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Collaborative Arrangements | 12 Months Ended
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Dec. 31, 2021
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 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. Independently, Merck and AstraZeneca will develop and commercialize Lynparza in combinations with their respective PD-1 and PD-L1 medicines, Keytruda and Imfinzi. The companies are also jointly developing and commercializing AstraZeneca’s Koselugo (selumetinib) for multiple indications. 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. 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 and also made payments over a multi-year period for certain license options. In addition, the agreement provides for contingent payments from Merck to AstraZeneca related to the successful achievement of sales-based and regulatory milestones. Merck made sales-based milestone payments to AstraZeneca aggregating $550 million and $200 million in 2020 and 2019, respectively. As of December 31, 2021, sales-based milestone payments accrued but not yet paid totaled $400 million. Potential future sales-based milestone payments of $2.7 billion have not yet been accrued as they are not deemed by the Company to be probable at this time. In 2020 and 2019, Lynparza received regulatory approvals triggering capitalized milestone payments of $160 million and $60 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 $1.1 billion at December 31, 2021 and is included in Other Intangibles, Net. The amount is being amortized over its estimated useful life through 2028 as supported by projected future cash flows, subject to impairment testing. Summarized financial information related to this collaboration is as follows:
Years Ended December 31 | 2021 |  | 2020 |  | 2019
Alliance revenue - Lynparza | $ | 989 |  |  | $ | 725 |  |  | $ | 444 |
Alliance revenue - Koselugo | 29 |  |  | 8 |  |  | — |
Total alliance revenue | $ | 1,018 |  |  | $ | 733 |  |  | $ | 444 |
Cost of sales (1) | 167 |  |  | 247 |  |  | 148 |
Selling, general and administrative | 178 |  |  | 160 |  |  | 138 |
Research and development | 120 |  |  | 133 |  |  | 168 |
December 31 | 2021 |  | 2020 |  |
Receivables from AstraZeneca included in Other current assets | $ | 271 |  |  | $ | 215 |  |  |
Payables to AstraZeneca included in Trade a ccounts payable and Accrued and other current liabilities (2) | 415 |  |  | 423 |  |  |
(1) Represents amortization of capitalized milestone payments. (2) Includes accrued milestone payments. Eisai In 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. Under the agreement, Merck and Eisai will develop and commercialize Lenvima jointly, both as monotherapy and in combination with Keytruda. Eisai records Lenvima product sales globally (Eisai is the principal on Lenvima sales transactions) and Merck and Eisai share applicable profits equally. Merck records its share of Lenvima product sales, net of cost of sales and commercialization costs, as alliance revenue. Expenses incurred during co-development are shared by the two companies in accordance with the collaboration agreement and reflected in Research and development expenses. Certain expenses incurred solely by Merck or Eisai are not shareable under the collaboration agreement, including costs incurred in excess of agreed upon caps and costs related to certain combination studies of Keytruda and Lenvima. Under the agreement, Merck made an upfront payment to Eisai and also made payments over a multi-year period for certain option rights (of which the final $125 million option payment was made in March 2021). In addition, the agreement provides for contingent payments from Merck to Eisai related to the successful achievement of sales-based and regulatory milestones. Merck made sales-based milestone payments to Eisai aggregating $200 million, $500 million and $50 million in 2021, 2020 and 2019, respectively. As of December 31, 2021, sales-based milestone payments accrued but not yet paid totaled $600 million. Potential future sales-based milestone payments of $2.6 billion have not yet been accrued as they are not deemed by the Company to be probable at this time. In 2021 and 2020, Lenvima received regulatory approvals triggering capitalized milestone payments of $75 million and $10 million, respectively, from Merck to Eisai. As of December 31, 2021, a regulatory approval milestone payment of $25 million was accrued but not yet paid. Potential future regulatory milestone payments of $25 million remain under the agreement. The intangible asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $1.0 billion at December 31, 2021 and is included in Other Intangibles, Net. The amount is being amortized over its estimated useful life through 2026 as supported by projected future cash flows, subject to impairment testing. Summarized financial information related to this collaboration is as follows:
Years Ended December 31 | 2021 |  | 2020 |  | 2019
Alliance revenue - Lenvima | $ | 704 |  |  | $ | 580 |  |  | $ | 404 |
Cost of sales (1) | 195 |  |  | 271 |  |  | 206 |
Selling, general and administrative | 127 |  |  | 73 |  |  | 80 |
Research and development | 173 |  |  | 185 |  |  | 189 |
December 31 | 2021 |  | 2020 |  |
Receivables from Eisai included in Other current assets | $ | 200 |  |  | $ | 157 |  |  |
Payables to Eisai included in Accrued and other current liabilities (2) | 625 |  |  | 335 |  |  |
Payables to Eisai included in Other Noncurrent Liabilities (3) | — |  |  | 600 |  |  |
(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). The two companies have implemented a joint development and commercialization strategy. The collaboration also includes development of Bayer’s Verquvo (vericiguat), which was approved in the U.S. in January 2021, in Japan in June 2021 and in the EU in July 2021. Under the agreement, Bayer commercializes Adempas in the Americas, while Merck commercializes in the rest of the world. For Verquvo, Merck commercializes in the U.S. and Bayer commercializes in the rest of the world. Both companies share in development costs and profits on sales. Merck records sales of Adempas and Verquvo in its marketing territories, as well as alliance revenue. Alliance revenue represents Merck’s share of profits from sales of Adempas and Verquvo in Bayer’s marketing territories, which are product sales net of cost of sales and commercialization costs. Cost of sales includes Bayer’s share of profits from sales in Merck’s marketing territories. In addition, the agreement provided for contingent payments from Merck to Bayer related to the successful achievement of sales-based milestones. Merck made a sales-based milestone payment to Bayer of $375 million in 2020. In 2021, following the approval of Verquvo noted above, Merck determined it was probable that sales of Adempas and Verquvo in the future would trigger the remaining $400 million sales-based milestone payment that was outstanding under this agreement. Accordingly, Merck recorded a liability of $400 million and a corresponding increase to the intangible assets related to this collaboration. Merck also recognized $153 million of cumulative amortization catch-up expense related to the recognition of this milestone in 2021. In January 2022, Merck made this final milestone payment to Bayer. The intangible asset balances related to Adempas (which includes the acquired intangible asset balance, as well as capitalized sales-based milestone payments attributed to Adempas) and Verquvo (which reflects the portion of the final sales-based milestone payment that was attributed to Verquvo) were $806 million and $68 million, respectively, at December 31, 2021 and are included in Other Intangibles, Net. The assets are being amortized over their estimated useful lives (through 2027 for Adempas and through 2031 for Verquvo) as supported by projected future cash flows, subject to impairment testing. Summarized financial information related to this collaboration is as follows:
Years Ended December 31 | 2021 |  | 2020 |  | 2019
Alliance revenue - Adempas/Verquvo | $ | 342 |  |  | $ | 281 |  |  | $ | 204 |
Net sales of Adempas recorded by Merck | 252 |  |  | 220 |  |  | 215 |
Net sales of Verquvo recorded by Merck | 7 |  |  | — |  |  | — |
Total sales | $ | 601 |  |  | $ | 501 |  |  | $ | 419 |
Cost of sales (1) | 424 |  |  | 196 |  |  | 188 |
Selling, general and administrative | 126 |  |  | 47 |  |  | 34 |
Research and development | 53 |  |  | 63 |  |  | 126 |
December 31 | 2021 |  | 2020 |  |
Receivables from Bayer included in Other current assets | $ | 114 |  |  | $ | 65 |  |  |
Payables to Bayer included in Accrued and other current Liabilities (2) | 472 |  |  | — |  |  |
(1) Includes amortization of intangible assets. Amount in 2021 includes $153 million of cumulative amortization catch-up expense as noted above. In addition, cost of sales in all periods now includes Bayer’s share of profits from sales in Merck’s marketing territories. (2) Includes accrued milestone payment. Ridgeback Biotherapeutics LP In July 2020, Merck and Ridgeback, a closely held biotechnology company, entered into a collaboration agreement to develop molnupiravir (MK-4482), an orally available antiviral candidate 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 received an upfront payment and is eligible to receive future contingent payments dependent upon the achievement of certain developmental and regulatory approval milestones. The agreement also provides for Merck to reimburse Ridgeback for a portion of certain third-party contingent milestone payments and royalties on net sales, which is part of the profit share calculation. Merck is the principal on sales transactions, recognizing sales and related costs, with profit sharing amounts recorded within Cost of sales. Profits from the collaboration are split equally between the partners. Reimbursements from Ridgeback for its share of research and development costs (deducted from Ridgeback’s share of profits) are reflected as decreases to Research and development expenses. In December 2021, the FDA granted EUA for molnupiravir. Under a previously announced procurement agreement with the U.S. government, Merck agreed to supply 3.1 million courses of molnupiravir to the U.S. government upon EUA or approval from the FDA, of which approximately 888,000 courses were delivered in 2021. This procurement of molnupiravir is being supported in whole or in part with federal funds. Additionally, in December 2021, Japan’s Ministry of Health, Labor and Welfare granted Special Approval for Emergency in Japan for molnupiravir. Under a supply agreement, the Japanese government will purchase 1.6 million courses of molnupiravir, of which approximately 200,000 courses were delivered in 2021. Also, in November 2021, the Medicines and Healthcare products Regulatory Agency in the United Kingdom (UK) granted conditional marketing authorization for molnupiravir. The UK government has committed to purchase a total of 2.23 million courses of molnupiravir, of which approximately 152,000 courses were delivered in 2021. Merck has entered into advance purchase and supply agreements for molnupiravir in more than 30 markets. Merck and Ridgeback are committed to providing timely access to molnupiravir globally through a comprehensive supply and access approach, which includes investing at risk to produce millions of courses of therapy; tiered pricing based on the ability of governments to finance health care; entering into supply agreements with governments as noted above; allocating up to 3 million courses of therapy to the United Nations Children’s Fund (UNICEF) for use in adults; and granting voluntary licenses to generic manufacturers and to the Medicines Patent Pool (MPP) to make generic molnupiravir available in more than 100 low- and middle-income countries following local regulatory authorizations or approvals. Merck, Ridgeback and Emory University will not receive royalties for sales of molnupiravir under the MPP agreement (molnupiravir was invented at Emory University and licensed to Ridgeback) for as long as COVID-19 remains classified as a Public Health Emergency of International Concern by the World Health Organization. Summarized financial information related to this collaboration is as follows:
Years Ended December 31 | 2021 |  | 2020
Molnupiravir sales | $ | 952 |  |  | $ | — |
Cost of sales (1) | 494 |  |  | 13 |
Selling, general and administrative | 33 |  |  | 6 |
Research and development (2) | 60 |  |  | 323 |
December 31 | 2021 |  | 2020
Payables to Ridgeback included in Accrued and other current liabilities (3) | $ | 283 |  |  | $ | 3 |
(1) Includes royalty expense and amortization of capitalized milestone payments. (2) Amount in 2020 includes upfront payment. (3) Includes accrued royalty and milestone payments.

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6931272&loc=SL5834143-161434 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=6931272&loc=SL5834143-161434 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -URI http://asc.fasb.org/topic&trid=5833765 + Details
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