MRK 10-K & 10-Q changes, risk factors and insider trading

•Key products generate a significant amount of the Company’s profits and cash flows, and any events that adversely affect the markets for its leading products could have a material adverse effect on the Company’s results of operationsoperations, cash flows, financial condition, and financial condition.prospects.

•The Company faces continued pricing pressure with respect to its products.products in the public and private sectors.

•Unfavorable or uncertain economic conditions, together with cost-reduction measures being taken by certainthe governments,U.S. and other countries, could negatively affect the Company’s operating results.

•The Company has significant global operations, which expose it to additional risks, and any adverse event could have a material adverse effect on the Company’s results of operationsoperations, cash flows, financial condition, and financial condition.prospects.

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

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

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

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

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

•The Company is increasing its use of artificial intelligence (AI) systems to automate processes, analyze data, and support decision-makingdecision-making, which poses inherent risks.

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

If one or more important products lose patent protection in profitable markets, sales of those products are likely to decline significantly as a result of generic or biosimilar versions of those products becoming available. The Company’s business, cash flows, results of operationsoperations, financial position, and prospects may be adversely affected by the lost sales unless and until the Company has launched commercially successful products that replace the lost sales. In addition, if products that were measured at fair value and capitalized in connection with acquisitions experience difficulties in the market that negatively affect product cash flows, the Company may recognize material non-cash impairment charges with respect to the value of those products.

The Company depends upon patents to provide it with exclusive marketing rights for its products for some period of time. Loss of patent protection for one of the Company’s products typically leads to a significant and rapid loss of sales for that product as lower priced generic or biosimilar versions of that drug become available. In the case of products that contribute significantly to the Company’s sales, the loss of market exclusivity can have a material adverse effect on the Company’s business, cash flows, results of operations, financial condition and prospects. The Company lost market exclusivity for Bridion in Europe and Japan in 2023 and 2024, respectively, and the Company has experienced a substantial decline in Bridion sales in those markets. Bridion will lose market exclusivity in the U.S. in July 2026 (subjectat which time the Company anticipates a significant and rapid decline in U.S. sales of Bridion. The Company expects to patentdiscontinue litigationU.S. discussedsales below)of Bridion by the end of 2026. In addition, Januvia and Janumet will lose market exclusivity in the U.S. in May 2026 and Janumet XR will lose market exclusivity in the U.S. in July 2026. The Company expects a significant decline in sales of Januvia in the first half of 2026 reflecting the impact of government price setting noted above and subsequently, following loss of market exclusivity in May 2026, the Company anticipates it will lose nearly all U.S. sales of Januvia and Janumet. Also, the Company expects that sales of BridionKeytruda will be materially negatively impacted by biosimilar competition between 2028 and 2029. As previously disclosed, while two patents in the U.S.Keytruda willcomposition declineof substantiallymatter thereafter.patent Infamily addition,expire in May and November of 2029, respectively, the Company expects U.S.these salespatents to be the subject of Keytrudalitigation toand, declinethus, beginningbiosimilar competition could begin in JanuaryDecember 2028 upon implementation of government pricing underwhen the IRA, and to further decline upon loss of market exclusivity following expiration of the U.S.primary compound patent in December 2028.expires. The Company also expects to lose market exclusivity in Europe for Keytruda in 2031 following compound patent expiration. There may, however, be attempts by one or more companies to challenge the patent or launch a biosimilar product despite the patent in some European jurisdictions following the expiration of data exclusivity in Europe in July 2026.

Key products generate a significant amount of the Company’s profits and cash flows, and any events that adversely affect the markets for its leading products could have a material adverse effect on the Company’s results of operationsoperations, cash flows, financial condition, and financial condition.prospects.

The Company’s ability to generate profits and operating cash flows depends largely upon the continued profitability of the Company’s key products, such as Keytruda, Gardasil/Gardasil 9, Lynparza, Bravecto,Winrevair, and Bridion. In 2024, the Company’s oncology portfolio, led by Keytruda, represented substantially all of the Company’s revenue growth.Bravecto. In particular, in the aggregate, in 2024,2025, sales of Keytruda represented 46%49% of the Company’s total sales. As a result of the Company’s dependence on key products, any event that adversely affects any of these products or the markets for any of these products, such as the slowingmaterially lower demand for Gardasil/Gardasil 9 in China which the Company has experienced, could have a significant adverse impact on results of operationsoperations, cash flows, financial condition, and financial condition.prospects. Other events could include loss of patent protection, selection for IRA price setting, lower than expected utilization of Keytruda Qlex, increased costs associated with manufacturing, genericgeneric, biosimilar or over-the-counter availability of the Company’s product or a competitive product, the discovery of previously unknown side effects, results of post-approval trials, increased competition from the introduction of new, more effective treatments and discontinuation or removal from the market of the product for any reason. Such events could have a material adverse effect on the sales of any such products.

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

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

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

The Company faces continued pricing pressure with respect to its products.products in the public and private sectors.

The Company faces continued pricing pressure globally and, particularly in mature markets, from managed care organizations, government agencies and programs that could negatively affect the Company’s sales and profit margins. In the U.S., these include (i) U.S. federal laws and regulations related to Medicare and Medicaid, including the Medicare Prescription Drug Improvement and Modernization Act of 2003, the ACA, and the IRA, (ii) practices of managed care groups and institutional and governmental purchasers, and (iii) state activities aimed at increasing price transparency, including new laws as noted above in Item 1. “Competition and the Health Care Environment.” Changes to the health care system enacted as part of health care reform in the U.S., as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, could result in further pricing pressures. As noted in Item 1. “Competition and the Health Care Environment,” in 2023, HHS selected Januvia for the first year of the IRA’s price setting program, which will resultresulted in a government set price becoming effective on January 1, 2026. Government price setting may also impact pricing in the private market, negatively affecting the Company’s performance. In January 2025, HHS announced thatselected Janumet and Janumet XR have been selected for government price setting, which will become effective on January 1, 2027. In addition, in January 2026, HHS announced that Lenvima has been selected for government price setting, the set price for which will become effective on January 1, 2028. Furthermore, the Company expects that in 20262027 HHS will include Keytruda in a subsequent selection of products to undergo IRA price setting, with such price to become effective on January 1, 20282029 and the Company expects that, as a result, U.S. sales of Keytruda will decline materially after that time. InGovernment addition,price setting may also impact pricing in the U.S.,private largermarket, customersnegatively have received higher rebates on drugs in certain highly competitive categories. The Company must also compete to be placed on formularies of managed care organizations. Exclusion of a product from a formulary can lead to reduced usage inaffecting the managedCompany’s care organization. The Company is also facing pricing pressure from purchasers of certain vaccines in highly competitive categories.performance.

Unfavorable or uncertain economic conditions, together with cost-reduction measures being taken by certainthe governments,U.S. and other countries, could negatively affect the Company’s operating results.

In general, the Company faces increasing competition from lower-cost generic and biosimilar products. The patent rights that protect its products are of varying strengths and durations. In addition, in some countries, patent protection is significantly weaker than in the U.S. or in the EU. In the U.S. and the EU, political pressure to reduce spending on prescription drugs has led to legislation and other measures that encourage the use of generic and biosimilar products. Although it is the Company’s policy to actively protect its patent rights, generic challenges to the Company’s products can arise at any time, and the Company’s patents may not prevent the emergence of generic or biosimilar competition for its products.

Loss of patent protection for a product typically is followed promptly by generic or biosimilar substitutes, reducing the Company’s sales of that product. Availability of generic or biosimilar substitutes for the Company’s drugs may adversely affect its results of operations and cash flows. In addition, proposals emerge from time to time in the U.S. and other countries for legislation to further encourage the early and rapid approval of generic or biosimilar drugs. Any such proposal that is enacted into law could worsen this substantial negative effect on the Company’s sales, business, cash flows, results of operations, financial condition and prospects.

Also, the Company’s products face intense competition from competitors’ products. This competition may increase as new products enter the market. In such an event, the competitors’ products may be safer or more effective, more convenient to use, have better insurance coverage or reimbursement levels or be more effectively marketed and sold than the Company’s products. Alternatively, in the case of generic or biosimilar competition, including the generic or biosimilar availability of competitors’ branded products, they may be equally safe and effective products that are sold at a substantially lower price than the Company’s products. As a result, if the Company fails to maintain its competitive position, this could have a material adverse effect on its business, cash flows, results of operations, financial condition and prospects. In addition, if products that were measured at fair value and capitalized in connection with acquisitions experience difficulties in the market that negatively impact product cash flows, the Company may recognize material non-cash impairment charges with respect to the value of those products.

The Company has significant global operations, which expose it to additional risks, and any adverse event could have a material adverse effect on the Company’s results of operationsoperations, cash flows, financial condition, and financial condition.prospects.

Company to assess if, or to what extent, such policies will be implemented or continue to be implemented, and the extent of any measures that have been or will be taken by any impacted countries. In addition, there may be changes to the Company’s business if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest; and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease. Events like these, such as the ongoing war between Russia and Ukraine, and the conflict in the Middle East, and/or policy changes with respect to international trade protection measures, could result in material adverse effects on macroeconomic conditions, currency exchange rates and financial markets, and may adversely affect the Company’s business, results of operations, cash flows and financial condition.

Climatemacroeconomic changeconditions, orcurrency legal,exchange regulatoryrates orand marketfinancial measuresmarkets, to address climate changeand may negativelyadversely affect the Company’s business, results of operations, cash flowsflows, financial condition, and prospects.

New legal and regulatory requirements arewith being enactedrespect to prevent,climate-related mitigate, or adapt to the implications of a changing climate and its effects on the environment. These regulations,matters, which may differ across jurisdictions, could result in the Company being subject to new or expanded carbon pricing or taxes, increased compliance costs, restrictions on GHG emissions, investment in new technologies, increased GHG emission disclosure (including costs resulting from mandatory or voluntary reporting, diligence or disclosure)burdens and transparency, recurring investments in data gathering and reporting systems, upgrades of facilitiescosts to meet newthese building codes, and the redesign of utility systems, which could increase the Company’s operating costs, including the cost of electricity and energy used by the Company.obligations. The Company’s supply chain would likely be subject to these same transitionalsimilar risks and would likely pass along any increased costs to the Company, which may affect the Company’s ability to procure raw materials or other supplies required for the operation of the Company’s business at the quantities and levels required.

Governmental authorities, non-governmental organizations, customers, investors, external stakeholders and employees are sensitive to environmental, social and governance concerns, such as human capital, climate change, water use, recyclability or recoverability of packaging, and plastic waste. The focus on these concerns may lead to new requirements that could result in increased costs associated with developing, manufacturing and distributing the Company’s products, and related reporting obligations. The Company’s ability to compete could also be affected by changing customer preferences and requirements, such as growing demand for validated net zero GHG emission targets and more environmentally friendly products, packaging or supplier practices, or by failure to meet such customer expectations or demand. The Company risks negative shareholder reaction, including from proxy advisory services, as well as damage to its brand and reputation and inability to attract and retain employee talent, if the Company fails to act responsibly, or if the Company is perceived to not be acting responsibly, in key areas, including equitable access to medicines and vaccines, product quality and safety, environmental stewardship, reduction of GHG emissions, support for local communities, corporate governance and transparency, and addressing human capital factors in the Company’s operations. Responding to these considerations as well as any applicable regulatory requirements and implementation of the Company’s goals and initiatives involves risks and uncertainties, requires investments, and depends in part on third-party performance or data that is outside of the Company’s control. In addition, some governmental authorities, non-governmental organizations, and stakeholders may disagree with the Company’s goals and initiatives. If the Company does not meet the rapidly evolving and varied regulatory requirements and expectations of its investors, customers and other stakeholders, the Company could experience negative impacts to the Company’s business and results of operations. In addition, the Company is subject to expandingevolving mandatory and voluntary reporting, diligence and disclosure requirements, including the EU’s Corporate Sustainability Reporting Directive (CSRD) and potentially the SEC’s climate-related reporting requirements (which are currently stayed), the legislation in California requiring reporting of GHG emissions (which is currently subject to legal challenge) and climate risk (which is currently stayed pending appeal), and similar regulatory requirements in other jurisdictions outside the U.S. These evolving regulatory requirements may result in increased costs and complexities of compliance in order to collect, measure and report on the relevant information, and could expose the Company to the risk of government enforcement actions and private litigation.

The Company’s success is largely dependent on its continued ability to attract and retain highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical research and development, governmental regulation and commercialization. Competition for qualified personnel in the pharmaceutical industry, both in the U.S. and internationally, is intense. The Company cannot be surecertain that it will be able to attract and retain qualified personnel or that the costs of doing so will not materially increase.

Merck from time to time experiences difficulties in manufacturing certain of its products, including vaccines. For example, the Company is currently experiencing manufacturing delays related to Varivax and ProQuad which will result in supply constraints in 2025. The Company may, in the future, experience other difficulties and delays in manufacturing its products, such as (i) failure of the Company or any of its vendors or suppliers to comply with Current Good Manufacturing Practices and other applicable regulations and quality assurance guidelines that could lead to manufacturing shutdowns, product shortages and delays in product manufacturing; (ii) delays related to the construction of new facilities or the expansion of existing facilities, including those intended to support future demand for the Company’s products; and (iii) other manufacturing or distribution problems including supply chain delays, shortages in raw materials, changes in manufacturing production sites and limits to manufacturing capacity due to regulatory requirements, changes in types of products produced, or physical limitations that could impact continuous supply. In addition, the Company could experience difficulties or delays in manufacturing its products caused by natural disasters, such as hurricanes. Manufacturing difficulties can result in product shortages, leading to lost sales and reputational harm to the Company.

The Company’s business in China has grown in the past few years, and the importance of China to the Company’s overall pharmaceutical and vaccines business has increased accordingly. Beginning in mid-2024, the Company observed a significant decline in shipments from its distributor and commercialization partner in China, Chongqing Zhifei Biological Products Co., Ltd. (Zhifei), to disease and control prevention institutions and correspondingly into the points of vaccination, resulting in above normal inventory levels at Zhifei. Accordingly, the Company shipped less than its contracted doses to Zhifei in the latter part of 2024. Lower demand in China persisted and, at the end of 2024, overall channel inventory levels in China remained elevated at above normal levels. Therefore, the Company made a decision to temporarily pause shipments to China beginning in February 2025 through at least the middle of the year and as a result, combined sales of Gardasil/Gardasil 9 will decline significantly in 2025 compared with 2024. Furthermore, the government's anti-corruption campaign, particularly the increased number of inspections and audits, could substantially increase the administrative burden on health care institutions and health care professionals throughout the whole industry in China and potentially have a negative impact on the Company's sales. In addition to its commercial operations, the Company has significant research and manufacturing operations in China, including working with Chinese entities such as Wuxi Apptech Co., Ltd. If geopolitical tensions were to increase and disrupt the Company’s operations in China, such disruption could result in a material adverse effect on the Company’s product development, sales, business, cash flows, results of operations, financial condition and prospects.

Also, continued growth of the Company’s business in China is dependent upon ongoing development of a favorable environment for innovative pharmaceutical products and vaccines, sustained access for the Company’s currently marketed products, and the absence of trade impediments or adverse pricing controls. As noted above in Item 1. “Competition and the Health Care Environment,” pricing pressure in China has increased as the Chinese government has been taking steps to reduce costs, including implementing health care reform that has led to the acceleration of generic substitution, where available. While the mechanism for drugs being added to the NRDL evolves, inclusion may require a price negotiation which could impact the outlook in the market for selected brands. A new NRDL was recently completed in which new entries averaged approximately 60% price reductions. While pricing pressure has always existed in China, health care reform has increased this pressure in part due to the acceleration of generic substitution through the government’s VBP program. The government has implemented the VBP program through a tendering process for mature products which have generic substitutes with a Generic Quality Consistency Evaluation approval. Mature products that have entered into the latest rounds of VBP had, on average, a price reduction of more than 50%. The Company expects that the VBP process will have a significant impact on mature products moving forward.

Future sales of key animal health products could be adversely affected by a number of risk factors including certain risks that are specific to the animal health business. For example, the outbreak of disease carried by animals, such as Avian Influenza or African Swine Fever, could lead to their widespread death and precautionary destruction as well as the reduced consumption and demand for animals, which could adversely affect the Company’s results of operations. Also, the outbreak of any highly contagious diseases near the Company’s main production sites could require the Company to immediately halt the manufacture of its animal health products at such sites or force the Company to incur substantial expenses in procuring raw materials or products elsewhere. Other risks specific to animal health include epidemics and pandemics affecting livestock, government procurement and pricing practices, weather and global agribusiness economic events. In addition, in 2024,2025, sales of the Bravecto were $1.1 billion, which represented 19%family of theproducts Company’s Animal Health segment sales. Any negative event with respect to Bravecto could have a material adverse effect on the Company’s Animal Health sales. If the Animal Health segment of the Company’s business becomes more significant, the impact of any such events on future results of operations could also become more significant.were

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

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

In 2022, Congress passed the IRA, which makesmade significant changes to how drugs are covered and paid for under the Medicare program, including the creation of financial penalties for drugs whose prices rise faster than the rate of inflation, redesign of the Medicare Part D program to require manufacturers to bear more of the liability for certain drug benefits, which has taken effect in 2025, and government price setting for certain Medicare Part D drugs, starting in 2026, and Medicare Part B drugs starting in 2028. Furthermore, government price setting may also impact pricing in the private market, negatively affecting the Company’s performance. As noted in Item 1. “Competition and the Health Care Environment,” in 2023, HHS selected Januvia for the first year of the IRA’s price setting program, which will result in a government set price becoming effective on January 1, 2026. On January 17, 2025, HHS announced that Janumet and Janumet XR have been selected for government price setting, which will become effective on January 1, 2027. Furthermore, the Company expects that in 2026 HHS will include Keytruda in a subsequent selection of products to undergo IRA price setting, with such price to become effective on January 1, 2028 and the Company expects that, as a result, U.S. sales of Keytruda will decline after that time.

In addition, in 2021, Congress passed the American Rescue Plan Act, which included a provision that eliminateseliminated the statutory cap on rebates drug manufacturers pay to Medicaid beginning in January 2024.Medicaid. These rebates act as a discount off the list price and eliminating the cap means that manufacturer discounts paid to Medicaid can increase. Prior to this change, manufacturers have not been required to pay more than 100% of the Average Manufacturer Price (AMP) in rebates to state Medicaid programs for Medicaid-covered drugs. As a result of this provision, manufacturers may have to pay state Medicaid programs more in rebates than they received on sales of particular products. This change presents a risk to Merck for drugs that have high Medicaid utilization and rebate exposure that is more than 100% of the AMP. Additionally, increased utilization of the 340B Federal Drug Discount Program and restrictions on the Company’s ability to identify inappropriate discounts are having a negative impact on the Company’s performance. Also, the Company expects that states will continue their focus on pharmaceutical pricing and will increasingly shift to more aggressive price control tools such as Prescription Drug Affordability Boards that have the authority to conduct affordability reviews and establish upper payment limits and that Company products may be selected for such reviews.

In the U.S., members of the government have made public statements in favor of, and may take steps to implement, various regulatory or policy changes that could negatively impact the pharmaceutical industry, including the Company. Those potential changes include some related to vaccines and vaccine development, as well as personnel and policy changes at the FDA and other government agenciesagencies, committees, and programs. For example, HHS could undergo changes that could make it more difficult for the FDA to grant regulatory approvals for drugs and vaccines and the U.S. Centers for Disease Control and Prevention (CDC) to issue or maintain recommendations for vaccines. Additionally, if the FDA drug user fee programs were eliminated, that could cause significant delays to facility inspections and approvals of new products. Changes could also impact the CDC, including how recommendations for immunizations are issued and maintained. Changes that have been made to the CDC’s recommended immunization schedule which could impact public and private coverage, as well as reduction in state-controlled school immunization requirements, could cause a decline in vaccine uptake. Alterations to the National Vaccine Injury Compensation Program also could impact how claims against vaccine manufacturers are adjudicated. The government also has discussed certain policy changes to facilitate market entry of biosimilar products. It is too early for the Company to assess which, if any, of the regulatory or policy changes that have been publicly referenced would be implemented,implemented or how they would impact the market, and the Company cannot predict what additional future changes in the health care industry in general, or the pharmaceutical industry in particular, will occur; however, any changes could have a material adverse effect on the Company’s business, cash flows, results of operations, financial condition and prospects.

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

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 agenciesagencies, and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Human health vaccine products consist of preventive pediatric, adolescent and adult vaccines. The Company sells these human health vaccines primarily to physicians, wholesalers, distributors and government entities.

Worldwide sales were $64.2$65.0 billion in 2024,2025, an increase of 7%1% compared with 2023,2024, or 10%2% excluding the unfavorable effect of foreign exchange. The sales increase was primarily due to growth in oncology, cardiovascularcardiometabolic and respiratory, diabetes, and animal health, partiallylargely offset by declines in diabetes, virology (driven largely by lower sales of COVID-19 medication Lagevrio),vaccines, immunology (as Merck’s marketing rights to these products ended in 2024), and vaccines.virology (driven largely by lower sales of COVID-19 medication Lagevrio).

Merck continues to execute value creatingscience-led business development opportunities focused on innovationtransactions to augment its robust internal pipeline and portfolio with compelling external science.science focused on delivering innovation to patients, long-term growth, and value creation to shareholders. Highlights of 20242025 activity include the following:

•Closed an exclusive global license toagreement develop,for manufacture and commercialize MK-4082MK-7262 (HS-10535HRS-5346), an investigational preclinical oral small molecule GLP-1Lipoprotein(a) receptor agonistinhibitor from HansohJiangsu Hengrui Pharmaceuticals Co., Ltd. (Hengrui Pharma (Hansoh).

The Company also received morenumerous than 25 regulatory approvals in major markets in 2024, including the Winrevair and Capvaxive approvals noted above, along with numerousother approvals in oncology. Keytruda received approvalapprovals for additional indications in thecertain U.S.markets, and/or internationally as monotherapy in the therapeutic areas of hepatocellular carcinoma (HCC), melanoma and urothelial carcinoma,including in combination with chemotherapy in the therapeutic areas of biliary tract cancer, cervical cancer, endometrial carcinoma, gastric or gastroesophageal junction (GEJ) adenocarcinoma,adenocarcinoma and malignant pleural mesotheliomamesothelioma, in combination with Padcev (enfortumab vedotin) for locally advanced or metastatic urothelial carcinoma and non-small-cellfor lungcisplatin-ineligible muscle-invasive bladder cancer (NSCLCMIBC), as well as in combination with Padcevradiotherapy (enfortunabwith vedotin-ejfv)or without chemotherapy for advancedhead urothelialand carcinoma.neck Alsosquamous cell carcinoma (HNSCC). Additionally, in 2024,2025, Welireg was approved in Chinathe European Union (EU) and Japan for the treatment of adult patients with certain von Hippel-Lindau (VHL) disease-associated tumors not requiring immediate surgery. Lynparza, which is being developed in collaboration with AstraZeneca PLC (AstraZeneca), received approval in China for the treatment ofand certain adult patients with germlinerenal BRCA-mutated,cell human epidermal growth factor receptor 2carcinoma (HER2RCC)-negative, high-riskas earlywell breastas cancer.in the U.S. for certain adult and pediatric patients with pheochromocytoma and paraganglioma.

•MK-1654, clesrovimab,Enflonsia, is an investigationala prophylactic long-acting monoclonal antibody designed to protect infants from respiratory syncytial virus (RSV) disease during their first RSV season under review by the FDA. Clesrovimabseason, is also under review in the EU.EU and Japan.

•Additionally, ◦Keytruda is under review in the EU and Japan forin acombination supplementalwith indicationchemotherapy with or without bevacizumab for the treatment of certain patients with malignantplatinum-resistant pleuralrecurrent mesothelioma.ovarian cancer.

In 2025, the Company announced positive late-stage results from 18 Phase 3 trials and initiated 21 new Phase 3 trials spanning cardiometabolic and respiratory, immunology, infectious diseases, oncology and ophthalmology. The Company now has approximately 80 Phase 3 studies underway. The Company is diversifying its oncology portfolio and executing on its strategy which is broadly based on three strategic pillars: immuno-oncology, precision molecular targeting and tissue targeting. Merck’sMerck has numerous Phase 3 oncology programs within these pillars are as follows:pillars.

•V940 (mRNA-4157), intismeran autogene, is an investigational individualized neoantigen therapy,therapy being evaluated in combination with Keytruda,Keytruda asfor anthe adjuvant portion of treatment in patients with certain types of melanoma and NSCLC,non-small cell lung cancer (NSCLC). Intismeran autogene is being developed as part of a collaboration with Moderna, Inc. (Moderna).

•MK-1026, nemtabrutinib, is an investigational oral, reversible, non-covalent Bruton’s tyrosine kinase (BTK) inhibitor, being evaluated for the treatment of hematological malignancies, including chronic lymphocytic leukemia and small lymphocytic lymphoma;lymphoma.

•MK-3543, bomedemstat, is an investigational orally available lysine-specific demethylase 1 inhibitor being evaluated for myeloproliferativethe disorders;treatment of certain patients with essential thrombocythemia.

•MK-5684, opevesostat, is an investigational cytochrome P450 11A1 (CYP11A1) inhibitor being evaluated for the treatment of certain patients with metastatic castration-resistant prostate cancer;cancer.

•MK-7902,MK-6482, Lenvima,Welireg, is being developed asfor partexpanded ofindications ain collaboration with Eisai Co., Ltd. (Eisai),RCC in combination with Keytruda,Keytruda forand esophagealLenvima, cancer.and in other combinations.

•MK-2400,MK-1022, ifinatamabpatritumab deruxtecan, is an investigational human epidermal growth factor receptor 3 (HER3) directed antibody drug conjugate (ADC) being evaluated in certain patients with relapsedbreast SCLCcancer. versusPatritumab chemotherapy,deruxtecan is being developed as part of a collaboration with Daiichi Sankyo; andSankyo.

•MK-2870, sacituzumab tirumotecan, is an investigational trophoblast cell-surface antigen 2 (TROP2)-directed ADC,ADC being evaluated for certain patients with breast, cervical, endometrial, gastric, non-small cell lung, and ovarian cancers. Sacituzumab tirumotecan is being developed as part of a collaboration with Kelun-Biotech for breast, cervical, endometrial, gastric and non-small-cell lung cancers.Kelun-Biotech.

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

•MK-0616, enlicitide decanoate, is an investigational,investigational oral proprotein convertase subtilisin/kexin type 9 (PCSK9) inhibitor being evaluated for the treatment of hypercholesterolemia, including in studies evaluating low-density lipoprotein cholesterol reduction and a cardiovascular outcomes study;study.

In JanuaryMay 2026, Merck acquired CidaraTerns Therapeutics,Pharmaceuticals, Inc. (CidaraTerns), a biotechnologyclinical-stage companyoncology developing drug-Fc conjugate (DFC) therapeutics,company, for $9.2$6.8 billion (including $570$606 million of payments to settle share-based equity awards of which $406$433 million related to unvested equity awards). Cidara’sThrough this acquisition, Merck acquired Terns’ lead DFC candidate, MK-1406MK-4208 (formerly CD388TERN-701), is a long-actingnovel antiviralinvestigational designedoral toallosteric preventBCR::ABL1 seasonaltyrosine andkinase pandemicinhibitor influenza. MK-1406 is(TKI) currently being evaluated in a Phase 31/2 trial amongfor adultpatients with Philadelphia chromosome-positive, chronic phase chronic myeloid leukemia previously treated with at least one prior TKI and adolescent participants who areexperienced attreatment higherfailure, risksuboptimal ofresponse developingor complicationstreatment from influenza.intolerance. The transaction was accounted for as an asset acquisition sincebecause MK-1406MK-4208 accounted for substantially all of the fair value of the gross assets acquired (excluding cash and deferred income taxes). Merck recorded a charge of $9.0$5.7 billion to Research and development expenses, or $3.62 per share,expenses (which primarily represented acquired in-process research and development [IPR&D] with no alternative future use), or $2.31 per share, in the second quarter and first six months of 2026, as well as net assets of $332$1.1 millionbillion, inincluding cash of $505 million, investments of $487 million, deferred tax assets of $190 million, and other net liabilities of $105 million. There are no future contingent payments associated with the first quarter of 2026. Under a previous license agreement between Cidara and J&J Innovative Medicine (a Johnson & Johnson company, previously Janssen Pharmaceuticals, Inc.), which was assumed by Merck, J&J Innovative Medicine is eligible to receive regulatory and sales-based milestones related to MK-1406.acquisition.

In 2022, the U.S. Congress passed the Inflation Reduction Act (IRA), which made significant changes to how drugs are covered and paid for under the Medicare program, including the creation of financial penalties for drugs whose prices rise faster than the rate of inflation, redesign of the Medicare Part D program to require manufacturers to bear more of the liability for certain drug benefits (which went into effect in 2025), and government price-setting for certain Medicare Part D drugs (startingwhich went into effect in 2026) and Medicare Part B drugs (starting in 2028). The U.S. Department of Health and Human Services (HHS), through the Centers for Medicare & Medicaid Services (CMS), selected Januvia (sitagliptin) in 2023 for the first year of the IRA’s “Drug Price Negotiation Program” (Program), and selected Janumet (sitagliptin and metformin HCl) and Janumet XR (sitagliptin and metformin HCl extended release) in 2025 for the second year of the IRA’s Program. Pursuant to the IRA’s Program, the government set a price for Januvia, which became effective on January 1, 2026, and set a price for Janumet and Janumet XR, which will become effective on January 1, 2027. In addition, in January 2026, HHS announced that Lenvima (lenvatinib) has been selected for government price setting, the set price for which will become effective on January 1, 2028. Furthermore, the Company expects that Keytruda (pembrolizumab) will be selected in 2027 for government price setting, which would become effective on January 1, 2029.2029; a pending CMS proposed rule may subject Keytruda Qlex (pembrolizumab and berahyaluronidase alfa) to price setting at the same time. Government price setting may also impact pricing in the private market negatively affecting the Company’s performance. The Company has sued the U.S. government regarding the IRA’s Program.

Additionally, increased utilization of the 340B Federal Drug Discount Program and restrictions on the Company’s ability to identify inappropriate discounts are having a negative impact on Company performance. Furthermore, the Executive Branch and Congress continue to discuss legislation designed to control health care costs, including the cost of drugs. In several international markets, government-mandated pricing actions have reduced prices of generic and patented drugs. In addition, the Company’s sales performance in the first three months of 2026 was negatively affected by other cost-reduction measures taken by governments and other third parties to lower health care costs.

In May 2025, the U.S. presidential administration issued an executive order intended to encourage or impose the use of “most-favored-nation” pricing to tie U.S. prescription drug prices to prices in selected comparably developed nations. In July 2025, the Company and other pharmaceutical companies received letters from the U.S. presidential administration with a request to agree to the administration’s “most-favored-nation” drug pricing goals by September 29, 2025. Further to the letter received from the administration, in December 2025, the Company announced that it had entered into a three-year agreement (MFN Agreement) with the U.S government that addressed the four policy goals of the administration’s July letter. IncludedThe within the MFN AgreementCompany is anproviding obligationJanuvia, byJanumet theand CompanyJanumet to provide key productsXR through a direct-to-patient program at affordable prices for eligible patients in the U.S. This will initially include Januvia, Janumet and Janumet XR,U.S., and will be expandedexpanding the program in the future to include Lipfendra (enlicitide decanoate pending FDA approval.). The Company also agreed to offer its existing medicines at discounted prices to Medicaid,Medicaid (excluding certain products.products) and in June 2026 signed an agreement with CMS to participate in the GENErating cost Reductions fOr U.S. Medicaid (GENEROUS) Model, a voluntary program through which participating state Medicaid agencies receive pricing for certain medications aligned to prices paid in select countries. Additionally, the Company agreed that products launched during the term of the MFN Agreement (with certain exceptions) will be subject to “most-favored-nation” pricing in reference to prices for such products in a specified group of countries (MFN Countries). Finally, the Company agreed to repatriate and share with the Federal government a portion of foreign revenue received by the Company as a result of the government’s successful trade policy efforts. Additionally, the Company reached an agreement with the U.S. Department of Commerce to delay Section 232 tariffs for three years, enabling the Company to make investments in the U.S. to reshore manufacturing for American patients.

Worldwide sales were $16.3$16.6 billion and $32.9 billion in the second quarter and first quartersix months of 2026, anrespectively, increaserepresenting increases of 5% compared with the firstsame quarterperiods of 2025, reflecting growth in oncology, cardiometabolic and respiratory, and animal health, partially offset by declines in vaccines, diabetes,diabetes and infectious diseases. Lower sales in vaccines also partially offset revenue growth in the year-to-date period.

Growth in the oncology franchise in the second quarter and first quartersix months of 2026 was largely due to the performance of Keytruda/Keytruda Qlex and Welireg (belzutifan),. as well as higherHigher alliance revenue from Koselugo (selumetinib) resulting from an amendment to the collaboration agreement.agreement also contributed to oncology sales growth in the year-to-date period. Sales growth in the cardiometabolic and respiratory franchise was largely attributable to the continued uptake of Winrevair (sotatercept-csrk), as well as the inclusion of sales of Ohtuvayre (ensifentrine) (which was obtained as part of the October 2025 acquisition of Verona Pharma plc [Verona Pharma]). Animal health sales growth was due to the performance of both livestock and companion animal products. The decline in diabetes was primarily due to lower sales of Januvia and Janumet, and the decline in infectious diseases was largely due to lower sales of Lagevrio (molnupiravir) and Dificid (fidaxomicin). The vaccines revenue decline in the year-to-date period was primarily due to lower combined sales of Gardasil (Human Papillomavirus Quadrivalent [Types 6, 11, 16 and 18] Vaccine Recombinant) and Gardasil 9 (Human Papillomavirus 9-valent Vaccine, Recombinant). sales. The decline in diabetes was primarily due to lower sales of Januvia, andAdditionally, the declineoverall inU.S. infectiousvaccines diseasesmarket washas largelyexperienced duea tocontraction lowernegatively salesaffecting of Lagevrio (molnupiravir).sales.

Keytruda is an anti-PD-1 (programmed death receptor-1) therapy that has been approved in over 45 indications in the U.S., including 19 tumor types and 2 tumor-agnostic indications, and has similarly been approved in markets worldwide for many of these indications. Keytruda Qlex is a subcutaneously-administered fixed combination of pembrolizumab and berahyaluronidase alfa, which enhances dispersion and permeability to enable subcutaneous administration of pembrolizumab. Keytruda Qlex, which was initially approved by the FDA in September 2025, is approved in the U.S. in solid tumor indications approved for Keytruda. In November 2025, the European Commission (EC) approved a new subcutaneous (SC) route of administration and a new pharmaceutical form (solution for injection) of Keytruda (to be marketed as Keytruda SC) for use across Keytruda indications for adults in Europe. Timing for commercial availability of Keytruda SC in individual European Union (EU) countries for approved indications will vary by country and depend on multiple factors, including the completion of reimbursement procedures and the outcome of litigation with Halozyme, Inc. as discussed in Note 8 to the condensed consolidated financial statements. The Keytruda and Keytruda Qlex clinical development programs include studies across a broad range of cancer types. See “Research and Development Update” below.

Combined global sales of Keytruda/Keytruda Qlex grew 12%5% and 8% in the firstsecond quarter and first six months of 2026.2026, respectively. Sales growth in the U.S. in both periods reflects higher net pricing and increased demand. Additionally, the year-to-date period in 2026 reflects an approximate $250 million favorable impact due to the timing of wholesaler purchases, higher net pricing, and increased demand.purchases. Demand in the U.S. was driven by higher utilization across earlier-stage indications, including in certain types of cervical cancer, triple-negative breast cancer (TNBC), bladder cancer, head and renalneck squamous cell carcinomacarcinoma, (RCC),and cervical cancer, as well as higher demand across multiple metastatic indications, in particular for the treatment of certain types of urothelial and cervical cancers.cancer. Sales growth in international markets reflects higher demand in urothelial, non-small cell lung cancer (NSCLC), gastric, cervical,urothelial and endometrial cancer metastatic indications, as well as increased uptake in earlier-stage indications, predominately for the TNBC, NSCLC,cervical, melanoma,non-small cell lung cancer (NSCLC), and renal cell carcinoma (RCC earlier-stage indications.). The launch and reimbursement of new indications for Keytruda in the EU continues to have a negative impact on pricing in those markets. In addition, a biosimilar of Keytruda launched in Argentina in 2025 and the Company expects further launches in smaller international markets during 2026. The Company anticipates the impact of biosimilar erosion to Keytruda sales will be immaterial in 2026.

Lynparza (olaparib) is an oral poly (ADP-ribose) polymerase (PARP) inhibitor being developed and commercialized as part of a collaboration with AstraZeneca PLC (AstraZeneca) (see Note 3 to the condensed consolidated financial statements). Lynparza is approved for the treatment of certain types of advanced or recurrent ovarian, early or metastatic breast, metastatic pancreatic and metastatic castration-resistant prostate cancers. Alliance revenue related to Lynparza grew 9%4% in the first quartersix months of 2026 largely due to higher demand in the U.S. and many international markets.markets, partially offset by lower net pricing.

SalesWelireg ofis Welireg,approved for the treatment of adult patients with certain von Hippel-Lindau (VHL) disease-associated tumors, certain adult patients with previously treated advanced RCC, and certain patients with pheochromocytoma and paraganglioma,paraganglioma. Welireg is also approved in combination with Keytruda or Keytruda Qlex for the adjuvant treatment of certain adult patients with clear cell RCC following nephrectomy. Sales of Welireg rose 45%67% and 57% in the firstsecond quarter and first six months of 20262026, respectively, primarily due to higher demand in the U.S. for the advanced RCC indication and continued launch uptake in several international markets, particularly in JapanJapan. andFavorable certainwholesaler Europeanpurchasing markets.patterns in the U.S. also contributed to sales growth in the second quarter of 2026.

Reblozyl (luspatercept-aamt) is a first-in-class erythroid maturation recombinant fusion protein that is being commercialized through a global collaboration with Bristol-Myers Squibb Company (BMS) (see Note 3 to the condensed consolidated financial statements). Reblozyl is approved for the treatment of anemia in certain rare blood disorders. Alliance revenue related to this collaboration (consisting of royalties) increased 25% in the first quarter of 2026 primarily due to strong underlying sales performance.

In January 2026, the acting director of the U.S. Centers for Disease Control and Prevention (CDC) announced changes to the child and adolescent immunization schedule (January announcement), reducing the number of routinely recommended vaccinations and creating three new categories: immunizations recommended for all children; immunizations recommended for certain high-risk groups or populations; and immunizations based on shared clinical decision-making. Immunizations recommended for all children include vaccines for measles, mumps, rubella, polio, pertussis, tetanus, diphtheria, Haemophilus influenzae type B (Hib), pneumococcal disease, human papillomavirus (HPV), and varicellachickenpox (chickenpoxvaricella). Immunizations recommended for certain high-risk groups or populations include respiratory syncytial virus (RSV), hepatitis A, hepatitis B, and dengue. Immunizations recommended based on shared clinical decision-making include rotavirus, hepatitis A, and hepatitis B. HHS has stated that immunizations for all of the diseases covered by the previous immunization schedule will still be available to anyone who wants them through Affordable Care Act insurance plans and federal insurance programs, including Medicaid, the Children’s Health Insurance Program, and the Vaccines For Children (VFC) program. Additionally, in September 2025, the trade association representing U.S. health insurers (AHIP) announced that its member health plans would continue to cover all immunizations that had been recommended by the CDC’s Advisory Committee on Immunization Practices (ACIP) as of September 1, 2025, with no cost-sharing for patients through the end of 2026.2027. On March 16, 2026, a federal district court in Massachusetts issued a preliminary injunction staying, among other things, the immunization schedule changes in the CDC’s January announcement. The government is appealing the district court ruling to the U.S. Court of Appeals for the First Circuit.

Combined worldwide sales of Gardasil and Gardasil 9, vaccines to help prevent certain cancers and other diseases caused by certain types of HPV, grew 4% in the second quarter of 2026 due to higher demand in Asia Pacific and Europe, as well as favorable timing of tenders in Europe, partially offset by lower demand in certain other international markets. Combined worldwide sales of Gardasil and Gardasil 9 declined 19%9% in the first quartersix months of 2026. The sales decline was2026 primarily driven by lower demand in China (discussed below) and in Japan, reflecting in part that the last date to initiate the first dose in Japan’s national immunization program catch-up cohort was in March 2025. The year-to-date sales decline also reflects lower sales in the U.S. primarily due to unfavorable CDC purchasing patterns,patterns and lower demand, partially offset by higher net pricing. The sales decline in the first six months of 2026 was partially offset by higher demand in Europe and other markets in the Asia Pacific region. As previously disclosed, the Company suspended shipments to China beginning in February 2025 given lower demand and elevated channel inventory levels in China. In April 2026, the Company entered into a revised supply contract with its distributor and commercialization partner in China, Chongqing Zhifei Biological Products Co., Ltd. (Zhifei). Subject to agreement betweenIn the parties,second quarter of 2026, the Company maybegan makemaking limited shipments to China; inhowever, revenue associated with the latterrevised partsupply of 2026; if so, any associated revenue in 2026contract is expected to be immaterial.immaterial in 2026.

The Company is a party to license agreements pursuant to which the Company pays royalties on net sales of Gardasil/Gardasil 9. Under the terms of the more significant of these agreements, Merck pays a 7% royalty on net sales of Gardasil/Gardasil 9 in the U.S. to one third party (this royalty expires in December 2028). The royalty expenses are included in Cost of sales.

Global sales of ProQuad (Measles, Mumps, Rubella and Varicella Virus Vaccine Live), a pediatric combination vaccine to help protect against measles, mumps, rubella and varicella, decreased 14% in the second quarter of 2026 and increased 64%10% in the first quartersix months of 2026 primarily due to higher sales in the U.S.2026. As a result of manufacturing delays, in January 2025, the Company borrowed doses of ProQuad from the CDC Pediatric Vaccine Stockpile,Stockpile. whichThe reducedCompany partially replenished the borrowing in the second quarter of 2025 resulting in a benefit to U.S. ProQuad sales of ProQuad by approximately $70$24 million in that period; the net effect of the borrowing and partial replenishment resulted in a net reduction to U.S. ProQuad sales of $49 million for the first quartersix months of 2025. The Company replenished the remainder of the borrowing later in 2025. HigherAdditionally, lower demand in the U.S. in the second quarter and first six months of 2026 was partially offset by higher demand in certain European markets also contributed to the growth in ProQuad sales in the first quarter of 2026.markets. Worldwide sales of M-M-R II (Measles, Mumps and Rubella Virus Vaccine Live), a vaccine to help protect against measles, mumps and rubella declined 38%24% in the first quartersix months of 2026 primarily due to lower salesdemand in the U.S. largely reflecting unfavorable private sector purchasing patterns and lower demand. Global sales of Varivax (Varicella Virus Vaccine Live), a vaccine to help prevent chickenpox (varicella), declinedincreased 6%8% and 1% in the firstsecond quarter and first six months of 20262026, respectively, primarily due to unfavorable CDC stockpile activity in the prior year as noted below, higher net pricing in the U.S., and higher demand in several international markets, partially offset by lower salesdemand in the U.S. largelyand drivenLatin by lower demand, partially offset by higher net pricing.America.

Worldwide sales of Vaxneuvance (Pneumococcal 15-valent Conjugate Vaccine), a vaccine to help protect against invasive pneumococcal disease (IPD) caused by certain serotypes, declined 12%35% and 24% in the firstsecond quarter and first six months of 20262026, respectively, primarily due to lower$60 million of favorable CDC stockpile activity in the U.S. in the prior year. The impact to Vaxneuvance sales from CDC stockpile activity in 2025 was offset by a drawdown of CDC stockpile inventory for Varivax (noted above) and RotaTeq (Rotavirus Vaccine, Live Oral, Pentavalent), which resulted in a net neutral transaction. Lower demand in the U.S. and mostthe internationalAsia marketsPacific region due to competition.competition also contributed to the sales declines in the second quarter and first six months of 2026. Merck is a party to license agreements pursuant to which the Company pays royalties on net sales of Vaxneuvance. Under the most significant of these agreements, Merck pays a royalty of 7.25% on net sales of Vaxneuvance through 2026; this royalty will decline to 2.5% on net sales from 2027 through 2035. The royalty expenses are included in Cost of sales.

Sales of Capvaxive (Pneumococcal 21-valent Conjugate Vaccine), a vaccine for the prevention of invasive pneumococcal diseaseIPD and pneumococcal pneumonia caused by certain serotypes in individuals 18 years of age and older, and for the prevention of IPD caused by those serotypes in certain children and adolescents 2 to 17 years of age at increased risk, grew 33%42% and 38% in the firstsecond quarter and first six months of 20262026, respectively. Sales growth was largely due to launch uptake in certain international markets, particularly in Europe and the EU,Asia andPacific region, as well as continued uptake in the U.S. Sales growth in the U.S. in the year-to-date period was negatively impacted by a reduction in wholesaler inventory. Capvaxive was approved in the U.S. in June 2024, in the EU in March 2025 and in Japan in August 2025.2025 for use in adults. In June 2026, the FDA approved an expanded IPD indication for Capvaxive to include children and adolescents aged 2 through 17 years who have completed a primary pediatric pneumococcal vaccination series and have one or more chronic medical conditions that put them at an increased risk for pneumococcal disease. The EC approved a similar indication expansion in April 2026. The expanded approvals were based on data from the STRIDE-13 trial. Merck is a party to license agreements pursuant to which the Company pays royalties on net sales of Capvaxive. Under the terms of the most significant of these agreements, Merck pays a royalty of 7.25% on net sales of Capvaxive through 2026; this royalty will decline to 2.5% on net sales from 2027 through 2035. The royalty expenses are included in Cost of sales.

Enflonsia (clesrovimab-cfor) is a preventive, long-acting monoclonal antibody, for the prevention of RSV lower respiratory tract disease in neonates (newborns) and infants who are born during or entering their first RSV season. Enflonsia was approved in the U.S. in June 2025 and2025, in the EU in April 20262026, and in Japan and China in June 2026, based on results from the CLEVER and SMART clinical trials. The timing for availability of Enflonsia in individual EU countries will vary by country and depend on multiple factors, including the completion of reimbursement procedures. Sales of Enflonsia were $1$2 million in the first quarter of 2026 and the$3 Company expects minimal sales of Enflonsiamillion in the second quarter and first six months of 20262026, givenrespectively, reflecting the seasonal nature of the product and continued high levels of RSV monoclonal antibody inventory in the market; however, the Company anticipates that shipments will increase in the second half of 2026.

Winrevair is an activin signaling inhibitor indicated for the treatment of adults with pulmonary arterial hypertension (PAH) (World Health Organization [WHO] Group 1 pulmonary hypertension) to improve exercise capacity and WHO functional class, and reduce the risk of clinical worsening events including hospitalization for PAH, lung transplantation and death. Sales of Winrevair rose to75% $525and million81% in the firstsecond quarter and first six months of 20262026, respectively, largely due to continued uptake in the U.S. and early launch uptake in certain international markets, particularly in Japan and Europe. Winrevair was originally approved in the U.S. in March 2024, in the EU in August 2024, and in Japan in June 2025 (where it is being marketed as Airwin). Winrevair was approved for expanded indications in PAH based on the ZENITH trial in the U.S. in October 2025 and in the EU in January 2026. Winrevair is the subject of a licensing agreement pursuant to which Merck pays a 22% royalty on net sales of Winrevair to BMS. The royalty expenses are included in Cost of sales.

Ohtuvayre is an inhaled phosphodiesterases 3 and 4 (PDE3 and PDE4) inhibitor, which was approved in the U.S. in June 2024 for the maintenance treatment of chronic obstructive pulmonary disease (COPD) in adults. Ohtuvayre was obtained in conjunction with Merck’s October 2025 acquisition of Verona Pharma. Sales in the second quarter of 2026 reflect a benefit from the timing of specialty pharmacy purchases in the U.S., which is expected to unwind in the third quarter of 2026.

Adempas (riociguat) and Verquvo (vericiguat) are part of a worldwide collaboration with Bayer AG (Bayer) to market and develop soluble guanylate cyclase (sGC) modulators (see Note 3 to the condensed consolidated financial statements). Adempas is approved for the treatment of certain types of PAH and chronic pulmonary hypertension. Verquvo is approved to reduce the risk of cardiovascular death and heart failure hospitalization following a hospitalization for heart failure or need for outpatient intravenous diuretics in adults with symptomatic chronic heart failure and reduced ejection fraction. Alliance revenue from the collaboration grew 3% in the first quartersix months of 2026 primarily reflecting higher demand in Bayer’s marketing territories. The Company expects alliance revenue to decline for the full year of 2026 reflecting the loss of market exclusivity for Adempas in the U.S. Revenue also includes sales of Adempas and Verquvo in Merck’s marketing territories. Sales of Adempas in Merck’s marketing territories increased 15%6% in the first quartersix months of 2026 largely due to higher demand.

Global sales of Bridion (sugammadex), for the reversal of two types of neuromuscular blocking agents used during surgery, grew 8% and 7% in the second quarter and first quartersix months of 2026, respectively, as higher demand and pricing in the U.S. was partially offset by lower demand in most international markets due to generic competition. Bridion will loselost market exclusivity in the U.S. in July 2026. The Company anticipates U.S. sales of Bridion to decline thereafter,in future periods, depending upon the availability of generic supply. The Company expects to discontinue U.S. sales of Bridion in 2027 as generic market supply stabilizes, potentially into 2027.stabilizes.

Worldwide sales of Prevymis (letermovir), a medicine for prophylaxis (prevention) of cytomegalovirus (CMV) infection and disease in certain high risk adult and pediatric recipients of an allogenic hematopoietic stem cell transplant and for prophylaxis of CMV disease in certain high risk adult and pediatric recipients of a kidney transplant, grew 31%29% and 30% in the firstsecond quarter and first six months of 20262026, respectively, primarily due to higher demand in the U.S. and certain European markets, reflecting in part the launch of new indications.

Worldwide sales of Dificid (fidaxomicin),Dificid, a medicine for the treatment of C. difficile-associated diarrhea, declined 59%77% and 69% in the firstsecond quarter and first six months of 20262026, respectively, due to generic competition in the U.S. Dificid lost market exclusivity in the U.S. in July 2025; accordingly, the Company is experiencing a significant decline in U.S. sales of Dificid and expects the decline to continue.

Lagevrio is an investigational oral antiviral COVID-19 medicine being developed in a collaboration with Ridgeback Biotherapeutics LP (see Note 3 to the condensed consolidated financial statements). Sales of Lagevrio decreased 73%95% and 82% in the firstsecond quarter and first six months of 20262026, respectively, largely due to lower demand in Japan and the U.S. driven primarily by declining COVID-19 cases. The Company expects the Lagevrio sales decline to continue during 2026. In the U.S., where Lagevrio remains in Phase 3 development and is marketed under an Emergency Use Authorization (EUA), the Secretary of HHS provided advance notice on June 29, 2026 that the declaration supporting the EUAs pursuant to which Lagevrio and certain other COVID-19 drug and biologic products are marketed will terminate, effective June 29, 2027. Based on the Secretary’s June 2026 determination and advance notice of termination, the Company is working with the FDA to develop a plan for disposition of Lagevrio in the U.S. by June 29, 2027. U.S. sales of Lagevrio were $18 million in the first six months of 2026.

In April 2026, the FDA approved Idvynso, a once-daily, two-drug single-tablet regimen of doravirine, a non-nucleoside reverse transcriptase inhibitor, and islatravir, a next-generation nucleoside analog reverse transcriptase inhibitor, for the treatment of HIV-1 infection in adults to replace the current antiretroviral regimen in those who are virologically suppressed (HIV-1 RNA less than 50 copies per mL) on a stable antiretroviral regimen with no history of virologic treatment failure and no known substitutions associated with resistance to doravarine.doravirine. Idvynso was also approved in Japan for these patients in March 2026. The approvals were based on the MK-8591A-051 and MK-8591A-052 clinical trials.

Worldwide combined sales of Januvia and Janumet, medicines that help lower blood sugar levels in adults with type 2 diabetes, declined 28%31% and 29% in the firstsecond quarter and first six months of 20262026, respectively, primarily due to lower sales in the U.S. reflecting lower net pricing and ongoing volume declines due to competitive pressure.pressure and lower net pricing. The sales declinedeclines waswere also attributable to lower demand in China and ongoing generic competition in most other international markets. Januvia and Janumet lost market exclusivity in the U.S. in May 2026 and Janumet XR lost market exclusivity in the U.S. in July 2026. The Company expects that it will lose a substantial portion of U.S. sales of Januvia, Janumet and Janumet XR sales in future periods due to generic competition.

Sales of livestock products grew 15%8% and 12% in the firstsecond quarter and first six months of 20262026, respectively, primarily due to higher demand for ruminant and poultry products, as well as higher pricing.products.

Sales of companion animal products grew 9%7% and 8% in the firstsecond quarter and first six months of 20262026, respectively, primarily due to new product launches and higher pricing,launches, partially offset by lower demand for other products in the portfolio, reflecting a reduction in veterinary visits.portfolio. Sales of the Bravecto (fluralaner) line of products were $379$359 million in the firstsecond quarter of 2026, representing growth of 16%,7%, or 9%4% excluding the effect of foreign exchange, compared with the firstsecond quarter of 2025. Sales of the Bravecto line of products were $738 million in the first six months of 2026, representing growth of 11%, or 7% excluding the effect of foreign exchange, compared with the same period of 2025.

Cost of sales increased 24% and 23% in the firstsecond quarter and first six months of 2026.2026, respectively. Cost of sales includes the amortization of intangible assets recorded in connection with acquisitions, collaborations, and licensing arrangements, which totaled $931$984 million and $587$599 million in the second quarter of 2026 and 2025, respectively, and $1.9 billion and $1.2 billion in the first quartersix months of 2026 and 2025, respectively. Additionally, cost of sales in the second quarter and first quartersix months of 2026 includesinclude an $83 million impactand $166 million impact, respectively, for the recognition of fair value step-up of inventories related to the October 2025 acquisition of Verona Pharma. Also included in cost of sales are expenses associated with restructuring activities, which amounted to $237$184 million and $36$165 million in the second quarter of 2026 and 2025, respectively, and $421 million and $201 million in the first quartersix months of 2026 and 2025, respectively, primarily reflecting accelerated depreciation and asset impairment charges related to manufacturing facilities to be fully or partially closed or divested, as well as contractual termination costs. Separation costs associated with manufacturing-related headcount reductions have been incurred and are reflected in Restructuring costs as discussed below.

Gross margin was 74.2%73.5% in the firstsecond quarter of 2026 compared with 78.0%77.5% in the second quarter of 2025. Gross margin was 73.9% in the first quartersix months of 2026 compared with 77.7% in the first six months of 2025. The gross margin decline in both periods was primarily due to higher amortization of intangible assets, higher inventory write-downs (primarily vaccines), increased restructuring costs, and the recognition of fair value step-up of inventories related to the October 2025 acquisition of Verona Pharma, and the unfavorable effect of foreign exchange, partially offset by the favorable effect of product mix.

Selling, general and administrative (SG&A) expenses increased 6%10% and 8% in the firstsecond quarter and first six months of 20262026, respectively, primarily due to higher administrative costs (including investments in IT), higher promotional and selling costs in support of product launches, and the unfavorable impact of foreign exchange.

ResearchThe increase in R&D expenses in both the second quarter and development (R&D) expenses increased to $12.6 billion in the first quartersix months of 2026 fromwas $3.6also billion in the first quarter of 2025 primarily dueattributable to a $9.0 billion charge for the acquisition of Cidara, increasedhigher clinical development spending,spending and the unfavorable effect of foreign exchange,exchange. andThe restructuringincreases costs,were partially offset by a $200 million and $400 million reduction in R&D expenses in the second quarter and first six months of 2026, respectively, as part of the funding agreement with Blackstone Life Sciences (Blackstone) and a $100 million charge in the first quarter of 2025 for the achievement of a developmental milestone related to the 2024 EyeBiotech Limited (EyeBio) acquisition.. See Note 2 to the condensed consolidated financial statements for more information on the acquisitionacquisitions of CidaraTerns and Cidara, the license agreement with Hengrui Pharma, as well as the Blackstone funding agreement.

R&D expenses consist of the costs directly incurred by Merck Research Laboratories (MRL), the Company’s research and development division that focuses on human health-related activities, which were $2.5$2.8 billion and $5.3 billion in the second quarter and first quartersix months of 20262026, respectively, (inclusive of a $200 million benefitand $400 million benefit, respectively, from the Blackstone funding agreement noted above) and $2.5$2.8 billion and $5.3 billion for the firstsecond quarter and first six months of 2025.2025, respectively. Also included in R&D expenses are Animal Health research costs, upfront and milestone payments for collaboration and licensing agreements (including the chargecharges forrelated theto Hengrui Pharma and EyeBio developmental milestone noted above), charges for transactions accounted for as asset acquisitions (including the charge for the acquisition of Cidara noted above), and costs incurred by other divisions in support of R&D activities, including depreciation, production, and general and administrative, which in the aggregate were $10.0 billion and $1.1 billion for the first quarter of 2026 and 2025, respectively. R&D expenses also include restructuring costs of $34 million in the first quarter of 2026 primarily associated with contractual termination costs.