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Collaborative Arrangements | 9 Months Ended
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Sep. 30, 2018
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 entered into a global strategic oncology collaboration to co-develop and co-commercialize AstraZeneca’s Lynparza for multiple cancer types. Lynparza is an oral poly (ADP-ribose) polymerase (PARP) inhibitor currently approved for certain types of ovarian and breast cancer. The companies are jointly developing and commercializing Lynparza, both as monotherapy and in combination trials with other potential medicines. Independently, Merck and AstraZeneca will develop and commercialize Lynparza in combinations with their respective PD-1 and PD-L1 medicines, Keytruda and Imfinzi. The companies will also jointly develop and commercialize AstraZeneca’s selumetinib, an oral, potent, selective inhibitor of MEK, part of the mitogen-activated protein kinase (MAPK) pathway, currently being developed for multiple indications. Under the terms of the agreement, AstraZeneca and Merck will share the development and commercialization costs for Lynparza and selumetinib monotherapy and non-PD-L1/PD-1 combination therapy opportunities. Gross profits from Lynparza and selumetinib product sales generated through monotherapies or combination therapies are shared equally. Merck will fund all development and commercialization costs of Keytruda in combination with Lynparza or selumetinib. AstraZeneca will fund all development and commercialization costs of Imfinzi in combination with Lynparza or selumetinib. AstraZeneca is currently the principal on Lynparza sales transactions. Merck records its share of Lynparza product sales, net of cost of sales and commercialization costs, as alliance revenue within the Pharmaceutical segment and its share of development costs associated with the collaboration as part of Research and development 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 and is making payments totaling $750 million over a multi-year period for certain license options ($250 million of which was paid in 2017). The Company recorded an aggregate charge of $2.35 billion in Research and development expenses in 2017 related to the upfront payment and future license options payments. In addition, the agreement provides for additional contingent payments from Merck to AstraZeneca related to the successful achievement of regulatory and sales-based milestones. In the second quarter of 2018, Merck determined it was probable that annual sales of Lynparza in the future would trigger a $200 million sales-based milestone payment from Merck to AstraZeneca. Accordingly, in the second quarter of 2018, Merck recorded a $200 million noncurrent liability and a corresponding intangible asset and also recognized $17 million of cumulative amortization expense within Materials and production costs. Merck previously accrued a $150 million sales-based milestone in the first quarter of 2018 (along with $9 million of cumulative amortization expense) and a $100 million sales-based milestone in 2017 (which was paid in 2018). The remaining $3.65 billion of potential future sales-based milestone payments have not yet been accrued as they are not deemed by the Company to be probable at this time. In January 2018, Lynparza received approval in the United States for the treatment of certain patients with metastatic breast cancer, triggering a $70 million capitalized milestone payment from Merck to AstraZeneca. Potential future regulatory milestone payments of $1.93 billion remain under the agreement. The asset balance related to Lynparza (which includes capitalized sales-based and regulatory milestone payments) was $468 million at September 30, 2018 and is included in Other Assets on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2028 as supported by projected future cash flows, subject to impairment testing. Summarized information related to this collaboration is as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in millions) | 2018 |  | 2017 |  | 2018 |  | 2017
Alliance revenues | $ | 49 |  |  | $ | 5 |  |  | $ | 125 |  |  | $ | 5 |
Materials and production (1) | 12 |  |  | — |  |  | 48 |  |  | — |
Marketing and administrative | 12 |  |  | — |  |  | 28 |  |  | — |
Research and development (2) | 47 |  |  | 2,377 |  |  | 118 |  |  | 2,377 |
($ in millions) |  |  |  |  | September 30, 2018 |  | December 31, 2017
Receivables from AstraZeneca |  |  |  |  | $ | 46 |  |  | $ | 12 |
Payables to AstraZeneca (3) |  |  |  |  | 892 |  |  | 643 |
(1) Represents amortization of capitalized milestone payments. (2) Amounts for the third quarter and first nine months of 2017 include $2.35 billion related to the upfront payment and future license option payments. (3) Includes accrued milestone and license option payments. Eisai In March 2018, Merck and Eisai announced a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima, an orally available tyrosine kinase inhibitor discovered by Eisai. Under the agreement, Merck and Eisai will develop and commercialize Lenvima jointly, both as monotherapy and in combination with Merck’s anti-PD-1 therapy, Keytruda. Eisai records Lenvima product sales globally (Eisai is the principal on Lenvima sales transactions), and Merck and Eisai share gross profits equally. Merck records its share of Lenvima product sales, net of cost of sales and commercialization costs, as alliance revenue. Expenses incurred during co-development, including for studies evaluating Lenvima as monotherapy, are shared equally by the two companies and reflected in Research and development expenses. Under the agreement, Merck made upfront payments to Eisai of $750 million and will make payments of up to $650 million for certain option rights through 2021 ($325 million in January 2019 or earlier in certain circumstances, $200 million in January 2020 and $125 million in January 2021). The Company recorded an aggregate charge of $1.4 billion in Research and development expenses in the first nine months of 2018 related to the upfront payments and future option payments. In addition, the agreement provides for Eisai to receive up to $385 million associated with the achievement of certain clinical and regulatory milestones and up to $3.97 billion for the achievement of milestones associated with sales of Lenvima. In the third quarter of 2018, Merck determined it was probable that annual sales of Lenvima in the future would trigger a $50 million sales-based milestone payment from Merck to Eisai. Accordingly, in the third quarter of 2018, Merck recorded a $50 million noncurrent liability and a corresponding intangible asset. The remaining $3.92 billion of potential future sales-based milestone payments have not yet been accrued as they are not deemed by the Company to be probable at this time. Lenvima was approved for the treatment of patients with unresectable hepatocellular carcinoma in Japan in March 2018, in the United States and European Union in August 2018, and in China in September 2018, triggering capitalized milestone payments of $25 million, $125 million, $50 million, and $25 million, respectively, to Eisai. Potential future regulatory milestone payments of $160 million remain under the agreement. The asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestones payments) was $266 million at September 30, 2018 and is included in Other Assets on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2026 as supported by projected future cash flows, subject to impairment testing. Summarized information related to this collaboration is as follows:
($ in millions) | Three Months Ended September 30, 2018 |  | Nine Months Ended September 30, 2018
Alliance revenues | $ | 43 |  |  | $ | 78 |
Materials and production (1) | 8 |  |  | 9 |
Marketing and administrative | 5 |  |  | 7 |
Research and development (2) | 36 |  |  | 1,473 |
($ in millions) |  |  | September 30, 2018
Receivables from Eisai |  |  | $ | 42 |
Payables to Eisai (3) |  |  | 733 |
(1) Represents amortization of capitalized milestone payments. (2) Amount for the first nine months of 2018 includes $1.4 billion related to the upfront payment and future license option payments. (3) Includes accrued milestone and license option payments. Bayer AG In 2014, the Company entered into a worldwide clinical development collaboration with Bayer AG (Bayer) to market and develop soluble guanylate cyclase (sGC) modulators including Bayer’s Adempas, which is approved to treat pulmonary arterial hypertension and chronic thromboembolic pulmonary hypertension. The two companies have implemented a joint development and commercialization strategy. The collaboration also includes clinical development of Bayer’s vericiguat, which is in Phase 3 trials for worsening heart failure, as well as opt-in rights for other early-stage sGC compounds in development by Bayer. Merck in turn made available its early-stage sGC compounds under similar terms. Under the agreement, Bayer leads commercialization of Adempas in the Americas, while Merck leads commercialization in the rest of the world. For vericiguat and other potential opt-in products, Bayer will lead commercialization in the rest of world and Merck will lead in the Americas. For all products and candidates included in the agreement, both companies will share in development costs and profits on sales and will have the right to co-promote in territories where they are not the lead. In 2016, Merck began promoting and distributing Adempas in Europe. Transition from Bayer in other Merck territories, including Japan, continued in 2017. Revenue from Adempas includes sales in Merck’s marketing territories, as well as Merck’s share of profits from the sale of Adempas in Bayer’s marketing territories. In the second quarter of 2018, Merck determined it was probable that annual worldwide sales of Adempas in the future would trigger a $375 million sales-based milestone payment from Merck to Bayer. Accordingly, in the second quarter of 2018, Merck recorded a $375 million noncurrent liability and a corresponding intangible asset and also recognized $106 million of cumulative amortization expense within Materials and production costs. In 2017, annual worldwide sales of Adempas exceeded $500 million triggering a $350 million milestone payment from Merck to Bayer, which was accrued for in 2016 when Merck deemed the payment to be probable. The milestone was paid in the first quarter of 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 Adempas (which includes the remaining acquired intangible asset balance, as well as capitalized sales-based milestones payments) was $1.1 billion at September 30, 2018 and is included in Other Intangibles, Net on the Consolidated Balance Sheet. The amount is being amortized over its estimated useful life through 2027 as supported by projected future cash flows, subject to impairment testing. Summarized information related to this collaboration is as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in millions) | 2018 |  | 2017 |  | 2018 |  | 2017
Net product sales recorded by Merck | $ | 47 |  |  | $ | 38 |  |  | $ | 138 |  |  | $ | 105 |
Merck’s profit share from sales in Bayer’s marketing territories | 47 |  |  | 32 |  |  | 100 |  |  | 116 |
Total sales | 94 |  |  | 70 |  |  | 238 |  |  | 221 |
Materials and production (1) | 29 |  |  | 25 |  |  | 188 |  |  | 73 |
Marketing and administrative | 11 |  |  | 6 |  |  | 26 |  |  | 18 |
Research and development | 34 |  |  | 27 |  |  | 90 |  |  | 78 |
($ in millions) |  |  |  |  | September 30, 2018 |  | December 31, 2017
Receivables from Bayer |  |  |  |  |  | $ | 36 |  |  | $ | 33 |
Payables to Bayer (2) |  |  |  |  |  | 375 |  |  | 352 |
(1) Includes amortization of intangible assets. (2) Includes accrued milestone payments.

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- Definition Collaborative Arrangements [Abstract] + References No definition available. + Details
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- Definition The entire disclosure for collaborative arrangements in which the entity is a participant, including a) information about the nature and purpose of such arrangements; b) its rights and obligations thereunder; c) the accounting policy for collaborative arrangements; and d) the income statement classification and amounts attributable to transactions arising from the collaborative arrangement between participants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -URI http://asc.fasb.org/topic&trid=5833765 + Details
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