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Collaborative Arrangements
 12 Months Ended
Dec. 31, 2020
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 (olaparib) for multiple cancer types. Lynparza is an oral poly (ADP-ribose) polymerase (PARP) inhibitor currently approved for certain types of
advanced ovarian, breast, pancreatic and prostate cancers. 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 are also jointly developing and commercializing AstraZeneca’s Koselugo (selumetinib), an oral, selective inhibitor of MEK, part of the mitogen-activated protein kinase (MAPK) pathway, for multiple indications. In April 2020, Koselugo was approved by the U.S. Food and Drug Administration (FDA) for the treatment of pediatric patients two years of age and older with neurofibromatosis type 1 who have symptomatic, inoperable plexiform neurofibromas. Under the terms of the agreement, AstraZeneca and Merck will share the development and commercialization costs for Lynparza and Koselugo monotherapy and non-PD-L1/PD-1 combination therapy opportunities.
Profits from Lynparza and Koselugo 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 Koselugo. AstraZeneca will fund all development and commercialization costs of Imfinzi in combination with Lynparza or Koselugo. AstraZeneca is the principal on Lynparza and Koselugo sales transactions. Merck records its share of Lynparza and Koselugo product sales, net of cost of sales and commercialization costs, as alliance revenue and its share of development costs associated with the collaboration as part of Research and development expenses. 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 made payments of $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 was paid in December 2019). The upfront payment and license option payments were reflected in Research and development expenses in 2017. 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 2020, Merck determined it was probable that sales of Lynparza in the future would trigger $400 million of sales-based milestone payments from Merck to AstraZeneca. Accordingly, Merck recorded $400 million of liabilities and corresponding increases to the intangible asset related to Lynparza. Prior to 2020, Merck accrued sales-based milestone payments aggregating $1.0 billion related to Lynparza, of which $550 million, $200 million and $250 million was paid to AstraZeneca in 2020, 2019 and 2018, respectively. Potential future sales-based milestone payments of $2.7 billion have not yet been accrued as they are not deemed by the Company to be probable at this time.
In 2020, 2019 and 2018, Lynparza received regulatory approvals triggering capitalized milestone payments of $160 million, $60 million and $140 million, respectively, in the aggregate from Merck to AstraZeneca. Potential future regulatory milestone payments of $1.4 billion remain under the agreement.
The intangible asset balance related to Lynparza (which includes capitalized sales-based and regulatory milestone payments) was $1.3 billion at December 31, 2020 and is included in Other Intangibles, Net. 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:
Years Ended December 31202020192018
Alliance revenue - Lynparza$725 $444 $187 
Alliance revenue - Koselugo8 — — 
Total alliance revenue$733 $444 $187 
Cost of sales (1)
247 148 93 
Selling, general and administrative160 138 48 
Research and development133 168 152 
December 3120202019
Receivables from AstraZeneca included in Other current assets
$215 $128 
Payables to AstraZeneca included in Accrued and other current liabilities (2)
423 577 
(1) Represents amortization of capitalized milestone payments.
(2) Includes accrued milestone payments.
Eisai
In March 2018, Merck and Eisai Co., Ltd. (Eisai) announced a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima (lenvatinib), an orally available tyrosine kinase inhibitor discovered by Eisai. Lenvima is currently approved for the treatment of certain types of thyroid cancer, hepatocellular carcinoma, in combination with everolimus for certain patients with renal cell carcinoma, and in combination with Keytruda for the treatment of certain patients with endometrial carcinoma. Under the agreement, Merck and Eisai will develop and commercialize Lenvima jointly, both as monotherapy and in combination with Keytruda. Eisai records Lenvima product sales globally (Eisai is the principal on Lenvima sales transactions), and Merck and Eisai share applicable 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 are shared by the two companies in accordance with the collaboration agreement and reflected in Research and development expenses. Certain expenses incurred solely by Merck or Eisai are not shareable under the collaboration agreement, including costs incurred in excess of agreed upon caps and costs related to certain combination studies of Keytruda and Lenvima.
Under the agreement, Merck made an upfront payment to Eisai of $750 million in 2018 and agreed to make payments of up to $650 million for certain option rights through 2021 (of which $325 million was paid in March 2019, $200 million was 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 2018 related to the upfront payment and future option payments. In addition, the agreement provides for additional contingent payments from Merck to Eisai related to the successful achievement of sales-based and regulatory milestones.
In 2020, Merck determined it was probable that sales of Lenvima in the future would trigger sales-based milestone payments aggregating $400 million from Merck to Eisai. Accordingly, Merck recorded liabilities of $400 million and corresponding increases to the intangible asset related to Lenvima. Prior to 2020, Merck accrued sales-based milestone payments aggregating $950 million related to Lenvima, of which $500 million and $50 million was paid to Eisai in 2020 and 2019, respectively. Potential future sales-based milestone payments of $2.6 billion have not yet been accrued as they are not deemed by the Company to be probable at this time.
In 2020 and 2018, Lenvima received regulatory approvals triggering capitalized milestone payments of $10 million and $250 million, respectively, from Merck to Eisai. Potential future regulatory milestone payments of $125 million remain under the agreement.
The intangible asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $1.1 billion at December 31, 2020 and is included in Other Intangibles, Net. 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:
Years Ended December 31202020192018
Alliance revenue - Lenvima$580 $404 $149 
Cost of sales (1)
271 206 39 
Selling, general and administrative73 80 13 
Research and development (2)
185 189 1,489 
December 3120202019
Receivables from Eisai included in Other current assets
$157 $150 
Payables to Eisai included in Accrued and other current liabilities (3)
335 700 
Payables to Eisai included in Other Noncurrent Liabilities (4)
600 525 
(1) Represents amortization of capitalized milestone payments.
(2) Amount for 2018 includes $1.4 billion related to the upfront payment and option payments.
(3) Includes accrued milestone and future option payments.
(4) Includes accrued milestone 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 (riociguat), 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 Verquvo (vericiguat), which was approved by the FDA in January 2021 to reduce the risk of cardiovascular death and heart failure hospitalization following a hospitalization for heart failure or need for outpatient intravenous diuretics in adults. Verquvo is under review by regulatory authorities in other territories including the EU and Japan. Under the agreement, Bayer commercializes Adempas in the Americas, while Merck commercializes in the rest of the world. For Verquvo, Merck will commercialize in the United States and Bayer will commercialize in the rest of the world. Both companies share in development costs and profits on sales. Merck records sales of Adempas (and will record sales of Verquvo) in its marketing territories, as well as alliance revenue. Alliance revenue represents Merck’s share of profits from sales in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs. In addition, the agreement provides for contingent payments from Merck to Bayer related to the successful achievement of sales-based milestones.
Prior to 2020, Merck accrued $725 million of sales-based milestone payments for this collaboration, of which $375 million and $350 million was paid to Bayer in 2020 and 2018, respectively. Following the 2021 FDA approval of Verquvo noted above, Merck determined it was probable that sales of Adempas and Verquvo in the future would trigger the remaining $400 million sales-based milestone payment. Accordingly, Merck will record a liability of $400 million and a corresponding increase in intangible assets related to this collaboration in the first quarter of 2021.
The intangible asset balance related to this collaboration (which includes the acquired intangible asset balance, as well as capitalized sales-based milestone payments) was $849 million at December 31, 2020 and is included in Other Intangibles, Net. 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:
Years Ended December 31202020192018
Alliance revenue - Adempas$281 $204 $139 
Net sales of Adempas recorded by Merck220 215 190 
Total sales$501 $419 $329 
Cost of sales (1)
115 113 216 
Selling, general and administrative61 41 35 
Research and development63 126 127 
December 3120202019
Receivables from Bayer included in Other current assets
$65 $49 
Payables to Bayer included in Other Noncurrent Liabilities (2)
— 375 
(1) Includes amortization of intangible assets.
(2) Represents accrued milestone payment.