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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, 2020
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 Jersey22-1918501
(State or other jurisdiction of incorporation)
(I.R.S Employer Identification No.)
2000 Galloping Hill Road
KenilworthNew Jersey07033
(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 filerAccelerated filer
Non-accelerated filerSmaller 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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock ($0.50 par value)MRKNew York Stock Exchange
1.125% Notes due 2021MRK/21New York Stock Exchange
0.500% Notes due 2024MRK 24New York Stock Exchange
1.875% Notes due 2026MRK/26New York Stock Exchange
2.500% Notes due 2034MRK/34New York Stock Exchange
1.375% Notes due 2036MRK 36ANew York Stock Exchange
The number of shares of common stock outstanding as of the close of business on October 31, 2020: 2,530,034,437





Table of Contents
Page No.
PART I
Item 1.
Item 2.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 6.





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,
 2020201920202019
Sales$12,551 $12,397 $35,479 $34,972 
Costs, Expenses and Other
Cost of sales3,481 3,990 9,952 10,443 
Selling, general and administrative2,450 2,589 7,383 7,726 
Research and development3,390 3,204 7,721 7,324 
Restructuring costs114 232 269 444 
Other (income) expense, net(312)35 (630)362 
 9,123 10,050 24,695 26,299 
Income Before Taxes3,428 2,347 10,784 8,673 
Taxes on Income483 440 1,611 1,259 
Net Income2,945 1,907 9,173 7,414 
Less: Net Income (Loss) Attributable to Noncontrolling Interests4 6 12 (73)
Net Income Attributable to Merck & Co., Inc.$2,941 $1,901 $9,161 $7,487 
Basic Earnings per Common Share Attributable to Merck & Co., Inc. Common Shareholders
$1.16 $0.74 $3.62 $2.91 
Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders
$1.16 $0.74 $3.61 $2.89 
 
MERCK & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited, $ in millions)
 
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Net Income Attributable to Merck & Co., Inc.$2,941 $1,901 $9,161 $7,487 
Other Comprehensive Income (Loss) Net of Taxes:
Net unrealized (loss) gain on derivatives, net of reclassifications(137)91 (153)(9)
Net unrealized (loss) gain on investments, net of reclassifications (17)(18)109 
Benefit plan net gain and prior service credit, net of amortization
62 15 161 41 
Cumulative translation adjustment
85 (117)(180)14 
 10 (28)(190)155 
Comprehensive Income Attributable to Merck & Co., Inc.$2,951 $1,873 $8,971 $7,642 
 The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -



MERCK & CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited, $ in millions except per share amounts)
 
September 30, 2020December 31, 2019
Assets
Current Assets
Cash and cash equivalents
$7,356 $9,676 
Short-term investments
 774 
Accounts receivable (net of allowance for doubtful accounts of $89 in 2020
 and $86 in 2019)
8,422 6,778 
Inventories (excludes inventories of $2,081 in 2020 and $1,480 in 2019
classified in Other assets - see Note 6)
6,128 5,978 
Other current assets
4,671 4,277 
Total current assets26,577 27,483 
Investments1,372 1,469 
Property, Plant and Equipment, at cost, net of accumulated depreciation of $18,572
in 2020 and $17,686 in 2019
16,919 15,053 
Goodwill20,248 19,425 
Other Intangibles, Net16,677 14,196 
Other Assets8,007 6,771 
 $89,800 $84,397 
Liabilities and Equity
Current Liabilities
Loans payable and current portion of long-term debt
$2,420 $3,610 
Trade accounts payable
3,744 3,738 
Accrued and other current liabilities
11,690 12,549 
Income taxes payable
984 736 
Dividends payable
1,567 1,587 
Total current liabilities20,405 22,220 
Long-Term Debt26,321 22,736 
Deferred Income Taxes1,777 1,470 
Other Noncurrent Liabilities12,027 11,970 
Merck & Co., Inc. Stockholders’ Equity
Common stock, $0.50 par value
Authorized - 6,500,000,000 shares
Issued - 3,577,103,522 shares in 2020 and 2019
1,788 1,788 
Other paid-in capital
39,489 39,660 
Retained earnings
51,107 46,602 
Accumulated other comprehensive loss
(6,383)(6,193)
86,001 81,857 
Less treasury stock, at cost:
1,047,343,390 shares in 2020 and 1,038,087,496 shares in 2019
56,815 55,950 
Total Merck & Co., Inc. stockholders’ equity29,186 25,907 
Noncontrolling Interests84 94 
Total equity29,270 26,001 
 $89,800 $84,397 
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,
 20202019
Cash Flows from Operating Activities
Net income$9,173 $7,414 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
2,721 2,716 
Intangible asset impairment charges
35 864 
Charge for acquisition of Peloton Therapeutics, Inc. 982 
Deferred income taxes
47 (386)
Share-based compensation
354 306 
Other
(445)219 
Net changes in assets and liabilities
(5,638)(3,469)
Net Cash Provided by Operating Activities6,247 8,646 
Cash Flows from Investing Activities
Capital expenditures(3,170)(2,336)
Purchases of securities and other investments(78)(2,380)
Proceeds from sales of securities and other investments1,894 7,459 
Acquisition of ArQule, Inc., net of cash acquired(2,545) 
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(907)(269)
Other141 320 
Net Cash Used in Investing Activities(4,665)(1,866)
Cash Flows from Financing Activities
Net change in short-term borrowings(311)(3,892)
Payments on debt(1,954) 
Proceeds from issuance of debt4,419 4,958 
Purchases of treasury stock(1,281)(3,730)
Dividends paid to stockholders(4,673)(4,290)
Proceeds from exercise of stock options68 344 
Other(472)(240)
Net Cash Used in Financing Activities(4,204)(6,850)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash89 (26)
Net Decrease in Cash, Cash Equivalents and Restricted Cash(2,533)(96)
Cash, Cash Equivalents and Restricted Cash at Beginning of Year (includes restricted
cash of $258 at January 1, 2020 included in Other Assets)
9,934 7,967 
Cash, Cash Equivalents and Restricted Cash at End of Period (includes restricted cash
of $45 at September 30, 2020 included in Other Assets)
$7,401 $7,871 
The accompanying notes are an integral part of this condensed consolidated financial statement.
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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 (GAAP) 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 26, 2020.
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.
Planned Spin-Off of Women’s Health, Biosimilars and Established Brands into New Company
In February 2020, Merck announced its intention to spin-off products from its women’s health, biosimilars and established brands businesses into a new, independent, publicly traded company named Organon & Co. (Organon) through a distribution of Organon’s publicly traded stock to Company shareholders. The distribution is expected to qualify as tax-free to the Company and its shareholders for U.S. federal income tax purposes. The established brands included in the transaction consist of dermatology, non-opioid pain management, respiratory, and select cardiovascular products including Zetia (ezetimibe) and Vytorin (ezetimibe and simvastatin), as well as the rest of Merck’s diversified brands franchise. Merck’s existing research pipeline programs will continue to be owned and developed within Merck as planned. Organon will have development capabilities initially focused on late-stage development and life-cycle management and is expected over time to develop research capabilities in selected therapeutic areas. The spin-off is expected to be completed in the second quarter of 2021, subject to market and certain other conditions. Subsequent to the spin-off, the historical results of the women’s health, biosimilars and established brands businesses will be reflected as discontinued operations in the Company’s consolidated financial statements.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the accounting for credit losses on financial instruments. The new 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 Company adopted the new guidance effective January 1, 2020. There was no impact to the Company’s consolidated financial statements upon adoption.
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 Company adopted the new guidance effective January 1, 2020, which resulted in minor changes to the presentation of information related to the Company’s collaborative arrangements.
Recently Issued Accounting Standards Not Yet Adopted
In December 2019, the FASB issued amended guidance on the accounting and reporting of income taxes. The guidance is intended to simplify the accounting for income taxes by: removing exceptions related to certain intraperiod tax allocations and deferred tax liabilities; clarifying guidance primarily related to evaluating the step-up tax basis for goodwill in a business combination; and reflecting enacted changes in tax laws or rates in the annual effective tax rate. The amended guidance is effective for interim and annual periods in 2021. Early adoption is permitted. The amendments in the new guidance are to be applied on a retrospective basis, on a modified retrospective basis through a cumulative-effect adjustment to retained earnings or prospectively, depending on the amendment. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In January 2020, the FASB issued new guidance intended to clarify certain interactions between accounting standards related to equity securities, equity method investments and certain derivatives. The guidance addresses accounting for the transition into and out of the equity method of accounting and measuring certain purchased options and forward contracts to acquire investments. The new guidance is effective for interim and annual periods in 2021 and is to be applied prospectively. Early adoption is permitted. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In March 2020, the FASB issued optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The optional guidance is effective upon issuance and can be applied on a prospective basis at any time between January 1, 2020 through December 31, 2022. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
2.    Acquisitions, 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 November 2020, Merck and VelosBio, Inc. (VelosBio) announced that the companies had entered into a definitive agreement pursuant to which Merck, through a subsidiary, will acquire all outstanding shares of VelosBio for $2.75 billion, subject to certain customary adjustments. VelosBio is a privately held clinical-stage biopharmaceutical company committed to developing first-in-class cancer therapies targeting receptor tyrosine kinase-like orphan receptor 1 (ROR1). VelosBio’s lead investigational candidate is VLS-101, an antibody-drug conjugate targeting ROR1 that is currently being evaluated in a Phase 1 and a Phase 2 clinical trial for the treatment of patients with hematologic malignancies and solid tumors, respectively. The closing of the transaction, which is subject to approval under the Hart-Scott-Rodino Antitrust Improvements Act and other customary conditions, is expected by the end of 2020.
In September 2020, Merck and Seagen Inc. (Seagen, formerly known as Seattle Genetics, Inc.) announced an oncology collaboration to globally develop and commercialize Seagen’s ladiratuzumab vedotin (MK-6440), an investigational antibody-drug conjugate targeting LIV-1, which is currently in Phase 2 clinical trials for breast cancer and other solid tumors. The collaboration will pursue a broad joint development program evaluating ladiratuzumab vedotin as monotherapy and in combination with Keytruda (pembrolizumab) in triple-negative breast cancer, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumors. The companies will equally share profits worldwide. Under the terms of the agreement, Merck made an upfront payment of $600 million and a $1.0 billion equity investment in 5 million shares of Seagen common stock at a price of $200 per share. Merck recorded $622 million in Research and development expenses in the third quarter and first nine months of 2020 related to this transaction reflecting the upfront payment as well as a $22 million mark-to-market loss on the purchase commitment (forward contract) relating to the equity shares (calculated based on the closing price of Seagen common stock on September 30, 2020). The closing of the equity investment occurred in October 2020 and resulted in the recognition of a $6 million reduction to Research and development expenses based on the price of Seagen common stock on the closing date. Seagen is also eligible to receive future contingent milestone payments of up to $2.6 billion, including $850 million in development milestones and $1.75 billion in sales milestones.
Concurrent with the above transaction, Seagen granted Merck an exclusive license to commercialize Tukysa (tucatinib), a small molecule tyrosine kinase inhibitor, for the treatment of HER2-positive cancers, in Asia, the Middle East and Latin America and other regions outside of the United States, Canada and Europe. Merck will be responsible for marketing applications seeking approval in its territories, supported by the positive results from the HER2CLIMB clinical trial. Merck will also co-fund a portion of the Tukysa global development plan, which encompasses several ongoing and planned trials across HER2-positive cancers, including breast, colorectal, gastric and other cancers set forth in a global product development plan. Merck will solely fund and conduct country-specific clinical trials necessary to support anticipated regulatory applications in its territories. Under the terms of the agreement, Merck made upfront payments aggregating $210 million, which were recorded as Research and development expenses in the third quarter and first nine months of 2020. Seagen is also eligible to receive future contingent regulatory approval milestones of up to $65 million and will receive tiered royalties ranging from 20% to 33% based on annual sales levels of Tukysa in Merck’s territories.
Additionally in September 2020, Merck acquired a biologics manufacturing facility located in Dunboyne, Ireland from Takeda Pharmaceutical Company Limited for €256 million ($302 million). The transaction was accounted for as an acquisition of an asset. Merck recorded property, plant and equipment of $289 million and other net assets of $13 million. There are no future contingent payments associated with the acquisition.
In July 2020, Merck acquired the U.S. rights to Sentinel Flavor Tabs and Sentinel Spectrum Chews from Virbac Corporation for $410 million. Sentinel products provide protection against common parasites in dogs. The transaction was accounted for as an acquisition of an asset. Merck recognized intangible assets of $401 million related to currently marketed products and inventory of $9 million at the acquisition date. The estimated fair values of the identifiable intangible assets related to currently marketed products were determined using an income approach. Actual cash flows are likely to be different than those assumed. The intangible assets related to currently marketed products will be amortized over their estimated useful lives of 15 years. There are no future contingent payments associated with the acquisition.
Also, in July 2020, Merck and Ridgeback Biotherapeutics LP (Ridgeback Bio), a closely held biotechnology company, closed a collaboration agreement to develop molnupiravir (MK-4482, formerly known as EIDD-2801), an orally
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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
available antiviral candidate currently in clinical development for the treatment of patients with COVID-19. Merck gained exclusive worldwide rights to develop and commercialize molnupiravir and related molecules. Under the terms of the agreement, Ridgeback Bio received an upfront payment and also is eligible to receive future contingent payments dependent upon the achievement of certain developmental and regulatory approval milestones, as well as a share of the net profits of molnupiravir and related molecules, if approved. Merck and Ridgeback are committed to ensure that any medicines developed for SARS-CoV-2 (the causative agent of COVID-19) will be accessible and affordable globally.
In June 2020, Merck acquired privately held Themis Bioscience GmbH (Themis), a company focused on vaccines and immune-modulation therapies for infectious diseases and cancer for $366 million. Merck may make additional contingent payments of up to $740 million, including up to $80 million for development milestones, up to $260 million for regulatory approval milestones, and up to $400 million for commercial milestones. Themis has a broad pipeline of vaccine candidates and immune-modulatory therapies developed using its innovative measles virus vector platform based on a vector originally developed by scientists at the Institut Pasteur and licensed exclusively to Themis for select viral indications. The acquisition builds upon an ongoing collaboration between the two companies to develop vaccine candidates using the measles virus vector platform and is expected to accelerate the development of the COVID-19 vaccine candidate (V591), which is currently in Phase 1 clinical development. The transaction was accounted for as an acquisition of a business. The Company determined the fair value of the contingent consideration was $97 million at the acquisition date utilizing a probability-weighted estimated cash flow stream using an appropriate discount rate dependent on the nature and timing of the milestone payment. Merck recognized intangible assets for in-process research and development (IPR&D) of $136 million, cash of $59 million, deferred tax assets of $71 million and other net liabilities of $32 million. The excess of the consideration transferred over the fair value of net assets acquired of $229 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 connection with the transaction, Merck has entered into a memorandum of understanding that reflects the parties’ commitments to address the COVID-19 pandemic by developing, manufacturing and distributing the vaccine on a global basis and with pricing that makes the vaccine both available around the world and accessible to those who need it.
In May 2020, Merck and the International AIDS Vaccine Initiative, Inc. (IAVI), a nonprofit scientific research organization dedicated to addressing urgent, unmet global health challenges, announced a new collaboration to develop V590, an investigational vaccine against SARS-CoV-2 being studied for the prevention of COVID-19. This vaccine candidate will use the recombinant vesicular stomatitis virus (rVSV) technology that is the basis for Merck’s approved Ebola Zaire virus vaccine, Ervebo (Ebola Zaire Vaccine, Live), which was the first rVSV vaccine approved for use in humans. Under the terms of the agreement, Merck made an upfront payment of $6.5 million and may make additional contingent payments of up to $100 million for sales-based milestones, as well as royalty payments. Merck has also signed an agreement with the Biomedical Advanced Research and Development Authority (BARDA), part of the office of the Assistant Secretary for Preparedness and Response within an agency of the United States Department of Health and Human Services, to provide initial funding support for this effort. Under the agreement, IAVI and Merck will work together to advance the development and global clinical evaluation of a SARS-CoV-2 vaccine candidate designed and engineered by IAVI scientists. The vaccine candidate is currently in Phase 1 clinical development. Merck will lead regulatory filings globally. Both organizations will work together to develop the vaccine and make it accessible and affordable globally, if approved.
In January 2020, Merck acquired ArQule, Inc. (ArQule), a publicly traded biopharmaceutical company focused on kinase inhibitor discovery and development for the treatment of patients with cancer and other diseases. Total consideration paid of $2.7 billion included $138 million of share-based compensation payments to settle equity awards attributable to precombination service and cash paid for transaction costs on behalf of ArQule. The Company incurred $95 million of transaction costs directly related to the acquisition of ArQule, consisting almost entirely of share-based compensation payments to settle non-vested equity awards attributable to postcombination service. These costs were included in Selling, general and administrative expenses in the first nine months of 2020. ArQule’s lead investigational candidate, MK-1026 (formerly known as ARQ 531), is a novel, oral Bruton’s tyrosine kinase (BTK) inhibitor currently being evaluated for the treatment of B-cell malignancies.

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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The estimated fair value of assets acquired and liabilities assumed from ArQule is as follows:
($ in millions)January 16, 2020
Cash and cash equivalents$145 
IPR&D MK-1026 (formerly ARQ 531) (1)
2,280 
Licensing arrangement for ARQ 08780 
Deferred income tax liabilities(389)
Other assets and liabilities, net34 
Total identifiable net assets
2,150 
Goodwill (2)
540 
Consideration transferred$2,690 
(1)    The estimated fair value of the identifiable intangible asset related to IPR&D was determined using an income approach. The future net cash flows were discounted to present value utilizing a discount rate of 12.5%. Actual cash flows are likely to be different than those assumed.
(2)    The goodwill was allocated to the Pharmaceutical segment and is not deductible for tax purposes.
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 known as PT2977), is a novel investigational oral HIF-2α inhibitor in late-stage development for renal cell carcinoma. Merck made an upfront payment of $1.2 billion; 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 receivable73 
Inventories93 
Property, plant and equipment60 
Identifiable intangible assets (useful lives ranging from 18-24 years) (1)
2,689 
Deferred income tax liabilities(589)
Other assets and liabilities, net(82)
Total identifiable net assets
2,275 
Goodwill (2)
1,376 
Consideration transferred$3,651 
(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 of $156 million, cash of $83 million and other net assets of $42 million. The excess of the consideration transferred over the fair value of net assets acquired of $20
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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
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.
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 (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 will also jointly develop and commercialize AstraZeneca’s Koselugo (selumetinib), an oral, selective inhibitor of MEK, part of the mitogen-activated protein kinase (MAPK) pathway, currently being developed 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. 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 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 a $400 million liability and a corresponding increase 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 $200 million and $250 million was paid to AstraZeneca in 2019 and 2018, respectively, and $250 million was paid in the first nine months of 2020. 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 the second quarter of 2020, Lynparza received regulatory approvals triggering capitalized milestone payments of $135 million from Merck to AstraZeneca. In 2019 and 2018, Lynparza received regulatory approvals triggering capitalized milestone payments of $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 September 30, 2020 and is included in Other Intangibles, Net 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.

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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)2020201920202019
Alliance revenue - Lynparza$196 $123 $519 $313 
Alliance revenue - Koselugo3  3  
Total alliance revenue$199 $123 $522 $313 
Cost of sales (1)
41 28 205 120 
Selling, general and administrative40 36 112 96 
Research and development20 44 93 122 
($ in millions)September 30, 2020December 31, 2019
Receivables from AstraZeneca included in Other current assets
$197 $128 
Payables to AstraZeneca included in Accrued and other current liabilities (2)
309 577 
Payables to AstraZeneca included in Other Noncurrent Liabilities (2)
400  
(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 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 expenses.
Under the agreement, Merck made an upfront payment to Eisai of $750 million 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). 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 the second quarter of 2020, Merck determined it was probable that sales of Lenvima in the future would trigger sales-based milestone payments aggregating $370 million from Merck to Eisai. Accordingly, Merck recorded a $370 million liability and a corresponding increase to the intangible asset related to Lenvima. Prior to 2020, Merck accrued sales-based milestone payments aggregating $950 million. Of these amounts, $50 million was paid to Eisai in 2019 and an additional $500 million was paid in the first nine months of 2020. 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 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 intangible asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $1.1 billion at September 30, 2020 and is included in Other Intangibles, Net 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.

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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)2020201920202019
Alliance revenue - Lenvima$142 $109 $421 $280 
Cost of sales (1)
46 23 215 97 
Selling, general and administrative18 21 48 59 
Research and development48 37 168 146 
($ in millions)September 30, 2020December 31, 2019
Receivables from Eisai included in Other current assets
$170 $150 
Payables to Eisai included in Accrued and other current liabilities (2)
325 700 
Payables to Eisai included in Other Noncurrent Liabilities (3)
570 525 
(1) Represents amortization of capitalized milestone payments.
(2) Includes accrued milestone and future option payments.
(3) 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 vericiguat, which is in development for the potential treatment of worsening heart failure. Vericiguat is currently under review by regulatory authorities in the United States, the EU and Japan. Under the agreement, Bayer leads commercialization of Adempas in the Americas, while Merck leads commercialization in the rest of the world. For vericiguat, if approved, Bayer will lead commercialization in the rest of world and Merck will lead in the Americas. Both companies share in development costs and profits on sales and have the right to co-promote in territories where they are not the lead. Merck records sales of Adempas in its marketing territories, as well as alliance revenue, which is Merck’s share of profits from the sale of Adempas in Bayer’s marketing territories. 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 $350 million was paid to Bayer in 2018. 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 this collaboration (which includes the acquired intangible asset balance, as well as capitalized sales-based milestone payments) was $838 million at September 30, 2020 and is included in Other Intangibles, Net on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2027 as supported by projected future cash flows, subject to impairment testing.
Summarized financial information related to this collaboration is as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Alliance revenue - Adempas$83 $50 $216 $144 
Net sales of Adempas recorded by Merck55 57 167 158 
Total sales$138 $107 $383 $302 
Cost of sales (1)
29 28 85 86 
Selling, general and administrative19 12 42 31 
Research and development12 31 53 94 
($ in millions)September 30, 2020December 31, 2019
Receivables from Bayer included in Other current assets
$70 $49 
Payables to Bayer included in Other Noncurrent Liabilities (2)
375 375 
(1) Includes amortization of intangible assets.
(2) Represents accrued milestone payment.
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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
4.    Restructuring
In early 2019, Merck approved a new global restructuring program (Restructuring Program) as part of a worldwide initiative focused on further optimizing the Company’s manufacturing and supply network, as well as reducing its global real estate footprint. This program is a continuation of the Company’s plant rationalization, builds on prior restructuring programs and does not include any actions associated with the planned spin-off of Organon. As the Company continues to evaluate its global footprint and overall operating model, it subsequently identified additional actions under the Restructuring Program, and could identify further actions over time. The actions currently contemplated under the Restructuring Program are expected to be substantially completed by the end of 2023, with the cumulative pretax costs to be incurred by the Company to implement the program estimated to be approximately $2.5 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 $800 million in 2020 related to the Restructuring Program. Actions under previous global restructuring programs have been substantially completed.
The Company recorded total pretax costs of $186 million and $296 million in the third quarter of 2020 and 2019, respectively, and $504 million and $642 million for the first nine months of 2020 and 2019, respectively, related to restructuring program activities. Since inception of the Restructuring Program through September 30, 2020, Merck has recorded total pretax accumulated costs of approximately $1.4 billion. For segment reporting, restructuring charges are unallocated expenses.
The following tables summarize the charges related to restructuring program activities by type of cost:
 Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
($ in millions)Separation
Costs
Accelerated
Depreciation
OtherTotalSeparation
Costs
Accelerated
Depreciation
OtherTotal
Cost of sales$ $33 $5 $38 $ $89 $42 $131 
Selling, general and administrative 15  15  37  37 
Research and development 18 1 19  66 1 67 
Restructuring costs61  53 114 143  126 269 
$61 $66 $59 $186 $143 $192 $169 $504 
 Three Months Ended September 30, 2019Nine Months Ended September 30, 2019
($ in millions)Separation
Costs
Accelerated
Depreciation
OtherTotalSeparation
Costs
Accelerated
Depreciation
OtherTotal
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 costs205  27 232 358  86 444 
$205 $41 $50 $296 $358 $173 $111 $642 
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 2020 and 2019 includes asset abandonment, facility shut-down and other related costs, as well as pretax gains and losses resulting from the 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.

- 13 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The following table summarizes the charges and spending relating to restructuring program activities for the nine months ended September 30, 2020:
($ in millions)Separation
Costs
Accelerated
Depreciation
OtherTotal
Restructuring reserves January 1, 2020$690 $ $69 $759 
Expense143 192 169 504 
(Payments) receipts, net(395) (237)(632)
Non-cash activity (192)39 (153)
Restructuring reserves September 30, 2020 (1)
$438 $ $40 $478 
(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 changes 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 are 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
- 14 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
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 a portion of 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 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 components). Changes in fair value of the excluded components are recognized in OCI. The Company recognizes in earnings the initial value of the excluded components 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)20202019202020192020201920202019
Net Investment Hedging Relationships
Foreign exchange contracts
$10 $1 $15 $8 $(4)$(8)$(15)$(23)
Euro-denominated notes162 (150)182 (152)    
(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.
In February 2020, five interest rate swaps with notional amounts of $250 million each matured. These swaps effectively converted the Company’s $1.25 billion, 1.85% fixed-rate notes due 2020 to variable rate debt. At September 30, 2020, the Company was a party to 14 pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes in which the notional amounts match the amount of the hedged fixed-rate notes as detailed in the table below.
September 30, 2020
($ in millions)Par Value of DebtNumber of Interest Rate Swaps HeldTotal Swap Notional Amount
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.

- 15 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
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 LiabilitiesCumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount
($ in millions)September 30, 2020December 31, 2019September 30, 2020December 31, 2019
Balance Sheet Line Item in which Hedged Item is Included
Loans payable and current portion of long-term debt$1,155 $1,249 $5 $(1)
Long-Term Debt2,309 3,409 62 14 
Presented in the table below is the fair value of derivatives on a gross basis segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments:
  September 30, 2020December 31, 2019
  Fair Value of DerivativeU.S. Dollar
Notional
Fair Value of DerivativeU.S. Dollar
Notional
($ in millions)Balance Sheet CaptionAssetLiabilityAssetLiability
Derivatives Designated as Hedging Instruments
Interest rate swap contractsOther current assets$6 $— $1,150 $ $— $ 
Interest rate swap contractsOther Assets63 — 2,250 15 — 3,400 
Interest rate swap contractsAccrued and other current liabilities—   — 1 1,250 
Foreign exchange contractsOther current assets30 — 4,120 152 — 6,117 
Foreign exchange contractsOther Assets59 — 1,881 55 — 2,160 
Foreign exchange contractsAccrued and other current liabilities— 104 3,096 — 22 1,748 
Foreign exchange contractsOther Noncurrent Liabilities— 1 157 — 1 53 
  $158 $105 $12,654 $222 $24 $14,728 
Derivatives Not Designated as Hedging Instruments
       
Foreign exchange contractsOther current assets$81 $— $5,455 $66 $— $7,245 
Foreign exchange contractsAccrued and other current liabilities— 171 8,042 — 73 8,693 
Forward contract related to Seagen common stockAccrued and other current liabilities— 22 1,000 —   
  $81 $193 $14,497 $66 $73 $15,938 
  $239 $298 $27,151 $288 $97 $30,666 
As noted above, the Company records its derivatives on a gross basis in the Condensed Consolidated Balance Sheet. The Company has master netting agreements with several of its financial institution counterparties (see Concentrations of Credit Risk below). The following table provides information on the Company’s derivative positions subject to these master netting arrangements as if they were presented on a net basis, allowing for the right of offset by counterparty and cash collateral exchanged per the master agreements and related credit support annexes:
 September 30, 2020December 31, 2019
($ in millions)AssetLiabilityAssetLiability
Gross amounts recognized in the condensed consolidated balance sheet$239 $298 $288 $97 
Gross amounts subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet
(140)(140)(84)(84)
Cash collateral received  (34) 
Net amounts$99 $158 $170 $13 
- 16 -

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)202020192020201920202019202020192020201920202019
Financial Statement Line Items in which Effects of Fair Value or Cash Flow Hedges are Recorded$12,551 $12,397 $(312)$35 $10 $(28)$35,479 $34,972 $(630)$362 $(190)$155 
(Gain) loss on fair value hedging relationships
Interest rate swap contracts
Hedged items
— — (14)13 — — — — 54 101 — — 
Derivatives designated as hedging instruments
— —  (6)— — — — (76)(74)— — 
Impact of cash flow hedging relationships
Foreign exchange contracts
Amount of (loss) gain recognized in OCI on derivatives
— — — — (195)186 — — — — (126)183 
Increase (decrease) in Sales as a result of AOCI reclassifications
(23)70 — — 23 (70)65 189 — — (65)(189)
Interest rate contracts
Amount of gain recognized in Other (income) expense, net on derivatives
— — (1)(1)— — — — (3)(3)— — 
Amount of loss recognized in OCI on derivatives
— — — — (1)(1)— — — — (3)(6)
(1) Interest expense is a component of Other (income) expense, net.
The table below provides information regarding the income statement effects of derivatives not designated as hedging instruments:
Amount of Derivative Pretax (Gain) Loss Recognized in Income
Three Months Ended
September 30,
Nine Months Ended September 30,
($ in millions)Income Statement Caption2020201920202019
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts (1)
Other (income) expense, net$(7)$(8)$(138)$112 
Foreign exchange contracts (2)
Sales7 (11)4 (7)
Interest rate contracts (3)
Other (income) expense, net  9  
Forward contract related to Seagen common stockResearch and development expenses22  22  
(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.
(3) These derivatives serve as economic hedges against rising treasury rates.
At September 30, 2020, the Company estimates $155 million of pretax net unrealized losses 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.

- 17 -

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, 2020December 31, 2019
 Amortized
Cost
Gross UnrealizedFair
Value
Amortized
Cost
Gross UnrealizedFair
Value
($ in millions)GainsLossesGainsLosses
U.S. government and agency securities$74 $ $ $74 $266 $3 $ $269 
Foreign government bonds2   2     
Commercial paper    668   668 
Corporate notes and bonds    608 13  621 
Asset-backed securities    226 1  227 
Total debt securities$76 $ $ $76 $1,768 $17 $ $1,785 
Publicly traded equity securities (1)
1,477 838 
Total debt and publicly traded equity securities
$1,553 $2,623 
(1) Unrealized net (gains) losses recognized in Other (income) expense, net on equity securities still held at September 30, 2020 were $(43) million and $(512) million in the third quarter and first nine months of 2020, respectively. Unrealized net losses (gains) recognized in Other (income) expense, net on equity securities still held at September 30, 2019 were $25 million and $(41) million in the third quarter and first nine months of 2019, respectively.
At September 30, 2020 and September 30, 2019, the Company also had $508 million and $393 million, respectively, of equity investments without readily determinable fair values included in Other Assets. The Company recognizes unrealized gains on these equity investments based on favorable observable price changes from transactions involving similar investments of the same investee and recognizes unrealized losses based on unfavorable observable price changes. During the first nine months of 2020, the Company recognized unrealized gains of $21 million and unrealized losses of $3 million in Other (income) expense, net related to these equity investments held at September 30, 2020. During the first nine months of 2019, the Company recognized unrealized gains of $4 million and unrealized losses of $12 million in Other (income) expense, net related to these investments held at September 30, 2019. Cumulative unrealized gains and cumulative unrealized losses based on observable prices changes for investments in equity investments without readily determinable fair values still held at September 30, 2020 were $128 million and $24 million, respectively.
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.
- 18 -

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 UsingFair Value Measurements Using
 Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
($ in millions)September 30, 2020December 31, 2019
Assets
Investments
Foreign government bonds$ $2 $ $2 $ $ $ $ 
Commercial paper     668  668 
Corporate notes and bonds     621  621 
Asset-backed securities (1)
     227  227 
U.S. government and agency securities
     209  209 
Publicly traded equity securities
1,370   1,370 518   518 
 1,370 2  1,372 518 1,725  2,243 
Other assets (2)
U.S. government and agency securities
74   74 60   60 
Publicly traded equity securities107   107 320   320 
181   181 380   380 
Derivative assets (3)
Forward exchange contracts 116  116  169  169 
Interest rate swaps 69  69  15  15 
Purchased currency options 54  54  104  104 
  239  239  288  288 
Total assets$1,551 $241 $ $1,792 $898 $2,013 $ $2,911 
Liabilities
Other liabilities
Contingent consideration$ $ $829 $829 $ $ $767 $767 
Derivative liabilities (3)
Forward exchange contracts 275  275  95  95 
Forward contract related to Seagen common stock 22  22     
Written currency options 1  1  1  1 
Interest rate swaps     1  1 
 298  298  97  97 
Total liabilities$ $298 $829 $1,127 $ $97 $767 $864 
(1)Primarily all of the asset-backed securities were 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, including 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.
As of September 30, 2020 and December 31, 2019, Cash and cash equivalents included $6.6 billion and $8.9 billion of cash equivalents, respectively (which would be considered Level 2 in the fair value hierarchy).
- 19 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Contingent Consideration
Summarized information about the changes in liabilities for contingent consideration associated with business acquisitions is as follows:
Nine Months Ended September 30,
($ in millions)20202019
Fair value January 1$767 $788 
Additions97  
Changes in estimated fair value (1)
71 52 
Payments(106)(85)
Fair value September 30 (2)(3)
$829 $755 
(1) Recorded in Cost of sales, Research and development expenses, and Other (income) expense, net. Includes cumulative translation adjustments.
(2) Balance at September 30, 2020 includes $140 million recorded as a current liability for amounts expected to be paid within the next 12 months.
(3) At September 30, 2020 and December 31, 2019, $637 million and $625 million, respectively, of the liabilities relate to the termination of the Sanofi-Pasteur MSD joint venture in 2016. As part of the termination, Merck recorded a liability for contingent future royalty payments of 11.5% on net sales of all Merck products that were previously sold by the joint venture through December 31, 2024. The fair value of this liability is determined utilizing the estimated amount and timing of projected cash flows using a risk-adjusted discount rate of 8% to present value the cash flows.
The additions to contingent consideration in 2020 relate to the acquisition of Themis (see Note 2). The payments of contingent consideration in both periods relate to liabilities recorded in connection with the termination of the Sanofi-Pasteur MSD joint venture in 2016.
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, 2020, was $32.6 billion compared with a carrying value of $28.7 billion and at December 31, 2019, was $28.8 billion compared with a carrying value of $26.3 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, Europe and China 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 has accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. The Company factored $2.1 billion and $2.7 billion of accounts receivable in the third quarter of 2020 and the fourth quarter of 2019, respectively, under these factoring arrangements, which reduced outstanding accounts receivable. The cash received from the financial institutions is reported within operating activities in the Consolidated Statement of Cash Flows. In certain of these factoring arrangements, for ease of administration, the Company will collect customer payments related to the factored receivables, which it then remits to the financial institutions. The net cash flows relating to these collections are reported as financing activities in the Consolidated Statement of Cash Flows. The cost of factoring such accounts receivable was de minimis.
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 collateral received by the Company from various counterparties was $34 million at December 31, 2019. 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, 2020 or December 31, 2019.
- 20 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
6.    Inventories
Inventories consisted of:
($ in millions)September 30, 2020December 31, 2019
Finished goods$2,038 $1,772 
Raw materials and work in process6,073 5,650 
Supplies197 207 
Total (approximates current cost)8,308 7,629 
Decrease to LIFO cost(99)(171)
 $8,209 $7,458 
Recognized as:
Inventories$6,128 $5,978 
Other assets2,081 1,480 
Amounts recognized as Other Assets are comprised almost entirely of raw materials and work in process inventories. At September 30, 2020 and December 31, 2019, these amounts included $1.8 billion and $1.3 billion, respectively, of inventories not expected to be sold within one year. In addition, these amounts included $288 million and $168 million at September 30, 2020 and December 31, 2019, respectively, of inventories produced in preparation for product launches.
7.    Other Intangibles
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 susceptible isolates of certain Gram-positive microorganisms. 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.
8.    Long-Term Debt
In June 2020, the Company issued $4.5 billion principal amount of senior unsecured notes consisting of $1.0 billion of 0.75% notes due 2026, $1.25 billion of 1.45% notes due 2030, $1.0 billion of 2.35% notes due 2040 and $1.25 billion of 2.45% notes due 2050. Merck used the net proceeds from the offering for general corporate purposes, including without limitation the repayment of outstanding commercial paper borrowings and other indebtedness with upcoming maturities.
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 condition, 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.
- 21 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
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.
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, 2020, approximately 3,590 cases are pending 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 Fractures 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. In May 2019, the U.S. Supreme Court 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. In November 2019, the Third Circuit remanded the cases back to the District Court in order to allow that court to determine in the first instance whether the plaintiffs’ state law claims are preempted by federal law under the standards described by the Supreme Court in its opinion. Briefing on the issue is closed, and the parties await the decision of the District Court.
Accordingly, as of September 30, 2020, approximately 970 cases were actively pending in the Femur Fracture MDL.
As of September 30, 2020, approximately 2,340 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, and Merck has continued to select additional cases to be reviewed.
As of September 30, 2020, 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 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, 2020, Merck is aware of approximately 1,465 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. 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 proceedings agreed to coordinate and adopt a schedule for completing discovery on general causation and preemption issues and for renewing summary judgment
- 22 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
and Daubert motions. Under the stipulated case management schedule, the hearings for Daubert and summary judgment motions took place on October 20, 2020.
As of September 30, 2020, 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 U.S. 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 in September 2019, in which the Illinois Supreme Court directed the intermediate appellate court to reconsider its earlier ruling. The Illinois Appellate Court issued a favorable decision concluding, consistent with Albrecht, that preemption presents a legal question to be resolved by the court.
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.
Vioxx
As previously disclosed, Merck is a defendant in a lawsuit brought by the Attorney General of Utah alleging that Merck misrepresented the safety of Vioxx. The lawsuit is pending in Utah state court. Utah seeks damages and penalties under the Utah False Claims Act. A bench trial in this matter has been rescheduled for April 6, 2021.
Governmental Proceedings
As previously disclosed, the Company’s subsidiaries in China have 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. In August 2019, the district court adopted in full the report and recommendation of the magistrate judge with respect to the Merck Defendants’ motions to dismiss on non-arbitration issues, thereby granting in part and denying in part Merck Defendants’ motions to dismiss. In addition, in June 2019, the representatives of the putative direct purchaser class filed an amended complaint, and in August 2019, retailer opt-out plaintiffs filed an amended complaint. The Merck Defendants moved to dismiss the new allegations in both complaints. In October 2019, the magistrate judge issued a report and recommendation recommending that the district judge grant the motions in their entirety. In December 2019, the district court adopted this report and recommendation in part. The district court granted the Merck Defendants’ motion to dismiss to the extent the motion sought dismissal of claims for overcharges paid by entities that purchased generic ezetimibe from Par Pharmaceutical, Inc. (Par Pharmaceutical) and dismissed any claims for such overcharges. In November 2019, the direct purchaser plaintiffs and the indirect purchaser plaintiffs filed motions for class certification. On June 18, 2020, the magistrate judge issued a report and recommendation recommending that the district judge grant in part the direct purchasers’ motion for class certification and certify a class of 35 direct purchasers. On August 21, 2020, the district court adopted the report and recommendation in full, and on November 2, 2020, the U.S. Court of Appeals for the Fourth Circuit granted defendants’ motion for permission to appeal the district court’s order. Also, on August 14, 2020, the magistrate judge recommended that the court grant the motion for class certification filed by the putative indirect purchaser class. The Merck Defendants objected to this report and recommendation and are awaiting a decision from the district court.
- 23 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
On August 10, 2020, the Merck Defendants filed a motion for summary judgment and other motions, and plaintiffs filed a motion for partial summary judgment, and other motions. Those motions are now fully briefed, and the court will likely hold a hearing on the competing motions. Trial in this matter has been adjourned.
Patent Litigation
From time to time, generic manufacturers of pharmaceutical products file abbreviated New Drug Applications (NDAs) with the 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.
Bridion Between January and March 2020, the Company received multiple Paragraph IV Certification Letters under the Hatch-Waxman Act notifying the Company that generic drug companies have filed applications to the FDA seeking pre-patent expiry approval to sell generic versions of Bridion (sugammadex) Injection. In March and April 2020, the Company filed patent infringement lawsuits in the U.S. District Courts for the District of New Jersey and the Northern District of West Virginia against those generic companies. These lawsuits, which assert one or more patents covering sugammadex and methods of using sugammadex, automatically stay FDA approval of the generic applications until June 2023 or until adverse court decisions, if any, whichever may occur earlier.
Mylan Pharmaceuticals Inc., Mylan API US LLC, and Mylan Inc. (Mylan) have filed motions to dismiss in the District of New Jersey for lack of venue and failure to state a claim against certain defendants, and in the Northern District of West Virginia for failure to state a claim against certain defendants. The New Jersey motion has not yet been decided, and the West Virginia action is stayed pending resolution of the New Jersey motion. All New Jersey actions against all defendants have been consolidated.
Januvia, Janumet, Janumet XR — In February 2019, 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 (2026 salt/polymorph patent), 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 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 three-day trial on invalidity issues in October 2021. The Court will schedule separate one-day trials on infringement issues if necessary. In the Company’s case against Mylan, the U.S. District Court for the Northern District of West Virginia has conditionally scheduled a three-day trial in December 2021 on all issues. In February 2020, the Company amended its complaint against one defendant, Teva Pharmaceuticals USA, Inc., to add patent infringement claims related to a patent that expires in 2025 and covers certain processes for manufacturing sitagliptin. In July 2020, the Company amended its complaints against two defendants, Teva Pharmaceuticals USA, Inc. and Watson Laboratories, Inc., to add patent infringement claims related to a patent that also expires in 2026 and covers certain amorphous forms of sitagliptin.
The Company has settled with five generic companies such that these generic companies can bring their products to the market in November 2026 or earlier under certain circumstances.
In October 2019, Mylan filed a petition for Inter Partes Review (IPR) at the United States Patent and Trademark Office (USPTO) seeking invalidity of some, but not all, of the claims of the 2026 salt/polymorph patent. The USPTO instituted IPR proceedings in May 2020, finding a reasonable likelihood that the challenged claims are not valid. A trial is scheduled for February 2021 and a final decision is expected in May 2021. After institution, three additional IPR petitions were filed by Teva Pharmaceuticals USA, Inc., Dr. Reddy’s Laboratories, Inc., and Sun Pharmaceutical Industries Ltd., as well as related entities, which requested joinder with Mylan’s IPR proceedings. If the challenges are successful, the unchallenged claims of the 2026 salt/polymorph patent will remain valid, subject to the court proceedings described above.
- 24 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
In Germany, two generic companies have sought the revocation of the Supplementary Protection Certificate (SPC) for Janumet. If the generic companies are successful, Janumet could lose market exclusivity in Germany as early as July 2022. Challenges to the Janumet SPC have also occurred in Portugal and Finland, and could occur in other European countries.
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 condition, 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, 2020 and December 31, 2019 of approximately $255 million and $240 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)SharesPar ValueSharesCost
Balance at July 1, 20193,577 $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, 20193,577 $1,788 $39,561 $45,804 $(5,390)1,026 $(54,925)$87 $26,925 
Balance at July 1, 20203,577 $1,788 $39,373 $49,724 $(6,393)1,048 $(56,850)$102 $27,744 
Net income attributable to Merck & Co., Inc.— — — 2,941 — — — — 2,941 
Other comprehensive income, net of taxes— — — — 10 — — — 10 
Cash dividends declared on common stock ($0.61 per share)
— — — (1,558)— — — — (1,558)
Share-based compensation plans and other— — 116 — — (1)35 — 151 
Net income attributable to noncontrolling interests
— — — — — — — 4 4 
Distributions attributable to noncontrolling interests
— — — — — — — (22)(22)
Balance at September 30, 20203,577 $1,788 $39,489 $51,107 $(6,383)1,047 $(56,815)$84 $29,270 
- 25 -

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)SharesPar ValueSharesCost
Balance at January 1, 20193,577 $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, 20193,577 1,788 39,561 45,804 (5,390)1,026 (54,925)87 26,925 
Balance at January 1, 20203,577 $1,788 $39,660 $46,602 $(6,193)1,038 $(55,950)$94 $26,001 
Net income attributable to Merck & Co., Inc.— — — 9,161 — — — — 9,161 
Other comprehensive loss, net of taxes— — — — (190)— — — (190)
Cash dividends declared on common stock ($1.83 per share)
— — — (4,656)— — — — (4,656)
Treasury stock shares purchased— — — — — 16 (1,281)— (1,281)
Share-based compensation plans and other— — (171)— — (7)416 — 245 
Net income attributable to noncontrolling interests
— — — — — — — 12 12 
Distributions attributable to noncontrolling
 interests
— — — — — — — (22)(22)
Balance at September 30, 20203,577 $1,788 $39,489 $51,107 $(6,383)1,047 $(56,815)$84 $29,270 

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)2020201920202019
Pretax share-based compensation expense$126 $101 $354 $306 
Income tax benefit(17)(14)(48)(42)
Total share-based compensation expense, net of taxes$109 $87 $306 $264 
During the first nine months of 2020, the Company granted 7 million RSUs with a weighted-average grant date fair value of $77.83 per RSU and during the first nine months of 2019 granted 5 million RSUs with a weighted-average grant date fair value of $80.03 per RSU. During the first nine months of 2020, the Company granted 773 thousand PSUs with a weighted-average grant date fair value of $75.22 per PSU and during the first nine months of 2019 granted 609 thousand PSUs with a weighted-average grant date fair value of $90.50 per PSU.
During the first nine months of 2020, the Company granted 4 million stock options with a weighted-average exercise price of $77.67 per option and during the first nine months of 2019 granted 3 million stock options with a weighted-average exercise price of $80.05 per option. The weighted-average fair value of options granted during the first nine months of 2020 and 2019 was $9.93 and $10.63 per option, respectively, and was determined using the following assumptions:
- 26 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
  Nine Months Ended
September 30,
20202019
Expected dividend yield3.1 %3.2 %
Risk-free interest rate0.4 %2.4 %
Expected volatility22.1 %18.7 %
Expected life (years)5.85.9
At September 30, 2020, there was $800 million of total pretax unrecognized compensation expense related to nonvested stock options, RSU and PSU awards which will be recognized over a weighted-average period of 2.1 years. For segment reporting, share-based compensation costs are unallocated expenses.
12.    Pension and Other Postretirement Benefit Plans
The Company has defined benefit pension plans covering eligible employees in the United States and in certain of its international subsidiaries. The net periodic benefit cost of such plans consisted of the following components: 
  Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
($ in millions)U.S.InternationalU.S.InternationalU.S.InternationalU.S.International
Service cost$96 $77 $76 $58 $270 $225 $221 $178 
Interest cost107 35 115 44 323 103 343 133 
Expected return on plan assets(193)(104)(202)(106)(581)(310)(613)(320)
Amortization of unrecognized prior service credit
(12)(3)(12)(3)(37)(9)(37)(9)
Net loss amortization75 32 43 16 228 94 113 47 
Termination benefits1 1 3  5 2 7 1 
Curtailments1  5  4 (1)6  
Settlements2    11 2   
 $77 $38 $28 $9 $223 $106 $40 $30 
The Company anticipates that in 2020 it will contribute approximately $200 million and $375 million to its U.S. and international pension plans, respectively, of which $184 million and $123 million, respectively, was contributed in the first nine months of the year.
The Company provides medical benefits, principally to its eligible U.S. retirees and similar benefits to their dependents, through its other postretirement benefit plans. The net credit of such plans consisted of the following components: 
  Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Service cost$13 $12 $39 $36 
Interest cost14 17 43 52 
Expected return on plan assets(19)(18)(56)(54)
Amortization of unrecognized prior service credit(18)(20)(54)(59)
Net gain amortization(5)(3)(13)(7)
Termination benefits 1  1 
Curtailments (3)(1)(4)
 $(15)$(14)$(42)$(35)
In connection with restructuring actions (see Note 4), termination charges were recorded on pension plans related to expanded eligibility for certain employees exiting Merck. Also, in connection with these restructuring actions, curtailments were recorded on pension and other postretirement benefit plans and settlements were recorded on certain U.S. and international pension 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
- 27 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
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)2020201920202019
Interest income$(9)$(61)$(48)$(225)
Interest expense203 231 624 674 
Exchange losses10 38 89 166 
Income from investments in equity securities, net (1)
(360)(16)(964)(50)
Net periodic defined benefit plan (credit) cost other than service cost(88)(128)(259)(409)
Other, net(68)(29)(72)206 
 $(312)$35 $(630)$362 
(1)    Includes net realized and unrealized gains and losses from investments in equity securities either owned directly or through ownership interests in investment funds. Unrealized gains and losses from investments that are directly owned are determined at the end of the reporting period, while ownership interests in investment funds are accounted for on a one quarter lag.
The decline in interest income in the third quarter and first nine months of 2020 reflects lower investments and lower interest rates. The lower exchange losses in the first nine months of 2020 reflect losses on forward exchange contracts in 2019 related to the acquisition of Antelliq. The increase in income from investments in equity securities, net, in both the third quarter and first nine months of 2020 was driven primarily by the recognition of unrealized gains on certain investments, most of which relate to Moderna, Inc.
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.
Interest paid for the nine months ended September 30, 2020 and 2019 was $605 million and $629 million, respectively.
14.    Taxes on Income
The effective income tax rates of 14.1% and 18.7% for the third quarter of 2020 and 2019, respectively, and 14.9% and 14.5% for the first nine months of 2020 and 2019, 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 2019 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.
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.

- 28 -

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)2020201920202019
Net income attributable to Merck & Co., Inc.
$2,941 $1,901 $9,161 $7,487 
Average common shares outstanding2,529 2,558 2,530 2,572 
Common shares issuable (1)
9 14 11 15 
Average common shares outstanding assuming dilution 2,538 2,572 2,541 2,587 
Basic earnings per common share attributable to Merck & Co., Inc. common shareholders
$1.16 $0.74 $3.62 $2.91 
Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders
$1.16 $0.74 $3.61 $2.89 
(1)Issuable primarily under share-based compensation plans.
For the third quarter of 2020 and 2019, 5 million and 3 million, respectively, and for the first nine months of 2020 and 2019, 5 million and 2 million, respectively, of common shares issuable under share-based compensation plans were excluded from the computation of earnings per common share assuming dilution because the effect would have been antidilutive.
16.    Other Comprehensive Income (Loss)
Changes in AOCI by component are as follows:
Three Months Ended September 30,
($ in millions)DerivativesInvestmentsEmployee
Benefit
Plans
Cumulative
Translation
Adjustment
Accumulated Other
Comprehensive
Income (Loss)
Balance July 1, 2019, net of taxes$66 $48 $(3,530)$(1,946)$(5,362)
Other comprehensive income (loss) before reclassification adjustments, pretax186 8 (4)(84)106 
Tax(39)  (33)(72)
Other comprehensive income (loss) before reclassification adjustments, net of taxes147 8 (4)(117)34 
Reclassification adjustments, pretax(71)
(1)
(25)
(2)
21 
(3)
 (75)
Tax15  (2) 13 
Reclassification adjustments, net of taxes(56)

(25)

19 

 (62)
Other comprehensive income (loss), net of taxes91 (17)15 (117)(28)
Balance September 30, 2019, net of taxes$157 $31 $(3,515)$(2,063)$(5,390)
Balance July 1, 2020, net of taxes$15 $ $(4,162)$(2,246)$(6,393)
Other comprehensive income (loss) before reclassification adjustments, pretax(195) 2 50 (143)
Tax41  1 35 77 
Other comprehensive income (loss) before reclassification adjustments, net of taxes(154) 3 85 (66)
Reclassification adjustments, pretax22 
(1)
 72 
(3)
 94 
Tax(5) (13) (18)
Reclassification adjustments, net of taxes17 

 

59 

 76 
Other comprehensive income (loss), net of taxes(137) 62 85 10 
Balance September 30, 2020, net of taxes$(122)$ $(4,100)$(2,161)$(6,383)
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Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Nine Months Ended September 30,
($ in millions)DerivativesInvestmentsEmployee
Benefit
Plans
Cumulative
Translation
Adjustment
Accumulated Other
Comprehensive
Income (Loss)
Balance January 1, 2019, net of taxes$166 $(78)$(3,556)$(2,077)$(5,545)
Other comprehensive income (loss) before reclassification adjustments, pretax183 139 (5)47 364 
Tax(38) 6 (33)(65)
Other comprehensive income (loss) before reclassification adjustments, net of taxes145 139 1 14 299 
Reclassification adjustments, pretax(195)
(1)
(30)
(2)
49 
(3)
 (176)
Tax41  (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)
Balance January 1, 2020, net of taxes$31 $18 $(4,261)$(1,981)$(6,193)
Other comprehensive income (loss) before reclassification adjustments, pretax(126)3 (19)(220)(362)
Tax27  12 40 79 
Other comprehensive income (loss) before reclassification adjustments, net of taxes(99)3 (7)(180)(283)
Reclassification adjustments, pretax(68)
(1)
(21)
(2)
210 
(3)
 121 
Tax14  (42) (28)
Reclassification adjustments, net of taxes(54)(21)168  93 
Other comprehensive income (loss), net of taxes(153)(18)161 (180)(190)
Balance September 30, 2020, net of taxes$(122)$ $(4,100)$(2,161)$(6,383)
(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 three operating segments, which are the Pharmaceutical, Animal Health and Healthcare Services 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.
The Animal Health segment discovers, develops, manufactures and markets a wide range of veterinary pharmaceutical and vaccine products, as well as health management solutions and services, for the prevention, treatment and control of disease in all major livestock and companion animal species. The Company also offers an extensive suite of digitally connected identification, traceability and monitoring products. The Company sells its products to veterinarians, distributors and animal producers.
The Healthcare Services segment provided services and solutions that focus on engagement, health analytics and clinical services to improve the value of care delivered to patients. The Company has been in the process of divesting the businesses in the Healthcare Services segment. The remaining businesses were divested during the first quarter of 2020.

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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,
2020201920202019
 ($ in millions)U.S.Int’lTotalU.S.Int’lTotalU.S.Int’lTotalU.S.Int’lTotal
Pharmaceutical:
Oncology
Keytruda$2,157 $1,559 $3,715 $1,743 $1,327 $3,070 $6,106 $4,281 $10,387 $4,525 $3,448 $7,973 
Alliance revenue - Lynparza (1)
107 89 196 71 53 123 297 223 519 186 126 313 
Alliance revenue - Lenvima (1)
82 60 142 65 44 109 270 152 421 169 112 280 
Emend8 31 39 42 56 98 18 96 115 173 163 336 
Vaccines
Gardasil/Gardasil 9
579 608 1,187 761 558 1,320 1,209 1,732 2,941 1,579 1,464 3,044 
ProQuad/M-M-R II/Varivax
437 139 576 482 141 623 1,033 356 1,390 1,325 469 1,794 
Pneumovax 23
276 99 375 179 58 237 478 270 748 428 164 592 
RotaTeq114 96 210 102 78 180 355 246 601 360 203 564 
Vaqta32 19 51 36 26 62 79 60 139 103 65 167 
Hospital Acute Care
Bridion162 157 320 133 151 284 412 431 843 381 437 817 
Noxafil13 66 79 77 100 177 27 220 247 268 291 560 
Prevymis32 46 77 22 23 45 87 113 200 60 55 115 
Primaxin1 73 74 2 75 77 2 187 189 2 204 207 
Invanz1 50 51 (1)58 57 7 152 159 30 176 206 
Cancidas1 49 50  62 62 2 147 148 5 187 191 
Cubicin11 28 39 14 38 52 36 80 116 78 129 207 
Zerbaxa20 23 43 20 15 35 57 54 112 45 43 88 
Immunology
Simponi 209 209  203 203  615 615  625 625 
Remicade 82 82  101 101  242 242  322 322 
Neuroscience
Belsomra18 63 81 23 57 80 67 177 244 68 155 223 
Virology
Isentress/Isentress HD
92 113 205 102 149 250 243 403 646 304 449 752 
Zepatier6 22 28 24 59 83 38 83 122 96 208 304 
Cardiovascular
Zetia(1)103 103 5 142 147 (4)389 384 11 432 443 
Vytorin3 44 47 5 52 57 9 130 139 11 219 231 
Atozet 111 111  97 97  348 348  283 283 
Alliance revenue - Adempas (2)
78 5 83 48 2 50 200 16 216 137 7 144 
Adempas 55 55  57 57  167 167  158 158 
Diabetes
Januvia342 479 821 367 440 807 1,110 1,339 2,449 1,223 1,317 2,539 
Janumet105 400 506 129 375 503 361 1,138 1,499 462 1,105 1,567 
Women’s Health
Implanon/Nexplanon137 52 189 136 62 199 374 142 515 421 160 581 
NuvaRing24 34 58 202 39 241 85 98 184 593 107 700 
Diversified Brands
Singulair4 78 82 11 140 152 14 324 338 24 479 503 
Cozaar/Hyzaar5 86 91 6 110 116 17 275 292 16 313 329 
Arcoxia 68 68  72 72  204 204  221 221 
Nasonex 41 41 4 55 58 9 152 161 2 224 226 
Follistim AQ20 31 50 27 35 62 60 76 136 80 102 182 
Other pharmaceutical (3)
352 834 1,186 343 804 1,149 1,144 2,334 3,478 1,037 2,394 3,431 
Total Pharmaceutical segment sales
5,218 6,102 11,320 5,180 5,914 11,095 14,202 17,452 31,654 14,202 17,016 31,218 
Animal Health:
Livestock164 594 758 144 582 726 448 1,697 2,145 406 1,601 2,007 
Companion Animals234 228 462 193 203 396 676 714 1,390 560 704 1,264 
Total Animal Health segment sales
398 822 1,220 337 785 1,122 1,124 2,411 3,535 966 2,305 3,271 
Other segment sales (4)
   46  46 23  23 133 1 133 
Total segment sales5,616 6,924 12,540 5,563 6,699 12,263 15,349 19,863 35,212 15,301 19,322 34,622 
Other (5)
9 2 11 10 125 134 47 221 267 19 330 350 
 $5,625 $6,926 $12,551 $5,573 $6,824 $12,397 $15,396 $20,084 $35,479 $15,320 $19,652 $34,972 
U.S. plus international may not equal total due to rounding.
(1)    Alliance revenue represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs (see Note 3).
(2)    Alliance revenue represents Merck’s share of profits from sales in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 3).
(3)    Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.
(4)    Represents sales for the Healthcare Services segment. All the businesses in the Healthcare Services segment were divested as of March 31, 2020.
(5)    Other is primarily comprised of miscellaneous corporate revenues, including revenue hedging activities, as well as third-party manufacturing sales.
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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 $3.4 billion and $3.0 billion for the three months ended September 30, 2020 and 2019, respectively, and $9.6 billion and $8.6 billion for the nine months ended September 30, 2020 and 2019, respectively.
Consolidated sales by geographic area where derived are as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
United States$5,625 $5,573 $15,396 $15,320 
Europe, Middle East and Africa3,454 3,189 10,059 9,452 
China1,016 914 2,715 2,423 
Japan828 919 2,506 2,639 
Asia Pacific (other than China and Japan)735 756 2,129 2,217 
Latin America604 671 1,670 1,889 
Other289 375 1,004 1,032 
 $12,551 $12,397 $35,479 $34,972 
A reconciliation of segment profits to Income before taxes is as follows:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Segment profits:
Pharmaceutical segment$7,974 $7,747 $22,010 $21,437 
Animal Health segment451 423 1,336 1,243 
Other segment(1)(2)1 (2)
Total segment profits8,424 8,168 23,347 22,678 
Other profits(12)101 188 226 
Unallocated:
Interest income9 61 48 225 
Interest expense(203)(231)(624)(674)
Depreciation and amortization(395)(382)(1,173)(1,169)
Research and development(3,272)(3,110)(7,364)(7,045)
Amortization of purchase accounting adjustments(285)(329)(879)(1,105)
Restructuring costs(114)(232)(269)(444)
Other unallocated, net(724)(1,699)(2,490)(4,019)
 $3,428 $2,347 $10,784 $8,673 
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. In addition, costs related to restructuring activities, as well as the amortization of purchase accounting adjustments are not allocated to segments.
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.
- 32 -

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Planned Spin-Off of Women’s Health, Biosimilars and Established Brands into New Company
In February 2020, Merck announced its intention to spin-off products from its women’s health, biosimilars and established brands businesses into a new, independent, publicly traded company named Organon & Co. (Organon) through a distribution of Organon’s publicly traded stock to Company shareholders. The distribution is expected to qualify as tax-free to the Company and its shareholders for U.S. federal income tax purposes. The established brands included in the transaction consist of dermatology, non-opioid pain management, respiratory, and select cardiovascular products including Zetia (ezetimibe) and Vytorin (ezetimibe and simvastatin), as well as the rest of Merck’s diversified brands franchise. Merck’s existing research pipeline programs will continue to be owned and developed within Merck as planned. Organon will have development capabilities initially focused on late-stage development and life-cycle management and is expected over time to develop research capabilities in selected therapeutic areas. The spin-off is expected to be completed in the second quarter of 2021, subject to market and certain other conditions. Subsequent to the spin-off, the historical results of the women’s health, biosimilars and established brands businesses will be reflected as discontinued operations in the Company’s consolidated financial statements.
Recent Developments
Management
In October 2020, Merck announced that Dr. Roger M. Perlmutter will be retiring as Executive Vice President and President, Merck Research Laboratories (MRL). Dr. Perlmutter will be succeeded by Dr. Dean Y. Li, effective January 1, 2021. Dr. Perlmutter will remain as Non-Executive Chairman, MRL through June 30, 2021 to facilitate a seamless transition.
Business Developments
Below is a summary of significant 2020 business development activity. See Note 2 to the condensed consolidated financial statements for additional information.
In November 2020, Merck and VelosBio, Inc. (VelosBio) announced that the companies had entered into a definitive agreement pursuant to which Merck, through a subsidiary, will acquire all outstanding shares of VelosBio for $2.75 billion, subject to certain customary adjustments. VelosBio is a privately held clinical-stage biopharmaceutical company committed to developing first-in-class cancer therapies targeting receptor tyrosine kinase-like orphan receptor 1 (ROR1). VelosBio’s lead investigational candidate is VLS-101, an antibody-drug conjugate targeting ROR1 that is currently being evaluated in a Phase 1 and a Phase 2 clinical trial for the treatment of patients with hematologic malignancies and solid tumors, respectively. The closing of the transaction, which is subject to approval under the Hart-Scott-Rodino Antitrust Improvements Act and other customary conditions, is expected by the end of 2020.
In September 2020, Merck and Seagen Inc. (Seagen, formerly known as Seattle Genetics, Inc.) announced an oncology collaboration to globally develop and commercialize Seagen’s ladiratuzumab vedotin (MK-6440), an investigational antibody-drug conjugate targeting LIV-1, which is currently in Phase 2 clinical trials for breast cancer and other solid tumors. The companies will equally share profits worldwide. Under the terms of the agreement, Merck made an upfront payment of $600 million and a $1.0 billion equity investment in 5 million shares of Seagen common stock at a price of $200 per share. The closing of the equity investment occurred in October 2020. Seagen is also eligible to receive future contingent milestone payments dependent upon the achievement of certain developmental and sales-based milestones.
Concurrent with the above transaction, Seagen granted Merck an exclusive license to commercialize Tukysa (tucatinib), a small molecule tyrosine kinase inhibitor, for the treatment of HER2-positive cancers, in Asia, the Middle East and Latin America and other regions outside of the United States, Canada and Europe. Under the terms of the agreement, Merck made upfront payments aggregating $210 million. Seagen is also eligible to receive future contingent regulatory approval milestones and will receive tiered royalties on sales of Tukysa in Merck’s territories.
Additionally in September 2020, Merck acquired a biologics manufacturing facility located in Dunboyne, Ireland from Takeda Pharmaceutical Company Limited for €256 million ($302 million).
In July 2020, Merck acquired the U.S. rights to Sentinel Flavor Tabs and Sentinel Spectrum Chews from Virbac Corporation for $410 million. Sentinel products provide protection against common parasites in dogs.
Also, in July 2020, Merck and Ridgeback Biotherapeutics LP (Ridgeback Bio), a closely held biotechnology company, closed a collaboration agreement to develop molnupiravir (MK-4482, formerly known as EIDD-2801), an orally available antiviral candidate currently in clinical development for the treatment of patients with COVID-19. Merck gained exclusive worldwide rights to develop and commercialize molnupiravir and related molecules. Under the terms of the agreement, Ridgeback Bio received an upfront payment and also is eligible to receive future contingent payments dependent upon the achievement of certain developmental and regulatory approval milestones, as well as a share of the net profits of molnupiravir and related molecules, if approved.
- 33 -


In June 2020, Merck acquired privately held Themis Bioscience GmbH (Themis), a company focused on vaccines and immune-modulation therapies for infectious diseases and cancer for $366 million. Merck may make additional contingent payments dependent upon the achievement of certain developmental, regulatory approval and commercial milestones. The acquisition builds upon an ongoing collaboration between the two companies to develop vaccine candidates using the measles virus vector platform and is expected to accelerate the development of the COVID-19 vaccine candidate (V591), which is currently in Phase 1 clinical development.
In May 2020, Merck and the International AIDS Vaccine Initiative, Inc. (IAVI), a nonprofit scientific research organization dedicated to addressing urgent, unmet global health challenges, announced a new collaboration to develop V590, an investigational vaccine against SARS-CoV-2 being studied for the prevention of COVID-19, which is currently in Phase 1 clinical development. Under the terms of the agreement, Merck made an upfront payment of $6.5 million and may make additional contingent payments dependent upon the achievement of certain sales-based milestones, as well as royalties.
In January 2020, Merck acquired ArQule, Inc. (ArQule), a publicly traded biopharmaceutical company focused on kinase inhibitor discovery and development for the treatment of patients with cancer and other diseases, for total consideration of $2.7 billion. ArQule’s lead investigational candidate, MK-1026 (formerly known as ARQ 531), is a novel, oral Bruton’s tyrosine kinase (BTK) inhibitor currently being evaluated for the treatment of B-cell malignancies.
Coronavirus Disease 2019 (COVID-19) Update
Overall, in response to the COVID-19 pandemic, Merck is focused on protecting the safety of its employees, ensuring that its supply of medicines and vaccines reaches its patients, contributing its scientific expertise to the development of vaccine and antiviral approaches, and supporting health care providers and Merck’s communities. Although COVID-19-related disruptions to patients’ ability to access health care providers negatively affected results for the third quarter and first nine months of 2020, Merck remains confident in the fundamental underlying demand for its products and its prospects for long-term growth.
In the third quarter of 2020, the negative impact of the COVID-19 pandemic to Merck’s Pharmaceutical sales was estimated to be approximately $475 million. The negative impact to Animal Health sales was immaterial. The negative impact to sales in the first nine months of 2020 was approximately $2.0 billion for the Pharmaceutical segment and $50 million for the Animal Health segment. Merck assumes that the majority of the negative impact from the COVID-19 pandemic occurred in the second quarter of 2020. However, the Company expects some residual negative impacts in the fourth quarter, largely in Europe and certain emerging markets. In addition, the phasing of the recovery of Gardasil 9 (Human Papillomavirus 9-valent Vaccine, Recombinant) demand is slower than originally anticipated, in particular in the United States due to lower back-to-school demand. Accordingly, for the full-year 2020, including the impact for the first nine months, Merck expects an unfavorable impact to sales of approximately $2.35 billion (excluding the impact of foreign exchange) due to the COVID-19 pandemic, comprised of approximately $2.3 billion for Pharmaceutical revenue and approximately $50 million for Animal Health revenue.
Roughly two-thirds of Merck’s Pharmaceutical revenue is comprised of physician-administered products, which, despite strong underlying demand, were affected by social distancing measures, fewer well visits and delays in elective surgeries due to the COVID-19 pandemic. These impacts, as well as the prioritization of COVID-19 patients at health care providers, have resulted in reduced administration of many of the Company’s human health products, in particular for its vaccines, including Gardasil 9, as well as for Keytruda (pembrolizumab) and Implanon/Nexplanon (etonogestrel implant). Access to healthcare providers remains reduced, although improved from the second quarter. Merck anticipates reduced demand for its physician-administered products while pandemic-related access measures remain in place. In addition, declines in elective surgeries negatively affected the demand for Bridion (sugammadex) Injection in the year-to-date period. Sales of Pneumovax 23 (pneumococcal vaccine polyvalent) increased due to heightened awareness of pneumococcal vaccination during the COVID-19 pandemic and ahead of flu season.
Operating expenses were positively affected in the third quarter and first nine months of 2020 by approximately $115 million and $540 million, respectively, primarily driven by lower promotional and selling costs, as well as lower research and development expenses, net of investments in COVID-19-related antiviral and vaccine research programs. For the full-year 2020, Merck expects a net favorable impact to operating expenses of approximately $625 million reflecting continued lower spending due to the COVID-19 pandemic, partially offset by spending on COVID-19-related antiviral and vaccine research programs.
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
- 34 -


performance in the first nine months of 2020 was negatively affected by other cost-reduction measures taken by governments and other third-parties to lower health care costs. The Company anticipates all of these actions and additional actions in the future will continue to negatively affect revenue performance.
Operating Results
Sales
Three Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
Nine Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
($ in millions)20202019% Change20202019% Change
United States$5,625 $5,573 %%$15,396 $15,320 — %— %
International6,926 6,824 %%20,084 19,652 %%
Total$12,551 $12,397 %%$35,479 $34,972 %%
U.S. plus international may not equal total due to rounding.

Worldwide sales were $12.6 billion and $35.5 billion for the third quarter and first nine months of 2020, respectively, representing growth of 1% compared with the same prior year periods. Sales growth in both periods was primarily driven by higher sales in the oncology franchise reflecting strong growth of Keytruda, as well as increased alliance revenue from Lynparza (olaparib) and Lenvima (lenvatinib). Also contributing to revenue growth were higher sales of certain vaccines, including Pneumovax 23, and higher sales of certain hospital acute care products, including Prevymis (letermovir) and Bridion. Higher sales of Animal Health products also contributed to revenue growth in the third quarter and first nine months of 2020.
Sales growth in both periods was partially offset by the ongoing effects of generic competition for certain products including women’s health product NuvaRing (etonogestrel/ethinyl estradiol vaginal ring), hospital acute care product Noxafil (posaconazole), oncology products Emend (aprepitant)/Emend (fosaprepitant dimeglumine) for Injection, cardiovascular products Zetia and Vytorin, as well as 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. Lower sales of certain vaccines including human papillomavirus (HPV) vaccines Gardasil (Human Papillomavirus Quadrivalent [Types 6,11,16 and 18] Vaccine, Recombinant)/Gardasil 9 and 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), as well as lower sales of virology products Zepatier (elbasvir and grazoprevir) and Isentress/Isentress HD (raltegravir) also partially offset revenue growth in the third quarter and first nine months of 2020. As discussed above, the COVID-19 pandemic unfavorably affected sales in the third quarter and first nine months of 2020.
See Note 17 to the condensed consolidated financial statements for details on sales of the Company’s products. A discussion of performance for select products in the franchises follows.
Pharmaceutical Segment
Oncology
Three Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
Nine Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
($ in millions)20202019% Change20202019% Change
Keytruda$3,715 $3,070 21 %21 %$10,387 $7,973 30 %31 %
Alliance Revenue - Lynparza (1)
196 123 59 %58 %519 313 66 %67 %
Alliance Revenue - Lenvima (1)
142 109 30 %29 %421 280 50 %50 %
Emend39 98 (60)%(59)%115 336 (66)%(65)%
(1) Alliance revenue represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs (see Note 3 to the condensed consolidated financial statements).
Keytruda is an anti-PD-1 (programmed death receptor-1) therapy that has been approved as monotherapy for the treatment of certain patients with cervical cancer, classical Hodgkin lymphoma (cHL), cutaneous squamous cell carcinoma (cSCC), esophageal cancer, gastric or gastroesophageal junction adenocarcinoma, head and neck squamous cell carcinoma (HNSCC), hepatocellular carcinoma (HCC), 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), and urothelial carcinoma. Keytruda is also approved for the treatment of certain patients in combination with chemotherapy for metastatic squamous and nonsquamous NSCLC, in combination with chemotherapy for HNSCC, in combination with axitinib for renal cell carcinoma (RCC), and in combination with Lenvima for endometrial
- 35 -


carcinoma. The Keytruda clinical development program includes studies across a broad range of cancer types (see “Research and Development” below).
In January 2020, the U.S. Food and Drug Administration (FDA) approved Keytruda as monotherapy for the treatment of certain patients with Bacillus Calmette-Guerin (BCG)-unresponsive, high-risk, non-muscle invasive bladder cancer (NMIBC) based on the results of the KEYNOTE-057 trial.
In April 2020, the FDA granted accelerated approval for an additional recommended dosage of 400 mg every six weeks (Q6W) for Keytruda across all adult indications, including monotherapy and combination therapy. This new dosage option is available in addition to the current dose of 200 mg every three weeks (Q3W).
In June 2020, the FDA granted accelerated approval for Keytruda as monotherapy for the treatment of adult and pediatric patients with unresectable or metastatic tumor mutational burden-high (TMB-H) (≥10 mutations/megabase) solid tumors, as determined by an FDA-approved test, that have progressed following prior treatment and who have no satisfactory alternative treatment options based in part on the results of the KEYNOTE-158 trial.
Also in June 2020, the FDA approved Keytruda as monotherapy both for the treatment of patients with recurrent or metastatic cSCC that is not curable by surgery or radiation based on data from the Phase 2 KEYNOTE-629 trial and for the first-line treatment of patients with unresectable or metastatic MSI-H or mismatch repair deficient colorectal cancer based on results from the Phase 3 KEYNOTE-177 trial.
In October 2020, the FDA approved an expanded label for Keytruda as monotherapy for the treatment of adult patients with relapsed or refractory cHL. The approval is based on results from the Phase 3 KEYNOTE-204 trial in which Keytruda significantly reduced the risk of disease progression or death compared to brentuximab vedotin. The FDA also approved an updated pediatric indication for Keytruda for the treatment of pediatric patients with refractory cHL or cHL that has relapsed after two or more lines of therapy. Keytruda was previously approved under the FDA’s accelerated approval process for the treatment of adult and pediatric patients with refractory cHL, or who have relapsed after three or more prior lines of therapy based on data from the KEYNOTE-087 trial. In accordance with accelerated approval regulations, continued approval was contingent upon verification and description of clinical benefit; these accelerated approval requirements have been fulfilled with the data from KEYNOTE-204.
In June 2020, Keytruda was approved by the National Medical Products Administration (NMPA) in China as monotherapy for the second-line treatment of patients with locally advanced or metastatic esophageal squamous cell carcinoma (ESCC) whose tumors express PD-L1 (Combined Positive Score [CPS] ≥10). This indication was granted based on the Phase 3 KEYNOTE-181 trial, including data from an extension of the global study in Chinese patients.
In August 2020, Keytruda was approved by the Japan Pharmaceuticals and Medical Devices Agency (PMDA) as monotherapy for the treatment of patients whose tumors are PD-L1-positive, and have radically unresectable, advanced or recurrent ESCC who have progressed after chemotherapy. The approval was based on results from the Phase 3 KEYNOTE-181 trial. Additionally, Keytruda was approved by the Japan PMDA for use at an additional recommended dosage of 400 mg Q6W, including monotherapy and combination therapy. This new dosage option is available in addition to the current dose of 200 mg Q3W.
Global sales of Keytruda grew 21% and 30% in the third quarter and first nine months of 2020, respectively. Sales growth in both periods was driven by higher demand as the Company continues to launch Keytruda with multiple new indications globally, although the COVID-19 pandemic had a dampening effect on growing demand. Sales in the United States continue to build across the multiple approved indications, in particular for the treatment of NSCLC as monotherapy, and in combination with chemotherapy for both nonsquamous and squamous metastatic NSCLC, along with uptake in the RCC, adjuvant melanoma, HNSCC, bladder cancer and endometrial carcinoma indications. Uptake of the Q6W dosing regimen in the United States benefited sales in 2020. Keytruda sales growth in international markets was driven by continued uptake in approved indications, particularly in the European Union (EU). Sales growth in the third quarter and first nine months of 2020 was partially offset by declines in Japan due to pricing. Pursuant to a re-pricing rule, the Japanese government reduced the price of Keytruda by 17.5% effective February 2020. Additionally, Keytruda was subject to another price reduction of 20.9% in April 2020 under a provision of the Japanese pricing rules.
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 approved for the treatment of certain types of advanced ovarian, breast, pancreatic and prostate cancers. Alliance revenue related to Lynparza increased 59% and 66% in the third quarter and first nine months of 2020, respectively. Sales growth in both periods was largely driven by continued uptake across the multiple approved indications in the United States, the EU and China. In May 2020, the FDA approved Lynparza in combination with bevacizumab as a first-line maintenance treatment of certain adult patients with advanced epithelial ovarian, fallopian tube or primary peritoneal cancer who are in complete or partial response to first-line platinum-based chemotherapy based on the results from the Phase 3 PAOLA-1 trial. In November 2020, Lynparza was
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approved in the EU for the maintenance treatment of adult patients with advanced high-grade epithelial ovarian, fallopian tube or primary peritoneal cancer who are in complete or parital response following completion of first-line platinum-based chemotherapy in combination with bevacizumab and whose cancer is associated with homologous recombination deficiency (HRD)-positive status defined by either a breast cancer susceptibility gene 1/2 (BRCA1/2) mutation and/or genomic instability based on the results from the PAOLA-1 trial. Also in May 2020, the FDA approved Lynparza for the treatment of adult patients with deleterious or suspected deleterious germline or somatic homologous recombination repair (HRR) gene-mutated metastatic castration-resistant prostate cancer (mCRPC) who have progressed following prior treatment with enzalutamide or abiraterone based on positive results from the Phase 3 PROfound trial. In November 2020, Lynparza was approved in the EU as monotherapy for the treatment of adult patients with mCRPC and BRCA1/2 mutations (germline and/or somatic) who have progressed following a prior therapy that included a new hormonal agent based on the PROfound trial. In July 2020, Lynparza was approved in the EU as a monotherapy for the maintenance treatment of adult patients with germline BRCA1/2 mutations who have metastatic adenocarcinoma of the pancreas and have not progressed after a minimum of 16 weeks of platinum treatment within a first-line chemotherapy regimen based on the results from the Phase 3 POLO trial.
Lenvima, an oral receptor tyrosine kinase inhibitor being developed as part of a collaboration with Eisai Co., Ltd. (Eisai) (see Note 3 to the condensed consolidated financial statements), is approved for the treatment of certain types of thyroid cancer, HCC, in combination with everolimus for certain patients with RCC, and in combination with Keytruda for the treatment of certain patients with endometrial carcinoma. Alliance revenue related to Lenvima grew 30% and 50% in the third quarter and first nine months of 2020, respectively. Sales growth in both periods was primarily due to higher demand in the United States, China and the EU.
Global sales of Emend, for the prevention of chemotherapy-induced nausea and vomiting, declined 60% and 66% in the third quarter and first nine months of 2020, respectively. The sales declines were primarily driven by lower demand and pricing in the United States due to generic competition, including recent generic competition for Emend for Injection following U.S. patent expiry in September 2019. Also contributing to the sales declines in the third quarter and first nine months of 2020 was lower demand in the EU as a result of generic competition for the oral formulation of Emend following loss of market exclusivity in May 2019. U.S. market exclusivity for the oral formulation of Emend previously expired in 2015. Generic competition for Emend for Injection in Japan following loss of exclusivity also contributed to the sales declines in the third quarter and first nine months of 2020. Emend for Injection lost market exclusivity in major European markets in August 2020. The Company anticipates that sales of Emend for Injection in these markets will decline significantly in future periods.
In April 2020, the FDA approved Koselugo (selumetinib) for the treatment of pediatric patients two years of age and older with neurofibromatosis type 1 (NF1) who have symptomatic, inoperable plexiform neurofibromas (PN). The FDA approval is based on positive results from the National Cancer Institute (NCI) Cancer Therapy Evaluation Program (CTEP)-sponsored Phase 2 SPRINT Stratum 1 trial coordinated by the NCI’s Center for Cancer Research, Pediatric Oncology Branch. This is the first regulatory approval of a medicine for the treatment of NF1 PN, a rare and debilitating genetic condition. Koselugo is being jointly developed and commercialized with AstraZeneca globally (see Note 3 to the condensed consolidated financial statements).
Vaccines
Three Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
Nine Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
($ in millions)20202019% Change20202019% Change
Gardasil/Gardasil 9$1,187 $1,320 (10)%(10)%$2,941 $3,044 (3)%(2)%
ProQuad218 232 (6)%(6)%507 588 (14)%(14)%
M-M-R II
115 121 (5)%(6)%287 443 (35)%(35)%
Varivax243 270 (10)%(9)%595 763 (22)%(21)%
Pneumovax 23
375 237 58 %58 %748 592 26 %27 %
Worldwide sales of Gardasil/Gardasil 9, vaccines to help prevent certain cancers and other diseases caused by certain types of HPV, declined 10% and 3% in the third quarter and first nine months of 2020, respectively, primarily due to lower demand in the United States and Hong Kong, SAR, PRC attributable to the COVID-19 pandemic, partially offset by higher volumes in China and in the EU.
The Company anticipates that in the fourth quarter of 2020 it will replenish the doses of Gardasil 9 borrowed from the U.S. Centers for Disease Control and Prevention (CDC) Pediatric Vaccine Stockpile in the fourth quarter of 2019. The replenishment will result in the recognition of approximately $120 million in sales and a reversal of the related liability.
In June 2020, the FDA approved an expanded indication for Gardasil 9 for the prevention of oropharyngeal and other head and neck cancers caused by HPV Types 16, 18, 31, 33, 45, 52, and 58. The oropharyngeal and head and neck
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cancer indication was approved under accelerated approval based on effectiveness in preventing HPV-related anogenital disease.
In July 2020, Silgard 9 aqueous suspension for intramuscular injection syringes (recombinant adsorbed 9-valent Human Papillomavirus virus-like particles vaccine) were approved for use in women and girls by the Ministry of Health, Labor and Welfare in Japan.
Global sales of ProQuad, a pediatric combination vaccine to help protect against measles, mumps, rubella and varicella, declined 6% and 14% in the third quarter and first nine months of 2020, respectively, primarily due to lower demand in the United States resulting from the COVID-19 pandemic, partially offset by higher pricing.
Worldwide sales of M‑M‑R II, a vaccine to help protect against measles, mumps and rubella, declined 35% in the first nine months of 2020 primarily driven by lower demand in the United States resulting from fewer measles outbreaks in 2020 compared with 2019, coupled with the unfavorable impact of the COVID-19 pandemic, partially offset by higher pricing. Additionally, the sales decline in the first nine months of 2020 reflects lower demand in Brazil.
Global sales of Varivax, a vaccine to help prevent chickenpox (varicella), declined 10% and 22% in the third quarter and first nine months of 2020, respectively. The sales declines reflect lower demand in the United States resulting from the COVID-19 pandemic, partially offset by higher pricing. The sales decline in the first nine months of 2020 was also attributable to lower government tenders in Brazil.
Worldwide sales of Pneumovax 23, a vaccine to help prevent pneumococcal disease, grew 58% and 26% in the third quarter and first nine months of 2020, respectively, primarily due to higher volumes in the United States and in the EU attributable in part to heightened awareness of pneumococcal vaccination during the COVID-19 pandemic and ahead of flu season. Higher pricing in the United States also contributed to sales growth in the third quarter and first nine months of 2020.
Hospital Acute Care
Three Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
Nine Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
($ in millions)20202019% Change20202019% Change
Bridion$320 $284 13 %13 %$843 $817 %%
Noxafil79 177 (55)%(55)%247 560 (56)%(55)%
Prevymis77 45 72 %69 %200 115 74 %74 %
Cubicin39 52 (26)%(25)%116 207 (44)%(43)%
Worldwide sales of Bridion, for the reversal of two types of neuromuscular blocking agents used during surgery, grew 13% and 3% in the third quarter and first nine months of 2020, respectively, primarily attributable to higher demand in the United States. Fewer elective surgeries as a result of the COVID-19 pandemic unfavorably affected demand in 2020.
Global sales of Noxafil, for the prevention of invasive fungal infections, declined 55% and 56% in the third quarter and first nine months of 2020, respectively, primarily due to generic competition in the United States and in the EU. The patents that provided U.S. market exclusivity for certain forms of Noxafil representing the majority of U.S. Noxafil sales expired in July 2019. Additionally, the patent for Noxafil expired in a number of major European markets in December 2019. Accordingly, the Company is experiencing volume and pricing declines in Noxafil sales in these markets as a result of generic competition and expects the declines to continue.
Worldwide sales of Prevymis, a medicine for prophylaxis (prevention) of cytomegalovirus (CMV) infection and disease in adult CMV-seropositive recipients of an allogenic hematopoietic stem cell transplant, grew 72% and 74% in the third quarter and first nine months of 2020, respectively, due to continued uptake since launch in the EU and in the United States.
Global sales of Cubicin (daptomycin for injection), an I.V. antibiotic for complicated skin and skin structure infections or bacteremia when caused by designated susceptible organisms, declined 26% and 44% in the third quarter and first nine months of 2020, respectively, primarily due to ongoing generic competition in the EU and in the United States.
In June 2020, the FDA approved a supplemental New Drug Application (NDA) for Recarbrio (imipenem, cilastatin, and relebactam) for the treatment of patients 18 years of age and older with hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (HABP/VABP), caused by certain susceptible Gram-negative microorganisms.
Zerbaxa (ceftolozane and tazobactam) is indicated for the treatment of HABP/VABP caused by certain susceptible Gram-negative microorganisms, and for the treatment of certain complicated urinary tract and intra-abdominal infections. The COVID-19 pandemic is unfavorably affecting sales of Zerbaxa, particularly in the United States. An increased focus on more stringent cleaning protocols at hospitals, along with visitor restrictions, have reduced patients’ exposure to developing HABP/
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VABP, resulting in a smaller population of patients that need to be treated with Zerbaxa. These factors resulted in lower cash flow forecasts for Zerbaxa in the United States, which constituted a triggering event requiring the evaluation of the Zerbaxa intangible asset for impairment. Although the “step one” impairment test that was performed indicated that the intangible asset related to Zerbaxa remains recoverable, in the event that these trends depress sales of Zerbaxa to a greater extent than anticipated by the Company, or in the event other circumstances arise that further reduce global cash flow projections for Zerbaxa, the Company may record an intangible asset impairment charge in the future and such charge could be material. The carrying value of Zerbaxa was $2.2 billion at September 30, 2020.
Immunology
Three Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
Nine Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
($ in millions)20202019% Change20202019% Change
Simponi$209 $203 %— %$615 $625 (2)%(1)%
Remicade82 101 (19)%(20)%242 322 (25)%(24)%
Sales of Simponi (golimumab), a once-monthly subcutaneous treatment for certain inflammatory diseases (marketed by the Company in Europe, Russia and Turkey), declined 2% in the first nine month of 2020 primarily driven by lower demand in the EU due to the uptake of biosimilars for a competing product, partially offset by the timing of shipments in Russia.
Sales of Remicade (infliximab), a treatment for inflammatory diseases (marketed by the Company in Europe, Russia and Turkey), declined 19% and 25% in the third quarter and first nine months of 2020, respectively, driven by ongoing biosimilar competition in the Company’s marketing territories in Europe. The Company lost market exclusivity for Remicade in major European markets in 2015 and no longer has market exclusivity in any of its marketing territories. The Company is experiencing pricing and volume declines in these markets as a result of biosimilar competition and expects the declines to continue.
Virology
Three Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
Nine Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
($ in millions)20202019% Change20202019% Change
Isentress/Isentress HD$205 $250 (18)%(18)%$646 $752 (14)%(12)%
Zepatier28 83 (67)%(67)%122 304 (60)%(59)%
Global combined sales of Isentress/Isentress HD, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, declined 18% and 14% in the third quarter and first nine months of 2020, respectively, primarily driven by competitive pressure in the United States and in the EU, as well as the timing of shipments in Brazil.
Global sales of Zepatier, a treatment for adult patients with chronic hepatitis C virus genotype (GT) 1 or GT4 infection, declined 67% and 60% in the third quarter and first nine months of 2020, respectively, driven by lower demand globally due to competition and declining patient volumes, coupled with the impact of the COVID-19 pandemic.
Cardiovascular
Three Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
Nine Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
($ in millions)20202019% Change20202019% Change
Zetia/Vytorin$150 $204 (27)%(26)%$523 $674 (22)%(21)%
Atozet111 97 14 %12 %348 283 23 %25 %
Rosuzet32 32 %— %94 97 (3)%(1)%
Alliance Revenue - Adempas (1)
83 50 67 %67 %216 144 50 %50 %
Adempas55 57 (5)%(7)%167 158 %%
(1) Alliance revenue represents Merck’s share of profits from sales in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 3 to the condensed consolidated financial statements).
Combined global sales of Zetia (marketed in most countries outside the United States as Ezetrol) and Vytorin (marketed outside the United States as Inegy), medicines for lowering LDL cholesterol, declined 27% in the third quarter of 2020, primarily due to lower sales of Ezetrol in Japan. The patent that provided market exclusivity for Ezetrol in Japan expired in September 2019 and generic competition began in June 2020. Accordingly, the Company is experiencing a rapid and
- 39 -


substantial decline in Ezetrol sales in Japan and expects the decline to continue. Higher demand for Ezetrol in China partially offset the sales decline in the third quarter of 2020. Combined global sales of Zetia and Vytorin declined 22% in the first nine months of 2020 primarily due to generic competition for Ezetrol and Inegy in the EU and Ezetrol in Japan. The EU patents for Ezetrol and Inegy expired in April 2018 and April 2019, respectively. The sales decline in the first nine months of 2020 was also attributable to lower pricing following loss of exclusivity in Australia in 2018. Higher demand for Ezetrol in China partially offset the sales decline in the first nine months of 2020.
Sales of Atozet (ezetimibe and atorvastatin) (marketed outside of the United States), a medicine for lowering LDL cholesterol, grew 14% and 23% in the third quarter and first nine months of 2020, respectively, primarily due to higher demand in most markets, particularly in the EU, Japan and other countries in the Asia Pacific region.
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 Merck’s share of profits from the sale of Adempas in Bayer’s marketing territories, which grew 67% and 50% in the third quarter and first nine months of 2020, respectively, as well as sales in Merck’s marketing territories, which declined 5% in the third quarter and grew 6% in the first nine months of 2020.
Diabetes
Three Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
Nine Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
($ in millions)20202019% Change20202019% Change
Januvia/Janumet$1,327 $1,311 %%$3,948 $4,106 (4)%(3)%
Worldwide combined sales of Januvia (sitagliptin) and Janumet (sitagliptin/metformin HCl), medicines that help lower blood sugar levels in adults with type 2 diabetes, grew 1% in the third quarter of 2020 driven primarily by higher demand in certain international markets, particularly in China, partially offset by continued pricing pressure in the United States. Global combined sales of Januvia and Janumet declined 4% in the first nine months of 2020. The decline was primarily due to continued pricing pressure in the United States and lower demand in the EU, partially offset by higher demand in certain international markets, particularly in China. The Company expects U.S. pricing pressure to continue. The patents that provide market exclusivity for Januvia and Janumet in the United States expire in July 2022 (although six-month pediatric exclusivity may extend this date). The patent that provides market exclusivity for Januvia in the EU expires in July 2022 (although pediatric exclusivity has recently been granted which may extend this date to September 2022 and the Company is applying in individual countries for the extensions). The supplementary patent certificate that provides market exclusivity for Janumet in the EU expires in April 2023. The Company anticipates sales of Januvia and Janumet in these markets will decline substantially after these patent expiries.
Women’s Health 
Three Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
Nine Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
($ in millions)20202019% Change20202019% Change
Implanon/Nexplanon$189 $199 (5)%(4)%$515 $581 (11)%(10)%
NuvaRing58 241 (76)%(76)%184 700 (74)%(73)%
Global sales of Implanon/Nexplanon, a single-rod subdermal contraceptive implant, declined 5% in the third quarter of 2020 primarily driven by lower demand in Latin America. Worldwide sales of Implanon/Nexplanon declined 11% in the first nine months of 2020 primarily due to lower demand in the United States and in the EU resulting from the COVID-19 pandemic.
Worldwide sales of NuvaRing, a vaginal contraceptive product, declined 76% and 74% in the third quarter and first nine months of 2020, respectively, due to generic competition in the United States. The patent that provided U.S. market exclusivity for NuvaRing expired in April 2018 and generic competition began in December 2019. Accordingly, the Company is experiencing a rapid and substantial decline in U.S. NuvaRing sales and expects the decline to continue.
Biosimilars 
Three Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
Nine Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
($ in millions)20202019% Change20202019% Change
Biosimilars$99 $68 45 %44 %$227 $189 20 %21 %
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Biosimilar products are marketed by the Company pursuant to an agreement with Samsung Bioepis Co., Ltd. (Samsung) to develop and commercialize multiple pre-specified biosimilar candidates. Currently, the Company markets Renflexis (infliximab-abda), a biosimilar to Remicade (infliximab) for the treatment of certain inflammatory diseases; Ontruzant (trastuzumab-dttb), a biosimilar to Herceptin (trastuzumab) for the treatment of human epidermal growth factor receptor 2 (HER2)-positive breast cancer and HER2 overexpressing gastric cancer; and Brenzys (etanercept biosimilar), a biosimilar to Enbrel for the treatment of certain inflammatory diseases. Merck’s commercialization territories under the agreement vary by product. Sales of biosimilars grew 45% and 20% in the third quarter and first nine months of 2020, respectively, primarily due to the launch of Ontruzant in Brazil in August 2020 and continued post-launch uptake of Renflexis in the United States and Canada. Sales growth in the first nine months of 2020 was partially offset by lower sales of Brenzys in Brazil.
In August 2020, the EC granted marketing authorization for Aybintio (bevacizumab) for the treatment of metastatic carcinoma of the colon or rectum, metastatic breast cancer, NSCLC, advanced and/or metastatic RCC, epithelial ovarian, fallopian tube and primary peritoneal cancer and cervical cancer. An application seeking approval of Aybintio in the United States was filed in September 2019.
Animal Health Segment
Three Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
Nine Months Ended
September 30,
% Change
Excluding
Foreign
Exchange
($ in millions)20202019% Change20202019% Change
Livestock$758 $726 %%$2,145 $2,007 %11 %
Companion Animal462 396 17 %18 %1,390 1,264 10 %12 %
Sales of livestock products grew 5% and 7% in the third quarter and first nine months of 2020, respectively, primarily driven by higher demand for ruminant, swine and poultry products. Sales growth in the first nine months of 2020 was also driven by the April 2019 acquisition of Antelliq Corporation (Antelliq) (see Note 2 to the condensed consolidated financial statements). Sales of companion animal products grew 17% in the third quarter of 2020 and 10% in the first nine months of 2020 primarily driven by higher demand for the Bravecto (fluralaner) line of products, as well as higher demand for companion animal vaccines.
Costs, Expenses and Other
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)20202019% Change20202019% Change
Cost of sales$3,481 $3,990 (13)%$9,952 $10,443 (5)%
Selling, general and administrative2,450 2,589 (5)%7,383 7,726 (4)%
Research and development3,390 3,204 %7,721 7,324 %
Restructuring costs114 232 (51)%269 444 (39)%
Other (income) expense, net(312)35 *(630)362 *
$9,123 $10,050 (9)%24,695 26,299 (6)%
* Greater than 100%.
Cost of Sales
Cost of sales declined 13% and 5% in the third quarter and first nine months of 2020, respectively. Cost of sales includes the amortization of intangible assets recorded in connection with business acquisitions, which totaled $270 million and $320 million in the third quarter of 2020 and 2019, respectively, and $843 million and $1.1 billion in the first nine months of 2020 and 2019, respectively. Cost of sales also includes the amortization of amounts capitalized in connection with collaborations of $117 million and $81 million in the third quarter of 2020 and 2019, respectively, and $509 million and $307 million in the first nine months of 2020 and 2019, respectively. Additionally, costs include intangible asset impairment charges of $612 million and $693 million in the third quarter and first nine months of 2019, respectively, related to marketed products. The Company may recognize additional impairment charges in the future related to intangible assets that were measured at fair value and capitalized in connection with business acquisitions and such charges could be material. Also included in cost of sales are expenses associated with restructuring activities which amounted to $38 million and $62 million in the third quarter of 2020 and 2019, respectively, and $131 million and $161 million in the first nine months of 2020 and 2019, 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.
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Gross margin was 72.3% in the third quarter of 2020 compared with 67.8% in the third quarter of 2019. The gross margin improvement reflects lower intangible asset impairment charges (noted above), the favorable effect of product mix and lower restructuring costs, partially offset by the unfavorable effects of pricing pressure, inventory write-offs and foreign exchange. Gross margin was 71.9% in the first nine months of 2020 compared with 70.1% in the first nine months of 2019. The gross margin improvement was primarily driven by lower impairment charges and amortization related to intangible assets (noted above), as well as the favorable effect of product mix and lower restructuring costs, partially offset by the unfavorable effects of pricing pressure, royalties, manufacturing variances, and inventory write-offs.
Selling, General and Administrative
Selling, general and administrative (SG&A) expenses declined 5% and 4% in the third quarter and first nine months of 2020, respectively, primarily due to lower administrative and selling costs, including reduced travel and fewer meetings, due in part to the COVID-19 pandemic, and the favorable effect of foreign exchange, partially offset by costs related to the planned spin-off of Organon. Transaction costs related to the acquisition of ArQule also partially offset the decline in SG&A expenses in the first nine months of 2020 (see Note 2 to the condensed consolidated financial statements).
Research and Development
Research and development (R&D) expenses grew 6% and 5% in the third quarter and first nine months of 2020, respectively, primarily driven by higher upfront payments related to collaborations and license agreements (see Note 2 to the condensed consolidated financial statements), increased clinical development, discovery research and early drug development spending, as well as higher restructuring costs, partially offset by a charge in 2019 for the acquisition of Peloton Therapeutics, Inc. (Peloton) (see Note 2 to the condensed consolidated financial statements), lower costs associated with the COVID-19 pandemic (net of spending on COVID-19-related vaccine and antiviral research programs), and the favorable effect of foreign exchange.
R&D expenses are comprised of the costs directly incurred by MRL, the Company’s research and development division that focuses on human health-related activities, which were $1.6 billion in both the third quarter of 2020 and 2019, and $4.7 billion and $4.4 billion in the first nine months of 2020 and 2019, 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 $645 million and $655 million for the third quarter of 2020 and 2019, respectively, and were $1.9 billion in both the first nine months of 2020 and 2019. 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. The Company recorded a net reduction in expenses of $48 million and $36 million in the first nine months of 2020 and 2019, respectively, related to the changes in these estimates. R&D expenses also reflect $19 million and $67 million of accelerated depreciation costs in connection with restructuring activities in the third quarter and first nine months of 2020, respectively.
Restructuring Costs
In early 2019, Merck approved a new global restructuring program (Restructuring Program) as part of a worldwide initiative focused on further optimizing the Company’s manufacturing and supply network, as well as reducing its global real estate footprint. This program is a continuation of the Company’s plant rationalization, builds on prior restructuring programs and does not include any actions associated with the planned spin-off of Organon. As the Company continues to evaluate its global footprint and overall operating model, it subsequently identified additional actions under the Restructuring Program, and could identify further actions over time. The actions currently contemplated under the Restructuring Program are expected to be substantially completed by the end of 2023, with the cumulative pretax costs to be incurred by the Company to implement the program estimated to be approximately $2.5 billion. The Company expects to record charges of approximately $800 million in 2020 related to the Restructuring Program. The Company anticipates the actions under the Restructuring Program to result in annual net cost savings of approximately $900 million by the end of 2023. Actions under previous global restructuring programs have been substantially completed.
Restructuring costs, primarily representing separation and other related costs associated with these restructuring activities, were $114 million and $232 million for the third quarter of 2020 and 2019, respectively, and $269 million and $444 million in the first nine months of 2020 and 2019, 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, facility shut-down and other related costs, as well as employee-related costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans and share-based compensation plan costs. For segment reporting, restructuring costs are unallocated expenses.
Additional costs associated with the Company’s restructuring activities are included in Cost of sales, Selling, general and administrative expenses and Research and development costs. The Company recorded aggregate pretax costs of
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$186 million and $296 million in the third quarter of 2020 and 2019, respectively, and $504 million and $642 million in the first nine months of 2020 and 2019, respectively, related to restructuring program activities (see Note 4 to the condensed consolidated financial statements).
Other (Income) Expense, Net
For details on the components of Other (income) expense, net see Note 13 to the condensed consolidated financial statements.
Segment Profits
 Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Pharmaceutical segment profits$7,974 $7,747 $22,010 $21,437 
Animal Health segment profits451 423 1,336 1,243 
Other non-reportable segment profits(1)(2)(2)
Other(4,996)(5,821)(12,563)(14,005)
Income before taxes$3,428 $2,347 $10,784 $8,673 
Pharmaceutical segment profits are comprised of segment sales less standard costs, as well as SG&A expenses directly incurred by the segment. Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as SG&A 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 by MRL, or general and administrative expenses, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits. Also excluded from the determination of segment profits are costs related to restructuring activities and acquisition and divestiture-related costs, including the amortization of 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 3% in both the third quarter and first nine months of 2020 driven primarily by higher sales, as well as lower administrative and selling costs. Animal Health segment profits grew 6% and 7% in the third quarter and first nine months of 2020, respectively, reflecting higher sales and lower promotional costs, partially offset by higher R&D costs and the unfavorable effect of foreign exchange.
Taxes on Income
The effective income tax rates of 14.1% and 18.7% for the third quarter of 2020 and 2019, respectively, and 14.9% and 14.5% for the first nine months of 2020 and 2019, 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 2019 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.
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 Loss Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests of $73 million for the first nine months of 2019 includes the portion of goodwill impairment charges related to certain businesses in the Healthcare Services segment that are attributable to noncontrolling interests.

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Net Income and Earnings per Common Share
Net income attributable to Merck & Co., Inc. was $2.9 billion for the third quarter of 2020 compared with $1.9 billion for the third quarter of 2019 and was $9.2 billion for the first nine months of 2020 compared with $7.5 billion for the first nine months of 2019. Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders (EPS) for the third quarter of 2020 were $1.16 compared with $0.74 in the third quarter of 2019 and were $3.61 for the first nine months of 2020 compared with $2.89 for the first nine months of 2019.
Non-GAAP Income and Non-GAAP EPS
Non-GAAP income and non-GAAP EPS are alternative views of the Company’s performance that Merck is providing because management believes this information enhances investors’ understanding of the Company’s results as it permits investors to understand how management assesses performance. Non-GAAP income and non-GAAP EPS exclude certain items because of the nature of these items and the impact that they have on the analysis of underlying business performance and trends. The excluded items (which should not be considered non-recurring) consist of acquisition and divestiture-related costs, restructuring costs and certain other items. These excluded items are significant components in understanding and assessing financial performance. Non-GAAP income and non-GAAP EPS are important internal measures for the Company. Senior management receives a monthly analysis of operating results that includes non-GAAP EPS. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the Company along with other metrics. In addition, senior management’s annual compensation is derived in part using non-GAAP pretax income. Since non-GAAP income and non-GAAP EPS are not measures determined in accordance with GAAP, they have no standardized meaning prescribed by GAAP and, therefore, may not be comparable to the calculation of similar measures of other companies. The information on non-GAAP income and non-GAAP EPS should be considered in addition to, but not as a substitute for or superior to, net income and EPS prepared in accordance with generally accepted accounting principles in the United States (GAAP).
A reconciliation between GAAP financial measures and non-GAAP financial measures is as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions except per share amounts)2020201920202019
Income before taxes as reported under GAAP$3,428 $2,347 $10,784 $8,673 
Increase (decrease) for excluded items:
Acquisition and divestiture-related costs
508 975 1,551 2,183 
Restructuring costs
186 296 504 642 
Other items:
Charges for collaborations and acquisitions (1)
1,082 982 1,082 982 
Other(1)— (17)48 
Non-GAAP income before taxes5,203 4,600 13,904 12,528 
Taxes on income as reported under GAAP483 440 1,611 1,259 
Estimated tax benefit on excluded items (2)
356 281 616 555 
Adjustment to tax benefits recorded in conjunction with the 2015 Cubist Pharmaceuticals, Inc. acquisition(67)— (67)— 
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 income772 721 2,160 2,107 
Non-GAAP net income4,431 3,879 11,744 10,421 
Less: Net income (loss) attributable to noncontrolling interests as reported under GAAP
12 (73)
    Acquisition and divestiture-related costs attributable to noncontrolling interests
— — — 89 
Non-GAAP net income attributable to noncontrolling interests12 16 
Non-GAAP net income attributable to Merck & Co., Inc.$4,427 $3,873 $11,732 $10,405 
EPS assuming dilution as reported under GAAP$1.16 $0.74 $3.61 $2.89 
EPS difference0.58 0.77 1.01 1.13 
Non-GAAP EPS assuming dilution$1.74 $1.51 $4.62 $4.02 
(1)    Amount in 2020 includes $832 million related to transactions with Seagen. Amount in 2019 represents a charge for the acquisition of Peloton. See Note 2 to the condensed consolidated financial statements.
(2) The estimated tax impact on the excluded items is determined by applying the statutory rate of the originating territory of the non-GAAP adjustments.
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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, facility shut-down and other related costs, as well as employee-related costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans and share-based compensation costs.
Certain Other Items
Non-GAAP income and non-GAAP EPS exclude certain other items. These items are adjusted for after evaluating them on an individual basis, considering their quantitative and qualitative aspects. Typically, these consist of items that are unusual in nature, significant to the results of a particular period or not indicative of future operating results. Excluded from non-GAAP income and non-GAAP EPS in 2020 are upfront payments related to licensing arrangements and collaborations, including the transactions with Seagen (see Note 2 to the condensed consolidated financial statements), and an adjustment to tax benefits recorded in conjunction with the 2015 Cubist Pharmaceuticals, Inc. acquisition. Excluded from non-GAAP income and non-GAAP EPS in 2019 is a charge for the acquisition of Peloton (see Note 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.
Research and Development Update
In July 2020, the FDA accepted for priority review the NDA for vericiguat, an orally administered sGC stimulator, to reduce the risk of cardiovascular death and heart failure hospitalization following a worsening heart failure event in patients with symptomatic chronic heart failure with reduced ejection fraction, in combination with other heart failure therapies. The FDA set a Prescription Drug User Fee Act (PDUFA), or target action, date of January 20, 2021. Vericiguat is being jointly developed with Bayer (see Note 3 to the condensed consolidated financial statements). The application is based on results from the Phase 3 VICTORIA trial, which is the first contemporary outcomes study focused exclusively on a population with worsening chronic heart failure who are at high risk for cardiovascular mortality and repeated heart failure hospitalizations. Data from VICTORIA were presented at the virtual American College of Cardiology’s 69th Annual Scientific Session together with World Congress of Cardiology and published in The New England Journal of Medicine. Vericiguat is also under review in the EU and in Japan. Merck and Bayer plan to share VICTORIA data with regulatory authorities worldwide.
Koselugo is under review in the EU for the treatment of pediatric patients two years of age and older with NF1 who have symptomatic, inoperable PN based on positive results from the NCI CTEP-sponsored Phase 2 SPRINT Stratum 1 trial. Koselugo was approved by the FDA in April 2020. Koselugo is being jointly developed and commercialized with AstraZeneca globally (see Note 3 to the condensed consolidated financial statements).
Keytruda is an anti-PD-1 therapy approved for the treatment of many cancers that is in clinical development for expanded indications. These approvals were the result of a broad clinical development program that currently consists of more than 1,300 clinical trials, including more than 900 trials that combine Keytruda with other cancer treatments. These studies encompass more than 30 cancer types including: biliary tract, cervical, colorectal, cutaneous squamous cell, endometrial, esophageal, gastric, glioblastoma, head and neck, hepatocellular, Hodgkin lymphoma, non-Hodgkin lymphoma, melanoma, mesothelioma, nasopharyngeal, non-small-cell lung, ovarian, prostate, renal, small-cell lung, triple-negative breast and urothelial, many of which are currently in Phase 3 clinical development. Further trials are being planned for other cancers.
In July 2020, the FDA accepted and granted Priority Review for a supplemental Biologics License Application (BLA) seeking accelerated approval for Keytruda in combination with chemotherapy for the treatment of patients with locally recurrent unresectable or metastatic triple-negative breast cancer (TNBC) whose tumors express PD-L1 (CPS ≥10). The application was based on data from the KEYNOTE-355 trial in which Keytruda plus chemotherapy demonstrated a statistically significant and clinically meaningful improvement in progression-free survival (PFS) compared with chemotherapy alone in patients whose tumors expressed PD-L1 at CPS ≥10. In patients whose tumors expressed PD-L1 with
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CPS ≥1, Keytruda plus chemotherapy improved PFS versus chemotherapy alone, however these results did not meet statistical significance. These data were presented at the virtual scientific program of the 2020 American Society of Clinical Oncology (ASCO) Annual Meeting. As previously announced, the trial will continue without changes to evaluate the other dual primary endpoint of overall survival (OS). The FDA set a PDUFA date of November 28, 2020. In October 2020, Merck announced the submission of KEYNOTE-355 to the Japan PMDA.
Also in July 2020, the FDA accepted for standard review a supplemental BLA for Keytruda for the treatment of patients with high-risk, early-stage TNBC, in combination with chemotherapy as neoadjuvant treatment, and then as a single agent as adjuvant treatment after surgery. The application was based on data from the KEYNOTE-522 trial in which neoadjuvant Keytruda plus chemotherapy resulted in a statistically significant increase in pathologic complete response in patients with early-stage TNBC, regardless of PD-L1 expression. The Keytruda regimen also demonstrated a favorable trend for the other dual primary endpoint of event-free survival. An interim analysis for this study was conducted by the Independent Data Monitoring Committee (DMC). Based on the recommendation of the DMC, the study continues to evaluate event-free survival. Data from the KEYNOTE-522 trial were presented at the European Society for Medical Oncology 2019 Congress. As previously announced, Keytruda plus chemotherapy was granted Breakthrough Therapy designation by the FDA in September 2019 for the neoadjuvant treatment of patients with high-risk, early-stage TNBC. The PDUFA date for this application is March 29, 2021.
The Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) announced the start of a procedure to extend the currently approved therapeutic indication for the treatment of relapsed or refractory cHL in adults to an earlier line of therapy based on the pivotal Phase 3 KEYNOTE-204 trial, in which Keytruda demonstrated a significant improvement in PFS compared to brentuximab vedotin (BV), a current standard of care in this patient population. Data from KEYNOTE-204 were presented during the virtual scientific program of the 2020 ASCO Annual Meeting. Keytruda was approved for this indication by the FDA in October 2020. The procedure also seeks to extend the indication to include pediatric patients.
Keytruda is also under review in the EU and in Japan for the first-line treatment of patients with MSI-H or mismatch repair deficient unresectable or metastatic colorectal cancer based on the results from the Phase 3 KEYNOTE-177 trial. Keytruda was approved for this indication by the FDA in June 2020.
In addition to the Breakthrough Therapy designation from the FDA for the combination of Keytruda with neoadjuvant chemotherapy for the treatment of high-risk, early-stage TNBC noted above, Keytruda also received Breakthrough Therapy designation from the FDA in February 2020 for the combination of Keytruda with PADCEV (enfortumab vedotin-ejfv), in the first-line setting for the treatment of patients with unresectable locally advanced or metastatic urothelial cancer who are not eligible for cisplatin-containing chemotherapy. The FDA’s Breakthrough Therapy designation is intended to expedite the development and review of a candidate that is planned for use, alone or in combination, to treat a serious or life-threatening disease or condition when preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints.
In August 2020, Merck announced first-time data from the pivotal Phase 3 KEYNOTE-590 trial evaluating Keytruda in combination with platinum-based chemotherapy for the first-line treatment of patients with locally advanced or metastatic esophageal and gastroesophageal junction cancer. In the study, Keytruda in combination with chemotherapy significantly improved OS and PFS versus chemotherapy in all randomized patients; it was demonstrated that the risk of death was reduced by 27% versus chemotherapy as first-line treatment for locally advanced or metastatic esophageal cancer. With these results, Keytruda is the first anti-PD-1 therapy in combination with chemotherapy to show superior OS, PFS and objective response rate (ORR) versus chemotherapy, the current standard of care, for these patients regardless of histology or PD-L1 expression status. These data were presented at the European Society for Medical Oncology (ESMO) Virtual Congress 2020. Merck will be sharing these data with regulatory authorities worldwide.
In June 2020, Merck announced that the Phase 3 KEYNOTE-361 trial evaluating Keytruda in combination with chemotherapy for the first-line treatment of patients with advanced or metastatic urothelial carcinoma (bladder cancer) did not meet its pre-specified dual primary endpoints of OS or PFS, compared with standard of care chemotherapy. In the final analysis of the study, there was an improvement in OS and PFS for patients treated with Keytruda in combination with chemotherapy compared to chemotherapy alone; however, these results did not meet statistical significance per the pre-specified statistical plan. The monotherapy arm of the study was not formally tested, since superiority was not reached for OS or PFS in the Keytruda combination arm. Keytruda has three FDA-approved bladder cancer indications across multiple stages of bladder cancer. Additionally, Merck has an extensive clinical development program in bladder cancer and is continuing to evaluate Keytruda as monotherapy and in combination with other anti-cancer therapies across several disease settings (i.e., metastatic, muscle invasive bladder cancer, and non-muscle invasive bladder cancer).
In May 2020, Merck announced positive results from two studies from the Company’s lung cancer research program. Initial results from the Phase 2 KEYNOTE-799 trial evaluating Keytruda plus concurrent chemoradiation therapy
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demonstrated an ORR of 67.0% in Cohort A (squamous and nonsquamous NSCLC patients who received paclitaxel plus carboplatin) and 56.6% in Cohort B (nonsquamous NSCLC patients who received cisplatin plus pemetrexed) in untreated patients with unresectable, locally advanced stage III NSCLC.
Additionally in May 2020, Merck and Eisai presented data from analyses of two trials evaluating Keytruda plus Lenvima at the 2020 ASCO Annual Meeting, in which the Keytruda plus Lenvima combination demonstrated clinically meaningful ORR: the KEYNOTE-524/Study 116 trial in patients with unresectable HCC with no prior systemic therapy and the KEYNOTE-146/Study 111 trial in patients with metastatic clear cell renal cell carcinoma (ccRCC) who progressed following immune checkpoint inhibitor therapy.
In July 2020, Merck and Eisai announced that the FDA issued a Complete Response Letter (CRL) regarding Merck’s and Eisai’s applications seeking accelerated approval of Keytruda plus Lenvima for the first-line treatment of patients with unresectable HCC based on data from the Phase 1b KEYNOTE-524/Study 116 trial, which showed clinically meaningful efficacy in the single-arm setting. These data supported a Breakthrough Therapy designation granted by the FDA in July 2019. Ahead of the PDUFA action dates of Merck’s and Eisai’s applications, another combination therapy was approved based on a randomized, controlled trial that demonstrated improvement in OS versus standard-of-care treatment. Consequently, the CRL stated that Merck’s and Eisai’s applications do not provide evidence that Keytruda in combination with Lenvima represents a meaningful advantage over available therapies for the treatment of unresectable or metastatic HCC with no prior systemic therapy for advanced disease. Since the applications for KEYNOTE-524/Study 116 no longer meet the criteria for accelerated approval, both companies plan to work with the FDA to take appropriate next steps, which include conducting a well-controlled clinical trial that demonstrates substantial evidence of effectiveness and the clinical benefit of the combination. As such, LEAP-002, the Phase 3 trial evaluating the Keytruda plus Lenvima combination as a first-line treatment for advanced HCC, is currently underway and fully enrolled. The CRL does not impact the current approved indications for Keytruda or for Lenvima.
In July 2020, the FDA granted Breakthrough Therapy designation to the hypoxia-inducible factor-2 alpha (HIF-2α) inhibitor MK-6482, a novel investigational candidate for the treatment of patients with von Hippel-Lindau (VHL) disease-associated RCC with nonmetastatic RCC tumors less than three centimeters in size, unless immediate surgery is required. The FDA also granted orphan drug designation to MK-6482 for VHL disease. These designations are based on data from a Phase 2 trial evaluating MK-6482 in patients with VHL-associated ccRCC, which were presented at the 2020 ASCO Annual Meeting. Additionally, Phase 2 data showing anti-tumor responses in VHL disease patients with ccRCC and other tumors were presented at the ESMO Virtual Congress 2020.
In September 2020, Merck and Seagen announced a collaboration to globally develop and commercialize Seagen’s ladiratuzumab vedotin (MK-6440), an investigational antibody-drug conjugate targeting LIV-1, which is currently in Phase 2 clinical trials for breast cancer and other solid tumors. The collaboration will pursue a broad joint development program evaluating ladiratuzumab vedotin as monotherapy and in combination with Keytruda in triple-negative breast cancer, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumors. Seagen also granted Merck an exclusive license and entered into a co-development agreement with Merck to accelerate the global reach of Tukysa (MK-7119), a small molecule tyrosine kinase inhibitor, for the treatment of HER2-positive cancers, in Asia, the Middle East and Latin America and other regions outside of the United States, Canada and Europe. See Note 2 to the condensed consolidated financial statements.
Lynparza is an oral PARP inhibitor currently approved for certain types of advanced ovarian, breast, pancreatic and prostate cancers being co-developed for multiple cancer types as part of a collaboration with AstraZeneca (see Note 3 to the condensed consolidated financial statements).
In May 2020, the results from the Phase 3 GY004 trial, led by NRG Oncology and sponsored by the U.S. NCI, were presented at the 2020 ASCO Annual Meeting. This follows the March 2020, Merck and AstraZeneca announcement of the high-level results from the Phase 3 GY004 trial that examined primarily the efficacy and safety of investigational medicine cediranib in combination with Lynparza versus platinum-based chemotherapy in patients with platinum-sensitive relapsed ovarian cancer. The trial did not meet the primary endpoint in the intent-to-treat population of a statistically significant improvement in PFS with cediranib in combination with Lynparza vs. platinum-based chemotherapy.
In September 2020, Merck announced the results from two ongoing pivotal Phase 3 trials (COUGH-1 and COUGH-2) evaluating the efficacy and safety of gefapixant (MK-7264), an investigational, orally administered, selective P2X3 receptor antagonist, for the treatment of refractory or unexplained chronic cough. In these studies, adult patients treated with gefapixant 45 mg twice daily demonstrated a statistically significant reduction in 24-hour cough frequency versus placebo at 12 weeks (COUGH-1) and 24 weeks (COUGH-2). The gefapixant 15 mg twice daily treatment arms did not meet the primary efficacy endpoint in either Phase 3 study. These results were presented at the Virtual European Respiratory Society International Congress 2020. Merck plans to share data from COUGH-1 and COUGH-2 with regulatory authorities worldwide.
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In October 2020, Merck announced Week 96 data from the Phase 2b trial (NCT03272347) evaluating the efficacy and safety of islatravir, the company’s investigational oral nucleoside reverse transcriptase translocation inhibitor (NRTTI), in combination with doravirine (Pifeltro), in treatment-naïve adults with HIV-1 infection. Week 96 findings demonstrated that the combination of islatravir and doravirine maintained virologic suppression (as measured by the number of study participants achieving HIV-1 RNA levels <50 copies/mL, similar to Delstrigo (doravirine/lamivudine/tenofovir disoproxil fumarate)), and the findings were consistent with Week 48 results. Additional Week 96 data from the study show low rates of participants meeting the definition of protocol-defined virologic failure in both the islatravir plus doravirine and the Delstrigo treatment arms, and no participants in either arm met the criteria for resistance testing. These data were presented at the virtual 2020 International Congress on Drug Therapy in HIV Infection (HIV Glasglow).
In October 2020, Merck announced findings from two Phase 3 studies evaluating the safety, tolerability and immunogenicity of V114, the Company’s investigational 15-valent pneumococcal conjugate vaccine. In the PNEU-PATH (V114-016) study, healthy adults 50 years of age and older received V114 or PCV13 followed by Pneumovax 23 one year later. Immune responses following vaccination with Pneumovax 23 were comparable in both vaccination groups for the 15 serotypes in V114. Results also showed that at 30 days post vaccination with either V114 or PCV13, immune responses were comparable for both groups across the 13 serotypes shared by the conjugate vaccines and higher in the V114 group for serotypes 22F and 33F, the two serotypes not included in PCV13. In PNEU-DAY (V114-017), a Phase 3 study in immunocompetent adults 18 to 49 years of age with underlying medical conditions associated with increased risk for pneumococcal disease, V114 generated immune responses generally comparable to PCV13 for the 13 shared serotypes and higher immune responses for serotypes 22F and 33F at 30 days post-vaccination.
In September 2020, Merck announced that two Phase 3 studies evaluating the safety, tolerability and immunogenicity of V114 met their primary immunogenicity objectives. The pivotal PNEU-AGE (V114-019) study in healthy adults 50 years of age or older demonstrated that V114 is non-inferior to the currently available 13-valent pneumococcal conjugate vaccine (PCV13) for the 13 serotypes targeted by both vaccines and superior for serotypes 22F and 33F, the two serotypes targeted by V114 but not PCV13. The PNEU-AGE study also met the key secondary immunogenicity objective, demonstrating superiority of V114 compared to PCV13 for serotype 3, a leading cause of invasive pneumococcal disease globally. In another Phase 3 study, PNEU-TRUE (V114-020), in healthy adults 50 years of age or older, V114 met its primary immunogenicity objective demonstrating equivalent immune response across all 15 serotypes for three different lots of V114.
In June 2020, Merck announced results from two initial Phase 3 studies evaluating the safety, tolerability and immunogenicity of V114. Results from the PNEU-WAY (V114-018) study in adults 18 years of age or older living with HIV showed that V114 elicited an immune response to all 15 serotypes included in the vaccine, including serotypes 22F and 33F. Results from the PNEU-FLU (V114-021) study in healthy adults 50 years of age or older showed that V114 can be given concomitantly with the quadrivalent influenza vaccine. These data were announced and published in the International Symposium on Pneumococci and Pneumococcal Diseases digital library in lieu of an in-person meeting.
The V114 Phase 3 clinical development program is comprised of 16 trials investigating the safety, tolerability and immunogenicity of V114 in a variety of populations who are at increased risk for pneumococcal disease including both healthy older adult and healthy pediatric populations, as well as people who are immunocompromised or have certain chronic conditions. Findings from the V114 Phase 3 clinical program, including the studies above, will be presented at a future scientific congress and will form the basis for global regulatory licensure applications, beginning with the FDA before the end of the year.
In June 2020, Merck and Pfizer Inc. announced the presentation of results from the Phase 3 VERTIS CV cardiovascular (CV) outcomes trial that evaluated Steglatro (ertugliflozin), an oral sodium-glucose cotransporter 2 (SGLT2) inhibitor, versus placebo, added to background standard of care treatment, in patients with type 2 diabetes and atherosclerotic CV disease. The study met the primary endpoint of non-inferiority on major adverse CV events (MACE), which is a composite of CV death, nonfatal myocardial infarction or nonfatal stroke, compared to placebo. The key secondary endpoints of superiority for Steglatro versus placebo for time to the first occurrence of the composite of CV death or hospitalization for heart failure, time to CV death alone and time to the first occurrence of the composite of renal death, dialysis/transplant or doubling of serum creatinine from baseline were not met. While not a pre-specified hypothesis for statistical testing, a reduction in hospitalization for heart failure was observed with Steglatro.
In July 2020, the FDA granted V181, the Company’s investigational dengue vaccine in Phase 1 development, Fast Track designation.
The chart below reflects the Company’s research pipeline as of November 2, 2020. 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,
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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 2Phase 3 (Phase 3 entry date)Under Review
Antiviral COVID-19
MK-4482 (molnupiravir)(1)
Cancer
MK-1026
     Hematological Malignancies
MK-1308 (quavonlimab)(2)
Melanoma
Non-Small-Cell Lung
MK-1454(2)
Head and Neck
MK-3475 Keytruda
Advanced Solid Tumors
MK-4280(2)
     Hematological Malignancies
     Non-Small-Cell Lung
MK-5890(2)
     Non-Small-Cell Lung
MK-6440 (ladiratuzumab vedotin)(1)(3)
Advanced Solid Tumors
Breast
MK-7119 Tukysa(1)
Colorectal
MK-7339 Lynparza(1)(3)
Advanced Solid Tumors
MK-7684 (vibostolimab)(2)
    Melanoma
Non-Small-Cell Lung
MK-7902 Lenvima(1)(2)
Advanced Solid Tumors
Biliary Tract
Colorectal
Gastric
Glioblastoma
V937
Breast
Cutaneous Squamous Cell
Melanoma
Head and Neck
Chikungunya virus
V184
Cytomegalovirus
V160
HIV-1 Prevention
MK-8591 (islatravir)
Overgrowth Syndrome
MK-7075 (miransertib)
Pneumococcal Vaccine Adult
V116
Respiratory Syncytial Virus
MK-1654
Schizophrenia
MK-8189

Cancer
MK-3475 Keytruda
Biliary Tract (September 2019)
Breast (October 2015) (EU)
Cervical (October 2018) (EU)
Cutaneous Squamous Cell (August 2019) (EU)
Endometrial (August 2019) (EU)
Esophageal (December 2015) (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-6482
Renal Cell (February 2020)
MK-7119 Tukysa(1)
Breast (October 2019)
MK-7339 Lynparza(1)(2)
Colorectal (August 2020)
Non-Small-Cell Lung (June 2019)
MK-7902 Lenvima(1)(2)
Bladder (May 2019)
Endometrial (June 2018) (EU)
Head and Neck (February 2020)
Melanoma (March 2019)
Non-Small-Cell Lung (March 2019)
Cough
MK-7264 (gefapixant) (March 2018)
HIV-1 Infection
     MK-8591A (doravirine/islatravir) (February 2020)
Pneumoconjugate Vaccine
V114 (June 2018)
New Molecular Entities/Vaccines
Heart Failure
MK-1242 (vericiguat)(1) (U.S.) (EU) (JPN)
Pediatric Neurofibromatosis Type 1
MK-5618 (selumetinib)(1) (EU)


Certain Supplemental Filings
Cancer
MK-3475 Keytruda
• Metastatic Triple-Negative Breast Cancer
         (KEYNOTE-355) (U.S.) (JPN)
• Early-Stage Triple-Negative Breast Cancer
         (KEYNOTE-522) (U.S.)
• Refractory Classical Hodgkin Lymphoma
         (KEYNOTE-204) (EU)
• Unresectable or Metastatic MSI-H or dMMR Colorectal
         Cancer (KEYNOTE-177) (EU) (JPN)
MK-7902 Lenvima(1)
• First-Line Metastatic Hepatocellular Carcinoma
         (KEYNOTE-524) (U.S.)(2)(4)
• Thymic Carcinoma (NCCH1508/REMORA) (JPN)

Footnotes:
(1) Being developed in a collaboration
(2) Being developed in combination with Keytruda.
(3) Being developed as monotherapy and in combination with Keytruda.
(4) In July 2020, the FDA issued a CRL for Merck’s and Eisai’s applications. Merck and Eisai are reviewing the letter and will submit data to the FDA.


Liquidity and Capital Resources
($ in millions)September 30, 2020December 31, 2019
Cash and investments$8,728 $11,919 
Working capital6,172 5,263 
Total debt to total liabilities and equity32.0 %31.2 %
Cash provided by operating activities was $6.2 billion in the first nine months of 2020 compared with $8.6 billion in the first nine months of 2019. Cash provided by operating activities in the first nine months of 2020 includes $2.1 billion of payments related to collaborations compared with $505 million in the first nine months of 2019. 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 $4.7 billion in the first nine months of 2020 compared with $1.9 billion in the first nine months of 2019. The increase was driven primarily by lower proceeds from sales of securities and other investments and higher capital expenditures, partially offset by lower purchases of securities and other investments and lower use of cash for acquisitions.
- 49 -


Cash used in financing activities was $4.2 billion in the first nine months of 2020 compared with $6.9 billion in the first nine months of 2019. The lower use of cash in financing activities was driven primarily by a net increase in short-term borrowings in 2020 compared with a net decrease in short-term borrowing in 2019, as well as lower purchases of treasury stock, partially offset by higher payments on debt (see below), lower proceeds from the issuance of debt (see below), higher dividends paid to shareholders, and lower proceeds from the exercise of stock options.
Capital expenditures totaled $3.2 billion and $2.3 billion for the first nine months of 2020 and 2019, respectively. The increased capital expenditures reflect investment in new capital projects focused primarily on increasing manufacturing capacity for Merck’s key products, as well as the purchase of a manufacturing facility in Dunboyne, Ireland to support upcoming product launches (see Note 2 to the condensed consolidated financial statements).
The Company has accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. The Company factored $2.1 billion and $2.7 billion of accounts receivable in the third quarter of 2020 and the fourth quarter of 2019, respectively, under these factoring arrangements, which reduced outstanding accounts receivable. The cash received from the financial institutions is reported within operating activities in the Condensed Consolidated Statement of Cash Flows. In certain of these factoring arrangements, for ease of administration, the Company will collect customer payments related to the factored receivables, which it then remits to the financial institutions. The net cash flows relating to these collections are reported as financing activities in the Condensed Consolidated Statement of Cash Flows.
Dividends paid to stockholders were $4.7 billion and $4.3 billion for the first nine months of 2020 and 2019, respectively. In May 2020, the Board of Directors declared a quarterly dividend of $0.61 per share on the Company’s common stock for the third quarter that was paid in July 2020. In July 2020, the Board of Directors declared a quarterly dividend of $0.61 per share on the Company’s common stock for the fourth quarter that was paid in October 2020.
In February 2020, the Company’s $1.25 billion, 1.85% notes and $700 million floating-rate notes matured in accordance with their terms and were repaid.
In June 2020, the Company issued $4.5 billion principal amount of senior unsecured notes consisting of $1.0 billion of 0.75% notes due 2026, $1.25 billion of 1.45% notes due 2030, $1.0 billion of 2.35% notes due 2040 and $1.25 billion of 2.45% notes due 2050. Merck used the net proceeds from the offering for general corporate purposes, including without limitation the repayment of outstanding commercial paper borrowings and other indebtedness with upcoming maturities.
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 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 2020, the Company purchased $1.3 billion (16 million shares) of its common stock for its treasury under this share repurchase program. As of September 30, 2020, the Company’s remaining share repurchase authorization was $5.9 billion. In March 2020, the Company temporarily suspended its share repurchase program.
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, 2019 included in Merck’s Form 10‑K filed on February 26, 2020. 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, 2019. See Note 1 to the condensed consolidated financial statements for information on the adoption of new accounting standards during 2020.

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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, 2020, the Company’s disclosure controls and procedures are effective. For the third quarter of 2020, 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.
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 the impact of the global outbreak of COVID-19 and other risks and uncertainties 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, 2019, as filed on February 26, 2020, in the Company’s Form 10-Q for the quarterly period ended March 31, 2020, as filed on May 6, 2020, in the Company’s Form 10-Q for the quarterly period ended June 30, 2020, as filed on August 5, 2020, and in this Form 10-Q, 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 1A. Risk Factors
For a discussion of risks that affect the Company’s business, please refer to Part I, Item IA, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes to the risk factors as previously disclosed in the Company’s Annual Report on Form 10-K, except as follows:
The global COVID-19 pandemic is having an adverse impact on the Company’s business, operations and financial performance. The Company is unable to predict the full extent to which the pandemic and related impacts will continue to adversely impact its business, operations, financial performance, results of operations, and financial condition.
The Company’s business and financial results have been negatively impacted by the outbreak of Coronavirus Disease 2019 (COVID-19). The duration, spread and severity of the COVID-19 pandemic is uncertain, rapidly changing and difficult to predict. The degree to which COVID-19 impacts the Company’s results will depend on future developments, beyond the Company’s knowledge or control, including, but not limited to, the duration and spread of the outbreak, its
- 51 -


severity, the actions taken to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
Merck assumes that the majority of the negative impact from the COVID-19 pandemic occurred in the second quarter of 2020. However, the Company expects some residual negative impacts in the fourth quarter, largely in Europe and certain emerging markets. In addition, the phasing of the recovery of Gardasil 9 demand is slower than originally anticipated, in particular in the United States due to lower back-to-school demand. To the extent these assumptions prove to be incorrect, the Company’s results may differ materially from the estimates set forth herein.
Thus far in 2020, the COVID-19 pandemic has impacted the Company’s business and the Company continues to expect that it will impact the business in numerous ways, including but not limited to those outlined below:
In the third quarter of 2020, the negative impact of the COVID-19 pandemic to Merck’s Pharmaceutical sales was estimated to be approximately $475 million. The negative impact to Animal Health sales was immaterial. The negative impact to sales in the first nine months of 2020 was approximately $2.0 billion for the Pharmaceutical segment and $50 million for the Animal Health segment. For the full-year 2020, including the impact for the first nine months, Merck expects an unfavorable impact to sales of approximately $2.35 billion (excluding the impact of foreign exchange) due to the COVID-19 pandemic, comprised of approximately $2.3 billion for Pharmaceutical revenue and approximately $50 million for Animal Health revenue.
Roughly two-thirds of Merck’s Pharmaceutical revenue is comprised of physician-administered products, which, despite strong underlying demand, were affected by social distancing measures, fewer well visits and delays in elective surgeries due to the COVID-19 pandemic. These impacts, as well as the prioritization of COVID-19 patients at health care providers, have resulted in reduced administration of many of the Company’s human health products, in particular for its vaccines, including Gardasil 9 (Human Papillomavirus 9-valent Vaccine, Recombinant), as well as for Keytruda (pembrolizumab) and Implanon/Nexplanon (etonogestrel implant). Access to healthcare providers remains reduced, although improved from the second quarter. Merck anticipates reduced demand for its physician-administered products while pandemic-related access measures remain in place. In addition, declines in elective surgeries negatively affected the demand for Bridion (sugammadex) Injection in the year-to-date period. Sales of Pneumovax 23 (pneumococcal vaccine polyvalent) increased due to heightened awareness of pneumococcal vaccination during the COVID-19 pandemic and ahead of flu season.
Operating expenses were positively affected in the third quarter and first nine months of 2020 by approximately $115 million and $540 million, respectively, primarily driven by lower promotional and selling costs, as well as lower research and development expenses, net of investments in COVID-19-related antiviral and vaccine research programs. For the full-year 2020, Merck expects a net favorable impact to operating expenses of approximately $625 million reflecting continued lower spending due to the COVID-19 pandemic, partially offset by spending on COVID-19-related antiviral and vaccine research programs.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer purchases of equity securities for the three months ended September 30, 2020 were as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
($ in millions)
Period
Total Number
of Shares
Purchased (1)
Average Price
Paid Per
Share
Approximate Dollar Value of Shares
That May Yet Be Purchased
Under the Plans or Programs (1)
July 1 - July 31— $0.00$5,888
August 1 - August 31— $0.00$5,888
September 1 - September 30— $0.00$5,888
Total— $0.00$5,888
(1) The Company did not purchase any shares during the three months ended September 30, 2020 under the plan approved by the Board of Directors in October 2018 to purchase up to $10 billion of Merck’s common stock for its treasury.









- 52 -


Item 6. Exhibits
Number  Description
3.1
3.2
31.1 
31.2 
32.1 
32.2 
101.INSXBRL 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.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
- 53 -





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, 2020 /s/ Jennifer Zachary
 JENNIFER ZACHARY
 Executive Vice President, General Counsel and Corporate Secretary
Date: November 5, 2020 /s/ Rita A. Karachun
 RITA A. KARACHUN
 Senior Vice President Finance - Global Controller
- 54 -
Document

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, 2020
 
By:     /s/ Kenneth C. Frazier
KENNETH C. FRAZIER
Chairman, President and Chief Executive Officer

Document

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, 2020
By:      /s/ Robert M. Davis
ROBERT M. DAVIS
Executive Vice President, Global Services
and Chief Financial Officer

Document

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, 2020 (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, 2020/s/ Kenneth C. Frazier
Name:
Title:
KENNETH C. FRAZIER
Chairman, President and Chief Executive Officer



Document

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, 2020 (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, 2020/s/ Robert M. Davis
Name:
Title:
ROBERT M. DAVIS
Executive Vice President, Global Services
and Chief Financial Officer




v3.20.2
Cover Page - shares
9 Months Ended
Sep. 30, 2020
Oct. 31, 2020
Entity Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
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   2,530,034,437
Amendment Flag false  
Document Fiscal Year Focus 2020  
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 ($0.50 par value)  
Trading Symbol MRK  
Security Exchange Name NYSE  
1.125% Notes due 2021    
Entity Information [Line Items]    
Title of 12(b) Security 1.125% Notes due 2021  
Trading Symbol MRK/21  
Security Exchange Name NYSE  
0.500% Notes due 2024    
Entity Information [Line Items]    
Title of 12(b) Security 0.500% Notes due 2024  
Trading Symbol MRK 24  
Security Exchange Name NYSE  
1.875% Notes due 2026    
Entity Information [Line Items]    
Title of 12(b) Security 1.875% Notes due 2026  
Trading Symbol MRK/26  
Security Exchange Name NYSE  
2.500% Notes due 2034    
Entity Information [Line Items]    
Title of 12(b) Security 2.500% Notes due 2034  
Trading Symbol MRK/34  
Security Exchange Name NYSE  
1.375% Notes due 2036    
Entity Information [Line Items]    
Title of 12(b) Security 1.375% Notes due 2036  
Trading Symbol MRK 36A  
Security Exchange Name NYSE  
v3.20.2
CONDENSED CONSOLIDATED STATEMENT OF INCOME - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Statement [Abstract]        
Sales $ 12,551 $ 12,397 $ 35,479 $ 34,972
Costs, Expenses and Other        
Cost of sales 3,481 3,990 9,952 10,443
Selling, general and administrative 2,450 2,589 7,383 7,726
Research and development 3,390 3,204 7,721 7,324
Restructuring costs 114 232 269 444
Other (income) expense, net (312) 35 (630) 362
Total Costs, Expenses and Other 9,123 10,050 24,695 26,299
Income Before Taxes 3,428 2,347 10,784 8,673
Taxes on Income 483 440 1,611 1,259
Net Income 2,945 1,907 9,173 7,414
Less: Net Income (Loss) Attributable to Noncontrolling Interests 4 6 12 (73)
Net Income Attributable to Merck & Co., Inc. $ 2,941 $ 1,901 $ 9,161 $ 7,487
Basic Earnings per Common Share Attributable to Merck & Co., Inc. Common Shareholders (in dollars per share) $ 1.16 $ 0.74 $ 3.62 $ 2.91
Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders (in dollars per share) $ 1.16 $ 0.74 $ 3.61 $ 2.89
v3.20.2
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net Income Attributable to Merck & Co., Inc. $ 2,941 $ 1,901 $ 9,161 $ 7,487
Other Comprehensive Income (Loss) Net of Taxes:        
Net unrealized (loss) gain on derivatives, net of reclassifications (137) 91 (153) (9)
Net unrealized (loss) gain on investments, net of reclassifications 0 (17) (18) 109
Benefit plan net gain and prior service credit, net of amortization 62 15 161 41
Cumulative translation adjustment 85 (117) (180) 14
Other comprehensive income (loss), net of taxes 10 (28) (190) 155
Comprehensive Income Attributable to Merck & Co., Inc. $ 2,951 $ 1,873 $ 8,971 $ 7,642
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEET - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Current Assets    
Cash and cash equivalents $ 7,356 $ 9,676
Short-term investments 0 774
Accounts receivable (net of allowance for doubtful accounts of $89 in 2020 and $86 in 2019) 8,422 6,778
Inventories (excludes inventories of $2,081 in 2020 and $1,480 in 2019 classified in Other assets - see Note 6) 6,128 5,978
Other current assets 4,671 4,277
Total current assets 26,577 27,483
Investments 1,372 1,469
Property, Plant and Equipment, at cost, net of accumulated depreciation of $18,572 in 2020 and $17,686 in 2019 16,919 15,053
Goodwill 20,248 19,425
Other Intangibles, Net 16,677 14,196
Other Assets 8,007 6,771
Total Assets 89,800 84,397
Current Liabilities    
Loans payable and current portion of long-term debt 2,420 3,610
Trade accounts payable 3,744 3,738
Accrued and other current liabilities 11,690 12,549
Income taxes payable 984 736
Dividends payable 1,567 1,587
Total current liabilities 20,405 22,220
Long-Term Debt 26,321 22,736
Deferred Income Taxes 1,777 1,470
Other Noncurrent Liabilities 12,027 11,970
Merck & Co., Inc. Stockholders’ Equity    
Common stock, $0.50 par value Authorized - 6,500,000,000 shares Issued - 3,577,103,522 shares in 2020 and 2019 1,788 1,788
Other paid-in capital 39,489 39,660
Retained earnings 51,107 46,602
Accumulated other comprehensive loss (6,383) (6,193)
Stockholders' equity before deduction for treasury stock 86,001 81,857
Less treasury stock, at cost: 1,047,343,390 shares in 2020 and 1,038,087,496 shares in 2019 56,815 55,950
Total Merck & Co., Inc. stockholders’ equity 29,186 25,907
Noncontrolling Interests 84 94
Total equity 29,270 26,001
Liabilities and Equity $ 89,800 $ 84,397
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEET (Parenthetical) - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts $ 89 $ 86
Inventories classified in Other assets 2,081 1,480
Accumulated depreciation $ 18,572 $ 17,686
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 1,047,343,390 1,038,087,496
v3.20.2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash Flows from Operating Activities    
Net income $ 9,173 $ 7,414
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 2,721 2,716
Intangible asset impairment charges 35 864
Charge for acquisition of Peloton Therapeutics, Inc. 0 982
Deferred income taxes 47 (386)
Share-based compensation 354 306
Other (445) 219
Net changes in assets and liabilities (5,638) (3,469)
Net Cash Provided by Operating Activities 6,247 8,646
Cash Flows from Investing Activities    
Capital expenditures (3,170) (2,336)
Purchases of securities and other investments (78) (2,380)
Proceeds from sales of securities and other investments 1,894 7,459
Acquisition of ArQule, Inc., net of cash acquired (2,545) 0
Acquisition of Antelliq Corporation, net of cash acquired 0 (3,620)
Acquisition of Peloton Therapeutics, Inc., net of cash acquired 0 (1,040)
Other acquisitions, net of cash acquired (907) (269)
Other 141 320
Net Cash Used in Investing Activities (4,665) (1,866)
Cash Flows from Financing Activities    
Net change in short-term borrowings (311) (3,892)
Payments on debt (1,954) 0
Proceeds from issuance of debt 4,419 4,958
Purchases of treasury stock (1,281) (3,730)
Dividends paid to stockholders (4,673) (4,290)
Proceeds from exercise of stock options 68 344
Other (472) (240)
Net Cash Used in Financing Activities (4,204) (6,850)
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash 89 (26)
Net Decrease in Cash, Cash Equivalents and Restricted Cash (2,533) (96)
Cash, Cash Equivalents and Restricted Cash at Beginning of Year (includes restricted cash of $258 at January 1, 2020 included in Other Assets) 9,934 7,967
Cash, Cash Equivalents and Restricted Cash at End of Period (includes restricted cash of $45 at September 30, 2020 included in Other Assets) $ 7,401 $ 7,871
v3.20.2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Parenthetical) - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Statement of Cash Flows [Abstract]    
Restricted cash $ 45 $ 258
v3.20.2
Basis of Presentation
9 Months Ended
Sep. 30, 2020
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 (GAAP) 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 26, 2020.
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.
Planned Spin-Off of Women’s Health, Biosimilars and Established Brands into New Company
In February 2020, Merck announced its intention to spin-off products from its women’s health, biosimilars and established brands businesses into a new, independent, publicly traded company named Organon & Co. (Organon) through a distribution of Organon’s publicly traded stock to Company shareholders. The distribution is expected to qualify as tax-free to the Company and its shareholders for U.S. federal income tax purposes. The established brands included in the transaction consist of dermatology, non-opioid pain management, respiratory, and select cardiovascular products including Zetia (ezetimibe) and Vytorin (ezetimibe and simvastatin), as well as the rest of Merck’s diversified brands franchise. Merck’s existing research pipeline programs will continue to be owned and developed within Merck as planned. Organon will have development capabilities initially focused on late-stage development and life-cycle management and is expected over time to develop research capabilities in selected therapeutic areas. The spin-off is expected to be completed in the second quarter of 2021, subject to market and certain other conditions. Subsequent to the spin-off, the historical results of the women’s health, biosimilars and established brands businesses will be reflected as discontinued operations in the Company’s consolidated financial statements.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the accounting for credit losses on financial instruments. The new 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 Company adopted the new guidance effective January 1, 2020. There was no impact to the Company’s consolidated financial statements upon adoption.
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 Company adopted the new guidance effective January 1, 2020, which resulted in minor changes to the presentation of information related to the Company’s collaborative arrangements.
Recently Issued Accounting Standards Not Yet Adopted
In December 2019, the FASB issued amended guidance on the accounting and reporting of income taxes. The guidance is intended to simplify the accounting for income taxes by: removing exceptions related to certain intraperiod tax allocations and deferred tax liabilities; clarifying guidance primarily related to evaluating the step-up tax basis for goodwill in a business combination; and reflecting enacted changes in tax laws or rates in the annual effective tax rate. The amended guidance is effective for interim and annual periods in 2021. Early adoption is permitted. The amendments in the new guidance are to be applied on a retrospective basis, on a modified retrospective basis through a cumulative-effect adjustment to retained earnings or prospectively, depending on the amendment. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In January 2020, the FASB issued new guidance intended to clarify certain interactions between accounting standards related to equity securities, equity method investments and certain derivatives. The guidance addresses accounting for the transition into and out of the equity method of accounting and measuring certain purchased options and forward contracts to acquire investments. The new guidance is effective for interim and annual periods in 2021 and is to be applied prospectively. Early adoption is permitted. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In March 2020, the FASB issued optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The optional guidance is effective upon issuance and can be applied on a prospective basis at any time between January 1, 2020 through December 31, 2022. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
v3.20.2
Acquisitions, Research Collaborations and License Agreements
9 Months Ended
Sep. 30, 2020
Business Combinations [Abstract]  
Acquisitions, Research Collaborations and License Agreements Acquisitions, 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 November 2020, Merck and VelosBio, Inc. (VelosBio) announced that the companies had entered into a definitive agreement pursuant to which Merck, through a subsidiary, will acquire all outstanding shares of VelosBio for $2.75 billion, subject to certain customary adjustments. VelosBio is a privately held clinical-stage biopharmaceutical company committed to developing first-in-class cancer therapies targeting receptor tyrosine kinase-like orphan receptor 1 (ROR1). VelosBio’s lead investigational candidate is VLS-101, an antibody-drug conjugate targeting ROR1 that is currently being evaluated in a Phase 1 and a Phase 2 clinical trial for the treatment of patients with hematologic malignancies and solid tumors, respectively. The closing of the transaction, which is subject to approval under the Hart-Scott-Rodino Antitrust Improvements Act and other customary conditions, is expected by the end of 2020.
In September 2020, Merck and Seagen Inc. (Seagen, formerly known as Seattle Genetics, Inc.) announced an oncology collaboration to globally develop and commercialize Seagen’s ladiratuzumab vedotin (MK-6440), an investigational antibody-drug conjugate targeting LIV-1, which is currently in Phase 2 clinical trials for breast cancer and other solid tumors. The collaboration will pursue a broad joint development program evaluating ladiratuzumab vedotin as monotherapy and in combination with Keytruda (pembrolizumab) in triple-negative breast cancer, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumors. The companies will equally share profits worldwide. Under the terms of the agreement, Merck made an upfront payment of $600 million and a $1.0 billion equity investment in 5 million shares of Seagen common stock at a price of $200 per share. Merck recorded $622 million in Research and development expenses in the third quarter and first nine months of 2020 related to this transaction reflecting the upfront payment as well as a $22 million mark-to-market loss on the purchase commitment (forward contract) relating to the equity shares (calculated based on the closing price of Seagen common stock on September 30, 2020). The closing of the equity investment occurred in October 2020 and resulted in the recognition of a $6 million reduction to Research and development expenses based on the price of Seagen common stock on the closing date. Seagen is also eligible to receive future contingent milestone payments of up to $2.6 billion, including $850 million in development milestones and $1.75 billion in sales milestones.
Concurrent with the above transaction, Seagen granted Merck an exclusive license to commercialize Tukysa (tucatinib), a small molecule tyrosine kinase inhibitor, for the treatment of HER2-positive cancers, in Asia, the Middle East and Latin America and other regions outside of the United States, Canada and Europe. Merck will be responsible for marketing applications seeking approval in its territories, supported by the positive results from the HER2CLIMB clinical trial. Merck will also co-fund a portion of the Tukysa global development plan, which encompasses several ongoing and planned trials across HER2-positive cancers, including breast, colorectal, gastric and other cancers set forth in a global product development plan. Merck will solely fund and conduct country-specific clinical trials necessary to support anticipated regulatory applications in its territories. Under the terms of the agreement, Merck made upfront payments aggregating $210 million, which were recorded as Research and development expenses in the third quarter and first nine months of 2020. Seagen is also eligible to receive future contingent regulatory approval milestones of up to $65 million and will receive tiered royalties ranging from 20% to 33% based on annual sales levels of Tukysa in Merck’s territories.
Additionally in September 2020, Merck acquired a biologics manufacturing facility located in Dunboyne, Ireland from Takeda Pharmaceutical Company Limited for €256 million ($302 million). The transaction was accounted for as an acquisition of an asset. Merck recorded property, plant and equipment of $289 million and other net assets of $13 million. There are no future contingent payments associated with the acquisition.
In July 2020, Merck acquired the U.S. rights to Sentinel Flavor Tabs and Sentinel Spectrum Chews from Virbac Corporation for $410 million. Sentinel products provide protection against common parasites in dogs. The transaction was accounted for as an acquisition of an asset. Merck recognized intangible assets of $401 million related to currently marketed products and inventory of $9 million at the acquisition date. The estimated fair values of the identifiable intangible assets related to currently marketed products were determined using an income approach. Actual cash flows are likely to be different than those assumed. The intangible assets related to currently marketed products will be amortized over their estimated useful lives of 15 years. There are no future contingent payments associated with the acquisition.
Also, in July 2020, Merck and Ridgeback Biotherapeutics LP (Ridgeback Bio), a closely held biotechnology company, closed a collaboration agreement to develop molnupiravir (MK-4482, formerly known as EIDD-2801), an orally
available antiviral candidate currently in clinical development for the treatment of patients with COVID-19. Merck gained exclusive worldwide rights to develop and commercialize molnupiravir and related molecules. Under the terms of the agreement, Ridgeback Bio received an upfront payment and also is eligible to receive future contingent payments dependent upon the achievement of certain developmental and regulatory approval milestones, as well as a share of the net profits of molnupiravir and related molecules, if approved. Merck and Ridgeback are committed to ensure that any medicines developed for SARS-CoV-2 (the causative agent of COVID-19) will be accessible and affordable globally.
In June 2020, Merck acquired privately held Themis Bioscience GmbH (Themis), a company focused on vaccines and immune-modulation therapies for infectious diseases and cancer for $366 million. Merck may make additional contingent payments of up to $740 million, including up to $80 million for development milestones, up to $260 million for regulatory approval milestones, and up to $400 million for commercial milestones. Themis has a broad pipeline of vaccine candidates and immune-modulatory therapies developed using its innovative measles virus vector platform based on a vector originally developed by scientists at the Institut Pasteur and licensed exclusively to Themis for select viral indications. The acquisition builds upon an ongoing collaboration between the two companies to develop vaccine candidates using the measles virus vector platform and is expected to accelerate the development of the COVID-19 vaccine candidate (V591), which is currently in Phase 1 clinical development. The transaction was accounted for as an acquisition of a business. The Company determined the fair value of the contingent consideration was $97 million at the acquisition date utilizing a probability-weighted estimated cash flow stream using an appropriate discount rate dependent on the nature and timing of the milestone payment. Merck recognized intangible assets for in-process research and development (IPR&D) of $136 million, cash of $59 million, deferred tax assets of $71 million and other net liabilities of $32 million. The excess of the consideration transferred over the fair value of net assets acquired of $229 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 connection with the transaction, Merck has entered into a memorandum of understanding that reflects the parties’ commitments to address the COVID-19 pandemic by developing, manufacturing and distributing the vaccine on a global basis and with pricing that makes the vaccine both available around the world and accessible to those who need it.
In May 2020, Merck and the International AIDS Vaccine Initiative, Inc. (IAVI), a nonprofit scientific research organization dedicated to addressing urgent, unmet global health challenges, announced a new collaboration to develop V590, an investigational vaccine against SARS-CoV-2 being studied for the prevention of COVID-19. This vaccine candidate will use the recombinant vesicular stomatitis virus (rVSV) technology that is the basis for Merck’s approved Ebola Zaire virus vaccine, Ervebo (Ebola Zaire Vaccine, Live), which was the first rVSV vaccine approved for use in humans. Under the terms of the agreement, Merck made an upfront payment of $6.5 million and may make additional contingent payments of up to $100 million for sales-based milestones, as well as royalty payments. Merck has also signed an agreement with the Biomedical Advanced Research and Development Authority (BARDA), part of the office of the Assistant Secretary for Preparedness and Response within an agency of the United States Department of Health and Human Services, to provide initial funding support for this effort. Under the agreement, IAVI and Merck will work together to advance the development and global clinical evaluation of a SARS-CoV-2 vaccine candidate designed and engineered by IAVI scientists. The vaccine candidate is currently in Phase 1 clinical development. Merck will lead regulatory filings globally. Both organizations will work together to develop the vaccine and make it accessible and affordable globally, if approved.
In January 2020, Merck acquired ArQule, Inc. (ArQule), a publicly traded biopharmaceutical company focused on kinase inhibitor discovery and development for the treatment of patients with cancer and other diseases. Total consideration paid of $2.7 billion included $138 million of share-based compensation payments to settle equity awards attributable to precombination service and cash paid for transaction costs on behalf of ArQule. The Company incurred $95 million of transaction costs directly related to the acquisition of ArQule, consisting almost entirely of share-based compensation payments to settle non-vested equity awards attributable to postcombination service. These costs were included in Selling, general and administrative expenses in the first nine months of 2020. ArQule’s lead investigational candidate, MK-1026 (formerly known as ARQ 531), is a novel, oral Bruton’s tyrosine kinase (BTK) inhibitor currently being evaluated for the treatment of B-cell malignancies.
The estimated fair value of assets acquired and liabilities assumed from ArQule is as follows:
($ in millions)January 16, 2020
Cash and cash equivalents$145 
IPR&D MK-1026 (formerly ARQ 531) (1)
2,280 
Licensing arrangement for ARQ 08780 
Deferred income tax liabilities(389)
Other assets and liabilities, net34 
Total identifiable net assets
2,150 
Goodwill (2)
540 
Consideration transferred$2,690 
(1)    The estimated fair value of the identifiable intangible asset related to IPR&D was determined using an income approach. The future net cash flows were discounted to present value utilizing a discount rate of 12.5%. Actual cash flows are likely to be different than those assumed.
(2)    The goodwill was allocated to the Pharmaceutical segment and is not deductible for tax purposes.
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 known as PT2977), is a novel investigational oral HIF-2α inhibitor in late-stage development for renal cell carcinoma. Merck made an upfront payment of $1.2 billion; 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 receivable73 
Inventories93 
Property, plant and equipment60 
Identifiable intangible assets (useful lives ranging from 18-24 years) (1)
2,689 
Deferred income tax liabilities(589)
Other assets and liabilities, net(82)
Total identifiable net assets
2,275 
Goodwill (2)
1,376 
Consideration transferred$3,651 
(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 of $156 million, cash of $83 million and other net assets of $42 million. The excess of the consideration transferred over the fair value of net assets acquired of $20
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.
v3.20.2
Collaborative Arrangements
9 Months Ended
Sep. 30, 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 will also jointly develop and commercialize AstraZeneca’s Koselugo (selumetinib), an oral, selective inhibitor of MEK, part of the mitogen-activated protein kinase (MAPK) pathway, currently being developed 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. 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 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 a $400 million liability and a corresponding increase 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 $200 million and $250 million was paid to AstraZeneca in 2019 and 2018, respectively, and $250 million was paid in the first nine months of 2020. 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 the second quarter of 2020, Lynparza received regulatory approvals triggering capitalized milestone payments of $135 million from Merck to AstraZeneca. In 2019 and 2018, Lynparza received regulatory approvals triggering capitalized milestone payments of $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 $1.3 billion at September 30, 2020 and is included in Other Intangibles, Net on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2028 as supported by projected future cash flows, subject to impairment testing.
Summarized financial information related to this collaboration is as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Alliance revenue - Lynparza$196 $123 $519 $313 
Alliance revenue - Koselugo— — 
Total alliance revenue$199 $123 $522 $313 
Cost of sales (1)
41 28 205 120 
Selling, general and administrative40 36 112 96 
Research and development20 44 93 122 
($ in millions)September 30, 2020December 31, 2019
Receivables from AstraZeneca included in Other current assets
$197 $128 
Payables to AstraZeneca included in Accrued and other current liabilities (2)
309 577 
Payables to AstraZeneca included in Other Noncurrent Liabilities (2)
400 — 
(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 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 expenses.
Under the agreement, Merck made an upfront payment to Eisai of $750 million 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). 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 the second quarter of 2020, Merck determined it was probable that sales of Lenvima in the future would trigger sales-based milestone payments aggregating $370 million from Merck to Eisai. Accordingly, Merck recorded a $370 million liability and a corresponding increase to the intangible asset related to Lenvima. Prior to 2020, Merck accrued sales-based milestone payments aggregating $950 million. Of these amounts, $50 million was paid to Eisai in 2019 and an additional $500 million was paid in the first nine months of 2020. 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 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 intangible asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $1.1 billion at September 30, 2020 and is included in Other Intangibles, Net on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2026 as supported by projected future cash flows, subject to impairment testing.
Summarized financial information related to this collaboration is as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Alliance revenue - Lenvima$142 $109 $421 $280 
Cost of sales (1)
46 23 215 97 
Selling, general and administrative18 21 48 59 
Research and development48 37 168 146 
($ in millions)September 30, 2020December 31, 2019
Receivables from Eisai included in Other current assets
$170 $150 
Payables to Eisai included in Accrued and other current liabilities (2)
325 700 
Payables to Eisai included in Other Noncurrent Liabilities (3)
570 525 
(1) Represents amortization of capitalized milestone payments.
(2) Includes accrued milestone and future option payments.
(3) 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 vericiguat, which is in development for the potential treatment of worsening heart failure. Vericiguat is currently under review by regulatory authorities in the United States, the EU and Japan. Under the agreement, Bayer leads commercialization of Adempas in the Americas, while Merck leads commercialization in the rest of the world. For vericiguat, if approved, Bayer will lead commercialization in the rest of world and Merck will lead in the Americas. Both companies share in development costs and profits on sales and have the right to co-promote in territories where they are not the lead. Merck records sales of Adempas in its marketing territories, as well as alliance revenue, which is Merck’s share of profits from the sale of Adempas in Bayer’s marketing territories. 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 $350 million was paid to Bayer in 2018. 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 this collaboration (which includes the acquired intangible asset balance, as well as capitalized sales-based milestone payments) was $838 million at September 30, 2020 and is included in Other Intangibles, Net on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2027 as supported by projected future cash flows, subject to impairment testing.
Summarized financial information related to this collaboration is as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Alliance revenue - Adempas$83 $50 $216 $144 
Net sales of Adempas recorded by Merck55 57 167 158 
Total sales$138 $107 $383 $302 
Cost of sales (1)
29 28 85 86 
Selling, general and administrative19 12 42 31 
Research and development12 31 53 94 
($ in millions)September 30, 2020December 31, 2019
Receivables from Bayer included in Other current assets
$70 $49 
Payables to Bayer included in Other Noncurrent Liabilities (2)
375 375 
(1) Includes amortization of intangible assets.
(2) Represents accrued milestone payment.
v3.20.2
Restructuring
9 Months Ended
Sep. 30, 2020
Restructuring and Related Activities [Abstract]  
Restructuring Restructuring
In early 2019, Merck approved a new global restructuring program (Restructuring Program) as part of a worldwide initiative focused on further optimizing the Company’s manufacturing and supply network, as well as reducing its global real estate footprint. This program is a continuation of the Company’s plant rationalization, builds on prior restructuring programs and does not include any actions associated with the planned spin-off of Organon. As the Company continues to evaluate its global footprint and overall operating model, it subsequently identified additional actions under the Restructuring Program, and could identify further actions over time. The actions currently contemplated under the Restructuring Program are expected to be substantially completed by the end of 2023, with the cumulative pretax costs to be incurred by the Company to implement the program estimated to be approximately $2.5 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 $800 million in 2020 related to the Restructuring Program. Actions under previous global restructuring programs have been substantially completed.
The Company recorded total pretax costs of $186 million and $296 million in the third quarter of 2020 and 2019, respectively, and $504 million and $642 million for the first nine months of 2020 and 2019, respectively, related to restructuring program activities. Since inception of the Restructuring Program through September 30, 2020, Merck has recorded total pretax accumulated costs of approximately $1.4 billion. For segment reporting, restructuring charges are unallocated expenses.
The following tables summarize the charges related to restructuring program activities by type of cost:
 Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
($ in millions)Separation
Costs
Accelerated
Depreciation
OtherTotalSeparation
Costs
Accelerated
Depreciation
OtherTotal
Cost of sales$— $33 $$38 $— $89 $42 $131 
Selling, general and administrative— 15 — 15 — 37 — 37 
Research and development— 18 19 — 66 67 
Restructuring costs61 — 53 114 143 — 126 269 
$61 $66 $59 $186 $143 $192 $169 $504 
 Three Months Ended September 30, 2019Nine Months Ended September 30, 2019
($ in millions)Separation
Costs
Accelerated
Depreciation
OtherTotalSeparation
Costs
Accelerated
Depreciation
OtherTotal
Cost of sales$— $41 $21 $62 $— $139 $22 $161 
Selling, general and administrative— — — 33 — 33 
Research and development— (1)— 
Restructuring costs205 — 27 232 358 — 86 444 
$205 $41 $50 $296 $358 $173 $111 $642 
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 2020 and 2019 includes asset abandonment, facility shut-down and other related costs, as well as pretax gains and losses resulting from the 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, 2020:
($ in millions)Separation
Costs
Accelerated
Depreciation
OtherTotal
Restructuring reserves January 1, 2020$690 $— $69 $759 
Expense143 192 169 504 
(Payments) receipts, net(395)— (237)(632)
Non-cash activity— (192)39 (153)
Restructuring reserves September 30, 2020 (1)
$438 $— $40 $478 
(1)The remaining cash outlays are expected to be substantially completed by the end of 2023.
v3.20.2
Financial Instruments
9 Months Ended
Sep. 30, 2020
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 changes 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 are 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 a portion of 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 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 components). Changes in fair value of the excluded components are recognized in OCI. The Company recognizes in earnings the initial value of the excluded components 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)20202019202020192020201920202019
Net Investment Hedging Relationships
Foreign exchange contracts
$10 $$15 $$(4)$(8)$(15)$(23)
Euro-denominated notes162 (150)182 (152)— — — — 
(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.
In February 2020, five interest rate swaps with notional amounts of $250 million each matured. These swaps effectively converted the Company’s $1.25 billion, 1.85% fixed-rate notes due 2020 to variable rate debt. At September 30, 2020, the Company was a party to 14 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, 2020
($ in millions)Par Value of DebtNumber of Interest Rate Swaps HeldTotal Swap Notional Amount
3.875% notes due 2021
$1,150 $1,150 
2.40% notes due 2022
1,000 1,000 
2.35% notes due 2022
1,250 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 LiabilitiesCumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount
($ in millions)September 30, 2020December 31, 2019September 30, 2020December 31, 2019
Balance Sheet Line Item in which Hedged Item is Included
Loans payable and current portion of long-term debt$1,155 $1,249 $$(1)
Long-Term Debt2,309 3,409 62 14 
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, 2020December 31, 2019
  Fair Value of DerivativeU.S. Dollar
Notional
Fair Value of DerivativeU.S. Dollar
Notional
($ in millions)Balance Sheet CaptionAssetLiabilityAssetLiability
Derivatives Designated as Hedging Instruments
Interest rate swap contractsOther current assets$$— $1,150 $— $— $— 
Interest rate swap contractsOther Assets63 — 2,250 15 — 3,400 
Interest rate swap contractsAccrued and other current liabilities— — — — 1,250 
Foreign exchange contractsOther current assets30 — 4,120 152 — 6,117 
Foreign exchange contractsOther Assets59 — 1,881 55 — 2,160 
Foreign exchange contractsAccrued and other current liabilities— 104 3,096 — 22 1,748 
Foreign exchange contractsOther Noncurrent Liabilities— 157 — 53 
  $158 $105 $12,654 $222 $24 $14,728 
Derivatives Not Designated as Hedging Instruments
       
Foreign exchange contractsOther current assets$81 $— $5,455 $66 $— $7,245 
Foreign exchange contractsAccrued and other current liabilities— 171 8,042 — 73 8,693 
Forward contract related to Seagen common stockAccrued and other current liabilities— 22 1,000 — — — 
  $81 $193 $14,497 $66 $73 $15,938 
  $239 $298 $27,151 $288 $97 $30,666 
As noted above, the Company records its derivatives on a gross basis in the Condensed Consolidated Balance Sheet. The Company has master netting agreements with several of its financial institution counterparties (see Concentrations of Credit Risk below). The following table provides information on the Company’s derivative positions subject to these master netting arrangements as if they were presented on a net basis, allowing for the right of offset by counterparty and cash collateral exchanged per the master agreements and related credit support annexes:
 September 30, 2020December 31, 2019
($ in millions)AssetLiabilityAssetLiability
Gross amounts recognized in the condensed consolidated balance sheet$239 $298 $288 $97 
Gross amounts subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet
(140)(140)(84)(84)
Cash collateral received— — (34)— 
Net amounts$99 $158 $170 $13 
The table below provides information regarding the location and amount of pretax (gains) losses of derivatives designated in fair value or cash flow hedging relationships:
Sales
Other (income) expense, net (1)
Other comprehensive income (loss)Sales
Other (income) expense, net (1)
Other comprehensive income (loss)
Three Months Ended September 30,Three Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,Nine Months Ended September 30,Nine Months Ended September 30,
($ in millions)202020192020201920202019202020192020201920202019
Financial Statement Line Items in which Effects of Fair Value or Cash Flow Hedges are Recorded$12,551 $12,397 $(312)$35 $10 $(28)$35,479 $34,972 $(630)$362 $(190)$155 
(Gain) loss on fair value hedging relationships
Interest rate swap contracts
Hedged items
— — (14)13 — — — — 54 101 — — 
Derivatives designated as hedging instruments
— — — (6)— — — — (76)(74)— — 
Impact of cash flow hedging relationships
Foreign exchange contracts
Amount of (loss) gain recognized in OCI on derivatives
— — — — (195)186 — — — — (126)183 
Increase (decrease) in Sales as a result of AOCI reclassifications
(23)70 — — 23 (70)65 189 — — (65)(189)
Interest rate contracts
Amount of gain recognized in Other (income) expense, net on derivatives
— — (1)(1)— — — — (3)(3)— — 
Amount of loss recognized in OCI on derivatives
— — — — (1)(1)— — — — (3)(6)
(1) Interest expense is a component of Other (income) expense, net.
The table below provides information regarding the income statement effects of derivatives not designated as hedging instruments:
Amount of Derivative Pretax (Gain) Loss Recognized in Income
Three Months Ended
September 30,
Nine Months Ended September 30,
($ in millions)Income Statement Caption2020201920202019
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts (1)
Other (income) expense, net$(7)$(8)$(138)$112 
Foreign exchange contracts (2)
Sales(11)(7)
Interest rate contracts (3)
Other (income) expense, net— — — 
Forward contract related to Seagen common stockResearch and development expenses22 — 22 — 
(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.
(3) These derivatives serve as economic hedges against rising treasury rates.
At September 30, 2020, the Company estimates $155 million of pretax net unrealized losses on derivatives maturing within the next 12 months that hedge foreign currency denominated sales over that same period will be reclassified from AOCI to Sales. The amount ultimately reclassified to Sales may differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual exchange rates at maturity.
Investments in Debt and Equity Securities
Information on investments in debt and equity securities is as follows:
 September 30, 2020December 31, 2019
 Amortized
Cost
Gross UnrealizedFair
Value
Amortized
Cost
Gross UnrealizedFair
Value
($ in millions)GainsLossesGainsLosses
U.S. government and agency securities$74 $— $— $74 $266 $$— $269 
Foreign government bonds— — — — — — 
Commercial paper— — — — 668 — — 668 
Corporate notes and bonds— — — — 608 13 — 621 
Asset-backed securities— — — — 226 — 227 
Total debt securities$76 $— $— $76 $1,768 $17 $— $1,785 
Publicly traded equity securities (1)
1,477 838 
Total debt and publicly traded equity securities
$1,553 $2,623 
(1) Unrealized net (gains) losses recognized in Other (income) expense, net on equity securities still held at September 30, 2020 were $(43) million and $(512) million in the third quarter and first nine months of 2020, respectively. Unrealized net losses (gains) recognized in Other (income) expense, net on equity securities still held at September 30, 2019 were $25 million and $(41) million in the third quarter and first nine months of 2019, respectively.
At September 30, 2020 and September 30, 2019, the Company also had $508 million and $393 million, respectively, of equity investments without readily determinable fair values included in Other Assets. The Company recognizes unrealized gains on these equity investments based on favorable observable price changes from transactions involving similar investments of the same investee and recognizes unrealized losses based on unfavorable observable price changes. During the first nine months of 2020, the Company recognized unrealized gains of $21 million and unrealized losses of $3 million in Other (income) expense, net related to these equity investments held at September 30, 2020. During the first nine months of 2019, the Company recognized unrealized gains of $4 million and unrealized losses of $12 million in Other (income) expense, net related to these investments held at September 30, 2019. Cumulative unrealized gains and cumulative unrealized losses based on observable prices changes for investments in equity investments without readily determinable fair values still held at September 30, 2020 were $128 million and $24 million, respectively.
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 UsingFair Value Measurements Using
 Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
($ in millions)September 30, 2020December 31, 2019
Assets
Investments
Foreign government bonds$— $$— $$— $— $— $— 
Commercial paper— — — — — 668 — 668 
Corporate notes and bonds— — — — — 621 — 621 
Asset-backed securities (1)
— — — — — 227 — 227 
U.S. government and agency securities
— — — — — 209 — 209 
Publicly traded equity securities
1,370 — — 1,370 518 — — 518 
 1,370 — 1,372 518 1,725 — 2,243 
Other assets (2)
U.S. government and agency securities
74 — — 74 60 — — 60 
Publicly traded equity securities107 — — 107 320 — — 320 
181 — — 181 380 — — 380 
Derivative assets (3)
Forward exchange contracts— 116 — 116 — 169 — 169 
Interest rate swaps— 69 — 69 — 15 — 15 
Purchased currency options— 54 — 54 — 104 — 104 
 — 239 — 239 — 288 — 288 
Total assets$1,551 $241 $— $1,792 $898 $2,013 $— $2,911 
Liabilities
Other liabilities
Contingent consideration$— $— $829 $829 $— $— $767 $767 
Derivative liabilities (3)
Forward exchange contracts— 275 — 275 — 95 — 95 
Forward contract related to Seagen common stock— 22 — 22 — — — — 
Written currency options— — — — 
Interest rate swaps— — — — — — 
— 298 — 298 — 97 — 97 
Total liabilities$— $298 $829 $1,127 $— $97 $767 $864 
(1)Primarily all of the asset-backed securities were 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, including 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.
As of September 30, 2020 and December 31, 2019, Cash and cash equivalents included $6.6 billion and $8.9 billion of cash equivalents, respectively (which would be considered Level 2 in the fair value hierarchy).
Contingent Consideration
Summarized information about the changes in liabilities for contingent consideration associated with business acquisitions is as follows:
Nine Months Ended September 30,
($ in millions)20202019
Fair value January 1$767 $788 
Additions97 — 
Changes in estimated fair value (1)
71 52 
Payments(106)(85)
Fair value September 30 (2)(3)
$829 $755 
(1) Recorded in Cost of sales, Research and development expenses, and Other (income) expense, net. Includes cumulative translation adjustments.
(2) Balance at September 30, 2020 includes $140 million recorded as a current liability for amounts expected to be paid within the next 12 months.
(3) At September 30, 2020 and December 31, 2019, $637 million and $625 million, respectively, of the liabilities relate to the termination of the Sanofi-Pasteur MSD joint venture in 2016. As part of the termination, Merck recorded a liability for contingent future royalty payments of 11.5% on net sales of all Merck products that were previously sold by the joint venture through December 31, 2024. The fair value of this liability is determined utilizing the estimated amount and timing of projected cash flows using a risk-adjusted discount rate of 8% to present value the cash flows.
The additions to contingent consideration in 2020 relate to the acquisition of Themis (see Note 2). The payments of contingent consideration in both periods relate to liabilities recorded in connection with the termination of the Sanofi-Pasteur MSD joint venture in 2016.
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, 2020, was $32.6 billion compared with a carrying value of $28.7 billion and at December 31, 2019, was $28.8 billion compared with a carrying value of $26.3 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, Europe and China 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 has accounts receivable factoring agreements with financial institutions in certain countries to sell accounts receivable. The Company factored $2.1 billion and $2.7 billion of accounts receivable in the third quarter of 2020 and the fourth quarter of 2019, respectively, under these factoring arrangements, which reduced outstanding accounts receivable. The cash received from the financial institutions is reported within operating activities in the Consolidated Statement of Cash Flows. In certain of these factoring arrangements, for ease of administration, the Company will collect customer payments related to the factored receivables, which it then remits to the financial institutions. The net cash flows relating to these collections are reported as financing activities in the Consolidated Statement of Cash Flows. The cost of factoring such accounts receivable was de minimis.
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 collateral received by the Company from various counterparties was $34 million at December 31, 2019. The obligation to return such collateral is recorded in Accrued and other current liabilities. No cash collateral was advanced by the Company to counterparties as of September 30, 2020 or December 31, 2019.
v3.20.2
Inventories
9 Months Ended
Sep. 30, 2020
Inventory Disclosure [Abstract]  
Inventories Inventories
Inventories consisted of:
($ in millions)September 30, 2020December 31, 2019
Finished goods$2,038 $1,772 
Raw materials and work in process6,073 5,650 
Supplies197 207 
Total (approximates current cost)8,308 7,629 
Decrease to LIFO cost(99)(171)
 $8,209 $7,458 
Recognized as:
Inventories$6,128 $5,978 
Other assets2,081 1,480 
Amounts recognized as Other Assets are comprised almost entirely of raw materials and work in process inventories. At September 30, 2020 and December 31, 2019, these amounts included $1.8 billion and $1.3 billion, respectively, of inventories not expected to be sold within one year. In addition, these amounts included $288 million and $168 million at September 30, 2020 and December 31, 2019, respectively, of inventories produced in preparation for product launches.
v3.20.2
Other Intangibles
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Other Intangibles
7.    Other Intangibles
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 susceptible isolates of certain Gram-positive microorganisms. 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.
v3.20.2
Long-Term Debt
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Long-Term Debt Long-Term DebtIn June 2020, the Company issued $4.5 billion principal amount of senior unsecured notes consisting of $1.0 billion of 0.75% notes due 2026, $1.25 billion of 1.45% notes due 2030, $1.0 billion of 2.35% notes due 2040 and $1.25 billion of 2.45% notes due 2050. Merck used the net proceeds from the offering for general corporate purposes, including without limitation the repayment of outstanding commercial paper borrowings and other indebtedness with upcoming maturities.
v3.20.2
Contingencies
9 Months Ended
Sep. 30, 2020
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 condition, 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.
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, 2020, approximately 3,590 cases are pending 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 Fractures 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. In May 2019, the U.S. Supreme Court 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. In November 2019, the Third Circuit remanded the cases back to the District Court in order to allow that court to determine in the first instance whether the plaintiffs’ state law claims are preempted by federal law under the standards described by the Supreme Court in its opinion. Briefing on the issue is closed, and the parties await the decision of the District Court.
Accordingly, as of September 30, 2020, approximately 970 cases were actively pending in the Femur Fracture MDL.
As of September 30, 2020, approximately 2,340 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, and Merck has continued to select additional cases to be reviewed.
As of September 30, 2020, 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 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, 2020, Merck is aware of approximately 1,465 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. 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 proceedings 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 hearings for Daubert and summary judgment motions took place on October 20, 2020.
As of September 30, 2020, 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 U.S. 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 in September 2019, in which the Illinois Supreme Court directed the intermediate appellate court to reconsider its earlier ruling. The Illinois Appellate Court issued a favorable decision concluding, consistent with Albrecht, that preemption presents a legal question to be resolved by the court.
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.
Vioxx
As previously disclosed, Merck is a defendant in a lawsuit brought by the Attorney General of Utah alleging that Merck misrepresented the safety of Vioxx. The lawsuit is pending in Utah state court. Utah seeks damages and penalties under the Utah False Claims Act. A bench trial in this matter has been rescheduled for April 6, 2021.
Governmental Proceedings
As previously disclosed, the Company’s subsidiaries in China have 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. In August 2019, the district court adopted in full the report and recommendation of the magistrate judge with respect to the Merck Defendants’ motions to dismiss on non-arbitration issues, thereby granting in part and denying in part Merck Defendants’ motions to dismiss. In addition, in June 2019, the representatives of the putative direct purchaser class filed an amended complaint, and in August 2019, retailer opt-out plaintiffs filed an amended complaint. The Merck Defendants moved to dismiss the new allegations in both complaints. In October 2019, the magistrate judge issued a report and recommendation recommending that the district judge grant the motions in their entirety. In December 2019, the district court adopted this report and recommendation in part. The district court granted the Merck Defendants’ motion to dismiss to the extent the motion sought dismissal of claims for overcharges paid by entities that purchased generic ezetimibe from Par Pharmaceutical, Inc. (Par Pharmaceutical) and dismissed any claims for such overcharges. In November 2019, the direct purchaser plaintiffs and the indirect purchaser plaintiffs filed motions for class certification. On June 18, 2020, the magistrate judge issued a report and recommendation recommending that the district judge grant in part the direct purchasers’ motion for class certification and certify a class of 35 direct purchasers. On August 21, 2020, the district court adopted the report and recommendation in full, and on November 2, 2020, the U.S. Court of Appeals for the Fourth Circuit granted defendants’ motion for permission to appeal the district court’s order. Also, on August 14, 2020, the magistrate judge recommended that the court grant the motion for class certification filed by the putative indirect purchaser class. The Merck Defendants objected to this report and recommendation and are awaiting a decision from the district court.
On August 10, 2020, the Merck Defendants filed a motion for summary judgment and other motions, and plaintiffs filed a motion for partial summary judgment, and other motions. Those motions are now fully briefed, and the court will likely hold a hearing on the competing motions. Trial in this matter has been adjourned.
Patent Litigation
From time to time, generic manufacturers of pharmaceutical products file abbreviated New Drug Applications (NDAs) with the 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.
Bridion Between January and March 2020, the Company received multiple Paragraph IV Certification Letters under the Hatch-Waxman Act notifying the Company that generic drug companies have filed applications to the FDA seeking pre-patent expiry approval to sell generic versions of Bridion (sugammadex) Injection. In March and April 2020, the Company filed patent infringement lawsuits in the U.S. District Courts for the District of New Jersey and the Northern District of West Virginia against those generic companies. These lawsuits, which assert one or more patents covering sugammadex and methods of using sugammadex, automatically stay FDA approval of the generic applications until June 2023 or until adverse court decisions, if any, whichever may occur earlier.
Mylan Pharmaceuticals Inc., Mylan API US LLC, and Mylan Inc. (Mylan) have filed motions to dismiss in the District of New Jersey for lack of venue and failure to state a claim against certain defendants, and in the Northern District of West Virginia for failure to state a claim against certain defendants. The New Jersey motion has not yet been decided, and the West Virginia action is stayed pending resolution of the New Jersey motion. All New Jersey actions against all defendants have been consolidated.
Januvia, Janumet, Janumet XR — In February 2019, 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 (2026 salt/polymorph patent), 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 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 three-day trial on invalidity issues in October 2021. The Court will schedule separate one-day trials on infringement issues if necessary. In the Company’s case against Mylan, the U.S. District Court for the Northern District of West Virginia has conditionally scheduled a three-day trial in December 2021 on all issues. In February 2020, the Company amended its complaint against one defendant, Teva Pharmaceuticals USA, Inc., to add patent infringement claims related to a patent that expires in 2025 and covers certain processes for manufacturing sitagliptin. In July 2020, the Company amended its complaints against two defendants, Teva Pharmaceuticals USA, Inc. and Watson Laboratories, Inc., to add patent infringement claims related to a patent that also expires in 2026 and covers certain amorphous forms of sitagliptin.
The Company has settled with five generic companies such that these generic companies can bring their products to the market in November 2026 or earlier under certain circumstances.
In October 2019, Mylan filed a petition for Inter Partes Review (IPR) at the United States Patent and Trademark Office (USPTO) seeking invalidity of some, but not all, of the claims of the 2026 salt/polymorph patent. The USPTO instituted IPR proceedings in May 2020, finding a reasonable likelihood that the challenged claims are not valid. A trial is scheduled for February 2021 and a final decision is expected in May 2021. After institution, three additional IPR petitions were filed by Teva Pharmaceuticals USA, Inc., Dr. Reddy’s Laboratories, Inc., and Sun Pharmaceutical Industries Ltd., as well as related entities, which requested joinder with Mylan’s IPR proceedings. If the challenges are successful, the unchallenged claims of the 2026 salt/polymorph patent will remain valid, subject to the court proceedings described above.
In Germany, two generic companies have sought the revocation of the Supplementary Protection Certificate (SPC) for Janumet. If the generic companies are successful, Janumet could lose market exclusivity in Germany as early as July 2022. Challenges to the Janumet SPC have also occurred in Portugal and Finland, and could occur in other European countries.
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 condition, 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, 2020 and December 31, 2019 of approximately $255 million and $240 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.
v3.20.2
Equity
9 Months Ended
Sep. 30, 2020
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)SharesPar ValueSharesCost
Balance at July 1, 20193,577 $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
— — — — — — — 
Distributions attributable to noncontrolling interests
— — — — — — — (21)(21)
Balance at September 30, 20193,577 $1,788 $39,561 $45,804 $(5,390)1,026 $(54,925)$87 $26,925 
Balance at July 1, 20203,577 $1,788 $39,373 $49,724 $(6,393)1,048 $(56,850)$102 $27,744 
Net income attributable to Merck & Co., Inc.— — — 2,941 — — — — 2,941 
Other comprehensive income, net of taxes— — — — 10 — — — 10 
Cash dividends declared on common stock ($0.61 per share)
— — — (1,558)— — — — (1,558)
Share-based compensation plans and other— — 116 — — (1)35 — 151 
Net income attributable to noncontrolling interests
— — — — — — — 
Distributions attributable to noncontrolling interests
— — — — — — — (22)(22)
Balance at September 30, 20203,577 $1,788 $39,489 $51,107 $(6,383)1,047 $(56,815)$84 $29,270 
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)SharesPar ValueSharesCost
Balance at January 1, 20193,577 $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, 20193,577 1,788 39,561 45,804 (5,390)1,026 (54,925)87 26,925 
Balance at January 1, 20203,577 $1,788 $39,660 $46,602 $(6,193)1,038 $(55,950)$94 $26,001 
Net income attributable to Merck & Co., Inc.— — — 9,161 — — — — 9,161 
Other comprehensive loss, net of taxes— — — — (190)— — — (190)
Cash dividends declared on common stock ($1.83 per share)
— — — (4,656)— — — — (4,656)
Treasury stock shares purchased— — — — — 16 (1,281)— (1,281)
Share-based compensation plans and other— — (171)— — (7)416 — 245 
Net income attributable to noncontrolling interests
— — — — — — — 12 12 
Distributions attributable to noncontrolling
 interests
— — — — — — — (22)(22)
Balance at September 30, 20203,577 $1,788 $39,489 $51,107 $(6,383)1,047 $(56,815)$84 $29,270 
v3.20.2
Share-Based Compensation Plans
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
Share-Based Compensation Plans Share-Based Compensation Plans
The Company has share-based compensation plans under which the Company grants restricted stock units (RSUs) and performance share units (PSUs) to certain management level employees. In addition, employees and non-employee directors may be granted options to purchase shares of Company common stock at the fair market value at the time of grant.
The following table provides the amounts of share-based compensation cost recorded in the Condensed Consolidated Statement of Income:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Pretax share-based compensation expense$126 $101 $354 $306 
Income tax benefit(17)(14)(48)(42)
Total share-based compensation expense, net of taxes$109 $87 $306 $264 
During the first nine months of 2020, the Company granted 7 million RSUs with a weighted-average grant date fair value of $77.83 per RSU and during the first nine months of 2019 granted 5 million RSUs with a weighted-average grant date fair value of $80.03 per RSU. During the first nine months of 2020, the Company granted 773 thousand PSUs with a weighted-average grant date fair value of $75.22 per PSU and during the first nine months of 2019 granted 609 thousand PSUs with a weighted-average grant date fair value of $90.50 per PSU.
During the first nine months of 2020, the Company granted 4 million stock options with a weighted-average exercise price of $77.67 per option and during the first nine months of 2019 granted 3 million stock options with a weighted-average exercise price of $80.05 per option. The weighted-average fair value of options granted during the first nine months of 2020 and 2019 was $9.93 and $10.63 per option, respectively, and was determined using the following assumptions:
  Nine Months Ended
September 30,
20202019
Expected dividend yield3.1 %3.2 %
Risk-free interest rate0.4 %2.4 %
Expected volatility22.1 %18.7 %
Expected life (years)5.85.9
At September 30, 2020, there was $800 million of total pretax unrecognized compensation expense related to nonvested stock options, RSU and PSU awards which will be recognized over a weighted-average period of 2.1 years. For segment reporting, share-based compensation costs are unallocated expenses.
v3.20.2
Pension and Other Postretirement Benefit Plans
9 Months Ended
Sep. 30, 2020
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefit Plans Pension and Other Postretirement Benefit Plans
The Company has defined benefit pension plans covering eligible employees in the United States and in certain of its international subsidiaries. The net periodic benefit cost of such plans consisted of the following components: 
  Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
($ in millions)U.S.InternationalU.S.InternationalU.S.InternationalU.S.International
Service cost$96 $77 $76 $58 $270 $225 $221 $178 
Interest cost107 35 115 44 323 103 343 133 
Expected return on plan assets(193)(104)(202)(106)(581)(310)(613)(320)
Amortization of unrecognized prior service credit
(12)(3)(12)(3)(37)(9)(37)(9)
Net loss amortization75 32 43 16 228 94 113 47 
Termination benefits— 
Curtailments— — (1)— 
Settlements— — — 11 — — 
 $77 $38 $28 $$223 $106 $40 $30 
The Company anticipates that in 2020 it will contribute approximately $200 million and $375 million to its U.S. and international pension plans, respectively, of which $184 million and $123 million, respectively, was contributed in the first nine months of the year.
The Company provides medical benefits, principally to its eligible U.S. retirees and similar benefits to their dependents, through its other postretirement benefit plans. The net credit of such plans consisted of the following components: 
  Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Service cost$13 $12 $39 $36 
Interest cost14 17 43 52 
Expected return on plan assets(19)(18)(56)(54)
Amortization of unrecognized prior service credit(18)(20)(54)(59)
Net gain amortization(5)(3)(13)(7)
Termination benefits— — 
Curtailments— (3)(1)(4)
 $(15)$(14)$(42)$(35)
In connection with restructuring actions (see Note 4), termination charges were recorded on pension plans related to expanded eligibility for certain employees exiting Merck. Also, in connection with these restructuring actions, curtailments were recorded on pension and other postretirement benefit plans and settlements were recorded on certain U.S. and international pension 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.
v3.20.2
Other (Income) Expense, Net
9 Months Ended
Sep. 30, 2020
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)2020201920202019
Interest income$(9)$(61)$(48)$(225)
Interest expense203 231 624 674 
Exchange losses10 38 89 166 
Income from investments in equity securities, net (1)
(360)(16)(964)(50)
Net periodic defined benefit plan (credit) cost other than service cost(88)(128)(259)(409)
Other, net(68)(29)(72)206 
 $(312)$35 $(630)$362 
(1)    Includes net realized and unrealized gains and losses from investments in equity securities either owned directly or through ownership interests in investment funds. Unrealized gains and losses from investments that are directly owned are determined at the end of the reporting period, while ownership interests in investment funds are accounted for on a one quarter lag.
The decline in interest income in the third quarter and first nine months of 2020 reflects lower investments and lower interest rates. The lower exchange losses in the first nine months of 2020 reflect losses on forward exchange contracts in 2019 related to the acquisition of Antelliq. The increase in income from investments in equity securities, net, in both the third quarter and first nine months of 2020 was driven primarily by the recognition of unrealized gains on certain investments, most of which relate to Moderna, Inc.
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.
Interest paid for the nine months ended September 30, 2020 and 2019 was $605 million and $629 million, respectively.
v3.20.2
Taxes on Income
9 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]  
Taxes on Income Taxes on Income
The effective income tax rates of 14.1% and 18.7% for the third quarter of 2020 and 2019, respectively, and 14.9% and 14.5% for the first nine months of 2020 and 2019, 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 2019 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.
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 $360 million net tax benefit in the first nine months of 2019. This net benefit reflects reductions in reserves for unrecognized tax benefits for tax positions relating to the years that were under examination, partially offset by additional reserves for tax positions not previously reserved for.
v3.20.2
Earnings Per Share
9 Months Ended
Sep. 30, 2020
Earnings Per Share [Abstract]  
Earnings Per Share Earnings Per Share
The calculations of earnings per share are as follows:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
($ and shares in millions except per share amounts)2020201920202019
Net income attributable to Merck & Co., Inc.
$2,941 $1,901 $9,161 $7,487 
Average common shares outstanding2,529 2,558 2,530 2,572 
Common shares issuable (1)
14 11 15 
Average common shares outstanding assuming dilution 2,538 2,572 2,541 2,587 
Basic earnings per common share attributable to Merck & Co., Inc. common shareholders
$1.16 $0.74 $3.62 $2.91 
Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders
$1.16 $0.74 $3.61 $2.89 
(1)Issuable primarily under share-based compensation plans.
For the third quarter of 2020 and 2019, 5 million and 3 million, respectively, and for the first nine months of 2020 and 2019, 5 million and 2 million, respectively, of common shares issuable under share-based compensation plans were excluded from the computation of earnings per common share assuming dilution because the effect would have been antidilutive.
v3.20.2
Other Comprehensive Income (Loss)
9 Months Ended
Sep. 30, 2020
Equity [Abstract]  
Other Comprehensive Income (Loss) Other Comprehensive Income (Loss)
Changes in AOCI by component are as follows:
Three Months Ended September 30,
($ in millions)DerivativesInvestmentsEmployee
Benefit
Plans
Cumulative
Translation
Adjustment
Accumulated Other
Comprehensive
Income (Loss)
Balance July 1, 2019, net of taxes$66 $48 $(3,530)$(1,946)$(5,362)
Other comprehensive income (loss) before reclassification adjustments, pretax186 (4)(84)106 
Tax(39)— — (33)(72)
Other comprehensive income (loss) before reclassification adjustments, net of taxes147 (4)(117)34 
Reclassification adjustments, pretax(71)
(1)
(25)
(2)
21 
(3)
— (75)
Tax15 — (2)— 13 
Reclassification adjustments, net of taxes(56)

(25)

19 

— (62)
Other comprehensive income (loss), net of taxes91 (17)15 (117)(28)
Balance September 30, 2019, net of taxes$157 $31 $(3,515)$(2,063)$(5,390)
Balance July 1, 2020, net of taxes$15 $— $(4,162)$(2,246)$(6,393)
Other comprehensive income (loss) before reclassification adjustments, pretax(195)— 50 (143)
Tax41 — 35 77 
Other comprehensive income (loss) before reclassification adjustments, net of taxes(154)— 85 (66)
Reclassification adjustments, pretax22 
(1)
— 72 
(3)
— 94 
Tax(5)— (13)— (18)
Reclassification adjustments, net of taxes17 

— 

59 

— 76 
Other comprehensive income (loss), net of taxes(137)— 62 85 10 
Balance September 30, 2020, net of taxes$(122)$— $(4,100)$(2,161)$(6,383)
Nine Months Ended September 30,
($ in millions)DerivativesInvestmentsEmployee
Benefit
Plans
Cumulative
Translation
Adjustment
Accumulated Other
Comprehensive
Income (Loss)
Balance January 1, 2019, net of taxes$166 $(78)$(3,556)$(2,077)$(5,545)
Other comprehensive income (loss) before reclassification adjustments, pretax183 139 (5)47 364 
Tax(38)— (33)(65)
Other comprehensive income (loss) before reclassification adjustments, net of taxes145 139 14 299 
Reclassification adjustments, pretax(195)
(1)
(30)
(2)
49 
(3)
— (176)
Tax41 — (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)
Balance January 1, 2020, net of taxes$31 $18 $(4,261)$(1,981)$(6,193)
Other comprehensive income (loss) before reclassification adjustments, pretax(126)(19)(220)(362)
Tax27 — 12 40 79 
Other comprehensive income (loss) before reclassification adjustments, net of taxes(99)(7)(180)(283)
Reclassification adjustments, pretax(68)
(1)
(21)
(2)
210 
(3)
— 121 
Tax14 — (42)— (28)
Reclassification adjustments, net of taxes(54)(21)168 — 93 
Other comprehensive income (loss), net of taxes(153)(18)161 (180)(190)
Balance September 30, 2020, net of taxes$(122)$— $(4,100)$(2,161)$(6,383)
(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).
v3.20.2
Segment Reporting
9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
Segment Reporting Segment Reporting
The Company’s operations are principally managed on a products basis and include three operating segments, which are the Pharmaceutical, Animal Health and Healthcare Services 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.
The Animal Health segment discovers, develops, manufactures and markets a wide range of veterinary pharmaceutical and vaccine products, as well as health management solutions and services, for the prevention, treatment and control of disease in all major livestock and companion animal species. The Company also offers an extensive suite of digitally connected identification, traceability and monitoring products. The Company sells its products to veterinarians, distributors and animal producers.
The Healthcare Services segment provided services and solutions that focus on engagement, health analytics and clinical services to improve the value of care delivered to patients. The Company has been in the process of divesting the businesses in the Healthcare Services segment. The remaining businesses were divested during the first quarter of 2020.
Sales of the Company’s products were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
 ($ in millions)U.S.Int’lTotalU.S.Int’lTotalU.S.Int’lTotalU.S.Int’lTotal
Pharmaceutical:
Oncology
Keytruda$2,157 $1,559 $3,715 $1,743 $1,327 $3,070 $6,106 $4,281 $10,387 $4,525 $3,448 $7,973 
Alliance revenue - Lynparza (1)
107 89 196 71 53 123 297 223 519 186 126 313 
Alliance revenue - Lenvima (1)
82 60 142 65 44 109 270 152 421 169 112 280 
Emend31 39 42 56 98 18 96 115 173 163 336 
Vaccines
Gardasil/Gardasil 9
579 608 1,187 761 558 1,320 1,209 1,732 2,941 1,579 1,464 3,044 
ProQuad/M-M-R II/Varivax
437 139 576 482 141 623 1,033 356 1,390 1,325 469 1,794 
Pneumovax 23
276 99 375 179 58 237 478 270 748 428 164 592 
RotaTeq114 96 210 102 78 180 355 246 601 360 203 564 
Vaqta32 19 51 36 26 62 79 60 139 103 65 167 
Hospital Acute Care
Bridion162 157 320 133 151 284 412 431 843 381 437 817 
Noxafil13 66 79 77 100 177 27 220 247 268 291 560 
Prevymis32 46 77 22 23 45 87 113 200 60 55 115 
Primaxin73 74 75 77 187 189 204 207 
Invanz50 51 (1)58 57 152 159 30 176 206 
Cancidas49 50 — 62 62 147 148 187 191 
Cubicin11 28 39 14 38 52 36 80 116 78 129 207 
Zerbaxa20 23 43 20 15 35 57 54 112 45 43 88 
Immunology
Simponi— 209 209 — 203 203 — 615 615 — 625 625 
Remicade— 82 82 — 101 101 — 242 242 — 322 322 
Neuroscience
Belsomra18 63 81 23 57 80 67 177 244 68 155 223 
Virology
Isentress/Isentress HD
92 113 205 102 149 250 243 403 646 304 449 752 
Zepatier22 28 24 59 83 38 83 122 96 208 304 
Cardiovascular
Zetia(1)103 103 142 147 (4)389 384 11 432 443 
Vytorin44 47 52 57 130 139 11 219 231 
Atozet— 111 111 — 97 97 — 348 348 — 283 283 
Alliance revenue - Adempas (2)
78 83 48 50 200 16 216 137 144 
Adempas— 55 55 — 57 57 — 167 167 — 158 158 
Diabetes
Januvia342 479 821 367 440 807 1,110 1,339 2,449 1,223 1,317 2,539 
Janumet105 400 506 129 375 503 361 1,138 1,499 462 1,105 1,567 
Women’s Health
Implanon/Nexplanon137 52 189 136 62 199 374 142 515 421 160 581 
NuvaRing24 34 58 202 39 241 85 98 184 593 107 700 
Diversified Brands
Singulair78 82 11 140 152 14 324 338 24 479 503 
Cozaar/Hyzaar86 91 110 116 17 275 292 16 313 329 
Arcoxia— 68 68 — 72 72 — 204 204 — 221 221 
Nasonex— 41 41 55 58 152 161 224 226 
Follistim AQ20 31 50 27 35 62 60 76 136 80 102 182 
Other pharmaceutical (3)
352 834 1,186 343 804 1,149 1,144 2,334 3,478 1,037 2,394 3,431 
Total Pharmaceutical segment sales
5,218 6,102 11,320 5,180 5,914 11,095 14,202 17,452 31,654 14,202 17,016 31,218 
Animal Health:
Livestock164 594 758 144 582 726 448 1,697 2,145 406 1,601 2,007 
Companion Animals234 228 462 193 203 396 676 714 1,390 560 704 1,264 
Total Animal Health segment sales
398 822 1,220 337 785 1,122 1,124 2,411 3,535 966 2,305 3,271 
Other segment sales (4)
— — — 46 — 46 23 — 23 133 133 
Total segment sales5,616 6,924 12,540 5,563 6,699 12,263 15,349 19,863 35,212 15,301 19,322 34,622 
Other (5)
11 10 125 134 47 221 267 19 330 350 
 $5,625 $6,926 $12,551 $5,573 $6,824 $12,397 $15,396 $20,084 $35,479 $15,320 $19,652 $34,972 
U.S. plus international may not equal total due to rounding.
(1)    Alliance revenue represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs (see Note 3).
(2)    Alliance revenue represents Merck’s share of profits from sales in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 3).
(3)    Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.
(4)    Represents sales for the Healthcare Services segment. All the businesses in the Healthcare Services segment were divested as of March 31, 2020.
(5)    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 $3.4 billion and $3.0 billion for the three months ended September 30, 2020 and 2019, respectively, and $9.6 billion and $8.6 billion for the nine months ended September 30, 2020 and 2019, respectively.
Consolidated sales by geographic area where derived are as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
United States$5,625 $5,573 $15,396 $15,320 
Europe, Middle East and Africa3,454 3,189 10,059 9,452 
China1,016 914 2,715 2,423 
Japan828 919 2,506 2,639 
Asia Pacific (other than China and Japan)735 756 2,129 2,217 
Latin America604 671 1,670 1,889 
Other289 375 1,004 1,032 
 $12,551 $12,397 $35,479 $34,972 
A reconciliation of segment profits to Income before taxes is as follows:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Segment profits:
Pharmaceutical segment$7,974 $7,747 $22,010 $21,437 
Animal Health segment451 423 1,336 1,243 
Other segment(1)(2)(2)
Total segment profits8,424 8,168 23,347 22,678 
Other profits(12)101 188 226 
Unallocated:
Interest income61 48 225 
Interest expense(203)(231)(624)(674)
Depreciation and amortization(395)(382)(1,173)(1,169)
Research and development(3,272)(3,110)(7,364)(7,045)
Amortization of purchase accounting adjustments(285)(329)(879)(1,105)
Restructuring costs(114)(232)(269)(444)
Other unallocated, net(724)(1,699)(2,490)(4,019)
 $3,428 $2,347 $10,784 $8,673 
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. In addition, costs related to restructuring activities, as well as the amortization of purchase accounting adjustments are not allocated to segments.
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.
v3.20.2
Basis of Presentation (Policies)
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation Basis of PresentationThe 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 (GAAP) 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 26, 2020.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.
Recently Adopted and Issued Accounting Standards
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the accounting for credit losses on financial instruments. The new 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 Company adopted the new guidance effective January 1, 2020. There was no impact to the Company’s consolidated financial statements upon adoption.
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 Company adopted the new guidance effective January 1, 2020, which resulted in minor changes to the presentation of information related to the Company’s collaborative arrangements.
Recently Issued Accounting Standards Not Yet Adopted
In December 2019, the FASB issued amended guidance on the accounting and reporting of income taxes. The guidance is intended to simplify the accounting for income taxes by: removing exceptions related to certain intraperiod tax allocations and deferred tax liabilities; clarifying guidance primarily related to evaluating the step-up tax basis for goodwill in a business combination; and reflecting enacted changes in tax laws or rates in the annual effective tax rate. The amended guidance is effective for interim and annual periods in 2021. Early adoption is permitted. The amendments in the new guidance are to be applied on a retrospective basis, on a modified retrospective basis through a cumulative-effect adjustment to retained earnings or prospectively, depending on the amendment. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In January 2020, the FASB issued new guidance intended to clarify certain interactions between accounting standards related to equity securities, equity method investments and certain derivatives. The guidance addresses accounting for the transition into and out of the equity method of accounting and measuring certain purchased options and forward contracts to acquire investments. The new guidance is effective for interim and annual periods in 2021 and is to be applied prospectively. Early adoption is permitted. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In March 2020, the FASB issued optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The optional guidance is effective upon issuance and can be applied on a prospective basis at any time between January 1, 2020 through December 31, 2022. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
Legal Costs, Policy Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.
v3.20.2
Acquisitions, Research Collaborations and License Agreements (Tables)
9 Months Ended
Sep. 30, 2020
Business Combinations [Abstract]  
Fair Value of Assets Acquired and Liabilities Assumed
The estimated fair value of assets acquired and liabilities assumed from ArQule is as follows:
($ in millions)January 16, 2020
Cash and cash equivalents$145 
IPR&D MK-1026 (formerly ARQ 531) (1)
2,280 
Licensing arrangement for ARQ 08780 
Deferred income tax liabilities(389)
Other assets and liabilities, net34 
Total identifiable net assets
2,150 
Goodwill (2)
540 
Consideration transferred$2,690 
(1)    The estimated fair value of the identifiable intangible asset related to IPR&D was determined using an income approach. The future net cash flows were discounted to present value utilizing a discount rate of 12.5%. Actual cash flows are likely to be different than those assumed.
(2)    The goodwill was allocated to the Pharmaceutical segment and is not deductible for tax purposes.
The estimated fair value of assets acquired and liabilities assumed from Antelliq is as follows:
($ in millions)April 1, 2019
Cash and cash equivalents$31 
Accounts receivable73 
Inventories93 
Property, plant and equipment60 
Identifiable intangible assets (useful lives ranging from 18-24 years) (1)
2,689 
Deferred income tax liabilities(589)
Other assets and liabilities, net(82)
Total identifiable net assets
2,275 
Goodwill (2)
1,376 
Consideration transferred$3,651 
(1)    The estimated fair values of identifiable intangible assets relate primarily to trade names and were determined using an income approach. The future net cash flows were discounted to present value utilizing a discount rate of 11.5%. Actual cash flows are likely to be different than those assumed.
(2)    The goodwill recognized is largely attributable to anticipated synergies expected to arise after the acquisition and was allocated to the Animal Health segment. The goodwill is not deductible for tax purposes.
v3.20.2
Collaborative Arrangements (Tables)
9 Months Ended
Sep. 30, 2020
Collaborative Arrangements [Abstract]  
Collaboration Arrangements
Summarized financial information related to this collaboration is as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Alliance revenue - Lynparza$196 $123 $519 $313 
Alliance revenue - Koselugo— — 
Total alliance revenue$199 $123 $522 $313 
Cost of sales (1)
41 28 205 120 
Selling, general and administrative40 36 112 96 
Research and development20 44 93 122 
($ in millions)September 30, 2020December 31, 2019
Receivables from AstraZeneca included in Other current assets
$197 $128 
Payables to AstraZeneca included in Accrued and other current liabilities (2)
309 577 
Payables to AstraZeneca included in Other Noncurrent Liabilities (2)
400 — 
(1) Represents amortization of capitalized milestone payments.
(2) Includes accrued milestone payments.
Summarized financial information related to this collaboration is as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Alliance revenue - Lenvima$142 $109 $421 $280 
Cost of sales (1)
46 23 215 97 
Selling, general and administrative18 21 48 59 
Research and development48 37 168 146 
($ in millions)September 30, 2020December 31, 2019
Receivables from Eisai included in Other current assets
$170 $150 
Payables to Eisai included in Accrued and other current liabilities (2)
325 700 
Payables to Eisai included in Other Noncurrent Liabilities (3)
570 525 
(1) Represents amortization of capitalized milestone payments.
(2) Includes accrued milestone and future option payments.
(3) Includes accrued milestone payments.
Summarized financial information related to this collaboration is as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Alliance revenue - Adempas$83 $50 $216 $144 
Net sales of Adempas recorded by Merck55 57 167 158 
Total sales$138 $107 $383 $302 
Cost of sales (1)
29 28 85 86 
Selling, general and administrative19 12 42 31 
Research and development12 31 53 94 
($ in millions)September 30, 2020December 31, 2019
Receivables from Bayer included in Other current assets
$70 $49 
Payables to Bayer included in Other Noncurrent Liabilities (2)
375 375 
(1) Includes amortization of intangible assets.
(2) Represents accrued milestone payment.
v3.20.2
Restructuring (Tables)
9 Months Ended
Sep. 30, 2020
Restructuring and Related Activities [Abstract]  
Charges Related to Restructuring Program Activities by Type of Cost
The following tables summarize the charges related to restructuring program activities by type of cost:
 Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
($ in millions)Separation
Costs
Accelerated
Depreciation
OtherTotalSeparation
Costs
Accelerated
Depreciation
OtherTotal
Cost of sales$— $33 $$38 $— $89 $42 $131 
Selling, general and administrative— 15 — 15 — 37 — 37 
Research and development— 18 19 — 66 67 
Restructuring costs61 — 53 114 143 — 126 269 
$61 $66 $59 $186 $143 $192 $169 $504 
 Three Months Ended September 30, 2019Nine Months Ended September 30, 2019
($ in millions)Separation
Costs
Accelerated
Depreciation
OtherTotalSeparation
Costs
Accelerated
Depreciation
OtherTotal
Cost of sales$— $41 $21 $62 $— $139 $22 $161 
Selling, general and administrative— — — 33 — 33 
Research and development— (1)— 
Restructuring costs205 — 27 232 358 — 86 444 
$205 $41 $50 $296 $358 $173 $111 $642 
Charges and Spending Relating to Restructuring Activities by Program
The following table summarizes the charges and spending relating to restructuring program activities for the nine months ended September 30, 2020:
($ in millions)Separation
Costs
Accelerated
Depreciation
OtherTotal
Restructuring reserves January 1, 2020$690 $— $69 $759 
Expense143 192 169 504 
(Payments) receipts, net(395)— (237)(632)
Non-cash activity— (192)39 (153)
Restructuring reserves September 30, 2020 (1)
$438 $— $40 $478 
(1)The remaining cash outlays are expected to be substantially completed by the end of 2023.
v3.20.2
Financial Instruments (Tables)
9 Months Ended
Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Effect of Net Investment Hedges on OCI and the Consolidated Statement of Income
The effects of the Company’s net investment hedges on OCI and the Consolidated Statement of Income are shown below:
Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income (1)
Amount of Pretax (Gain) Loss Recognized in Other (income) expense, net for Amounts Excluded from Effectiveness Testing
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
($ in millions)20202019202020192020201920202019
Net Investment Hedging Relationships
Foreign exchange contracts
$10 $$15 $$(4)$(8)$(15)$(23)
Euro-denominated notes162 (150)182 (152)— — — — 
(1) No amounts were reclassified from AOCI into income related to the sale of a subsidiary.
Summary of Interest Rate Swaps Held At September 30, 2020, the Company was a party to 14 pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes in which the notional amounts match the amount of the hedged fixed-rate notes as detailed in the table below.
September 30, 2020
($ in millions)Par Value of DebtNumber of Interest Rate Swaps HeldTotal Swap Notional Amount
3.875% notes due 2021
$1,150 $1,150 
2.40% notes due 2022
1,000 1,000 
2.35% notes due 2022
1,250 1,250 
Amounts Recorded on Balance Sheet Related to Fair Value Hedges
The table below presents the location of amounts recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:
Carrying Amount of Hedged LiabilitiesCumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount
($ in millions)September 30, 2020December 31, 2019September 30, 2020December 31, 2019
Balance Sheet Line Item in which Hedged Item is Included
Loans payable and current portion of long-term debt$1,155 $1,249 $$(1)
Long-Term Debt2,309 3,409 62 14 
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, 2020December 31, 2019
  Fair Value of DerivativeU.S. Dollar
Notional
Fair Value of DerivativeU.S. Dollar
Notional
($ in millions)Balance Sheet CaptionAssetLiabilityAssetLiability
Derivatives Designated as Hedging Instruments
Interest rate swap contractsOther current assets$$— $1,150 $— $— $— 
Interest rate swap contractsOther Assets63 — 2,250 15 — 3,400 
Interest rate swap contractsAccrued and other current liabilities— — — — 1,250 
Foreign exchange contractsOther current assets30 — 4,120 152 — 6,117 
Foreign exchange contractsOther Assets59 — 1,881 55 — 2,160 
Foreign exchange contractsAccrued and other current liabilities— 104 3,096 — 22 1,748 
Foreign exchange contractsOther Noncurrent Liabilities— 157 — 53 
  $158 $105 $12,654 $222 $24 $14,728 
Derivatives Not Designated as Hedging Instruments
       
Foreign exchange contractsOther current assets$81 $— $5,455 $66 $— $7,245 
Foreign exchange contractsAccrued and other current liabilities— 171 8,042 — 73 8,693 
Forward contract related to Seagen common stockAccrued and other current liabilities— 22 1,000 — — — 
  $81 $193 $14,497 $66 $73 $15,938 
  $239 $298 $27,151 $288 $97 $30,666 
Information on Derivative Positions Subject to Master Netting Arrangements as if they were Presented on a Net Basis The following table provides information on the Company’s derivative positions subject to these master netting arrangements as if they were presented on a net basis, allowing for the right of offset by counterparty and cash collateral exchanged per the master agreements and related credit support annexes:
 September 30, 2020December 31, 2019
($ in millions)AssetLiabilityAssetLiability
Gross amounts recognized in the condensed consolidated balance sheet$239 $298 $288 $97 
Gross amounts subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet
(140)(140)(84)(84)
Cash collateral received— — (34)— 
Net amounts$99 $158 $170 $13 
Location and Amount of Pretax (Gains) Losses of Derivatives
The table below provides information regarding the location and amount of pretax (gains) losses of derivatives designated in fair value or cash flow hedging relationships:
Sales
Other (income) expense, net (1)
Other comprehensive income (loss)Sales
Other (income) expense, net (1)
Other comprehensive income (loss)
Three Months Ended September 30,Three Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,Nine Months Ended September 30,Nine Months Ended September 30,
($ in millions)202020192020201920202019202020192020201920202019
Financial Statement Line Items in which Effects of Fair Value or Cash Flow Hedges are Recorded$12,551 $12,397 $(312)$35 $10 $(28)$35,479 $34,972 $(630)$362 $(190)$155 
(Gain) loss on fair value hedging relationships
Interest rate swap contracts
Hedged items
— — (14)13 — — — — 54 101 — — 
Derivatives designated as hedging instruments
— — — (6)— — — — (76)(74)— — 
Impact of cash flow hedging relationships
Foreign exchange contracts
Amount of (loss) gain recognized in OCI on derivatives
— — — — (195)186 — — — — (126)183 
Increase (decrease) in Sales as a result of AOCI reclassifications
(23)70 — — 23 (70)65 189 — — (65)(189)
Interest rate contracts
Amount of gain recognized in Other (income) expense, net on derivatives
— — (1)(1)— — — — (3)(3)— — 
Amount of loss recognized in OCI on derivatives
— — — — (1)(1)— — — — (3)(6)
(1) Interest expense is a component of Other (income) expense, net.
Income Statement Effects of Derivatives Not Designated as Hedging Instruments
The table below provides information regarding the income statement effects of derivatives not designated as hedging instruments:
Amount of Derivative Pretax (Gain) Loss Recognized in Income
Three Months Ended
September 30,
Nine Months Ended September 30,
($ in millions)Income Statement Caption2020201920202019
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts (1)
Other (income) expense, net$(7)$(8)$(138)$112 
Foreign exchange contracts (2)
Sales(11)(7)
Interest rate contracts (3)
Other (income) expense, net— — — 
Forward contract related to Seagen common stockResearch and development expenses22 — 22 — 
(1) These derivative contracts mitigate changes in the value of remeasured foreign currency denominated monetary assets and liabilities attributable to changes in foreign currency exchange rates.
(2) These derivative contracts serve as economic hedges of forecasted transactions.
(3) These derivatives serve as economic hedges against rising treasury rates.
Information on Investments in Debt and Equity Securities
Information on investments in debt and equity securities is as follows:
 September 30, 2020December 31, 2019
 Amortized
Cost
Gross UnrealizedFair
Value
Amortized
Cost
Gross UnrealizedFair
Value
($ in millions)GainsLossesGainsLosses
U.S. government and agency securities$74 $— $— $74 $266 $$— $269 
Foreign government bonds— — — — — — 
Commercial paper— — — — 668 — — 668 
Corporate notes and bonds— — — — 608 13 — 621 
Asset-backed securities— — — — 226 — 227 
Total debt securities$76 $— $— $76 $1,768 $17 $— $1,785 
Publicly traded equity securities (1)
1,477 838 
Total debt and publicly traded equity securities
$1,553 $2,623 
(1) Unrealized net (gains) losses recognized in Other (income) expense, net on equity securities still held at September 30, 2020 were $(43) million and $(512) million in the third quarter and first nine months of 2020, respectively. Unrealized net losses (gains) recognized in Other (income) expense, net on equity securities still held at September 30, 2019 were $25 million and $(41) million in the third quarter and first nine months of 2019, respectively.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair Value Measurements UsingFair Value Measurements Using
 Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
($ in millions)September 30, 2020December 31, 2019
Assets
Investments
Foreign government bonds$— $$— $$— $— $— $— 
Commercial paper— — — — — 668 — 668 
Corporate notes and bonds— — — — — 621 — 621 
Asset-backed securities (1)
— — — — — 227 — 227 
U.S. government and agency securities
— — — — — 209 — 209 
Publicly traded equity securities
1,370 — — 1,370 518 — — 518 
 1,370 — 1,372 518 1,725 — 2,243 
Other assets (2)
U.S. government and agency securities
74 — — 74 60 — — 60 
Publicly traded equity securities107 — — 107 320 — — 320 
181 — — 181 380 — — 380 
Derivative assets (3)
Forward exchange contracts— 116 — 116 — 169 — 169 
Interest rate swaps— 69 — 69 — 15 — 15 
Purchased currency options— 54 — 54 — 104 — 104 
 — 239 — 239 — 288 — 288 
Total assets$1,551 $241 $— $1,792 $898 $2,013 $— $2,911 
Liabilities
Other liabilities
Contingent consideration$— $— $829 $829 $— $— $767 $767 
Derivative liabilities (3)
Forward exchange contracts— 275 — 275 — 95 — 95 
Forward contract related to Seagen common stock— 22 — 22 — — — — 
Written currency options— — — — 
Interest rate swaps— — — — — — 
— 298 — 298 — 97 — 97 
Total liabilities$— $298 $829 $1,127 $— $97 $767 $864 
(1)Primarily all of the asset-backed securities were highly rated (Standard & Poor’s rating of AAA and Moody’s Investors Service rating of Aaa), secured primarily by auto loan, credit card and student loan receivables, with weighted-average lives of primarily 5 years or less.
(2)    Investments included in other assets are restricted as to use, including for the payment of benefits under employee benefit plans.
(3)    The fair value determination of derivatives includes the impact of the credit risk of counterparties to the derivatives and the Company’s own credit risk, the effects of which were not significant.
Information About the Changes in Liabilities for Contingent Consideration
Summarized information about the changes in liabilities for contingent consideration associated with business acquisitions is as follows:
Nine Months Ended September 30,
($ in millions)20202019
Fair value January 1$767 $788 
Additions97 — 
Changes in estimated fair value (1)
71 52 
Payments(106)(85)
Fair value September 30 (2)(3)
$829 $755 
(1) Recorded in Cost of sales, Research and development expenses, and Other (income) expense, net. Includes cumulative translation adjustments.
(2) Balance at September 30, 2020 includes $140 million recorded as a current liability for amounts expected to be paid within the next 12 months.
(3) At September 30, 2020 and December 31, 2019, $637 million and $625 million, respectively, of the liabilities relate to the termination of the Sanofi-Pasteur MSD joint venture in 2016. As part of the termination, Merck recorded a liability for contingent future royalty payments of 11.5% on net sales of all Merck products that were previously sold by the joint venture through December 31, 2024. The fair value of this liability is determined utilizing the estimated amount and timing of projected cash flows using a risk-adjusted discount rate of 8% to present value the cash flows.
v3.20.2
Inventories (Tables)
9 Months Ended
Sep. 30, 2020
Inventory Disclosure [Abstract]  
Schedule of Inventories
Inventories consisted of:
($ in millions)September 30, 2020December 31, 2019
Finished goods$2,038 $1,772 
Raw materials and work in process6,073 5,650 
Supplies197 207 
Total (approximates current cost)8,308 7,629 
Decrease to LIFO cost(99)(171)
 $8,209 $7,458 
Recognized as:
Inventories$6,128 $5,978 
Other assets2,081 1,480 
v3.20.2
Equity (Tables)
9 Months Ended
Sep. 30, 2020
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)SharesPar ValueSharesCost
Balance at July 1, 20193,577 $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
— — — — — — — 
Distributions attributable to noncontrolling interests
— — — — — — — (21)(21)
Balance at September 30, 20193,577 $1,788 $39,561 $45,804 $(5,390)1,026 $(54,925)$87 $26,925 
Balance at July 1, 20203,577 $1,788 $39,373 $49,724 $(6,393)1,048 $(56,850)$102 $27,744 
Net income attributable to Merck & Co., Inc.— — — 2,941 — — — — 2,941 
Other comprehensive income, net of taxes— — — — 10 — — — 10 
Cash dividends declared on common stock ($0.61 per share)
— — — (1,558)— — — — (1,558)
Share-based compensation plans and other— — 116 — — (1)35 — 151 
Net income attributable to noncontrolling interests
— — — — — — — 
Distributions attributable to noncontrolling interests
— — — — — — — (22)(22)
Balance at September 30, 20203,577 $1,788 $39,489 $51,107 $(6,383)1,047 $(56,815)$84 $29,270 
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)SharesPar ValueSharesCost
Balance at January 1, 20193,577 $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, 20193,577 1,788 39,561 45,804 (5,390)1,026 (54,925)87 26,925 
Balance at January 1, 20203,577 $1,788 $39,660 $46,602 $(6,193)1,038 $(55,950)$94 $26,001 
Net income attributable to Merck & Co., Inc.— — — 9,161 — — — — 9,161 
Other comprehensive loss, net of taxes— — — — (190)— — — (190)
Cash dividends declared on common stock ($1.83 per share)
— — — (4,656)— — — — (4,656)
Treasury stock shares purchased— — — — — 16 (1,281)— (1,281)
Share-based compensation plans and other— — (171)— — (7)416 — 245 
Net income attributable to noncontrolling interests
— — — — — — — 12 12 
Distributions attributable to noncontrolling
 interests
— — — — — — — (22)(22)
Balance at September 30, 20203,577 $1,788 $39,489 $51,107 $(6,383)1,047 $(56,815)$84 $29,270 
v3.20.2
Share-Based Compensation Plans (Tables)
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
Amounts of Share-Based Compensation Cost Recorded in Consolidated Statement of Income
The following table provides the amounts of share-based compensation cost recorded in the Condensed Consolidated Statement of Income:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Pretax share-based compensation expense$126 $101 $354 $306 
Income tax benefit(17)(14)(48)(42)
Total share-based compensation expense, net of taxes$109 $87 $306 $264 
Assumptions Used to Determine Weighted-Average Fair Value of Options Granted During the first nine months of 2020, the Company granted 4 million stock options with a weighted-average exercise price of $77.67 per option and during the first nine months of 2019 granted 3 million stock options with a weighted-average exercise price of $80.05 per option. The weighted-average fair value of options granted during the first nine months of 2020 and 2019 was $9.93 and $10.63 per option, respectively, and was determined using the following assumptions:
  Nine Months Ended
September 30,
20202019
Expected dividend yield3.1 %3.2 %
Risk-free interest rate0.4 %2.4 %
Expected volatility22.1 %18.7 %
Expected life (years)5.85.9
v3.20.2
Pension and Other Postretirement Benefit Plans (Tables)
9 Months Ended
Sep. 30, 2020
Pension Plans  
Defined Benefit Plan Disclosure [Line Items]  
Components of net cost of defined benefit plans
The Company has defined benefit pension plans covering eligible employees in the United States and in certain of its international subsidiaries. The net periodic benefit cost of such plans consisted of the following components: 
  Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
($ in millions)U.S.InternationalU.S.InternationalU.S.InternationalU.S.International
Service cost$96 $77 $76 $58 $270 $225 $221 $178 
Interest cost107 35 115 44 323 103 343 133 
Expected return on plan assets(193)(104)(202)(106)(581)(310)(613)(320)
Amortization of unrecognized prior service credit
(12)(3)(12)(3)(37)(9)(37)(9)
Net loss amortization75 32 43 16 228 94 113 47 
Termination benefits— 
Curtailments— — (1)— 
Settlements— — — 11 — — 
 $77 $38 $28 $$223 $106 $40 $30 
Other Postretirement Benefit Plans  
Defined Benefit Plan Disclosure [Line Items]  
Components of net cost of defined benefit plans
The Company provides medical benefits, principally to its eligible U.S. retirees and similar benefits to their dependents, through its other postretirement benefit plans. The net credit of such plans consisted of the following components: 
  Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Service cost$13 $12 $39 $36 
Interest cost14 17 43 52 
Expected return on plan assets(19)(18)(56)(54)
Amortization of unrecognized prior service credit(18)(20)(54)(59)
Net gain amortization(5)(3)(13)(7)
Termination benefits— — 
Curtailments— (3)(1)(4)
 $(15)$(14)$(42)$(35)
v3.20.2
Other (Income) Expense, Net (Tables)
9 Months Ended
Sep. 30, 2020
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)2020201920202019
Interest income$(9)$(61)$(48)$(225)
Interest expense203 231 624 674 
Exchange losses10 38 89 166 
Income from investments in equity securities, net (1)
(360)(16)(964)(50)
Net periodic defined benefit plan (credit) cost other than service cost(88)(128)(259)(409)
Other, net(68)(29)(72)206 
 $(312)$35 $(630)$362 
(1)    Includes net realized and unrealized gains and losses from investments in equity securities either owned directly or through ownership interests in investment funds. Unrealized gains and losses from investments that are directly owned are determined at the end of the reporting period, while ownership interests in investment funds are accounted for on a one quarter lag.
v3.20.2
Earnings Per Share (Tables)
9 Months Ended
Sep. 30, 2020
Earnings Per Share [Abstract]  
Calculations of Earnings Per Share
The calculations of earnings per share are as follows:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
($ and shares in millions except per share amounts)2020201920202019
Net income attributable to Merck & Co., Inc.
$2,941 $1,901 $9,161 $7,487 
Average common shares outstanding2,529 2,558 2,530 2,572 
Common shares issuable (1)
14 11 15 
Average common shares outstanding assuming dilution 2,538 2,572 2,541 2,587 
Basic earnings per common share attributable to Merck & Co., Inc. common shareholders
$1.16 $0.74 $3.62 $2.91 
Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders
$1.16 $0.74 $3.61 $2.89 
(1)Issuable primarily under share-based compensation plans.
v3.20.2
Other Comprehensive Income (Loss) (Tables)
9 Months Ended
Sep. 30, 2020
Equity [Abstract]  
Changes in AOCI by Component
Changes in AOCI by component are as follows:
Three Months Ended September 30,
($ in millions)DerivativesInvestmentsEmployee
Benefit
Plans
Cumulative
Translation
Adjustment
Accumulated Other
Comprehensive
Income (Loss)
Balance July 1, 2019, net of taxes$66 $48 $(3,530)$(1,946)$(5,362)
Other comprehensive income (loss) before reclassification adjustments, pretax186 (4)(84)106 
Tax(39)— — (33)(72)
Other comprehensive income (loss) before reclassification adjustments, net of taxes147 (4)(117)34 
Reclassification adjustments, pretax(71)
(1)
(25)
(2)
21 
(3)
— (75)
Tax15 — (2)— 13 
Reclassification adjustments, net of taxes(56)

(25)

19 

— (62)
Other comprehensive income (loss), net of taxes91 (17)15 (117)(28)
Balance September 30, 2019, net of taxes$157 $31 $(3,515)$(2,063)$(5,390)
Balance July 1, 2020, net of taxes$15 $— $(4,162)$(2,246)$(6,393)
Other comprehensive income (loss) before reclassification adjustments, pretax(195)— 50 (143)
Tax41 — 35 77 
Other comprehensive income (loss) before reclassification adjustments, net of taxes(154)— 85 (66)
Reclassification adjustments, pretax22 
(1)
— 72 
(3)
— 94 
Tax(5)— (13)— (18)
Reclassification adjustments, net of taxes17 

— 

59 

— 76 
Other comprehensive income (loss), net of taxes(137)— 62 85 10 
Balance September 30, 2020, net of taxes$(122)$— $(4,100)$(2,161)$(6,383)
Nine Months Ended September 30,
($ in millions)DerivativesInvestmentsEmployee
Benefit
Plans
Cumulative
Translation
Adjustment
Accumulated Other
Comprehensive
Income (Loss)
Balance January 1, 2019, net of taxes$166 $(78)$(3,556)$(2,077)$(5,545)
Other comprehensive income (loss) before reclassification adjustments, pretax183 139 (5)47 364 
Tax(38)— (33)(65)
Other comprehensive income (loss) before reclassification adjustments, net of taxes145 139 14 299 
Reclassification adjustments, pretax(195)
(1)
(30)
(2)
49 
(3)
— (176)
Tax41 — (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)
Balance January 1, 2020, net of taxes$31 $18 $(4,261)$(1,981)$(6,193)
Other comprehensive income (loss) before reclassification adjustments, pretax(126)(19)(220)(362)
Tax27 — 12 40 79 
Other comprehensive income (loss) before reclassification adjustments, net of taxes(99)(7)(180)(283)
Reclassification adjustments, pretax(68)
(1)
(21)
(2)
210 
(3)
— 121 
Tax14 — (42)— (28)
Reclassification adjustments, net of taxes(54)(21)168 — 93 
Other comprehensive income (loss), net of taxes(153)(18)161 (180)(190)
Balance September 30, 2020, net of taxes$(122)$— $(4,100)$(2,161)$(6,383)
(1) Relates to foreign currency cash flow hedges that were reclassified from AOCI to Sales.
(2) Represents net realized (gains) losses on the sales of available-for-sale debt securities that were reclassified from AOCI to Other (income) expense, net.
(3) Includes net amortization of prior service cost and actuarial gains and losses included in net periodic benefit cost (see Note 12).
v3.20.2
Segment Reporting (Tables)
9 Months Ended
Sep. 30, 2020
Segment Reporting [Abstract]  
Sales of Company's products
Sales of the Company’s products were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
 ($ in millions)U.S.Int’lTotalU.S.Int’lTotalU.S.Int’lTotalU.S.Int’lTotal
Pharmaceutical:
Oncology
Keytruda$2,157 $1,559 $3,715 $1,743 $1,327 $3,070 $6,106 $4,281 $10,387 $4,525 $3,448 $7,973 
Alliance revenue - Lynparza (1)
107 89 196 71 53 123 297 223 519 186 126 313 
Alliance revenue - Lenvima (1)
82 60 142 65 44 109 270 152 421 169 112 280 
Emend31 39 42 56 98 18 96 115 173 163 336 
Vaccines
Gardasil/Gardasil 9
579 608 1,187 761 558 1,320 1,209 1,732 2,941 1,579 1,464 3,044 
ProQuad/M-M-R II/Varivax
437 139 576 482 141 623 1,033 356 1,390 1,325 469 1,794 
Pneumovax 23
276 99 375 179 58 237 478 270 748 428 164 592 
RotaTeq114 96 210 102 78 180 355 246 601 360 203 564 
Vaqta32 19 51 36 26 62 79 60 139 103 65 167 
Hospital Acute Care
Bridion162 157 320 133 151 284 412 431 843 381 437 817 
Noxafil13 66 79 77 100 177 27 220 247 268 291 560 
Prevymis32 46 77 22 23 45 87 113 200 60 55 115 
Primaxin73 74 75 77 187 189 204 207 
Invanz50 51 (1)58 57 152 159 30 176 206 
Cancidas49 50 — 62 62 147 148 187 191 
Cubicin11 28 39 14 38 52 36 80 116 78 129 207 
Zerbaxa20 23 43 20 15 35 57 54 112 45 43 88 
Immunology
Simponi— 209 209 — 203 203 — 615 615 — 625 625 
Remicade— 82 82 — 101 101 — 242 242 — 322 322 
Neuroscience
Belsomra18 63 81 23 57 80 67 177 244 68 155 223 
Virology
Isentress/Isentress HD
92 113 205 102 149 250 243 403 646 304 449 752 
Zepatier22 28 24 59 83 38 83 122 96 208 304 
Cardiovascular
Zetia(1)103 103 142 147 (4)389 384 11 432 443 
Vytorin44 47 52 57 130 139 11 219 231 
Atozet— 111 111 — 97 97 — 348 348 — 283 283 
Alliance revenue - Adempas (2)
78 83 48 50 200 16 216 137 144 
Adempas— 55 55 — 57 57 — 167 167 — 158 158 
Diabetes
Januvia342 479 821 367 440 807 1,110 1,339 2,449 1,223 1,317 2,539 
Janumet105 400 506 129 375 503 361 1,138 1,499 462 1,105 1,567 
Women’s Health
Implanon/Nexplanon137 52 189 136 62 199 374 142 515 421 160 581 
NuvaRing24 34 58 202 39 241 85 98 184 593 107 700 
Diversified Brands
Singulair78 82 11 140 152 14 324 338 24 479 503 
Cozaar/Hyzaar86 91 110 116 17 275 292 16 313 329 
Arcoxia— 68 68 — 72 72 — 204 204 — 221 221 
Nasonex— 41 41 55 58 152 161 224 226 
Follistim AQ20 31 50 27 35 62 60 76 136 80 102 182 
Other pharmaceutical (3)
352 834 1,186 343 804 1,149 1,144 2,334 3,478 1,037 2,394 3,431 
Total Pharmaceutical segment sales
5,218 6,102 11,320 5,180 5,914 11,095 14,202 17,452 31,654 14,202 17,016 31,218 
Animal Health:
Livestock164 594 758 144 582 726 448 1,697 2,145 406 1,601 2,007 
Companion Animals234 228 462 193 203 396 676 714 1,390 560 704 1,264 
Total Animal Health segment sales
398 822 1,220 337 785 1,122 1,124 2,411 3,535 966 2,305 3,271 
Other segment sales (4)
— — — 46 — 46 23 — 23 133 133 
Total segment sales5,616 6,924 12,540 5,563 6,699 12,263 15,349 19,863 35,212 15,301 19,322 34,622 
Other (5)
11 10 125 134 47 221 267 19 330 350 
 $5,625 $6,926 $12,551 $5,573 $6,824 $12,397 $15,396 $20,084 $35,479 $15,320 $19,652 $34,972 
U.S. plus international may not equal total due to rounding.
(1)    Alliance revenue represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs (see Note 3).
(2)    Alliance revenue represents Merck’s share of profits from sales in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 3).
(3)    Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.
(4)    Represents sales for the Healthcare Services segment. All the businesses in the Healthcare Services segment were divested as of March 31, 2020.
(5)    Other is primarily comprised of miscellaneous corporate revenues, including revenue hedging activities, as well as third-party manufacturing sales.
Consolidated revenues by geographic area
Consolidated sales by geographic area where derived are as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
United States$5,625 $5,573 $15,396 $15,320 
Europe, Middle East and Africa3,454 3,189 10,059 9,452 
China1,016 914 2,715 2,423 
Japan828 919 2,506 2,639 
Asia Pacific (other than China and Japan)735 756 2,129 2,217 
Latin America604 671 1,670 1,889 
Other289 375 1,004 1,032 
 $12,551 $12,397 $35,479 $34,972 
Reconciliation of segment profits to income before taxes
A reconciliation of segment profits to Income before taxes is as follows:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
($ in millions)2020201920202019
Segment profits:
Pharmaceutical segment$7,974 $7,747 $22,010 $21,437 
Animal Health segment451 423 1,336 1,243 
Other segment(1)(2)(2)
Total segment profits8,424 8,168 23,347 22,678 
Other profits(12)101 188 226 
Unallocated:
Interest income61 48 225 
Interest expense(203)(231)(624)(674)
Depreciation and amortization(395)(382)(1,173)(1,169)
Research and development(3,272)(3,110)(7,364)(7,045)
Amortization of purchase accounting adjustments(285)(329)(879)(1,105)
Restructuring costs(114)(232)(269)(444)
Other unallocated, net(724)(1,699)(2,490)(4,019)
 $3,428 $2,347 $10,784 $8,673 
v3.20.2
Acquisitions, Research Collaborations and License Agreements - Acquisitions (Details)
$ / shares in Units, shares in Thousands, € in Millions, $ in Millions
1 Months Ended 3 Months Ended 9 Months Ended
Jan. 16, 2020
USD ($)
Apr. 01, 2019
USD ($)
Nov. 30, 2020
USD ($)
Oct. 31, 2020
USD ($)
Sep. 30, 2020
USD ($)
$ / shares
shares
Sep. 30, 2020
EUR (€)
Jul. 31, 2020
USD ($)
Jun. 30, 2020
USD ($)
May 31, 2020
USD ($)
Jul. 31, 2019
USD ($)
Apr. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
$ / shares
shares
Sep. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
$ / shares
shares
Sep. 30, 2019
USD ($)
Dec. 31, 2019
USD ($)
Dec. 31, 2018
USD ($)
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Contingent consideration         $ 829.0             $ 829.0 $ 755.0 $ 829.0 $ 755.0 $ 767.0 $ 788.0
Goodwill         20,248.0             20,248.0   20,248.0   19,425.0  
Research and development                       3,390.0 3,204.0 7,721.0 7,324.0    
Inventories         6,128.0             6,128.0   6,128.0   $ 5,978.0  
Payments to Acquire Productive Assets                           3,170.0 2,336.0    
Forward Contracts | Research and development                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Amount of Derivative Pretax (Gain) Loss Recognized in Income                       (22.0) $ 0.0 (22.0) $ 0.0    
Forward Contracts | Research and development | Subsequent Event                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Amount of Derivative Pretax (Gain) Loss Recognized in Income       $ 6.0                          
Sentinel                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Payment to acquire business             $ 410.0                    
Dunboyne                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Other assets and liabilities, net         13.0             13.0   13.0      
Payments to Acquire Productive Assets         302.0 € 256                      
Property, plant and equipment         289.0             $ 289.0   $ 289.0      
Themis                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Payment to acquire business               $ 366.0                  
Contingent consideration, maximum               740.0                  
Contingent consideration               97.0                  
IPR&D               136.0                  
Cash and cash equivalents               59.0                  
Goodwill               229.0                  
Deferred tax assets               71.0                  
Other assets and liabilities, net               (32.0)                  
ArQule                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Payment to acquire business $ 2,700.0                                
IPR&D 2,280.0                                
Share-based compensation payments attributable to precombination service 138.0                                
Transaction costs 95.0                                
Cash and cash equivalents 145.0                                
Goodwill 540.0                                
Other assets and liabilities, net 34.0                                
Deferred income tax liabilities 389.0                                
Intangible assets $ 80.0                                
Peloton                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Payment to acquire business                   $ 1,200.0              
Cash and cash equivalents                   157.0              
Other assets and liabilities, net                   6.0              
Research and development                   982.0              
Deferred income tax liabilities                   64.0              
Antelliq                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Payment to acquire business   $ 2,300.0                              
Transaction costs   47.0                              
Cash and cash equivalents   31.0                              
Goodwill   1,376.0                              
Debt assumed and paid   1,300.0                              
Other assets and liabilities, net   (82.0)                              
Deferred income tax liabilities   589.0                              
Inventories   93.0                              
Intangible assets   2,689.0                              
Property, plant and equipment   $ 60.0                              
Immune Design                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Payment to acquire business                     $ 301.0            
IPR&D                     156.0            
Cash and cash equivalents                     83.0            
Other net assets                     42.0            
Goodwill                     $ 20.0            
VelosBio [Member] | Forecast                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Payment to acquire business     $ 2,750.0                            
Development Milestones | Themis                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Contingent consideration, maximum               80.0                  
Sales-Based Milestones | Themis                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Contingent consideration, maximum               400.0                  
Sales-Based Milestones | Peloton                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Contingent consideration, maximum                   1,050.0              
Regulatory Milestones | Themis                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Contingent consideration, maximum               $ 260.0                  
Regulatory Milestones | Peloton                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Contingent consideration, maximum                   50.0              
Commercial Milestone | Peloton                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Contingent consideration, maximum                   $ 50.0              
Seagen                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Upfront and milestone payments         $ 600.0                        
Share price (in dollars per share) | $ / shares         $ 200             $ 200   $ 200      
Contingent milestone payments collaborative arrangement         $ 2,600.0                        
Payments to Acquire Investments         1,000.0                        
Research and development         $ 622.0                        
Forward contract, shares | shares         5,000             5,000   5,000      
Seagen | Tukysa                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Upfront and milestone payments         $ 210.0                        
Seagen | Tukysa | Minimum                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Royalty Rate, Percentage         20.00% 20.00%                      
Seagen | Tukysa | Maximum                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Royalty Rate, Percentage         33.00% 33.00%                      
Seagen | Sales-Based Milestones                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Contingent milestone payments collaborative arrangement         $ 1,750.0                        
Seagen | Regulatory Milestones                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Contingent milestone payments collaborative arrangement         850.0                        
Seagen | Regulatory Milestones | Tukysa                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Contingent milestone payments collaborative arrangement         $ 65.0                        
IAVI                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Upfront and milestone payments                 $ 6.5                
Contingent milestone payments collaborative arrangement                 $ 100.0                
Technology Rights | Sentinel                                  
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]                                  
Acquired rights             401.0                    
Inventories             $ 9.0                    
v3.20.2
Acquisitions, Research Collaborations and License Agreements - Fair Value of Assets Acquired and Liabilities Assumed (Details)
$ in Millions
1 Months Ended
Apr. 01, 2019
USD ($)
Jul. 31, 2020
Sep. 30, 2020
USD ($)
Jan. 16, 2020
USD ($)
Dec. 31, 2019
USD ($)
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]          
Goodwill     $ 20,248   $ 19,425
Sentinel | Technology Rights          
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]          
Weighted average useful life of acquired finite-lived intangible assets   15 years      
Antelliq | Technology Rights | Minimum          
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]          
Weighted average useful life of acquired finite-lived intangible assets 18 years        
Antelliq | Technology Rights | Maximum          
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]          
Weighted average useful life of acquired finite-lived intangible assets 24 years        
ArQule          
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]          
Cash and cash equivalents       $ 145  
IPR&D       2,280  
Intangible assets       80  
Deferred income tax liabilities       (389)  
Other assets and liabilities, net       34  
Total identifiable net assets       2,150  
Goodwill       540  
Consideration transferred       $ 2,690  
Antelliq          
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]          
Cash and cash equivalents $ 31        
Accounts receivable 73        
Inventories 93        
Property, plant and equipment 60        
Intangible assets 2,689        
Deferred income tax liabilities (589)        
Other assets and liabilities, net (82)        
Total identifiable net assets 2,275        
Goodwill 1,376        
Consideration transferred $ 3,651        
Measurement Input, Discount Rate | ArQule          
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]          
Present value discount rate       0.125  
Measurement Input, Discount Rate | Antelliq          
Acquisitions Research Collaborations And License Agreements Transactions [Line Items]          
Present value discount rate 0.115        
v3.20.2
Collaborative Arrangements - Narrative (Details) - USD ($)
$ in Millions
1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended 21 Months Ended 29 Months Ended 37 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2018
Jul. 31, 2017
Sep. 30, 2020
Jun. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2019
Dec. 31, 2019
Mar. 31, 2021
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Research and development           $ 3,390   $ 3,204 $ 7,721 $ 7,324          
Other liabilities, noncurrent           12,027     12,027   $ 11,970   $ 11,970 $ 11,970  
Lynparza | Other Assets                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Finite-lived intangible assets           1,300     1,300            
Lenvima | Other Assets                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Finite-lived intangible assets           1,100     1,100            
Adempas | Other intangible assets                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Finite-lived intangible assets           $ 838     838            
AstraZeneca                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Upfront and milestone payments         $ 1,600                    
License option payment related to collaborative arrangement         $ 750                    
AstraZeneca | Sales-Based Milestones                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Contingent milestone payments collaborative arrangement                 2,700            
AstraZeneca | Sales-Based Milestones | Lynparza                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Probable contingent payments collaborative arrangement             $ 400             $ 1,000  
Liabilities             400                
Milestone payments made to collaborative partner                 250   200 $ 250      
AstraZeneca | Regulatory Milestones | Lynparza                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Milestone payments made to collaborative partner             135       60 140      
Contingent milestone payments collaborative arrangement                 1,400            
Eisai                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Upfront and milestone payments       $ 750                      
License option payment related to collaborative arrangement   $ 200 $ 325                        
Eisai | Forecast                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
License option payment related to collaborative arrangement $ 125                           $ 650
Eisai | Sales-Based Milestones                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Contingent milestone payments collaborative arrangement                 2,700            
Eisai | Sales-Based Milestones | Lenvima                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Probable contingent payments collaborative arrangement             370           $ 950    
Liabilities             $ 370                
Milestone payments made to collaborative partner                 500   50        
Eisai | Regulatory Milestones                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Contingent milestone payments collaborative arrangement                 135            
Eisai | Regulatory Milestones | Lenvima                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Milestone payments made to collaborative partner                       250      
Bayer AG | Sales-Based Milestones                              
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]                              
Probable contingent payments collaborative arrangement                     $ 725        
Milestone payments made to collaborative partner                       $ 350      
Contingent milestone payments collaborative arrangement                 $ 400            
v3.20.2
Collaborative Arrangements - Schedule of Transactions (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Sales $ 12,551 $ 12,397 $ 35,479 $ 34,972  
Cost of sales 3,481 3,990 9,952 10,443  
Selling, general and administrative 2,450 2,589 7,383 7,726  
Research and development 3,390 3,204 7,721 7,324  
Payables, current 20,405   20,405   $ 22,220
Other current assets | AstraZeneca | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Receivables 197   197   128
Other current assets | Eisai | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Receivables 170   170   150
Other current assets | Bayer AG | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Receivables 70   70   49
Accounts payable and accrued liabilities | AstraZeneca | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Payables, current 309   309   577
Payables, Noncurrent 400   400   0
Accounts payable and accrued liabilities | Eisai | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Payables, current 325   325   700
Other Noncurrent Liabilities | Eisai | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Payables, Noncurrent 570   570   525
Other Noncurrent Liabilities | Bayer AG | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Payables, Noncurrent 375   375   $ 375
Revenue | AstraZeneca | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Alliance revenue - profit sharing 199 123 522 313  
Revenue | AstraZeneca | Collaborative Arrangement | Alliance revenue - Lynparza (1)          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Alliance revenue - profit sharing 196 123 519 313  
Revenue | AstraZeneca | Collaborative Arrangement | Alliance revenue - Koselugo          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Alliance revenue - profit sharing 3 0 3 0  
Revenue | Eisai | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Alliance revenue - profit sharing 142 109 421 280  
Revenue | Bayer AG | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Alliance revenue - profit sharing 83 50 216 144  
Collaborative Arrangement, Sales, Net 55 57 167 158  
Sales 138 107 383 302  
Cost of sales | AstraZeneca | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Cost of sales 41 28 205 120  
Cost of sales | Eisai | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Cost of sales 46 23 215 97  
Cost of sales | Bayer AG | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Cost of sales 29 28 85 86  
Selling, general and administrative | AstraZeneca | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Selling, general and administrative 40 36 112 96  
Selling, general and administrative | Eisai | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Selling, general and administrative 18 21 48 59  
Selling, general and administrative | Bayer AG | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Selling, general and administrative 19 12 42 31  
Research and development | AstraZeneca | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Research and development 20 44 93 122  
Research and development | Eisai | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Research and development 48 37 168 146  
Research and development | Bayer AG | Collaborative Arrangement          
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]          
Research and development $ 12 $ 31 $ 53 $ 94  
v3.20.2
Restructuring - Narrative (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2020
Restructuring Cost and Reserve [Line Items]          
Cumulative costs since program inception $ 1,400   $ 1,400    
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 2,500   $ 2,500    
Total pretax restructuring costs $ 186 $ 296 $ 504 $ 642  
Forecast          
Restructuring Cost and Reserve [Line Items]          
Expected restructuring and related cost         $ 800
v3.20.2
Restructuring - Charges Activities by Type of Cost (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Restructuring Cost and Reserve [Line Items]        
Total pretax restructuring costs $ 186 $ 296 $ 504 $ 642
Separation Costs        
Restructuring Cost and Reserve [Line Items]        
Total pretax restructuring costs 61 205 143 358
Accelerated Depreciation        
Restructuring Cost and Reserve [Line Items]        
Total pretax restructuring costs 66 41 192 173
Other        
Restructuring Cost and Reserve [Line Items]        
Total pretax restructuring costs 59 50 169 111
Cost of sales        
Restructuring Cost and Reserve [Line Items]        
Total pretax restructuring costs 38 62 131 161
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 33 41 89 139
Cost of sales | Other        
Restructuring Cost and Reserve [Line Items]        
Total pretax restructuring costs 5 21 42 22
Selling, general and administrative        
Restructuring Cost and Reserve [Line Items]        
Total pretax restructuring costs 15 1 37 33
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 15 1 37 33
Selling, general and administrative | Other        
Restructuring Cost and Reserve [Line Items]        
Total pretax restructuring costs 0 0 0 0
Research and development        
Restructuring Cost and Reserve [Line Items]        
Total pretax restructuring costs 19 1 67 4
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 18 (1) 66 1
Research and development | Other        
Restructuring Cost and Reserve [Line Items]        
Total pretax restructuring costs 1 2 1 3
Restructuring costs        
Restructuring Cost and Reserve [Line Items]        
Total pretax restructuring costs 114 232 269 444
Restructuring costs | Separation Costs        
Restructuring Cost and Reserve [Line Items]        
Total pretax restructuring costs 61 205 143 358
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 $ 53 $ 27 $ 126 $ 86
v3.20.2
Restructuring - Activities by Program (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Restructuring Reserve [Roll Forward]        
Restructuring reserve, beginning balance     $ 759  
Expense $ 186 $ 296 504 $ 642
(Payments) receipts, net     (632)  
Non-cash activity     (153)  
Restructuring reserve, ending balance 478   478  
Separation Costs        
Restructuring Reserve [Roll Forward]        
Restructuring reserve, beginning balance     690  
Expense 61 205 143 358
(Payments) receipts, net     (395)  
Non-cash activity     0  
Restructuring reserve, ending balance 438   438  
Accelerated Depreciation        
Restructuring Reserve [Roll Forward]        
Restructuring reserve, beginning balance     0  
Expense 66 41 192 173
(Payments) receipts, net     0  
Non-cash activity     (192)  
Restructuring reserve, ending balance 0   0  
Other        
Restructuring Reserve [Roll Forward]        
Restructuring reserve, beginning balance     69  
Expense 59 $ 50 169 $ 111
(Payments) receipts, net     (237)  
Non-cash activity     39  
Restructuring reserve, ending balance $ 40   $ 40  
v3.20.2
Financial Instruments - Narrative (Details)
3 Months Ended 9 Months Ended
Sep. 30, 2020
USD ($)
interest_rate_swap
Dec. 31, 2019
USD ($)
Sep. 30, 2020
USD ($)
interest_rate_swap
Sep. 30, 2019
USD ($)
Jun. 30, 2020
USD ($)
Feb. 29, 2020
USD ($)
interest_rate_swap
Derivative [Line Items]            
Pretax net unrealized losses on derivatives maturing within next 12 months estimated to be reclassified from AOCI to sales     $ 155,000,000      
Equity investments without readily determinable fair values $ 508,000,000   508,000,000 $ 393,000,000    
Unrealized gains recognized on investments in equity securities without readily determinable fair value     21,000,000 4,000,000    
Unrealized losses recognized on investments in equity securities without readily determinable fair values     3,000,000 12,000,000    
Cumulative unrealized gains on investments 128,000,000   128,000,000      
Cumulative unrealized losses on investments 24,000,000   24,000,000      
Payments of contingent consideration     106,000,000 $ 85,000,000    
Fair value of loans payable and long-term debt, including current portion 32,600,000,000 $ 28,800,000,000 32,600,000,000      
Debt, carrying amount 28,700,000,000 26,300,000,000 28,700,000,000      
Accounts Receivable, Sale 2,100,000,000 2,700,000,000        
Cash collateral received from counterparties 0 34,000,000 0      
Cash collateral advanced to counterparties 0 0 0      
Total swap notional amount 27,151,000,000 30,666,000,000 27,151,000,000      
Face amount of debt         $ 4,500,000,000  
Level 2            
Derivative [Line Items]            
Cash equivalents 6,600,000,000 8,900,000,000 6,600,000,000      
Derivatives Designated as Hedging Instruments            
Derivative [Line Items]            
Total swap notional amount 12,654,000,000 14,728,000,000 $ 12,654,000,000      
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            
Derivative [Line Items]            
Total swap notional amount $ 14,497,000,000 $ 15,938,000,000 $ 14,497,000,000      
Derivatives Not Designated as Hedging Instruments | Maximum            
Derivative [Line Items]            
Maximum average period of maturities of contracts in years (less than)     1 year      
1.85% Notes Due 2020            
Derivative [Line Items]            
Face amount of debt           $ 1,250,000,000
Stated interest rate (as percent)           1.85%
Interest rate swap contracts            
Derivative [Line Items]            
Number of interest rate swaps held (in interest rate swaps) | interest_rate_swap 14   14     5
Total swap notional amount           $ 250,000,000
v3.20.2
Financial Instruments - Effect of Net Investment Hedges (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Foreign exchange contracts        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income $ 10 $ 1 $ 15 $ 8
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 (4) (8) (15) (23)
Euro-denominated notes        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of Pretax (Gain) Loss Recognized in Other Comprehensive Income 162 (150) 182 (152)
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
v3.20.2
Financial Instruments - Summary of Interest Rate Swaps Held (Details)
Sep. 30, 2020
USD ($)
interest_rate_swap
Jun. 30, 2020
USD ($)
Feb. 29, 2020
USD ($)
interest_rate_swap
Dec. 31, 2019
USD ($)
Derivative [Line Items]        
Par Value of Debt   $ 4,500,000,000    
Total swap notional amount $ 27,151,000,000     $ 30,666,000,000
Interest rate swap contracts        
Derivative [Line Items]        
Number of Interest Rate Swaps Held (in interest rate swaps) | interest_rate_swap 14   5  
Total swap notional amount     $ 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      
v3.20.2
Financial Instruments - Fair Value Hedges (Details) - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Loans payable and current portion of long-term debt    
Derivative Instruments and Hedging Activities Disclosures [Line Items]    
Carrying Amount of Hedged Liabilities $ 1,155 $ 1,249
Cumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount 5 (1)
Long-Term Debt    
Derivative Instruments and Hedging Activities Disclosures [Line Items]    
Carrying Amount of Hedged Liabilities 2,309 3,409
Cumulative Amount of Fair Value Hedging Adjustment Increase (Decrease) Included in the Carrying Amount $ 62 $ 14
v3.20.2
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, 2020
Dec. 31, 2019
Derivatives, Fair Value [Line Items]    
Fair Value of Derivative, Asset $ 239 $ 288
Fair Value of Derivative, Liability 298 97
U.S Dollar Notional Amount 27,151 30,666
Derivatives Designated as Hedging Instruments    
Derivatives, Fair Value [Line Items]    
Fair Value of Derivative, Asset 158 222
Fair Value of Derivative, Liability 105 24
U.S Dollar Notional Amount 12,654 14,728
Derivatives Not Designated as Hedging Instruments    
Derivatives, Fair Value [Line Items]    
Fair Value of Derivative, Asset 81 66
Fair Value of Derivative, Liability 193 73
U.S Dollar Notional Amount 14,497 15,938
Interest rate swap contracts | Derivatives Designated as Hedging Instruments | Other current assets    
Derivatives, Fair Value [Line Items]    
Fair Value of Derivative, Asset 6 0
U.S Dollar Notional Amount 1,150 0
Interest rate swap contracts | Derivatives Designated as Hedging Instruments | Other Assets    
Derivatives, Fair Value [Line Items]    
Fair Value of Derivative, Asset 63 15
U.S Dollar Notional Amount 2,250 3,400
Interest rate swap contracts | Derivatives Designated as Hedging Instruments | Accrued and other current liabilities    
Derivatives, Fair Value [Line Items]    
Fair Value of Derivative, Liability 0 1
U.S Dollar Notional Amount 0 1,250
Foreign exchange contracts | Derivatives Designated as Hedging Instruments | Other current assets    
Derivatives, Fair Value [Line Items]    
Fair Value of Derivative, Asset 30 152
U.S Dollar Notional Amount 4,120 6,117
Foreign exchange contracts | Derivatives Designated as Hedging Instruments | Other Assets    
Derivatives, Fair Value [Line Items]    
Fair Value of Derivative, Asset 59 55
U.S Dollar Notional Amount 1,881 2,160
Foreign exchange contracts | Derivatives Designated as Hedging Instruments | Accrued and other current liabilities    
Derivatives, Fair Value [Line Items]    
Fair Value of Derivative, Liability 104 22
U.S Dollar Notional Amount 3,096 1,748
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 157 53
Foreign exchange contracts | Derivatives Not Designated as Hedging Instruments | Other current assets    
Derivatives, Fair Value [Line Items]    
Fair Value of Derivative, Asset 81 66
U.S Dollar Notional Amount 5,455 7,245
Foreign exchange contracts | Derivatives Not Designated as Hedging Instruments | Accrued and other current liabilities    
Derivatives, Fair Value [Line Items]    
Fair Value of Derivative, Liability 171 73
U.S Dollar Notional Amount 8,042 8,693
Forward Contracts | Derivatives Not Designated as Hedging Instruments | Accrued and other current liabilities    
Derivatives, Fair Value [Line Items]    
Fair Value of Derivative, Liability 22 0
U.S Dollar Notional Amount $ 1,000 $ 0
v3.20.2
Financial Instruments - Information on Derivative Positions Subject to Master Netting Arrangements as if they were Presented on a Net Basis (Details) - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]    
Gross amounts recognized in the consolidated balance sheet, asset $ 239,000,000 $ 288,000,000
Gross amount subject to offset in master netting arrangements not offset in the condensed balance sheet, asset (140,000,000) (84,000,000)
Cash collateral received, asset 0 (34,000,000)
Net amounts, asset 99,000,000 170,000,000
Gross amounts recognized in the consolidated balance sheet, liability 298,000,000 97,000,000
Gross amount subject to offset in master netting arrangements not offset in the condensed balance sheet, liability (140,000,000) (84,000,000)
Cash collateral received, liability 0 0
Net amounts, liability $ 158,000,000 $ 13,000,000
v3.20.2
Financial Instruments - Location and Amount of Pretax (Gains) Losses of Derivatives (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Derivative Instruments, Gain (Loss) [Line Items]        
Sales $ 12,551 $ 12,397 $ 35,479 $ 34,972
Other (income) expense, net (312) 35 (630) 362
Other comprehensive income (loss) 10 (28) (190) 155
Interest rate swap contracts        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of (loss) gain recognized in OCI on derivatives (1) (1) (3) (6)
Interest rate swap contracts | Other (income) expense, net        
Derivative Instruments, Gain (Loss) [Line Items]        
Hedged items (14) 13 54 101
Derivatives designated as hedging instruments 0 (6) (76) (74)
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 (loss) gain recognized in OCI on derivatives (195) 186 (126) 183
Increase (decrease) in Sales as a result of AOCI reclassifications 23 (70) (65) (189)
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 $ (23) $ 70 $ 65 $ 189
v3.20.2
Financial Instruments - Income Statement Effects on Derivatives Not Designated as Hedging Instruments (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Foreign currency | Other (income) expense, net        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of Derivative Pretax (Gain) Loss Recognized in Income $ (7) $ (8) $ (138) $ 112
Forecasted transactions | Sales        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of Derivative Pretax (Gain) Loss Recognized in Income 7 (11) 4 (7)
Treasury lock | Other (income) expense, net        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of Derivative Pretax (Gain) Loss Recognized in Income 0 0 9 0
Forward Contracts | Research and development        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of Derivative Pretax (Gain) Loss Recognized in Income $ 22 $ 0 $ 22 $ 0
v3.20.2
Financial Instruments - Information on Available-for-sale Investments (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Debt Securities, Available-for-sale [Line Items]          
Debt securities, amortized cost $ 76   $ 76   $ 1,768
Debt securities, unrealized gains 0   0   17
Debt securities, unrealized losses 0   0   0
Debt securities, fair value 76   76   1,785
Publicly traded equity securities, fair value 1,477   1,477   838
Total debt and publicly traded equity securities, fair value 1,553   1,553   2,623
Unrealized net losses (gains) (43) $ 25 (512) $ (41)  
U.S. government and agency securities          
Debt Securities, Available-for-sale [Line Items]          
Debt securities, amortized cost 74   74   266
Debt securities, unrealized gains 0   0   3
Debt securities, unrealized losses 0   0   0
Debt securities, fair value 74   74   269
Foreign government bonds          
Debt Securities, Available-for-sale [Line Items]          
Debt securities, amortized cost 2   2   0
Debt securities, unrealized gains 0   0   0
Debt securities, unrealized losses 0   0   0
Debt securities, fair value 2   2   0
Commercial paper          
Debt Securities, Available-for-sale [Line Items]          
Debt securities, amortized cost 0   0   668
Debt securities, unrealized gains 0   0   0
Debt securities, unrealized losses 0   0   0
Debt securities, fair value 0   0   668
Corporate notes and bonds          
Debt Securities, Available-for-sale [Line Items]          
Debt securities, amortized cost 0   0   608
Debt securities, unrealized gains 0   0   13
Debt securities, unrealized losses 0   0   0
Debt securities, fair value 0   0   621
Asset-backed securities          
Debt Securities, Available-for-sale [Line Items]          
Debt securities, amortized cost 0   0   226
Debt securities, unrealized gains 0   0   1
Debt securities, unrealized losses 0   0   0
Debt securities, fair value $ 0   $ 0   $ 227
v3.20.2
Financial Instruments - Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2020
Dec. 31, 2019
Sep. 30, 2019
Dec. 31, 2018
Assets        
Investments $ 76 $ 1,785    
Publicly traded equity securities 1,477 838    
Derivative assets 239 288    
Liabilities        
Contingent consideration 829 767 $ 755 $ 788
Derivative liabilities 298 97    
Foreign government bonds        
Assets        
Investments 2 0    
Corporate notes and bonds        
Assets        
Investments 0 621    
Commercial paper        
Assets        
Investments 0 668    
Asset-backed securities        
Assets        
Investments $ 0 227    
Liabilities        
Primary weighted average life of collateral 5 years      
U.S. government and agency securities        
Assets        
Investments $ 74 269    
Fair Value, Measurements, Recurring        
Assets        
Investments 1,372 2,243    
Other assets 181 380    
Derivative assets 239 288    
Total assets 1,792 2,911    
Liabilities        
Contingent consideration 829 767    
Derivative liabilities 298 97    
Total liabilities 1,127 864    
Fair Value, Measurements, Recurring | Foreign exchange contracts        
Assets        
Derivative assets 116 169    
Liabilities        
Derivative liabilities 275 95    
Fair Value, Measurements, Recurring | Interest rate swap contracts        
Assets        
Derivative assets 69 15    
Fair Value, Measurements, Recurring | Currency options        
Assets        
Derivative assets 54 104    
Liabilities        
Derivative liabilities 1 1    
Fair Value, Measurements, Recurring | Interest rate swap contracts        
Liabilities        
Derivative liabilities 0 1    
Fair Value, Measurements, Recurring | Forward Contracts        
Liabilities        
Derivative liabilities 22 0    
Fair Value, Measurements, Recurring | Level 1        
Assets        
Investments 1,370 518    
Other assets 181 380    
Derivative assets 0 0    
Total assets 1,551 898    
Liabilities        
Contingent consideration 0 0    
Derivative liabilities 0 0    
Total liabilities 0 0    
Fair Value, Measurements, Recurring | Level 1 | Foreign exchange contracts        
Assets        
Derivative assets 0 0    
Liabilities        
Derivative liabilities 0 0    
Fair Value, Measurements, Recurring | Level 1 | Interest rate swap contracts        
Assets        
Derivative assets 0 0    
Fair Value, Measurements, Recurring | Level 1 | Currency options        
Assets        
Derivative assets 0 0    
Liabilities        
Derivative liabilities 0 0    
Fair Value, Measurements, Recurring | Level 1 | Interest rate swap contracts        
Liabilities        
Derivative liabilities 0 0    
Fair Value, Measurements, Recurring | Level 1 | Forward Contracts        
Liabilities        
Derivative liabilities 0 0    
Fair Value, Measurements, Recurring | Level 2        
Assets        
Investments 2 1,725    
Other assets 0 0    
Derivative assets 239 288    
Total assets 241 2,013    
Liabilities        
Contingent consideration 0 0    
Derivative liabilities 298 97    
Total liabilities 298 97    
Fair Value, Measurements, Recurring | Level 2 | Foreign exchange contracts        
Assets        
Derivative assets 116 169    
Liabilities        
Derivative liabilities 275 95    
Fair Value, Measurements, Recurring | Level 2 | Interest rate swap contracts        
Assets        
Derivative assets 69 15    
Fair Value, Measurements, Recurring | Level 2 | Currency options        
Assets        
Derivative assets 54 104    
Liabilities        
Derivative liabilities 1 1    
Fair Value, Measurements, Recurring | Level 2 | Interest rate swap contracts        
Liabilities        
Derivative liabilities 0 1    
Fair Value, Measurements, Recurring | Level 2 | Forward Contracts        
Liabilities        
Derivative liabilities 22 0    
Fair Value, Measurements, Recurring | Level 3        
Assets        
Investments 0 0    
Other assets 0 0    
Derivative assets 0 0    
Total assets 0 0    
Liabilities        
Contingent consideration 829 767    
Derivative liabilities 0 0    
Total liabilities 829 767    
Fair Value, Measurements, Recurring | Level 3 | Foreign exchange contracts        
Assets        
Derivative assets 0 0    
Liabilities        
Derivative liabilities 0 0    
Fair Value, Measurements, Recurring | Level 3 | Interest rate swap contracts        
Assets        
Derivative assets 0 0    
Fair Value, Measurements, Recurring | Level 3 | Currency options        
Assets        
Derivative assets 0 0    
Liabilities        
Derivative liabilities 0 0    
Fair Value, Measurements, Recurring | Level 3 | Interest rate swap contracts        
Liabilities        
Derivative liabilities 0 0    
Fair Value, Measurements, Recurring | Level 3 | Forward Contracts        
Liabilities        
Derivative liabilities 0 0    
Fair Value, Measurements, Recurring | Foreign government bonds        
Assets        
Investments 2 0    
Fair Value, Measurements, Recurring | Foreign government bonds | Level 1        
Assets        
Investments 0 0    
Fair Value, Measurements, Recurring | Foreign government bonds | Level 2        
Assets        
Investments 2 0    
Fair Value, Measurements, Recurring | Foreign government bonds | Level 3        
Assets        
Investments 0 0    
Fair Value, Measurements, Recurring | Corporate notes and bonds        
Assets        
Investments 0 621    
Fair Value, Measurements, Recurring | Corporate notes and bonds | Level 1        
Assets        
Investments 0 0    
Fair Value, Measurements, Recurring | Corporate notes and bonds | Level 2        
Assets        
Investments 0 621    
Fair Value, Measurements, Recurring | Corporate notes and bonds | Level 3        
Assets        
Investments 0 0    
Fair Value, Measurements, Recurring | Commercial paper        
Assets        
Investments 0 668    
Fair Value, Measurements, Recurring | Commercial paper | Level 1        
Assets        
Investments 0 0    
Fair Value, Measurements, Recurring | Commercial paper | Level 2        
Assets        
Investments 0 668    
Fair Value, Measurements, Recurring | Commercial paper | Level 3        
Assets        
Investments 0 0    
Fair Value, Measurements, Recurring | Asset-backed securities        
Assets        
Investments 0 227    
Fair Value, Measurements, Recurring | Asset-backed securities | Level 1        
Assets        
Investments 0 0    
Fair Value, Measurements, Recurring | Asset-backed securities | Level 2        
Assets        
Investments 0 227    
Fair Value, Measurements, Recurring | Asset-backed securities | Level 3        
Assets        
Investments 0 0    
Fair Value, Measurements, Recurring | U.S. government and agency securities        
Assets        
Investments 0 209    
Other assets 74 60    
Fair Value, Measurements, Recurring | U.S. government and agency securities | Level 1        
Assets        
Investments 0 0    
Other assets 74 60    
Fair Value, Measurements, Recurring | U.S. government and agency securities | Level 2        
Assets        
Investments 0 209    
Other assets 0 0    
Fair Value, Measurements, Recurring | U.S. government and agency securities | Level 3        
Assets        
Investments 0 0    
Other assets 0 0    
Fair Value, Measurements, Recurring | Publicly traded equity securities        
Assets        
Publicly traded equity securities 1,370 518    
Other assets 107 320    
Fair Value, Measurements, Recurring | Publicly traded equity securities | Level 1        
Assets        
Publicly traded equity securities 1,370 518    
Other assets 107 320    
Fair Value, Measurements, Recurring | Publicly traded equity securities | Level 2        
Assets        
Publicly traded equity securities 0 0    
Other assets 0 0    
Fair Value, Measurements, Recurring | Publicly traded equity securities | Level 3        
Assets        
Publicly traded equity securities 0 0    
Other assets $ 0 $ 0    
v3.20.2
Financial Instruments - Information About Changes in Liabilities for Contingent Consideration (Details)
$ in Millions
9 Months Ended
Sep. 30, 2020
USD ($)
Sep. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]      
Fair value, beginning balance $ 767 $ 788  
Additions 97 0  
Changes in estimated fair value 71 52  
Payments (106) (85)  
Fair value, ending balance 829 755  
Current liability     $ 140
Contingent consideration 829 $ 755 829
Sanofi Pasteur      
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]      
Fair value, beginning balance 625    
Fair value, ending balance 637    
Contingent consideration $ 625   $ 637
Contingent consideration, measurement input, discount rate (as percent)     0.115
Measurement Input, Discount Rate | Sanofi Pasteur      
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]      
Contingent consideration, measurement input, discount rate (as percent)     0.08
v3.20.2
Inventories - Inventories (Details) - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Inventory Disclosure [Abstract]    
Finished goods $ 2,038 $ 1,772
Raw materials and work in process 6,073 5,650
Supplies 197 207
Total (approximates current cost) 8,308 7,629
Decrease to LIFO cost (99) (171)
Total current and noncurrent inventories 8,209 7,458
Recognized as:    
Inventories 6,128 5,978
Other assets $ 2,081 $ 1,480
v3.20.2
Inventories - Narrative (Details) - USD ($)
$ in Millions
Sep. 30, 2020
Dec. 31, 2019
Inventory [Line Items]    
Inventories classified in Other assets $ 2,081 $ 1,480
Inventories Not Expected to be Sold Within One Year    
Inventory [Line Items]    
Inventories classified in Other assets 1,800 1,300
Inventories Produced in Preparation for Product Launches    
Inventory [Line Items]    
Inventories classified in Other assets $ 288 $ 168
v3.20.2
Other Intangibles (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2019
Finite-Lived Intangible Assets [Line Items]    
Intangible asset impairment charges $ 612 $ 693
Sivextro [Member]    
Finite-Lived Intangible Assets [Line Items]    
Intangible asset impairment charges $ 612  
v3.20.2
Long-Term Debt - Narrative (Details)
Jun. 30, 2020
USD ($)
Debt Instrument [Line Items]  
Face amount of debt $ 4,500,000,000
0.75% notes due 2026  
Debt Instrument [Line Items]  
Face amount of debt $ 1,000,000,000.0
Stated interest rate (as percent) 0.75%
1.45% notes due 2030  
Debt Instrument [Line Items]  
Face amount of debt $ 1,250,000,000
Stated interest rate (as percent) 1.45%
2.35% notes due 2040  
Debt Instrument [Line Items]  
Face amount of debt $ 1,000,000,000.0
Stated interest rate (as percent) 2.35%
2.45% notes due 2050  
Debt Instrument [Line Items]  
Face amount of debt $ 1,250,000,000
Stated interest rate (as percent) 2.45%
v3.20.2
Contingencies - Narrative (Details)
$ in Millions
1 Months Ended 9 Months Ended
Mar. 31, 2014
Case
Sep. 30, 2020
USD ($)
Case
Claim
Dec. 31, 2019
USD ($)
Legal Defense Costs      
Loss Contingencies [Line Items]      
Legal defense costs reserve | $   $ 255 $ 240
Zetia antitrust litigation [Member]      
Loss Contingencies [Line Items]      
Loss contingency, pending claims, number (in legal matters) | Claim   35  
Patents [Member]      
Loss Contingencies [Line Items]      
Loss contingency, pending claims, number (in legal matters)   3  
Loss Contingency, Claims Settled, Number   5  
Fosamax      
Loss Contingencies [Line Items]      
Loss contingency, pending claims, number (in legal matters)   3,590  
Fosamax | Femur Fracture Litigation | Federal      
Loss Contingencies [Line Items]      
Loss contingency, pending claims, number (in legal matters)   970  
Loss contingency, claims dismissed, number (in legal matters) 650    
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)   2,340  
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   1,465  
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  
v3.20.2
Equity - Rollforward Reconciliations (Details) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Shares, beginning balance (in shares)     3,577,103,522  
Equity, beginning balance $ 27,744 $ 27,737 $ 26,001 $ 26,882
Net income attributable to Merck & Co., Inc. 2,941 1,901 9,161 7,487
Other comprehensive income (loss), net of taxes 10 (28) (190) 155
Cash dividends declared on common stock (1,558) (1,392) (4,656) (4,262)
Treasury stock shares purchased   (1,405) (1,281) (3,730)
Share-based compensation plans and other 151 127 245 487
Net income (loss) attributable to noncontrolling interests 4 6 12 (73)
Distributions attributable to noncontrolling interests $ (22) (21) $ (22) (21)
Shares, ending balance (in shares) 3,577,103,522   3,577,103,522  
Equity, ending balance $ 29,270 $ 26,925 $ 29,270 $ 26,925
Cash dividends declared on common stock (in dollars per share) $ 0.61 $ 0.55 $ 1.83 $ 1.65
   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
Equity, beginning balance $ 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
Equity, ending balance $ 1,788 $ 1,788 $ 1,788 $ 1,788
Other Paid-In Capital        
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Equity, beginning balance 39,373 39,484 39,660 38,808
Treasury stock shares purchased       1,000
Share-based compensation plans and other 116 77 (171) (247)
Equity, ending balance 39,489 39,561 39,489 39,561
Retained Earnings        
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Equity, beginning balance 49,724 45,295 46,602 42,579
Net income attributable to Merck & Co., Inc. 2,941 1,901 9,161 7,487
Cash dividends declared on common stock (1,558) (1,392) (4,656) (4,262)
Equity, ending balance 51,107 45,804 51,107 45,804
Accumulated Other Comprehensive Loss        
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Equity, beginning balance (6,393) (5,362) (6,193) (5,545)
Other comprehensive income (loss), net of taxes 10 (28) (190) 155
Equity, ending balance $ (6,383) $ (5,390) $ (6,383) $ (5,390)
  Treasury Stock        
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Shares, beginning balance (in shares) 1,048,000,000 1,010,000,000 1,038,000,000 985,000,000
Equity, beginning balance $ (56,850) $ (53,570) $ (55,950) $ (50,929)
Treasury stock shares purchased (in shares)   17,000,000 16,000,000 54,000,000
Treasury stock shares purchased   $ (1,405) $ (1,281) $ (4,730)
Share-based compensation plans and other (in shares) (1,000,000) (1,000,000) (7,000,000) (13,000,000)
Share-based compensation plans and other $ 35 $ 50 $ 416 $ 734
Shares, ending balance (in shares) 1,047,000,000 1,026,000,000 1,047,000,000 1,026,000,000
Equity, ending balance $ (56,815) $ (54,925) $ (56,815) $ (54,925)
Non- controlling Interests        
Increase (Decrease) in Stockholders' Equity [Roll Forward]        
Equity, beginning balance 102 102 94 181
Net income (loss) attributable to noncontrolling interests 4 6 12 (73)
Distributions attributable to noncontrolling interests (22) (21) (22) (21)
Equity, ending balance $ 84 $ 87 $ 84 $ 87
v3.20.2
Share-Based Compensation Plans - Expense Allocations (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Share-based Payment Arrangement [Abstract]        
Pretax share-based compensation expense $ 126 $ 101 $ 354 $ 306
Income tax benefit (17) (14) (48) (42)
Total share-based compensation expense, net of taxes $ 109 $ 87 $ 306 $ 264
v3.20.2
Share-Based Compensation Plans - Narrative (Details) - USD ($)
$ / shares in Units, $ in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross 4,000,000 3,000,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price $ 77.67 $ 80.05
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value $ 9.93 $ 10.63
Total pretax unrecognized compensation expense related to nonvested stock options, RSU and PSU awards $ 800  
Weighted average period in years of recognition for nonvested stock options, RSU and PSU awards 2 years 1 month 6 days  
Restricted Stock Units (RSUs)    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Shares granted (in shares) 7,000,000 5,000,000
Weighted-average fair value per share granted (in dollars per share) $ 77.83 $ 80.03
Performance Share Units (PSUs)    
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Shares granted (in shares) 773,000 609,000
Weighted-average fair value per share granted (in dollars per share) $ 75.22 $ 90.50
v3.20.2
Share-Based Compensation Plans - Assumptions Used for Options Granted (Details)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Share-based Payment Arrangement [Abstract]    
Expected dividend yield 3.10% 3.20%
Risk-free interest rate 0.40% 2.40%
Expected volatility 22.10% 18.70%
Expected life (years) 5 years 9 months 18 days 5 years 10 months 24 days
v3.20.2
Pension and Other Postretirement Benefit Plans (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Other Postretirement Benefit Plans        
Defined Benefit Plan Disclosure [Line Items]        
Service cost $ 13 $ 12 $ 39 $ 36
Interest cost 14 17 43 52
Expected return on plan assets (19) (18) (56) (54)
Amortization of unrecognized prior service credit (18) (20) (54) (59)
Net loss amortization (5) (3) (13) (7)
Termination benefits 0 1 0 1
Curtailments 0 (3) (1) (4)
Net periodic benefit cost (15) (14) (42) (35)
U.S. | Pension Plans        
Defined Benefit Plan Disclosure [Line Items]        
Service cost 96 76 270 221
Interest cost 107 115 323 343
Expected return on plan assets (193) (202) (581) (613)
Amortization of unrecognized prior service credit (12) (12) (37) (37)
Net loss amortization 75 43 228 113
Termination benefits 1 3 5 7
Curtailments 1 5 4 6
Settlements 2 0 11 0
Net periodic benefit cost 77 28 223 40
International | Pension Plans        
Defined Benefit Plan Disclosure [Line Items]        
Service cost 77 58 225 178
Interest cost 35 44 103 133
Expected return on plan assets (104) (106) (310) (320)
Amortization of unrecognized prior service credit (3) (3) (9) (9)
Net loss amortization 32 16 94 47
Termination benefits 1 0 2 1
Curtailments 0 0 (1) 0
Settlements 0 0 2 0
Net periodic benefit cost $ 38 $ 9 $ 106 $ 30
v3.20.2
Pension and Other Postretirement Benefit Plans Pension and Other Postretirement Benefit Plans (Narrative) (Details)
$ in Millions
9 Months Ended
Sep. 30, 2020
USD ($)
International  
Defined Benefit Plan Disclosure [Line Items]  
Expected future employer contributions, current fiscal year $ 375
Contributions by employer 123
U.S.  
Defined Benefit Plan Disclosure [Line Items]  
Expected future employer contributions, current fiscal year 200
Contributions by employer $ 184
v3.20.2
Other (Income) Expense, Net (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Component of Other Income / Expense of Nonoperating [Line Items]        
Interest income $ (9) $ (61) $ (48) $ (225)
Interest expense 203 231 624 674
Exchange losses 10 38 89 166
Income from investments in equity securities, net (1) (360) (16) (964) (50)
Net periodic defined benefit plan (credit) cost other than service cost (88) (128) (259) (409)
Other, net (68) (29) (72) 206
Other (income) expense, net $ (312) $ 35 $ (630) $ 362
v3.20.2
Other (Income) Expense, Net Other (Income) Expense, Net - Narrative (Details) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Component of Other Income / Expense of Nonoperating [Line Items]    
Interest paid $ 605 $ 629
Healthcare Services Segment    
Component of Other Income / Expense of Nonoperating [Line Items]    
Goodwill, Impairment Loss   $ 162
v3.20.2
Taxes on Income (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Tax Examination [Line Items]        
Effective income tax rate (as percent) 14.10% 18.70% 14.90% 14.50%
Internal Revenue Service (IRS) | Domestic Tax Authority        
Income Tax Examination [Line Items]        
Tax benefit recognized related to settlement       $ 360
Income taxes paid       $ 107
v3.20.2
Earnings Per Share (Details) - USD ($)
$ / shares in Units, shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Earnings Per Share [Abstract]        
Net income attributable to Merck & Co., Inc. $ 2,941 $ 1,901 $ 9,161 $ 7,487
Average common shares outstanding 2,529 2,558 2,530 2,572
Common shares issuable (1) 9 14 11 15
Average common shares outstanding assuming dilution 2,538 2,572 2,541 2,587
Basic earnings per common share attributable to Merck & Co., Inc. common shareholders $ 1.16 $ 0.74 $ 3.62 $ 2.91
Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders $ 1.16 $ 0.74 $ 3.61 $ 2.89
Common shares issuable under share-based compensation plans excluded from diluted earnings per common share because the effect would have been antidilutive (in shares) 5 3 5 2
v3.20.2
Other Comprehensive Income (Loss) (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Accumulated Other Comprehensive Income (Loss) [Roll Forward]        
Equity, beginning balance $ 27,744 $ 27,737 $ 26,001 $ 26,882
Other comprehensive income (loss) before reclassification adjustments, pretax (143) 106 (362) 364
Tax 77 (72) 79 (65)
Other comprehensive income (loss) before reclassification adjustments, net of taxes (66) 34 (283) 299
Reclassification adjustments, pretax 94 (75) 121 (176)
Tax (18) 13 (28) 32
Reclassification adjustments, net of taxes 76 (62) 93 (144)
Other comprehensive income (loss), net of taxes 10 (28) (190) 155
Equity, ending balance 29,270 26,925 29,270 26,925
Derivatives        
Accumulated Other Comprehensive Income (Loss) [Roll Forward]        
Equity, beginning balance 15 66 31 166
Other comprehensive income (loss) before reclassification adjustments, pretax (195) 186 (126) 183
Tax 41 (39) 27 (38)
Other comprehensive income (loss) before reclassification adjustments, net of taxes (154) 147 (99) 145
Reclassification adjustments, pretax 22 (71) (68) (195)
Tax (5) 15 14 41
Reclassification adjustments, net of taxes 17 (56) (54) (154)
Other comprehensive income (loss), net of taxes (137) 91 (153) (9)
Equity, ending balance (122) 157 (122) 157
Investments        
Accumulated Other Comprehensive Income (Loss) [Roll Forward]        
Equity, beginning balance 0 48 18 (78)
Other comprehensive income (loss) before reclassification adjustments, pretax 0 8 3 139
Tax 0 0 0 0
Other comprehensive income (loss) before reclassification adjustments, net of taxes 0 8 3 139
Reclassification adjustments, pretax 0 (25) (21) (30)
Tax 0 0 0 0
Reclassification adjustments, net of taxes 0 (25) (21) (30)
Other comprehensive income (loss), net of taxes 0 (17) (18) 109
Equity, ending balance 0 31 0 31
Employee Benefit Plans        
Accumulated Other Comprehensive Income (Loss) [Roll Forward]        
Equity, beginning balance (4,162) (3,530) (4,261) (3,556)
Other comprehensive income (loss) before reclassification adjustments, pretax 2 (4) (19) (5)
Tax 1 0 12 6
Other comprehensive income (loss) before reclassification adjustments, net of taxes 3 (4) (7) 1
Reclassification adjustments, pretax 72 21 210 49
Tax (13) (2) (42) (9)
Reclassification adjustments, net of taxes 59 19 168 40
Other comprehensive income (loss), net of taxes 62 15 161 41
Equity, ending balance (4,100) (3,515) (4,100) (3,515)
Cumulative Translation Adjustment        
Accumulated Other Comprehensive Income (Loss) [Roll Forward]        
Equity, beginning balance (2,246) (1,946) (1,981) (2,077)
Other comprehensive income (loss) before reclassification adjustments, pretax 50 (84) (220) 47
Tax 35 (33) 40 (33)
Other comprehensive income (loss) before reclassification adjustments, net of taxes 85 (117) (180) 14
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 85 (117) (180) 14
Equity, ending balance (2,161) (2,063) (2,161) (2,063)
Accumulated Other Comprehensive Income (Loss)        
Accumulated Other Comprehensive Income (Loss) [Roll Forward]        
Equity, beginning balance (6,393) (5,362) (6,193) (5,545)
Equity, ending balance $ (6,383) $ (5,390) $ (6,383) $ (5,390)
v3.20.2
Segment Reporting - Narrative (Details)
$ in Billions
3 Months Ended 9 Months Ended
Sep. 30, 2020
USD ($)
Sep. 30, 2019
USD ($)
Sep. 30, 2020
USD ($)
segment
Sep. 30, 2019
USD ($)
Segment Reporting [Abstract]        
Number of operating segments | segment     3  
Sales discounts | $ $ 3.4 $ 3.0 $ 9.6 $ 8.6
v3.20.2
Segment Reporting - Sales of Company's Products (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Segment Reporting Information [Line Items]        
Sales $ 12,551 $ 12,397 $ 35,479 $ 34,972
Operating Segments        
Segment Reporting Information [Line Items]        
Sales 12,540 12,263 35,212 34,622
Other        
Segment Reporting Information [Line Items]        
Sales 11 134 267 350
United States        
Segment Reporting Information [Line Items]        
Sales 5,625 5,573 15,396 15,320
United States | Operating Segments        
Segment Reporting Information [Line Items]        
Sales 5,616 5,563 15,349 15,301
United States | Other        
Segment Reporting Information [Line Items]        
Sales 9 10 47 19
International        
Segment Reporting Information [Line Items]        
Sales 6,926 6,824 20,084 19,652
International | Operating Segments        
Segment Reporting Information [Line Items]        
Sales 6,924 6,699 19,863 19,322
International | Other        
Segment Reporting Information [Line Items]        
Sales 2 125 221 330
Total Pharmaceutical segment sales | Operating Segments        
Segment Reporting Information [Line Items]        
Sales 11,320 11,095 31,654 31,218
Total Pharmaceutical segment sales | Operating Segments | Keytruda        
Segment Reporting Information [Line Items]        
Sales 3,715 3,070 10,387 7,973
Total Pharmaceutical segment sales | Operating Segments | Alliance revenue - Lynparza (1)        
Segment Reporting Information [Line Items]        
Sales 196 123 519 313
Total Pharmaceutical segment sales | Operating Segments | Alliance revenue - Lenvima (1)        
Segment Reporting Information [Line Items]        
Sales 142 109 421 280
Total Pharmaceutical segment sales | Operating Segments | Emend        
Segment Reporting Information [Line Items]        
Sales 39 98 115 336
Total Pharmaceutical segment sales | Operating Segments | Gardasil/Gardasil 9        
Segment Reporting Information [Line Items]        
Sales 1,187 1,320 2,941 3,044
Total Pharmaceutical segment sales | Operating Segments | ProQuad/M-M-R II/Varivax        
Segment Reporting Information [Line Items]        
Sales 576 623 1,390 1,794
Total Pharmaceutical segment sales | Operating Segments | Pneumovax 23        
Segment Reporting Information [Line Items]        
Sales 375 237 748 592
Total Pharmaceutical segment sales | Operating Segments | RotaTeq        
Segment Reporting Information [Line Items]        
Sales 210 180 601 564
Total Pharmaceutical segment sales | Operating Segments | Vaqta        
Segment Reporting Information [Line Items]        
Sales 51 62 139 167
Total Pharmaceutical segment sales | Operating Segments | Bridion        
Segment Reporting Information [Line Items]        
Sales 320 284 843 817
Total Pharmaceutical segment sales | Operating Segments | Noxafil        
Segment Reporting Information [Line Items]        
Sales 79 177 247 560
Total Pharmaceutical segment sales | Operating Segments | Prevymis        
Segment Reporting Information [Line Items]        
Sales 77 45 200 115
Total Pharmaceutical segment sales | Operating Segments | Primaxin        
Segment Reporting Information [Line Items]        
Sales 74 77 189 207
Total Pharmaceutical segment sales | Operating Segments | Invanz        
Segment Reporting Information [Line Items]        
Sales 51 57 159 206
Total Pharmaceutical segment sales | Operating Segments | Cancidas        
Segment Reporting Information [Line Items]        
Sales 50 62 148 191
Total Pharmaceutical segment sales | Operating Segments | Cubicin        
Segment Reporting Information [Line Items]        
Sales 39 52 116 207
Total Pharmaceutical segment sales | Operating Segments | Zerbaxa        
Segment Reporting Information [Line Items]        
Sales 43 35 112 88
Total Pharmaceutical segment sales | Operating Segments | Simponi        
Segment Reporting Information [Line Items]        
Sales 209 203 615 625
Total Pharmaceutical segment sales | Operating Segments | Remicade        
Segment Reporting Information [Line Items]        
Sales 82 101 242 322
Total Pharmaceutical segment sales | Operating Segments | Belsomra        
Segment Reporting Information [Line Items]        
Sales 81 80 244 223
Total Pharmaceutical segment sales | Operating Segments | Isentress/Isentress HD        
Segment Reporting Information [Line Items]        
Sales 205 250 646 752
Total Pharmaceutical segment sales | Operating Segments | Zepatier        
Segment Reporting Information [Line Items]        
Sales 28 83 122 304
Total Pharmaceutical segment sales | Operating Segments | Zetia        
Segment Reporting Information [Line Items]        
Sales 103 147 384 443
Total Pharmaceutical segment sales | Operating Segments | Vytorin        
Segment Reporting Information [Line Items]        
Sales 47 57 139 231
Total Pharmaceutical segment sales | Operating Segments | Atozet        
Segment Reporting Information [Line Items]        
Sales 111 97 348 283
Total Pharmaceutical segment sales | Operating Segments | Alliance revenue - Adempas (2)        
Segment Reporting Information [Line Items]        
Sales 83 50 216 144
Total Pharmaceutical segment sales | Operating Segments | Adempas        
Segment Reporting Information [Line Items]        
Sales 55 57 167 158
Total Pharmaceutical segment sales | Operating Segments | Januvia        
Segment Reporting Information [Line Items]        
Sales 821 807 2,449 2,539
Total Pharmaceutical segment sales | Operating Segments | Janumet        
Segment Reporting Information [Line Items]        
Sales 506 503 1,499 1,567
Total Pharmaceutical segment sales | Operating Segments | Implanon/Nexplanon        
Segment Reporting Information [Line Items]        
Sales 189 199 515 581
Total Pharmaceutical segment sales | Operating Segments | NuvaRing        
Segment Reporting Information [Line Items]        
Sales 58 241 184 700
Total Pharmaceutical segment sales | Operating Segments | Singulair        
Segment Reporting Information [Line Items]        
Sales 82 152 338 503
Total Pharmaceutical segment sales | Operating Segments | Cozaar/Hyzaar        
Segment Reporting Information [Line Items]        
Sales 91 116 292 329
Total Pharmaceutical segment sales | Operating Segments | Arcoxia        
Segment Reporting Information [Line Items]        
Sales 68 72 204 221
Total Pharmaceutical segment sales | Operating Segments | Nasonex        
Segment Reporting Information [Line Items]        
Sales 41 58 161 226
Total Pharmaceutical segment sales | Operating Segments | Follistim AQ        
Segment Reporting Information [Line Items]        
Sales 50 62 136 182
Total Pharmaceutical segment sales | Operating Segments | Other pharmaceutical (3)        
Segment Reporting Information [Line Items]        
Sales 1,186 1,149 3,478 3,431
Total Pharmaceutical segment sales | United States | Operating Segments        
Segment Reporting Information [Line Items]        
Sales 5,218 5,180 14,202 14,202
Total Pharmaceutical segment sales | United States | Operating Segments | Keytruda        
Segment Reporting Information [Line Items]        
Sales 2,157 1,743 6,106 4,525
Total Pharmaceutical segment sales | United States | Operating Segments | Alliance revenue - Lynparza (1)        
Segment Reporting Information [Line Items]        
Sales 107 71 297 186
Total Pharmaceutical segment sales | United States | Operating Segments | Alliance revenue - Lenvima (1)        
Segment Reporting Information [Line Items]        
Sales 82 65 270 169
Total Pharmaceutical segment sales | United States | Operating Segments | Emend        
Segment Reporting Information [Line Items]        
Sales 8 42 18 173
Total Pharmaceutical segment sales | United States | Operating Segments | Gardasil/Gardasil 9        
Segment Reporting Information [Line Items]        
Sales 579 761 1,209 1,579
Total Pharmaceutical segment sales | United States | Operating Segments | ProQuad/M-M-R II/Varivax        
Segment Reporting Information [Line Items]        
Sales 437 482 1,033 1,325
Total Pharmaceutical segment sales | United States | Operating Segments | Pneumovax 23        
Segment Reporting Information [Line Items]        
Sales 276 179 478 428
Total Pharmaceutical segment sales | United States | Operating Segments | RotaTeq        
Segment Reporting Information [Line Items]        
Sales 114 102 355 360
Total Pharmaceutical segment sales | United States | Operating Segments | Vaqta        
Segment Reporting Information [Line Items]        
Sales 32 36 79 103
Total Pharmaceutical segment sales | United States | Operating Segments | Bridion        
Segment Reporting Information [Line Items]        
Sales 162 133 412 381
Total Pharmaceutical segment sales | United States | Operating Segments | Noxafil        
Segment Reporting Information [Line Items]        
Sales 13 77 27 268
Total Pharmaceutical segment sales | United States | Operating Segments | Prevymis        
Segment Reporting Information [Line Items]        
Sales 32 22 87 60
Total Pharmaceutical segment sales | United States | Operating Segments | Primaxin        
Segment Reporting Information [Line Items]        
Sales 1 2 2 2
Total Pharmaceutical segment sales | United States | Operating Segments | Invanz        
Segment Reporting Information [Line Items]        
Sales 1 (1) 7 30
Total Pharmaceutical segment sales | United States | Operating Segments | Cancidas        
Segment Reporting Information [Line Items]        
Sales 1 0 2 5
Total Pharmaceutical segment sales | United States | Operating Segments | Cubicin        
Segment Reporting Information [Line Items]        
Sales 11 14 36 78
Total Pharmaceutical segment sales | United States | Operating Segments | Zerbaxa        
Segment Reporting Information [Line Items]        
Sales 20 20 57 45
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 18 23 67 68
Total Pharmaceutical segment sales | United States | Operating Segments | Isentress/Isentress HD        
Segment Reporting Information [Line Items]        
Sales 92 102 243 304
Total Pharmaceutical segment sales | United States | Operating Segments | Zepatier        
Segment Reporting Information [Line Items]        
Sales 6 24 38 96
Total Pharmaceutical segment sales | United States | Operating Segments | Zetia        
Segment Reporting Information [Line Items]        
Sales (1) 5 (4) 11
Total Pharmaceutical segment sales | United States | Operating Segments | Vytorin        
Segment Reporting Information [Line Items]        
Sales 3 5 9 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 | Alliance revenue - Adempas (2)        
Segment Reporting Information [Line Items]        
Sales 78 48 200 137
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 342 367 1,110 1,223
Total Pharmaceutical segment sales | United States | Operating Segments | Janumet        
Segment Reporting Information [Line Items]        
Sales 105 129 361 462
Total Pharmaceutical segment sales | United States | Operating Segments | Implanon/Nexplanon        
Segment Reporting Information [Line Items]        
Sales 137 136 374 421
Total Pharmaceutical segment sales | United States | Operating Segments | NuvaRing        
Segment Reporting Information [Line Items]        
Sales 24 202 85 593
Total Pharmaceutical segment sales | United States | Operating Segments | Singulair        
Segment Reporting Information [Line Items]        
Sales 4 11 14 24
Total Pharmaceutical segment sales | United States | Operating Segments | Cozaar/Hyzaar        
Segment Reporting Information [Line Items]        
Sales 5 6 17 16
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 | Nasonex        
Segment Reporting Information [Line Items]        
Sales 0 4 9 2
Total Pharmaceutical segment sales | United States | Operating Segments | Follistim AQ        
Segment Reporting Information [Line Items]        
Sales 20 27 60 80
Total Pharmaceutical segment sales | United States | Operating Segments | Other pharmaceutical (3)        
Segment Reporting Information [Line Items]        
Sales 352 343 1,144 1,037
Total Pharmaceutical segment sales | International | Operating Segments        
Segment Reporting Information [Line Items]        
Sales 6,102 5,914 17,452 17,016
Total Pharmaceutical segment sales | International | Operating Segments | Keytruda        
Segment Reporting Information [Line Items]        
Sales 1,559 1,327 4,281 3,448
Total Pharmaceutical segment sales | International | Operating Segments | Alliance revenue - Lynparza (1)        
Segment Reporting Information [Line Items]        
Sales 89 53 223 126
Total Pharmaceutical segment sales | International | Operating Segments | Alliance revenue - Lenvima (1)        
Segment Reporting Information [Line Items]        
Sales 60 44 152 112
Total Pharmaceutical segment sales | International | Operating Segments | Emend        
Segment Reporting Information [Line Items]        
Sales 31 56 96 163
Total Pharmaceutical segment sales | International | Operating Segments | Gardasil/Gardasil 9        
Segment Reporting Information [Line Items]        
Sales 608 558 1,732 1,464
Total Pharmaceutical segment sales | International | Operating Segments | ProQuad/M-M-R II/Varivax        
Segment Reporting Information [Line Items]        
Sales 139 141 356 469
Total Pharmaceutical segment sales | International | Operating Segments | Pneumovax 23        
Segment Reporting Information [Line Items]        
Sales 99 58 270 164
Total Pharmaceutical segment sales | International | Operating Segments | RotaTeq        
Segment Reporting Information [Line Items]        
Sales 96 78 246 203
Total Pharmaceutical segment sales | International | Operating Segments | Vaqta        
Segment Reporting Information [Line Items]        
Sales 19 26 60 65
Total Pharmaceutical segment sales | International | Operating Segments | Bridion        
Segment Reporting Information [Line Items]        
Sales 157 151 431 437
Total Pharmaceutical segment sales | International | Operating Segments | Noxafil        
Segment Reporting Information [Line Items]        
Sales 66 100 220 291
Total Pharmaceutical segment sales | International | Operating Segments | Prevymis        
Segment Reporting Information [Line Items]        
Sales 46 23 113 55
Total Pharmaceutical segment sales | International | Operating Segments | Primaxin        
Segment Reporting Information [Line Items]        
Sales 73 75 187 204
Total Pharmaceutical segment sales | International | Operating Segments | Invanz        
Segment Reporting Information [Line Items]        
Sales 50 58 152 176
Total Pharmaceutical segment sales | International | Operating Segments | Cancidas        
Segment Reporting Information [Line Items]        
Sales 49 62 147 187
Total Pharmaceutical segment sales | International | Operating Segments | Cubicin        
Segment Reporting Information [Line Items]        
Sales 28 38 80 129
Total Pharmaceutical segment sales | International | Operating Segments | Zerbaxa        
Segment Reporting Information [Line Items]        
Sales 23 15 54 43
Total Pharmaceutical segment sales | International | Operating Segments | Simponi        
Segment Reporting Information [Line Items]        
Sales 209 203 615 625
Total Pharmaceutical segment sales | International | Operating Segments | Remicade        
Segment Reporting Information [Line Items]        
Sales 82 101 242 322
Total Pharmaceutical segment sales | International | Operating Segments | Belsomra        
Segment Reporting Information [Line Items]        
Sales 63 57 177 155
Total Pharmaceutical segment sales | International | Operating Segments | Isentress/Isentress HD        
Segment Reporting Information [Line Items]        
Sales 113 149 403 449
Total Pharmaceutical segment sales | International | Operating Segments | Zepatier        
Segment Reporting Information [Line Items]        
Sales 22 59 83 208
Total Pharmaceutical segment sales | International | Operating Segments | Zetia        
Segment Reporting Information [Line Items]        
Sales 103 142 389 432
Total Pharmaceutical segment sales | International | Operating Segments | Vytorin        
Segment Reporting Information [Line Items]        
Sales 44 52 130 219
Total Pharmaceutical segment sales | International | Operating Segments | Atozet        
Segment Reporting Information [Line Items]        
Sales 111 97 348 283
Total Pharmaceutical segment sales | International | Operating Segments | Alliance revenue - Adempas (2)        
Segment Reporting Information [Line Items]        
Sales 5 2 16 7
Total Pharmaceutical segment sales | International | Operating Segments | Adempas        
Segment Reporting Information [Line Items]        
Sales 55 57 167 158
Total Pharmaceutical segment sales | International | Operating Segments | Januvia        
Segment Reporting Information [Line Items]        
Sales 479 440 1,339 1,317
Total Pharmaceutical segment sales | International | Operating Segments | Janumet        
Segment Reporting Information [Line Items]        
Sales 400 375 1,138 1,105
Total Pharmaceutical segment sales | International | Operating Segments | Implanon/Nexplanon        
Segment Reporting Information [Line Items]        
Sales 52 62 142 160
Total Pharmaceutical segment sales | International | Operating Segments | NuvaRing        
Segment Reporting Information [Line Items]        
Sales 34 39 98 107
Total Pharmaceutical segment sales | International | Operating Segments | Singulair        
Segment Reporting Information [Line Items]        
Sales 78 140 324 479
Total Pharmaceutical segment sales | International | Operating Segments | Cozaar/Hyzaar        
Segment Reporting Information [Line Items]        
Sales 86 110 275 313
Total Pharmaceutical segment sales | International | Operating Segments | Arcoxia        
Segment Reporting Information [Line Items]        
Sales 68 72 204 221
Total Pharmaceutical segment sales | International | Operating Segments | Nasonex        
Segment Reporting Information [Line Items]        
Sales 41 55 152 224
Total Pharmaceutical segment sales | International | Operating Segments | Follistim AQ        
Segment Reporting Information [Line Items]        
Sales 31 35 76 102
Total Pharmaceutical segment sales | International | Operating Segments | Other pharmaceutical (3)        
Segment Reporting Information [Line Items]        
Sales 834 804 2,334 2,394
Total Animal Health segment sales | Operating Segments        
Segment Reporting Information [Line Items]        
Sales 1,220 1,122 3,535 3,271
Total Animal Health segment sales | Operating Segments | Livestock        
Segment Reporting Information [Line Items]        
Sales 758 726 2,145 2,007
Total Animal Health segment sales | Operating Segments | Companion Animals        
Segment Reporting Information [Line Items]        
Sales 462 396 1,390 1,264
Total Animal Health segment sales | United States | Operating Segments        
Segment Reporting Information [Line Items]        
Sales 398 337 1,124 966
Total Animal Health segment sales | United States | Operating Segments | Livestock        
Segment Reporting Information [Line Items]        
Sales 164 144 448 406
Total Animal Health segment sales | United States | Operating Segments | Companion Animals        
Segment Reporting Information [Line Items]        
Sales 234 193 676 560
Total Animal Health segment sales | International | Operating Segments        
Segment Reporting Information [Line Items]        
Sales 822 785 2,411 2,305
Total Animal Health segment sales | International | Operating Segments | Livestock        
Segment Reporting Information [Line Items]        
Sales 594 582 1,697 1,601
Total Animal Health segment sales | International | Operating Segments | Companion Animals        
Segment Reporting Information [Line Items]        
Sales 228 203 714 704
Other segment sales (4) | Operating Segments        
Segment Reporting Information [Line Items]        
Sales 0 46 23 133
Other segment sales (4) | United States | Operating Segments        
Segment Reporting Information [Line Items]        
Sales 0 46 23 133
Other segment sales (4) | International | Operating Segments        
Segment Reporting Information [Line Items]        
Sales $ 0 $ 0 $ 0 $ 1
v3.20.2
Segment Reporting - Revenues by Geographic Area (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Revenue from External Customer [Line Items]        
Sales $ 12,551 $ 12,397 $ 35,479 $ 34,972
United States        
Revenue from External Customer [Line Items]        
Sales 5,625 5,573 15,396 15,320
Europe, Middle East and Africa        
Revenue from External Customer [Line Items]        
Sales 3,454 3,189 10,059 9,452
China        
Revenue from External Customer [Line Items]        
Sales 1,016 914 2,715 2,423
Japan        
Revenue from External Customer [Line Items]        
Sales 828 919 2,506 2,639
Asia Pacific (other than China and Japan)        
Revenue from External Customer [Line Items]        
Sales 735 756 2,129 2,217
Latin America        
Revenue from External Customer [Line Items]        
Sales 604 671 1,670 1,889
Other        
Revenue from External Customer [Line Items]        
Sales $ 289 $ 375 $ 1,004 $ 1,032
v3.20.2
Segment Reporting - Profits to Income Before Taxes (Details) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Segment Reporting Information [Line Items]        
Profits $ 3,428 $ 2,347 $ 10,784 $ 8,673
Interest income 9 61 48 225
Interest expense (203) (231) (624) (674)
Depreciation and amortization     (2,721) (2,716)
Research and development (3,390) (3,204) (7,721) (7,324)
Restructuring costs (114) (232) (269) (444)
Total segment profits        
Segment Reporting Information [Line Items]        
Profits 8,424 8,168 23,347 22,678
Total segment profits | Pharmaceutical segment        
Segment Reporting Information [Line Items]        
Profits 7,974 7,747 22,010 21,437
Total segment profits | Animal Health segment        
Segment Reporting Information [Line Items]        
Profits 451 423 1,336 1,243
Total segment profits | Other segment        
Segment Reporting Information [Line Items]        
Profits (1) (2) 1 (2)
Other profits        
Segment Reporting Information [Line Items]        
Profits (12) 101 188 226
Unallocated        
Segment Reporting Information [Line Items]        
Interest income 9 61 48 225
Interest expense (203) (231) (624) (674)
Depreciation and amortization (395) (382) (1,173) (1,169)
Research and development (3,272) (3,110) (7,364) (7,045)
Amortization of purchase accounting adjustments (285) (329) (879) (1,105)
Restructuring costs (114) (232) (269) (444)
Other unallocated, net $ (724) $ (1,699) $ (2,490) $ (4,019)