Spin-Off of Organon & Co.

9 Months Ended

Sep. 30, 2023

Discontinued Operations and Disposal Groups [Abstract]

Spin-Off of Organon & Co.

Spin-Off of Organon & Co.

On June 2, 2021, Merck completed the spin-off of Organon through a distribution of Organon’s publicly traded stock to Company shareholders. In connection with the spin-off, Merck and Organon entered into a separation and distribution agreement and also entered into various other agreements to effect the spin-off and provide a framework for the relationship between Merck and Organon after the spin-off, including a transition services agreement (TSA), manufacturing and supply agreements (MSAs), trademark license agreements, intellectual property license agreements, an employee matters agreement, a tax matters agreement and certain other commercial agreements. Under the TSA, Merck is providing Organon various services and, similarly, Organon is providing Merck various services. A majority of the services provided under the TSA terminated within 25 months following the spin-off; a majority of the remaining services will terminate within 35 months following the spin-off. Merck and Organon also entered into a series of interim operating agreements pursuant to which in various jurisdictions where Merck held licenses, permits and other rights in connection with marketing, import and/or distribution of Organon products prior to the separation, Merck is continuing to market, import and distribute such products until such time as the relevant licenses and permits are transferred to Organon. Under such interim operating agreements and in accordance with the separation and distribution agreement, Merck is continuing operations in the affected markets on behalf of Organon, with Organon receiving all of the economic benefits and burdens of such activities. Additionally, Merck and Organon entered into a number of MSAs pursuant to which Merck is (a) manufacturing and supplying certain active pharmaceutical ingredients for Organon, (b) manufacturing and supplying certain formulated pharmaceutical products for Organon, and (c) packaging and labeling certain finished pharmaceutical products for Organon. Similarly, Organon and Merck entered into a number of MSAs pursuant to which Organon is (a) manufacturing and supplying certain formulated pharmaceutical products for Merck, and (b) packaging and labeling certain finished pharmaceutical products for Merck. The terms of the MSAs range in initial duration from four years to ten years.

The amounts included in the condensed consolidated statement of income for the above MSAs include sales of $100 million and $100 million and related cost of sales of $106 million and $104 million for the third quarter of 2023 and 2022, respectively, and sales of $290 million and $293 million and related cost of sales of $314 million and $312 million for the first nine months of 2023 and 2022, respectively. Amounts included in the condensed consolidated statement of income for the TSAs were immaterial for the three and nine months ended September 30, 2023 and September 30, 2022.

The amounts due from Organon under all of the above agreements were $526 million and $511 million at September 30, 2023 and December 31, 2022, respectively, and are reflected in Other current assets. The amounts due to Organon under these agreements were $385 million and $345 million at September 30, 2023 and December 31, 2022, respectively, and are included in Accrued and other current liabilities.