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Item 1.	Business.

(1)	Other revenues are primarily comprised of Healthcare Services segment revenue, third-party manufacturing sales, and miscellaneous corporate revenues, including revenue hedging activities.

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(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.

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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.

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(1)	Being developed in a worldwide clinical development collaboration with Bayer AG.

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Item 1A.	Risk Factors.

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•	findings of ineffectiveness, superior safety or efficacy of competing products, or harmful side effects in clinical or pre-clinical testing;

•	failure to receive the necessary regulatory approvals, including delays in the approval of new products and new indications, or the anticipated labeling, and uncertainties about the time required to obtain regulatory approvals and the benefit/risk standards applied by regulatory agencies in determining whether to grant approvals;

•	failure in certain markets to obtain reimbursement commensurate with the level of innovation and clinical benefit presented by the product;

•	lack of economic feasibility due to manufacturing costs or other factors; and

•	preclusion from commercialization by the proprietary rights of others.

•	results in post-approval Phase 4 trials or other studies;

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•	the re-review of products that are already marketed;

•	the recall or loss of marketing approval of products that are already marketed;

•	changing government standards or public expectations regarding safety, efficacy or labeling changes; and

•	greater scrutiny in advertising and promotion.

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•	changes in medical reimbursement policies and programs and pricing restrictions in key markets;

•	multiple regulatory requirements that could restrict the Company’s ability to manufacture and sell its products in key markets;

•	trade protection measures and import or export licensing requirements, including the imposition of trade sanctions or similar restrictions by the United States or other governments;

•	foreign exchange fluctuations;

•	diminished protection of intellectual property in some countries; and

•	possible nationalization and expropriation.

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•	There may be limited access to, and supply of, normal and diseased tissue samples, cell lines, pathogens, bacteria, viral strains and other biological materials. In addition, government regulations in multiple

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The development, manufacturing and marketing of biologics and vaccines are subject to regulation by the FDA, the EMA and other regulatory bodies. These regulations are often more complex and extensive than the regulations applicable to other pharmaceutical products. For example, in the United States, a BLA, including both preclinical and clinical trial data and extensive data regarding the manufacturing procedures, is required for human vaccine candidates, and FDA approval is generally required for the release of each manufactured commercial lot.

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Manufacturing biologics and vaccines, especially in large quantities, is often complex and may require the use of innovative technologies to handle living micro-organisms. Each lot of an approved biologic and vaccine must undergo thorough testing for identity, strength, quality, purity and potency. Manufacturing biologics requires facilities specifically designed for and validated for this purpose, and sophisticated quality assurance and quality control procedures are necessary. Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage. When changes are made to the manufacturing process, the Company may be required to provide pre-clinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes.

•	Biologics and vaccines are frequently costly to manufacture because production ingredients are derived from living animal or plant material, and most biologics and vaccines cannot be made synthetically. In particular, keeping up with the demand for vaccines may be difficult due to the complexity of producing vaccines.

•	The use of biologically derived ingredients can lead to variability in the manufacturing process and could lead to allegations of harm, including infections or allergic reactions, which allegations would be reviewed through a standard investigation process that could lead to closure of product facilities due to possible contamination. Any of these events could result in substantial costs.

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Item 1B.	Unresolved Staff Comments.

Item 2.	Properties.

Item 3.	Legal Proceedings.

Item 4.	Mine Safety Disclosures.

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Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(1)	All shares purchased during the period were made as part of a plan approved by the Board of Directors in November 2017 to purchase up to $10 billion in Merck shares. In October 2018, the Board of Directors authorized additional purchases of up to $10 billion of Merck’s common stock for its treasury. Shares are approximated.

(2)	Amount includes $1.0 billion being held back pending final settlement under the accelerated share repurchase agreements discussed below.

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*	Compound Annual Growth Rate

**	Peer group average was calculated on a market cap weighted basis.

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Item 6.	Selected Financial Data.

(1)	Amounts for 2018 include a charge related to the formation of a collaboration with Eisai Co., Ltd.

(2)	Amounts have been recast as a result of the adoption, on January 1, 2018, of a new accounting standard related to the classification of certain defined benefit plan costs. There was no impact to net income as a result of adopting the new accounting standard.

(3)	Amounts for 2017 include a provisional net tax charge related to the enactment of U.S. tax legislation and a charge related to the formation of a collaboration with AstraZeneca.

(4)	Amounts for 2016 include a charge related to the settlement of worldwide patent litigation related to Keytruda.

(5)	Amounts for 2015 include a net charge related to the settlement of Vioxx shareholder class action litigation, foreign exchange losses related to Venezuela, gains on the dispositions of businesses and other assets, and the favorable benefit of certain tax items.

(6)	Amounts for 2014 reflect the divestiture of Merck’s Consumer Care business on October 1, 2014, including a gain on the sale, as well as a gain recognized on an option exercise by AstraZeneca, gains on the dispositions of other businesses and assets, and a loss on extinguishment of debt.

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Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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(1)	The estimated tax impact on the excluded items is determined by applying the statutory rate of the originating territory of the non-GAAP adjustments.

(3)	Represents the difference between calculated GAAP EPS and calculated non-GAAP EPS, which may be different than the amount calculated by dividing the impact of the excluded items by the weighted-average shares for the applicable year.

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(1)	Includes future inventory purchases the Company has committed to in connection with certain divestitures.

(2)

As of December 31, 2018, the Company’s Consolidated Balance Sheet reflects liabilities for unrecognized tax benefits, interest and penalties of $2.3 billion, including $44 million reflected as a current liability. Due to the high degree of uncertainty regarding the timing of future cash outflows of liabilities for unrecognized tax benefits beyond one year, a reasonable estimate of the period of cash settlement for years beyond 2019 cannot be made.

(3)	In connection with the enactment of the TCJA, the Company is required to pay a one-time transition tax, which the Company has elected to pay over a period of eight years as permitted under the TCJA (see Note 16 to the consolidated financial statements).

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Item 7A.	Quantitative and Qualitative Disclosures about Market Risk.

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Item 8.	Financial Statements and Supplementary Data.

(a)	Financial Statements

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(1)	The remaining cash outlays are expected to be substantially completed by the end of 2020.

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(1)	Primarily all of the asset-backed securities are highly-rated (Standard & Poor’s rating of AAA and Moody’s Investors Service rating of Aaa), secured primarily by auto loan, credit card and student loan receivables, with weighted-average lives of primarily 5 years or less.

(2)	Investments included in other assets are restricted as to use, primarily for the payment of benefits under employee benefit plans.

(3)	The fair value determination of derivatives includes the impact of the credit risk of counterparties to the derivatives and the Company’s own credit risk, the effects of which were not significant.

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(1)	Issuances primarily reflect activity under share-based compensation plans.

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(1)	Certain investments that were measured at net asset value (NAV) per share or its equivalent as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets at December 31, 2018 and 2017.

(2)	The plans’ Level 3 investments in real estate funds are generally valued by market appraisals of the underlying investments in the funds.

(3)	The plans’ Level 3 investments in insurance contracts are generally valued using a crediting rate that approximates market returns and invest in underlying securities whose market values are unobservable and determined using pricing models, discounted cash flow methodologies, or similar techniques.

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(1)	Certain investments that were measured at net asset value (NAV) per share or its equivalent as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the fair value of plan assets at December 31, 2018 and 2017.

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(1)	Other includes the tax effects of losses on foreign subsidiaries and miscellaneous items.

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(1)	Amounts reflect the settlements with the IRS as discussed below.

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(1)	Issuable primarily under share-based compensation plans.

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(1)	Relates to foreign currency cash flow hedges that were reclassified from AOCI to Sales.

(2)	Represents net realized (gains) losses on the sales of available-for-sale investments that were reclassified from AOCI to Other (income) expense, net. In 2017 and 2016, these amounts included both investments in debt and equity securities; however, as a result of the adoption of ASU 2016-01 (see Note 2), in 2018, these amounts relate only to investments in available-for-sale debt securities.

(3)	Includes net amortization of prior service cost and actuarial gains and losses included in net periodic benefit cost (see Note 14).

(4)

Includes pension plan net loss of $4.4 billion and $3.5 billion at December 31, 2018 and 2017, respectively, and other postretirement benefit plan net (gain) loss of $(170) million and $(16) million at December 31, 2018 and 2017, respectively, as well as pension plan prior service credit of $314 million and $326 million at December 31, 2018 and 2017, respectively, and other postretirement benefit plan prior service credit of $375 million and $383 million at December 31, 2018 and 2017, respectively.

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(1)

On December 31, 2016, Merck and Sanofi terminated their equally-owned joint venture, SPMSD, which marketed vaccines in most major European markets (see Note 9). Accordingly, vaccine sales in 2018 and 2017 include sales in the European markets that were previously part of SPMSD. Amounts for 2016 do not include sales of vaccines sold through SPMSD, the results of which are reflected in equity income from affiliates included in Other (income) expense, net. Amounts for 2016 do, however, include supply sales to SPMSD.

(2)	Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.

(3)	Represents the non-reportable segments of Healthcare Services and Alliances.

(4)	Other is primarily comprised of miscellaneous corporate revenues, including revenue hedging activities, as well as third-party manufacturing sales. Other in 2018, 2017 and 2016 also includes approximately $95 million, $85 million and $170 million, respectively, related to the sale of the marketing rights to certain products.

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(b)	Supplementary Data

(1)	Amounts for 2017 include a provisional net tax charge related to the enactment of U.S. tax legislation (see Note 16).

(2)	Amounts for 2017 include a charge related to the formation of a collaboration with AstraZeneca (see Note 4).

(3)	Amounts for 2018 include a charge related to the formation of a collaboration with Eisai (see Note 4).

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Item 9A.	Controls and Procedures.

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Item 9B.	Other Information.

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Item 10.	Directors, Executive Officers and Corporate Governance.

Item 11.	Executive Compensation.

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Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

(1)	Includes options to purchase shares of Company Common Stock and other rights under the following shareholder-approved plans: the Merck Sharp & Dohme 2004, 2007 and 2010 Incentive Stock Plans, the Merck & Co., Inc. 2006 and 2010 Non-Employee Directors Stock Option Plans, and the Merck & Co., Inc. Schering-Plough 2002 and 2006 Stock Incentive Plans.

(2)

Excludes approximately 16,128,455 shares of restricted stock units and 2,039,065 performance share units (assuming maximum payouts) under the Merck Sharp & Dohme 2004, 2007 and 2010 Incentive Stock Plans. Also excludes 224,599 shares of phantom stock deferred under the MSD Employee Deferral Program and 582,155 shares of phantom stock deferred under the Merck & Co., Inc. Plan for Deferred Payment of Directors’ Compensation.

Item 13.	Certain Relationships and Related Transactions, and Director Independence.

Item 14.	Principal Accountant Fees and Services.

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Item 15.	Exhibits and Financial Statement Schedules.

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