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Collaborative Arrangements | 3 Months Ended
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Mar. 31, 2022
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. For further details refer to Note 4 to the consolidated financial statements included in Merck’s 2021 Form 10‑K. 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 (pembrolizumab) 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. In the first quarter of 2022, Merck determined it was probable that sales of Lynparza in the future would trigger a $600 million sales-based milestone payment from Merck to AstraZeneca. Accordingly, Merck recorded a $600 million liability and a corresponding increase to the intangible asset related to Lynparza. Merck also recognized $250 million of cumulative amortization catch-up expense related to the recognition of this milestone in the first quarter of 2022. In addition, Merck made a sales-based milestone payment to AstraZeneca (which had been previously accrued for) of $400 million in the first quarter of 2022. Potential future sales-based milestone payments of $2.1 billion have not yet been accrued as they are not deemed by the Company to be probable at this time. In the first quarter of 2022, Lynparza received a regulatory approval triggering a capitalized milestone payment of $175 million from Merck to AstraZeneca, which was paid in April 2022. Potential future regulatory milestone payments of $1.3 billion remain under the agreement. The intangible asset balance related to Lynparza (which includes capitalized sales-based and regulatory milestone payments) was $1.6 billion at March 31, 2022 and is included in Other Intangibles, Net. The amount is being amortized over its estimated useful life through 2028 as supported by projected future cash flows, subject to impairment testing. Summarized financial information related to this collaboration is as follows:
| Three Months Ended March 31, |  |
($ in millions) | 2022 |  | 2021 |  |  |  |
Alliance revenue - Lynparza | $ | 266 |  |  | $ | 228 |  |  |  |  |
Alliance revenue - Koselugo | 9 |  |  | 5 |  |  |  |  |
Total alliance revenue | $ | 275 |  |  | $ | 233 |  |  |  |  |
Cost of sales (1) | 299 |  |  | 42 |  |  |  |  |
Selling, general and administrative | 44 |  |  | 40 |  |  |  |  |
Research and development | 26 |  |  | 29 |  |  |  |  |
($ in millions) | March 31, 2022 |  | December 31, 2021 |  |  |  |
Receivables from AstraZeneca included in Other current assets | $ | 275 |  |  | $ | 271 |  |  |  |  |
Payables to AstraZeneca included in Trade accounts payable and Accrued and other current liabilities (2) | 190 |  |  | 415 |  |  |  |  |
Payables to AstraZeneca included in Other Noncurrent Liabilities (2) | 600 |  |  | — |  |  |  |  |
(1) Represents amortization of capitalized milestone payments. Amount in the first quarter of 2022 includes $250 million of cumulative amortization catch-up expense as noted above. (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. In the first quarter of 2022, Merck made sales-based milestone payments to Eisai (which had been previously accrued for) aggregating $300 million. In April 2022, Merck made an additional $300 million sales-based milestone payment, which was accrued for as of March 31, 2022. 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 the first quarter of 2022, Lenvima received a regulatory approval triggering a capitalized milestone payment of $25 million from Merck to Eisai. As of March 31, 2022, regulatory milestone payments accrued but not yet paid totaled $25 million. There are no potential future regulatory milestone payments remaining under the agreement. The intangible asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $973 million at March 31, 2022 and is included in Other Intangibles, Net. The amount is being amortized over its estimated useful life through 2026 as supported by projected future cash flows, subject to impairment testing. Summarized financial information related to this collaboration is as follows:
| Three Months Ended March 31, |  |
($ in millions) | 2022 |  | 2021 |  |  |  |
Alliance revenue - Lenvima | $ | 227 |  |  | $ | 130 |  |  |  |  |
Cost of sales (1) | 53 |  |  | 47 |  |  |  |  |
Selling, general and administrative | 31 |  |  | 23 |  |  |  |  |
Research and development | 57 |  |  | 64 |  |  |  |  |
($ in millions) | March 31, 2022 |  | December 31, 2021 |  |  |  |
Receivables from Eisai included in Other current assets | $ | 241 |  |  | $ | 200 |  |  |  |  |
Payables to Eisai included in Accrued and other current liabilities (2) | 325 |  |  | 625 |  |  |  |  |
(1) Represents amortization of capitalized milestone payments. (2) 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. In January 2022, Merck made the final $400 million sales-based milestone payment under this collaboration 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 $758 million and $65 million, respectively, at March 31, 2022 and are included in Other Intangibles, Net. The assets are being amortized over their estimated useful lives (through 2027 for Adempas and through 2031 for Verquvo) as supported by projected future cash flows, subject to impairment testing. Summarized financial information related to this collaboration is as follows:
| Three Months Ended March 31, |  |
($ in millions) | 2022 |  | 2021 |  |  |  |
Alliance revenue - Adempas/Verquvo | $ | 72 |  |  | $ | 74 |  |  |  |  |
Net sales of Adempas recorded by Merck | 61 |  |  | 55 |  |  |  |  |
Net sales of Verquvo recorded by Merck | 3 |  |  | — |  |  |  |  |
Total sales | $ | 136 |  |  | $ | 129 |  |  |  |  |
Cost of sales (1) | 50 |  |  | 208 |  |  |  |  |
Selling, general and administrative | 23 |  |  | 17 |  |  |  |  |
Research and development | 17 |  |  | 7 |  |  |  |  |
($ in millions) | March 31, 2022 |  | December 31, 2021 |  |  |  |
Receivables from Bayer included in Other current assets | $ | 129 |  |  | $ | 114 |  |  |  |  |
Payables to Bayer included in Accrued and other current liabilities (2) | 74 |  |  | 472 |  |  |  |  |
(1) Includes amortization of intangible assets. Amount in the first quarter of 2021 includes $153 million of cumulative amortization catch-up expense. In addition, cost of sales includes Bayer’s share of profits from sales in Merck’s marketing territories. (2) Amount as of December 31, 2021 includes accrued milestone payment. Ridgeback Biotherapeutics LP In 2020, Merck and Ridgeback Biotherapeutics LP (Ridgeback), a closely held biotechnology company, entered into a collaboration agreement to develop Lagevrio (molnupiravir), an orally available antiviral candidate in clinical development for the treatment of patients with COVID-19. Merck gained exclusive worldwide rights to develop and commercialize Lagevrio and related molecules. Under the terms of the agreement, Ridgeback received an upfront payment and is eligible to receive future contingent payments dependent upon the achievement of certain developmental and regulatory approval milestones. The agreement also provides for Merck to reimburse Ridgeback for a portion of certain third-party contingent milestone payments and royalties on net sales, which is part of the profit share calculation. Merck is the principal on sales transactions, recognizing sales and related costs, with profit sharing amounts recorded within Cost of sales. Profits from the collaboration are split equally between the partners. Reimbursements from Ridgeback for its share of research and development costs (deducted from Ridgeback’s share of profits) are reflected as decreases to Research and development expenses. Lagevrio has received multiple authorizations or approvals worldwide and Merck has entered into advance purchase and supply agreements for Lagevrio in more than 30 markets. As of March 31, 2022, the Company has 3.4 million remaining courses to be supplied under these agreements. Summarized financial information related to this collaboration is as follows:
| Three Months Ended March 31, |  |
($ in millions) | 2022 |  | 2021 |  |  |  |
Lagevrio sales | $ | 3,247 |  |  | $ | — |  |  |  |  |
Cost of sales (1) | 1,724 |  |  | 46 |  |  |  |  |
Selling, general and administrative | 34 |  |  | 3 |  |  |  |  |
Research and development | 6 |  |  | 42 |  |  |  |  |
($ in millions) | March 31, 2022 |  | December 31, 2021 |  |  |  |
Payables to Ridgeback included in Accrued and other current liabilities (2) | $ | 1,568 |  |  | $ | 283 |  |  |  |  |
(1) Includes royalty expense and amortization of capitalized milestone payments. (2) Includes accrued royalty and milestone payments. Bristol Myers Squibb Reblozyl (luspatercept-aamt) is a first-in-class erythroid maturation recombinant fusion protein obtained as part of Merck’s November 2021 acquisition of Acceleron that is being developed and commercialized through a global collaboration with Bristol Myers Squibb (BMS). Reblozyl is approved in the U.S., Europe, Canada and Australia for the treatment of anemia in certain rare blood disorders and is also being evaluated for additional indications for hematology therapies. BMS is the principal on sales transactions for Reblozyl; however, Merck co-promotes Reblozyl (and will co-promote all future products approved under this collaboration) in North America, which is reimbursed by BMS. Merck receives a 20% sales royalty from BMS which could increase to a maximum of 24% based on sales levels. This royalty will be reduced by 50% upon the earlier of patent expiry or generic entry on an indication-by-indication basis in each market. Additionally, Merck is eligible to receive future contingent sales-based milestone payments of up to $80 million. Merck recorded alliance revenue of $52 million within Sales in the first quarter of 2022 related to this collaboration, which includes royalties of $32 million, as well as the receipt of a regulatory approval milestone payment of $20 million.

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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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