MRKMerck & Co.

Global efforts toward health care cost containment continue to exert pressure on product pricing and market access worldwide. Changes to the U.S. health care system as part of health care reform, as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, have contributed to pricing pressure. In 2021, the U.S. Congress passed the American Rescue Plan Act, which included a provision that eliminated the statutory cap on rebates drug manufacturers pay to Medicaid beginning in January 2024. As a result of this provision, the Company paid state Medicaid programs more in rebates than it received on Medicaid sales of Januvia, Janumet and Janumet XR in 2024. In 2022, the U.S. Congress passed the Inflation Reduction Act (IRA), which made significant changes to how drugs are covered and paid for under the Medicare program, including the creation of financial penalties for drugs whose prices rise faster than the rate of inflation, redesign of the Medicare Part D program to require manufacturers to bear more of the liability for certain drug benefits (which has taken went into effect in 2025), and government price setting for certain Medicare Part D drugs (starting in 2026) and Medicare Part B drugs (starting in 2028). Government price setting may also impact pricing in the private market negatively affecting the Company’s performance. In 2023, the The U.S. Department of Health and Human Services (HHS), through the Centers for Medicare & Medicaid Services (CMS), selected Januvia in 2023 for the first year of the IRA’s “Drug Price Negotiation Program” (Program). (Program), and selected Janumet and Janumet XR in 2025 for the second year of the IRA’s Program. Pursuant to the IRA’s Program, the government set a government price was set for Januvia, which became effective on January 1, 2026, and set a price for Janumet and Janumet XR, which will become effective on January 1, 2026. 2027. In addition, in January 2025, the U.S. Department of HHS, through the CMS, 2026, HHS announced that Janumet and Janumet XR would be in included in the second year of the IRA’s Program, with Lenvima has been selected for government price setting to setting, the set price for which will become effective on January 1, 2027. 2028. Furthermore, the Company expects that Keytruda will be selected in 2027 for government price setting, which would become effective on January 1, 2029. Government price setting may also impact pricing in the private market negatively affecting the Company’s performance. The Company has sued the U.S. government regarding the IRA’s Program (see Note 10 to the consolidated financial statements). Additionally, increased utilization of the 340B Federal Drug Discount Program and restrictions on the Company’s ability to identify inappropriate discounts are having a negative impact on Company performance. Furthermore, the Executive Branch and Congress continue to discuss legislation designed to control health care costs, including the cost of drugs. In several international markets, government-mandated pricing actions have reduced prices of generic and patented drugs. In addition, the Company’s sales performance in 2024 was negatively affected by other cost-reduction measures taken by governments and other third parties to lower health care costs. The Company anticipates all of these actions and additional actions in the future will continue to negatively affect sales and profits.

The Company depends upon patents to provide it with exclusive marketing rights for its products for some period of time. Loss of patent protection for one of the Company’s products typically leads to a significant and rapid loss of sales for that product as lower priced generic or biosimilar versions of that drug become available. In the case of products that contribute significantly to the Company’s sales, the loss of market exclusivity can have a material adverse effect on the Company’s business, cash flows, results of operations, financial condition and prospects. The Company lost market exclusivity for Bridion in Europe and Japan in 2023 and 2024, respectively, and the Company has experienced a substantial decline in Bridion sales in those markets. Bridion will lose market exclusivity in the U.S. in July 2026 (subject at which time the Company anticipates a significant and rapid decline in U.S. sales of Bridion. The Company expects to patent litigation discussed below) discontinue U.S. sales of Bridion by the end of 2026. In addition, Januvia and Janumet will lose market exclusivity in the U.S. in May 2026 and Janumet XR will lose market exclusivity in the U.S. in July 2026. The Company expects a significant decline in sales of Januvia in the first half of 2026 reflecting the impact of government price setting noted above and subsequently, following loss of market exclusivity in May 2026, the Company anticipates it will lose nearly all U.S. sales of Januvia and Janumet. Also, the Company expects that sales of Bridion Keytruda will be materially negatively impacted by biosimilar competition between 2028 and 2029. As previously disclosed, while two patents in the U.S. will decline substantially thereafter. In addition, Keytruda composition of matter patent family expire in May and November of 2029, respectively, the Company expects U.S. sales these patents to be the subject of Keytruda to decline beginning litigation and, thus, biosimilar competition could begin in January December 2028 upon implementation of government pricing under when the IRA, and to further decline upon loss of market exclusivity following expiration of the U.S. primary compound patent in December 2028. expires. The Company also expects to lose market exclusivity in Europe for Keytruda in 2031 following compound patent expiration. There may, however, be attempts by one or more companies to challenge the patent or launch a biosimilar product despite the patent in some European jurisdictions following the expiration of data exclusivity in Europe in July 2026.

As previously disclosed, in January 2020, the Company was served with a complaint in the U.S. District Court for the District of New Jersey. Following motion practice, the plaintiffs filed a third amended complaint in August 2024, seeking to certify a nationwide class action as well as five statewide classes of purchasers or users of Bravecto (fluralaner) products in from its launch through the U.S. or its territories between May 1, 2014 and July 1, 2021. present. Plaintiffs contend Bravecto causes neurological events in dogs and cats and alleges violations of the consumer fraud statutes of certain of their home states (Connecticut, New Jersey Consumer Fraud Act, York, Florida and Texas), Breach of Warranty, Product Liability, and related theories. The Company moved to dismiss or, alternatively, to strike the class allegations from the third amended complaint, and that motion was granted in part and denied in part. The Company sought permission from the court to file a motion for summary judgment directed at the named plaintiffs’ claims and that motion is pending. The Company anticipates that plaintiffs will file a motion for class certification in March 2026 and that it will oppose plaintiffs’ motion thereafter. A similar case was filed in Quebec, Canada in May 2019. The Superior Court certified a class of dog owners in Quebec who gave Bravecto Chew to their dogs between February 16, 2017 and November 2, 2018 whose dogs experienced one of the conditions in the post-marketing adverse reactions section of the labeling approved on November 2, 2018. The Company and plaintiffs each appealed the class certification decision. The Court of Appeal of Quebec amended the class period to start July 2,

Recently Adopted Accounting Standards — In August 2023, September 2025, the Financial Accounting Standards Board (FASB) FASB issued amended guidance that requires to reduce the complexity of evaluating whether contracts are derivatives by adding a newly formed joint venture scope exception (which may apply to recognize and initially measure its assets and liabilities at fair value upon formation. The amended guidance includes exceptions certain R&D funding arrangements) to fair value measurement exclude from derivative accounting non-exchange-traded contracts with variables (underlyings) that are consistent with based on operations or activities specific to one of the accounting for business combinations guidance. parties to the contract. The Company adopted the guidance on October 1, 2025, effective July 1, 2024 for full year 2025 on a prospective basis. There The Company did not have any contracts that were affected by the adoption of this new standard; therefore, there was no impact to the Company’s consolidated financial statements upon adoption.