—		360			—
Tax charge related to finalization of treasury regulations for the Tax Cuts and Job Act of 2017	—		—		(67		)	—
Non-GAAP taxes on income	721		745		2,107			2,082
Non-GAAP net income	3,879		3,186		10,421			8,898
Net income (loss) attributable to noncontrolling interests as reported under GAAP	6		8		(73		)	22
Acquisition and divestiture-related costs attributable to noncontrolling interests	—		—		89			—
Non-GAAP net income attributable to noncontrolling interests	6		8		16			22
Non-GAAP net income attributable to Merck & Co., Inc.	$	3,873	$	3,178	$	10,405		$	8,876
EPS assuming dilution as reported under GAAP	$	0.74	$	0.73	$	2.89		$	1.63
EPS difference (2)	0.77		0.46		1.13			1.66
Non-GAAP EPS assuming dilution	$	1.51	$	1.19	$	4.02		$	3.29

⁽¹⁾  The estimated tax impact on the excluded items is determined by applying the statutory rate of the originating territory of the non-GAAP adjustments.

⁽²⁾  Represents the difference between calculated GAAP EPS and calculated non-GAAP EPS, which may be different than the amount calculated by dividing the impact of the excluded items by the weighted-average shares for the applicable period.

Acquisition and Divestiture-Related Costs

Non-GAAP income and non-GAAP EPS exclude the impact of certain amounts recorded in connection with business acquisitions and divestitures. These amounts include the amortization of intangible assets and amortization of purchase accounting adjustments to inventories, as well as intangible asset impairment charges and expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration. Also excluded are integration, transaction, and certain other costs associated with business acquisitions and divestitures.

Restructuring Costs

Non-GAAP income and non-GAAP EPS exclude costs related to restructuring actions (see Note 4 to the condensed consolidated financial statements). These amounts include employee separation costs and accelerated depreciation associated with facilities to be closed or divested. Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the revised useful life of the asset, based upon the anticipated date the site will be closed or divested or the equipment disposed of, and depreciation expense as determined utilizing the useful life prior to the restructuring actions. Restructuring costs also include asset abandonment, shut-down and other related costs, as well as employee-related costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans and share-based compensation costs.

Certain Other Items

Non-GAAP income and non-GAAP EPS exclude certain other items. These items are adjusted for after evaluating them on an individual basis, considering their quantitative and qualitative aspects, and typically consist of items that are unusual in nature, significant to the results of a particular period or not indicative of future operating results. Excluded from non-GAAP income and non-GAAP EPS in 2019 is a charge for the acquisition of Peloton (see Note 2 to the condensed consolidated financial statements), a net tax benefit related to the settlement of certain federal income tax matters (see Note 14 to the condensed consolidated financial statements) and a tax charge related to the finalization of U.S. treasury regulations related to the Tax Cuts and Jobs Act of 2017. Excluded from non-GAAP income and non-GAAP EPS in 2018 is a charge for the termination of a collaboration agreement

- 41 -

with Samsung for insulin glargine (see Note 2 to the condensed consolidated financial statements), a charge related to the formation of a collaboration with Eisai (see Note 3 to the condensed consolidated financial statements), and a charge for the acquisition of Viralytics (see Note 2 to the condensed consolidated financial statements).

Research and Development Update

Keytruda is an anti-PD-1 therapy approved for the treatment of many cancers. These approvals were the result of a broad clinical development program that currently consists of more than 1,000 clinical trials, including more than 600 trials that combine Keytruda with other cancer treatments. These studies encompass more than 30 cancer types including: biliary tract, bladder, cervical, colorectal, cutaneous squamous cell, endometrial, gastric, HNSCC, hepatocellular, Hodgkin lymphoma, non-Hodgkin lymphoma, melanoma, mesothelioma, nasopharyngeal, NSCLC, ovarian, PMBCL, prostate, renal, small-cell lung and triple-negative breast, many of which are currently in Phase 3 clinical development. Further trials are being planned for other cancers.

Keytruda is under review in the EU as monotherapy for the first-line treatment of patients with stage III NSCLC who are not candidates for surgical resection or definitive chemoradiation, or metastatic NSCLC, and whose tumors express PD-L1 (TPS ≥1%) with no EGFR or ALK genomic tumor aberrations. Keytruda was approved for this indication by the FDA in April 2019 based on results from the Phase 3 KEYNOTE-042 trial, in which Keytruda monotherapy demonstrated a statistically significant improvement in overall survival (OS) compared with chemotherapy alone in patients whose tumors expressed PD-L1 with a TPS ≥50%, with a TPS ≥20%, and then in the entire study population (TPS ≥1%).

In October 2019, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) adopted a positive opinion recommending approval of two regimens of Keytruda, as monotherapy or in combination with chemotherapy for the first-line treatment of patients with metastatic or unresectable HNSCC. This recommendation is based on data from the pivotal Phase 3 KEYNOTE-048 trial where Keytruda demonstrated a significant improvement in OS compared with the standard of care, as monotherapy in patients whose tumors expressed PD-L1 with CPS≥20 and CPS≥1 and in combination with chemotherapy. The CHMP’s recommendation will now be reviewed by the EC for marketing authorization in the EU, and a final decision is expected in the fourth quarter of 2019. Keytruda was approved for these indications by the FDA in June 2019.

Keytruda is also under review in the EU as monotherapy for the second-line treatment of advanced or metastatic esophageal or esophagogastric junction carcinoma, based on the results of the Phase 3 KEYNOTE-181 trial. In July 2019, the FDA approved Keytruda as monotherapy for the treatment of patients with recurrent locally advanced or metastatic squamous cell carcinoma of the esophagus with disease progression after one or more prior lines of systemic therapy and whose tumor express PD-L1 (CPS≥10). In October 2019, Merck announced a similar indication was approved in China.

In July 2019, the FDA accepted for review six supplemental Biologics License Applications (BLAs) to update the dosing frequency for Keytruda to include an every-six-weeks (Q6W) dosing schedule option for certain monotherapy indications. Merck is seeking FDA approval of a 400 mg Q6W dose infused over 30 minutes for Keytruda monotherapy indications in melanoma, cHL, PMBCL, gastric cancer, hepatocellular carcinoma, and Merkel cell carcinoma. If approved by the FDA, the Q6W dose would be available for use in adults in addition to the currently approved dose of Keytruda 200 mg every three weeks (Q3W) infused over 30 minutes. The FDA set a PDUFA date of February 18, 2020. In the EU, 400 mg Q6W dosing for all approved Keytruda monotherapy indications was approved by the EC in March 2019.

In October 2019, the FDA accepted a sBLA seeking use of Keytruda for the treatment of patients with recurrent and/or metastatic cutaneous squamous cell carcinoma (cSCC) that is not curable by surgery or radiation. The FDA set a PDUFA date of June 29, 2020.

In June 2019, Merck announced full results from the pivotal Phase 3 KEYNOTE-062 trial evaluating Keytruda as monotherapy and in combination with chemotherapy for the first-line treatment of advanced gastric or gastroesophageal junction adenocarcinoma. In the monotherapy arm of the study, Keytruda met a primary endpoint by demonstrating noninferiority to chemotherapy, the current standard of care, for OS in patients whose tumors expressed PD-L1 (CPS ≥1). In the combination arm of KEYNOTE-062, Keytruda plus chemotherapy was not found to be statistically superior for OS (CPS ≥1 or CPS ≥10) or progression-free survival (PFS) (CPS ≥1) compared with chemotherapy alone. Results were presented at the 2019 American Society of Clinical Oncology (ASCO) Annual Meeting. In September 2017, the FDA approved Keytruda as a third-line treatment for previously treated patients with recurrent locally advanced or metastatic gastric or gastroesophageal junction cancer whose tumors express PD-L1 (CPS ≥1) as determined by an FDA-approved test. KEYNOTE-062 was a potential confirmatory trial for this accelerated, third-line approval. In addition to KEYNOTE-062, additional first-line, Phase 3 studies in Merck’s gastric clinical program include KEYNOTE-811 and KEYNOTE-859, as well as KEYNOTE-585 in the neoadjuvant and adjuvant treatment setting.

In addition, Keytruda received Breakthrough Therapy designation from the FDA for the treatment of high-risk, early-stage triple-negative breast cancer (TNBC) in combination with neoadjuvant chemotherapy. The FDA’s Breakthrough Therapy designation is intended to expedite the development and review of a candidate that is planned for use, alone or in combination, to

- 42 -

treat a serious or life-threatening disease or condition when preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Additionally, the FDA recently granted Breakthrough Therapy designation for Keytruda in combination with Lenvima for the potential first-line treatment of patients with advanced unresectable hepatocellular carcinoma not amenable to locoregional treatment. Lenvima is being developed as part of a collaboration with Eisai (see Note 3 to the condensed consolidated financial statements).

In September 2019, Merck announced results from the pivotal neoadjuvant/adjuvant Phase 3 KEYNOTE-522 trial in patients with early-stage TNBC. The trial investigated a regimen of neoadjuvant Keytruda plus chemotherapy, followed by adjuvant Keytruda as monotherapy (the Keytruda regimen) compared with a regimen of neoadjuvant chemotherapy followed by adjuvant placebo (the chemotherapy-placebo regimen). Interim findings were presented at the European Society for Medical Oncology (ESMO) 2019 Congress. In the neoadjuvant phase, Keytruda plus chemotherapy resulted in a statistically significant increase in pathological complete response (pCR) versus chemotherapy from 51.2% with neoadjuvant chemotherapy to 64.8% for neoadjuvant Keytruda plus chemotherapy, in patients with early-stage TNBC. The improvement seen when adding Keytruda to neoadjuvant chemotherapy was observed regardless of PD-L1 expression. In the other dual primary endpoint of event-free-survival (EFS), with a median follow-up of 15.5 months, the Keytruda regimen reduced the risk of progression in the neoadjuvant phase and recurrence in the adjuvant phase by 37% - a favorable trend for EFS - compared with the chemotherapy-placebo regimen. As previously announced, Merck plans to share early interim analysis data from KEYNOTE-522 with regulatory authorities.

In May 2019, Merck announced that the Phase 3 KEYNOTE-119 trial evaluating Keytruda as monotherapy for the second- or third-line treatment of patients with metastatic TNBC did not meet its pre-specified primary endpoint of superior OS compared to chemotherapy. Other endpoints were not formally tested per the study protocol because the primary endpoint of OS was not met. Results will be presented at an upcoming medical meeting. The Keytruda breast cancer clinical development program encompasses several internal and external collaborative studies, including three ongoing registration-enabling studies in TNBC: KEYNOTE-355, KEYNOTE-242, and KEYNOTE-522 (discussed above).

Lynparza is an oral PARP inhibitor currently approved for certain types of ovarian and breast cancer being co-developed for multiple cancer types as part of a collaboration with AstraZeneca (see Note 3 to the condensed consolidated financial statements).

Lynparza tablets are under review in the United States and in the EU as a first-line maintenance monotherapy for patients with germline BRCA-mutated metastatic pancreatic cancer whose disease had not progressed following platinum-based chemotherapy based on the results from the Phase 3 POLO trial. Results from the trial showed a statistically-significant and clinically-meaningful improvement in PFS for Lynparza compared to placebo, reducing the risk of disease progression or death by 47%. The results of the trial were presented at the 2019 ASCO Annual Meeting and published online simultaneously in the New England Journal of Medicine. A decision by the FDA is expected in the fourth quarter of 2019 and a decision from the EMA is expected in the second half of 2020.

Also in June 2019, Merck and AstraZeneca presented full results from the Phase 3 SOLO-3 trial which evaluated Lynparza, compared to chemotherapy, for the treatment of platinum-sensitive relapsed patients with germline BRCA1/2-mutated (gBRCAm) advanced ovarian cancer, who have received two or more prior lines of chemotherapy. The results from the trial showed a statistically-significant and clinically-meaningful improvement in objective response rate (ORR) in the Lynparza arm compared to the chemotherapy arm. The key secondary endpoint of PFS was also significantly increased in the Lynparza arm compared to the chemotherapy arm. The results were presented at the 2019 ASCO Annual Meeting.

In September 2019, Merck and AstraZeneca announced detailed positive results from the Phase 3 PAOLA-1 trial showing Lynparza added to bevacizumab demonstrated a statistically significant and clinically meaningful improvement in PFS in women with newly-diagnosed advanced ovarian cancer who had a complete or partial response to first-line treatment with platinum-based chemotherapy and bevacizumab. The results were presented at the ESMO 2019 Congress.

Also in September 2019, Merck and AstraZeneca presented detailed results from the Phase 3 PROfound trial in patients with metastatic castration-resistant prostate cancer (mCRPC) who have a mutation in their homologous recombination repair (HRR) genes and whose disease had progressed on prior treatment with new hormonal agent treatments (e.g. abiraterone or enzalutamide). The trial was designed to analyze men with mCRPC harboring HRR-mutated (HRRm) genes in two cohorts: the primary endpoint was in those with mutations in BRCA1/2 or ATM genes and then, if Lynparza showed clinical benefit, a formal analysis was performed of the overall trial population of men with HRRm genes (BRCA1/2, ATM, CDK12 and 11 other HRRm genes). Results showed a statistically-significant and clinically-meaningful improvement with Lynparza in the primary endpoint of radiographic progression-free survival (rPFS) in BRCA1/2 or ATM-mutated tumors reducing the risk of disease progression or death by a median of 7.4 months versus 3.6 months for those receiving abiraterone or enzalutamide. Lynparza reduced the risk of disease progression or death by 66% for these men. The trial also met the key secondary endpoint of rPFS in the overall HRRm population, where Lynparza reduced the risk of disease progression or death by 51% and improved rPFS to a median of 5.8 months vs. 3.5 months for those receiving abiraterone or enzalutamide. The results were presented at the ESMO 2019 Congress.

In October 2019, the CHMP of the EMA adopted a positive opinion recommending a conditional marketing authorization for V920 Ebola Zaire vaccine (rVSVΔG-ZEBOV-GP, live). If affirmed by the EC, the vaccine will be authorized under the brand

- 43 -

name Ervebo and indicated for active immunization of individuals 18 years of age or older to protect against Ebola Virus Disease caused by Zaire ebola virus. V920 is also under review in the United States. In September 2019, the FDA accepted the BLA and granted priority review for V920. In 2018, Merck started the submission of a rolling BLA to the FDA pursuant to the FDA’s Breakthrough Therapy designation for V920. The PDUFA date for the BLA is March 14, 2020. In parallel, and in close collaboration with FDA and EMA, submissions have also been made to the World Health Organization (WHO) to achieve prequalification status and to African health authorities in collaboration with the African Vaccine Regulatory Forum.

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

Phase 2	Phase 3 (Phase 3 entry date)	Under Review
Cancer MK-3475 Keytruda Advanced Solid Tumors MK-6482 Renal Cell MK-7123(1) Solid Tumors MK-7339 Lynparza(2) Advanced Solid Tumors MK-7690 (vicriviroc)(1) Colorectal MK-7902 Lenvima(2) Biliary Tract V937 Melanoma Cytomegalovirus V160 HIV-1 Infection MK-8591 (islatravir) Pediatric Neurofibromatosis Type 1 MK-5618 (selumetinib)(2) Respiratory Syncytial Virus MK-1654 Schizophrenia MK-8189	Cancer MK-3475 Keytruda  Biliary Tract (September 2019) Breast (October 2015) Cervical (October 2018) (EU) Colorectal (November 2015) Cutaneous Squamous Cell (August 2019) (EU) Endometrial (August 2019) (EU) Gastric (May 2015) (EU) Hepatocellular (May 2016) (EU) Mesothelioma (May 2018) Nasopharyngeal (April 2016) Ovarian (December 2018) Prostate (May 2019) Small-Cell Lung (May 2017) (EU) MK-7339 Lynparza(2) Non-Small-Cell Lung (June 2019) Prostate (April 2017) MK-7902 Lenvima(1)(2) Bladder (May 2019) Endometrial (June 2018) (EU) Melanoma (March 2019) Non-Small-Cell Lung (March 2019) Cough MK-7264 (gefapixant) (March 2018) Heart Failure MK-1242 (vericiguat) (September 2016)(2) Pneumoconjugate Vaccine V114 (June 2018)	New Molecular Entities/Vaccines Bacterial Infection MK-7655A (relebactam+imipenem/cilastatin) (EU) Ebola Vaccine V920 (U.S.)(EU) Certain Supplemental Filings Cancer MK-3475 Keytruda • First-Line Metastatic Non-Small-Cell Lung Cancer (KEYNOTE-042) (EU) • First-Line Head and Neck Cancer (KEYNOTE-048) (EU) • Recurrent Locally Advanced or Metastatic Esophageal Cancer (KEYNOTE-180/KEYNOTE-181) (EU) • Recurrent and/or Metastatic Cutaneous Squamous Cell Carcinoma (KEYNOTE-629) (U.S.) • Alternative Dosing Regimen (Q6W) (U.S.) MK-7339 Lynparza(2) • First-Line gBRCAm Metastatic Pancreatic Cancer (POLO) (U.S.)(EU)
		Footnotes: (1)  Being developed in combination with Keytruda. (2)  Being developed in a collaboration.

Liquidity and Capital Resources

($ in millions)	September 30, 2019			December 31, 2018
Cash and investments	$	10,129		$	15,097
Working capital	5,458			3,669
Total debt to total liabilities and equity	31.3		%	30.4		%

Cash provided by operating activities was $8.6 billion in the first nine months of 2019 compared with $7.3 billion in the first nine months of 2018, reflecting stronger operating performance. Cash provided by operating activities continues to be the Company’s primary source of funds to finance operating needs, capital expenditures, treasury stock purchases and dividends paid to shareholders.

Cash used in investing activities was $1.9 billion in the first nine months of 2019 compared with cash provided by investing activities of $2.1 billion in the first nine months of 2018. The change was driven primarily by the acquisitions of Antelliq and Peloton in 2019, lower proceeds from the sales of securities and other investments and higher capital expenditures, partially

- 44 -

offset by lower purchases of securities and other investments, as well as a $350 million milestone payment in 2018 related to a collaboration with Bayer (see Note 3 to the condensed consolidated financial statements).

Cash used in financing activities was $6.9 billion in the first nine months of 2019 compared with $7.6 billion in the first nine months of 2018. The lower use of cash in financing activities was driven primarily by proceeds from the issuance of debt (see below) and lower payments on debt, partially offset by the repayment of short-term borrowings, higher purchases of treasury stock and higher dividends paid to shareholders.

Capital expenditures totaled $2.3 billion and $1.7 billion for the first nine months of 2019 and 2018, respectively. The increase reflects investment in new capital projects focused primarily on increasing manufacturing capacity across Merck’s key businesses.

Dividends paid to stockholders were $4.3 billion and $3.9 billion for the first nine months of 2019 and 2018, respectively. In May 2019, the Board of Directors declared a quarterly dividend of $0.55 per share on the Company’s common stock for the third quarter that was paid in July 2019. In July 2019, the Board of Directors declared a quarterly dividend of $0.55 per share on the Company’s common stock for the fourth quarter that was paid in October 2019.

In March 2019, the Company issued $5.0 billion principal amount of senior unsecured notes consisting of $750 million of 2.90% notes due 2024, $1.75 billion of 3.40% notes due 2029, $1.0 billion of 3.90% notes due 2039, and $1.5 billion of 4.00% notes due 2049. The Company used the net proceeds from the offering of $5.0 billion for general corporate purposes, including the repayment of outstanding commercial paper borrowings.

In October 2018, Merck’s Board of Directors authorized purchases of up to $10 billion of Merck’s common stock for its treasury. The treasury stock purchase authorization has no time limit and will be made over time in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions. During the first nine months of 2019, the Company purchased $3.7 billion (47 million shares) for its treasury under this and a previously authorized share repurchase program. In addition, the Company received 7.7 million shares in settlement of accelerated share repurchase (ASR) agreements as discussed below. As of September 30, 2019, the Company’s remaining share repurchase authorization was $8.2 billion.

On October 25, 2018, the Company entered into ASR agreements with two third-party financial institutions (Dealers). Under the ASR agreements, Merck agreed to purchase $5 billion of Merck’s common stock, in total, with an initial delivery of 56.7 million shares of Merck’s common stock, based on the then-current market price, made by the Dealers to Merck, and payments of $5 billion made by Merck to the Dealers on October 29, 2018, which were funded with existing cash and investments, as well as short-term borrowings. Upon settlement of the ASR agreements in April 2019, Merck received an additional 7.7 million shares as determined by the average daily volume weighted-average price of Merck’s common stock during the term of the ASR program, less a negotiated discount, bringing the total shares received by Merck under this program to 64.4 million.

The Company has a $6.0 billion credit facility that matures in June 2024. The facility provides backup liquidity for the Company’s commercial paper borrowing facility and is to be used for general corporate purposes. The Company has not drawn funding from this facility.

Critical Accounting Policies

The Company’s significant accounting policies, which include management’s best estimates and judgments, are included in Note 2 to the consolidated financial statements for the year ended December 31, 2018 included in Merck’s Form 10‑K filed on February 27, 2019. Certain of these accounting policies are considered critical as disclosed in the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Merck’s Form 10-K because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates. There have been no significant changes in the Company’s critical accounting policies since December 31, 2018. See Note 1 to the condensed consolidated financial statements for information on the adoption of new accounting standards during 2019.

Recently Issued Accounting Standards

For a discussion of recently issued accounting standards, see Note 1 to the condensed consolidated financial statements.

Item 4. Controls and Procedures

Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures over financial reporting. Based on their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2019, the Company’s disclosure controls and procedures are effective. For the third quarter of 2019, there were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

- 45 -

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

This report and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking statements,” all of which are based on management’s current expectations and are subject to risks and uncertainties which may cause results to differ materially from those set forth in the statements. One can identify these forward-looking statements by their use of words such as “anticipates,” “expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and other words of similar meaning, or negative variations of any of the foregoing. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company’s growth strategy, financial results, product development, product approvals, product potential and development programs. 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. One should carefully evaluate such statements in light of factors, including risk factors, described in the Company’s filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-Q and 8-K. In Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018, as filed on February 27, 2019, the Company discusses in more detail various important risk factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties.

PART II - Other Information

Item 1. Legal Proceedings

The information called for by this Item is incorporated herein by reference to Note 9 included in Part I, Item 1, Financial Statements (unaudited) — Notes to Condensed Consolidated Financial Statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer purchases of equity securities for the three months ended September 30, 2019 were as follows:

ISSUER PURCHASES OF EQUITY SECURITIES

			($ in millions)
Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)
July 1 - July 31	6,611,817	$82.73	$9,078
August 1 - August 31	5,871,331	$84.90	$8,579
September 1 - September 30	4,276,118	$84.17	$8,219
Total	16,759,266	$83.86	$8,219

⁽¹⁾  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 of Merck’s common stock for its treasury.

- 46 -

Item 6. Exhibits

Number		Description
3.1	—	Restated Certificate of Incorporation of Merck & Co., Inc. (November 3, 2009) – Incorporated by reference to Current Report on Form 8-K filed on November 4, 2009 (No. 1-6571)
3.2	—	By-Laws of Merck & Co., Inc. (effective July 22, 2015) – Incorporated by reference to Current Report on Form 8-K filed on July 28, 2015 (No. 1-6571)
31.1	—	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Executive Officer
31.2	—	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer
32.1	—	Section 1350 Certification of Chief Executive Officer
32.2	—	Section 1350 Certification of Chief Financial Officer
101.INS	—	XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	—	XBRL Taxonomy Extension Schema Document.
101.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	—	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	—	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	—	XBRL Taxonomy Extension Presentation Linkbase Document.
104	—	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

- 47 -

EXHIBIT INDEX

Number		Description
3.1	—	Restated Certificate of Incorporation of Merck & Co., Inc. (November 3, 2009) – Incorporated by reference to Current Report on Form 8-K filed on November 4, 2009 (No. 1-6571)
3.2	—	By-Laws of Merck & Co., Inc. (effective July 22, 2015) – Incorporated by reference to Current Report on Form 8-K filed on July 28, 2015 (No. 1-6571)
31.1	—	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Executive Officer
31.2	—	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer
32.1	—	Section 1350 Certification of Chief Executive Officer
32.2	—	Section 1350 Certification of Chief Financial Officer
101.INS	—	XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	—	XBRL Taxonomy Extension Schema Document.
101.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	—	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	—	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	—	XBRL Taxonomy Extension Presentation Linkbase Document.
104	—	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

- 48 -

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MERCK & CO., INC.
Date: November 5, 2019	/s/ Jennifer Zachary
	JENNIFER ZACHARY
	Executive Vice President and General Counsel
Date: November 5, 2019	/s/ Rita A. Karachun
	RITA A. KARACHUN
	Senior Vice President Finance - Global Controller

- 49 -

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Kenneth C. Frazier, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Merck & Co., Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2019

By:	/s/ Kenneth C. Frazier
	KENNETH C. FRAZIER Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Robert M. Davis, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Merck & Co., Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   November 5, 2019

By:	/s/ Robert M. Davis
	ROBERT M. DAVIS Executive Vice President, Global Services and Chief Financial Officer

EX-32.1

Exhibit 32.1

Section 1350

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Merck & Co., Inc. (the “Company”), hereby certifies that the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 5, 2019	/s/ Kenneth C. Frazier
	Name: Title:	KENNETH C. FRAZIER Chairman, President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Section 1350

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Merck & Co., Inc. (the “Company”), hereby certifies that the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 5, 2019	/s/ Robert M. Davis
	Name: Title:	ROBERT M. DAVIS Executive Vice President, Global Services and Chief Financial Officer

XML

Equity (Tables)

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Equity

	Three Months Ended September 30,
	Common Stock			Other Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock					Non- controlling Interests			Total
($ and shares in millions except per share amounts)	Shares	Par Value										Shares		Cost
Balance at July 1, 2018	3,577	$	1,788	$	39,741	$	41,523		$	(5,122	)	907		$	(45,401	)	$	237		$	32,766
Net income attributable to Merck & Co., Inc.	—	—		—		1,950			—			—		—			—			1,950
Other comprehensive loss, net of taxes	—	—		—		—			(29		)	—		—			—			(29		)
Cash dividends declared on common stock ($0.48 per share)	—	—		—		(1,284		)	—			—		—			—			(1,284		)
Treasury stock shares purchased	—	—		—		—			—			16		(996		)	—			(996		)
Share-based compensation plans and other	—	—		21		—			—			(5	)	231			—			252
Net income attributable to noncontrolling interests	—	—		—		—			—			—		—			8			8
Distributions attributable to noncontrolling interests	—	—		—		—			—			—		—			(11		)	(11		)
Balance at September 30, 2018	3,577	$	1,788	$	39,762	$	42,189		$	(5,151	)	918		$	(46,166	)	$	234		$	32,656
Balance at July 1, 2019	3,577	$	1,788	$	39,484	$	45,295		$	(5,362	)	1,010		$	(53,570	)	$	102		$	27,737
Net income attributable to Merck & Co., Inc.	—	—		—		1,901			—			—		—			—			1,901
Other comprehensive loss, net of taxes	—	—		—		—			(28		)	—		—			—			(28		)
Cash dividends declared on common stock ($0.55 per share)	—	—		—		(1,392		)	—			—		—			—			(1,392		)
Treasury stock shares purchased	—	—		—		—			—			17		(1,405		)	—			(1,405		)
Share-based compensation plans and other	—	—		77		—			—			(1	)	50			—			127
Net income attributable to noncontrolling interests	—	—		—		—			—			—		—			6			6
Distributions attributable to noncontrolling interests	—	—		—		—			—			—		—			(21		)	(21		)
Balance at September 30, 2019	3,577	$	1,788	$	39,561	$	45,804		$	(5,390	)	1,026		$	(54,925	)	$	87		$	26,925

	Nine Months Ended September 30,
	Common Stock			Other Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock					Non- controlling Interests			Total
($ and shares in millions except per share amounts)	Shares	Par Value											Shares		Cost
Balance at January 1, 2018	3,577	$	1,788	$	39,902		$	41,350		$	(4,910	)	880		$	(43,794	)	$	233		$	34,569
Net income attributable to Merck & Co., Inc.	—	—		—			4,393			—			—		—			—			4,393
Adoption of new accounting standards	—	—		—			322			(274		)	—		—			—			48
Other comprehensive income, net of taxes	—	—		—			—			33			—		—			—			33
Cash dividends declared on common stock ($1.44 per share)	—	—		—			(3,876		)	—			—		—			—			(3,876		)
Treasury stock shares purchased	—	—		—			—			—			53		(3,158		)	—			(3,158		)
Share-based compensation plans and other	—	—		(140		)	—			—			(15	)	786			—			646
Net income attributable to noncontrolling interests	—	—		—			—			—			—		—			22			22
Distributions attributable to noncontrolling interests	—	—		—			—			—			—		—			(21		)	(21		)
Balance at September 30, 2018	3,577	$	1,788	$	39,762		$	42,189		$	(5,151	)	918		$	(46,166	)	$	234		$	32,656
Balance at January 1, 2019	3,577	$	1,788	$	38,808		$	42,579		$	(5,545	)	985		$	(50,929	)	$	181		$	26,882
Net income attributable to Merck & Co., Inc.	—	—		—			7,487			—			—		—			—			7,487
Other comprehensive income, net of taxes	—	—		—			—			155			—		—			—			155
Cash dividends declared on common stock ($1.65 per share)	—	—		—			(4,262		)	—			—		—			—			(4,262		)
Treasury stock shares purchased	—	—		1,000			—			—			54		(4,730		)	—			(3,730		)
Share-based compensation plans and other	—	—		(247		)	—			—			(13	)	734			—			487
Net loss attributable to noncontrolling interests	—	—		—			—			—			—		—			(73		)	(73		)
Distributions attributable to noncontrolling interests	—	—		—			—			—			—		—			(21		)	(21		)
Balance at September 30, 2019	3,577	$	1,788	$	39,561		$	45,804		$	(5,390	)	1,026		$	(54,925	)	$	87		$	26,925

XML

Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Calculations of Earnings Per Share

The calculations of earnings per share are as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ and shares in millions except per share amounts)	2019		2018		2019		2018
Net income attributable to Merck & Co., Inc.	$	1,901	$	1,950	$	7,487	$	4,393
Average common shares outstanding	2,558		2,662		2,572		2,680
Common shares issuable (1)	14		16		15		14
Average common shares outstanding assuming dilution	2,572		2,678		2,587		2,694
Basic earnings per common share attributable to Merck & Co., Inc. common shareholders	$	0.74	$	0.73	$	2.91	$	1.64
Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders	$	0.74	$	0.73	$	2.89	$	1.63

⁽¹⁾ 

Issuable primarily under share-based compensation plans.

XML

Other Intangibles

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Other Intangibles

Other Intangibles

In connection with business acquisitions, the Company measures the fair value of marketed products and research and development pipeline programs and capitalizes these amounts. See Note 2 for information on intangible assets acquired as a result of business acquisitions in the first nine months of 2019 and 2018.

During the third quarter and first nine months of 2019, the Company recorded $612 million and $693 million, respectively, of intangible asset impairment charges related to marketed products within Cost of sales. During the third quarter of 2019, the Company recorded an impairment charge of $612 million related to Sivextro (tedizolid phosphate), a product for the treatment of acute bacterial skin and skin structure infections caused by designated susceptible Gram-positive organisms. In the third quarter of 2019, as part of a reorganization and reprioritization of its internal sales force, the Company made the decision to cease promotion of Sivextro in the U.S. market by the end of 2019. This decision resulted in reduced cash flow projections for Sivextro, which indicated that the Sivextro intangible asset value was not fully recoverable on an undiscounted cash flows basis. The Company utilized market participant assumptions to determine its best estimate of the fair value of the intangible asset related to Sivextro that, when compared with its related carrying value, resulted in the impairment charge noted above. The remaining intangible asset value for Sivextro was $175 million at September 30, 2019.

XML

Collaborative Arrangements

9 Months Ended

Sep. 30, 2019

Collaborative Arrangements [Abstract]

Collaborative Arrangements

Collaborative Arrangements

Merck has entered into collaborative arrangements that provide the Company with varying rights to develop, produce and market products together with its collaborative partners. Both parties in these arrangements are active participants and exposed to significant risks and rewards dependent on the commercial success of the activities of the collaboration. Merck’s more significant collaborative arrangements are discussed below.

AstraZeneca

In July 2017, Merck and AstraZeneca PLC (AstraZeneca) entered into a global strategic oncology collaboration to co-develop and co-commercialize AstraZeneca’s Lynparza for multiple cancer types. Lynparza is an oral poly (ADP-ribose) polymerase (PARP) inhibitor currently approved for certain types of ovarian and breast cancer. The companies are jointly developing and commercializing Lynparza, both as monotherapy and in combination trials with other potential medicines. Independently, Merck and AstraZeneca will develop and commercialize Lynparza in combinations with their respective PD-1 and PD-L1 medicines, Keytruda and Imfinzi. The companies will also jointly develop and commercialize AstraZeneca’s selumetinib, an oral, potent, selective inhibitor of MEK, part of the mitogen-activated protein kinase (MAPK) pathway, currently being developed for multiple indications. Under the terms of the agreement, AstraZeneca and Merck will share the development and commercialization costs for Lynparza and selumetinib monotherapy and non-PD-L1/PD-1 combination therapy opportunities.

Gross profits from Lynparza and selumetinib product sales generated through monotherapies or combination therapies are shared equally. Merck will fund all development and commercialization costs of Keytruda in combination with Lynparza or selumetinib. AstraZeneca will fund all development and commercialization costs of Imfinzi in combination with Lynparza or selumetinib. AstraZeneca is the principal on Lynparza sales transactions. Merck records its share of Lynparza product sales, net of cost of sales and commercialization costs, as alliance revenue within the Pharmaceutical segment and its share of development costs associated with the collaboration as part of Research and development costs. Reimbursements received from AstraZeneca for research and development expenses are recognized as reductions to Research and development costs.

As part of the agreement, Merck made an upfront payment to AstraZeneca of $1.6 billion in 2017 and will make payments of up to $750 million over a multi-year period for certain license options (of which $250 million was paid in December 2017, $400 million was paid in December 2018 and $100 million is expected to be paid in December 2019). The Company recorded an aggregate charge of $2.35 billion in Research and development expenses in 2017 related to the upfront payment and license option payments. In addition, the agreement provides for additional contingent payments from Merck to AstraZeneca related to the successful achievement of sales-based and regulatory milestones.

In the second quarter of 2019, Merck determined it was probable that annual sales of Lynparza in the future would trigger a $300 million sales-based milestone payment from Merck to AstraZeneca. Accordingly, in the second quarter of 2019, Merck recorded a $300 million liability and a corresponding increase to the intangible asset related to Lynparza and also recognized $52 million of cumulative amortization expense within Cost of sales. Prior to 2019, Merck accrued sales-based milestone payments aggregating $700 million related to Lynparza. Of these amounts, $450 million has been paid to AstraZeneca. Potential future sales-based milestone payments of $3.1 billion have not yet been accrued as they are not deemed by the Company to be probable at this time.

In April 2019, Lynparza received regulatory approval in the European Union (EU) as a monotherapy for the treatment of certain adult patients with advanced breast cancer, triggering a $30 million capitalized milestone payment from Merck to AstraZeneca. In June 2019, Lynparza received regulatory approval in the EU as a monotherapy for the maintenance treatment of certain adult patients with BRCA-mutated advanced ovarian cancer, triggering a $30 million capitalized milestone payment from Merck to AstraZeneca. In 2018, Lynparza received regulatory approvals triggering capitalized milestone payments of $140 million in the aggregate from Merck to AstraZeneca. Potential future regulatory milestone payments of $1.7 billion remain under the agreement.

The asset balance related to Lynparza (which includes capitalized sales-based and regulatory milestone payments) was $983 million at September 30, 2019 and is included in Other Assets on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2028 as supported by projected future cash flows, subject to impairment testing.

Summarized financial information related to this collaboration is as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2019		2018		2019		2018
Alliance revenue	$	123	$	49	$	313	$	125
Cost of sales (1)	28		12		120		48
Selling, general and administrative	36		12		96		28
Research and development	44		47		122		118
($ in millions)					September 30, 2019		December 31, 2018
Receivables from AstraZeneca included in Other current assets					$	119	$	52
Payables to AstraZeneca included in Accrued and other current liabilities (2)					578		405
Payables to AstraZeneca included in Other Noncurrent Liabilities (3)					300		250

⁽¹⁾ Represents amortization of capitalized milestone payments.

⁽²⁾ Includes accrued milestone and license option payments.

⁽³⁾ Includes accrued milestone payments.

Eisai

In March 2018, Merck and Eisai announced a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima, an orally available tyrosine kinase inhibitor discovered by Eisai. Under the agreement, Merck and Eisai will develop and commercialize Lenvima jointly, both as monotherapy and in combination with Merck’s anti-PD-1 therapy, Keytruda. Eisai records Lenvima product sales globally (Eisai is the principal on Lenvima sales transactions), and Merck and Eisai share gross profits equally. Merck records its share of Lenvima product sales, net of cost of sales and commercialization costs, as alliance revenue. Expenses incurred during co-development, including for studies evaluating Lenvima as monotherapy, are shared equally by the two companies and reflected in Research and development costs.

Under the agreement, Merck made an upfront payment to Eisai of $750 million and will make payments of up to $650 million for certain option rights through 2021 (of which $325 million was paid in March 2019, $200 million is expected to be paid in March 2020 and $125 million is expected to be paid in March 2021). The Company recorded an aggregate charge of $1.4 billion in Research and development expenses in the first quarter of 2018 related to the upfront payment and future option payments. In addition, the agreement provides for Eisai to receive up to $385 million associated with the achievement of certain regulatory milestones and up to $3.97 billion for the achievement of milestones associated with sales of Lenvima.

In the first quarter of 2019, Merck determined it was probable that annual sales of Lenvima in the future would trigger $282 million of sales-based milestone payments from Merck to Eisai. Accordingly, in the first quarter of 2019, Merck recorded $282 million of liabilities and corresponding increases to the intangible asset related to Lenvima and also recognized $35 million of cumulative amortization expense within Cost of sales. Merck previously accrued sales-based milestone payments aggregating $268 million related to Lenvima in 2018. Of these amounts, $50 million has been paid to Eisai. Potential future sales-based milestone payments of $3.42 billion have not yet been accrued as they are not deemed by the Company to be probable at this time.

In 2018, Lenvima received regulatory approvals triggering capitalized milestone payments of $250 million in the aggregate from Merck to Eisai. Potential future regulatory milestone payments of $135 million remain under the agreement.

The asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $664 million at September 30, 2019 and is included in Other Assets on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2026 as supported by projected future cash flows, subject to impairment testing.

Summarized financial information related to this collaboration is as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2019		2018		2019		2018
Alliance revenue	$	109	$	43	$	280	$	78
Cost of sales (1)	23		8		97		9
Selling, general and administrative	21		5		59		7
Research and development (2)	37		36		146		1,473
($ in millions)					September 30, 2019		December 31, 2018
Receivables from Eisai included in Other current assets					$	109	$	71
Payables to Eisai included in Accrued and other current liabilities (3)					692		375
Payables to Eisai included in Other Noncurrent Liabilities (3)					125		543

⁽¹⁾ Represents amortization of capitalized milestone payments.

⁽²⁾ Amount for the first nine months of 2018 includes the upfront payment and future option payments.

⁽³⁾ Includes accrued milestone and option payments.

Bayer AG

In 2014, the Company entered into a worldwide clinical development collaboration with Bayer AG (Bayer) to market and develop soluble guanylate cyclase (sGC) modulators including Bayer’s Adempas, which is approved to treat pulmonary arterial hypertension and chronic thromboembolic pulmonary hypertension. The two companies have implemented a joint development and commercialization strategy. The collaboration also includes clinical development of Bayer’s vericiguat, which is in Phase 3 trials for worsening heart failure, as well as opt-in rights for other early-stage sGC compounds in development by Bayer. Merck in turn made available its early-stage sGC compounds under similar terms. Under the agreement, Bayer leads commercialization of Adempas in the Americas, while Merck leads commercialization in the rest of the world. For vericiguat and other potential opt-in products, Bayer will lead commercialization in the rest of world and Merck will lead in the Americas. For all products and candidates included in the agreement, both companies will share in development costs and profits on sales and will have the right to co-promote in territories where they are not the lead. Revenue from Adempas includes sales in Merck’s marketing territories, as well as Merck’s share of profits from the sale of Adempas in Bayer’s marketing territories.

In the first quarter of 2018, Merck made a $350 million sales-based milestone payment to Bayer, which was accrued for in 2016 when Merck deemed the payment to be probable. In the second quarter of 2018, Merck determined it was probable that annual worldwide sales of Adempas in the future would trigger a $375 million sales-based milestone payment from Merck to Bayer; accordingly, Merck recorded a $375 million liability and a corresponding increase to the intangible asset related to Adempas and also recognized $106 million of cumulative amortization expense within Cost of sales. There is an additional $400 million potential future sales-based milestone payment that has not yet been accrued as it is not deemed by the Company to be probable at this time.

The intangible asset balance related to Adempas (which includes the acquired intangible asset balance, as well as capitalized sales-based milestone payments) was $893 million at September 30, 2019 and is included in Other Intangibles, Net on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2027 as supported by projected future cash flows, subject to impairment testing.

Summarized financial information related to this collaboration is as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2019		2018		2019		2018
Net product sales recorded by Merck	$	57	$	47	$	158	$	138
Merck’s profit share from sales in Bayer’s marketing territories	50		47		144		100
Total sales	107		94		302		238
Cost of sales (1)	28		29		86		188
Selling, general and administrative	12		11		31		26
Research and development	31		34		94		90
($ in millions)					September 30, 2019		December 31, 2018
Receivables from Bayer included in Other current assets					$	44	$	32
Payables to Bayer included in Other Noncurrent Liabilities (2)					375		375

⁽¹⁾ Includes amortization of intangible assets.

⁽²⁾ Represents accrued milestone payment.

XML

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Parenthetical) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Statement of Cash Flows [Abstract]
Restricted cash	$ 2	$ 2

XML

Share-Based Compensation Plans

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Share-Based Compensation Plans

Share-Based Compensation Plans

The Company has share-based compensation plans under which the Company grants restricted stock units (RSUs) and performance share units (PSUs) to certain management level employees. In addition, employees and non-employee directors may be granted options to purchase shares of Company common stock at the fair market value at the time of grant.

The following table provides the amounts of share-based compensation cost recorded in the Condensed Consolidated Statement of Income:

	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Pretax share-based compensation expense	$	101		$	91		$	306		$	261
Income tax benefit	(14		)	(14		)	(42		)	(42		)
Total share-based compensation expense, net of taxes	$	87		$	77		$	264		$	219

During the first nine months of 2019, the Company granted 5 million RSUs with a weighted-average grant date fair value of $80.03 per RSU and during the first nine months of 2018 granted 7 million RSUs with a weighted-average grant date fair

value of $58.19 per RSU. During the first nine months of 2019, the Company granted 609 thousand PSUs with a weighted-average grant date fair value of $90.50 per PSU and during the first nine months of 2018 granted 855 thousand PSUs with a weighted-average grant date fair value of $56.70 per PSU.

During the first nine months of 2019, the Company granted 3 million stock options with a weighted-average exercise price of $80.05 per option and during the first nine months of 2018 granted 3 million stock options with a weighted-average exercise price of $57.72 per option. The weighted-average fair value of options granted during the first nine months of 2019 and 2018 was $10.63 and $8.19 per option, respectively, and was determined using the following assumptions:

	Nine Months Ended   September 30,
	2019		2018
Expected dividend yield	3.2	%	3.4	%
Risk-free interest rate	2.4	%	2.8	%
Expected volatility	18.7	%	19.1	%
Expected life (years)	5.9		6.1

At September 30, 2019, there was $691 million of total pretax unrecognized compensation expense related to nonvested stock options, RSU and PSU awards which will be recognized over a weighted-average period of 2.0 years. For segment reporting, share-based compensation costs are unallocated expenses.

XML

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Statement of Comprehensive Income [Abstract]
Net Income Attributable to Merck & Co., Inc.	$ 1,901	$ 1,950	$ 7,487	$ 4,393
Other Comprehensive (Loss) Income Net of Taxes:
Net unrealized gain (loss) on derivatives, net of reclassifications	91	27	(9)	223
Net unrealized (loss) gain on investments, net of reclassifications	(17)	40	109	(56)
Benefit plan net gain and prior service credit, net of amortization	15	40	41	106
Cumulative translation adjustment	(117)	(136)	14	(240)
Other comprehensive income (loss), net of taxes	(28)	(29)	155	33
Comprehensive Income Attributable to Merck & Co., Inc.	$ 1,873	$ 1,921	$ 7,642	$ 4,426

XML

Segment Reporting - Sales of Company's Products (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Segment Reporting Information [Line Items]
Sales	$ 12,397	$ 10,794	$ 34,972	$ 31,296
Operating Segments
Segment Reporting Information [Line Items]
Sales	12,263	10,734	34,622	31,230
Other
Segment Reporting Information [Line Items]
Sales	134	60	350	66
United States
Segment Reporting Information [Line Items]
Sales	5,525	5,030	15,183	13,425
United States | Operating Segments
Segment Reporting Information [Line Items]
Sales	5,515	5,010	15,164	13,324
United States | Other
Segment Reporting Information [Line Items]
Sales	10	20	19	101
International
Segment Reporting Information [Line Items]
Sales	6,872	5,764	19,789	17,871
International | Operating Segments
Segment Reporting Information [Line Items]
Sales	6,747	5,725	19,459	17,906
International | Other
Segment Reporting Information [Line Items]
Sales	125	39	330	(35)
Total Pharmaceutical segment sales | Operating Segments
Segment Reporting Information [Line Items]
Sales	11,095	9,658	31,218	27,859
Total Pharmaceutical segment sales | Operating Segments | Keytruda
Segment Reporting Information [Line Items]
Sales	3,070	1,889	7,973	5,020
Total Pharmaceutical segment sales | Operating Segments | Emend
Segment Reporting Information [Line Items]
Sales	98	123	336	396
Total Pharmaceutical segment sales | Operating Segments | Alliance revenue - Lynparza
Segment Reporting Information [Line Items]
Sales	123	49	313	125
Total Pharmaceutical segment sales | Operating Segments | Alliance revenue - Lenvima
Segment Reporting Information [Line Items]
Sales	109	43	280	78
Total Pharmaceutical segment sales | Operating Segments | Gardasil/Gardasil 9
Segment Reporting Information [Line Items]
Sales	1,320	1,048	3,044	2,317
Total Pharmaceutical segment sales | Operating Segments | ProQuad/M-M-R II/Varivax
Segment Reporting Information [Line Items]
Sales	623	525	1,794	1,343
Total Pharmaceutical segment sales | Operating Segments | Pneumovax 23
Segment Reporting Information [Line Items]
Sales	237	214	592	586
Total Pharmaceutical segment sales | Operating Segments | RotaTeq
Segment Reporting Information [Line Items]
Sales	180	191	564	540
Total Pharmaceutical segment sales | Operating Segments | Vaqta
Segment Reporting Information [Line Items]
Sales	62	66	167	167
Total Pharmaceutical segment sales | Operating Segments | Bridion
Segment Reporting Information [Line Items]
Sales	284	217	817	661
Total Pharmaceutical segment sales | Operating Segments | Noxafil
Segment Reporting Information [Line Items]
Sales	177	188	560	551
Total Pharmaceutical segment sales | Operating Segments | Cubicin
Segment Reporting Information [Line Items]
Sales	52	95	207	287
Total Pharmaceutical segment sales | Operating Segments | Primaxin
Segment Reporting Information [Line Items]
Sales	77	72	207	212
Total Pharmaceutical segment sales | Operating Segments | Invanz
Segment Reporting Information [Line Items]
Sales	57	137	206	437
Total Pharmaceutical segment sales | Operating Segments | Cancidas
Segment Reporting Information [Line Items]
Sales	62	79	191	257
Total Pharmaceutical segment sales | Operating Segments | Simponi
Segment Reporting Information [Line Items]
Sales	203	210	625	673
Total Pharmaceutical segment sales | Operating Segments | Remicade
Segment Reporting Information [Line Items]
Sales	101	135	322	459
Total Pharmaceutical segment sales | Operating Segments | Belsomra
Segment Reporting Information [Line Items]
Sales	80	66	223	191
Total Pharmaceutical segment sales | Operating Segments | Isentress/Isentress HD
Segment Reporting Information [Line Items]
Sales	250	275	752	860
Total Pharmaceutical segment sales | Operating Segments | Zepatier
Segment Reporting Information [Line Items]
Sales	83	104	304	347
Total Pharmaceutical segment sales | Operating Segments | Zetia
Segment Reporting Information [Line Items]
Sales	147	165	443	696
Total Pharmaceutical segment sales | Operating Segments | Vytorin
Segment Reporting Information [Line Items]
Sales	57	92	231	414
Total Pharmaceutical segment sales | Operating Segments | Atozet
Segment Reporting Information [Line Items]
Sales	97	84	283	258
Total Pharmaceutical segment sales | Operating Segments | Adempas
Segment Reporting Information [Line Items]
Sales	107	94	302	238
Total Pharmaceutical segment sales | Operating Segments | Januvia
Segment Reporting Information [Line Items]
Sales	807	927	2,539	2,756
Total Pharmaceutical segment sales | Operating Segments | Janumet
Segment Reporting Information [Line Items]
Sales	503	563	1,567	1,693
Total Pharmaceutical segment sales | Operating Segments | NuvaRing
Segment Reporting Information [Line Items]
Sales	241	234	700	686
Total Pharmaceutical segment sales | Operating Segments | Implanon/Nexplanon
Segment Reporting Information [Line Items]
Sales	199	186	581	535
Total Pharmaceutical segment sales | Operating Segments | Singulair
Segment Reporting Information [Line Items]
Sales	152	161	503	521
Total Pharmaceutical segment sales | Operating Segments | Cozaar/Hyzaar
Segment Reporting Information [Line Items]
Sales	116	103	329	348
Total Pharmaceutical segment sales | Operating Segments | Nasonex
Segment Reporting Information [Line Items]
Sales	58	71	226	274
Total Pharmaceutical segment sales | Operating Segments | Arcoxia
Segment Reporting Information [Line Items]
Sales	72	83	221	249
Total Pharmaceutical segment sales | Operating Segments | Follistim AQ
Segment Reporting Information [Line Items]
Sales	62	60	182	198
Total Pharmaceutical segment sales | Operating Segments | Other Pharmaceutical
Segment Reporting Information [Line Items]
Sales	1,229	1,109	3,634	3,486
Total Pharmaceutical segment sales | United States | Operating Segments
Segment Reporting Information [Line Items]
Sales	5,132	4,649	14,065	12,206
Total Pharmaceutical segment sales | United States | Operating Segments | Keytruda
Segment Reporting Information [Line Items]
Sales	1,743	1,109	4,525	2,906
Total Pharmaceutical segment sales | United States | Operating Segments | Emend
Segment Reporting Information [Line Items]
Sales	42	71	173	239
Total Pharmaceutical segment sales | United States | Operating Segments | Alliance revenue - Lynparza
Segment Reporting Information [Line Items]
Sales	71	33	186	88
Total Pharmaceutical segment sales | United States | Operating Segments | Alliance revenue - Lenvima
Segment Reporting Information [Line Items]
Sales	65	30	169	49
Total Pharmaceutical segment sales | United States | Operating Segments | Gardasil/Gardasil 9
Segment Reporting Information [Line Items]
Sales	761	740	1,579	1,422
Total Pharmaceutical segment sales | United States | Operating Segments | ProQuad/M-M-R II/Varivax
Segment Reporting Information [Line Items]
Sales	482	429	1,325	1,097
Total Pharmaceutical segment sales | United States | Operating Segments | Pneumovax 23
Segment Reporting Information [Line Items]
Sales	179	160	428	394
Total Pharmaceutical segment sales | United States | Operating Segments | RotaTeq
Segment Reporting Information [Line Items]
Sales	102	134	360	384
Total Pharmaceutical segment sales | United States | Operating Segments | Vaqta
Segment Reporting Information [Line Items]
Sales	36	36	103	95
Total Pharmaceutical segment sales | United States | Operating Segments | Bridion
Segment Reporting Information [Line Items]
Sales	133	96	381	272
Total Pharmaceutical segment sales | United States | Operating Segments | Noxafil
Segment Reporting Information [Line Items]
Sales	77	89	268	257
Total Pharmaceutical segment sales | United States | Operating Segments | Cubicin
Segment Reporting Information [Line Items]
Sales	14	55	78	150
Total Pharmaceutical segment sales | United States | Operating Segments | Primaxin
Segment Reporting Information [Line Items]
Sales	2	1	2	6
Total Pharmaceutical segment sales | United States | Operating Segments | Invanz
Segment Reporting Information [Line Items]
Sales	(1)	74	30	252
Total Pharmaceutical segment sales | United States | Operating Segments | Cancidas
Segment Reporting Information [Line Items]
Sales	0	2	5	10
Total Pharmaceutical segment sales | United States | Operating Segments | Simponi
Segment Reporting Information [Line Items]
Sales	0	0	0	0
Total Pharmaceutical segment sales | United States | Operating Segments | Remicade
Segment Reporting Information [Line Items]
Sales	0	0	0	0
Total Pharmaceutical segment sales | United States | Operating Segments | Belsomra
Segment Reporting Information [Line Items]
Sales	23	23	68	76
Total Pharmaceutical segment sales | United States | Operating Segments | Isentress/Isentress HD
Segment Reporting Information [Line Items]
Sales	102	123	304	383
Total Pharmaceutical segment sales | United States | Operating Segments | Zepatier
Segment Reporting Information [Line Items]
Sales	24	18	96	8
Total Pharmaceutical segment sales | United States | Operating Segments | Zetia
Segment Reporting Information [Line Items]
Sales	5	9	11	34
Total Pharmaceutical segment sales | United States | Operating Segments | Vytorin
Segment Reporting Information [Line Items]
Sales	5	0	11	11
Total Pharmaceutical segment sales | United States | Operating Segments | Atozet
Segment Reporting Information [Line Items]
Sales	0	0	0	0
Total Pharmaceutical segment sales | United States | Operating Segments | Adempas
Segment Reporting Information [Line Items]
Sales	0	0	0	0
Total Pharmaceutical segment sales | United States | Operating Segments | Januvia
Segment Reporting Information [Line Items]
Sales	367	498	1,223	1,466
Total Pharmaceutical segment sales | United States | Operating Segments | Janumet
Segment Reporting Information [Line Items]
Sales	129	225	462	625
Total Pharmaceutical segment sales | United States | Operating Segments | NuvaRing
Segment Reporting Information [Line Items]
Sales	202	193	593	550
Total Pharmaceutical segment sales | United States | Operating Segments | Implanon/Nexplanon
Segment Reporting Information [Line Items]
Sales	136	133	421	375
Total Pharmaceutical segment sales | United States | Operating Segments | Singulair
Segment Reporting Information [Line Items]
Sales	11	5	24	16
Total Pharmaceutical segment sales | United States | Operating Segments | Cozaar/Hyzaar
Segment Reporting Information [Line Items]
Sales	6	4	16	18
Total Pharmaceutical segment sales | United States | Operating Segments | Nasonex
Segment Reporting Information [Line Items]
Sales	4	7	2	8
Total Pharmaceutical segment sales | United States | Operating Segments | Arcoxia
Segment Reporting Information [Line Items]
Sales	0	0	0	0
Total Pharmaceutical segment sales | United States | Operating Segments | Follistim AQ
Segment Reporting Information [Line Items]
Sales	27	26	80	83
Total Pharmaceutical segment sales | United States | Operating Segments | Other Pharmaceutical
Segment Reporting Information [Line Items]
Sales	385	326	1,142	932
Total Pharmaceutical segment sales | International | Operating Segments
Segment Reporting Information [Line Items]
Sales	5,962	5,010	17,153	15,653
Total Pharmaceutical segment sales | International | Operating Segments | Keytruda
Segment Reporting Information [Line Items]
Sales	1,327	780	3,448	2,114
Total Pharmaceutical segment sales | International | Operating Segments | Emend
Segment Reporting Information [Line Items]
Sales	56	52	163	157
Total Pharmaceutical segment sales | International | Operating Segments | Alliance revenue - Lynparza
Segment Reporting Information [Line Items]
Sales	53	15	126	37
Total Pharmaceutical segment sales | International | Operating Segments | Alliance revenue - Lenvima
Segment Reporting Information [Line Items]
Sales	44	13	112	29
Total Pharmaceutical segment sales | International | Operating Segments | Gardasil/Gardasil 9
Segment Reporting Information [Line Items]
Sales	558	308	1,464	894
Total Pharmaceutical segment sales | International | Operating Segments | ProQuad/M-M-R II/Varivax
Segment Reporting Information [Line Items]
Sales	141	96	469	246
Total Pharmaceutical segment sales | International | Operating Segments | Pneumovax 23
Segment Reporting Information [Line Items]
Sales	58	54	164	192
Total Pharmaceutical segment sales | International | Operating Segments | RotaTeq
Segment Reporting Information [Line Items]
Sales	78	57	203	156
Total Pharmaceutical segment sales | International | Operating Segments | Vaqta
Segment Reporting Information [Line Items]
Sales	26	30	65	72
Total Pharmaceutical segment sales | International | Operating Segments | Bridion
Segment Reporting Information [Line Items]
Sales	151	120	437	389
Total Pharmaceutical segment sales | International | Operating Segments | Noxafil
Segment Reporting Information [Line Items]
Sales	100	99	291	294
Total Pharmaceutical segment sales | International | Operating Segments | Cubicin
Segment Reporting Information [Line Items]
Sales	38	40	129	137
Total Pharmaceutical segment sales | International | Operating Segments | Primaxin
Segment Reporting Information [Line Items]
Sales	75	71	204	206
Total Pharmaceutical segment sales | International | Operating Segments | Invanz
Segment Reporting Information [Line Items]
Sales	58	62	176	185
Total Pharmaceutical segment sales | International | Operating Segments | Cancidas
Segment Reporting Information [Line Items]
Sales	62	77	187	247
Total Pharmaceutical segment sales | International | Operating Segments | Simponi
Segment Reporting Information [Line Items]
Sales	203	210	625	673
Total Pharmaceutical segment sales | International | Operating Segments | Remicade
Segment Reporting Information [Line Items]
Sales	101	135	322	459
Total Pharmaceutical segment sales | International | Operating Segments | Belsomra
Segment Reporting Information [Line Items]
Sales	57	43	155	115
Total Pharmaceutical segment sales | International | Operating Segments | Isentress/Isentress HD
Segment Reporting Information [Line Items]
Sales	149	151	449	477
Total Pharmaceutical segment sales | International | Operating Segments | Zepatier
Segment Reporting Information [Line Items]
Sales	59	86	208	339
Total Pharmaceutical segment sales | International | Operating Segments | Zetia
Segment Reporting Information [Line Items]
Sales	142	157	432	662
Total Pharmaceutical segment sales | International | Operating Segments | Vytorin
Segment Reporting Information [Line Items]
Sales	52	92	219	402
Total Pharmaceutical segment sales | International | Operating Segments | Atozet
Segment Reporting Information [Line Items]
Sales	97	84	283	258
Total Pharmaceutical segment sales | International | Operating Segments | Adempas
Segment Reporting Information [Line Items]
Sales	107	94	302	238
Total Pharmaceutical segment sales | International | Operating Segments | Januvia
Segment Reporting Information [Line Items]
Sales	440	429	1,317	1,291
Total Pharmaceutical segment sales | International | Operating Segments | Janumet
Segment Reporting Information [Line Items]
Sales	375	339	1,105	1,067
Total Pharmaceutical segment sales | International | Operating Segments | NuvaRing
Segment Reporting Information [Line Items]
Sales	39	41	107	135
Total Pharmaceutical segment sales | International | Operating Segments | Implanon/Nexplanon
Segment Reporting Information [Line Items]
Sales	62	53	160	160
Total Pharmaceutical segment sales | International | Operating Segments | Singulair
Segment Reporting Information [Line Items]
Sales	140	156	479	505
Total Pharmaceutical segment sales | International | Operating Segments | Cozaar/Hyzaar
Segment Reporting Information [Line Items]
Sales	110	99	313	330
Total Pharmaceutical segment sales | International | Operating Segments | Nasonex
Segment Reporting Information [Line Items]
Sales	55	64	224	266
Total Pharmaceutical segment sales | International | Operating Segments | Arcoxia
Segment Reporting Information [Line Items]
Sales	72	83	221	249
Total Pharmaceutical segment sales | International | Operating Segments | Follistim AQ
Segment Reporting Information [Line Items]
Sales	35	34	102	115
Total Pharmaceutical segment sales | International | Operating Segments | Other Pharmaceutical
Segment Reporting Information [Line Items]
Sales	842	786	2,492	2,557
Total Animal Health segment sales | Operating Segments
Segment Reporting Information [Line Items]
Sales	1,122	1,021	3,271	3,176
Total Animal Health segment sales | Operating Segments | Livestock
Segment Reporting Information [Line Items]
Sales	726	660	2,007	1,946
Total Animal Health segment sales | Operating Segments | Companion Animals
Segment Reporting Information [Line Items]
Sales	396	361	1,264	1,230
Total Animal Health segment sales | United States | Operating Segments
Segment Reporting Information [Line Items]
Sales	337	306	966	924
Total Animal Health segment sales | United States | Operating Segments | Livestock
Segment Reporting Information [Line Items]
Sales	144	153	406	383
Total Animal Health segment sales | United States | Operating Segments | Companion Animals
Segment Reporting Information [Line Items]
Sales	193	153	560	541
Total Animal Health segment sales | International | Operating Segments
Segment Reporting Information [Line Items]
Sales	785	715	2,305	2,252
Total Animal Health segment sales | International | Operating Segments | Livestock
Segment Reporting Information [Line Items]
Sales	582	508	1,601	1,563
Total Animal Health segment sales | International | Operating Segments | Companion Animals
Segment Reporting Information [Line Items]
Sales	203	207	704	689
Other segment sales | Operating Segments
Segment Reporting Information [Line Items]
Sales	46	55	133	195
Other segment sales | United States | Operating Segments
Segment Reporting Information [Line Items]
Sales	46	55	133	194
Other segment sales | International | Operating Segments
Segment Reporting Information [Line Items]
Sales	$ 0	$ 0	$ 1	$ 1

XML

Segment Reporting - Profits to Income Before Taxes (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Segment Reporting Information [Line Items]
Profits	$ 2,347	$ 2,665	$ 8,673	$ 6,097
Interest income	61	92	225	257
Interest expense	(231)	(190)	(674)	(569)
Depreciation and amortization			(2,716)	(3,521)
Research and development	(3,204)	(2,068)	(7,324)	(7,538)
Restructuring costs	(232)	(171)	(444)	(494)
Charge related to termination of collaboration agreement with Samsung			0	(420)
Total segment profits
Segment Reporting Information [Line Items]
Profits	8,168	7,035	22,678	19,902
Total segment profits | Pharmaceutical segment
Segment Reporting Information [Line Items]
Profits	7,747	6,621	21,437	18,535
Total segment profits | Animal Health segment
Segment Reporting Information [Line Items]
Profits	423	409	1,243	1,273
Total segment profits | Other segments
Segment Reporting Information [Line Items]
Profits	(2)	5	(2)	94
Other profits (losses)
Segment Reporting Information [Line Items]
Profits	101	55	226	(35)
Unallocated
Segment Reporting Information [Line Items]
Interest income	61	92	225	257
Interest expense	(231)	(190)	(674)	(569)
Depreciation and amortization	(382)	(324)	(1,169)	(1,006)
Research and development	(3,110)	(1,997)	(7,045)	(7,304)
Amortization of purchase accounting adjustments	(329)	(679)	(1,105)	(2,144)
Restructuring costs	(232)	(171)	(444)	(494)
Charge related to termination of collaboration agreement with Samsung	0	(420)	0	(420)
Other unallocated, net	$ (1,699)	$ (736)	$ (4,019)	$ (2,090)

XML

Share-Based Compensation Plans - Narrative (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted (in shares)	3,000	3,000
Weighted- average exercise price of options granted in period (in dollars per share)	$ 80.05	$ 57.72
Weighted- average fair value per option granted (in dollars per share)	$ 10.63	$ 8.19
Total pretax unrecognized compensation expense related to nonvested stock options, RSU and PSU awards	$ 691
Weighted average period in years of recognition for nonvested stock options, RSU and PSU awards	2 years
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted (in shares)	5,000	7,000
Weighted-average fair value per share granted (in dollars per share)	$ 80.03	$ 58.19
Performance Share Units (PSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted (in shares)	609	855
Weighted-average fair value per share granted (in dollars per share)	$ 90.50	$ 56.70

XML

Taxes on Income (Details) - USD ($) $ in Millions	3 Months Ended			9 Months Ended
	Sep. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Tax Examination [Line Items]
Effective income tax rate (as percent)	18.70%		26.50%	14.50%	27.60%
Internal Revenue Service (IRS) | Domestic Tax Authority
Income Tax Examination [Line Items]
Tax benefit recognized related to settlement				$ 360
Income taxes paid		$ 107

XML

Financial Instruments - Income Statement Effects on Derivatives Not Designated as Hedging Instruments (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Foreign currency | Other (income) expense, net
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Derivative Pretax (Gain) Loss Recognized in Income	$ (8)	$ (57)	$ 112	$ (224)
Forecasted transactions | Sales
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Derivative Pretax (Gain) Loss Recognized in Income	$ (11)	$ 0	$ (7)	$ (5)

XML

Financial Instruments - Fair Value Hedges (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Loans payable and current portion of long-term debt
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Carrying Amount of Hedged Liabilities	$ 1,247	$ 0
Cumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount	(3)	0
Long-Term Debt
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Carrying Amount of Hedged Liabilities	3,416	4,560
Cumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount	$ 22	$ (82)

XML

Loans Payable, Long-Term Debt and Leases Loans Payable, Long-Term Debt and Leases - Operating Leases (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Apr. 30, 2020	Dec. 31, 2018
Lessee, Lease, Description [Line Items]
Weighted-average remaining lease term (in years)	7 years 6 months	7 years 6 months
Operating lease cost	$ 79	$ 244
Cash payments included in the measurement of operating lease liabilities	71	209
Obligations associated with operating leases not yet commenced	$ 444	$ 444
Due 2019				$ 188
Due 2020				198
Due 2021				150
Due 2022				134
Due 2023				84
Due thereafter				$ 243
Facilities
Lessee, Lease, Description [Line Items]
Weighted-average remaining lease term (in years)	8 years	8 years
Renewal term (in years)	4 years	4 years
Vehicle
Lessee, Lease, Description [Line Items]
Weighted-average remaining lease term (in years)	4 years	4 years
Forecast
Lessee, Lease, Description [Line Items]
Obligations associated with operating leases not yet commenced			$ 221
Lease not yet commenced, term of lease			10 years

XML

Inventories - Inventories (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Finished goods	$ 1,698	$ 1,658
Raw materials and work in process	5,526	5,004
Supplies	213	194
Total (approximates current cost)	7,437	6,856
(Decrease) increase to LIFO costs	(67)	1
Total current and noncurrent inventories	7,370	6,857
Recognized as:
Inventories	5,855	5,440
Other assets	$ 1,515	$ 1,417

XML

Equity - Rollforward Reconciliations (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Jan. 01, 2018
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares, beginning balance (in shares)			3,577,103,522
Equity, beginning balance	$ 27,737	$ 32,766	$ 26,882	$ 34,569	$ 32,656
Net income attributable to Merck & Co., Inc.	1,901	1,950	7,487	4,393
Adoption of new accounting standards						$ 48
Other comprehensive income (loss), net of taxes	(28)	(29)	155	33
Cash dividends declared on common stock	(1,392)	(1,284)	(4,262)	(3,876)
Treasury stock shares purchased	(1,405)	(996)	(3,730)	(3,158)
Share-based compensation plans and other	127	252	487	646
Net income (loss) attributable to noncontrolling interests	6	8	(73)	22
Distributions attributable to noncontrolling interests	$ (21)	(11)	$ (21)	(21)
Shares, ending balance (in shares)	3,577,103,522		3,577,103,522		3,577,103,522
Equity, ending balance	$ 26,925	$ 32,656	$ 26,925	$ 32,656	$ 26,925
Cash dividends declared on common stock (in dollars per share)	$ 0.55	$ 0.48	$ 1.65	$ 1.44
Common Stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares, beginning balance (in shares)	3,577,000,000	3,577,000,000	3,577,000,000	3,577,000,000	3,577,000,000
Equity, beginning balance	$ 1,788	$ 1,788	$ 1,788	$ 1,788	$ 1,788
Shares, ending balance (in shares)	3,577,000,000	3,577,000,000	3,577,000,000	3,577,000,000	3,577,000,000
Equity, ending balance	$ 1,788	$ 1,788	$ 1,788	$ 1,788	$ 1,788
Other Paid-In Capital
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Equity, beginning balance	39,484	39,741	38,808	39,902	39,762
Treasury stock shares purchased	0		1,000
Share-based compensation plans and other	77	21	(247)	(140)
Equity, ending balance	39,561	39,762	39,561	39,762	39,561
Retained Earnings
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Equity, beginning balance	45,295	41,523	42,579	41,350	42,189
Net income attributable to Merck & Co., Inc.	1,901	1,950	7,487	4,393
Adoption of new accounting standards						322
Cash dividends declared on common stock	(1,392)	(1,284)	(4,262)	(3,876)
Equity, ending balance	45,804	42,189	45,804	42,189	45,804
Accumulated Other Comprehensive Loss
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Equity, beginning balance	(5,362)	(5,122)	(5,545)	(4,910)	(5,151)
Adoption of new accounting standards						$ (274)
Other comprehensive income (loss), net of taxes	(28)	(29)	155	33
Equity, ending balance	$ (5,390)	$ (5,151)	$ (5,390)	$ (5,151)	$ (5,390)
Treasury Stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares, beginning balance (in shares)	1,010,000,000	907,000,000	985,000,000	880,000,000	918,000,000
Equity, beginning balance	$ (53,570)	$ (45,401)	$ (50,929)	$ (43,794)	$ (46,166)
Treasury stock shares purchased (in shares)	17,000,000	16,000,000	54,000,000	53,000,000
Treasury stock shares purchased	$ (1,405)	$ (996)	$ (4,730)	$ (3,158)
Share-based compensation plans and other (in shares)	(1,000,000)	(5,000,000)	(13,000,000)	(15,000,000)
Share-based compensation plans and other	$ 50	$ 231	$ 734	$ 786
Shares, ending balance (in shares)	1,026,000,000	918,000,000	1,026,000,000	918,000,000	1,026,000,000
Equity, ending balance	$ (54,925)	$ (46,166)	$ (54,925)	$ (46,166)	$ (54,925)
Non- controlling Interests
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Equity, beginning balance	102	237	181	233	234
Net income (loss) attributable to noncontrolling interests	6	8	(73)	22
Distributions attributable to noncontrolling interests	(21)	(11)	(21)	(21)
Equity, ending balance	$ 87	$ 234	$ 87	$ 234	$ 87

XML

Acquisitions, Divestitures, Research Collaborations and License Agreements - Divestitures (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Charge related to termination of collaboration agreement with Samsung		$ 0	$ (420)
Samsung
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Charge related to termination of collaboration agreement with Samsung	$ (420)
Contract termination fee	155
Inventory write-off related to contract termination	137
Fixed asset abandonment costs related to contract termination	122
Other contract termination costs	$ 6

XML

Restructuring - Charges Activities by Type of Cost (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	$ 296	$ 169	$ 642	$ 508
Separation Costs
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	205	137	358	392
Accelerated Depreciation
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	41	(8)	173	(10)
Other
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	50	40	111	126
Cost of sales
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	62	2	161	11
Cost of sales | Separation Costs
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	0	0	0	0
Cost of sales | Accelerated Depreciation
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	41	1	139	1
Cost of sales | Other
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	21	1	22	10
Selling, general and administrative
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	1	0	33	2
Selling, general and administrative | Separation Costs
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	0	0	0	0
Selling, general and administrative | Accelerated Depreciation
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	1	0	33	1
Selling, general and administrative | Other
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	0	0	0	1
Research and development
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	1	(4)	4	1
Research and development | Separation Costs
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	0	0	0	0
Research and development | Accelerated Depreciation
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	(1)	(9)	1	(12)
Research and development | Other
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	2	5	3	13
Restructuring costs
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	232	171	444	494
Restructuring costs | Separation Costs
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	205	137	358	392
Restructuring costs | Accelerated Depreciation
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	0	0	0	0
Restructuring costs | Other
Restructuring Cost and Reserve [Line Items]
Total pretax restructuring costs	$ 27	$ 34	$ 86	$ 102

XML

Contingencies Commitments and Contingencies (Policies)	9 Months Ended
	Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]
Legal Costs, Policy	Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.

XML

Earnings Per Share

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

The calculations of earnings per share are as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ and shares in millions except per share amounts)	2019		2018		2019		2018
Net income attributable to Merck & Co., Inc.	$	1,901	$	1,950	$	7,487	$	4,393
Average common shares outstanding	2,558		2,662		2,572		2,680
Common shares issuable (1)	14		16		15		14
Average common shares outstanding assuming dilution	2,572		2,678		2,587		2,694
Basic earnings per common share attributable to Merck & Co., Inc. common shareholders	$	0.74	$	0.73	$	2.91	$	1.64
Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders	$	0.74	$	0.73	$	2.89	$	1.63

⁽¹⁾  Issuable primarily under share-based compensation plans.

For the third quarter of 2019 and 2018, 3 million and 2 million, respectively, and for the first nine months of 2019 and 2018, 2 million and 7 million, respectively, of common shares issuable under share-based compensation plans were excluded from the computation of earnings per common share assuming dilution because the effect would have been antidilutive.

XML

Equity - Narrative (Details) - USD ($) shares in Millions		1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Oct. 29, 2018	Apr. 30, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Oct. 25, 2018
Accelerated Share Repurchases [Line Items]
Treasury stock shares acquired			$ 1,405,000,000	$ 996,000,000	$ 3,730,000,000	$ 3,158,000,000
Accelerated Share Repurchase Agreement
Accelerated Share Repurchases [Line Items]
Share repurchase program authorized amount								$ 5,000,000,000
Treasury stock shares purchased (in shares)	56.7	7.7					64.4
Payment under ASR agreement	$ 5,000,000,000
Treasury stock shares acquired	4,000,000,000
Decrease in other-paid-in capital	$ 1,000,000,000

XML

Loans Payable, Long-Term Debt and Leases - Balance Sheet Information (Details) $ in Millions	Sep. 30, 2019 USD ($)
Loans Payable, Long-Term Debt and Leases [Abstract]
Other Assets	$ 1,085
Accrued and other current liabilities	241
Other Noncurrent Liabilities	779
Operating lease liability	$ 1,020
Weighted-average remaining lease term (in years)	7 years 6 months
Weighted-average discount rate (as percent)	3.30%

XML

Inventories - Narrative (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Inventory [Line Items]
Inventories classified in Other assets	$ 1,515	$ 1,417
Inventories Not Expected to be Sold Within One Year
Inventory [Line Items]
Inventories classified in Other assets	1,400	1,400
Inventories Produced in Preparation for Product Launches
Inventory [Line Items]
Inventories classified in Other assets	$ 138	$ 7

XML

Acquisitions, Divestitures, Research Collaborations and License Agreements - Fair Value of Assets Acquired and Liabilities Assumed (Details) $ in Millions	Apr. 01, 2019 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Goodwill		$ 19,480	$ 18,253
Antelliq
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Cash and cash equivalents	$ 31
Accounts receivable	73
Inventories	95
Property, plant and equipment	62
Identifiable intangible assets (useful lives ranging from 18-24 years)	2,689
Deferred income tax liabilities	(563)
Other assets and liabilities, net	(81)
Total identifiable net assets	2,306
Goodwill	1,345
Consideration transferred	$ 3,651
Measurement Input, Discount Rate | Antelliq
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Present value discount rate	0.115
Minimum | Antelliq
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Useful lives of identifiable intangible assets	18 years
Maximum | Antelliq
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Useful lives of identifiable intangible assets	24 years

XML

Restructuring - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Restructuring Cost and Reserve [Line Items]
Estimate of cumulative pre tax costs that will result in cash outlays			60.00%
Estimate of cumulative pre tax costs that will be noncash			40.00%
Expected restructuring and related cost	$ 750		$ 750
Total pretax restructuring costs	296	$ 169	642	$ 508
Minimum
Restructuring Cost and Reserve [Line Items]
Expected restructuring and related cost	800		800
Maximum
Restructuring Cost and Reserve [Line Items]
Expected restructuring and related cost	$ 1,200		$ 1,200

XML

Acquisitions, Divestitures, Research Collaborations and License Agreements (Tables)

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Fair Value of Assets Acquired and Liabilities Assumed

The estimated fair value of assets acquired and liabilities assumed from Antelliq is as follows:

($ in millions)	April 1, 2019
Cash and cash equivalents	$	31
Accounts receivable	73
Inventories	95
Property, plant and equipment	62
Identifiable intangible assets (useful lives ranging from 18-24 years) (1)	2,689
Deferred income tax liabilities	(563		)
Other assets and liabilities, net	(81		)
Total identifiable net assets	2,306
Goodwill (2)	1,345
Consideration transferred	$	3,651

⁽¹⁾  The estimated fair values of identifiable intangible assets relate primarily to trade names and were determined using an income approach. The future net cash flows were discounted to present value utilizing a discount rate of 11.5%. Actual cash flows are likely to be different than those assumed.

⁽²⁾  The goodwill recognized is largely attributable to anticipated synergies expected to arise after the acquisition and was allocated to the Animal Health segment. The goodwill is not deductible for tax purposes.

XML

Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Other Comprehensive Income (Loss)

Other Comprehensive Income (Loss)

Changes in AOCI by component are as follows:

	Three Months Ended September 30,
($ in millions)	Derivatives				Investments				Employee Benefit Plans				Cumulative Translation Adjustment			Accumulated Other Comprehensive Income (Loss)
Balance July 1, 2018, net of taxes	$	65			$	(164	)		$	(3,065	)		$	(1,958	)	$	(5,122	)
Other comprehensive income (loss) before reclassification adjustments, pretax	29				8				—				(147		)	(110		)
Tax	(6		)		—				—				11			5
Other comprehensive income (loss) before reclassification adjustments, net of taxes	23				8				—				(136		)	(105		)
Reclassification adjustments, pretax	5			(1)	32			(2)	47			(3)	—			84
Tax	(1		)		—				(7		)		—			(8		)
Reclassification adjustments, net of taxes	4				32				40				—			76
Other comprehensive income (loss), net of taxes	27				40				40				(136		)	(29		)
Balance September 30, 2018, net of taxes	$	92			$	(124	)		$	(3,025	)		$	(2,094	)	$	(5,151	)
Balance July 1, 2019, net of taxes	$	66			$	48			$	(3,530	)		$	(1,946	)	$	(5,362	)
Other comprehensive income (loss) before reclassification adjustments, pretax	186				8				(4		)		(84		)	106
Tax	(39		)		—				—				(33		)	(72		)
Other comprehensive income (loss) before reclassification adjustments, net of taxes	147				8				(4		)		(117		)	34
Reclassification adjustments, pretax	(71		)	(1)	(25		)	(2)	21			(3)	—			(75		)
Tax	15				—				(2		)		—			13
Reclassification adjustments, net of taxes	(56		)		(25		)		19				—			(62		)
Other comprehensive income (loss), net of taxes	91				(17		)		15				(117		)	(28		)
Balance September 30, 2019, net of taxes	$	157			$	31			$	(3,515	)		$	(2,063	)	$	(5,390	)

	Nine Months Ended September 30,
($ in millions)	Derivatives				Investments				Employee Benefit Plans				Cumulative Translation Adjustment			Accumulated Other Comprehensive Income (Loss)
Balance January 1, 2018, net of taxes	$	(108	)		$	(61	)		$	(2,787	)		$	(1,954	)	$	(4,910	)
Other comprehensive income (loss) before reclassification adjustments, pretax	113				(125		)		(2		)		(129		)	(143		)
Tax	(24		)		1				4				(111		)	(130		)
Other comprehensive income (loss) before reclassification adjustments, net of taxes	89				(124		)		2				(240		)	(273		)
Reclassification adjustments, pretax	169			(1)	68			(2)	128			(3)	—			365
Tax	(35		)		—				(24		)		—			(59		)
Reclassification adjustments, net of taxes	134				68				104				—			306
Other comprehensive income (loss), net of taxes	223				(56		)		106				(240		)	33
Adoption of ASU 2018-02	(23		)		1				(344		)		100			(266		)
Adoption of ASU 2016-01	—				(8		)		—				—			(8		)
Balance September 30, 2018, net of taxes	$	92			$	(124	)		$	(3,025	)		$	(2,094	)	$	(5,151	)
Balance January 1, 2019, net of taxes	$	166			$	(78	)		$	(3,556	)		$	(2,077	)	$	(5,545	)
Other comprehensive income (loss) before reclassification adjustments, pretax	183				139				(5		)		47			364
Tax	(38		)		—				6				(33		)	(65		)
Other comprehensive income (loss) before reclassification adjustments, net of taxes	145				139				1				14			299
Reclassification adjustments, pretax	(195		)	(1)	(30		)	(2)	49			(3)	—			(176		)
Tax	41				—				(9		)		—			32
Reclassification adjustments, net of taxes	(154		)		(30		)		40				—			(144		)
Other comprehensive income (loss), net of taxes	(9		)		109				41				14			155
Balance September 30, 2019, net of taxes	$	157			$	31			$	(3,515	)		$	(2,063	)	$	(5,390	)

⁽¹⁾  Relates to foreign currency cash flow hedges that were reclassified from AOCI to Sales.

⁽²⁾  Represents net realized (gains) losses on the sales of available-for-sale debt securities that were reclassified from AOCI to Other (income) expense, net.

⁽³⁾ 

Includes net amortization of prior service cost and actuarial gains and losses included in net periodic benefit cost (see Note 12).

XML

Loans Payable, Long-Term Debt and Leases Loans Payable, Long-Term Debt and Leases (Tables)

9 Months Ended

Sep. 30, 2019

Loans Payable, Long-Term Debt and Leases [Abstract]

Supplemental Balance Sheet Information

Supplemental balance sheet information related to operating leases is as follows:

($ in millions)	September 30, 2019
Assets
Other Assets (1)	$	1,085
Liabilities
Accrued and other current liabilities	$	241
Other Noncurrent Liabilities	779
	$	1,020
Weighted-average remaining lease term (years)	7.5
Weighted-average discount rate	3.3		%

⁽¹⁾ Includes prepaid leases that have no related lease liability.

Schedule of Maturities of Operating Lease Liabilities

Maturities of operating leases liabilities are as follows:

($ in millions)	September 30, 2019
2019 (excluding the nine months ended September 30, 2019)	$	71
2020	235
2021	189
2022	155
2023	127
Thereafter	374
Total lease payments	1,151
Less: imputed interest	(131		)
	$	1,020

XML

Other (Income) Expense, Net (Tables)

9 Months Ended

Sep. 30, 2019

Other Income and Expenses [Abstract]

Other (Income) Expense, Net

Other (income) expense, net, consisted of: 

	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Interest income	$	(61	)	$	(92	)	$	(225	)	$	(257	)
Interest expense	231			190			674			569
Exchange losses	38			42			166			119
Income from investments in equity securities, net (1)	(16		)	(198		)	(50		)	(376		)
Net periodic defined benefit plan (credit) cost other than service cost	(128		)	(119		)	(409		)	(384		)
Other, net	(29		)	5			206			(183		)
	$	35		$	(172	)	$	362		$	(512	)

⁽¹⁾ 

Includes net realized and unrealized gains and losses from investments in equity securities either owned directly or through ownership interests in investments funds.

XML

Pension and Other Postretirement Benefit Plans

9 Months Ended

Sep. 30, 2019

Retirement Benefits [Abstract]

Pension and Other Postretirement Benefit Plans

Pension and Other Postretirement Benefit Plans

The Company has defined benefit pension plans covering eligible employees in the United States and in certain of its international subsidiaries. The net periodic benefit cost of such plans consisted of the following components: 

	Three Months Ended   September 30,												Nine Months Ended   September 30,
	2019						2018						2019						2018
($ in millions)	U.S.			International			U.S.			International			U.S.			International			U.S.			International
Service cost	$	76		$	58		$	77		$	56		$	221		$	178		$	245		$	181
Interest cost	115			44			109			43			343			133			324			134
Expected return on plan assets	(202		)	(106		)	(209		)	(106		)	(613		)	(320		)	(634		)	(326		)
Amortization of unrecognized prior service credit	(12		)	(3		)	(12		)	(3		)	(37		)	(9		)	(37		)	(10		)
Net loss amortization	43			16			63			21			113			47			174			64
Termination benefits	3			—			1			—			7			1			18			—
Curtailments	5			—			3			—			6			—			7			(1		)
Settlements	—			—			—			—			—			—			1			3
	$	28		$	9		$	32		$	11		$	40		$	30		$	98		$	45

The Company provides medical benefits, principally to its eligible U.S. retirees and similar benefits to their dependents, through its other postretirement benefit plans. The net credit of such plans consisted of the following components: 

	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Service cost	$	12		$	15		$	36		$	43
Interest cost	17			17			52			52
Expected return on plan assets	(18		)	(21		)	(54		)	(63		)
Amortization of unrecognized prior service credit	(20		)	(21		)	(59		)	(63		)
Net loss amortization	(3		)	—			(7		)	1
Termination benefits	1			—			1			2
Curtailments	(3		)	(1		)	(4		)	(7		)
	$	(14	)	$	(11	)	$	(35	)	$	(35	)

In connection with restructuring actions (see Note 4), termination charges were recorded on pension and other postretirement benefit plans related to expanded eligibility for certain employees exiting Merck. Also, in connection with these

restructuring actions, curtailments and settlements were recorded on pension and other postretirement benefit plans as reflected in the tables above.

The components of net periodic benefit cost (credit) other than the service cost component are included in Other (income) expense, net (see Note 13), with the exception of certain amounts for termination benefits, curtailments and settlements, which are recorded in Restructuring costs if the event giving rise to the termination benefits, curtailment or settlement is related to restructuring actions as noted above.

XML

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash Flows from Operating Activities
Net income	$ 7,414	$ 4,415
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,716	3,521
Intangible asset impairment charges	864	0
Charge for acquisition of Peloton Therapeutics, Inc.	982	0
Charge for future payments related to collaboration license options	0	650
Charge for collaboration termination	0	420
Deferred income taxes	(386)	(391)
Share-based compensation	306	261
Other	219	488
Net changes in assets and liabilities	(3,469)	(2,034)
Net Cash Provided by Operating Activities	8,646	7,330
Cash Flows from Investing Activities
Capital expenditures	(2,336)	(1,686)
Purchases of securities and other investments	(2,380)	(6,899)
Proceeds from sales of securities and other investments	7,459	11,243
Acquisition of Antelliq Corporation, net of cash acquired	(3,620)	0
Acquisition of Peloton Therapeutics, Inc., net of cash acquired	(1,040)	0
Other acquisitions, net of cash acquired	(269)	(372)
Other	320	(150)
Net Cash (Used in) Provided by Investing Activities	(1,866)	2,136
Cash Flows from Financing Activities
Net change in short-term borrowings	(3,892)	2,294
Payments on debt	0	(3,007)
Proceeds from issuance of debt	4,958	0
Purchases of treasury stock	(3,730)	(3,158)
Dividends paid to stockholders	(4,290)	(3,895)
Proceeds from exercise of stock options	344	461
Other	(240)	(289)
Net Cash Used in Financing Activities	(6,850)	(7,594)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash	(26)	(140)
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash	(96)	1,732
Cash, Cash Equivalents and Restricted Cash at Beginning of Year (includes restricted cash of $2 million at January 1, 2019 included in Other Assets)	7,967	6,096
Cash, Cash Equivalents and Restricted Cash at End of Period (includes restricted cash of $2 million at September 30, 2019 included in Other Assets)	$ 7,871	$ 7,828

XML

CONDENSED CONSOLIDATED STATEMENT OF INCOME - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Income Statement [Abstract]
Sales	$ 12,397	$ 10,794	$ 34,972	$ 31,296
Costs, Expenses and Other
Cost of sales	3,990	3,619	10,443	10,220
Selling, general and administrative	2,589	2,443	7,726	7,459
Research and development	3,204	2,068	7,324	7,538
Restructuring costs	232	171	444	494
Other (income) expense, net	35	(172)	362	(512)
Total Costs, Expenses and Other	10,050	8,129	26,299	25,199
Income Before Taxes	2,347	2,665	8,673	6,097
Taxes on Income	440	707	1,259	1,682
Net Income	1,907	1,958	7,414	4,415
Less: Net Income (Loss) Attributable to Noncontrolling Interests	6	8	(73)	22
Net Income Attributable to Merck & Co., Inc.	$ 1,901	$ 1,950	$ 7,487	$ 4,393
Basic Earnings per Common Share Attributable to Merck & Co., Inc. Common Shareholders (in dollars per share)	$ 0.74	$ 0.73	$ 2.91	$ 1.64
Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders (in dollars per share)	$ 0.74	$ 0.73	$ 2.89	$ 1.63

XML

Loans Payable, Long-Term Debt and Leases

9 Months Ended

Sep. 30, 2019

Loans Payable, Long-Term Debt and Leases [Abstract]

Loans Payable, Long-Term Debt and Leases

Loans Payable, Long-Term Debt and Leases

Long-Term Debt

In March 2019, the Company issued $5.0 billion principal amount of senior unsecured notes consisting of $750 million of 2.90% notes due 2024, $1.75 billion of 3.40% notes due 2029, $1.0 billion of 3.90% notes due 2039, and $1.5 billion of 4.00% notes due 2049. The Company used the net proceeds from the offering of $5.0 billion for general corporate purposes, including the repayment of outstanding commercial paper borrowings.

Leases

As discussed in Note 1, on January 1, 2019, Merck adopted new guidance for the accounting and reporting of leases. The Company has operating leases primarily for manufacturing facilities, research and development facilities, corporate offices, employee housing, vehicles and certain equipment. As permitted under the transition guidance in ASC 842, the Company elected a package of practical expedients which, among other provisions, allowed the Company to carry forward historical lease classifications. The Company determines if an arrangement is a lease at inception. When evaluating contracts for embedded leases, the Company exercises judgment to determine if there is an explicit or implicit identified asset in the contract and if Merck controls the use of that asset. Embedded leases, primarily associated with contract manufacturing organizations, are immaterial.

Under ASC 842 transition guidance, Merck elected the hindsight practical expedient to determine the lease term for existing leases, which permits companies to consider available information prior to the effective date of the new guidance as to the actual or likely exercise of options to extend or terminate the lease. The lease term includes options to extend or terminate the lease when it is reasonably certain that Merck will exercise that option. Real estate leases for facilities have an average remaining lease term of eight years, which include options to extend the leases for up to four years where applicable. Vehicle leases are

generally in effect for four years. The Company has made an accounting policy election not to record short-term leases (leases with an initial term of 12 months or less) on the balance sheet; however, Merck currently has no short-term leases.

Lease expense for operating lease payments is recognized on a straight-line basis over the term of the lease. Operating lease assets and liabilities are recognized based on the present value of lease payments over the lease term. Since most of the Company’s leases do not have a readily determinable implicit discount rate, the Company uses its incremental borrowing rate to calculate the present value of lease payments. As a practical expedient, the Company has made an accounting policy election not to separate lease components (e.g. payments for rent, real estate taxes and insurance costs) from non-lease components (e.g. common-area maintenance costs) in the event that the agreement contains both. Merck includes both the lease and non-lease components for purposes of calculating the right-of-use asset and related lease liability (if the non-lease components are fixed). For vehicle leases and employee housing, the Company applies a portfolio approach to effectively account for the operating lease assets and liabilities.

Certain of the Company’s lease agreements contain variable lease payments that are adjusted periodically for inflation or for actual operating expense true-ups compared with estimated amounts; however, these amounts are immaterial. Sublease income and activity related to sale and leaseback transactions are immaterial. Merck’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating lease cost was $79 million and $244 million for the third quarter and first nine months of 2019, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $71 million and $209 million for the third quarter and first nine months of 2019, respectively.

Supplemental balance sheet information related to operating leases is as follows:

($ in millions)	September 30, 2019
Assets
Other Assets (1)	$	1,085
Liabilities
Accrued and other current liabilities	$	241
Other Noncurrent Liabilities	779
	$	1,020
Weighted-average remaining lease term (years)	7.5
Weighted-average discount rate	3.3		%

⁽¹⁾ Includes prepaid leases that have no related lease liability.

Maturities of operating leases liabilities are as follows:

($ in millions)	September 30, 2019
2019 (excluding the nine months ended September 30, 2019)	$	71
2020	235
2021	189
2022	155
2023	127
Thereafter	374
Total lease payments	1,151
Less: imputed interest	(131		)
	$	1,020

As of September 30, 2019, the Company had entered into additional real estate operating leases that had not yet commenced. The obligations associated with these leases totaled $444 million, of which $221 million relates to a lease that will commence in April 2020 and has a lease term of 10 years.

As of December 31, 2018, prior to the adoption of ASC 842, the minimum aggregate rental commitments under noncancellable leases were as follows: 2019, $188 million; 2020, $198 million; 2021, $150 million; 2022, $134 million; 2023, $84 million and thereafter, $243 million.

XML

Restructuring

9 Months Ended

Sep. 30, 2019

Restructuring and Related Activities [Abstract]

Restructuring

Restructuring

Merck recently approved a new global restructuring program (2019 Restructuring Program) as part of a worldwide initiative focused primarily 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 Company will continue to evaluate its global footprint and overall operating model, which could result in the identification of additional actions over time. The actions contemplated under the 2019 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 $800 million to $1.2 billion. The Company estimates that approximately 60% of the cumulative pretax costs will result in cash outlays, primarily related to employee separation expense and facility shut-down costs. Approximately 40% of the cumulative pretax costs will be non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested. The Company expects to record charges of approximately $750 million in 2019 related to the program. Actions under previous global restructuring programs have been substantially completed.

The Company recorded total pretax costs of $296 million and $169 million in the third quarter of 2019 and 2018, respectively, and $642 million and $508 million for the first nine months of 2019 and 2018, respectively, related to restructuring program activities. For segment reporting, restructuring charges are unallocated expenses.

The following tables summarize the charges related to restructuring program activities by type of cost:

	Three Months Ended September 30, 2019									Nine Months Ended September 30, 2019
($ in millions)	Separation Costs		Accelerated Depreciation			Other		Total		Separation Costs		Accelerated Depreciation		Other		Total
Cost of sales	$	—	$	41		$	21	$	62	$	—	$	139	$	22	$	161
Selling, general and administrative	—		1			—		1		—		33		—		33
Research and development	—		(1		)	2		1		—		1		3		4
Restructuring costs	205		—			27		232		358		—		86		444
	$	205	$	41		$	50	$	296	$	358	$	173	$	111	$	642

	Three Months Ended September 30, 2018										Nine Months Ended September 30, 2018
($ in millions)	Separation Costs		Accelerated Depreciation			Other		Total			Separation Costs		Accelerated Depreciation			Other		Total
Cost of sales	$	—	$	1		$	1	$	2		$	—	$	1		$	10	$	11
Selling, general and administrative	—		—			—		—			—		1			1		2
Research and development	—		(9		)	5		(4		)	—		(12		)	13		1
Restructuring costs	137		—			34		171			392		—			102		494
	$	137	$	(8	)	$	40	$	169		$	392	$	(10	)	$	126	$	508

Separation costs are associated with actual headcount reductions, as well as those headcount reductions which were probable and could be reasonably estimated.

Accelerated depreciation costs primarily relate to manufacturing, research and administrative facilities and equipment to be sold or closed as part of the programs. 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. All the sites have and will continue to operate up through the respective closure dates and, since future undiscounted cash flows are sufficient to recover the respective book values, Merck is recording accelerated depreciation over the revised useful life of the site assets. Anticipated site closure dates, particularly related to manufacturing locations, have been and may continue to be adjusted to reflect changes resulting from regulatory or other factors.

Other activity in 2019 and 2018 includes asset abandonment, shut-down and other related costs, as well as pretax gains and losses resulting from sales of facilities and related assets. Additionally, other activity includes certain employee-related costs associated with pension and other postretirement benefit plans (see Note 12) and share-based compensation.

The following table summarizes the charges and spending relating to restructuring program activities for the nine months ended September 30, 2019:

($ in millions)	Separation Costs			Accelerated Depreciation			Other			Total
Restructuring reserves January 1, 2019	$	443		$	—		$	91		$	534
Expense	358			173			111			642
(Payments) receipts, net	(198		)	—			(158		)	(356		)
Non-cash activity	—			(173		)	20			(153		)
Restructuring reserves September 30, 2019 (1)	$	603		$	—		$	64		$	667

⁽¹⁾ 

The remaining cash outlays are expected to be substantially completed by the end of 2023.

XML

Segment Reporting - Revenues by Geographic Area (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue from External Customer [Line Items]
Sales	$ 12,397	$ 10,794	$ 34,972	$ 31,296
United States
Revenue from External Customer [Line Items]
Sales	5,525	5,030	15,183	13,425
Europe, Middle East and Africa
Revenue from External Customer [Line Items]
Sales	3,189	2,884	9,452	9,218
Japan
Revenue from External Customer [Line Items]
Sales	919	761	2,639	2,353
China
Revenue from External Customer [Line Items]
Sales	914	512	2,423	1,556
Asia Pacific (other than Japan and China)
Revenue from External Customer [Line Items]
Sales	756	666	2,217	2,210
Latin America
Revenue from External Customer [Line Items]
Sales	671	622	1,889	1,748
Other
Revenue from External Customer [Line Items]
Sales	$ 423	$ 319	$ 1,169	$ 786

XML

Share-Based Compensation Plans - Expense Allocations (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based Payment Arrangement [Abstract]
Pretax share-based compensation expense	$ 101	$ 91	$ 306	$ 261
Income tax benefit	(14)	(14)	(42)	(42)
Total share-based compensation expense, net of taxes	$ 87	$ 77	$ 264	$ 219

XML

Other (Income) Expense, Net (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Other Income and Expenses [Abstract]
Interest income	$ (61)	$ (92)	$ (225)	$ (257)
Interest expense	231	190	674	569
Exchange losses	38	42	166	119
Income from investments in equity securities, net (1)	(16)	(198)	(50)	(376)
Net periodic defined benefit plan (credit) cost other than service cost	(128)	(119)	(409)	(384)
Other, net	(29)	5	206	(183)
Other (income) expense, net	$ 35	$ (172)	362	(512)
Goodwill impairment charges			162
Gain on settlement				115
Other noncash income			84
Interest paid			$ 629	$ 535

XML

Segment Reporting - Narrative (Details) $ in Billions	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) segment	Sep. 30, 2018 USD ($)
Segment Reporting [Abstract]
Number of operating segments | segment			4
Sales discounts | $	$ 3.0	$ 2.6	$ 8.6	$ 7.7

XML

Financial Instruments - Information on Available-for-sale Investments (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Debt Securities, Available-for-sale [Line Items]
Debt securities, amortized cost	$ 2,084		$ 2,084		$ 7,340
Debt securities, unrealized gains	31		31		6
Debt securities, unrealized losses	0		0		(85)
Debt securities, fair value	2,115		2,115		7,261
Publicly traded equity securities, fair value	691		691		456
Total debt and publicly traded equity securities, fair value	2,806		2,806		7,717
Unrealized net losses (gains)	25	$ (10)	(41)	$ (60)
Corporate notes and bonds
Debt Securities, Available-for-sale [Line Items]
Debt securities, amortized cost	1,260		1,260		4,985
Debt securities, unrealized gains	24		24		3
Debt securities, unrealized losses	0		0		(68)
Debt securities, fair value	1,284		1,284		4,920
Asset-backed securities
Debt Securities, Available-for-sale [Line Items]
Debt securities, amortized cost	434		434		1,285
Debt securities, unrealized gains	3		3		1
Debt securities, unrealized losses	0		0		(11)
Debt securities, fair value	437		437		1,275
U.S. government and agency securities
Debt Securities, Available-for-sale [Line Items]
Debt securities, amortized cost	358		358		895
Debt securities, unrealized gains	4		4		2
Debt securities, unrealized losses	0		0		(5)
Debt securities, fair value	362		362		892
Foreign government bonds
Debt Securities, Available-for-sale [Line Items]
Debt securities, amortized cost	32		32		167
Debt securities, unrealized gains	0		0		0
Debt securities, unrealized losses	0		0		(1)
Debt securities, fair value	32		32		166
Mortgage-backed securities
Debt Securities, Available-for-sale [Line Items]
Debt securities, amortized cost	0		0		8
Debt securities, unrealized gains	0		0		0
Debt securities, unrealized losses	0		0		0
Debt securities, fair value	$ 0		$ 0		$ 8

XML

Financial Instruments - Fair Value of Derivatives Segregated between those Derivatives that are Designated as Hedging Instruments and those that are Not Designated as Hedging Instruments (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	$ 483	$ 454
Fair Value of Derivative, Liability	110	160
U.S Dollar Notional Amount	28,359	29,742
Derivatives Designated as Hedging Instruments
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	330	338
Fair Value of Derivative, Liability	10	89
U.S Dollar Notional Amount	14,651	14,390
Derivatives Not Designated as Hedging Instruments
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	153	116
Fair Value of Derivative, Liability	100	71
U.S Dollar Notional Amount	13,708	15,352
Interest rate swap contracts | Derivatives Designated as Hedging Instruments | Other Assets
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	22	0
U.S Dollar Notional Amount	3,400	0
Interest rate swap contracts | Derivatives Designated as Hedging Instruments | Accrued and other current liabilities
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Liability	3	0
U.S Dollar Notional Amount	1,250	0
Interest rate swap contracts | Derivatives Designated as Hedging Instruments | Other Noncurrent Liabilities
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Liability	0	81
U.S Dollar Notional Amount	0	4,650
Foreign exchange contracts | Derivatives Designated as Hedging Instruments | Other Assets
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	56	75
U.S Dollar Notional Amount	2,073	2,655
Foreign exchange contracts | Derivatives Designated as Hedging Instruments | Accrued and other current liabilities
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Liability	6	7
U.S Dollar Notional Amount	775	774
Foreign exchange contracts | Derivatives Designated as Hedging Instruments | Other Noncurrent Liabilities
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Liability	1	1
U.S Dollar Notional Amount	9	89
Foreign exchange contracts | Derivatives Designated as Hedging Instruments | Other current assets
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	252	263
U.S Dollar Notional Amount	7,144	6,222
Foreign exchange contracts | Derivatives Not Designated as Hedging Instruments | Accrued and other current liabilities
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Liability	100	71
U.S Dollar Notional Amount	6,906	9,922
Foreign exchange contracts | Derivatives Not Designated as Hedging Instruments | Other current assets
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	153	116
U.S Dollar Notional Amount	$ 6,802	$ 5,430

XML

Restructuring - Activities by Program (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Restructuring Reserve [Roll Forward]
Restructuring reserve, beginning balance			$ 534
Expense	$ 296	$ 169	642	$ 508
(Payments) receipts, net			(356)
Non-cash activity			(153)
Restructuring reserve, ending balance	667		667
Separation Costs
Restructuring Reserve [Roll Forward]
Restructuring reserve, beginning balance			443
Expense	205	137	358	392
(Payments) receipts, net			(198)
Non-cash activity			0
Restructuring reserve, ending balance	603		603
Accelerated Depreciation
Restructuring Reserve [Roll Forward]
Restructuring reserve, beginning balance			0
Expense	41	(8)	173	(10)
(Payments) receipts, net			0
Non-cash activity			(173)
Restructuring reserve, ending balance	0		0
Other
Restructuring Reserve [Roll Forward]
Restructuring reserve, beginning balance			91
Expense	50	$ 40	111	$ 126
(Payments) receipts, net			(158)
Non-cash activity			20
Restructuring reserve, ending balance	$ 64		$ 64

XML

Basis of Presentation (Details) - USD ($) $ in Millions	Sep. 30, 2019	Jan. 01, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating leases, right of use asset	$ 1,085
Accounting Standards Update 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating leases, right of use asset		$ 1,100

XML

Collaborative Arrangements - Narrative (Details) - USD ($) $ in Millions	1 Months Ended										3 Months Ended					9 Months Ended		12 Months Ended		18 Months Ended	37 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Apr. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017	Jul. 31, 2017	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018	Mar. 31, 2021
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Research and development											$ 3,204			$ 2,068		$ 7,324	$ 7,538
Other liabilities, noncurrent							$ 12,041				11,085					11,085		$ 12,041		$ 12,041
Lynparza | Other Assets
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Finite-lived intangible assets											983					983
Lenvima | Other Assets
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Finite-lived intangible assets											664					664
Adempas | Other intangible assets
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Finite-lived intangible assets											$ 893					893
AstraZeneca
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Upfront and milestone payments																			$ 1,600
License option payment related to collaborative arrangement							$ 400		$ 250	$ 750
Research and development																			$ 2,350
AstraZeneca | Forecast
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
License option payment related to collaborative arrangement			$ 100
AstraZeneca | Lynparza
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Cumulative amortization expense												$ 52
AstraZeneca | Sales-Based Milestones
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Probable contingent payments collaborative arrangement																				$ 700
Contingent milestone payments collaborative arrangement																3,100
AstraZeneca | Sales-Based Milestones | Lynparza
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Probable contingent payments collaborative arrangement												300
Liabilities				$ 300								$ 300
Milestone payments made to collaborative partner																		450
AstraZeneca | Regulatory Milestones | Lynparza
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Milestone payments made to collaborative partner				$ 30	$ 30													140
Contingent milestone payments collaborative arrangement																1,700
Eisai
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Upfront and milestone payments								$ 750
License option payment related to collaborative arrangement						$ 325
Research and development															$ 1,400
Eisai | Forecast
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
License option payment related to collaborative arrangement	$ 125	$ 200																			$ 650
Eisai | Lenvima
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Cumulative amortization expense													$ 35
Eisai | Sales-Based Milestones
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Contingent milestone payments collaborative arrangement								3,970								3,420
Eisai | Sales-Based Milestones | Lenvima
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Probable contingent payments collaborative arrangement													282					268
Liabilities						$ 282							$ 282
Milestone payments made to collaborative partner																50
Eisai | Regulatory Milestones
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Contingent milestone payments collaborative arrangement								385								135
Eisai | Regulatory Milestones | Lenvima
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Milestone payments made to collaborative partner																		$ 250
Bayer AG | Adempas
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Cumulative amortization expense															106
Bayer AG | Sales-Based Milestones
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Probable contingent payments collaborative arrangement															375
Milestone payments made to collaborative partner															350
Contingent milestone payments collaborative arrangement																$ 400
Other liabilities, noncurrent								$ 375							$ 375

XML

Contingencies - Narrative (Details) $ in Millions	1 Months Ended	9 Months Ended
	Mar. 31, 2014 Case	Sep. 30, 2019 USD ($) Claim Case	Dec. 31, 2018 USD ($)
Legal Defense Costs
Loss Contingencies [Line Items]
Legal defense costs reserve | $		$ 260	$ 245
Fosamax
Loss Contingencies [Line Items]
Loss contingency, pending claims, number (in legal matters)		3,900
Fosamax | Femur Fracture Litigation | Federal
Loss Contingencies [Line Items]
Loss contingency, pending claims, number (in legal matters)		11
Loss contingency, claims dismissed, number (in legal matters)	650	1,060
Loss contingency, claims on appeal, number (in legal matters)	515
Fosamax | Femur Fracture Litigation | New Jersey state court
Loss Contingencies [Line Items]
Loss contingency, pending claims, number (in legal matters)		2,520
Fosamax | Femur Fracture Litigation | California state court
Loss Contingencies [Line Items]
Loss contingency, pending claims, number (in legal matters)		275
Fosamax | Femur Fracture Litigation | Other state courts
Loss Contingencies [Line Items]
Loss contingency, pending claims, number (in legal matters)		4
Januvia
Loss Contingencies [Line Items]
Loss contingency, pending claims, number (in legal matters) | Claim		1,370
Januvia | Other state courts
Loss Contingencies [Line Items]
Loss contingency, pending claims, number (in legal matters) | Claim		6
Januvia | Cases Company Agreed To Toll Statute Of Limitations
Loss Contingencies [Line Items]
Loss contingency, pending claims, number (in legal matters) | Claim		50

XML

Loans Payable, Long-Term Debt and Leases - Debt Narrative (Details)	1 Months Ended
	Mar. 31, 2019 USD ($)
Debt Instrument [Line Items]
Face amount of debt	$ 5,000,000,000.0
Net proceeds from offering	5,000,000,000.0
2.90% Notes Due 2024
Debt Instrument [Line Items]
Face amount of debt	$ 750,000,000
Stated interest rate (as percent)	2.90%
3.40% Notes Due 2029
Debt Instrument [Line Items]
Face amount of debt	$ 1,750,000,000
Stated interest rate (as percent)	3.40%
3.90% Notes Due 2039
Debt Instrument [Line Items]
Face amount of debt	$ 1,000,000,000.0
Stated interest rate (as percent)	3.90%
4.00% Notes Due 2049
Debt Instrument [Line Items]
Face amount of debt	$ 1,500,000,000
Stated interest rate (as percent)	4.00%

XML

Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Merck & Co., Inc. (Merck or the Company) have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements are not included herein. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Merck’s Form 10-K filed on February 27, 2019.

The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. In the Company’s opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature. Certain reclassifications have been made to prior year amounts to conform to the current presentation.

Recently Adopted and Issued Accounting Standards

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (FASB) issued new accounting guidance for the accounting and reporting of leases (ASU 2016-02) and subsequently issued several updates to the new guidance (ASC 842 or new guidance). The new guidance requires that lessees recognize a right-of-use asset and a lease liability for each of its leases (other than leases that meet the definition of a short-term lease). Leases are classified as either operating or finance. Operating leases result in straight-line expense in the income statement (similar to previous operating leases), while finance leases result in more expense being recognized in the earlier years of the lease term (similar to previous capital leases). The Company adopted the new standard on January 1, 2019 using a modified retrospective approach. Merck elected the transition method that allows for application of the standard at the adoption date rather than at the beginning of the earliest comparative period presented in the financial statements. The Company also elected available practical expedients. Upon adoption, the Company recognized $1.1 billion of additional assets and related liabilities on its consolidated balance sheet (see Note 8). The adoption of the new guidance did not impact the Company’s consolidated statements of income or cash flows.

In April 2018, the FASB issued new guidance on the accounting for costs incurred to implement a cloud computing arrangement that is considered a service arrangement. The new guidance requires the capitalization of such costs, aligning it with the accounting for costs associated with developing or obtaining internal-use software. The Company adopted the new standard in the third quarter of 2019 using prospective application for eligible costs, which were immaterial.

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued amended guidance on the accounting for credit losses on financial instruments. The guidance introduces an expected loss model for estimating credit losses, replacing the incurred loss model. The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use of an allowance to record estimated credit losses (and subsequent recoveries). The new guidance is effective for interim and annual periods beginning in 2020, with earlier application permitted in 2019, including adoption in any interim period. The new guidance is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings in the beginning of the period of adoption. The Company is continuing to assess the impact of adopting the new standard but does not expect the adoption to have a material impact on its consolidated financial statements, subject to the finalization of its assessment.

In November 2018, the FASB issued new guidance for collaborative arrangements intended to reduce diversity in practice by clarifying whether certain transactions between collaborative arrangement participants should be accounted for under revenue recognition guidance (ASC 606). The new guidance is effective for interim and annual periods beginning in 2020. Early adoption is permitted, including adoption in any interim period. The new guidance is to be applied on a retrospective basis through a cumulative-effect adjustment directly to retained earnings. The Company does not anticipate the adoption of this standard will have a material effect on its consolidated financial statements.

XML

Taxes on Income

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Taxes on Income

Taxes on Income

The effective income tax rates of 18.7% and 26.5% for the third quarter of 2019 and 2018, respectively, and 14.5% and 27.6% for the first nine months of 2019 and 2018, respectively, reflect the impacts of acquisition and divestiture-related costs and restructuring costs, partially offset by the beneficial impact of foreign earnings. The effective income tax rates in the third quarter and first nine months of 2019 also reflect the unfavorable impact of a charge for the acquisition of Peloton for which no tax benefit was recognized and the favorable impact of product mix on the estimated full-year tax rate. In addition, the effective income tax rate for the first nine months of 2019 reflects the favorable impact of a $360 million net tax benefit related to the settlement of certain federal income tax matters (discussed below). The effective income tax rate for the first nine months of 2018 reflects the unfavorable impact of a charge recorded in connection with the formation of a collaboration with Eisai for which no tax benefit was recognized.

In the first quarter of 2019, the Internal Revenue Service (IRS) concluded its examinations of Merck’s 2012-2014 U.S. federal income tax returns. As a result, the Company was required to make a payment of $107 million. The Company’s reserves for unrecognized tax benefits for the years under examination exceeded the adjustments relating to this examination period and therefore the Company recorded a $360 million net tax benefit in the first nine months of 2019. This net benefit reflects reductions in reserves for unrecognized tax benefits for tax positions relating to the years that were under examination, partially offset by additional reserves for tax positions not previously reserved for.

XML

Restructuring (Tables)

9 Months Ended

Sep. 30, 2019

Restructuring and Related Activities [Abstract]

Charges Related to Restructuring Program Activities by Type of Cost

The following tables summarize the charges related to restructuring program activities by type of cost:

	Three Months Ended September 30, 2019									Nine Months Ended September 30, 2019
($ in millions)	Separation Costs		Accelerated Depreciation			Other		Total		Separation Costs		Accelerated Depreciation		Other		Total
Cost of sales	$	—	$	41		$	21	$	62	$	—	$	139	$	22	$	161
Selling, general and administrative	—		1			—		1		—		33		—		33
Research and development	—		(1		)	2		1		—		1		3		4
Restructuring costs	205		—			27		232		358		—		86		444
	$	205	$	41		$	50	$	296	$	358	$	173	$	111	$	642

	Three Months Ended September 30, 2018										Nine Months Ended September 30, 2018
($ in millions)	Separation Costs		Accelerated Depreciation			Other		Total			Separation Costs		Accelerated Depreciation			Other		Total
Cost of sales	$	—	$	1		$	1	$	2		$	—	$	1		$	10	$	11
Selling, general and administrative	—		—			—		—			—		1			1		2
Research and development	—		(9		)	5		(4		)	—		(12		)	13		1
Restructuring costs	137		—			34		171			392		—			102		494
	$	137	$	(8	)	$	40	$	169		$	392	$	(10	)	$	126	$	508

Charges and Spending Relating to Restructuring Activities by Program

The following table summarizes the charges and spending relating to restructuring program activities for the nine months ended September 30, 2019:

($ in millions)	Separation Costs			Accelerated Depreciation			Other			Total
Restructuring reserves January 1, 2019	$	443		$	—		$	91		$	534
Expense	358			173			111			642
(Payments) receipts, net	(198		)	—			(158		)	(356		)
Non-cash activity	—			(173		)	20			(153		)
Restructuring reserves September 30, 2019 (1)	$	603		$	—		$	64		$	667

⁽¹⁾ 

The remaining cash outlays are expected to be substantially completed by the end of 2023.

XML

CONDENSED CONSOLIDATED BALANCE SHEET - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Current Assets
Cash and cash equivalents	$ 7,869	$ 7,965
Short-term investments	149	899
Accounts receivable (net of allowance for doubtful accounts of $116 in 2019 and $119 in 2018)	8,442	7,071
Inventories (excludes inventories of $1,515 in 2019 and $1,417 in 2018 classified in Other assets - see Note 6)	5,855	5,440
Other current assets	3,827	4,500
Total current assets	26,142	25,875
Investments	2,111	6,233
Property, Plant and Equipment, at cost, net of accumulated depreciation of $17,281 in 2019 and $16,324 in 2018	14,287	13,291
Goodwill	19,480	18,253
Other Intangibles, Net	12,307	11,431
Other Assets	9,004	7,554
Total Assets	83,331	82,637
Current Liabilities
Loans payable and current portion of long-term debt	3,411	5,308
Trade accounts payable	3,198	3,318
Accrued and other current liabilities	11,768	10,151
Income taxes payable	873	1,971
Dividends payable	1,434	1,458
Total current liabilities	20,684	22,206
Long-Term Debt	22,677	19,806
Deferred Income Taxes	1,960	1,702
Other Noncurrent Liabilities	11,085	12,041
Merck & Co., Inc. Stockholders’ Equity
Common stock, $0.50 par value Authorized - 6,500,000,000 shares Issued - 3,577,103,522 shares in 2019 and 2018	1,788	1,788
Other paid-in capital	39,561	38,808
Retained earnings	45,804	42,579
Accumulated other comprehensive loss	(5,390)	(5,545)
Stockholders' equity before deduction for treasury stock	81,763	77,630
Less treasury stock, at cost: 1,026,214,892 shares in 2019 and 984,543,979 shares in 2018	54,925	50,929
Total Merck & Co., Inc. stockholders’ equity	26,838	26,701
Noncontrolling Interests	87	181
Total equity	26,925	26,882
Liabilities and Equity	$ 83,331	$ 82,637

XML

Basis of Presentation

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Merck & Co., Inc. (Merck or the Company) have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements are not included herein. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Merck’s Form 10-K filed on February 27, 2019.

The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. In the Company’s opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature. Certain reclassifications have been made to prior year amounts to conform to the current presentation.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (FASB) issued new accounting guidance for the accounting and reporting of leases (ASU 2016-02) and subsequently issued several updates to the new guidance (ASC 842 or new guidance). The new guidance requires that lessees recognize a right-of-use asset and a lease liability for each of its leases (other than leases that meet the definition of a short-term lease). Leases are classified as either operating or finance. Operating leases result in straight-line expense in the income statement (similar to previous operating leases), while finance leases result in more expense being recognized in the earlier years of the lease term (similar to previous capital leases). The Company adopted the new standard on January 1, 2019 using a modified retrospective approach. Merck elected the transition method that allows for application of the standard at the adoption date rather than at the beginning of the earliest comparative period presented in the financial statements. The Company also elected available practical expedients. Upon adoption, the Company recognized $1.1 billion of additional assets and related liabilities on its consolidated balance sheet (see Note 8). The adoption of the new guidance did not impact the Company’s consolidated statements of income or cash flows.

In April 2018, the FASB issued new guidance on the accounting for costs incurred to implement a cloud computing arrangement that is considered a service arrangement. The new guidance requires the capitalization of such costs, aligning it with the accounting for costs associated with developing or obtaining internal-use software. The Company adopted the new standard in the third quarter of 2019 using prospective application for eligible costs, which were immaterial.

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued amended guidance on the accounting for credit losses on financial instruments. The guidance introduces an expected loss model for estimating credit losses, replacing the incurred loss model. The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use of an allowance to record estimated credit losses (and subsequent recoveries). The new guidance is effective for interim and annual periods beginning in 2020, with earlier application permitted in 2019, including adoption in any interim period. The new guidance is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings in the beginning of the period of adoption. The Company is continuing to assess the impact of adopting the new standard but does not expect the adoption to have a material impact on its consolidated financial statements, subject to the finalization of its assessment.

In November 2018, the FASB issued new guidance for collaborative arrangements intended to reduce diversity in practice by clarifying whether certain transactions between collaborative arrangement participants should be accounted for under revenue recognition guidance (ASC 606). The new guidance is effective for interim and annual periods beginning in 2020. Early adoption is permitted, including adoption in any interim period. The new guidance is to be applied on a retrospective basis through a cumulative-effect adjustment directly to retained earnings. The Company does not anticipate the adoption of this standard will have a material effect on its consolidated financial statements.

XML

Equity

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Equity

Equity

	Three Months Ended September 30,
	Common Stock			Other Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock					Non- controlling Interests			Total
($ and shares in millions except per share amounts)	Shares	Par Value										Shares		Cost
Balance at July 1, 2018	3,577	$	1,788	$	39,741	$	41,523		$	(5,122	)	907		$	(45,401	)	$	237		$	32,766
Net income attributable to Merck & Co., Inc.	—	—		—		1,950			—			—		—			—			1,950
Other comprehensive loss, net of taxes	—	—		—		—			(29		)	—		—			—			(29		)
Cash dividends declared on common stock ($0.48 per share)	—	—		—		(1,284		)	—			—		—			—			(1,284		)
Treasury stock shares purchased	—	—		—		—			—			16		(996		)	—			(996		)
Share-based compensation plans and other	—	—		21		—			—			(5	)	231			—			252
Net income attributable to noncontrolling interests	—	—		—		—			—			—		—			8			8
Distributions attributable to noncontrolling interests	—	—		—		—			—			—		—			(11		)	(11		)
Balance at September 30, 2018	3,577	$	1,788	$	39,762	$	42,189		$	(5,151	)	918		$	(46,166	)	$	234		$	32,656
Balance at July 1, 2019	3,577	$	1,788	$	39,484	$	45,295		$	(5,362	)	1,010		$	(53,570	)	$	102		$	27,737
Net income attributable to Merck & Co., Inc.	—	—		—		1,901			—			—		—			—			1,901
Other comprehensive loss, net of taxes	—	—		—		—			(28		)	—		—			—			(28		)
Cash dividends declared on common stock ($0.55 per share)	—	—		—		(1,392		)	—			—		—			—			(1,392		)
Treasury stock shares purchased	—	—		—		—			—			17		(1,405		)	—			(1,405		)
Share-based compensation plans and other	—	—		77		—			—			(1	)	50			—			127
Net income attributable to noncontrolling interests	—	—		—		—			—			—		—			6			6
Distributions attributable to noncontrolling interests	—	—		—		—			—			—		—			(21		)	(21		)
Balance at September 30, 2019	3,577	$	1,788	$	39,561	$	45,804		$	(5,390	)	1,026		$	(54,925	)	$	87		$	26,925

	Nine Months Ended September 30,
	Common Stock			Other Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock					Non- controlling Interests			Total
($ and shares in millions except per share amounts)	Shares	Par Value											Shares		Cost
Balance at January 1, 2018	3,577	$	1,788	$	39,902		$	41,350		$	(4,910	)	880		$	(43,794	)	$	233		$	34,569
Net income attributable to Merck & Co., Inc.	—	—		—			4,393			—			—		—			—			4,393
Adoption of new accounting standards	—	—		—			322			(274		)	—		—			—			48
Other comprehensive income, net of taxes	—	—		—			—			33			—		—			—			33
Cash dividends declared on common stock ($1.44 per share)	—	—		—			(3,876		)	—			—		—			—			(3,876		)
Treasury stock shares purchased	—	—		—			—			—			53		(3,158		)	—			(3,158		)
Share-based compensation plans and other	—	—		(140		)	—			—			(15	)	786			—			646
Net income attributable to noncontrolling interests	—	—		—			—			—			—		—			22			22
Distributions attributable to noncontrolling interests	—	—		—			—			—			—		—			(21		)	(21		)
Balance at September 30, 2018	3,577	$	1,788	$	39,762		$	42,189		$	(5,151	)	918		$	(46,166	)	$	234		$	32,656
Balance at January 1, 2019	3,577	$	1,788	$	38,808		$	42,579		$	(5,545	)	985		$	(50,929	)	$	181		$	26,882
Net income attributable to Merck & Co., Inc.	—	—		—			7,487			—			—		—			—			7,487
Other comprehensive income, net of taxes	—	—		—			—			155			—		—			—			155
Cash dividends declared on common stock ($1.65 per share)	—	—		—			(4,262		)	—			—		—			—			(4,262		)
Treasury stock shares purchased	—	—		1,000			—			—			54		(4,730		)	—			(3,730		)
Share-based compensation plans and other	—	—		(247		)	—			—			(13	)	734			—			487
Net loss attributable to noncontrolling interests	—	—		—			—			—			—		—			(73		)	(73		)
Distributions attributable to noncontrolling interests	—	—		—			—			—			—		—			(21		)	(21		)
Balance at September 30, 2019	3,577	$	1,788	$	39,561		$	45,804		$	(5,390	)	1,026		$	(54,925	)	$	87		$	26,925

On October 25, 2018, the Company entered into accelerated share repurchase (ASR) agreements with two third-party financial institutions (Dealers). Under the ASR agreements, Merck agreed to purchase $5 billion of Merck’s common stock, in total, with an initial delivery of 56.7 million shares of Merck’s common stock, based on the then-current market price, made by the Dealers to Merck, and payments of $5 billion made by Merck to the Dealers on October 29, 2018, which were funded with existing cash and investments, as well as short-term borrowings. The payments to the Dealers were recorded as reductions to shareholders’ equity, consisting of a $4 billion increase in treasury stock, which reflected the value of the initial 56.7 million shares received on October 29, 2018, and a $1 billion decrease in other-paid-in capital, which reflected the value of the stock held back by the Dealers pending final settlement. Upon settlement of the ASR agreements in April 2019, Merck received an additional 7.7 million shares as determined by the average daily volume weighted-average price of Merck’s common stock during the term of the ASR program, less a negotiated discount, bringing the total shares received by Merck under this program to 64.4 million. The receipt of the additional shares was reflected as an increase to treasury stock and an increase to other-paid-in capital in the first nine months of 2019.

XML

Inventories

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories consisted of:

($ in millions)	September 30, 2019			December 31, 2018
Finished goods	$	1,698		$	1,658
Raw materials and work in process	5,526			5,004
Supplies	213			194
Total (approximates current cost)	7,437			6,856
(Decrease) increase to LIFO costs	(67		)	1
	$	7,370		$	6,857
Recognized as:
Inventories	$	5,855		$	5,440
Other assets	1,515			1,417

Amounts recognized as Other Assets are comprised almost entirely of raw materials and work in process inventories. At September 30, 2019 and December 31, 2018, these amounts included $1.4 billion of inventories not expected to be sold within one year. In addition, these amounts included $138 million and $7 million at September 30, 2019 and December 31, 2018, respectively, of inventories produced in preparation for product launches.

XML

Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Changes in AOCI by Component

Changes in AOCI by component are as follows:

	Three Months Ended September 30,
($ in millions)	Derivatives				Investments				Employee Benefit Plans				Cumulative Translation Adjustment			Accumulated Other Comprehensive Income (Loss)
Balance July 1, 2018, net of taxes	$	65			$	(164	)		$	(3,065	)		$	(1,958	)	$	(5,122	)
Other comprehensive income (loss) before reclassification adjustments, pretax	29				8				—				(147		)	(110		)
Tax	(6		)		—				—				11			5
Other comprehensive income (loss) before reclassification adjustments, net of taxes	23				8				—				(136		)	(105		)
Reclassification adjustments, pretax	5			(1)	32			(2)	47			(3)	—			84
Tax	(1		)		—				(7		)		—			(8		)
Reclassification adjustments, net of taxes	4				32				40				—			76
Other comprehensive income (loss), net of taxes	27				40				40				(136		)	(29		)
Balance September 30, 2018, net of taxes	$	92			$	(124	)		$	(3,025	)		$	(2,094	)	$	(5,151	)
Balance July 1, 2019, net of taxes	$	66			$	48			$	(3,530	)		$	(1,946	)	$	(5,362	)
Other comprehensive income (loss) before reclassification adjustments, pretax	186				8				(4		)		(84		)	106
Tax	(39		)		—				—				(33		)	(72		)
Other comprehensive income (loss) before reclassification adjustments, net of taxes	147				8				(4		)		(117		)	34
Reclassification adjustments, pretax	(71		)	(1)	(25		)	(2)	21			(3)	—			(75		)
Tax	15				—				(2		)		—			13
Reclassification adjustments, net of taxes	(56		)		(25		)		19				—			(62		)
Other comprehensive income (loss), net of taxes	91				(17		)		15				(117		)	(28		)
Balance September 30, 2019, net of taxes	$	157			$	31			$	(3,515	)		$	(2,063	)	$	(5,390	)

	Nine Months Ended September 30,
($ in millions)	Derivatives				Investments				Employee Benefit Plans				Cumulative Translation Adjustment			Accumulated Other Comprehensive Income (Loss)
Balance January 1, 2018, net of taxes	$	(108	)		$	(61	)		$	(2,787	)		$	(1,954	)	$	(4,910	)
Other comprehensive income (loss) before reclassification adjustments, pretax	113				(125		)		(2		)		(129		)	(143		)
Tax	(24		)		1				4				(111		)	(130		)
Other comprehensive income (loss) before reclassification adjustments, net of taxes	89				(124		)		2				(240		)	(273		)
Reclassification adjustments, pretax	169			(1)	68			(2)	128			(3)	—			365
Tax	(35		)		—				(24		)		—			(59		)
Reclassification adjustments, net of taxes	134				68				104				—			306
Other comprehensive income (loss), net of taxes	223				(56		)		106				(240		)	33
Adoption of ASU 2018-02	(23		)		1				(344		)		100			(266		)
Adoption of ASU 2016-01	—				(8		)		—				—			(8		)
Balance September 30, 2018, net of taxes	$	92			$	(124	)		$	(3,025	)		$	(2,094	)	$	(5,151	)
Balance January 1, 2019, net of taxes	$	166			$	(78	)		$	(3,556	)		$	(2,077	)	$	(5,545	)
Other comprehensive income (loss) before reclassification adjustments, pretax	183				139				(5		)		47			364
Tax	(38		)		—				6				(33		)	(65		)
Other comprehensive income (loss) before reclassification adjustments, net of taxes	145				139				1				14			299
Reclassification adjustments, pretax	(195		)	(1)	(30		)	(2)	49			(3)	—			(176		)
Tax	41				—				(9		)		—			32
Reclassification adjustments, net of taxes	(154		)		(30		)		40				—			(144		)
Other comprehensive income (loss), net of taxes	(9		)		109				41				14			155
Balance September 30, 2019, net of taxes	$	157			$	31			$	(3,515	)		$	(2,063	)	$	(5,390	)

⁽¹⁾  Relates to foreign currency cash flow hedges that were reclassified from AOCI to Sales.

⁽²⁾  Represents net realized (gains) losses on the sales of available-for-sale debt securities that were reclassified from AOCI to Other (income) expense, net.

⁽³⁾ 

Includes net amortization of prior service cost and actuarial gains and losses included in net periodic benefit cost (see Note 12).

XML

Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Effect of Net Investment Hedges on OCI and the Consolidated Statement of Income

The effects of the Company’s net investment hedges on OCI and the Consolidated Statement of Income are shown below:

	Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income (1)												Amount of Pretax (Gain) Loss Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2019			2018			2019			2018			2019			2018			2019			2018
Net Investment Hedging Relationships
Foreign exchange contracts	$	1		$	(10	)	$	8		$	(24	)	$	(8	)	$	(4	)	$	(23	)	$	(7	)
Euro-denominated notes	(150		)	38			(152		)	(54		)	—			—			—			—

⁽¹⁾ No amounts were reclassified from AOCI into income related to the sale of a subsidiary.

Summary of Interest Rate Swaps Held

At September 30, 2019, the Company was a party to 19 pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes in which the notional amounts match the amount of the hedged fixed-rate notes as detailed in the table below.

	September 30, 2019
($ in millions)	Par Value of Debt		Number of Interest Rate Swaps Held	Total Swap Notional Amount
1.85% notes due 2020	$	1,250	5	$	1,250
3.875% notes due 2021	1,150		5	1,150
2.40% notes due 2022	1,000		4	1,000
2.35% notes due 2022	1,250		5	1,250

Amounts Recorded on Balance Sheet Related to Fair Value Hedges

The table below presents the location of amounts recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:

	Carrying Amount of Hedged Liabilities				Cumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount
($ in millions)	September 30, 2019		December 31, 2018		September 30, 2019			December 31, 2018
Balance Sheet Line Item in which Hedged Item is Included
Loans payable and current portion of long-term debt	$	1,247	$	—	$	(3	)	$	—
Long-Term Debt	3,416		4,560		22			(82		)

Fair Value of Derivatives on a Gross Basis Segregated between those Derivatives that are Designated as Hedging Instruments and those that are Not Designated as Hedging Instruments

Presented in the table below is the fair value of derivatives on a gross basis segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments:

		September 30, 2019						December 31, 2018
		Fair Value of Derivative				U.S. Dollar Notional		Fair Value of Derivative				U.S. Dollar Notional
($ in millions)	Balance Sheet Caption	Asset		Liability				Asset		Liability
Derivatives Designated as Hedging Instruments
Interest rate swap contracts	Other Assets	$	22	$	—	$	3,400	$	—	$	—	$	—
Interest rate swap contracts	Accrued and other current liabilities	—		3		1,250		—		—		—
Interest rate swap contracts	Other Noncurrent Liabilities	—		—		—		—		81		4,650
Foreign exchange contracts	Other current assets	252		—		7,144		263		—		6,222
Foreign exchange contracts	Other Assets	56		—		2,073		75		—		2,655
Foreign exchange contracts	Accrued and other current liabilities	—		6		775		—		7		774
Foreign exchange contracts	Other Noncurrent Liabilities	—		1		9		—		1		89
		$	330	$	10	$	14,651	$	338	$	89	$	14,390
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts	Other current assets	$	153	$	—	$	6,802	$	116	$	—	$	5,430
Foreign exchange contracts	Accrued and other current liabilities	—		100		6,906		—		71		9,922
		$	153	$	100	$	13,708	$	116	$	71	$	15,352
		$	483	$	110	$	28,359	$	454	$	160	$	29,742

Information on Derivative Positions Subject to Master Netting Arrangements as if they were Presented on a Net Basis

The following table provides information on the Company’s derivative positions subject to these master netting arrangements as if they were presented on a net basis, allowing for the right of offset by counterparty and cash collateral exchanged per the master agreements and related credit support annexes:

	September 30, 2019						December 31, 2018
($ in millions)	Asset			Liability			Asset			Liability
Gross amounts recognized in the condensed consolidated balance sheet	$	483		$	110		$	454		$	160
Gross amounts subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet	(73		)	(73		)	(121		)	(121		)
Cash collateral received	(133		)	—			(107		)	—
Net amounts	$	277		$	37		$	226		$	39

Location and Amount of Pretax (Gains) Losses of Derivatives

The table below provides information regarding the location and amount of pretax (gains) losses of derivatives designated in fair value or cash flow hedging relationships:

	Sales					Other (income) expense, net (1)						Other comprehensive income (loss)						Sales					Other (income) expense, net (1)						Other comprehensive income (loss)
	Three Months Ended September 30,					Three Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,					Nine Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2019		2018			2019			2018			2019			2018			2019		2018			2019			2018			2019			2018
Financial Statement Line Items in which Effects of Fair Value or Cash Flow Hedges are Recorded	$	12,397	$	10,794		$	35		$	(172	)	$	(28	)	$	(29	)	$	34,972	$	31,296		$	362		$	(512	)	$	155		$	33
(Gain) loss on fair value hedging relationships
Interest rate swap contracts
Hedged items	—		—			13			(9		)	—			—			—		—			101			(86		)	—			—
Derivatives designated as hedging instruments	—		—			(6		)	15			—			—			—		—			(74		)	100			—			—
Impact of cash flow hedging relationships
Foreign exchange contracts
Amount of income (loss) recognized in OCI on derivatives	—		—			—			—			186			29			—		—			—			—			183			113
Increase (decrease) in Sales as a result of AOCI reclassifications	70		(6		)	—			—			(70		)	6			189		(172		)	—			—			(189		)	172
Interest rate contracts
Amount of gain recognized in Other (income) expense, net on derivatives	—		—			(1		)	(1		)	—			—			—		—			(3		)	(3		)	—			—
Amount of loss recognized in OCI on derivatives	—		—			—			—			(1		)	(1		)	—		—			—			—			(6		)	(3		)

⁽¹⁾ Interest expense is a component of Other (income) expense, net.

Income Statement Effects of Derivatives Not Designated as Hedging Instruments

The table below provides information regarding the income statement effects of derivatives not designated as hedging instruments:

		Amount of Derivative Pretax (Gain) Loss Recognized in Income
		Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	Income Statement Caption	2019			2018			2019			2018
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts (1)	Other (income) expense, net	$	(8	)	$	(57	)	$	112		$	(224	)
Foreign exchange contracts (2)	Sales	(11		)	—			(7		)	(5		)

⁽¹⁾ These derivative contracts mitigate changes in the value of remeasured foreign currency denominated monetary assets and liabilities attributable to changes in foreign currency exchange rates.

⁽²⁾ These derivative contracts serve as economic hedges of forecasted transactions.

Information on Investments in Debt and Equity Securities

Information on investments in debt and equity securities is as follows:

	September 30, 2019								December 31, 2018
	Amortized Cost		Gross Unrealized				Fair Value		Amortized Cost		Gross Unrealized					Fair Value
($ in millions)			Gains		Losses						Gains		Losses
Corporate notes and bonds	$	1,260	$	24	$	—	$	1,284	$	4,985	$	3	$	(68	)	$	4,920
Asset-backed securities	434		3		—		437		1,285		1		(11		)	1,275
U.S. government and agency securities	358		4		—		362		895		2		(5		)	892
Foreign government bonds	32		—		—		32		167		—		(1		)	166
Mortgage-backed securities	—		—		—		—		8		—		—			8
Total debt securities	$	2,084	$	31	$	—	$	2,115	$	7,340	$	6	$	(85	)	$	7,261
Publicly traded equity securities (1)							691									456
Total debt and publicly traded equity securities							$	2,806								$	7,717

⁽¹⁾ Unrealized net losses (gains) recognized in Other (income) expense, net on equity securities still held at September 30, 2019 were $25 million and $(10) million, for the third quarter of 2019 and 2018, respectively, and were $(41) million and $(60) million for the first nine months of 2019 and 2018, respectively.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements Using								Fair Value Measurements Using
	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
($ in millions)	September 30, 2019								December 31, 2018
Assets
Investments
Corporate notes and bonds	$	—	$	1,284	$	—	$	1,284	$	—	$	4,835	$	—	$	4,835
Asset-backed securities (1)	—		437		—		437		—		1,253		—		1,253
U.S. government and agency securities	—		301		—		301		—		731		—		731
Foreign government bonds	—		32		—		32		—		166		—		166
Publicly traded equity securities	206		—		—		206		147		—		—		147
	206		2,054		—		2,260		147		6,985		—		7,132
Other assets (2)
U.S. government and agency securities	61		—		—		61		55		106		—		161
Corporate notes and bonds	—		—		—		—		—		85		—		85
Mortgage-backed securities	—		—		—		—		—		8		—		8
Asset-backed securities (1)	—		—		—		—		—		22		—		22
Publicly traded equity securities	485		—		—		485		309		—		—		309
	546		—		—		546		364		221		—		585
Derivative assets (3)
Forward exchange contracts	—		259		—		259		—		241		—		241
Purchased currency options	—		202		—		202		—		213		—		213
Interest rate swaps	—		22		—		22		—		—		—		—
	—		483		—		483		—		454		—		454
Total assets	$	752	$	2,537	$	—	$	3,289	$	511	$	7,660	$	—	$	8,171
Liabilities
Other liabilities
Contingent consideration	$	—	$	—	$	755	$	755	$	—	$	—	$	788	$	788
Derivative liabilities (3)
Forward exchange contracts	—		105		—		105		—		74		—		74
Interest rate swaps	—		3		—		3		—		81		—		81
Written currency options	—		2		—		2		—		5		—		5
	—		110		—		110		—		160		—		160
Total liabilities	$	—	$	110	$	755	$	865	$	—	$	160	$	788	$	948

⁽¹⁾  Primarily all of the asset-backed securities are highly-rated (Standard & Poor’s rating of AAA and Moody’s Investors Service rating of Aaa), secured primarily by auto loan, credit card and student loan receivables, with weighted-average lives of primarily 5 years or less.

⁽²⁾  Investments included in other assets are restricted as to use, primarily for the payment of benefits under employee benefit plans.

⁽³⁾ 

The fair value determination of derivatives includes the impact of the credit risk of counterparties to the derivatives and the Company’s own credit risk, the effects of which were not significant.

Information About the Changes in Liabilities for Contingent Consideration

Summarized information about the changes in liabilities for contingent consideration is as follows:

	Nine Months Ended September 30,
($ in millions)	2019			2018
Fair value January 1	$	788		$	935
Changes in estimated fair value (1)	52			144
Additions	—			8
Payments	(85		)	(235		)
Fair value September 30 (2)	$	755		$	852

⁽¹⁾ Recorded in Cost of sales, Research and development expenses, and Other (income) expense, net. Includes cumulative translation adjustments.

⁽²⁾ Balance at September 30, 2019 includes $112 million recorded as a current liability for amounts expected to be paid within the next 12 months.

XML

Share-Based Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Amounts of Share-Based Compensation Cost Recorded in Consolidated Statement of Income

The following table provides the amounts of share-based compensation cost recorded in the Condensed Consolidated Statement of Income:

	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Pretax share-based compensation expense	$	101		$	91		$	306		$	261
Income tax benefit	(14		)	(14		)	(42		)	(42		)
Total share-based compensation expense, net of taxes	$	87		$	77		$	264		$	219

Assumptions Used to Determine Weighted-Average Fair Value of Options Granted

The weighted-average fair value of options granted during the first nine months of 2019 and 2018 was $10.63 and $8.19 per option, respectively, and was determined using the following assumptions:

	Nine Months Ended   September 30,
	2019		2018
Expected dividend yield	3.2	%	3.4	%
Risk-free interest rate	2.4	%	2.8	%
Expected volatility	18.7	%	19.1	%
Expected life (years)	5.9		6.1

XML

Financial Instruments - Location and Amount of Pretax (Gains) Losses of Derivatives (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Derivative Instruments, Gain (Loss) [Line Items]
Sales	$ 12,397	$ 10,794	$ 34,972	$ 31,296
Other (income) expense, net	35	(172)	362	(512)
Other comprehensive income (loss)	(28)	(29)	155	33
Interest rate swap contracts
Derivative Instruments, Gain (Loss) [Line Items]
Amount of income (loss) recognized in OCI on derivatives	(1)	(1)	(6)	(3)
Interest rate swap contracts | Other (income) expense, net
Derivative Instruments, Gain (Loss) [Line Items]
Hedged items	13	(9)	101	(86)
Derivatives designated as hedging instruments	(6)	15	(74)	100
Amount of gain recognized in Other (income) expense, net on derivatives	(1)	(1)	(3)	(3)
Foreign exchange contracts
Derivative Instruments, Gain (Loss) [Line Items]
Amount of income (loss) recognized in OCI on derivatives	186	29	183	113
Increase (decrease) in Sales as a result of AOCI reclassifications	(70)	6	(189)	172
Foreign exchange contracts | Reclassification out of Accumulated Other Comprehensive Income | Accumulated Gain (Loss), Cash Flow Hedge, Including Noncontrolling Interest
Derivative Instruments, Gain (Loss) [Line Items]
Sales	$ 70	$ (6)	$ 189	$ (172)

XML

Financial Instruments - Summary of Interest Rate Swaps Held (Details)	Sep. 30, 2019 USD ($) interest_rate_swap	Mar. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Derivative [Line Items]
Par Value of Debt		$ 5,000,000,000.0
Number of Interest Rate Swaps Held (in interest rate swaps) | interest_rate_swap	19
Total Swap Notional Amount	$ 28,359,000,000		$ 29,742,000,000
1.85% notes due 2020 | Interest rate swap contracts
Derivative [Line Items]
Stated interest rate (as percent)	1.85%
Par Value of Debt	$ 1,250,000,000
Number of Interest Rate Swaps Held (in interest rate swaps) | interest_rate_swap	5
Total Swap Notional Amount	$ 1,250,000,000
3.875% notes due 2021 | Interest rate swap contracts
Derivative [Line Items]
Stated interest rate (as percent)	3.875%
Par Value of Debt	$ 1,150,000,000
Number of Interest Rate Swaps Held (in interest rate swaps) | interest_rate_swap	5
Total Swap Notional Amount	$ 1,150,000,000
2.40% notes due 2022 | Interest rate swap contracts
Derivative [Line Items]
Stated interest rate (as percent)	2.40%
Par Value of Debt	$ 1,000,000,000
Number of Interest Rate Swaps Held (in interest rate swaps) | interest_rate_swap	4
Total Swap Notional Amount	$ 1,000,000,000
2.35% notes due 2022 | Interest rate swap contracts
Derivative [Line Items]
Stated interest rate (as percent)	2.35%
Par Value of Debt	$ 1,250,000,000
Number of Interest Rate Swaps Held (in interest rate swaps) | interest_rate_swap	5
Total Swap Notional Amount	$ 1,250,000,000

XML

Financial Instruments - Information About Changes in Liabilities for Contingent Consideration (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Fair value, beginning balance	$ 788	$ 935
Changes in estimated fair value	52	144
Additions	0	8
Payments	(85)	(235)
Fair value, ending balance	755	$ 852
Current liability	$ 112

XML

Share-Based Compensation Plans - Assumptions Used for Options Granted (Details)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Share-based Payment Arrangement [Abstract]
Expected dividend yield	3.20%	3.40%
Risk-free interest rate	2.40%	2.80%
Expected volatility	18.70%	19.10%
Expected life (years)	5 years 10 months 24 days	6 years 1 month 6 days

XML

Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Earnings Per Share [Abstract]
Net income attributable to Merck & Co., Inc.	$ 1,901	$ 1,950	$ 7,487	$ 4,393
Average common shares outstanding	2,558	2,662	2,572	2,680
Common shares issuable (1)	14	16	15	14
Average common shares outstanding assuming dilution	2,572	2,678	2,587	2,694
Basic earnings per common share attributable to Merck & Co., Inc. common shareholders	$ 0.74	$ 0.73	$ 2.91	$ 1.64
Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders	$ 0.74	$ 0.73	$ 2.89	$ 1.63
Common shares issuable under share-based compensation plans excluded from diluted earnings per common share because the effect would have been antidilutive (in shares)	3	2	2	7

XML

Contingencies

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Contingencies

Contingencies

The Company is involved in various claims and legal proceedings of a nature considered normal to its business, including product liability, intellectual property, and commercial litigation, as well as certain additional matters including governmental and environmental matters. In the opinion of the Company, it is unlikely that the resolution of these matters will be material to the Company’s financial position, results of operations or cash flows.

Given the nature of the litigation discussed below and the complexities involved in these matters, the Company is unable to reasonably estimate a possible loss or range of possible loss for such matters until the Company knows, among other factors, (i) what claims, if any, will survive dispositive motion practice, (ii) the extent of the claims, including the size of any potential class, particularly when damages are not specified or are indeterminate, (iii) how the discovery process will affect the litigation, (iv) the settlement posture of the other parties to the litigation and (v) any other factors that may have a material effect on the litigation.

The Company records accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. For product liability claims, a portion of the overall accrual is actuarially determined and considers such factors as past experience, number of claims reported and estimates of claims incurred but not yet reported. Individually significant contingent losses are accrued when probable and reasonably estimable. Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.

The Company’s decision to obtain insurance coverage is dependent on market conditions, including cost and availability, existing at the time such decisions are made. 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 effective August 1, 2004.

Product Liability Litigation

Fosamax

As previously disclosed, Merck is a defendant in product liability lawsuits in the United States involving Fosamax (Fosamax Litigation). As of September 30, 2019, approximately 3,900 cases have been filed and either are pending or conditionally dismissed (as noted below) against Merck in either federal or state court. Plaintiffs in the vast majority of these cases generally allege that they sustained femur fractures and/or other bone injuries (Femur Fractures) in association with the use of Fosamax.

All federal cases involving allegations of Femur Fracture have been or will be transferred to a multidistrict litigation in the District of New Jersey (Femur Fracture MDL). In the only bellwether case tried to date in the Femur Fracture MDL, Glynn v. Merck, the jury returned a verdict in Merck’s favor. In addition, in June 2013, the Femur Fracture MDL court granted Merck’s motion for judgment as a matter of law in the Glynn case and held that the plaintiff’s failure to warn claim was preempted by federal law.

In August 2013, the Femur Fracture MDL court entered an order requiring plaintiffs in the Femur Fracture MDL to show cause why those cases asserting claims for a femur fracture injury that took place prior to September 14, 2010, should not be dismissed based on the court’s preemption decision in the Glynn case. Pursuant to the show cause order, in March 2014, the Femur Fracture MDL court dismissed with prejudice approximately 650 cases on preemption grounds. Plaintiffs in approximately 515 of those cases appealed that decision to the U.S. Court of Appeals for the Third Circuit (Third Circuit). In March 2017, the Third Circuit issued a decision reversing the Femur Fracture MDL court’s preemption ruling and remanding the appealed cases back to the Femur Fracture MDL court. Merck filed a petition for a writ of certiorari to the U.S. Supreme Court in August 2017 seeking review of the Third Circuit’s decision. In December 2017, the Supreme Court invited the Solicitor General to file a brief in the case expressing the views of the United States, and in May 2018, the Solicitor General submitted a brief stating that the Third Circuit’s decision was wrongly decided and recommended that the Supreme Court grant Merck’s cert petition. The Supreme Court granted Merck’s petition in June 2018, and an oral argument before the Supreme Court was held on January 7, 2019. On May 20, 2019, the Supreme Court issued its opinion and decided that the Third Circuit had incorrectly concluded that the issue of preemption should be resolved by a jury, and accordingly vacated the judgment of the Third Circuit and remanded the proceedings back to the Third Circuit to address the issue in a manner consistent with the Supreme Court’s opinion. The Third Circuit requested, by August 6, 2019, ten-page letters from each side addressing two specific issues central to the appeal. Both sides submitted their letter briefs and await a decision from the Third Circuit.

Accordingly, as of September 30, 2019, 11 cases were actively pending in the Femur Fracture MDL, and approximately 1,060 cases have either been dismissed without prejudice or administratively closed pending final resolution by the Third Circuit of the appeal of the Femur Fracture MDL court’s preemption order.

As of September 30, 2019, approximately 2,520 cases alleging Femur Fractures have been filed in New Jersey state court and are pending before Judge James Hyland in Middlesex County. The parties selected an initial group of cases to be reviewed

through fact discovery. Merck has continued to select additional cases to be reviewed through fact discovery from 2016 to the present.

As of September 30, 2019, approximately 275 cases alleging Femur Fractures have been filed and are pending in California state court. All of the Femur Fracture cases filed in California state court have been coordinated before a single judge in Orange County, California.

Additionally, there are four Femur Fracture cases pending in other state courts.

Discovery is presently stayed in the Femur Fracture MDL and in the state court cases in California. Merck intends to defend against these lawsuits.

Januvia/Janumet

As previously disclosed, Merck is a defendant in product liability lawsuits in the United States involving Januvia and/or Janumet. As of September 30, 2019, Merck is aware of approximately 1,370 product users alleging that Januvia and/or Janumet caused the development of pancreatic cancer and other injuries.

Most claims have been filed in multidistrict litigation before the U.S. District Court for the Southern District of California (MDL). Outside of the MDL, the majority of claims have been filed in coordinated proceedings before the Superior Court of California, County of Los Angeles (California State Court).

In November 2015, the MDL and California State Court-in separate opinions-granted summary judgment to defendants on grounds of federal preemption.

Plaintiffs appealed in both forums. In November 2017, the U.S. Court of Appeals for the Ninth Circuit vacated the judgment and remanded for further discovery, which is ongoing. In November 2018, the California state appellate court reversed and remanded on similar grounds. In March 2019, the parties in the MDL and the California coordinated proceeding agreed to coordinate and adopt a schedule for completing discovery on general causation and preemption issues and for renewing summary judgment and Daubert motions. Under the stipulated case management schedule, the filing deadline for Daubert and summary judgment motions will take place in May 2020.

As of September 30, 2019, six product users have claims pending against Merck in state courts other than California, including Illinois. In June 2017, the Illinois trial court denied Merck’s motion for summary judgment based on federal preemption. Merck appealed, and the Illinois appellate court affirmed in December 2018. Merck filed a petition for leave to appeal to the Illinois Supreme Court in February 2019. In April 2019, the Illinois Supreme Court stayed consideration of the pending petition to appeal until the United States Supreme Court issued its opinion in Merck Sharp & Dohme Corp. v. Albrecht (relating to the Fosamax matter discussed above). Merck filed the opinion in Albrecht with the Illinois Supreme Court in June 2019. The petition for leave to appeal was decided on September 25, 2019, in which the Illinois Supreme Court directed the intermediate appellate court to reconsider its earlier ruling.

In addition to the claims noted above, the Company has agreed to toll the statute of limitations for approximately 50 additional claims. The Company intends to continue defending against these lawsuits.

Governmental Proceedings

As previously disclosed, in July 2017, Merck received a subpoena from the California Department of Insurance (DOI) pursuant to an investigation of whether, prior to Merck’s acquisition of the company, Cubist Pharmaceuticals unlawfully induced the presentation of false claims for Cubicin to private insurers under the California Insurance Code False Claims Act. By letter dated August 12, 2019, the DOI advised Merck that it was withdrawing the subpoena and closing its investigation.

As previously disclosed, the Company’s subsidiaries in China have, in the past, received and may continue to receive inquiries regarding their operations from various Chinese governmental agencies. Some of these inquiries may be related to matters involving other multinational pharmaceutical companies, as well as Chinese entities doing business with such companies. The Company’s policy is to cooperate with these authorities and to provide responses as appropriate.

As previously disclosed, from time to time, the Company receives inquiries and is the subject of preliminary investigation activities from competition and other governmental authorities in markets outside the United States. These authorities may include regulators, administrative authorities, and law enforcement and other similar officials, and these preliminary investigation activities may include site visits, formal or informal requests or demands for documents or materials, inquiries or interviews and similar matters. Certain of these preliminary inquiries or activities may lead to the commencement of formal proceedings. Should those proceedings be determined adversely to the Company, monetary fines and/or remedial undertakings may be required.

Commercial and Other Litigation

Zetia Antitrust Litigation

As previously disclosed, Merck, MSD, Schering Corporation and MSP Singapore Company LLC (collectively, the Merck Defendants) are defendants in putative class action and opt-out lawsuits filed in 2018 on behalf of direct and indirect purchasers of Zetia alleging violations of federal and state antitrust laws, as well as other state statutory and common law causes of action. The cases have been consolidated for pretrial purposes in a federal multidistrict litigation before Judge Rebecca Beach Smith in the Eastern District of Virginia. In December 2018, the court denied the Merck Defendants’ motions to dismiss or stay the direct purchaser putative class actions pending bilateral arbitration. On August 9, 2019, the district court adopted in full the report and recommendation of the magistrate judge, thereby granting in part and denying in part Merck Defendants’ motions to dismiss on non-arbitration issues. In addition, on June 27, 2019, the representatives of the putative direct purchaser class filed an amended complaint, and on August 1, 2019, retailer opt-out plaintiffs filed an amended complaint. The Merck Defendants moved to dismiss the new allegations in both complaints. On October 15, 2019, the magistrate judge issued a report and recommendation recommending that the district judge grant the motions in their entirety. Trial is currently scheduled to begin on October 14, 2020.

Rotavirus Vaccines Antitrust Litigation

As previously disclosed, MSD is a defendant in putative class action lawsuits filed in 2018 on behalf of direct purchasers of RotaTeq, alleging violations of federal antitrust laws. The cases were consolidated in the Eastern District of Pennsylvania. On January 23, 2019, the court denied MSD’s motions to compel arbitration and to dismiss the consolidated complaint. On February 19, 2019, MSD appealed the court’s order on arbitration to the Third Circuit. On October 28, 2019, the Third Circuit vacated the district court’s order and remanded for limited discovery on the issue of arbitrability, after which MSD may file a renewed motion to compel arbitration.

Patent Litigation

From time to time, generic manufacturers of pharmaceutical products file abbreviated New Drug Applications (NDAs) with the U.S. Food and Drug Administration (FDA) seeking to market generic forms of the Company’s products prior to the expiration of relevant patents owned by the Company. To protect its patent rights, the Company may file patent infringement lawsuits against such generic companies. Similar lawsuits defending the Company’s patent rights may exist in other countries. The Company intends to vigorously defend its patents, which it believes are valid, against infringement by companies attempting to market products prior to the expiration of such patents. As with any litigation, there can be no assurance of the outcomes, which, if adverse, could result in significantly shortened periods of exclusivity for these products and, with respect to products acquired through acquisitions, potentially significant intangible asset impairment charges.

Januvia, Janumet, Janumet XR — In February 2019, Par Pharmaceutical, Inc. (Par Pharmaceutical) filed suit against the Company in the U.S. District Court for the District of New Jersey, seeking a declaratory judgment of invalidity of a patent owned by the Company covering certain salt and polymorphic forms of sitagliptin that expires in 2026. In response, the Company filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware against Par Pharmaceutical and additional companies that also indicated an intent to market generic versions of Januvia, Janumet, and Janumet XR following expiration of key patent protection in 2022, but prior to the expiration of the later-granted patent owned by the Company covering certain salt and polymorphic forms of sitagliptin that expires in 2026, and a later granted patent owned by the Company covering the Janumet formulation which expires in 2028. Par Pharmaceutical dismissed its case in the U.S. District Court for the District of New Jersey against the Company and will litigate the action in the U.S. District Court for the District of Delaware. The Company filed a patent infringement lawsuit against Mylan Pharmaceuticals Inc. and Mylan Inc. (Mylan) in the Northern District of West Virginia. The Judicial Panel of Multidistrict Litigation entered an order transferring the Company’s lawsuit against Mylan to the U.S. District Court for the District of Delaware for coordinated and consolidated pretrial proceedings with the other cases pending in that district. The U.S. District Court for the District of Delaware has scheduled the lawsuits for a single 3-day trial on invalidity issues in October 2021. The Court will schedule separate 1-day trials on infringement issues if necessary. In October 2019, Mylan filed a petition for Inter Partes Review (IPR) at the United States Patent and Trademark Office (USPTO) seeking invalidity of the 2026 patent. The USPTO has six months from filing to determine whether it will institute the requested IPR proceeding.

Other Litigation

There are various other pending legal proceedings involving the Company, principally product liability and intellectual property lawsuits. While it is not feasible to predict the outcome of such proceedings, in the opinion of the Company, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to the Company’s financial position, results of operations or cash flows either individually or in the aggregate.

Legal Defense Reserves

Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable. Some of the significant factors considered in the review of these legal defense reserves are as follows: the actual costs incurred by the Company; the development of the Company’s legal defense strategy and structure in light of the scope of its litigation; the number of cases being brought against the Company; the costs and outcomes of completed trials and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the associated litigation. The amount of legal defense reserves as of September 30, 2019 and December 31, 2018 of approximately $260 million and $245 million, respectively, represents the Company’s best estimate of the minimum amount of defense costs to be incurred in connection with its outstanding litigation; however, events such as additional trials and other events that could arise in the course of its litigation could affect the ultimate amount of legal defense costs to be incurred by the Company. The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to increase the reserves at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.

XML

Acquisitions, Divestitures, Research Collaborations and License Agreements

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Acquisitions, Divestitures, Research Collaborations and License Agreements

Acquisitions, Divestitures, Research Collaborations and License Agreements

The Company continues to pursue acquisitions and the establishment of external alliances such as research collaborations and licensing agreements to complement its internal research capabilities. These arrangements often include upfront payments, as well as expense reimbursements or payments to the third party, and milestone, royalty or profit share arrangements, contingent upon the occurrence of certain future events linked to the success of the asset in development. The Company also reviews its marketed products and pipeline to examine candidates which may provide more value through out-licensing and, as part of its portfolio assessment process, may also divest certain assets. Pro forma financial information for acquired businesses is not presented if the historical financial results of the acquired entity are not significant when compared with the Company’s financial results.

In July 2019, Merck acquired Peloton Therapeutics, Inc. (Peloton), a clinical-stage biopharmaceutical company focused on the development of novel small molecule therapeutic candidates targeting hypoxia-inducible factor-2α (HIF-2α) for the treatment of patients with cancer and other non-oncology diseases. Peloton’s lead candidate, MK-6482 (formerly PT2977), is a novel oral

HIF-2α inhibitor in late-stage development for renal cell carcinoma. Merck made an upfront payment of $1.2 billion in cash; additionally, former Peloton shareholders will be eligible to receive $50 million upon U.S. regulatory approval, $50 million upon first commercial sale in the United States, and up to $1.05 billion of sales-based milestones. The transaction was accounted for as an acquisition of an asset. Merck recorded cash of $157 million, deferred tax liabilities of $64 million, and other net liabilities of $6 million at the acquisition date and Research and development expenses of $982 million in the third quarter and first nine months of 2019 related to the transaction.

On April 1, 2019, Merck acquired Antelliq Corporation (Antelliq), a leader in digital animal identification, traceability and monitoring solutions. These solutions help veterinarians, farmers and pet owners gather critical data to improve management, health and well-being of livestock and pets. Merck paid $2.3 billion to acquire all outstanding shares of Antelliq and spent $1.3 billion to repay Antelliq’s debt. The transaction was accounted for as an acquisition of a business.

The estimated fair value of assets acquired and liabilities assumed from Antelliq is as follows:

($ in millions)	April 1, 2019
Cash and cash equivalents	$	31
Accounts receivable	73
Inventories	95
Property, plant and equipment	62
Identifiable intangible assets (useful lives ranging from 18-24 years) (1)	2,689
Deferred income tax liabilities	(563		)
Other assets and liabilities, net	(81		)
Total identifiable net assets	2,306
Goodwill (2)	1,345
Consideration transferred	$	3,651

⁽¹⁾  The estimated fair values of identifiable intangible assets relate primarily to trade names and were determined using an income approach. The future net cash flows were discounted to present value utilizing a discount rate of 11.5%. Actual cash flows are likely to be different than those assumed.

⁽²⁾  The goodwill recognized is largely attributable to anticipated synergies expected to arise after the acquisition and was allocated to the Animal Health segment. The goodwill is not deductible for tax purposes.

The Company’s results for the first nine months of 2019 include five months of activity for Antelliq. The Company incurred $47 million of transaction costs directly related to the acquisition of Antelliq, consisting largely of advisory fees, which are reflected in Selling, general and administrative expenses in the first nine months of 2019.

Also in April 2019, Merck acquired Immune Design, a late-stage immunotherapy company employing next-generation in vivo approaches to enable the body’s immune system to fight disease, for $301 million in cash. The transaction was accounted for as an acquisition of a business. Merck recognized intangible assets for in-process research and development (IPR&D) of $156 million, cash of $83 million and other net assets of $31 million. The excess of the consideration transferred over the fair value of net assets acquired of $31 million was recorded as goodwill that was allocated to the Pharmaceutical segment and is not deductible for tax purposes. The fair values of the identifiable intangible assets related to IPR&D were determined using an income approach. Actual cash flows are likely to be different than those assumed.

In the third quarter of 2018, the Company recorded an aggregate charge of $420 million within Cost of sales in conjunction with the termination of a collaboration agreement entered into in 2014 with Samsung Bioepis Co., Ltd. (Samsung) for insulin glargine. The charge reflects a termination payment of $155 million, which represents the reimbursement of all fees previously paid by Samsung to Merck under the agreement, plus interest, as well as the release of Merck’s ongoing obligations under the agreement. The charge also included fixed asset abandonment charges of $137 million, inventory write-offs of $122 million, as well as other related costs of $6 million. The termination of this agreement has no impact on the Company’s other collaboration with Samsung.

In June 2018, Merck acquired Viralytics Limited (Viralytics), an Australian publicly traded company focused on oncolytic immunotherapy treatments for a range of cancers, for AUD 502 million ($378 million). The transaction provided Merck with full rights to V937 (formerly CVA21), Viralytics’s investigational oncolytic immunotherapy. V937 is based on Viralytics’s proprietary formulation of an oncolytic virus (Coxsackievirus Type A21) that has been shown to preferentially infect and kill cancer cells. V937 is currently being evaluated in multiple Phase 1 and Phase 2 clinical trials, both as an intratumoral and intravenous agent, including in combination with Keytruda. Under a previous agreement between Merck and Viralytics, a study is investigating the use of the Keytruda and V937 combination in melanoma, prostate, lung and bladder cancers. The transaction was accounted for as an acquisition of an asset. Merck recorded net assets of $34 million (primarily cash) at the acquisition date and Research and development expenses of $344 million in the first nine months of 2018 related to the transaction. There are no future contingent payments associated with the acquisition.

In March 2018, Merck and Eisai Co., Ltd. (Eisai) entered into a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima, an orally available tyrosine kinase inhibitor discovered by Eisai (see Note 3).

XML

Financial Instruments

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments

Financial Instruments

Derivative Instruments and Hedging Activities

The Company manages the impact of foreign exchange rate movements and interest rate movements on its earnings, cash flows and fair values of assets and liabilities through operational means and through the use of various financial instruments, including derivative instruments.

A significant portion of the Company’s revenues and earnings in foreign affiliates is exposed to changes in foreign exchange rates. The objectives and accounting related to the Company’s foreign currency risk management program, as well as its interest rate risk management activities are discussed below.

Foreign Currency Risk Management

The Company has established revenue hedging, balance sheet risk management and net investment hedging programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by volatility in foreign exchange rates.

The objective of the revenue hedging program is to reduce the variability caused by changes in foreign exchange rates that would affect the U.S. dollar value of future cash flows derived from foreign currency denominated sales, primarily the euro, Japanese yen and Chinese renminbi. To achieve this objective, the Company will hedge a portion of its forecasted foreign currency denominated third-party and intercompany distributor entity sales (forecasted sales) that are expected to occur over its planning cycle, typically no more than two years into the future. The Company will layer in hedges over time, increasing the portion of forecasted sales hedged as it gets closer to the expected date of the forecasted sales. The portion of forecasted sales hedged is based on assessments of cost-benefit profiles that consider natural offsetting exposures, revenue and exchange rate volatilities and correlations, and the cost of hedging instruments. The Company manages its anticipated transaction exposure principally with purchased local currency put options, forward contracts and purchased collar options.

The fair values of these derivative contracts are recorded as either assets (gain positions) or liabilities (loss positions) in the Condensed Consolidated Balance Sheet. Changes in the fair value of derivative contracts are recorded each period in either current earnings or Other comprehensive income (OCI), depending on whether the derivative is designated as part of a hedge transaction and, if so, the type of hedge transaction. For derivatives that are designated as cash flow hedges, the unrealized gains or losses on these contracts is recorded in Accumulated other comprehensive income (AOCI) and reclassified into Sales when the hedged anticipated revenue is recognized. For those derivatives which are not designated as cash flow hedges, but serve as economic hedges of forecasted sales, unrealized gains or losses are recorded in Sales each period. The cash flows from both designated and non-designated contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows. The Company does not enter into derivatives for trading or speculative purposes.

The Company manages operating activities and net asset positions at each local subsidiary in order to mitigate the effects of exchange on monetary assets and liabilities. The Company also uses a balance sheet risk management program to mitigate the exposure of net monetary assets that are denominated in a currency other than a subsidiary’s functional currency from the effects of volatility in foreign exchange. In these instances, Merck principally utilizes forward exchange contracts to offset the effects of exchange on exposures denominated in developed country currencies, primarily the euro and Japanese yen. For exposures in developing country currencies, the Company will enter into forward contracts to partially offset the effects of exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange rate and the cost of the hedging instrument. The cash flows from these contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows.

Monetary assets and liabilities denominated in a currency other than the functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in spot rates reported in Other (income) expense, net. The forward contracts are not designated as hedges and are marked to market through Other (income) expense, net. Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the remeasured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. These differences are not significant due to the short-term nature of the contracts, which typically have average maturities at inception of less than one year.

The Company also uses forward exchange contracts to hedge its net investment in foreign operations against movements in exchange rates. The forward contracts are designated as hedges of the net investment in a foreign operation. The Company hedges a portion of the net investment in certain of its foreign operations. The unrealized gains or losses on these contracts are recorded in foreign currency translation adjustment within OCI and remain in AOCI until either the sale or complete or substantially complete liquidation of the subsidiary. The Company excludes certain portions of the change in fair value of its derivative instruments from the assessment of hedge effectiveness (excluded component). Changes in fair value of the excluded components are recognized in OCI. The Company recognizes in earnings the initial value of the excluded component on a straight-line basis over the life of the derivative instrument, rather than using the mark-to-market approach. The cash flows from these contracts are reported as investing activities in the Condensed Consolidated Statement of Cash Flows.

Foreign exchange risk is also managed through the use of foreign currency debt. The Company’s senior unsecured euro-denominated notes have been designated as, and are effective as, economic hedges of the net investment in a foreign operation. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in foreign currency translation adjustment within OCI.

The effects of the Company’s net investment hedges on OCI and the Consolidated Statement of Income are shown below:

	Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income (1)												Amount of Pretax (Gain) Loss Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2019			2018			2019			2018			2019			2018			2019			2018
Net Investment Hedging Relationships
Foreign exchange contracts	$	1		$	(10	)	$	8		$	(24	)	$	(8	)	$	(4	)	$	(23	)	$	(7	)
Euro-denominated notes	(150		)	38			(152		)	(54		)	—			—			—			—

⁽¹⁾ No amounts were reclassified from AOCI into income related to the sale of a subsidiary.

Interest Rate Risk Management

The Company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rate changes and to reduce its overall cost of borrowing. The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal capital at risk.

At September 30, 2019, the Company was a party to 19 pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes in which the notional amounts match the amount of the hedged fixed-rate notes as detailed in the table below.

	September 30, 2019
($ in millions)	Par Value of Debt		Number of Interest Rate Swaps Held	Total Swap Notional Amount
1.85% notes due 2020	$	1,250	5	$	1,250
3.875% notes due 2021	1,150		5	1,150
2.40% notes due 2022	1,000		4	1,000
2.35% notes due 2022	1,250		5	1,250

The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in the benchmark London Interbank Offered Rate (LIBOR) swap rate. The fair value changes in the notes attributable to changes in the LIBOR swap rate are recorded in interest expense along with the offsetting fair value changes in the swap contracts. The cash flows from these contracts are reported as operating activities in the Condensed Consolidated Statement of Cash Flows.

The table below presents the location of amounts recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:

	Carrying Amount of Hedged Liabilities				Cumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount
($ in millions)	September 30, 2019		December 31, 2018		September 30, 2019			December 31, 2018
Balance Sheet Line Item in which Hedged Item is Included
Loans payable and current portion of long-term debt	$	1,247	$	—	$	(3	)	$	—
Long-Term Debt	3,416		4,560		22			(82		)

Presented in the table below is the fair value of derivatives on a gross basis segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments:

		September 30, 2019						December 31, 2018
		Fair Value of Derivative				U.S. Dollar Notional		Fair Value of Derivative				U.S. Dollar Notional
($ in millions)	Balance Sheet Caption	Asset		Liability				Asset		Liability
Derivatives Designated as Hedging Instruments
Interest rate swap contracts	Other Assets	$	22	$	—	$	3,400	$	—	$	—	$	—
Interest rate swap contracts	Accrued and other current liabilities	—		3		1,250		—		—		—
Interest rate swap contracts	Other Noncurrent Liabilities	—		—		—		—		81		4,650
Foreign exchange contracts	Other current assets	252		—		7,144		263		—		6,222
Foreign exchange contracts	Other Assets	56		—		2,073		75		—		2,655
Foreign exchange contracts	Accrued and other current liabilities	—		6		775		—		7		774
Foreign exchange contracts	Other Noncurrent Liabilities	—		1		9		—		1		89
		$	330	$	10	$	14,651	$	338	$	89	$	14,390
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts	Other current assets	$	153	$	—	$	6,802	$	116	$	—	$	5,430
Foreign exchange contracts	Accrued and other current liabilities	—		100		6,906		—		71		9,922
		$	153	$	100	$	13,708	$	116	$	71	$	15,352
		$	483	$	110	$	28,359	$	454	$	160	$	29,742

As noted above, the Company records its derivatives on a gross basis in the Condensed Consolidated Balance Sheet. The Company has master netting agreements with several of its financial institution counterparties (see Concentrations of Credit Risk below). The following table provides information on the Company’s derivative positions subject to these master netting arrangements as if they were presented on a net basis, allowing for the right of offset by counterparty and cash collateral exchanged per the master agreements and related credit support annexes:

	September 30, 2019						December 31, 2018
($ in millions)	Asset			Liability			Asset			Liability
Gross amounts recognized in the condensed consolidated balance sheet	$	483		$	110		$	454		$	160
Gross amounts subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet	(73		)	(73		)	(121		)	(121		)
Cash collateral received	(133		)	—			(107		)	—
Net amounts	$	277		$	37		$	226		$	39

The table below provides information regarding the location and amount of pretax (gains) losses of derivatives designated in fair value or cash flow hedging relationships:

	Sales					Other (income) expense, net (1)						Other comprehensive income (loss)						Sales					Other (income) expense, net (1)						Other comprehensive income (loss)
	Three Months Ended September 30,					Three Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,					Nine Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2019		2018			2019			2018			2019			2018			2019		2018			2019			2018			2019			2018
Financial Statement Line Items in which Effects of Fair Value or Cash Flow Hedges are Recorded	$	12,397	$	10,794		$	35		$	(172	)	$	(28	)	$	(29	)	$	34,972	$	31,296		$	362		$	(512	)	$	155		$	33
(Gain) loss on fair value hedging relationships
Interest rate swap contracts
Hedged items	—		—			13			(9		)	—			—			—		—			101			(86		)	—			—
Derivatives designated as hedging instruments	—		—			(6		)	15			—			—			—		—			(74		)	100			—			—
Impact of cash flow hedging relationships
Foreign exchange contracts
Amount of income (loss) recognized in OCI on derivatives	—		—			—			—			186			29			—		—			—			—			183			113
Increase (decrease) in Sales as a result of AOCI reclassifications	70		(6		)	—			—			(70		)	6			189		(172		)	—			—			(189		)	172
Interest rate contracts
Amount of gain recognized in Other (income) expense, net on derivatives	—		—			(1		)	(1		)	—			—			—		—			(3		)	(3		)	—			—
Amount of loss recognized in OCI on derivatives	—		—			—			—			(1		)	(1		)	—		—			—			—			(6		)	(3		)

⁽¹⁾ Interest expense is a component of Other (income) expense, net.

The table below provides information regarding the income statement effects of derivatives not designated as hedging instruments:

		Amount of Derivative Pretax (Gain) Loss Recognized in Income
		Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	Income Statement Caption	2019			2018			2019			2018
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts (1)	Other (income) expense, net	$	(8	)	$	(57	)	$	112		$	(224	)
Foreign exchange contracts (2)	Sales	(11		)	—			(7		)	(5		)

⁽¹⁾ These derivative contracts mitigate changes in the value of remeasured foreign currency denominated monetary assets and liabilities attributable to changes in foreign currency exchange rates.

⁽²⁾ These derivative contracts serve as economic hedges of forecasted transactions.

At September 30, 2019, the Company estimates $174 million of pretax net unrealized gains on derivatives maturing within the next 12 months that hedge foreign currency denominated sales over that same period will be reclassified from AOCI to Sales. The amount ultimately reclassified to Sales may differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual exchange rates at maturity.

Investments in Debt and Equity Securities

Information on investments in debt and equity securities is as follows:

	September 30, 2019								December 31, 2018
	Amortized Cost		Gross Unrealized				Fair Value		Amortized Cost		Gross Unrealized					Fair Value
($ in millions)			Gains		Losses						Gains		Losses
Corporate notes and bonds	$	1,260	$	24	$	—	$	1,284	$	4,985	$	3	$	(68	)	$	4,920
Asset-backed securities	434		3		—		437		1,285		1		(11		)	1,275
U.S. government and agency securities	358		4		—		362		895		2		(5		)	892
Foreign government bonds	32		—		—		32		167		—		(1		)	166
Mortgage-backed securities	—		—		—		—		8		—		—			8
Total debt securities	$	2,084	$	31	$	—	$	2,115	$	7,340	$	6	$	(85	)	$	7,261
Publicly traded equity securities (1)							691									456
Total debt and publicly traded equity securities							$	2,806								$	7,717

⁽¹⁾ Unrealized net losses (gains) recognized in Other (income) expense, net on equity securities still held at September 30, 2019 were $25 million and $(10) million, for the third quarter of 2019 and 2018, respectively, and were $(41) million and $(60) million for the first nine months of 2019 and 2018, respectively.

At September 30, 2019, the Company also had $393 million of equity investments without readily determinable fair values included in Other Assets. During the first nine months of 2019, the Company recognized unrealized gains of $4 million on certain of these equity investments recorded in Other (income) expense, net based on favorable observable price changes from transactions involving similar investments of the same investee. In addition, during the first nine months of 2019, the Company recognized unrealized losses of $12 million in Other (income) expense, net related to certain of these investments based on unfavorable observable price changes. Since January 1, 2018, cumulative unrealized gains and cumulative unrealized losses based on observable prices changes for investments in equity investments without readily determinable fair values were $172 million and $21 million, respectively.

Available-for-sale debt securities included in Short-term investments totaled $129 million at September 30, 2019. Of the remaining debt securities, $1.8 billion mature within five years. At September 30, 2019 and December 31, 2018, there were no debt securities pledged as collateral.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value with Level 1 having the highest priority and Level 3 having the lowest: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities, Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities, Level 3 - Unobservable inputs that are supported by little or no market activity. Level 3 assets or liabilities are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant unobservable inputs, as well as assets or liabilities for which the determination of fair value requires significant judgment or estimation. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements Using								Fair Value Measurements Using
	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
($ in millions)	September 30, 2019								December 31, 2018
Assets
Investments
Corporate notes and bonds	$	—	$	1,284	$	—	$	1,284	$	—	$	4,835	$	—	$	4,835
Asset-backed securities (1)	—		437		—		437		—		1,253		—		1,253
U.S. government and agency securities	—		301		—		301		—		731		—		731
Foreign government bonds	—		32		—		32		—		166		—		166
Publicly traded equity securities	206		—		—		206		147		—		—		147
	206		2,054		—		2,260		147		6,985		—		7,132
Other assets (2)
U.S. government and agency securities	61		—		—		61		55		106		—		161
Corporate notes and bonds	—		—		—		—		—		85		—		85
Mortgage-backed securities	—		—		—		—		—		8		—		8
Asset-backed securities (1)	—		—		—		—		—		22		—		22
Publicly traded equity securities	485		—		—		485		309		—		—		309
	546		—		—		546		364		221		—		585
Derivative assets (3)
Forward exchange contracts	—		259		—		259		—		241		—		241
Purchased currency options	—		202		—		202		—		213		—		213
Interest rate swaps	—		22		—		22		—		—		—		—
	—		483		—		483		—		454		—		454
Total assets	$	752	$	2,537	$	—	$	3,289	$	511	$	7,660	$	—	$	8,171
Liabilities
Other liabilities
Contingent consideration	$	—	$	—	$	755	$	755	$	—	$	—	$	788	$	788
Derivative liabilities (3)
Forward exchange contracts	—		105		—		105		—		74		—		74
Interest rate swaps	—		3		—		3		—		81		—		81
Written currency options	—		2		—		2		—		5		—		5
	—		110		—		110		—		160		—		160
Total liabilities	$	—	$	110	$	755	$	865	$	—	$	160	$	788	$	948

⁽¹⁾  Primarily all of the asset-backed securities are highly-rated (Standard & Poor’s rating of AAA and Moody’s Investors Service rating of Aaa), secured primarily by auto loan, credit card and student loan receivables, with weighted-average lives of primarily 5 years or less.

⁽²⁾  Investments included in other assets are restricted as to use, primarily for the payment of benefits under employee benefit plans.

⁽³⁾  The fair value determination of derivatives includes the impact of the credit risk of counterparties to the derivatives and the Company’s own credit risk, the effects of which were not significant.

There were no transfers between Level 1 and Level 2 during the first nine months of 2019. As of September 30, 2019, Cash and cash equivalents of $7.9 billion included $7.1 billion of cash equivalents (which would be considered Level 2 in the fair value hierarchy).

Contingent Consideration

Summarized information about the changes in liabilities for contingent consideration is as follows:

	Nine Months Ended September 30,
($ in millions)	2019			2018
Fair value January 1	$	788		$	935
Changes in estimated fair value (1)	52			144
Additions	—			8
Payments	(85		)	(235		)
Fair value September 30 (2)	$	755		$	852

⁽¹⁾ Recorded in Cost of sales, Research and development expenses, and Other (income) expense, net. Includes cumulative translation adjustments.

⁽²⁾ Balance at September 30, 2019 includes $112 million recorded as a current liability for amounts expected to be paid within the next 12 months.

The payments of contingent consideration in both periods include payments related to liabilities recorded in connection with the 2016 termination of the Sanofi-Pasteur MSD joint venture. The payments of contingent consideration in the first nine months of 2018 also include $175 million related to the achievement of a clinical development milestone for MK-7264 (gefapixant), a program obtained in connection with the acquisition of Afferent Pharmaceuticals.

Other Fair Value Measurements

Some of the Company’s financial instruments, such as cash and cash equivalents, receivables and payables, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.

The estimated fair value of loans payable and long-term debt (including current portion) at September 30, 2019, was $28.7 billion compared with a carrying value of $26.1 billion and at December 31, 2018, was $25.6 billion compared with a carrying value of $25.1 billion. Fair value was estimated using recent observable market prices and would be considered Level 2 in the fair value hierarchy.

Concentrations of Credit Risk

On an ongoing basis, the Company monitors concentrations of credit risk associated with corporate and government issuers of securities and financial institutions with which it conducts business. Credit exposure limits are established to limit a concentration with any single issuer or institution. Cash and investments are placed in instruments that meet high credit quality standards as specified in the Company’s investment policy guidelines.

The majority of the Company’s accounts receivable arise from product sales in the United States and Europe and are primarily due from drug wholesalers and retailers, hospitals, government agencies, managed health care providers and pharmacy benefit managers. The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in their credit profile. The Company also continues to monitor global economic conditions, including the volatility associated with international sovereign economies, and associated impacts on the financial markets and its business. The Company does not expect to have write-offs or adjustments to accounts receivable which would have a material adverse effect on its financial position, liquidity or results of operations.

Derivative financial instruments are executed under International Swaps and Derivatives Association master agreements. The master agreements with several of the Company’s financial institution counterparties also include credit support annexes. These annexes contain provisions that require collateral to be exchanged depending on the value of the derivative assets and liabilities, the Company’s credit rating, and the credit rating of the counterparty. Cash received by the Company from various counterparties was $133 million and $107 million at September 30, 2019 and December 31, 2018, respectively. The obligation to return such collateral is recorded in Accrued and other current liabilities. No cash collateral was advanced by the Company to counterparties as of September 30, 2019 or December 31, 2018.

XML

CONDENSED CONSOLIDATED BALANCE SHEET (Parenthetical) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 116	$ 119
Inventories classified in Other assets	1,515	1,417
Accumulated depreciation	$ 17,281	$ 16,324
Common stock, par value (in dollars per share)	$ 0.50	$ 0.50
Common stock, shares authorized (shares)	6,500,000,000	6,500,000,000
Common stock, shares issued (in shares)	3,577,103,522	3,577,103,522
Treasury stock, shares (shares)	1,026,214,892	984,543,979

XML

Cover Page - shares	9 Months Ended
	Sep. 30, 2019	Oct. 31, 2019
Entity Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2019
Document Transition Report	false
Entity File Number	1-6571
Entity Registrant Name	Merck & Co., Inc.
Entity Incorporation, State or Country Code	NJ
Entity Tax Identification Number	22-1918501
Entity Address, Address Line One	2000 Galloping Hill Road
Entity Address, City or Town	Kenilworth
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	07033
City Area Code	(908)
Local Phone Number	740-4000
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		2,545,984,142
Amendment Flag	false
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Entity Central Index Key	0000310158
Current Fiscal Year End Date	--12-31
Common Stock
Entity Information [Line Items]
Title of 12(b) Security	Common Stock ($0.50 par value)
Trading Symbol	MRK
Security Exchange Name	NYSE
1.125% Notes due 2021
Entity Information [Line Items]
Title of 12(b) Security	1.125% Notes due 2021
Trading Symbol	MRK/21
Security Exchange Name	NYSE
0.500% Notes due 2024
Entity Information [Line Items]
Title of 12(b) Security	0.500% Notes due 2024
Trading Symbol	MRK 24
Security Exchange Name	NYSE
1.875% Notes due 2026
Entity Information [Line Items]
Title of 12(b) Security	1.875% Notes due 2026
Trading Symbol	MRK/26
Security Exchange Name	NYSE
2.500% Notes due 2034
Entity Information [Line Items]
Title of 12(b) Security	2.500% Notes due 2034
Trading Symbol	MRK/34
Security Exchange Name	NYSE
1.375% Notes due 2036
Entity Information [Line Items]
Title of 12(b) Security	1.375% Notes due 2036
Trading Symbol	MRK 36A
Security Exchange Name	NYSE

XML

Inventories (Tables)

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Schedule of Inventories

Inventories consisted of:

($ in millions)	September 30, 2019			December 31, 2018
Finished goods	$	1,698		$	1,658
Raw materials and work in process	5,526			5,004
Supplies	213			194
Total (approximates current cost)	7,437			6,856
(Decrease) increase to LIFO costs	(67		)	1
	$	7,370		$	6,857
Recognized as:
Inventories	$	5,855		$	5,440
Other assets	1,515			1,417

XML

Pension and Other Postretirement Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2019

Pension Plans

Defined Benefit Plan Disclosure [Line Items]

Components of net cost of defined benefit plans

The Company has defined benefit pension plans covering eligible employees in the United States and in certain of its international subsidiaries. The net periodic benefit cost of such plans consisted of the following components: 

	Three Months Ended   September 30,												Nine Months Ended   September 30,
	2019						2018						2019						2018
($ in millions)	U.S.			International			U.S.			International			U.S.			International			U.S.			International
Service cost	$	76		$	58		$	77		$	56		$	221		$	178		$	245		$	181
Interest cost	115			44			109			43			343			133			324			134
Expected return on plan assets	(202		)	(106		)	(209		)	(106		)	(613		)	(320		)	(634		)	(326		)
Amortization of unrecognized prior service credit	(12		)	(3		)	(12		)	(3		)	(37		)	(9		)	(37		)	(10		)
Net loss amortization	43			16			63			21			113			47			174			64
Termination benefits	3			—			1			—			7			1			18			—
Curtailments	5			—			3			—			6			—			7			(1		)
Settlements	—			—			—			—			—			—			1			3
	$	28		$	9		$	32		$	11		$	40		$	30		$	98		$	45

Other Postretirement Benefit Plans

Defined Benefit Plan Disclosure [Line Items]

Components of net cost of defined benefit plans

The Company provides medical benefits, principally to its eligible U.S. retirees and similar benefits to their dependents, through its other postretirement benefit plans. The net credit of such plans consisted of the following components: 

	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Service cost	$	12		$	15		$	36		$	43
Interest cost	17			17			52			52
Expected return on plan assets	(18		)	(21		)	(54		)	(63		)
Amortization of unrecognized prior service credit	(20		)	(21		)	(59		)	(63		)
Net loss amortization	(3		)	—			(7		)	1
Termination benefits	1			—			1			2
Curtailments	(3		)	(1		)	(4		)	(7		)
	$	(14	)	$	(11	)	$	(35	)	$	(35	)

XML

Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Sales of Company's products

Sales of the Company’s products were as follows:

	Three Months Ended September 30,													Nine Months Ended September 30,
	2019							2018						2019						2018
($ in millions)	U.S.			Int’l		Total		U.S.		Int’l		Total		U.S.		Int’l		Total		U.S.		Int’l			Total
Pharmaceutical:
Oncology
Keytruda	$	1,743		$	1,327	$	3,070	$	1,109	$	780	$	1,889	$	4,525	$	3,448	$	7,973	$	2,906	$	2,114		$	5,020
Emend	42			56		98		71		52		123		173		163		336		239		157			396
Alliance revenue - Lynparza	71			53		123		33		15		49		186		126		313		88		37			125
Alliance revenue - Lenvima	65			44		109		30		13		43		169		112		280		49		29			78
Vaccines
Gardasil/Gardasil 9	761			558		1,320		740		308		1,048		1,579		1,464		3,044		1,422		894			2,317
ProQuad/M-M-R II/Varivax	482			141		623		429		96		525		1,325		469		1,794		1,097		246			1,343
Pneumovax 23	179			58		237		160		54		214		428		164		592		394		192			586
RotaTeq	102			78		180		134		57		191		360		203		564		384		156			540
Vaqta	36			26		62		36		30		66		103		65		167		95		72			167
Hospital Acute Care
Bridion	133			151		284		96		120		217		381		437		817		272		389			661
Noxafil	77			100		177		89		99		188		268		291		560		257		294			551
Cubicin	14			38		52		55		40		95		78		129		207		150		137			287
Primaxin	2			75		77		1		71		72		2		204		207		6		206			212
Invanz	(1		)	58		57		74		62		137		30		176		206		252		185			437
Cancidas	—			62		62		2		77		79		5		187		191		10		247			257
Immunology
Simponi	—			203		203		—		210		210		—		625		625		—		673			673
Remicade	—			101		101		—		135		135		—		322		322		—		459			459
Neuroscience
Belsomra	23			57		80		23		43		66		68		155		223		76		115			191
Virology
Isentress/Isentress HD	102			149		250		123		151		275		304		449		752		383		477			860
Zepatier	24			59		83		18		86		104		96		208		304		8		339			347
Cardiovascular
Zetia	5			142		147		9		157		165		11		432		443		34		662			696
Vytorin	5			52		57		—		92		92		11		219		231		11		402			414
Atozet	—			97		97		—		84		84		—		283		283		—		258			258
Adempas	—			107		107		—		94		94		—		302		302		—		238			238
Diabetes
Januvia	367			440		807		498		429		927		1,223		1,317		2,539		1,466		1,291			2,756
Janumet	129			375		503		225		339		563		462		1,105		1,567		625		1,067			1,693
Women’s Health
NuvaRing	202			39		241		193		41		234		593		107		700		550		135			686
Implanon/Nexplanon	136			62		199		133		53		186		421		160		581		375		160			535
Diversified Brands
Singulair	11			140		152		5		156		161		24		479		503		16		505			521
Cozaar/Hyzaar	6			110		116		4		99		103		16		313		329		18		330			348
Nasonex	4			55		58		7		64		71		2		224		226		8		266			274
Arcoxia	—			72		72		—		83		83		—		221		221		—		249			249
Follistim AQ	27			35		62		26		34		60		80		102		182		83		115			198
Other pharmaceutical (1)	385			842		1,229		326		786		1,109		1,142		2,492		3,634		932		2,557			3,486
Total Pharmaceutical segment sales	5,132			5,962		11,095		4,649		5,010		9,658		14,065		17,153		31,218		12,206		15,653			27,859
Animal Health:
Livestock	144			582		726		153		508		660		406		1,601		2,007		383		1,563			1,946
Companion Animals	193			203		396		153		207		361		560		704		1,264		541		689			1,230
Total Animal Health segment sales	337			785		1,122		306		715		1,021		966		2,305		3,271		924		2,252			3,176
Other segment sales (2)	46			—		46		55		—		55		133		1		133		194		1			195
Total segment sales	5,515			6,747		12,263		5,010		5,725		10,734		15,164		19,459		34,622		13,324		17,906			31,230
Other (3)	10			125		134		20		39		60		19		330		350		101		(35		)	66
	$	5,525		$	6,872	$	12,397	$	5,030	$	5,764	$	10,794	$	15,183	$	19,789	$	34,972	$	13,425	$	17,871		$	31,296

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

⁽¹⁾  Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.

⁽²⁾  Represents the non-reportable segments of Healthcare Services and Alliances.

⁽³⁾ 

Other is primarily comprised of miscellaneous corporate revenues, including revenue hedging activities, as well as third-party manufacturing sales.

Consolidated revenues by geographic area

Consolidated sales by geographic area where derived are as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2019		2018		2019		2018
United States	$	5,525	$	5,030	$	15,183	$	13,425
Europe, Middle East and Africa	3,189		2,884		9,452		9,218
Japan	919		761		2,639		2,353
China	914		512		2,423		1,556
Asia Pacific (other than Japan and China)	756		666		2,217		2,210
Latin America	671		622		1,889		1,748
Other	423		319		1,169		786
	$	12,397	$	10,794	$	34,972	$	31,296

Reconciliation of segment profits to income before taxes

A reconciliation of segment profits to Income before taxes is as follows:

	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Segment profits:
Pharmaceutical segment	$	7,747		$	6,621		$	21,437		$	18,535
Animal Health segment	423			409			1,243			1,273
Other segments	(2		)	5			(2		)	94
Total segment profits	8,168			7,035			22,678			19,902
Other profits (losses)	101			55			226			(35		)
Unallocated:
Interest income	61			92			225			257
Interest expense	(231		)	(190		)	(674		)	(569		)
Depreciation and amortization	(382		)	(324		)	(1,169		)	(1,006		)
Research and development	(3,110		)	(1,997		)	(7,045		)	(7,304		)
Amortization of purchase accounting adjustments	(329		)	(679		)	(1,105		)	(2,144		)
Restructuring costs	(232		)	(171		)	(444		)	(494		)
Charge related to termination of collaboration agreement with Samsung	—			(420		)	—			(420		)
Other unallocated, net	(1,699		)	(736		)	(4,019		)	(2,090		)
	$	2,347		$	2,665		$	8,673		$	6,097

XML

Financial Instruments - Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Assets
Investments	$ 2,115	$ 7,261
Publicly traded equity securities	691	456
Derivative assets	483	454
Liabilities
Contingent consideration	755	788	$ 852	$ 935
Derivative liabilities	110	160
Corporate notes and bonds
Assets
Investments	1,284	4,920
Asset-backed securities
Assets
Investments	$ 437	1,275
Liabilities
Primary weighted average life of collateral	5 years
U.S. government and agency securities
Assets
Investments	$ 362	892
Mortgage-backed securities
Assets
Investments	0	8
Foreign government bonds
Assets
Investments	32	166
Fair Value, Measurements, Recurring
Assets
Investments	2,260	7,132
Other assets	546	585
Derivative assets	483	454
Total assets	3,289	8,171
Liabilities
Contingent consideration	755	788
Derivative liabilities	110	160
Total liabilities	865	948
Fair Value, Measurements, Recurring | Foreign exchange contracts
Assets
Derivative assets	259	241
Liabilities
Derivative liabilities	105	74
Fair Value, Measurements, Recurring | Interest rate swap contracts
Assets
Derivative assets	22	0
Fair Value, Measurements, Recurring | Currency options
Assets
Derivative assets	202	213
Liabilities
Derivative liabilities	2	5
Fair Value, Measurements, Recurring | Interest rate swap contracts
Liabilities
Derivative liabilities	3	81
Fair Value, Measurements, Recurring | Quoted Prices In Active Markets for Identical Assets (Level 1)
Assets
Investments	206	147
Other assets	546	364
Derivative assets	0	0
Total assets	752	511
Liabilities
Contingent consideration	0	0
Derivative liabilities	0	0
Total liabilities	0	0
Fair Value, Measurements, Recurring | Quoted Prices In Active Markets for Identical Assets (Level 1) | Foreign exchange contracts
Assets
Derivative assets	0	0
Liabilities
Derivative liabilities	0	0
Fair Value, Measurements, Recurring | Quoted Prices In Active Markets for Identical Assets (Level 1) | Interest rate swap contracts
Assets
Derivative assets	0	0
Fair Value, Measurements, Recurring | Quoted Prices In Active Markets for Identical Assets (Level 1) | Currency options
Assets
Derivative assets	0	0
Liabilities
Derivative liabilities	0	0
Fair Value, Measurements, Recurring | Quoted Prices In Active Markets for Identical Assets (Level 1) | Interest rate swap contracts
Liabilities
Derivative liabilities	0	0
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Assets
Investments	2,054	6,985
Other assets	0	221
Derivative assets	483	454
Total assets	2,537	7,660
Liabilities
Contingent consideration	0	0
Derivative liabilities	110	160
Total liabilities	110	160
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2) | Foreign exchange contracts
Assets
Derivative assets	259	241
Liabilities
Derivative liabilities	105	74
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2) | Interest rate swap contracts
Assets
Derivative assets	22	0
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2) | Currency options
Assets
Derivative assets	202	213
Liabilities
Derivative liabilities	2	5
Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2) | Interest rate swap contracts
Liabilities
Derivative liabilities	3	81
Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Assets
Investments	0	0
Other assets	0	0
Derivative assets	0	0
Total assets	0	0
Liabilities
Contingent consideration	755	788
Derivative liabilities	0	0
Total liabilities	755	788
Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3) | Foreign exchange contracts
Assets
Derivative assets	0	0
Liabilities
Derivative liabilities	0	0
Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3) | Interest rate swap contracts
Assets
Derivative assets	0	0
Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3) | Currency options
Assets
Derivative assets	0	0
Liabilities
Derivative liabilities	0	0
Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3) | Interest rate swap contracts
Liabilities
Derivative liabilities	0	0
Fair Value, Measurements, Recurring | Corporate notes and bonds
Assets
Investments	1,284	4,835
Other assets	0	85
Fair Value, Measurements, Recurring | Corporate notes and bonds | Quoted Prices In Active Markets for Identical Assets (Level 1)
Assets
Investments	0	0
Other assets	0	0
Fair Value, Measurements, Recurring | Corporate notes and bonds | Significant Other Observable Inputs (Level 2)
Assets
Investments	1,284	4,835
Other assets	0	85
Fair Value, Measurements, Recurring | Corporate notes and bonds | Significant Unobservable Inputs (Level 3)
Assets
Investments	0	0
Other assets	0	0
Fair Value, Measurements, Recurring | Asset-backed securities
Assets
Investments	437	1,253
Other assets	0	22
Fair Value, Measurements, Recurring | Asset-backed securities | Quoted Prices In Active Markets for Identical Assets (Level 1)
Assets
Investments	0	0
Other assets	0	0
Fair Value, Measurements, Recurring | Asset-backed securities | Significant Other Observable Inputs (Level 2)
Assets
Investments	437	1,253
Other assets	0	22
Fair Value, Measurements, Recurring | Asset-backed securities | Significant Unobservable Inputs (Level 3)
Assets
Investments	0	0
Other assets	0	0
Fair Value, Measurements, Recurring | U.S. government and agency securities
Assets
Investments	301	731
Other assets	61	161
Fair Value, Measurements, Recurring | U.S. government and agency securities | Quoted Prices In Active Markets for Identical Assets (Level 1)
Assets
Investments	0	0
Other assets	61	55
Fair Value, Measurements, Recurring | U.S. government and agency securities | Significant Other Observable Inputs (Level 2)
Assets
Investments	301	731
Other assets	0	106
Fair Value, Measurements, Recurring | U.S. government and agency securities | Significant Unobservable Inputs (Level 3)
Assets
Investments	0	0
Other assets	0	0
Fair Value, Measurements, Recurring | Mortgage-backed securities
Assets
Other assets	0	8
Fair Value, Measurements, Recurring | Mortgage-backed securities | Quoted Prices In Active Markets for Identical Assets (Level 1)
Assets
Other assets	0	0
Fair Value, Measurements, Recurring | Mortgage-backed securities | Significant Other Observable Inputs (Level 2)
Assets
Other assets	0	8
Fair Value, Measurements, Recurring | Mortgage-backed securities | Significant Unobservable Inputs (Level 3)
Assets
Other assets	0	0
Fair Value, Measurements, Recurring | Foreign government bonds
Assets
Investments	32	166
Fair Value, Measurements, Recurring | Foreign government bonds | Quoted Prices In Active Markets for Identical Assets (Level 1)
Assets
Investments	0	0
Fair Value, Measurements, Recurring | Foreign government bonds | Significant Other Observable Inputs (Level 2)
Assets
Investments	32	166
Fair Value, Measurements, Recurring | Foreign government bonds | Significant Unobservable Inputs (Level 3)
Assets
Investments	0	0
Fair Value, Measurements, Recurring | Publicly traded equity securities
Assets
Publicly traded equity securities	206	147
Other assets	485	309
Fair Value, Measurements, Recurring | Publicly traded equity securities | Quoted Prices In Active Markets for Identical Assets (Level 1)
Assets
Publicly traded equity securities	206	147
Other assets	485	309
Fair Value, Measurements, Recurring | Publicly traded equity securities | Significant Other Observable Inputs (Level 2)
Assets
Publicly traded equity securities	0	0
Other assets	0	0
Fair Value, Measurements, Recurring | Publicly traded equity securities | Significant Unobservable Inputs (Level 3)
Assets
Publicly traded equity securities	0	0
Other assets	$ 0	$ 0

XML

Financial Instruments - Information on Derivative Positions Subject to Master Netting Arrangements as if they were Presented on a Net Basis (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Gross amounts recognized in the consolidated balance sheet, asset	$ 483,000,000	$ 454,000,000
Gross amount subject to offset in master netting arrangements not offset in the condensed balance sheet, asset	(73,000,000)	(121,000,000)
Cash collateral received, asset	(133,000,000)	(107,000,000)
Net amounts, asset	277,000,000	226,000,000
Gross amounts recognized in the consolidated balance sheet, liability	110,000,000	160,000,000
Gross amount subject to offset in master netting arrangements not offset in the condensed balance sheet, liability	(73,000,000)	(121,000,000)
Cash collateral received, liability	0	0
Net amounts, liability	$ 37,000,000	$ 39,000,000

XML

Financial Instruments - Effect of Net Investment Hedges (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Foreign exchange contracts
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income	$ 1	$ (10)	$ 8	$ (24)
Foreign exchange contracts | Other (income) expense, net
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Pretax (Gain) Loss Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing	(8)	(4)	(23)	(7)
Euro-denominated notes
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income	(150)	38	(152)	(54)
Euro-denominated notes | Other (income) expense, net
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Pretax (Gain) Loss Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing	$ 0	$ 0	$ 0	$ 0

XML

Pension and Other Postretirement Benefit Plans (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Other Postretirement Benefit Plans
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 12	$ 15	$ 36	$ 43
Interest cost	17	17	52	52
Expected return on plan assets	(18)	(21)	(54)	(63)
Amortization of unrecognized prior service credit	(20)	(21)	(59)	(63)
Net loss amortization	(3)	0	(7)	1
Termination benefits	1	0	1	2
Curtailments	(3)	(1)	(4)	(7)
Net periodic benefit cost	(14)	(11)	(35)	(35)
U.S. | Pension Plans
Defined Benefit Plan Disclosure [Line Items]
Service cost	76	77	221	245
Interest cost	115	109	343	324
Expected return on plan assets	(202)	(209)	(613)	(634)
Amortization of unrecognized prior service credit	(12)	(12)	(37)	(37)
Net loss amortization	43	63	113	174
Termination benefits	3	1	7	18
Curtailments	5	3	6	7
Settlements	0	0	0	1
Net periodic benefit cost	28	32	40	98
International | Pension Plans
Defined Benefit Plan Disclosure [Line Items]
Service cost	58	56	178	181
Interest cost	44	43	133	134
Expected return on plan assets	(106)	(106)	(320)	(326)
Amortization of unrecognized prior service credit	(3)	(3)	(9)	(10)
Net loss amortization	16	21	47	64
Termination benefits	0	0	1	0
Curtailments	0	0	0	(1)
Settlements	0	0	0	3
Net periodic benefit cost	$ 9	$ 11	$ 30	$ 45

XML

Other Comprehensive Income (Loss) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Jan. 01, 2018
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Equity, beginning balance	$ 27,737	$ 32,766	$ 26,882	$ 34,569
Other comprehensive income (loss) before reclassification adjustments, pretax	106	(110)	364	(143)
Tax	(72)	5	(65)	(130)
Other comprehensive income (loss) before reclassification adjustments, net of taxes	34	(105)	299	(273)
Reclassification adjustments, pretax	(75)	84	(176)	365
Tax	13	(8)	32	(59)
Reclassification adjustments, net of taxes	(62)	76	(144)	306
Other comprehensive income (loss), net of taxes	(28)	(29)	155	33
Adoption of ASU 2018-02				(266)
Adoption of ASU 2016-01					$ (8)
Equity, ending balance	26,925	32,656	26,925	32,656
Derivatives
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Equity, beginning balance	66	65	166	(108)
Other comprehensive income (loss) before reclassification adjustments, pretax	186	29	183	113
Tax	(39)	(6)	(38)	(24)
Other comprehensive income (loss) before reclassification adjustments, net of taxes	147	23	145	89
Reclassification adjustments, pretax	(71)	5	(195)	169
Tax	15	(1)	41	(35)
Reclassification adjustments, net of taxes	(56)	4	(154)	134
Other comprehensive income (loss), net of taxes	91	27	(9)	223
Adoption of ASU 2018-02				(23)
Adoption of ASU 2016-01					0
Equity, ending balance	157	92	157	92
Investments
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Equity, beginning balance	48	(164)	(78)	(61)
Other comprehensive income (loss) before reclassification adjustments, pretax	8	8	139	(125)
Tax	0	0	0	1
Other comprehensive income (loss) before reclassification adjustments, net of taxes	8	8	139	(124)
Reclassification adjustments, pretax	(25)	32	(30)	68
Tax	0	0	0	0
Reclassification adjustments, net of taxes	(25)	32	(30)	68
Other comprehensive income (loss), net of taxes	(17)	40	109	(56)
Adoption of ASU 2018-02				1
Adoption of ASU 2016-01					(8)
Equity, ending balance	31	(124)	31	(124)
Employee Benefit Plans
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Equity, beginning balance	(3,530)	(3,065)	(3,556)	(2,787)
Other comprehensive income (loss) before reclassification adjustments, pretax	(4)	0	(5)	(2)
Tax	0	0	6	4
Other comprehensive income (loss) before reclassification adjustments, net of taxes	(4)	0	1	2
Reclassification adjustments, pretax	21	47	49	128
Tax	(2)	(7)	(9)	(24)
Reclassification adjustments, net of taxes	19	40	40	104
Other comprehensive income (loss), net of taxes	15	40	41	106
Adoption of ASU 2018-02				(344)
Adoption of ASU 2016-01					0
Equity, ending balance	(3,515)	(3,025)	(3,515)	(3,025)
Cumulative Translation Adjustment
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Equity, beginning balance	(1,946)	(1,958)	(2,077)	(1,954)
Other comprehensive income (loss) before reclassification adjustments, pretax	(84)	(147)	47	(129)
Tax	(33)	11	(33)	(111)
Other comprehensive income (loss) before reclassification adjustments, net of taxes	(117)	(136)	14	(240)
Reclassification adjustments, pretax	0	0	0	0
Tax	0	0	0	0
Reclassification adjustments, net of taxes	0	0	0	0
Other comprehensive income (loss), net of taxes	(117)	(136)	14	(240)
Adoption of ASU 2018-02				100
Adoption of ASU 2016-01					$ 0
Equity, ending balance	(2,063)	(2,094)	(2,063)	(2,094)
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Equity, beginning balance	(5,362)	(5,122)	(5,545)	(4,910)
Equity, ending balance	$ (5,390)	$ (5,151)	$ (5,390)	$ (5,151)

XML

Acquisitions, Divestitures, Research Collaborations and License Agreements - Acquisitions (Details) $ in Millions, $ in Millions		1 Months Ended				3 Months Ended		9 Months Ended
	Apr. 01, 2019 USD ($)	Jul. 31, 2019 USD ($)	Apr. 30, 2019 USD ($)	Jun. 30, 2018 AUD ($)	Jun. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Goodwill						$ 19,480		$ 19,480		$ 18,253
Research and development						3,204	$ 2,068	7,324	$ 7,538
Peloton
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Payment to acquire business		$ 1,200
Other assets and liabilities, net		6
Cash and cash equivalents		157
Deferred income tax liabilities		64
Research and development						$ 982		$ 982
Antelliq
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Payment to acquire business	$ 2,300
Other assets and liabilities, net	81
Payment of debt	1,300
Transaction costs	47
Cash and cash equivalents	31
Deferred income tax liabilities	563
Goodwill	$ 1,345
Immune Design
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Payment to acquire business			$ 301
Intangible assets recognized			156
Cash and cash equivalents			83
Other assets recognized			31
Goodwill			$ 31
Viralytics
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Payment to acquire business				$ 502	$ 378
Other assets recognized					$ 34
Research and development									$ 344
Sales-Based Milestones | Peloton
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Potential future milestone payments, maximum		1,050
Commercial Milestones | Peloton
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Potential future milestone payments, maximum		50
Regulatory Milestones | Peloton
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]
Potential future milestone payments, maximum		$ 50

XML

Collaborative Arrangements - Schedule of Transactions (Details) - Collaborative Arrangement - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Other current assets | AstraZeneca
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Receivables from counterparty	$ 119		$ 119		$ 52
Other current assets | Eisai
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Receivables from counterparty	109		109		71
Other current assets | Bayer AG
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Receivables from counterparty	44		44		32
Accounts payable and accrued liabilities | AstraZeneca
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Payables to counterparty	578		578		405
Accounts payable and accrued liabilities | Eisai
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Payables to counterparty	692		692		375
Other Noncurrent Liabilities | AstraZeneca
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Payables to counterparty	300		300		250
Other Noncurrent Liabilities | Eisai
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Payables to counterparty	125		125		543
Other Noncurrent Liabilities | Bayer AG
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Payables to counterparty	375		375		$ 375
Revenue | AstraZeneca
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Total sales	123	$ 49	313	$ 125
Revenue | Eisai
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Total sales	109	43	280	78
Revenue | Bayer AG
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Net product sales recorded by Merck	57	47	158	138
Merck’s profit share from sales in Bayer’s marketing territories	50	47	144	100
Total sales	107	94	302	238
Cost of sales | AstraZeneca
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Expenses	28	12	120	48
Cost of sales | Eisai
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Expenses	23	8	97	9
Cost of sales | Bayer AG
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Expenses	28	29	86	188
Selling, general and administrative | AstraZeneca
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Expenses	36	12	96	28
Selling, general and administrative | Eisai
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Expenses	21	5	59	7
Selling, general and administrative | Bayer AG
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Expenses	12	11	31	26
Research and development | AstraZeneca
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Expenses	44	47	122	118
Research and development | Eisai
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Expenses	37	36	146	1,473
Research and development | Bayer AG
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Expenses	$ 31	$ 34	$ 94	$ 90

XML

Financial Instruments - Narrative (Details)	9 Months Ended
	Sep. 30, 2019 USD ($) interest_rate_swap	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Derivative [Line Items]
Number of interest rate swaps held (in interest rate swaps) | interest_rate_swap	19
Pretax net unrealized gain on derivatives maturing within next 12 months estimated to be reclassified from AOCI to sales	$ 174,000,000
Equity investments without readily determinable fair values	393,000,000
Unrealized gains recognized on investments in equity securities without readily determinable fair values	4,000,000
Unrealized losses recognized on investments in equity securities without readily determinable fair values	12,000,000
Cumulative unrealized gains on investments	172,000,000
Cumulative unrealized losses on investments	21,000,000
Available-for-sale debt securities included in Short-term investments	129,000,000
Available-for-sale debt securities maturing after one year through five years	1,800,000,000
Cash and cash equivalents	7,869,000,000		$ 7,965,000,000
Payments of contingent consideration	85,000,000	$ 235,000,000
Fair value of loans payable and long-term debt, including current portion	28,700,000,000		25,600,000,000
Debt, carrying amount	26,100,000,000		25,100,000,000
Cash collateral received from counterparties	133,000,000		107,000,000
Cash collateral advanced to counterparties	0		$ 0
Significant Other Observable Inputs (Level 2)
Derivative [Line Items]
Cash and cash equivalents	7,900,000,000
Cash equivalents	$ 7,100,000,000
Derivatives Designated as Hedging Instruments | Maximum
Derivative [Line Items]
Maximum average period of maturities of contracts in years (less than)	2 years
Derivatives Not Designated as Hedging Instruments | Maximum
Derivative [Line Items]
Maximum average period of maturities of contracts in years (less than)	1 year
gefapixant
Derivative [Line Items]
Payments of contingent consideration		$ 175,000,000

XML

Loans Payable, Long-Term Debt and Leases Loans Payable, Long-Term Debt and Leases - Maturity Schedule (Details) $ in Millions	Sep. 30, 2019 USD ($)
Loans Payable, Long-Term Debt and Leases [Abstract]
2019 (excluding the nine months ended September 30, 2019)	$ 71
2020	235
2021	189
2022	155
2023	127
Thereafter	374
Total lease payments	1,151
Less: imputed interest	(131)
Operating lease liability	$ 1,020

XML

Other Intangibles (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Dec. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Intangible asset impairment charges	$ 612	$ 693
Intangible assets	12,307	12,307	$ 11,431
Sivextro
Finite-Lived Intangible Assets [Line Items]
Intangible asset impairment charges		612
Intangible assets	$ 175	$ 175

XML

Collaborative Arrangements (Tables)

9 Months Ended

Sep. 30, 2019

Collaborative Arrangements [Abstract]

Collaboration Arrangements

Summarized financial information related to this collaboration is as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2019		2018		2019		2018
Alliance revenue	$	109	$	43	$	280	$	78
Cost of sales (1)	23		8		97		9
Selling, general and administrative	21		5		59		7
Research and development (2)	37		36		146		1,473
($ in millions)					September 30, 2019		December 31, 2018
Receivables from Eisai included in Other current assets					$	109	$	71
Payables to Eisai included in Accrued and other current liabilities (3)					692		375
Payables to Eisai included in Other Noncurrent Liabilities (3)					125		543

⁽¹⁾ Represents amortization of capitalized milestone payments.

⁽²⁾ Amount for the first nine months of 2018 includes the upfront payment and future option payments.

⁽³⁾ Includes accrued milestone and option payments.

Summarized financial information related to this collaboration is as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2019		2018		2019		2018
Alliance revenue	$	123	$	49	$	313	$	125
Cost of sales (1)	28		12		120		48
Selling, general and administrative	36		12		96		28
Research and development	44		47		122		118
($ in millions)					September 30, 2019		December 31, 2018
Receivables from AstraZeneca included in Other current assets					$	119	$	52
Payables to AstraZeneca included in Accrued and other current liabilities (2)					578		405
Payables to AstraZeneca included in Other Noncurrent Liabilities (3)					300		250

⁽¹⁾ Represents amortization of capitalized milestone payments.

⁽²⁾ Includes accrued milestone and license option payments.

⁽³⁾ Includes accrued milestone payments.

Summarized financial information related to this collaboration is as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2019		2018		2019		2018
Net product sales recorded by Merck	$	57	$	47	$	158	$	138
Merck’s profit share from sales in Bayer’s marketing territories	50		47		144		100
Total sales	107		94		302		238
Cost of sales (1)	28		29		86		188
Selling, general and administrative	12		11		31		26
Research and development	31		34		94		90
($ in millions)					September 30, 2019		December 31, 2018
Receivables from Bayer included in Other current assets					$	44	$	32
Payables to Bayer included in Other Noncurrent Liabilities (2)					375		375

⁽¹⁾ Includes amortization of intangible assets.

⁽²⁾ Represents accrued milestone payment.

XML

Segment Reporting

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

The Company’s operations are principally managed on a products basis and include four operating segments, which are the Pharmaceutical, Animal Health, Healthcare Services and Alliances segments. The Pharmaceutical and Animal Health segments are the only reportable segments.

The Pharmaceutical segment includes human health pharmaceutical and vaccine products. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Human health vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices. The Company sells these human health vaccines primarily to physicians, wholesalers, physician distributors and government entities. A large component of pediatric and adolescent vaccine sales are made to the U.S. Centers for Disease Control and Prevention Vaccines for Children program, which is funded by the U.S. government. Additionally, the Company sells vaccines to the Federal government for placement into vaccine stockpiles. During 2019, as a result of changes to the Company’s internal reporting structure, certain costs that were previously included in the Pharmaceutical segment are now being included as part of non-segment expenses within Merck Research Laboratories. Prior period Pharmaceutical segment profits have been recast to reflect these changes on a comparable basis.

The Animal Health segment discovers, develops, manufactures and markets animal health products, including pharmaceutical and vaccine products, for the prevention, treatment and control of disease in all major livestock and companion animal species, which the Company sells to veterinarians, distributors and animal producers.

The Healthcare Services segment provides services and solutions that focus on engagement, health analytics and clinical services to improve the value of care delivered to patients.

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

Sales of the Company’s products were as follows:

	Three Months Ended September 30,													Nine Months Ended September 30,
	2019							2018						2019						2018
($ in millions)	U.S.			Int’l		Total		U.S.		Int’l		Total		U.S.		Int’l		Total		U.S.		Int’l			Total
Pharmaceutical:
Oncology
Keytruda	$	1,743		$	1,327	$	3,070	$	1,109	$	780	$	1,889	$	4,525	$	3,448	$	7,973	$	2,906	$	2,114		$	5,020
Emend	42			56		98		71		52		123		173		163		336		239		157			396
Alliance revenue - Lynparza	71			53		123		33		15		49		186		126		313		88		37			125
Alliance revenue - Lenvima	65			44		109		30		13		43		169		112		280		49		29			78
Vaccines
Gardasil/Gardasil 9	761			558		1,320		740		308		1,048		1,579		1,464		3,044		1,422		894			2,317
ProQuad/M-M-R II/Varivax	482			141		623		429		96		525		1,325		469		1,794		1,097		246			1,343
Pneumovax 23	179			58		237		160		54		214		428		164		592		394		192			586
RotaTeq	102			78		180		134		57		191		360		203		564		384		156			540
Vaqta	36			26		62		36		30		66		103		65		167		95		72			167
Hospital Acute Care
Bridion	133			151		284		96		120		217		381		437		817		272		389			661
Noxafil	77			100		177		89		99		188		268		291		560		257		294			551
Cubicin	14			38		52		55		40		95		78		129		207		150		137			287
Primaxin	2			75		77		1		71		72		2		204		207		6		206			212
Invanz	(1		)	58		57		74		62		137		30		176		206		252		185			437
Cancidas	—			62		62		2		77		79		5		187		191		10		247			257
Immunology
Simponi	—			203		203		—		210		210		—		625		625		—		673			673
Remicade	—			101		101		—		135		135		—		322		322		—		459			459
Neuroscience
Belsomra	23			57		80		23		43		66		68		155		223		76		115			191
Virology
Isentress/Isentress HD	102			149		250		123		151		275		304		449		752		383		477			860
Zepatier	24			59		83		18		86		104		96		208		304		8		339			347
Cardiovascular
Zetia	5			142		147		9		157		165		11		432		443		34		662			696
Vytorin	5			52		57		—		92		92		11		219		231		11		402			414
Atozet	—			97		97		—		84		84		—		283		283		—		258			258
Adempas	—			107		107		—		94		94		—		302		302		—		238			238
Diabetes
Januvia	367			440		807		498		429		927		1,223		1,317		2,539		1,466		1,291			2,756
Janumet	129			375		503		225		339		563		462		1,105		1,567		625		1,067			1,693
Women’s Health
NuvaRing	202			39		241		193		41		234		593		107		700		550		135			686
Implanon/Nexplanon	136			62		199		133		53		186		421		160		581		375		160			535
Diversified Brands
Singulair	11			140		152		5		156		161		24		479		503		16		505			521
Cozaar/Hyzaar	6			110		116		4		99		103		16		313		329		18		330			348
Nasonex	4			55		58		7		64		71		2		224		226		8		266			274
Arcoxia	—			72		72		—		83		83		—		221		221		—		249			249
Follistim AQ	27			35		62		26		34		60		80		102		182		83		115			198
Other pharmaceutical (1)	385			842		1,229		326		786		1,109		1,142		2,492		3,634		932		2,557			3,486
Total Pharmaceutical segment sales	5,132			5,962		11,095		4,649		5,010		9,658		14,065		17,153		31,218		12,206		15,653			27,859
Animal Health:
Livestock	144			582		726		153		508		660		406		1,601		2,007		383		1,563			1,946
Companion Animals	193			203		396		153		207		361		560		704		1,264		541		689			1,230
Total Animal Health segment sales	337			785		1,122		306		715		1,021		966		2,305		3,271		924		2,252			3,176
Other segment sales (2)	46			—		46		55		—		55		133		1		133		194		1			195
Total segment sales	5,515			6,747		12,263		5,010		5,725		10,734		15,164		19,459		34,622		13,324		17,906			31,230
Other (3)	10			125		134		20		39		60		19		330		350		101		(35		)	66
	$	5,525		$	6,872	$	12,397	$	5,030	$	5,764	$	10,794	$	15,183	$	19,789	$	34,972	$	13,425	$	17,871		$	31,296

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

⁽¹⁾  Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.

⁽²⁾  Represents the non-reportable segments of Healthcare Services and Alliances.

⁽³⁾  Other is primarily comprised of miscellaneous corporate revenues, including revenue hedging activities, as well as third-party manufacturing sales.

Product sales are recorded net of the provision for discounts, including chargebacks, which are customer discounts that occur when a contracted customer purchases through an intermediary wholesale purchaser, and rebates that are owed based upon definitive contractual agreements or legal requirements with private sector and public sector (Medicaid and Medicare Part D) benefit providers, after the final dispensing of the product by a pharmacy to a benefit plan participant. These discounts, in the aggregate, reduced U.S. sales by $3.0 billion and $2.6 billion for the three months ended September 30, 2019 and 2018, respectively, and by $8.6 billion and $7.7 billion for the nine months ended September 30, 2019 and 2018, respectively.

Consolidated sales by geographic area where derived are as follows:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2019		2018		2019		2018
United States	$	5,525	$	5,030	$	15,183	$	13,425
Europe, Middle East and Africa	3,189		2,884		9,452		9,218
Japan	919		761		2,639		2,353
China	914		512		2,423		1,556
Asia Pacific (other than Japan and China)	756		666		2,217		2,210
Latin America	671		622		1,889		1,748
Other	423		319		1,169		786
	$	12,397	$	10,794	$	34,972	$	31,296

A reconciliation of segment profits to Income before taxes is as follows:

	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Segment profits:
Pharmaceutical segment	$	7,747		$	6,621		$	21,437		$	18,535
Animal Health segment	423			409			1,243			1,273
Other segments	(2		)	5			(2		)	94
Total segment profits	8,168			7,035			22,678			19,902
Other profits (losses)	101			55			226			(35		)
Unallocated:
Interest income	61			92			225			257
Interest expense	(231		)	(190		)	(674		)	(569		)
Depreciation and amortization	(382		)	(324		)	(1,169		)	(1,006		)
Research and development	(3,110		)	(1,997		)	(7,045		)	(7,304		)
Amortization of purchase accounting adjustments	(329		)	(679		)	(1,105		)	(2,144		)
Restructuring costs	(232		)	(171		)	(444		)	(494		)
Charge related to termination of collaboration agreement with Samsung	—			(420		)	—			(420		)
Other unallocated, net	(1,699		)	(736		)	(4,019		)	(2,090		)
	$	2,347		$	2,665		$	8,673		$	6,097

Pharmaceutical segment profits are comprised of segment sales less standard costs, as well as selling, general and administrative expenses directly incurred by the segment. Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as selling, general and administrative expenses and research and development costs directly incurred by the segment. For internal management reporting presented to the chief operating decision maker, Merck does not allocate the remaining cost of sales not included in segment profits as described above, research and development expenses incurred in Merck Research Laboratories, the Company’s research and development division that focuses on human health-related activities, 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, as well as the amortization of purchase accounting adjustments.

Other profits are primarily comprised of miscellaneous corporate profits, as well as operating profits related to third-party manufacturing sales.

Other unallocated, net, includes expenses from corporate and manufacturing cost centers, goodwill and other intangible asset impairment charges, gains or losses on sales of businesses, expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration, and other miscellaneous income or expense items.

XML

Other (Income) Expense, Net

9 Months Ended

Sep. 30, 2019

Other Income and Expenses [Abstract]

Other (Income) Expense, Net

Other (Income) Expense, Net

Other (income) expense, net, consisted of: 

	Three Months Ended   September 30,						Nine Months Ended   September 30,
($ in millions)	2019			2018			2019			2018
Interest income	$	(61	)	$	(92	)	$	(225	)	$	(257	)
Interest expense	231			190			674			569
Exchange losses	38			42			166			119
Income from investments in equity securities, net (1)	(16		)	(198		)	(50		)	(376		)
Net periodic defined benefit plan (credit) cost other than service cost	(128		)	(119		)	(409		)	(384		)
Other, net	(29		)	5			206			(183		)
	$	35		$	(172	)	$	362		$	(512	)

⁽¹⁾  Includes net realized and unrealized gains and losses from investments in equity securities either owned directly or through ownership interests in investments funds.

The higher exchange losses in the first nine months of 2019 reflect losses on forward exchange contracts related to the acquisition of Antelliq.

Other, net (as reflected in the table above) in the first nine months of 2019 includes $162 million of goodwill impairment charges related to certain businesses in the Healthcare Services segment. Other, net in the first nine months of 2018 includes a $115 million gain on the settlement of certain patent litigation and $84 million of income related to AstraZeneca’s option exercise associated with AstraZeneca LP.

Interest paid for the nine months ended September 30, 2019 and 2018 was $629 million and $535 million, respectively.