Merck & Co., Inc.

Company Overview

Business Model: Merck & Co., Inc. is a global health care company that delivers innovative health solutions through its prescription medicines, including biologic therapies, vaccines, and animal health products. The Company's operations are principally managed on a product basis and include two reportable segments: Pharmaceutical and Animal Health. The Pharmaceutical segment focuses on human health pharmaceutical and vaccine products, generally sold by prescription to drug wholesalers, retailers, hospitals, government agencies, and managed health care providers. 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 livestock and companion animals, including digitally connected identification, traceability, and monitoring products.

Market Position: Merck & Co., Inc. operates in highly competitive and regulated markets, facing competition from other worldwide research-based pharmaceutical companies, smaller research firms, generic drug manufacturers, and animal health care companies. The Company maintains its competitive position through a strong emphasis on research and development, effective marketing, and strategic external alliances. Its success is influenced by product innovation, quality, pricing, and the ability to manage generic and biosimilar competition.

Recent Strategic Developments:

• Product Launches & Approvals:
  • Launched Enflonsia in the U.S. in June 2025 for the prevention of respiratory syncytial virus (RSV) lower respiratory tract disease in neonates and infants.
  • Launched Keytruda Qlex, a subcutaneously-administered fixed combination of pembrolizumab, in the U.S. in September 2025 across most adult solid tumor indications. The European Commission (EC) approved a new subcutaneous route of administration for Keytruda (marketed as Keytruda SC) in November 2025.
  • Received U.S. Food and Drug Administration (FDA) approval for an expanded indication for Winrevair in adults with pulmonary arterial hypertension (PAH) in October 2025.
  • Welireg received approvals in the European Union (EU) and Japan for certain von Hippel-Lindau (VHL) disease-associated tumors and renal cell carcinoma (RCC), and in the U.S. for pheochromocytoma and paraganglioma.
  • Capvaxive was approved in the EU in March 2025 and in Japan in August 2025.
  • Gardasil and Gardasil 9 received approvals in China for use in males (January and April 2025, respectively) and the nine-valent HPV vaccine was approved in Japan for males in August 2025.
  • Bravecto Quantum, a once-yearly injectable product for fleas and ticks in dogs, was approved by the FDA in July 2025.
• Business Development & Acquisitions:
  • Entered into an agreement to acquire Cidara Therapeutics, Inc. for approximately $9.2 billion (closed January 2026), adding MK-1406 (a long-acting antiviral for influenza) to the pipeline.
  • Acquired Verona Pharma plc for $10.4 billion in October 2025, obtaining Ohtuvayre, a product approved for the maintenance treatment of chronic obstructive pulmonary disease (COPD).
  • Closed an exclusive license agreement for MK-7262 (HRS-5346), an investigational oral small molecule Lipoprotein(a) inhibitor, from Jiangsu Hengrui Pharmaceuticals Co., Ltd. in May 2025.
  • Acquired sole global rights to MK-8690, an investigational anti-CD30 ligand monoclonal antibody, from Dr. Falk Pharma GmbH in November 2025.
  • Entered into a funding arrangement with Blackstone Life Sciences for up to $700 million to fund a portion of the Company’s development costs for MK-2870 (sacituzumab tirumotecan).
• Capital Allocation & Strategic Initiatives:
  • The Board of Directors approved an increase to the quarterly dividend to $0.85 per share in November 2025.
  • Authorized a new share repurchase program of up to $10 billion in January 2025.
  • Entered into a three-year agreement (MFN Agreement) with the U.S. government in December 2025, addressing drug pricing goals, including direct-to-patient programs for key products and "most-favored-nation" pricing for new products.
  • Reached an agreement with the U.S. Department of Commerce to delay Section 232 tariffs for three years, enabling investments in U.S. manufacturing.

Geographic Footprint: Merck & Co., Inc. conducts significant operations globally.

• Primary Operational Regions: United States, Europe, Middle East, Africa, Latin America, and Asia Pacific (including Japan and China).
• Sales Distribution (2025): The United States accounted for 56.2% of total sales ($36.51 billion), while international markets represented 43.8% ($28.50 billion). Key international regions include Europe, Middle East and Africa (22.4%), Latin America (5.2%), Asia Pacific (excluding Japan and China) (4.6%), Japan (4.2%), and China (3.0%).
• Facilities: Corporate headquarters are in Rahway, New Jersey. Principal U.S. research facilities are located in New Jersey, Pennsylvania, Massachusetts, California, and Nebraska. International research facilities are in the United Kingdom, Switzerland, and China. Production facilities for human health products are in the U.S., Puerto Rico, Western Europe, Africa, and Asia.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 74.8% (2025)
• Operating Margin: 32.4% (2025)
• Net Margin: 28.1% (2025)

Investment in Growth:

• R&D Expenditure: $15.79 billion (24.3% of revenue) in 2025, a 12% decrease from $17.94 billion in 2024, primarily due to lower charges for business development activity.
• Capital Expenditures: $4.11 billion in 2025, an increase from $3.37 billion in 2024. Merck & Co., Inc. plans to invest approximately $20 billion in capital projects from 2025-2029, with over $12 billion allocated to the U.S.
• Strategic Investments: Major investment initiatives in 2025 included the acquisition of Verona Pharma plc for $10.4 billion, the acquisition of WuXi Vaccines' Dundalk, Ireland facility for $437 million, and upfront payments for licensing agreements with Jiangsu Hengrui Pharmaceuticals Co., Ltd. ($200 million) and Dr. Falk Pharma GmbH ($150 million).

Business Segment Analysis

Pharmaceutical Segment

Financial Performance:

• Revenue: $58.14 billion (+1.3% YoY) in 2025.
• Key Growth Drivers: Growth in oncology, cardiometabolic and respiratory, and diabetes franchises.
• Offsetting Factors: Declines in vaccines, immunology (due to marketing rights reversion), and virology.

Product Portfolio:

• Oncology:
  • Keytruda/Keytruda Qlex: $31.68 billion (+7% YoY) in 2025. Growth driven by higher demand and net pricing in the U.S. across earlier-stage and metastatic indications, and increased uptake in international markets.
  • Alliance revenue - Lynparza: $1.45 billion (+11% YoY) in 2025, primarily due to higher global demand.
  • Alliance revenue - Lenvima: $1.05 billion (+4% YoY) in 2025, driven by higher U.S. demand.
  • Welireg: $716 million (+41% YoY) in 2025, reflecting higher U.S. demand and international launch uptake.
  • Alliance revenue - Reblozyl: $525 million (+41% YoY) in 2025, due to strong underlying sales performance.
  • Alliance revenue - Koselugo: $436 million in 2025, significantly increased due to a $150 million upfront payment and $175 million in regulatory approval milestones from an amended collaboration agreement.
• Vaccines:
  • Gardasil/Gardasil 9: $5.23 billion (-39% YoY) in 2025. Decline primarily due to lower demand in China (shipments paused since February 2025) and Japan.
  • ProQuad/M-M-R II/Varivax: Combined sales of $2.45 billion (+1% YoY) in 2025.
  • Vaxneuvance: $825 million (+2% YoY) in 2025, driven by higher demand in Europe and Asia Pacific.
  • Capvaxive: $759 million (significant increase from $97 million in 2024) in 2025, due to continued U.S. uptake and early international launch.
  • Enflonsia: $100 million in 2025, from U.S. launch and inventory stocking.
• Hospital Acute Care:
  • Bridion: $1.84 billion (+4% YoY) in 2025. U.S. market exclusivity is expected to be lost in July 2026.
  • Prevymis: $978 million (+25% YoY) in 2025, due to higher demand in the U.S. and international markets.
  • Dificid: $247 million (-27% YoY) in 2025, due to generic competition in the U.S.
• Cardiometabolic and Respiratory:
  • Winrevair: $1.44 billion (significant increase from $419 million in 2024) in 2025, reflecting strong U.S. uptake and early international launch.
  • Alliance revenue - Adempas/Verquvo: $470 million (+13% YoY) in 2025.
  • Ohtuvayre: $178 million in 2025, following the acquisition of Verona Pharma plc.
• Virology:
  • Lagevrio: $380 million (-61% YoY) in 2025, due to lower demand in Asia Pacific and the U.S.
• Immunology:
  • Simponi & Remicade: Sales ceased in 2025 as marketing rights reverted to Johnson & Johnson in October 2024.
• Diabetes:
  • Januvia/Janumet: $2.54 billion (+12% YoY) in 2025, primarily due to higher U.S. net pricing. U.S. market exclusivity for Januvia and Janumet is expected to be lost in May 2026 and July 2026, respectively, with government price setting for Januvia effective January 1, 2026, and for Janumet/Janumet XR effective January 1, 2027.

Animal Health Segment

Financial Performance:

• Revenue: $6.35 billion (+8.1% YoY) in 2025.
• Key Growth Drivers: Increased demand across all species, sales from the acquisition of Elanco Animal Health Incorporated's aqua business, improved supply, new product launches, and higher pricing.

Product Portfolio:

• Livestock: $3.90 billion (+13% YoY) in 2025.
• Companion Animal: $2.46 billion (+2% YoY) in 2025. Sales of the Bravecto line of products were $1.1 billion (+1% YoY).

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $5.1 billion (approximately 59 million shares) in 2025.
• Dividend Payments: $8.2 billion in 2025.
• Future Capital Return Commitments: In January 2025, Merck & Co., Inc.'s Board of Directors authorized a new share repurchase program of up to $10 billion of common stock, with $7.3 billion remaining as of December 31, 2025. The quarterly dividend was increased to $0.85 per share in November 2025.

Balance Sheet Position:

• Cash and Equivalents: $13.80 billion as of December 31, 2025.
• Total Debt: $49.55 billion as of December 31, 2025.
• Net Cash Position: -$35.75 billion.
• Debt Maturity Profile: Aggregate maturities of long-term debt are $2.6 billion in 2026, $2.7 billion in 2027, $2.1 billion in 2028, $3.0 billion in 2029, and $2.7 billion in 2030. Interest payments for 2026 are $1.8 billion.
• Credit Facility: A $6.0 billion credit facility matures in May 2030 and remains undrawn.

Cash Flow Generation:

• Operating Cash Flow: $16.47 billion in 2025, a decrease from $21.47 billion in 2024. This decline reflects higher income tax payments ($6.1 billion in 2025 vs. $3.9 billion in 2024) and increased upfront and milestone payments related to collaborations, licensing agreements, and acquisitions ($3.0 billion in 2025 vs. $1.1 billion in 2024).

Operational Excellence

Production & Service Model: Merck & Co., Inc. is committed to discovering and developing innovative medicines and vaccines, ensuring a high-quality, safe, and reliable supply. The Company employs a "green-by-design" development strategy to create innovative, cost-efficient manufacturing processes with low environmental impact, aiming to minimize material use and waste from commercial manufacturing.

Supply Chain Architecture: Key Suppliers & Partners:

• Raw Materials: The Company obtains raw materials from numerous suppliers worldwide, with most principal materials available from multiple sources. Certain raw or intermediate materials are sourced primarily from a single supplier, with potential risks mitigated through inventory and supplier management.
• Manufacturing Partners: The Company acquired the Dundalk, Ireland facility of WuXi Vaccines in March 2025.
• Technology Partners: Halozyme, Inc. is a partner for the formulation of subcutaneous pembrolizumab.

Facility Network:

• Manufacturing: Corporate headquarters in Rahway, New Jersey, with human health production facilities in the U.S. and Puerto Rico, and international plants in Western Europe, Africa, and Asia. The Company is actively optimizing its global manufacturing network through restructuring programs.
• Research & Development: Principal U.S. research facilities are located in Rahway, New Jersey; West Point, Pennsylvania; Boston and Cambridge, Massachusetts; South San Francisco, California; and Elkhorn, Nebraska (Animal Health). International research facilities are in the United Kingdom, Switzerland, and China.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Professional representatives engage with health care professionals in private practice, group practices, hospitals, and managed care organizations.
• Channel Partners:
  • Pharmaceutical Segment: Primarily sells to drug wholesalers, retailers, hospitals, government agencies, and managed health care providers. Human health vaccines are sold to physicians, wholesalers, distributors, and government entities, including the U.S. Centers for Disease Control and Prevention Vaccines for Children program.
  • Animal Health Segment: Products are sold to veterinarians, distributors, animal producers, farmers, and pet owners.
• Digital Platforms: The Animal Health segment offers an extensive suite of digitally connected identification, traceability, and monitoring products.

Customer Portfolio: Enterprise Customers:

• Tier 1 Clients: McKesson Corporation, Cencora, Inc., and Cardinal Health, Inc. represented approximately 22%, 21%, and 13%, respectively, of total accounts receivable at December 31, 2025.
• Strategic Partnerships: Merck & Co., Inc. engages in collaborations with various pharmaceutical and biotechnology companies, including AstraZeneca PLC, Eisai Co., Ltd., Bayer AG, Ridgeback Biotherapeutics LP, Bristol-Myers Squibb Company, Daiichi Sankyo, and Moderna, Inc.
• Customer Concentration: The Company has significant customer concentration with three major U.S. wholesalers, representing 56% of total accounts receivable.

Geographic Revenue Distribution:

• United States: $36.51 billion (56.2% of total revenue) in 2025.
• Europe, Middle East and Africa: $14.58 billion (22.4% of total revenue) in 2025.
• Latin America: $3.41 billion (5.2% of total revenue) in 2025.
• Asia Pacific (other than Japan and China): $2.98 billion (4.6% of total revenue) in 2025.
• Japan: $2.71 billion (4.2% of total revenue) in 2025.
• China: $1.94 billion (3.0% of total revenue) in 2025.
• Growth Markets: The Company continues to focus on emerging markets, recognizing their potential for growth despite inherent risks such as political instability and currency fluctuations.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The pharmaceutical industry is highly competitive and extensively regulated, characterized by a continuous pursuit of technological innovations and long R&D investment cycles. Global healthcare cost containment efforts, including government-mandated pricing actions and the increasing influence of managed care organizations, exert significant pressure on product pricing and market access. The market is also experiencing increased competition from lower-cost generic and biosimilar products.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• Research-based pharmaceutical companies: Other global pharmaceutical companies, smaller research companies with limited therapeutic focus.
• Generic drug manufacturers: Companies that produce lower-cost generic versions of Merck & Co., Inc.'s products upon patent expiration (e.g., impacting Januvia, Janumet, Bridion, Dificid, Prevymis).
• Biosimilar manufacturers: Companies developing biosimilar versions of biologic products (e.g., expected for Keytruda between 2028 and 2029).
• Animal health care companies: Competitors in the veterinary pharmaceutical and vaccine markets.

Emerging Competitive Threats:

• New market entrants, including local manufacturers in key international markets (e.g., a nine-valent HPV vaccine produced by a local manufacturer in China).
• Disruptive technologies and alternative solutions that may diminish the value or demand for existing products (e.g., market shift towards newer adult pneumococcal conjugate vaccines impacting Pneumovax 23).
• Increasing challenges to patent rights by competitors.

Competitive Response Strategy:

• Continuous Innovation: Sustained investment in R&D to develop and launch new products and expand indications for existing ones.
• Strategic Alliances: Actively pursuing and leveraging external collaborations, licensing arrangements, and acquisitions to enhance the pipeline and product portfolio.
• Market Adaptation: Refining sales and marketing efforts to respond to evolving industry conditions and customer needs.
• Intellectual Property Defense: Vigorously defending patent rights against infringement and challenges.
• Operational Efficiency: Implementing restructuring and optimization programs to manage costs and improve operational performance.
• Policy Advocacy: Engaging with policymakers to advocate for sustainable healthcare financing and market access for innovative medicines and vaccines.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Generic and Biosimilar Competition: Significant and rapid loss of sales is anticipated upon the loss of market exclusivity for key products, including Bridion (U.S. in July 2026), Januvia and Janumet (U.S. in May 2026), Janumet XR (U.S. in July 2026), and Keytruda (U.S. biosimilar competition expected 2028-2029, Europe in 2031).
• Pricing Pressure: Continued global pricing pressure from managed care organizations, government agencies, and programs. This includes the U.S. Inflation Reduction Act (IRA) leading to government price setting for Januvia (effective January 1, 2026), Janumet and Janumet XR (effective January 1, 2027), and Lenvima (effective January 1, 2028), with Keytruda expected to be selected in 2027 (effective January 1, 2029). International markets also face government-mandated price reductions.
• Health Care Cost Containment: Government and third-party cost-reduction measures, such as the expansion of the 340B Federal Drug Discount Program and the elimination of the Medicaid rebate cap, negatively affect sales and profits.
• Demand Volatility: Lower demand for products due to various factors, such as the significant decline in sales of Gardasil/Gardasil 9 in China (shipments paused since February 2025) and reduced demand for Lagevrio due to declining COVID-19 cases.
• Technology Disruption: Risks from technological advances by competitors, competitive combination products, and new product introductions.
• Customer Concentration: A significant portion of accounts receivable is concentrated with three major U.S. wholesalers (McKesson Corporation, Cencora, Inc., and Cardinal Health, Inc.).
• Foreign Exchange Fluctuations: Exposure to currency fluctuations in global operations can negatively affect earnings and cash flows.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Supplier Dependency: Reliance on single sources for certain raw or intermediate materials.
• Manufacturing Difficulties: Potential for manufacturing shutdowns, product shortages, and delays due to non-compliance with regulations, construction delays, or capacity constraints. Biologics and vaccines, in particular, involve complex manufacturing processes and long lead times.
• Capacity Constraints: Delays related to the construction of new facilities or the expansion of existing facilities.

Financial & Regulatory Risks

Market & Financial Risks:

• Economic Sensitivity: Adverse effects from local and global economic conditions, including inflation, interest rates, and costs of raw materials and packaging.
• Tax Strategy: Exposure to evolving and complex tax laws, including ongoing IRS examinations (e.g., proposed $1.3 billion increase in transition tax for 2017-2018), the global minimum tax provision of OECD Pillar 2, and potential changes in U.S. tax law.
• Credit & Liquidity: Not disclosed.

Regulatory & Compliance Risks:

• Industry Regulation: Extensive regulation by numerous federal, state, and local governmental authorities globally (e.g., FDA, EMA, PMDA, NMPA). Failure to obtain or maintain regulatory approval or significant delays in the approval process can prevent product commercialization.
• Post-Approval Developments: Unexpected safety or efficacy concerns, product recalls, withdrawals, or adverse labeling can significantly reduce demand and lead to product liability claims.
• Health Care Reform: The U.S. healthcare industry is subject to increasing regulation and political action, including the IRA, the American Rescue Plan Act, and state-level pricing controls.
• Vaccine Recommendations: Changes in immunization schedules and recommendations by health authorities (e.g., CDC's January 2026 announcement regarding HPV, varicella, and hepatitis B vaccinations) could impact vaccine uptake and sales.
• Data Privacy: Subject to numerous and evolving privacy and data protection laws globally (e.g., GDPR, U.S. state laws, China's framework, U.S. Department of Justice's Data Security Program), leading to increased compliance burdens and potential liabilities.
• Legal Proceedings: Involvement in various claims and legal proceedings, including product liability lawsuits (e.g., Dr. Scholl’s Foot Powder, Gardasil/Gardasil 9), governmental investigations (e.g., DOJ Civil Investigative Demands), securities litigation, commercial litigation (e.g., Zetia, RotaTeq, Bravecto, Merck KGaA), and patent litigation (e.g., Bridion, Januvia/Janumet, Keytruda, Lenvima, Subcutaneous Pembrolizumab, Lynparza, Capvaxive).

Geopolitical & External Risks

Geopolitical Exposure:

• Geographic Dependencies: Operations in developing areas (Latin America, Middle East, Africa, Eastern Europe, Asia Pacific) carry risks such as political instability, changes in trade sanctions, currency fluctuations, and financial crises.
• Trade Relations: Impact of trade protection measures, tariffs, and policy changes (e.g., Section 232 tariffs, MFN Agreement).
• Sanctions & Export Controls: Compliance requirements and business limitations due to trade restrictions.
• Climate Change: Potential negative effects on business, including increased operating costs due to regulatory requirements, physical risks to facilities (e.g., extreme weather), water limitations, and supply chain disruptions.

Innovation & Technology Leadership

Research & Development Focus: Merck & Co., Inc. prioritizes R&D efforts on breakthrough science for unmet medical needs, aiming to deliver unambiguous, promotable advantages to patients and payers. The Company's R&D model is designed to increase productivity and improve the probability of success by focusing resources on high-value candidates and maximizing the value of approved medicines and vaccines through new indications and formulations. External alliances are a key component of its pipeline strategy. Core Technology Areas:

• Oncology: Immuno-oncology (e.g., Keytruda, V940 intismeran autogene, MK-1308A quavonlimab), precision molecular targeting (e.g., MK-1026 nemtabrutinib, MK-1084 calderasib, MK-3543 bomedemstat, MK-5684 opevesostat, Welireg, Lynparza), and tissue targeting (e.g., MK-1022 patritumab deruxtecan, MK-2140 zilovertamab vedotin, MK-2400 ifinatamab deruxtecan, MK-2870 sacituzumab tirumotecan, MK-5909 raludotatug deruxtecan).
• Vaccines: Preventive pediatric, adolescent, and adult vaccines (e.g., Gardasil/Gardasil 9, Vaxneuvance, Capvaxive, Enflonsia).
• Cardiometabolic and Respiratory: Treatments for PAH (Winrevair, Adempas), heart failure (Verquvo), COPD (Ohtuvayre), and hypercholesterolemia (MK-0616 enlicitide decanoate).
• Infectious Diseases: HIV-1 (MK-8591A, MK-8591D, MK-8527), COVID-19 (Lagevrio), influenza (MK-1406), dengue (V181), and RSV (Enflonsia).
• Immunology: Treatments for inflammatory bowel disease (MK-7240 tulisokibart).
• Ophthalmology: Treatments for diabetic macular edema (MK-3000). Innovation Pipeline: The Company has approximately 80 Phase 3 studies underway. Key candidates under regulatory review or in late-stage development include MK-8591A (HIV-1), Enflonsia (RSV), Winrevair (PAH), Keytruda/Keytruda Qlex (multiple cancer indications), Welireg (RCC), V940 (melanoma, NSCLC), MK-0616 (hypercholesterolemia), V181 (dengue), MK-3000 (diabetic macular edema), MK-1406 (influenza), and MK-7240 (Crohn’s disease, ulcerative colitis).

Intellectual Property Portfolio:

• Patent Strategy: Patent protection is considered materially important, covering products, formulations, processes, and methods of treatment. Patents are subject to patent term restoration (PTE, SPC) and pediatric exclusivity provisions. The Company actively defends its patent rights against challenges.
• Patent Holdings: Key U.S. patent protection for marketed products includes Januvia/Janumet (exclusivity through May/July 2026), Bridion (exclusivity through July 2026), Keytruda (compound patent expires 2028), Keytruda Qlex (expires 2043), Welireg (expires 2035), Capvaxive (expires 2038), and Enflonsia (expires 2039).
• Licensing Programs: Generated $1.5 billion in royalty income from patent and know-how licenses in 2025, while incurring $1.9 billion in royalty expenses.
• IP Litigation: The Company is involved in various patent disputes, including challenges to its patents and claims of infringement against it, related to products such as Bridion, Januvia/Janumet, Keytruda, Lenvima, Subcutaneous Pembrolizumab, Lynparza, and Capvaxive.

Technology Partnerships: Merck & Co., Inc. engages in strategic alliances and research collaborations with numerous partners, including AstraZeneca PLC, Eisai Co., Ltd., Bayer AG, Ridgeback Biotherapeutics LP, Bristol-Myers Squibb Company, Daiichi Sankyo, Moderna, Inc., Kelun-Biotech, Taiho Pharmaceutical Co. Ltd., Astex Pharmaceuticals (UK), Jiangsu Hengrui Pharmaceuticals Co., Ltd., Dr. Falk Pharma GmbH, Orion Corporation, Gilead Sciences Inc., and Blackstone Life Sciences.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The Company is managing leadership transitions with the upcoming retirements of Sanat Chattopadhyay and Joseph Romanelli, and the appointments of David R. Maraldo and Brian Foard to key executive roles.

Board Composition: The Audit Committee of the Board of Directors is comprised entirely of independent directors.

Human Capital Strategy

Workforce Composition:

• Total Employees: Approximately 75,000 worldwide as of December 31, 2025.
• Geographic Distribution: Approximately 30,000 employees in the U.S., including Puerto Rico.
• Skill Mix: Approximately 24,700 employees are engaged in research activities.
• Contractors: Approximately 15,000 third-party contractors globally.
• Collective Bargaining: Approximately 21% of employees worldwide are covered by collective bargaining agreements.
• Voluntary Turnover Rate: Approximately 4.8% for 2025.

Talent Management: Acquisition & Retention:

• Hiring Strategy: The Company employs a comprehensive approach to recruiting and leadership development, hiring approximately 6,800 people globally in 2025 through various channels.
• Employee Value Proposition: Compensation and benefits programs are designed to attract, retain, and motivate talent, focusing on fairness, flexibility, quality, security, and affordability. The Company's U.S. benefits rank in the top quartile of Fortune’s Most Admired Companies and 100 Best Companies to Work For (Aon 2025 Benefits Index).

Diversity & Development:

• Development Programs: Continuous development of leadership and management skills, building workforce capabilities, and providing continuous learning and technical/functional training.
• Culture & Engagement: Fosters an environment of respect, engagement, and empowerment, emphasizing collaboration.

Environmental & Social Impact

Environmental Commitments: Climate Strategy:

• Emissions Targets: Committed to reducing Scope 1 and 2 operational greenhouse gas (GHG) emissions by 46% by 2030 (from a 2019 baseline) and Scope 3 GHG emissions by 30% by 2030 (from a 2019 baseline).
• Carbon Neutrality: Committed to a net-zero target for GHG emissions across global operations (Scopes 1, 2, and 3) by 2045, aligned with Science Based Targets initiative (SBTi) guidelines.
• Renewable Energy: Continues to source 100% of its purchased electricity from renewable sources.
• Climate Risk Integration: Potential impacts of climate change, such as increased operating costs, physical risks to facilities, water limitations, and supply chain disruptions, are integrated into business planning. Supply Chain Sustainability:
• Supplier Engagement: Engages suppliers through initiatives like the Sustainability Partner Exchange to reinforce expectations, drive partnerships, and accelerate GHG reduction activities across the value chain. Social Impact Initiatives:
• Community Investment: Supports philanthropic programs and impact investing to strengthen health systems and reduce barriers to quality care. Key initiatives include the Merck Patient Assistance Program, the Mectizan Donation Program, and Merck for Mothers.
• Employee Well-being: Committed to improving employee and family health and well-being, offering flexible work arrangements, onsite services, enhanced cancer screening benefits, and a global minimum of 12 weeks of paid parental leave.
• Governance: The Environmental, Health and Safety Council (EHS Council) oversees environmental sustainability strategy, policy, and risk mitigation, with regular reporting to the Board of Directors and senior management.

Business Cyclicality & Seasonality

Demand Patterns:

• Economic Sensitivity: The Company's business may be adversely affected by local and global economic conditions, including inflation, interest rates, and raw material costs. Healthcare cost containment measures by governments and third parties can reduce product demand or pricing.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations:

• U.S. (FDA): Subject to extensive FDA requirements covering testing, approval, safety, effectiveness, manufacturing, labeling, and marketing. The FDA offers expedited development and review pathways, including Fast Track, Breakthrough Therapy, Accelerated Approval, Priority Review, and the Commissioner’s National Priority Voucher pilot program. Emergency Use Authorizations (EUAs) are utilized for public health emergencies (e.g., Lagevrio).
• EU (EMA, EC): Products are subject to the centralized procedure for marketing authorization, with post-authorization conditions and the EU Health Technology Assessment Regulation 2021/2282 (HTAR) influencing pricing and reimbursement. New EU pharmaceutical legislation is expected to impact medicine availability and potentially pricing.
• Japan (PMDA, MHLW): The pharmaceutical industry is subject to government-mandated annual price reductions and re-pricing for specific products.
• China (NMPA): Strict regulations for drug approval, with government reforms accelerating the shift to innovative products but also increasing pricing pressure through National Reimbursement Drug List (NRDL) negotiations and volume-based procurement (VBP). Trade & Export Controls:
• Export Restrictions: The Company is exposed to trade protection measures, import/export licensing requirements, and trade sanctions. Legal Proceedings:
• Material Litigation: The Company is involved in various legal proceedings, including product liability lawsuits (e.g., Dr. Scholl’s Foot Powder, Gardasil/Gardasil 9), governmental investigations (e.g., U.S. Department of Justice Civil Investigative Demands), securities litigation (related to Gardasil/Gardasil 9), commercial litigation (e.g., Zetia antitrust, RotaTeq antitrust, Bravecto, Merck KGaA), and patent litigation (e.g., Bridion, Januvia/Janumet, Keytruda, Lenvima, Subcutaneous Pembrolizumab, Lynparza, Capvaxive).
• Regulatory Investigations: Inquiries from Chinese governmental agencies regarding operations.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: The effective income tax rate was 13.3% in 2025, influenced by a favorable jurisdictional mix of income and expense, and certain discrete items.
• Geographic Tax Planning: The Company benefits from operations in jurisdictions with lower effective tax rates than the U.S., including Switzerland, the Netherlands, Ireland, Singapore, and Puerto Rico, which operate under tax incentive grants.
• Tax Reform Impact: Subject to the global minimum tax provision of the Organization for Economic Cooperation and Development (OECD) Pillar 2, effective in 2024.
• IRS Examinations: The Internal Revenue Service (IRS) is conducting examinations of the Company’s tax returns for 2017, 2018 (including proposed adjustments of approximately $1.3 billion for transition tax and $260 million in penalties, which the Company contests), 2021, and 2022.
• Unrecognized Tax Benefits: Totaled $2.5 billion at December 31, 2025.
• Interest and Penalties: Amounted to $106 million in 2025.

Insurance & Risk Transfer

Risk Management Framework:

• Insurance Coverage: Merck & Co., Inc. self-insures substantially all of its product liability risk due to the limited availability and high cost of commercial insurance.
• Risk Transfer Mechanisms: The Company utilizes various financial instruments, including derivative instruments (revenue hedging, balance sheet risk management, and net investment hedging programs), to manage exposure to foreign exchange rate and interest rate movements. Foreign currency debt is also used as an economic hedge for net investments in foreign operations.