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Collaborative Arrangements | 9 Months Ended
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Sep. 30, 2023
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 PLC 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 (which remained accrued at September 30, 2023) 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 nine months of 2022. Additionally, in the first nine months of 2022, Merck made a sales-based milestone payment to AstraZeneca (which had been previously accrued for) of $400 million. 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 2023, Merck made a regulatory milestone payment to AstraZeneca of $105 million (which had been previously accrued for). In the second quarter of 2023, Lynparza received a regulatory approval triggering a future milestone payment of up to $245 million from Merck to AstraZeneca. In 2022, Lynparza received regulatory approvals triggering capitalized milestone payments of $250 million from Merck to AstraZeneca (all of which were paid in the first nine months of 2022). Potential future regulatory milestone payments of $850 million remain under the agreement. The intangible asset balance related to Lynparza (which includes capitalized sales-based and regulatory milestone payments) was $1.6 billion at September 30, 2023 and is included in Other Intangibles, Net. The amount is being amortized over its estimated useful life through 2028 as supported by projected future cash flows, subject to impairment testing. Summarized financial information related to this collaboration is as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Alliance revenue - Lynparza | $ | 299 |  |  | $ | 284 |  |  | $ | 884 |  |  | $ | 825 |
Alliance revenue - Koselugo | 26 |  |  | 10 |  |  | 74 |  |  | 43 |
Total alliance revenue | $ | 325 |  |  | $ | 294 |  |  | $ | 958 |  |  | $ | 868 |
Cost of sales (1) | 82 |  |  | 64 |  |  | 230 |  |  | 425 |
Selling, general and administrative | 44 |  |  | 45 |  |  | 143 |  |  | 135 |
Research and development | 23 |  |  | 28 |  |  | 65 |  |  | 79 |
($ in millions) |  |  |  |  | September 30, 2023 |  | December 31, 2022
Receivables from AstraZeneca included in Other current assets |  |  |  |  | $ | 337 |  |  | $ | 303 |
Payables to AstraZeneca included in Accrued and other current liabilities (2) |  |  |  |  | 257 |  |  | 123 |
Payables to AstraZeneca included in Other Noncurrent Liabilities (2) |  |  |  |  | 600 |  |  | 600 |
(1) Represents amortization of capitalized milestone payments. Amount in the first nine months of 2022 includes $250 million of cumulative amortization catch-up expense as noted above. (2) Includes accrued milestone payments. Eisai Co., Ltd. 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. 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 2023, Merck determined it was probable that sales of Lenvima in the future would trigger a $125 million sales-based milestone payment from Merck to Eisai. Similarly, in the third quarter of 2023 an additional $125 million sales-based milestone payment to Eisai was deemed to be probable of payment. Accordingly, Merck recorded $250 million of liabilities for these payments and corresponding increases to the intangible asset related to Lenvima. Merck also recognized $81 million and $154 million of cumulative amortization catch-up expense related to the recognition of these milestones in the third quarter and first nine months of 2023, respectively. The sales-based milestone payment that was accrued in the first quarter of 2023 was paid to Eisai in the second quarter of 2023. In the first nine months of 2022, Merck made sales-based milestone payments to Eisai (which had been previously accrued for) aggregating $600 million. Potential future sales-based milestone payments of $2.3 billion have not yet been accrued as they are not deemed by the Company to be probable at this time. In 2022, Lenvima received regulatory approvals triggering capitalized milestone payments of $50 million from Merck to Eisai (all of which were paid in the first nine months of 2022). There are no regulatory milestone payments remaining under the agreement. The intangible asset balance related to Lenvima (which includes capitalized sales-based and regulatory milestone payments) was $743 million at September 30, 2023 and is included in Other Intangibles, Net. The amount is being amortized over its estimated useful life through 2026 as supported by projected future cash flows, subject to impairment testing. Summarized financial information related to this collaboration is as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Alliance revenue - Lenvima | $ | 260 |  |  | $ | 202 |  |  | $ | 734 |  |  | $ | 660 |
Cost of sales (1) | 137 |  |  | 53 |  |  | 320 |  |  | 159 |
Selling, general and administrative | 46 |  |  | 42 |  |  | 145 |  |  | 115 |
Research and development | 5 |  |  | 24 |  |  | 61 |  |  | 128 |
($ in millions) |  |  |  |  | September 30, 2023 |  | December 31, 2022
Receivables from Eisai included in Other current assets |  |  |  |  | $ | 260 |  |  | $ | 214 |
Payables to Eisai included in Accrued and other current liabilities (2) |  |  |  |  | 125 |  |  | — |
(1) Represents amortization of capitalized milestone payments. Amounts in the third quarter and first nine months of 2023 include $81 million and $154 million, respectively, of cumulative amortization catch-up expense as noted above. (2) Represents an accrued milestone payment. 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., the European Union (EU) and Japan in 2021 and has since been approved in several other markets. 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 the first nine months of 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 $533 million and $51 million, respectively, at September 30, 2023 and are included in Other Intangibles, Net. The assets are being amortized over their estimated useful lives (through 2027 for Adempas and through 2031 for Verquvo) as supported by projected future cash flows, subject to impairment testing. Summarized financial information related to this collaboration is as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Alliance revenue - Adempas/Verquvo | $ | 92 |  |  | $ | 88 |  |  | $ | 259 |  |  | $ | 258 |
Net sales of Adempas recorded by Merck | 65 |  |  | 57 |  |  | 189 |  |  | 181 |
Net sales of Verquvo recorded by Merck | 8 |  |  | 6 |  |  | 24 |  |  | 15 |
Total sales | $ | 165 |  |  | $ | 151 |  |  | $ | 472 |  |  | $ | 454 |
Cost of sales (1) | 53 |  |  | 55 |  |  | 165 |  |  | 158 |
Selling, general and administrative | 33 |  |  | 42 |  |  | 100 |  |  | 107 |
Research and development | 26 |  |  | 18 |  |  | 76 |  |  | 52 |
($ in millions) |  |  |  |  | September 30, 2023 |  | December 31, 2022
Receivables from Bayer included in Other current assets |  |  |  |  | $ | 157 |  |  | $ | 143 |
Payables to Bayer included in Accrued and other current liabilities |  |  |  |  | 82 |  |  | 80 |
(1) Includes amortization of intangible assets. 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 investigational orally available antiviral candidate for the treatment of patients with COVID-19. Merck gained exclusive worldwide rights to develop and commercialize Lagevrio and related molecules. Following initial authorizations in certain markets in the fourth quarter of 2021, Lagevrio has since received multiple additional authorizations worldwide. 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-sharing 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. Summarized financial information related to this collaboration is as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
($ in millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Net sales of Lagevrio recorded by Merck | $ | 640 |  |  | $ | 436 |  |  | $ | 1,236 |  |  | $ | 4,859 |
Cost of sales (1)(2) | 348 |  |  | 244 |  |  | 762 |  |  | 2,586 |
Selling, general and administrative (2) | 21 |  |  | 48 |  |  | 72 |  |  | 117 |
Research and development (2) | 8 |  |  | 18 |  |  | 33 |  |  | 74 |
($ in millions) |  |  |  |  | September 30, 2023 |  | December 31, 2022
Payables to Ridgeback included in Accrued and other current liabilities (3) |  |  |  |  | $ | 242 |  |  | $ | 348 |
(1) Includes royalty expense, amortization of capitalized milestone payments and inventory reserves. (2) Expenses include an allocation for overhead charges. (3) Includes accrued royalties. Amount at December 31, 2022 also includes an accrued milestone payment. Bristol-Myers Squibb Company Reblozyl (luspatercept-aamt) is a first-in-class erythroid maturation recombinant fusion protein that is being commercialized through a global collaboration with Bristol-Myers Squibb Company (BMS). Reblozyl is approved in the U.S., Europe and certain other markets 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. Alliance revenue related to this collaboration (recorded within Sales) consists of royalties and, for the first nine months of 2022, also includes the receipt of a regulatory approval milestone payment of $20 million. Merck recorded alliance revenue related to this collaboration of $52 million and $142 million in the third quarter and first nine months of 2023, respectively, compared with $39 million and $124 million in the third quarter and first nine months of 2022, respectively. Daiichi Sankyo In October 2023, Merck and Daiichi Sankyo entered into a global development and commercialization agreement for three of Daiichi Sankyo’s DXd ADC candidates: patritumab deruxtecan (HER3-DXd) (MK-1022), ifinatamab deruxtecan (I-DXd) (MK-2400) and raludotatug deruxtecan (R-DXd) (MK-5909). All three potentially first-in-class DXd ADCs are in various stages of clinical development for the treatment of multiple solid tumors both as monotherapy and/or in combination with other treatments. The companies will jointly develop and potentially commercialize these ADC candidates worldwide, except in Japan where Daiichi Sankyo will maintain exclusive rights. Daiichi Sankyo will be solely responsible for manufacturing and supply. Under the terms of the agreement, Merck made payments to Daiichi Sankyo totaling $4.0 billion. These payments included $1.0 billion ($500 million each for patritumab deruxtecan and ifinatamab deruxtecan) which may be refundable on a pro-rated basis in the event of early termination of development with respect to either program. In addition, the agreement provides for a continuation payment of $750 million related to patritumab deruxtecan due from Merck in October 2024 and a continuation payment of $750 million related to raludotatug deruxtecan due from Merck in October 2025. Merck may opt out of the collaboration for patritumab deruxtecan and/or raludotatug deruxtecan by electing not to pay the applicable continuation payment. If Merck opts out of patritumab deruxtecan and/or raludotatug deruxtecan, the non-refundable upfront payments already paid will be retained by Daiichi Sankyo and rights related to such DXd ADCs will be returned to Daiichi Sankyo. The agreement also provides for contingent payments from Merck to Daiichi Sankyo of up to an additional $5.5 billion for each DXd ADC upon the successful achievement of certain sales-based milestones. Following regulatory approval, Daiichi Sankyo will generally record sales worldwide (Daiichi Sankyo will be the principal on sales transactions) and the companies will equally share expenses as well as profits worldwide except for Japan where Daiichi Sankyo retains exclusive rights and Merck will receive a sales-based royalty. Merck will record its share of product sales, net of cost of sales and commercialization costs, as alliance revenue. For raludotatug deruxtecan, Merck will be responsible for 75% of the first $2.0 billion of research and development expenses; the companies will share equally all other expenses as well as profits worldwide. Merck will include its share of development costs associated with the collaboration as part of Research and development expenses.In conjunction with this transaction, Merck will record an aggregate pretax charge of $5.5 billion to Research and development expenses in the fourth quarter of 2023 for the $4.0 billion upfront payments and the $1.5 billion in continuation 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 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -SubTopic 10 -Topic 808 -Publisher FASB -URI https://asc.fasb.org//1943274/2147479402/808-10-50-1 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (b) -SubTopic 10 -Topic 808 -Publisher FASB -URI https://asc.fasb.org//1943274/2147479402/808-10-50-1 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Name Accounting Standards Codification -Topic 808 -Publisher FASB -URI https://asc.fasb.org//808/tableOfContent + Details
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