filings.toolsItem 1. Business.
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Item 1. Business.
Merck & Co., Inc. (Merck or the Company) is a global health care company that delivers innovative health solutions through its prescription medicines, vaccines, biologic therapies and animal health products. The Company’s operations are principally managed on a products basis and include four operating segments, which are the Pharmaceutical, Animal Health, Healthcare Services and Alliances segments.
The Pharmaceutical segment includes human health pharmaceutical and vaccine products. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Human health vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices. The Company sells these human health vaccines primarily to physicians, wholesalers, physician distributors and government entities.
The Animal Health segment discovers, develops, manufactures and markets animal health products, including pharmaceutical and vaccine products, for the prevention, treatment and control of disease in all major livestock and companion animal species, which the Company sells to veterinarians, distributors and animal producers.
The Healthcare Services segment provides services and solutions that focus on engagement, health analytics and clinical services to improve the value of care delivered to patients.
The Alliances segment primarily includes results from the Company’s relationship with AstraZeneca LP related to sales of Nexium and Prilosec, which concluded in 2018.
The Company was incorporated in New Jersey in 1970.
All product or service marks appearing in type form different from that of the surrounding text are trademarks or service marks owned, licensed to, promoted or distributed by Merck, its subsidiaries or affiliates, except as noted. All other trademarks or services marks are those of their respective owners.
Product Sales
Total Company sales, including sales of the Company’s top pharmaceutical products, as well as sales of animal health products, were as follows:
| ($ in millions) | 2018 | 2017 | 2016 | ||||||||
| Total Sales | $ | 42,294 | $ | 40,122 | $ | 39,807 | |||||
| Pharmaceutical | 37,689 | 35,390 | 35,151 | ||||||||
| Keytruda | 7,171 | 3,809 | 1,402 | ||||||||
| Januvia/Janumet | 5,914 | 5,896 | 6,109 | ||||||||
| Gardasil/Gardasil 9 | 3,151 | 2,308 | 2,173 | ||||||||
| ProQuad/M-M-R II/Varivax | 1,798 | 1,676 | 1,640 | ||||||||
| Zetia/Vytorin | 1,355 | 2,095 | 3,701 | ||||||||
| Isentress/Isentress HD | 1,140 | 1,204 | 1,387 | ||||||||
| Bridion | 917 | 704 | 482 | ||||||||
| Pneumovax 23 | 907 | 821 | 641 | ||||||||
| NuvaRing | 902 | 761 | 777 | ||||||||
| Simponi | 893 | 819 | 766 | ||||||||
| Animal Health | 4,212 | 3,875 | 3,478 | ||||||||
| Livestock | 2,630 | 2,484 | 2,287 | ||||||||
| Companion Animals | 1,582 | 1,391 | 1,191 | ||||||||
| Other Revenues(1) | 393 | 857 | 1,178 |
| (1) | Other revenues are primarily comprised of Healthcare Services segment revenue, third-party manufacturing sales, and miscellaneous corporate revenues, including revenue hedging activities. |
Pharmaceutical
The Pharmaceutical segment includes human health pharmaceutical and vaccine products. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. Human health vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices. Certain of the products within the Company’s franchises are as follows:
Oncology
Keytruda (pembrolizumab), the Company’s anti-PD-1 (programmed death receptor-1) therapy, as monotherapy for the treatment of certain patients with non-small-cell lung cancer (NSCLC), melanoma, classical Hodgkin Lymphoma (cHL), urothelial carcinoma, head and neck squamous cell carcinoma (HNSCC), gastric or gastroesophageal junction adenocarcinoma, and microsatellite instability-high (MSI-H) or mismatch repair deficient cancer, and in combination with chemotherapy in certain patients with NSCLC. Keytruda is also used in the United States for monotherapy treatment of certain patients with cervical cancer, primary mediastinal large B-cell lymphoma (PMBCL), hepatocellular carcinoma, and Merkel cell carcinoma, and in combination with chemotherapy for patients with squamous NSCLC; Emend (aprepitant) for the prevention of chemotherapy-induced and post-operative nausea and vomiting; and Temodar (temozolomide) (marketed as Temodal outside the United States), a treatment for certain types of brain tumors. In addition, the Company recognizes alliance revenue related to sales of Lynparza (olaparib), an oral poly (ADP-ribose) polymerase (PARP) inhibitor, for certain types of ovarian and breast cancer; and Lenvima (lenvatinib) for certain types of thyroid cancer, hepatocellular carcinoma, and in combination for certain patients with renal cell carcinoma.
Vaccines
Gardasil (Human Papillomavirus Quadrivalent [Types 6, 11, 16 and 18] Vaccine, Recombinant)/Gardasil 9 (Human Papillomavirus 9-valent Vaccine, Recombinant), vaccines to help prevent certain diseases caused by certain types of human papillomavirus (HPV); ProQuad (Measles, Mumps, Rubella and Varicella Virus Vaccine Live), a pediatric combination vaccine to help protect against measles, mumps, rubella and varicella; M-M-R II (Measles, Mumps and Rubella Virus Vaccine Live), a vaccine to help prevent measles, mumps and rubella; Varivax (Varicella Virus Vaccine Live), a vaccine to help prevent chickenpox (varicella); Pneumovax 23 (pneumococcal vaccine polyvalent), a vaccine to help prevent pneumococcal disease; RotaTeq (Rotavirus Vaccine, Live Oral, Pentavalent), a vaccine to help protect against rotavirus gastroenteritis in infants and children; and Zostavax (Zoster Vaccine Live), a vaccine to help prevent shingles (herpes zoster).
Hospital Acute Care
Bridion (sugammadex) Injection, a medication for the reversal of two types of neuromuscular blocking agents used during surgery; Noxafil (posaconazole) for the prevention of invasive fungal infections; Invanz (ertapenem sodium) for the treatment of certain infections; Cubicin (daptomycin for injection), an I.V. antibiotic for complicated skin and skin structure infections or bacteremia, when caused by designated susceptible organisms; Cancidas (caspofungin acetate), an anti-fungal product; Primaxin (imipenem and cilastatin sodium), an anti-bacterial product; and Zerbaxa (ceftolozane and tazobactam) is currently approved in the United States for the treatment of adult patients with complicated urinary tract infections caused by certain susceptible Gram-negative microorganisms, and is also indicated, in combination with metronidazole, for the treatment of adult patients with complicated intra-abdominal infections caused by certain susceptible Gram-negative and Gram-positive microorganisms.
Immunology
Simponi (golimumab), a once-monthly subcutaneous treatment for certain inflammatory diseases; and Remicade (infliximab), a treatment for inflammatory diseases, which the Company markets in Europe, Russia and Turkey.
Neuroscience
Belsomra (suvorexant), an orexin receptor antagonist indicated for the treatment of insomnia, characterized by difficulties with sleep onset and/or sleep maintenance.
Virology
Isentress/Isentress HD (raltegravir), an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection; and Zepatier (elbasvir and grazoprevir) for the treatment of adult patients with chronic hepatitis C virus (HCV) genotype (GT) 1 or GT4 infection, with ribavirin in certain patient populations.
Cardiovascular
Zetia (ezetimibe) (marketed as Ezetrol in most countries outside the United States); Vytorin (ezetimibe/simvastatin) (marketed as Inegy outside the United States); Atozet (ezetimibe and atorvastatin) (marketed in certain countries outside of the United States) and Rosuzet (ezetimibe and rosuvastatin) (marketed in certain countries outside of the United States), cholesterol modifying medicines; and Adempas (riociguat), a cardiovascular drug for the treatment of pulmonary arterial hypertension.
Diabetes
Januvia (sitagliptin) and Janumet (sitagliptin/metformin HCl) for the treatment of type 2 diabetes.
Women’s Health
NuvaRing (etonogestrel/ethinyl estradiol vaginal ring), a vaginal contraceptive product; and Implanon (etonogestrel implant), a single-rod subdermal contraceptive implant/Nexplanon (etonogestrel implant), a single, radiopaque, rod-shaped subdermal contraceptive implant.
Animal Health
The Animal Health segment discovers, develops, manufactures and markets animal health products, including pharmaceutical and vaccine products, for the prevention, treatment and control of disease in all major livestock and companion animal species. Principal products in this segment include:
Livestock Products
Nuflor (Florfenicol) antibiotic range for use in cattle and swine; Bovilis/Vista vaccine lines for infectious diseases in cattle; Banamine (Flunixin meglumine) bovine and swine anti-inflammatory; Estrumate (cloprostenol sodium) for the treatment of fertility disorders in cattle; Matrix (altrenogest) fertility management for swine; Resflor (florfenicol and flunixin meglumine), a combination broad-spectrum antibiotic and non-steroidal anti-inflammatory drug for bovine respiratory disease; Zuprevo (Tildipirosin) for bovine respiratory disease; Zilmax (zilpaterol hydrochloride) and Revalor (trenbolone acetate and estradiol) to improve production efficiencies in beef cattle; Safe-Guard (fenbendazole) de-wormer for cattle; M+Pac (Mycoplasma Hyopneumoniae Bacterin) swine pneumonia vaccine; Porcilis (Lawsonia intracellularis baterin) and Circumvent (Porcine Circovirus Vaccine, Type 2, Killed Baculovirus Vector) vaccine lines for infectious diseases in swine; Nobilis/Innovax (Live Marek’s Disease Vector), vaccine lines for poultry; Paracox and Coccivac coccidiosis vaccines; Exzolt, a systemic treatment for poultry red mite infestations; Slice (Emamectin benzoate) parasiticide for sea lice in salmon; Aquavac (Avirulent Live Culture)/Norvax vaccines against bacterial and viral disease in fish; Compact PD vaccine for salmon; and Aquaflor (Florfenicol) antibiotic for farm-raised fish.
Companion Animal Products
Bravecto (fluralaner), a line of oral and topical products that kills fleas and ticks in dogs and cats for up to 12 weeks; Nobivac vaccine lines for flexible dog and cat vaccination; Otomax (Gentamicin sulfate, USP; Betamethasone valerate USP; and Clotrimazole USP ointment)/Mometamax (Gentamicin sulfate, USP, Mometasone Furoate Monohydrate and Clotrimazole, USP, Otic Suspension)/Posatex (Orbifloxacin, Mometasone Furoate Monohydrate and Posaconazole, Suspension) ear ointments for acute and chronic otitis; Caninsulin/Vetsulin (porcine insulin zinc suspension) diabetes mellitus treatment for dogs and cats; Panacur (fenbendazole)/Safeguard (fenbendazole) broad-spectrum anthelmintic (de-wormer) for use in many animals; Regumate (altrenogest) fertility management for horses; Prestige vaccine line for horses; and Scalibor (Deltamethrin)/Exspot for protecting against bites from fleas, ticks, mosquitoes and sandflies.
For a further discussion of sales of the Company’s products, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.
2018 Product Approvals
Set forth below is a summary of significant product approvals received by the Company in 2018.
| Product | Date | Approval |
| Keytruda | December 2018 | The Japanese Ministry of Health, Labor and Welfare (JMHLW) approved Keytruda for three expanded uses in unresectable, advanced or recurrent NSCLC, one in malignant melanoma, as well as a new indication in high microsatellite instability solid tumors. |
| December 2018 | The U.S. Food and Drug Administration (FDA) approved Keytruda for the treatment of adult and pediatric patients with recurrent locally advanced or metastatic Merkel cell carcinoma. | |
| December 2018 | The European Commission (EC) approved Keytruda for the adjuvant treatment of adults with stage III melanoma and lymph node involvement who have undergone complete resection. | |
| November 2018 | FDA approved Keytruda for the treatment of patients with hepatocellular carcinoma who have been previously treated with sorafenib. | |
| October 2018 | FDA approved Keytruda, in combination with carboplatin and either paclitaxel or nab-paclitaxel, for the first-line treatment of patients with metastatic squamous non-small cell lung cancer (NSCLC). | |
| September 2018 | EC approved Keytruda in combination with pemetrexed and platinum chemotherapy for the first-line treatment of metastatic nonsquamous NSCLC in adults whose tumors have no EGFR or ALK positive mutations. | |
| September 2018 | EC approved Keytruda for the treatment of recurrent or metastatic head and neck squamous cell carcinoma (HNSCC) in adults whose tumors express PD-L1 with a ≥ 50% TPS and progressing on or after platinum-containing chemotherapy. | |
| August 2018 | FDA approved Keytruda in combination with pemetrexed and platinum chemotherapy for the first-line treatment of metastatic nonsquamous NSCLC patients with no EGFR or ALK genomic tumor aberrations. | |
| July 2018 | The China National Drug Administration (CNDA) approved Keytruda for the treatment of adult patients with unresectable or metastatic melanoma following failure of one prior line of therapy. | |
| June 2018 | FDA approved Keytruda for the treatment of adult and pediatric patients with refractory primary mediastinal large B-cell lymphoma (PMBCL), or who have relapsed after two or more prior lines of therapy. | |
| June 2018 | FDA approved Keytruda for the treatment of patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy whose tumors express PD-L1 as determined by an FDA-approved test. | |
| Lynparza(1) | December 2018 | FDA approved Lynparza for use as maintenance treatment of certain patients with advanced ovarian, fallopian tube or primary peritoneal cancer who are in complete or partial response to first-line platinum-based chemotherapy. |
| July 2018 | JMHLW approved Lynparza for use in patients with unresectable or recurrent BRCA-mutated, human epidermal growth factor receptor 2 (HER2)-negative breast cancer who have received prior chemotherapy. | |
| May 2018 | EC approved Lynparza for use as a maintenance therapy in patients with platinum-sensitive relapsed high grade epithelial ovarian, fallopian tube, or primary peritoneal cancer, who are in response (complete or partial) to platinum based chemotherapy regardless of BRCA mutation status. | |
| January 2018 | FDA approved Lynparza for use in patients with BRCA-mutated, HER2-negative metastatic breast cancer who have been previously treated with chemotherapy. | |
| January 2018 | JMHLW approved Lynparza for use as a maintenance therapy in patients with platinum-sensitive relapsed ovarian cancer, regardless of BRCA mutation status. |
| Lenvima(2) | September 2018 | CNDA approved Lenvima for the treatment of certain patients with hepatocellular carcinoma. |
| August 2018 | FDA approved Lenvima for the treatment of certain patients with hepatocellular carcinoma. | |
| August 2018 | EC approved Lenvima for the treatment of certain patients with hepatocellular carcinoma. | |
| March 2018 | JMHLW approved Lenvima for the treatment of certain patients with unresectable hepatocellular carcinoma. | |
| Gardasil 9 | October 2018 | FDA approved Gardasil 9 for an expanded age indication for use in women and men ages 27 to 45 for the prevention of certain cancers and diseases caused by the nine HPV types covered by the vaccine. |
| April 2018 | CNDA approved Gardasil 9 for use in girls and women ages 16 to 26. | |
| Delstrigo | November 2018 | EC approved Delstrigo (doravirine, lamivudine, and tenofovir disoproxil fumarate) for the treatment of adults infected with human immunodeficiency virus (HIV-1) without past or present evidence of resistance to the non-nucleoside reverse transcriptase inhibitor (NNRTI) class, lamivudine, or tenofovir. |
| August 2018 | FDA approved Delstrigo for the treatment of HIV-1 infection in adult patients with no prior antiretroviral treatment experience. | |
| Pifeltro | November 2018 | EC approved Pifeltro (doravirine), in combination with other antiretroviral medicinal products, for the treatment of adults infected with HIV-1 without past or present evidence of resistance to the NNRTI class. |
| August 2018 | FDA approved Pifeltro for the treatment of HIV-1 infection in adult patients with no prior antiretroviral treatment experience. | |
| Isentress | March 2018 | EC approved Isentress for an extension to the existing indication to cover treatment of neonates. Isentress is now indicated in combination with other anti-retroviral medicinal products for the treatment of HIV-1 infection. |
| Prevymis | January 2018 | EC approved Prevymis (letermovir) for the prophylaxis of cytomegalovirus (CMV) reactivation and disease in adult CMV-seropositive recipients [R+] of an allogeneic hematopoietic stem cell transplant. |
| Steglatro, Steglujan and Segluromet(3) | March 2018 | EC approved Steglatro (ertugliflozin), Steglujan (ertugliflozin and sitagliptin) and Segluromet (ertugliflozin and metformin hydrochloride) for the treatment of adults aged 18 years and older with type 2 diabetes mellitus as an adjunct to diet and exercise to improve glycaemic control (as monotherapy in patients for whom the use of metformin is considered inappropriate due to intolerance or contraindications, and in addition to other medicinal products for the treatment of diabetes). |
| Vaxelis | December 2018 | FDA approved Vaxelis (Diphtheria and Tetanus Toxoids and Acellular Pertussis Adsorbed, Inactivated Poliovirus, Haemophilus b Conjugate [Meningococcal Protein Conjugate] and Hepatitis B [Recombinant] Vaccine) for use in children from 6 weeks through 4 years of age (prior to the 5th birthday) |
| (1) | In July 2017, Merck and AstraZeneca entered into a global strategic oncology collaboration to co-develop and co-commercialize AstraZeneca’s Lynparza. |
| (2) | In March 2018, Merck and Eisai Co., Ltd. announced a strategic collaboration for the worldwide co-development and co-commercialization of Eisai’s Lenvima. |
| (3) | In 2013, Merck and Pfizer Inc. announced that they entered into a worldwide collaboration, except Japan, for the co-development and co-promotion of ertugliflozin. |
Competition and the Health Care Environment
Competition
The markets in which the Company conducts its business and the pharmaceutical industry in general are highly competitive and highly regulated. The Company’s competitors include other worldwide research-based pharmaceutical companies, smaller research companies with more limited therapeutic focus, generic drug manufacturers and animal health care companies. The Company’s operations may be adversely affected by generic and biosimilar competition as the Company’s products mature, as well as technological advances of competitors, industry consolidation,
patents granted to competitors, competitive combination products, new products of competitors, the generic availability of competitors’ branded products, and new information from clinical trials of marketed products or post-marketing surveillance. In addition, patent rights are increasingly being challenged by competitors, and the outcome can be highly uncertain. An adverse result in a patent dispute can preclude commercialization of products or negatively affect sales of existing products and could result in the payment of royalties or in the recognition of an impairment charge with respect to intangible assets associated with certain products. Competitive pressures have intensified as pressures in the industry have grown.
Pharmaceutical competition involves a rigorous search for technological innovations and the ability to market these innovations effectively. With its long-standing emphasis on research and development, the Company is well-positioned to compete in the search for technological innovations. Additional resources required to meet market challenges include quality control, flexibility to meet customer specifications, an efficient distribution system and a strong technical information service. The Company is active in acquiring and marketing products through external alliances, such as licensing arrangements and collaborations, and has been refining its sales and marketing efforts to address changing industry conditions. However, the introduction of new products and processes by competitors may result in price reductions and product displacements, even for products protected by patents. For example, the number of compounds available to treat a particular disease typically increases over time and can result in slowed sales growth or reduced sales for the Company’s products in that therapeutic category.
The highly competitive animal health business is affected by several factors including regulatory and legislative issues, scientific and technological advances, product innovation, the quality and price of the Company’s products, effective promotional efforts and the frequent introduction of generic products by competitors.
Health Care Environment and Government Regulation
Global efforts toward health care cost containment continue to exert pressure on product pricing and market access. In the United States, federal and state governments for many years also have pursued methods to reduce the cost of drugs and vaccines for which they pay. For example, federal laws require the Company to pay specified rebates for medicines reimbursed by Medicaid and to provide discounts for outpatient medicines purchased by certain Public Health Service entities and hospitals serving a disproportionate share of low income or uninsured patients.
Against this backdrop, the United States enacted major health care reform legislation in 2010 (the Patient Protection and Affordable Care Act (ACA)). Various insurance market reforms have since advanced and state and federal insurance exchanges were launched in 2014. With respect to the effect of the law on the pharmaceutical industry, the law increased the mandated Medicaid rebate from 15.1% to 23.1%, expanded the rebate to Medicaid managed care utilization, and increased the types of entities eligible for the federal 340B drug discount program. The law also requires pharmaceutical manufacturers to pay a 50% point of service discount to Medicare Part D beneficiaries when they are in the Medicare Part D coverage gap (i.e., the so-called “donut hole”). Approximately $365 million, $385 million and $415 million was recorded by Merck as a reduction to revenue in 2018, 2017 and 2016, respectively, related to the donut hole provision. Beginning in 2019, the 50% point of service discount will increase to a 70% point of service discount in the coverage gap, as a result of the Balanced Budget Act of 2018. In addition, the 70% point of service discount will be extended to biosimilar products. Also, pharmaceutical manufacturers are now required to pay an annual non-tax deductible health care reform fee. The total annual industry fee was $4.1 billion in 2018 and will decrease to $2.8 billion in 2019 and is currently planned to remain at that amount thereafter. The fee is assessed on each company in proportion to its share of prior year branded pharmaceutical sales to certain government programs, such as Medicare and Medicaid. The Company recorded $124 million, $210 million and $193 million of costs within Selling, general and administrative expenses in 2018, 2017 and 2016, respectively, for the annual health care reform fee. In February 2016, the Centers for Medicare & Medicaid Services (CMS) issued the Medicaid rebate final rule that implements provisions of the ACA effective April 1, 2016. The rule provides comprehensive guidance on the calculation of Average Manufacturer Price and Best Price; two metrics utilized to determine the rebates drug manufacturers are required to pay to state Medicaid programs. The impact of changes resulting from the issuance of the rule is not material to Merck at this time. However, the Company is still awaiting guidance from CMS on two aspects of the rule that were deferred for later implementation. These include a definition of what constitutes a product ‘line extension’ and a delay in the participation of the U.S. Territories in the Medicaid Drug Rebate Program until April 1, 2020. The Company will evaluate the financial impact of these two elements when they become effective.
There is significant uncertainty about the future of the ACA in particular and health care laws in general in the United States. The Company is participating in the debate, and monitoring how any proposed changes could affect its business. The Company is unable to predict the likelihood of changes to the ACA. Depending on the nature of any repeal and replacement of the ACA, such actions could have a material adverse effect on the Company’s business, cash flow, results of operations, financial position and prospects.
A number of states have passed pharmaceutical price and cost transparency laws. These laws typically require manufacturers to report certain product price information or other financial data to the state. In the case of a California law, manufacturers also are required to provide advance notification of price increases. The Company expects that states will continue their focus on pharmaceutical price transparency and that this focus will continue to exert pressure on product pricing.
The Company also faces increasing pricing pressure globally from managed care organizations, government agencies and programs that could negatively affect the Company’s sales and profit margins. In the United States, these include (i) practices of managed care organizations, federal and state exchanges, and institutional and governmental purchasers, and (ii) U.S. federal laws and regulations related to Medicare and Medicaid, including the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and the ACA.
Changes to the health care system enacted as part of health care reform in the United States, as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, could result in further pricing pressures. As an example, health care reform is contributing to an increase in the number of patients in the Medicaid program under which sales of pharmaceutical products are subject to substantial rebates.
In addition, in the effort to contain the U.S. federal deficit, the pharmaceutical industry could be considered a potential source of savings via legislative proposals that have been debated but not enacted. These types of revenue generating or cost saving proposals include additional direct price controls in the Medicare prescription drug program (Part D). In addition, Congress may again consider proposals to allow, under certain conditions, the importation of medicines from other countries. It remains very uncertain as to what proposals, if any, may be included as part of future federal budget deficit reduction proposals that would directly or indirectly affect the Company.
In the U.S. private sector, consolidation and integration among health care providers is a major factor in the competitive marketplace for pharmaceutical products. Health plans and pharmacy benefit managers have been consolidating into fewer, larger entities, thus enhancing their purchasing strength and importance. Private third-party insurers, as well as governments, increasingly employ formularies to control costs by negotiating discounted prices in exchange for formulary inclusion. Failure to obtain timely or adequate pricing or formulary placement for Merck’s products or obtaining such placement at unfavorable pricing could adversely impact revenue. In addition to formulary tier co-pay differentials, private health insurance companies and self-insured employers have been raising co-payments required from beneficiaries, particularly for branded pharmaceuticals and biotechnology products. Private health insurance companies also are increasingly imposing utilization management tools, such as clinical protocols, requiring prior authorization for a branded product if a generic product is available or requiring the patient to first fail on one or more generic products before permitting access to a branded medicine. These same management tools are also used in treatment areas in which the payer has taken the position that multiple branded products are therapeutically comparable. As the U.S. payer market concentrates further and as more drugs become available in generic form, pharmaceutical companies may face greater pricing pressure from private third-party payers.
In order to provide information about the Company’s pricing practices, the Company annually posts on its website its Pricing Transparency Report for the United States. The report provides the Company’s average annual list price and net price increases across the Company’s U.S. portfolio dating back to 2010.
Efforts toward health care cost containment also remain intense in European countries. The Company faces competitive pricing pressure resulting from generic and biosimilar drugs. In addition, a majority of countries in Europe attempt to contain drug costs by engaging in reference pricing in which authorities examine pre-determined markets for published prices of drugs by brand. The authorities then use price data from those markets to set new local prices for brand-name drugs, including the Company’s. Guidelines for examining reference pricing are usually set in local markets and can be changed pursuant to local regulations.
In addition, in Japan, the pharmaceutical industry is subject to government-mandated biennial price reductions of pharmaceutical products and certain vaccines, which occurred in 2018. Furthermore, the government can order repricings for classes of drugs if it determines that it is appropriate under applicable rules.
Certain markets outside of the United States have also implemented other cost management strategies, such as health technology assessments (HTA), which require additional data, reviews and administrative processes, all of which increase the complexity, timing and costs of obtaining product reimbursement and exert downward pressure on available reimbursement. In the United States, HTAs are also being used by government and private payers.
The Company’s focus on emerging markets has continued. Governments in many emerging markets are also focused on constraining health care costs and have enacted price controls and related measures, such as compulsory licenses, that aim to put pressure on the price of pharmaceuticals and constrain market access. The Company anticipates that pricing pressures and market access challenges will continue in 2019 to varying degrees in the emerging markets.
Beyond pricing and market access challenges, other conditions in emerging market countries can affect the Company’s efforts to continue to grow in these markets, including potential political instability, changes in trade sanctions and embargoes, significant currency fluctuation and controls, financial crises, limited or changing availability of funding for health care, and other developments that may adversely impact the business environment for the Company. Further, the Company may engage third-party agents to assist in operating in emerging market countries, which may affect its ability to realize continued growth and may also increase the Company’s risk exposure.
In addressing cost containment pressures, the Company engages in public policy advocacy with policymakers and continues to work to demonstrate that its medicines provide value to patients and to those who pay for health care. The Company advocates with government policymakers to encourage a long-term approach to sustainable health care financing that ensures access to innovative medicines and does not disproportionately target pharmaceuticals as a source of budget savings. In markets with historically low rates of health care spending, the Company encourages those governments to increase their investments and adopt market reforms in order to improve their citizens’ access to appropriate health care, including medicines.
Operating conditions have become more challenging under the global pressures of competition, industry regulation and cost containment efforts. Although no one can predict the effect of these and other factors on the Company’s business, the Company continually takes measures to evaluate, adapt and improve the organization and its business practices to better meet customer needs and believes that it is well-positioned to respond to the evolving health care environment and market forces.
The pharmaceutical industry is also subject to regulation by regional, country, state and local agencies around the world focused on standards and processes for determining drug safety and effectiveness, as well as conditions for sale or reimbursement.
Of particular importance is the FDA in the United States, which administers requirements covering the testing, approval, safety, effectiveness, manufacturing, labeling, and marketing of prescription pharmaceuticals. In some cases, the FDA requirements and practices have increased the amount of time and resources necessary to develop new products and bring them to market in the United States. At the same time, the FDA has committed to expediting the development and review of products bearing the “breakthrough therapy” designation, which has accelerated the regulatory review process for medicines with this designation. The FDA has also undertaken efforts to bring generic competition to market more efficiently and in a more timely manner.
The European Union (EU) has adopted directives and other legislation concerning the classification, labeling, advertising, wholesale distribution, integrity of the supply chain, enhanced pharmacovigilance monitoring and approval for marketing of medicinal products for human use. These provide mandatory standards throughout the EU, which may be supplemented or implemented with additional regulations by the EU member states. The Company’s policies and procedures are already consistent with the substance of these directives; consequently, it is believed that they will not have any material effect on the Company’s business.
The Company’s business in China has grown rapidly in the past few years, and the importance of China to the Company’s overall pharmaceutical and vaccines business has increased accordingly. Continued growth of the Company’s business in China is dependent upon ongoing development of a favorable environment for innovative pharmaceutical products and vaccines, sustained access for the Company’s current in-line products, and the absence
of trade impediments or adverse pricing controls. In recent years, the Chinese government has introduced and implemented a number of structural reforms to accelerate the shift to innovative products and reduce costs. Since 2017, there have been multiple new policies introduced by the government to improve access to new innovation, reduce the complexity of regulatory filings, and accelerate the review and approval process. This has led to a significant expansion of the new products being approved each year. Additionally, in 2017, the government updated the National Reimbursement Drug List for the first time in eight years. While the mechanism for drugs being added to the list evolves, it is likely that in the future, inclusion will require a price negotiation which could impact the outlook in the market for selected brands. While pricing pressure has always existed in China, health care reform has led to the acceleration of generic substitution, through a pilot tendering process for mature products that have generic substitutes with a Generic Quality Consistency Evaluation approval.
The Company believes that it will continue to be able to conduct its operations, including launching new drugs, in this regulatory environment. (See “Research and Development” below for a discussion of the regulatory approval process.)
Access to Medicines
As a global health care company, Merck’s primary role is to discover and develop innovative medicines and vaccines. The Company also recognizes that it has an important role to play in helping to improve access to its products around the world. The Company’s efforts in this regard are wide-ranging and include a set of principles that the Company strives to embed into its operations and business strategies to guide the Company’s worldwide approach to expanding access to health care. In addition, the Company has many far-reaching philanthropic programs. The Merck Patient Assistance Program provides medicines and adult vaccines for free to people in the United States who do not have prescription drug or health insurance coverage and who, without the Company’s assistance, cannot afford their Merck medicine and vaccines. In 2011, Merck launched “Merck for Mothers,” a long-term effort with global health partners to end preventable deaths from complications of pregnancy and childbirth. Merck has also provided funds to the Merck Foundation, an independent organization, which has partnered with a variety of organizations dedicated to improving global health.
Privacy and Data Protection
The Company is subject to a significant number of privacy and data protection laws and regulations globally, many of which place restrictions on the Company’s ability to transfer, access and use personal data across its business. The legislative and regulatory landscape for privacy and data protection continues to evolve. There has been increased attention to privacy and data protection issues in both developed and emerging markets with the potential to affect directly the Company’s business, including the new EU General Data Protection Regulation, which went into effect on May 25, 2018 and imposes penalties up to 4% of global revenue. Additional laws and regulations enacted in the United States, Europe, Asia and Latin America, increases enforcement and litigation activity in the United States and other developed markets, and increases regulatory cooperation among privacy authorities globally. The Company has adopted a comprehensive global privacy program to manage these evolving risks which has been certified as compliant with and approved by the Asia Pacific Economic Cooperation Cross-Border Privacy Rules System, the EU-U.S. Privacy Shield Program, and the Binding Corporate Rules in the EU.
Distribution
The Company sells its human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers, such as health maintenance organizations, pharmacy benefit managers and other institutions. Human health vaccines are sold primarily to physicians, wholesalers, physician distributors and government entities. The Company’s professional representatives communicate the effectiveness, safety and value of the Company’s pharmaceutical and vaccine products to health care professionals in private practice, group practices, hospitals and managed care organizations. The Company sells its animal health products to veterinarians, distributors and animal producers.
Raw Materials
Raw materials and supplies, which are generally available from multiple sources, are purchased worldwide and are normally available in quantities adequate to meet the needs of the Company’s business.
Patents, Trademarks and Licenses
Patent protection is considered, in the aggregate, to be of material importance to the Company’s marketing of its products in the United States and in most major foreign markets. Patents may cover products per se, pharmaceutical formulations, processes for or intermediates useful in the manufacture of products or the uses of products. Protection for individual products extends for varying periods in accordance with the legal life of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent and its scope of coverage.
The Food and Drug Administration Modernization Act includes a Pediatric Exclusivity Provision that may provide an additional six months of market exclusivity in the United States for indications of new or currently marketed drugs if certain agreed upon pediatric studies are completed by the applicant. Current U.S. patent law provides additional patent term for periods when the patented product was under regulatory review by the FDA. The EU also provides an additional six months of pediatric market exclusivity attached to a product’s Supplementary Protection Certificate (SPC). Japan provides the additional term for pediatric studies attached to market exclusivity unrelated to patent rights.
Patent portfolios developed for products introduced by the Company normally provide market exclusivity. The Company has the following key patent protection in the United States, the EU and Japan (including the potential for patent term extensions (PTE) and SPCs where indicated) for the following marketed products:
| Product | Year of Expiration (U.S.) | Year of Expiration (EU)(1) | Year of Expiration (Japan)(3) |
| Emend | Expired | 2019 | 2019 |
| Emend for Injection | 2019 | 2020(2) | 2020 |
| Noxafil | 2019 | 2019 | N/A |
| Vaxelis(4) | 2020 (method of making) | 2021(5) (SPCs) | Not Marketed |
| Januvia | 2022(2) | 2022(2) | 2025-2026 |
| Janumet | 2022(2) | 2023 | N/A |
| Janumet XR | 2022(2) | N/A | N/A |
| Isentress | 2024 | 2022(2) | 2022 |
| Simponi | N/A(6) | 2025(7) | N/A(6) |
| Lenvima(8) | 2025(2) (with pending PTE) | 2021 (patents), 2026(2) (SPCs) | 2026 |
| Adempas(9) | 2026(2) | 2028(2) | 2027-2028 |
| Bridion | 2026(2) (with pending PTE) | 2023 | 2024 |
| Nexplanon | 2027 (device) | 2025 (device) | Not Marketed |
| Bravecto | 2027 (with pending PTE) | 2025 (patents), 2029 (SPCs) | 2029 |
| Gardasil | 2028 | 2021(2) | Expired |
| Gardasil 9 | 2028 | 2025 (patents), 2030(2) (SPCs) | N/A |
| Keytruda | 2028 | 2028 (patents), 2030(2) (SPCs) | 2032 |
| Lynparza(10) | 2028(2) (with pending PTE) | 2024 (patents), 2029(2) (SPCs) | 2028-2029 (with pending PTE) |
| Zerbaxa | 2028(2) (with pending PTE) | 2023 (patents), 2028(2) (SPCs) | N/A |
| Sivextro | 2028(2) | 2024 (patents), 2029(2) (SPCs) | 2029 (with pending PTE) |
| Belsomra | 2029(2) | N/A | 2031 |
| Prevymis | 2029(2) (with pending PTE) | 2024 (patents), 2029(2) (SPCs) | 2029 (with pending PTE) |
| Steglatro(11) | 2031(2) (with pending PTE) | 2029 (patents), 2034(2) (SPCs) | N/A |
| Steglujan(11) | 2031 (with pending PTE) | 2029 (patents), 2034 (SPCs) | N/A |
| Segluromet(11) | 2031 (with pending PTE) | 2029 (patents), 2034 (SPCs) | N/A |
| Delstrigo | 2032 (with pending PTE) | 2031(12) | N/A |
| Pifeltro | 2032 (with pending PTE) | 2031(12) | N/A |
| N/A: | Currently no marketing approval. |
| Note: | Compound patent unless otherwise noted. Certain of the products listed may be the subject of patent litigation. See Item 8. “Financial Statements and Supplementary Data,” Note 11. “Contingencies and Environmental Liabilities” below. |
| (1) | The EU date represents the expiration date for the following five countries: France, Germany, Italy, Spain and the United Kingdom (Major EU Markets). If SPC applications have been filed but have not been granted in all Major EU Markets, both the patent expiry date and the SPC expiry date are listed. |
| (2) | Eligible for 6 months Pediatric Exclusivity. |
| (3) | The PTE system in Japan allows for a patent to be extended more than once provided the later approval is directed to a different indication from that of the previous approval. This may result in multiple PTE approvals for a given patent, each with its own expiration date. |
| (4) | Being commercialized in a U.S.-based joint partnership with Sanofi Pasteur. |
| (5) | SPCs are granted in four Major EU Markets and pending in one, based on a patent that expired in 2016. |
| (6) | The Company has no marketing rights in the U.S. and Japan. |
| (7) | Includes Pediatric Exclusivity, which is granted in four Major EU Markets and pending in one. |
| (8) | Being developed and commercialized in a global strategic oncology collaboration with Eisai. |
| (9) | Being commercialized in a worldwide collaboration with Bayer AG. |
| (10) | Being developed and commercialized in a global strategic oncology collaboration with AstraZeneca. |
| (11) | Being developed and promoted in a worldwide, except Japan, collaboration with Pfizer. |
| (12) | SPC applications to be filed by May 2019. |
While the expiration of a product patent normally results in a loss of market exclusivity for the covered pharmaceutical product, commercial benefits may continue to be derived from: (i) later-granted patents on processes and intermediates related to the most economical method of manufacture of the active ingredient of such product; (ii) patents relating to the use of such product; (iii) patents relating to novel compositions and formulations; and (iv) in the United States and certain other countries, market exclusivity that may be available under relevant law. The effect of product patent expiration on pharmaceutical products also depends upon many other factors such as the nature of the market and the position of the product in it, the growth of the market, the complexities and economics of the process for manufacture of the active ingredient of the product and the requirements of new drug provisions of the Federal Food, Drug and Cosmetic Act or similar laws and regulations in other countries.
Additions to market exclusivity are sought in the United States and other countries through all relevant laws, including laws increasing patent life. Some of the benefits of increases in patent life have been partially offset by an
increase in the number of incentives for and use of generic products. Additionally, improvements in intellectual property laws are sought in the United States and other countries through reform of patent and other relevant laws and implementation of international treaties.
The Company has the following key U.S. patent protection for drug candidates under review in the United States by the FDA. Additional patent term may be provided for these pipeline candidates based on Patent Term Restoration and Pediatric Exclusivity.
| Under Review (in the U.S.) | Currently Anticipated Year of Expiration (in the U.S.) |
| V920 (ebola vaccine) | 2023 |
| MK-7655A (relebactam + imipenem/cilastatin) | 2029 |
The Company also has the following key U.S. patent protection for drug candidates in Phase 3 development:
| Phase 3 Drug Candidate | Currently Anticipated Year of Expiration (in the U.S.) |
| MK-1242 (vericiguat)(1) | 2031 |
| MK-7264 (gefapixant) | 2027 |
| V114 (pneumoconjugate vaccine) | 2031 |
| (1) | Being developed in a worldwide clinical development collaboration with Bayer AG. |
Unless otherwise noted, the patents in the above charts are compound patents. Each patent is subject to any future patent term restoration of up to five years and six month pediatric market exclusivity, either or both of which may be available. In addition, depending on the circumstances surrounding any final regulatory approval of the compound, there may be other listed patents or patent applications pending that could have relevance to the product as finally approved; the relevance of any such application would depend upon the claims that ultimately may be granted and the nature of the final regulatory approval of the product. Also, regulatory exclusivity tied to the protection of clinical data is complementary to patent protection and, in some cases, may provide more effective or longer lasting marketing exclusivity than a compound’s patent estate. In the United States, the data protection generally runs five years from first marketing approval of a new chemical entity, extended to seven years for an orphan drug indication and 12 years from first marketing approval of a biological product.
For further information with respect to the Company’s patents, see Item 1A. “Risk Factors” and Item 8. “Financial Statements and Supplementary Data,” Note 11. “Contingencies and Environmental Liabilities” below.
Worldwide, all of the Company’s important products are sold under trademarks that are considered in the aggregate to be of material importance. Trademark protection continues in some countries as long as used; in other countries, as long as registered. Registration is for fixed terms and can be renewed indefinitely.
Royalty income in 2018 on patent and know-how licenses and other rights amounted to $135 million. Merck also incurred royalty expenses amounting to $1.3 billion in 2018 under patent and know-how licenses it holds.
Research and Development
The Company’s business is characterized by the introduction of new products or new uses for existing products through a strong research and development program. At December 31, 2018, approximately 14,500 people were employed in the Company’s research activities. The Company prioritizes its research and development efforts and focuses on candidates that it believes represent breakthrough science that will make a difference for patients and payers.
The Company maintains a number of long-term exploratory and fundamental research programs in biology and chemistry as well as research programs directed toward product development. The Company’s research and development model is designed to increase productivity and improve the probability of success by prioritizing the Company’s research and development resources on candidates the Company believes are capable of providing unambiguous, promotable advantages to patients and payers and delivering the maximum value of its approved medicines and vaccines through new indications and new formulations. Merck is pursuing emerging product opportunities independent of therapeutic area or modality (small molecule, biologics and vaccines) and is building its biologics capabilities. The Company is committed to ensuring that externally sourced programs remain an important
component of its pipeline strategy, with a focus on supplementing its internal research with a licensing and external alliance strategy focused on the entire spectrum of collaborations from early research to late-stage compounds, as well as access to new technologies.
The Company also reviews its pipeline to examine candidates that may provide more value through out-licensing. The Company continues to evaluate certain late-stage clinical development and platform technology assets to determine their out-licensing or sale potential.
The Company’s clinical pipeline includes candidates in multiple disease areas, including cancer, cardiovascular diseases, diabetes, infectious diseases, neurosciences, obesity, pain, respiratory diseases, and vaccines.
In the development of human health products, industry practice and government regulations in the United States and most foreign countries provide for the determination of effectiveness and safety of new chemical compounds through preclinical tests and controlled clinical evaluation. Before a new drug or vaccine may be marketed in the United States, recorded data on preclinical and clinical experience are included in the New Drug Application (NDA) for a drug or the Biologics License Application (BLA) for a vaccine or biologic submitted to the FDA for the required approval.
Once the Company’s scientists discover a new small molecule compound or biologic that they believe has promise to treat a medical condition, the Company commences preclinical testing with that compound. Preclinical testing includes laboratory testing and animal safety studies to gather data on chemistry, pharmacology, immunogenicity and toxicology. Pending acceptable preclinical data, the Company will initiate clinical testing in accordance with established regulatory requirements. The clinical testing begins with Phase 1 studies, which are designed to assess safety, tolerability, pharmacokinetics, and preliminary pharmacodynamic activity of the compound in humans. If favorable, additional, larger Phase 2 studies are initiated to determine the efficacy of the compound in the affected population, define appropriate dosing for the compound, as well as identify any adverse effects that could limit the compound’s usefulness. In some situations, the clinical program incorporates adaptive design methodology to use accumulating data to decide how to modify aspects of the ongoing clinical study as it continues, without undermining the validity and integrity of the trial. One type of adaptive clinical trial is an adaptive Phase 2a/2b trial design, a two-stage trial design consisting of a Phase 2a proof-of-concept stage and a Phase 2b dose-optimization finding stage. If data from the Phase 2 trials are satisfactory, the Company commences large-scale Phase 3 trials to confirm the compound’s efficacy and safety. Another type of adaptive clinical trial is an adaptive Phase 2/3 trial design, a study that includes an interim analysis and an adaptation that changes the trial from having features common in a Phase 2 study (e.g. multiple dose groups) to a design similar to a Phase 3 trial. An adaptive Phase 2/3 trial design reduces timelines by eliminating activities which would be required to start a separate study. Upon completion of Phase 3 trials, if satisfactory, the Company submits regulatory filings with the appropriate regulatory agencies around the world to have the product candidate approved for marketing. There can be no assurance that a compound that is the result of any particular program will obtain the regulatory approvals necessary for it to be marketed.
Vaccine development follows the same general pathway as for drugs. Preclinical testing focuses on the vaccine’s safety and ability to elicit a protective immune response (immunogenicity). Pre-marketing vaccine clinical trials are typically done in three phases. Initial Phase 1 clinical studies are conducted in normal subjects to evaluate the safety, tolerability and immunogenicity of the vaccine candidate. Phase 2 studies are dose-ranging studies. Finally, Phase 3 trials provide the necessary data on effectiveness and safety. If successful, the Company submits regulatory filings with the appropriate regulatory agencies.
In the United States, the FDA review process begins once a complete NDA or BLA is submitted, received and accepted for review by the agency. Within 60 days after receipt, the FDA determines if the application is sufficiently complete to permit a substantive review. The FDA also assesses, at that time, whether the application will be granted a priority review or standard review. Pursuant to the Prescription Drug User Fee Act V (PDUFA), the FDA review period target for NDAs or original BLAs is either six months, for priority review, or ten months, for a standard review, from the time the application is deemed sufficiently complete. Once the review timelines are determined, the FDA will generally act upon the application within those timelines, unless a major amendment has been submitted (either at the Company’s own initiative or the FDA’s request) to the pending application. If this occurs, the FDA may extend the review period to allow for review of the new information, but by no more than three months. Extensions to the review period are communicated to the Company. The FDA can act on an application either by issuing an approval letter or by issuing a Complete Response Letter (CRL) stating that the application will not be approved in its present form and describing all deficiencies that the FDA has identified. Should the Company wish to pursue an application after receiving
a CRL, it can resubmit the application with information that addresses the questions or issues identified by the FDA in order to support approval. Resubmissions are subject to review period targets, which vary depending on the underlying submission type and the content of the resubmission.
The FDA has four program designations — Fast Track, Breakthrough Therapy, Accelerated Approval, and Priority Review — to facilitate and expedite development and review of new drugs to address unmet medical needs in the treatment of serious or life-threatening conditions. The Fast Track designation provides pharmaceutical manufacturers with opportunities for frequent interactions with FDA reviewers during the product’s development and the ability for the manufacturer to do a rolling submission of the NDA/BLA. A rolling submission allows completed portions of the application to be submitted and reviewed by the FDA on an ongoing basis. The Breakthrough Therapy designation provides manufacturers with all of the features of the Fast Track designation as well as intensive guidance on implementing an efficient development program for the product and a commitment by the FDA to involve senior managers and experienced staff in the review. The Accelerated Approval designation allows the FDA to approve a product based on an effect on a surrogate or intermediate endpoint that is reasonably likely to predict a product’s clinical benefit and generally requires the manufacturer to conduct required post-approval confirmatory trials to verify the clinical benefit. The Priority Review designation means that the FDA’s goal is to take action on the NDA/BLA within six months, compared to ten months under standard review.
In addition, under the Generating Antibiotic Incentives Now Act, the FDA may grant Qualified Infectious Disease Product (QIDP) status to antibacterial or antifungal drugs intended to treat serious or life threatening infections including those caused by antibiotic or antifungal resistant pathogens, novel or emerging infectious pathogens, or other qualifying pathogens. QIDP designation offers certain incentives for development of qualifying drugs, including Priority Review of the NDA when filed, eligibility for Fast Track designation, and a five-year extension of applicable exclusivity provisions under the Food, Drug and Cosmetic Act.
The primary method the Company uses to obtain marketing authorization of pharmaceutical products in the EU is through the “centralized procedure.” This procedure is compulsory for certain pharmaceutical products, in particular those using biotechnological processes, and is also available for certain new chemical compounds and products. A company seeking to market an innovative pharmaceutical product through the centralized procedure must file a complete set of safety data and efficacy data as part of a Marketing Authorization Application (MAA) with the European Medicines Agency (EMA). After the EMA evaluates the MAA, it provides a recommendation to the EC and the EC then approves or denies the MAA. It is also possible for new chemical products to obtain marketing authorization in the EU through a “mutual recognition procedure” in which an application is made to a single member state and, if the member state approves the pharmaceutical product under a national procedure, the applicant may submit that approval to the mutual recognition procedure of some or all other member states.
Outside of the United States and the EU, the Company submits marketing applications to national regulatory authorities. Examples of such are the Pharmaceuticals and Medical Devices Agency in Japan, Health Canada, Agência Nacional de Vigilância Sanatária in Brazil, Korea Food and Drug Administration in South Korea, Therapeutic Goods Administration in Australia and China Food and Drug Administration. Each country has a separate and independent review process and timeline. In many markets, approval times can be longer as the regulatory authority requires approval in a major market, such as the United States or the EU, and issuance of a Certificate of Pharmaceutical Product from that market before initiating their local review process.
Research and Development Update
The Company currently has several candidates under regulatory review in the United States and internationally.
Keytruda is an approved anti-PD-1 therapy in clinical development for expanded indications in different cancer types.
In February 2019, the FDA accepted and granted Priority Review for a supplemental BLA for Keytruda in combination with Inlyta (axitinib), a tyrosine kinase inhibitor, for the first-line treatment of patients with advanced renal cell carcinoma. This supplemental BLA is based on findings from the Phase 3 KEYNOTE-426 trial, which demonstrated that Keytruda in combination with axitinib, as compared to sunitinib, significantly improved overall survival (OS) and progression-free survival (PFS) in the first-line treatment of advanced renal cell carcinoma. These data were presented at the American Society for Clinical Oncology (ASCO) Genitourinary Cancers Symposium in
February 2019. The supplemental BLA also included supporting data from the Phase 1b KEYNOTE-035 trial. The FDA set a PDUFA date of June 20, 2019. Merck has filed data from KEYNOTE-426 with regulatory authorities worldwide.
In February 2019, the Committee for Medicinal Products for Human Use of the EMA adopted a positive opinion recommending Keytruda, in combination with carboplatin and either paclitaxel or nab-paclitaxel, for the first-line treatment of metastatic squamous NSCLC in adults. This recommendation is based on results from the pivotal Phase 3 KEYNOTE-407 trial, which enrolled patients regardless of PD-L1 tumor expression status. The trial showed a significant improvement in OS and PFS for patients taking Keytruda in combination with chemotherapy (carboplatin and either paclitaxel or nab-paclitaxel) compared with chemotherapy alone. If approved, this would mark the first approval in Europe for an anti-PD-1 therapy in combination with chemotherapy for adults with metastatic squamous NSCLC. In October 2018, the FDA approved Keytruda in combination with carboplatin-paclitaxel or nab-paclitaxel as a first-line treatment for metastatic squamous NSCLC, regardless of PD-L1 expression.
In December 2018, the FDA extended the action date for the supplemental BLA seeking approval for Keytruda as monotherapy for the first-line treatment of locally advanced or metastatic NSCLC in patients whose tumors express PD-L1 (TPS ≥1%) without EGFR or ALK genomic tumor aberrations. The supplemental BLA is based on results of the Phase 3 KEYNOTE-042 trial where Keytruda monotherapy demonstrated a significant improvement in OS compared with chemotherapy in this patient population. The Company submitted additional data and analyses to the FDA, which constituted a major amendment and extended the PDUFA date by three months to April 11, 2019. Merck continues to work closely with the FDA during the review of this supplemental BLA.
In February 2019, the FDA accepted and granted Priority Review for a supplemental BLA for Keytruda as monotherapy for the treatment of patients with advanced small-cell lung cancer (SCLC) whose disease has progressed after two or more lines of prior therapy. This supplemental BLA, which is seeking accelerated approval for this new indication, is based on data from the SCLC cohorts of the Phase 2 KEYNOTE-158 and Phase 1b KEYNOTE-028 trials. The FDA set a PDUFA date of June 17, 2019. Keytruda is also being studied in combination with chemotherapy in the ongoing Phase 3 KEYNOTE-604 study in patients with newly diagnosed extensive stage SCLC.
In February 2019, the FDA accepted a supplemental BLA for Keytruda as monotherapy or in combination with platinum and 5-fluorouracil chemotherapy for the first-line treatment of patients with recurrent or metastatic HNSCC. This supplemental BLA is based in part on data from the pivotal Phase 3 KEYNOTE-048 trial where Keytruda demonstrated a significant improvement in OS compared with the standard of care, as monotherapy in patients whose tumors expressed PD-L1 with Combined Positive Score (CPS)≥20 and CPS≥1 and in combination with chemotherapy in the total patient population. These data were presented at the European Society for Medical Oncology (ESMO) 2018 Congress. The FDA granted Priority Review to the supplemental BLA and set a PDUFA date of June 10, 2019. KEYNOTE-048 also serves as the confirmatory trial for KEYNOTE-012, a Phase 1b study which supported the previous accelerated approval for Keytruda as monotherapy for the treatment of patients with recurrent or metastatic HNSCC with disease progression on or after platinum-containing chemotherapy.
In November 2018, Merck announced that the Phase 3 KEYNOTE-181 trial investigating Keytruda as monotherapy in the second-line treatment of advanced or metastatic esophageal or esophagogastric junction carcinoma met a primary endpoint of OS in patients whose tumors expressed PD-L1 (CPS ≥10). In this pivotal study, treatment with Keytruda resulted in a statistically significant improvement in OS compared to chemotherapy (paclitaxel, docetaxel or irinotecan) in patients with CPS ≥10, regardless of histology. The primary endpoint of OS was also evaluated in patients with squamous cell histology and in the entire intention-to-treat study population. While directionally favorable, statistical significance for OS was not met in these two patient groups. Per the statistical analysis plan, the key secondary endpoints of PFS and objective response rate (ORR) were not formally tested, as OS was not reached in the full intention-to-treat study population. These results were presented in January 2019 at the ASCO Gastrointestinal Cancers Symposium and have been submitted for regulatory review.
Additionally, Keytruda has received Breakthrough Therapy designation from the FDA for the treatment of high-risk early-stage triple-negative breast cancer in combination with neoadjuvant chemotherapy. The FDA’s Breakthrough Therapy designation is intended to expedite the development and review of a candidate that is planned for use, alone or in combination, to treat a serious or life-threatening disease or condition when preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints.
In October 2018, Merck announced the first presentation of results from an interim analysis of KEYNOTE-057, a Phase 2 trial evaluating Keytruda for previously treated patients with high-risk non-muscle invasive bladder cancer. An interim analysis of the study’s primary endpoint showed a complete response rate of nearly 40% at three months with Keytruda in patients whose disease was unresponsive to Bacillus Calmette-Guérin therapy, the current standard of care for this disease, and who were ineligible for or who refused to undergo radical cystectomy. These results, as well as other study findings, were presented at the ESMO 2018 Congress.
In February 2019, Merck announced that the pivotal Phase 3 KEYNOTE-240 trial evaluating Keytruda, plus best supportive care, for the treatment of patients with advanced hepatocellular carcinoma who were previously treated with systemic therapy, did not meet its co-primary endpoints of OS and PFS compared with placebo plus best supportive care. In the final analysis of the study, there was an improvement in OS for patients treated with Keytruda compared to placebo, however these OS results did not meet statistical significance per the pre-specified statistical plan. Results for PFS were also directionally favorable in the Keytruda arm compared with placebo but did not reach statistical significance. The key secondary endpoint of ORR was not formally tested, since superiority was not reached for OS or PFS. Results will be presented at an upcoming medical meeting and have been shared with the FDA for discussion.
The Keytruda clinical development program consists of more than 900 clinical trials, including more than 600 trials that combine Keytruda with other cancer treatments. These studies encompass more than 30 cancer types including: bladder, cervical, colorectal, esophageal, gastric, head and neck, hepatocellular, Hodgkin lymphoma, non-Hodgkin lymphoma, melanoma, mesothelioma, nasopharyngeal, NSCLC, ovarian, PMBCL, prostate, renal, small-cell lung and triple-negative breast, many of which are currently in Phase 3 clinical development. Further trials are being planned for other cancers.
Lynparza, is an oral PARP inhibitor currently approved for certain types of ovarian and breast cancer. 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.
In April 2018, Merck and AstraZeneca announced that the EMA validated for review the MAA for Lynparza for use in patients with deleterious or suspected deleterious BRCA-mutated, HER2-negative metastatic breast cancer who have been previously treated with chemotherapy in the neoadjuvant, adjuvant or metastatic setting. This was the first regulatory submission for a PARP inhibitor in breast cancer in Europe.
Lynparza tablets are also under review in the EU as a maintenance treatment in patients with newly-diagnosed, BRCA-mutated advanced ovarian cancer who were in complete or partial response following first-line standard platinum-based chemotherapy. This submission was based on positive results from the pivotal Phase 3 SOLO-1 trial. The trial showed a statistically-significant and clinically-meaningful improvement in PFS for Lynparza compared to placebo, reducing the risk of disease progression or death by 70% in patients with newly-diagnosed, BRCA-mutated advanced ovarian cancer who were in complete or partial response to platinum-based chemotherapy.
In December 2018, Merck and AstraZeneca announced positive results from the randomized, open-label, controlled, Phase 3 SOLO-3 trial of Lynparza tablets in patients with relapsed ovarian cancer after two or more lines of treatment. The trial was conducted as a post-approval commitment in agreement with the FDA. Results from the trial showed BRCA-mutated advanced ovarian cancer patients treated with Lynparza following two or more prior lines of chemotherapy demonstrated a statistically significant and clinically meaningful improvement in the primary endpoint of ORR and the key secondary endpoint of PFS compared to chemotherapy. Merck and AstraZeneca plan to discuss these results with the FDA.
MK-7655A is a combination of relebactam, an investigational beta-lactamase inhibitor, and imipenem/cilastatin (an approved carbapenem antibiotic). In February 2019, Merck announced that the FDA accepted for Priority Review an NDA for MK-7655A for the treatment of complicated urinary tract infections and complicated intra-abdominal infections caused by certain susceptible Gram-negative bacteria in adults with limited or no alternative therapies available. The PDUFA date is July 16, 2019. In April 2018, Merck announced that a pivotal Phase 3 study of MK-7655A demonstrated a favorable overall response in the treatment of certain imipenem-non-susceptible bacterial infections, the primary endpoint, with lower treatment-emergent nephrotoxicity (kidney toxicity), a secondary endpoint, compared to a colistin (colistimethate sodium) plus imipenem/cilastatin regimen. The FDA had previously designated this combination a Qualified Infectious Disease Product with designated Fast Track status for the treatment of hospital-
acquired bacterial pneumonia, ventilator-associated bacterial pneumonia, complicated intra-abdominal infections and complicated urinary tract infections.
V920 (rVSV∆G-ZEBOV-GP, live attenuated), is an investigational Ebola Zaire disease vaccine candidate being studied in large scale Phase 2/3 clinical trials. In December 2015, Merck announced that the application for Emergency Use Assessment and Listing (EUAL) for V920 was accepted for review by the World Health Organization (WHO). According to the WHO, the EUAL process is designed to expedite the availability of vaccines needed for public health emergencies such as another outbreak of Ebola. The WHO decision to grant V920 EUAL status will be based on data regarding quality, safety, and efficacy/effectiveness; as well as a risk/benefit analysis for emergency use. While EUAL designation allows for emergency use, the vaccine remains investigational and has not yet been licensed for commercial distribution. In July 2016, Merck announced that the FDA granted V920 Breakthrough Therapy designation, and that the EMA granted the vaccine candidate PRIME (PRIority MEdicines) status. In November 2018, Merck announced that it has started the submission of a rolling BLA to the FDA for V920. This rolling submission was made pursuant to the FDA’s Breakthrough Therapy designation. Merck expects the rolling submission of the BLA to be completed in 2019. The Company also intends to file V920 with the EMA in 2019.
In February 2019, Merck announced that the FDA accepted for Priority Review a supplemental NDA for Zerbaxa to treat adult patients with nosocomial pneumonia, including ventilator-associated pneumonia, caused by certain susceptible Gram-negative microorganisms. The PDUFA date is June 3, 2019. Zerbaxa is also under review for this indication by the EMA. Zerbaxa is currently approved in the United States for the treatment of adult patients with complicated urinary tract infections caused by certain susceptible Gram-negative microorganisms, and is also indicated, in combination with metronidazole, for the treatment of adult patients with complicated intra-abdominal infections caused by certain susceptible Gram-negative and Gram-positive microorganisms.
In addition to the candidates under regulatory review, the Company has several drug candidates in Phase 3 clinical development in addition to the Keytruda programs discussed above.
MK-7264, gefapixant, is a selective, non-narcotic, orally-administered P2X3-receptor agonist being investigated in Phase 3 trials for the treatment of refractory, chronic cough and in a Phase 2 trial for the treatment of women with endometriosis-related pain.
Lenvima, is an orally available tyrosine kinase inhibitor currently approved for certain types of thyroid cancer, hepatocellular carcinoma, and in combination for certain patients with renal cell carcinoma. In March 2018, Merck and Eisai entered into a strategic collaboration for the worldwide co-development and co-commercialization of Lenvima. Under the agreement, Merck and Eisai will develop and commercialize Lenvima jointly, both as monotherapy and in combination with Keytruda. Per the agreement, the companies will jointly initiate clinical studies evaluating the Keytruda/Lenvima combination to support 11 potential indications in six types of cancer (endometrial cancer, NSCLC, hepatocellular carcinoma, head and neck cancer, bladder cancer and melanoma), as well as a basket trial targeting multiple cancer types. The FDA granted Breakthrough Therapy designation for Keytruda in combination with Lenvima for the potential treatment of patients with advanced and/or metastatic renal cell carcinoma and for the potential treatment of certain patients with advanced and/or metastatic non-microsatellite instability high/proficient mismatch repair endometrial carcinoma.
MK-1242, vericiguat, is an investigational treatment for heart failure being studied in patients suffering from chronic heart failure with reduced ejection fracture (Phase 3 clinical trial) and from chronic heart failure with preserved ejection fracture (Phase 2 clinical trial). The development of vericiguat is part of a worldwide strategic collaboration between Merck and Bayer.
V114 is an investigational polyvalent conjugate vaccine for the prevention of pneumococcal disease. In June 2018, Merck initiated the first Phase 3 study in the adult population for the prevention of invasive pneumococcal disease. Currently five Phase 3 adult studies are ongoing, including studies in healthy adults 50 years of age or older, adults with risk factors for pneumococcal disease, those infected with HIV, and those who are recipients of allogeneic hematopoietic stem cell transplant. In October 2018, Merck began the first Phase 3 study in the pediatric population. Currently, three studies are ongoing, including studies in healthy infants and in children afflicted with sickle cell disease. In January 2019, Merck announced that V114 received Breakthrough Therapy designation from the FDA for the prevention of invasive pneumococcal disease caused by the vaccine serotypes in pediatric patients 6 weeks to 18 years of age.
As a result of changes in the herpes zoster vaccine environment, Merck is ending development of V212, its investigational vaccine for the prevention of shingles in immunocompromised patients.
The chart below reflects the Company’s research pipeline as of February 22, 2019. Candidates shown in Phase 3 include specific products and the date such candidate entered into Phase 3 development. Candidates shown in Phase 2 include the most advanced compound with a specific mechanism or, if listed compounds have the same mechanism, they are each currently intended for commercialization in a given therapeutic area. Small molecules and biologics are given MK-number designations and vaccine candidates are given V-number designations. Except as otherwise noted, candidates in Phase 1, additional indications in the same therapeutic area (other than with respect to cancer and certain other indications) and additional claims, line extensions or formulations for in-line products are not shown.
| Phase 2 | Phase 3 (Phase 3 Entry Date) | Under Review |
| Cancer | Cancer | New Molecular Entities/Vaccines |
| MK-3475 Keytruda | MK-3475 Keytruda | Bacterial Infection |
| Advanced Solid Tumors | Breast (October 2015) | MK-7655A relebactam+imipenem/cilastatin |
| Cutaneous Squamous Cell Carcinoma | Cervical (October 2018) (EU) | (U.S.) |
| Prostate | Colorectal (November 2015) | Ebola Vaccine |
| MK-7902 Lenvima(1) | Esophageal (December 2015) | V920(4) (U.S.) |
| Biliary Tract | Gastric (May 2015) (EU) | |
| Non-Small-Cell Lung | Hepatocellular (May 2016) (EU) | Certain Supplemental Filings |
| V937 Cavatak | Mesothelioma (May 2018) | Cancer |
| Melanoma | Nasopharyngeal (April 2016) | MK-3475 Keytruda |
| MK-7690 | Ovarian (December 2018) | • First-Line Advanced Renal Cell Carcinoma |
| Colorectal(2) | Renal (October 2016) (EU) | (KEYNOTE-426) (U.S.) |
| MK-7339 Lynparza(1) | Small-Cell Lung (May 2017) (EU) | • First-Line Metastatic Squamous Non-Small- |
| Advanced Solid Tumors | MK-7902 Lenvima(1,2) | Cell Lung Cancer (KEYNOTE-407) (EU) |
| Cytomegalovirus Vaccine | Endometrial (June 2018) | • First-Line Metastatic Non-Small-Cell Lung |
| V160 | MK-7339 Lynparza(1) | Cancer (KEYNOTE-042) (U.S.) (EU) |
| Diabetes Mellitus | Pancreatic (December 2014) | • Third-Line Advanced Small-Cell Lung |
| MK-8521(3) | Prostate (April 2017) | Cancer (KEYNOTE-158) (U.S.) |
| HIV-1 Infection | Cough | • First-Line Head and Neck Cancer |
| MK-8591 | MK-7264 (gefapixant) (March 2018) | (KEYNOTE-048) (U.S.) |
| Pediatric Neurofibromatosis Type-1 | Heart Failure | • Alternative Dosing Regimen |
| MK-5618 (selumetinib)(1) | MK-1242 (vericiguat) (September 2016)(1) | (Q6W) (EU) |
| Respiratory Syncytial Virus | Pneumoconjugate Vaccine | MK-7339 Lynparza(1) |
| MK-1654 | V114 (June 2018) | • Second-Line Metastatic Breast Cancer (EU) |
| Schizophrenia | • First-Line Advanced Ovarian Cancer (EU) | |
| MK-8189 | HABP/VABP(5) | |
| MK-7625A Zerbaxa (U.S.) | ||
| Footnotes: | ||
| (1) Being developed in a collaboration. | ||
| (2) Being developed in combination with | ||
| Keytruda. | ||
| (3) Development is currently on hold. | ||
| (4) Rolling submission. | ||
| (5) HABP - Hospital-Acquired Bacterial | ||
| Pneumonia / VABP - Ventilator-Associated | ||
| Bacterial Pneumonia |
Employees
As of December 31, 2018, the Company had approximately 69,000 employees worldwide, with approximately 25,400 employed in the United States, including Puerto Rico. Approximately 30% of worldwide employees of the Company are represented by various collective bargaining groups.
Restructuring Activities
In 2010 and 2013, the Company commenced actions under global restructuring programs designed to streamline its cost structure. The actions under these programs include the elimination of positions in sales, administrative and headquarters organizations, as well as the sale or closure of certain manufacturing and research and
development sites and the consolidation of office facilities. The Company also continues to reduce its global real estate footprint and improve the efficiency of its manufacturing and supply network. Since inception of the programs through December 31, 2018, Merck has eliminated approximately 45,510 positions comprised of employee separations, as well as the elimination of contractors and vacant positions. The Company has substantially completed the actions under these programs.
Environmental Matters
The Company believes that there are no compliance issues associated with applicable environmental laws and regulations that would have a material adverse effect on the Company. The Company is also remediating environmental contamination resulting from past industrial activity at certain of its sites. Expenditures for remediation and environmental liabilities were $16 million in 2018, and are estimated at $57 million in the aggregate for the years 2019 through 2023. These amounts do not consider potential recoveries from other parties. The Company has taken an active role in identifying and accruing for these costs and, in management’s opinion, the liabilities for all environmental matters that are probable and reasonably estimable have been accrued and totaled $71 million and $82 million at December 31, 2018 and 2017, respectively. Although it is not possible to predict with certainty the outcome of these matters, or the ultimate costs of remediation, management does not believe that any reasonably possible expenditures that may be incurred in excess of the liabilities accrued should exceed $60 million in the aggregate. Management also does not believe that these expenditures should have a material adverse effect on the Company’s financial position, results of operations, liquidity or capital resources for any year.
Merck believes that climate change could present risks to its business. Some of the potential impacts of climate change to its business include increased operating costs due to additional regulatory requirements, physical risks to the Company’s facilities, water limitations and disruptions to its supply chain. These potential risks are integrated into the Company’s business planning including investment in reducing energy, water use and greenhouse gas emissions. The Company does not believe these risks are material to its business at this time.
Geographic Area Information
The Company’s operations outside the United States are conducted primarily through subsidiaries. Sales worldwide by subsidiaries outside the United States as a percentage of total Company sales were 57% of sales in 2018, 57% of sales in 2017 and 54% of sales in 2016.
The Company’s worldwide business is subject to risks of currency fluctuations, governmental actions and other governmental proceedings abroad. The Company does not regard these risks as a deterrent to further expansion of its operations abroad. However, the Company closely reviews its methods of operations and adopts strategies responsive to changing economic and political conditions.
Merck has operations in countries located in Latin America, the Middle East, Africa, Eastern Europe and Asia Pacific. Business in these developing areas, while sometimes less stable, offers important opportunities for growth over time.
Available Information
The Company’s Internet website address is www.merck.com. The Company will make available, free of charge at the “Investors” portion of its website, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC). The address of that website is http://www.sec.gov. In addition, the Company will provide without charge a copy of its Annual Report on Form 10-K, including financial statements and schedules, upon the written request of any shareholder to the Office of the Secretary, Merck & Co., Inc., 2000 Galloping Hill Road, K1-4157, Kenilworth, NJ 07033 U.S.A.
The Company’s corporate governance guidelines and the charters of the Board of Directors’ four standing committees are available on the Company’s website at www.merck.com/about/leadership and all such information is available in print to any shareholder who requests it from the Company.
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