Business ethicsBusiness ethics

Within this chapter:

Corporate governance23

Governance23

Compliance management24

Data privacy29

Interactions with health systems30

Tax governance33

Suppliers34

Supply chain standards34

Mica supply chain37

Human rights39

Bioethics42

Clinical studies45

Animal welfare50

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Corporate governanceCorporate governance

GovernanceGovernance

Part of the non-financial report

For more than 350 years, responsibility has been an integral part of our corporate identity. It is one of our six

company values, alongside courage, achievement, respect, integrity, and transparency. These core values guide

us in our daily work, defining how we interact with our customers and business partners. We endeavor to give

our best for patients and customers – and find solutions for the world of tomorrow.

Our approach to responsible governanceThe requirements we place on responsible corporategovernance are derived from our company values and theregulations, external initiatives and international guidelinesto which we are committed. We have integrated theserequirements into our Sustainability strategy and ourGroup-wide guidelines. These guidelines comprise chartersand principles that are valid for the entire company as wellas specific standards and procedures for individual businesssectors and sites.

Some examples: Our Human Rights Charter aligns withthe UN Guiding Principles for Business and Human Rights.Our Group-wide Social and Labor Standards Policy reflectsthe labor standards of the International Labour Organization(ILO). Our EHS Policy (Corporate Environment, Health andSafety Policy) for environmental impact mitigation andhealth and safety forms the basis for implementing thechemical industry’s Responsible Care® Global Charter withinour company. Our Regulatory Affairs Governance Policy forchemical products sets out the processes and managementstructures for product safety.

We comply with all applicable laws as a matter of prin-ciple. Where necessary, we review our internal guidelines,standards and instruction manuals on compliant behaviorand adapt them to reflect changes in the regulatory land-scape.

How we live responsible governanceBased on the requirements set forth in charters, principlesand policies, our internal standards give specific guidancefor operational processes. They are constantly updated bythe relevant departments and are available on our intranet.Our managers implement these standards in theirrespective areas of responsibility and ensure that they areadhered to. In addition, we educate and train our employeeson all guidelines that apply to them.

We employ management systems to steer processesand define goals, actions and responsibilities. Thesesystems are based on standards, such as the internationallyrecognized quality management standard ISO 9001, goodworking practices (GxP) in the pharmaceutical industryand ISO 14001 for environmental management. Ourcompany regularly under-goes ISO 14001 and ISO 9001 certification, which isconducted by an independent auditing firm. We hold groupcertificates for both standards.

We support the following responsible governance initiat-ives:

We have been a participant in the United Nations GlobalCompact since 2005 and are committed to complying withits principles. Our annual progress report illustrates howwe live our responsibility in our day-to-day actions.As a signatory to the chemical industry’s ResponsibleCare® Global Charter, we voluntarily go above andbeyond what is required by law and have adoptedmandatory standards for product responsibility, environ-mental impact mitigation and health and safety.As a member of the Together for Sustainability (TfS)network, we are dedicated to improving supply chainswith respect to environmental, compliance and socialstandards.We are also a member of Initiative Chemie3, a collabor-ation between the German Chemical Industry Association(VCI), the Federal Employers’ Association for the GermanChemical Industry (BAVC) and the German Mining, Chem-ical and Energy Industrial Union (IG BCE). The partners ofthis globally unique alliance seek to make sustainability acore part of the chemical industry’s guiding principles andto jointly drive the sector’s position within the Germaneconomy as a key contributor to sustainable develop-ment.

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Compliance managementCompliance management

Part of the non-financial report

Responsible entrepreneurship starts with compliance. We take steps to ensure that all our activities adhere to

relevant laws, regulations and ethical standards around the world. This also helps us to protect our reputation as

an employer and business partner.

Our approach to complianceCompliance is one of our primary considerations worldwide.As an international company with operations also in low-and middle-income countries, we have stringent require-ments for effective compliance management. Importantly,we seek to emphasize compliance by acting in line withour company values and believe that profitable businessoperations should go hand-in-hand with the highest ethicalstandards.

How we ensure complianceOur Group Compliance function is responsible for thepolicies on the following core topics: anti-corruption andanti-bribery (including healthcare compliance, third-party due diligence, transparency reporting), anti-moneylaundering,antitrust, and dawn raid preparedness.

To cover these compliance topics, we have Group-widepolicies and procedures in place that ensure our businessactivities align with the relevant laws, regulations and inter-national ethical standards. Other compliance-related issues,including the respective internal regulations and guidelines,such as Pharmacovigilance, Export and Import Controls,and Environment, Health, Safety, Security, Quality, aremanaged by the responsible functions.

Our Group Compliance function is responsible for ourcompliance portfolio, which consists of the followingelements:

We continuously review our compliance portfolio and updateour initiatives and programs where necessary. Thisapproach reflects new requirements as well as internal andexternal risks, such as those resulting from amendments tolegislation, relevant industry codes or changes affecting ourcompany. We drive regular and targeted communicationand exchange internally within our compliance organizationand externally with our stakeholders and business partnersto discuss current compliance matters, trends and goals.We keep the focus on our people by ensuring the avail-ability of appropriate resources and skills, maintaining clearroles and responsibilities and, based on employee feedback,setting aligned and harmonized goals. We also ensure thatour organizational structure is always up to date and suit-able for our business needs.

Our Group Compliance Officer reports on the status ofour compliance activities, potential risks and serious compli-ance violations to the Executive Board and supervisorybodies every six months at a minimum. As part of ourregular reporting processes, we compile a compre-hensive compliance and data privacy report annually forthe Executive Board, detailing the status of our complianceprogram, continuous improvement initiatives and keyfigures on compliance and data privacy cases. Additionally,we prepare a mid-year update to highlight ongoing develop-ments and the status of relevant projects and initiatives.

Our Group Compliance Officer oversees approximately95 Compliance Officers and Compliance experts around theworld. The Compliance Officers implement our complianceprogram within their respective areas of responsibility (withlocal necessary adaptions if legally required) and receiveguidance from our Group Compliance Center of Expertise, acentralized body that drives the design and updating of ourcompliance program across all business sectors and Groupfunctions.

As part of the Group Compliance Center of Expertise,our global team for coordinating transparency reporting isresponsible for incorporating current and upcoming trans-parency reporting requirements in the healthcaresector – including those of the European Federation ofPharmaceutical Industries and Associations (EFPIA) and theUnited States Physician Payments Sunshine Act.

More information on our Healthcare governance andcompliance activities can be found in the Responsible inter-actions with health systems section.

Risk Assessment: Identifying internal and external crit-ical risks in regular business operationsPolicies & Procedures: Global policies, procedures andstandards to mitigate identified risks (see the “Ourcommitment: guidelines and standards” section for moredetails)Compliance Committees/forums: Platform for compli-ance-related discussion and decision-making that includesrelevant key functionsTraining & Awareness: Appropriate training and addi-tional measures to educate and keep awareness highPrograms & Tools: Comprehensive complianceprograms and supporting tools that contribute to internalcontrols and overall governance, such as third-party riskmanagementMonitoring & Reporting: Tracking of compliance-related data as well as performance of internal andexternal reportingCase Management: Timely response to reports ofmisconduct and implementation of corrective actions

Continuous Improvement: Based on and applying to allelements of our compliance program

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Integrating acquisitions into our compliancesystemThe implementation of our compliance program at legacyVersum Materials has been completed. Legacy VersumMaterials entities and sites will sometimes be referred toseparately to address specific needs but are now includedas part of the Performance Materials organization for futurecompliance program evolution at Merck. Two role-dependent e-learning training courses will be targeted tolegacy Versum Materials employees in 2021. Theseprograms, entitled Global Anti-Corruption Standards andUnderstanding Global Antitrust and Competition Laws, willsupplement the Merck Code of Conduct training they havealready received.

As of 2020, Versum Materials and Intermolecular arepart of the annual audit planning process of Group InternalAuditing. In January 2020, a “post day 1 audit” and inOctober 2020, an “Integration 12 months post Day 1 audit”for Versum Materials was performed. Further audits, suchas those carried out at Versum Materials Korea or Inter-molecular, are part of the 2021 Internal Audit Plan, asapproved by our Executive Board.

Our commitment: guidelines and standardsOur compliance program builds on our company valuesand integrates these into our compliance framework, whichcontains Group-wide policies and procedures for entre-preneurial conduct, which are mandatory for all ouremployees:

The Merck Code of Conduct guides our people inconducting business ethically – in line with our values andthe law. It is available to all employees worldwide in 22languages.

Our Human Rights Charter supplements our Code ofConduct with globally recognized principles on humanrights.

Impact of the Covid-19 pandemic on ourcompliance mechanismsDue to travel restrictions and in order to keep ouremployees safe, we had to conduct audits from Darmstadt.Audits were either postponed or adapted so that they couldbe performed remotely from Darmstadt.

The number of virtual meetings held by our employeesgrew significantly due to the pandemic, increasing compli-ance complexity as regards data privacy and IFPMA, EFPIAas well as local pharmaceutical industry code requirements.We responded by providing appropriate guidance on howto comply with international and local regulations in thefast-changing virtual environment and we are adapting ourrequirements and procedures accordingly.

We contributed to the fight against the Covid-19pandemic by donating protective equipment to healthcareorganizations as well as other organizations around theworld. We also defined global processes and require-ments to ensure these kinds of donations are made in linewith our compliance principles as well as international andlocal codes and regulations.

Our Anti-Corruption Policy stipulates that all businessactivities must be conducted in line with legally applicableanti-corruption standards. All forms of bribery are strictlyprohibited.Our global Money Laundering PreventionPolicy defines and describes the internal global processand assurance measures to protect our company frombeing misused by third parties for money launderingactivities.Our Group-wide Antitrust and Competition LawPolicy states that all business activities across the Groupmust be conducted in compliance with applicable compet-ition regulations at all times. We acknowledge the import-

ance of fair competition and expect the same of partnersacting on our behalf.Our Compliance Reporting and Investigation Policyincludes the basic steps for an internal compliance invest-igation. Its purpose is to ensure an appropriate, timelyand thorough response to compliance-related reports ofpotential misconduct relating to any kind of internal orexternal regulations or policies.Our new Healthcare Ethical Guiding Principlesprovide our healthcare employees with ethical guidancefor decision making and activities while taking the partic-ular challenges and responsibilities of this business sectorinto consideration. See the Responsible interactions withhealth systems section for more details.Our Pharma Code for prescription medicines as well asunderlying policies and additional guideline documents setout key principles for interactions with stakeholders in thehealth industry.Our new Standard on Local Compliance Standardsimplements a review and approval process for localgovernance documents in areas under the responsibilityof the Group Compliance function. This helps to ensurea uniform approach while retaining sufficient flexibilityto address stricter or more specific requirements andneeds on a local level. Our local teams can thus adhereto our compliance principles and guidance while imple-menting specific local policies or procedures thatcomply with local regulations.

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Risk assessmentProper compliance risk management is crucial to identifyundetected risks and keep our company protected. In 2019,we rolled out a new overarching cross-sector compliancerisk management process. This “Compliance RiskReporting & Self-Monitoring Process” comprises twocomponents. Compliance Risk Reporting is the componentin which compliance risks are evaluated. The risk evaluationis conducted by the Compliance Officer, who determinesthe monetary impact and the extent to which the risk islikely to occur, starting with the inherent risk, followed bythe residual risk evaluation. The self-monitoring componentallows us to monitor the effectiveness of our complianceprogram within a business. The respective ManagingDirector of the legal entity or head of department isprovided with specific risk-mitigating statements that mustbe confirmed on an agreement scale from “fully agree” to“fully disagree”.

After completing the first cycle in the previous year, in2020, we focused on the key risks identified by runningdifferent analyses and dedicated follow-up activities for riskmitigation. Additionally, we also started to run sector-specific risk assessments to highlight specific businesssector risks and take a targeted approach to risk reductionthat help us to continuously adjust our compliance program.

Conflicts of interestWe take all potential conflicts of interest seriously.Employees must avoid situations where their professionaljudgment may come into conflict with their personalinterests. They must also disclose every potential conflictof interest to their manager and document the disclosure.Such issues are typically resolved directly between theemployee and manager but can also be routed to HumanResources or other relevant functions.

To further enhance the existing process, a new Policyand Procedure as well as a new tool for transparent docu-mentation of potential conflicts of interest, includingdecisions and mitigations taken, was rolled out in 2020.

In addition, as described in the Annual Report under“Avoidance of conflicts of interest,” Executive Board andSupervisory Board members are exclusively committed tothe interests of the company and neither pursue personalinterests nor grant unjustified advantages to third parties.

Management and requirements of ourbusiness partnersTo be effective, compliance management must not berestricted to the boundaries of our own company. Whileour supplier management processes focus on vendorcompliance with our standards, our global Third PartnerRisk Management process governs interactions with salespartners, such as agents, distributors, and dealers. Weexpect our business partners worldwide to adhere to ourcompliance principles. We collaborate only with partnerswho pledge to comply with relevant laws, reject all forms

of bribery and adhere to environmental, health and safetyguidelines.

We apply a risk-based approach to selecting businesspartners. The greater the estimated risk regarding a certaincountry, region or type of service, the more in-depth weexamine the company before entering into a business rela-tionship. We also explore background information fromvarious databases and information reported by our businesspartners.

If we encounter compliance concerns, we furtheranalyze and verify the existing adverse information. Basedon the outcome, we decide whether to reject the potentialbusiness partner, impose conditions to mitigate identifiedrisks or terminate the existing relationship.

Compliance forumsThis year, Group Compliance reinforced compliance aware-ness and encouraged compliance discussions by estab-lishing a dedicated platform for local Compliance forumsor committees. This platform enables discussion of updatesand alignment on certain matters in order to maintain a highstandard of corporate compliance throughout the globalorganization. At the same time, they make it possible toremain agile when new business and compliance chal-lenges arise. Group Compliance has developed them using astructured methodology framework to enhance consistencyand complementation across the globe, which will furthersupport our risk assurance. Each local forum contributesto our consistent compliance framework approach and hassufficient flexibility to cater to their local sector-specificneeds.

Compliance trainingWe provide regular compliance classroom and onlinetraining courses on our Code of Conduct, anti-corruption,antitrust, data privacy, and healthcare compliance stand-ards. We require employees to take these courses basedon their exposure to risk. Some courses also apply to inde-pendent contractors and supervised workers, such astemporary staff.

In 2020, we rolled out two new mandatory e-learningtraining courses. The training courses are assigned to allrelevant employees. We launched an updated version of ouranti-corruption e-learning training course in 13 languages.In 2020, 28,805 employees completed the training course.We also rolled out a new money laundering preventione-learning training course, which is available in eightlanguages. The final rollout took place in November 2020and 12,829 employees completed the training in 2020.

In September 2020, we migrated to a Group-widelearning management platform to simplify learneraccessibility.

We regularly update our training plan and adapt it tonew developments to continuously educate our employeeson existing and new compliance requirements, guidelinesand projects.

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Compliance monitoring and reportingactivitiesIn 2020, we further enhanced our monitoring and reportingactivities. Since we have different tools within Compliance,our efforts were targeted to create a single platform thatdisplays all relevant information (KPIs and metrics for trendanalysis) from the various tools. Therefore, we initiateda new governance and monitoring project that ensures amore efficient tracking of compliance-related KPIs andmetrics.

Reporting potential compliance violationsWe encourage all employees worldwide to report potentialcompliance violations to their supervisors, Legal, HR, orother relevant departments. Worldwide, they can also useour central whistleblowing SpeakUp Line free of chargeand anonymously to report violations in their locallanguage by telephone or via a web-based application.Reports of potential compliance violations that we receivevia our SpeakUp Line are reviewed by the ComplianceInvestigations and Case Management team. Cases with acertain risk profile are presented to the Compliance CaseCommittee, which comprises senior representatives fromCompliance, Corporate Security, Data Privacy, HumanResources, Internal Auditing, and Legal.

The committee’s duties include assessing and classifyingethical issues, investigating their background andaddressing these issues using appropriate measures. Basedon the investigation outcome and recommendations fromthe compliance investigation team or the Compliance CaseCommittee, appropriate disciplinary action may be takenagainst employees who have committed a compliance viol-ation. If, during the investigation, a root cause is identifiedthat could lead to further compliance violations, we takepreventive and corrective actions.

The SpeakUp Line is also available to external stake-holders. The relevant information can be found in theCompliance and Ethics section of our website, where weconsolidate key compliance information, such as our values,Code of Conduct (CoC) and information on transparency anddata privacy for external audiences.

Both the number of reports of suspected complianceviolations and the number of actual compliance cases werestable compared with the previous year. In 2020, wereceived 81 compliance-related reports via the SpeakUpLine and other channels that led to investigations. Therewere 41 confirmed cases of violations of the CoC or otherinternal and external rules.

Compliance auditsAs part of operational audits, our Group Internal Auditingfunction regularly reviews relevant matters at our sites todetermine the effectiveness of the respective compli-ance guidelines, processes and structures in place. Theunit also checks for violations of our CoC and our Anti-Corruption Policy and reviews the workplace requirementsset out in our Human Rights Charter.

Our audit planning aims to provide comprehensiverisk assurance through the best possible audit coverage.Our annual audit planning process is risk-based and includesfactors such as sales, employee headcount, system-atic stakeholder feedback, and the Corruption PerceptionsIndex (CPI) published by the non-governmental organiz-ation Transparency International. If an internal auditproduces recommendations, Group Internal Auditingperforms a systematic follow-up and monitors the imple-mentation of the prescribed corrective actions. In 2020, weassessed 52 operations for corruption-related risks.

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Alliance for IntegrityWe are a member of the Alliance for Integrity SteeringCommittee, which was established by the German Societyfor International Cooperation (GIZ), the German GlobalCompact Network (DGCN) and the Federation of GermanIndustries (BDI). This initiative aims to achieve corruption-free business in low- and middle-income countries. Its activ-ities focus on Latin America, Ghana, and Asian countries,particularly India and Indonesia. The Steering Committeeleads the decision-making process for developing nationalmeasures, while local advisory groups oversee implementa-tion at country level.

Our local compliance organizations also collaborate withthese groups and offer training to small and medium-sized companies. Beyond these efforts, we continuouslyassist the Alliance for Integrity through business-to-busi-ness workshops and training courses and by sharing best

practices on how to develop and implement effectivecorruption prevention systems.

Engaging stakeholdersIn 2020, we conducted stakeholder dialogues primarilythrough our memberships of various associations. We aremembers of various organizations, including the GermanChemical Industry Association (VCI), the German Institutefor Compliance (DICO), the European Federation of Phar-maceutical Industries and Associations (EFPIA), the GermanAssociation of Voluntary Self-Regulation for the Pharma-ceutical Industry (FSA), the International Federation ofPharmaceutical Manufacturers and Associations (IFPMA),the Alliance for Integrity, the German Association for SupplyChain Management, Procurement and Logistics (BME), andthe International Association of Privacy Professionals(IAPP).

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Data privacyData privacy

Part of the non-financial report

For a leading innovative, science- and technology-driven company such as ours, compliant handling of informa-

tion is of utmost importance. When using personal data, the individuals’ rights must be appropriately protected.

In this regard, we strive to safeguard the rights of any person whose data we process, including but not limited

to our employees, patients, customers, healthcare professionals, suppliers, visitors, and other business partners.

Our approach to data privacyThe mandate and goal of our Group Data Privacy unit isto mitigate risks and create a global framework for dataprivacy-compliant business operations. This unit helps tobuild our employees’ capacity to handle data correctly andwith clear accountability and it safeguards our company byproviding data privacy risk assurance. Group Data Privacyalso contributes to creating value for the development ofdigital business models.

How we ensure data privacyGroup Data Privacy is part of our global Group Complianceand Data Privacy function. As required by law, this unitacts independently. As part of our compliance reporting,it prepares frequent data privacy updates as well as aregular, comprehensive data privacy report. This report ispart of the compliance report submitted to the ExecutiveBoard and the Supervisory Board. In addition to the GroupData Privacy unit with a Group Data Privacy Officer whoreports centrally, we also have a network of Local DataPrivacy Officers at various sites Group-wide.

Our goal is to establish a fully global and consistent DataPrivacy Management System (DPMS) by the end of 2022.It will be based on the following three pillars: Data Privacyportfolio, people and communication. The Data Privacy port-folio will consist of eight key processes and topics brokendown into 26 detailed sub-elements, thus covering allelements of a functioning DPMS in line with legal require-ments and industry standards.

Our DPMS applies similar elements as the complianceportfolio but adapted to the needs of data privacy. Theseinclude policies and procedures, risk assessment and docu-mentation, training and awareness, programs and tools,individual’s requests, monitoring and reporting, incidentmanagement, and continuous improvement.

Ensuring IT securityIt is essential for our business that we also protect ourinformation systems, their contents and our communicationchannels against criminal or unwanted activities of any kind,such as e-crime and cyberattacks, including unauthorizedaccess, information leakage and misuse of data or systems.

Our Group Security and IT Security units maintain organ-izational, process-related and technical information securitycountermeasures based on recognized international stand-ards. We employ harmonized electronic and physicalsecurity measures (e.g. access control) to bolster ourability to handle sensitive data, such as trade secrets.

Our commitment: guidelines and standardsOur Data Privacy Policy and the corresponding standardsand procedures define our principles and standards forprocessing personal data. This approach allows us toachieve a high level of data protection for ouremployees, contract partners, customers, and suppliers aswell as patients and participants in clinical studies. OurGroup-wide understanding of data privacy is based onEuropean legislation, in particular the European UnionGeneral Data Protection Regulation (EU GDPR). We alsotake steps to meet local data privacy requirements wherethese are stricter than our Group-wide standards.

Data privacy trainingIn line with the EU GDPR and our global approach to ensuredata privacy, we regularly conduct e-learning trainingcourses in ten languages. An update to this training courseis planned for the first quarter of 2021. Additionally, LocalData Privacy Officers complement the execution of ourGroup-wide training plan by conducting training for specifictarget groups.

IT tools for documentationWe maintain a central IT tool to provide a single source fordata privacy processes, such as registering data processingactivities and reporting potential data privacy incidents.This tool will be redesigned in 2021. Additionally, we useour company intranet for further communication, includinganswering data privacy questions and providing standard-ized templates. We registered no sanctioned complaintsor incidents concerning breaches of customer privacy,leaks, thefts, or losses of customer data in 2020. In threecases, minor personal data breaches were reported to thesupervisory authority which were not sanctioned.

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Responsible interactions with health systemsResponsible interactions with health systems

Part of the non-financial report

It is important that healthcare stakeholders, such as research institutes, healthcare professionals, patient

advocacy groups, and other key players have access to up-to-date information on diseases and treatments while

safeguarding their independence. We help facilitate this access by sponsoring independent initiatives and medical

capacity-building programs. We also support outstanding research projects through our Global Grants for Innov-

ation, for example. Transparency is one of our top priorities in everything we do.

Our approach to interacting with healthsystemsThe well-being of patients is always our primary consid-eration when promoting pharmaceutical products, which iswhy we support health systems by providing information toour healthcare stakeholders, such as professional medicalassociations, patient advocacy groups, university clinics,and other hospitals. We follow specific approval require-ments and procedures for each type of interaction inaccordance with applicable laws and codes. In countriesthat have statutory or industry obligations on the disclosureof transfers of value to healthcare stakeholders, we complywith these obligations.

We adhere to all regulations concerning the promotionof pharmaceutical products. In most markets, manufac-turers and distributors are permitted to advertise prescrip-tion drugs only to healthcare professionals, such asphysicians and pharmacists. These promotional activitiesmust always disclose the active ingredients, potentialadverse effects and contraindications of the drug. Ourinternal governing documents on drug promotion are partof our Group-wide program, which requires us to alwaysconduct business in compliance with the law, industry oblig-ations and in line with the highest ethical standards.Our internal governance documents and various voluntarycommitments exceed the applicable statutory regulations inmany cases. We regularly review all our internal governancedocuments and revise them as required in response to anynew developments.

We clearly differentiate between information-sharingactivities (activities in which we share scientific informationbut not with the intention of promoting or increasing sales ofpharmaceutical products) and promotional activities (activ-ities with the clear intention of promoting or increasing salesof pharmaceutical products performed only by the Commer-cial organization) in line with industry standards. This differ-entiation implies various internal policies and standardoperating procedures, responsible functions and review andapproval levels, depending on the intention of the activity.

How we ensure transparency and complianceFor all engagements with healthcare stakeholders, wehave established internal policies, review processes andtools such as record-keeping systems to ensure adherenceto statutory requirements and transparency obligations.

Our Global Regulatory Affairs unit has established adedicated policy and corresponding process document onthe review and approval of our promotional materials. At the

operational level, the relevant business and all employeesinvolved in our sales and marketing activities must adhereto our internal policies and procedures.

To ensure that all promotional materials meet our stand-ards as well as local regulations end-to-end, we apply aharmonized Group-wide review and approval system.In our Healthcare business sector, we use a single globalsoftware tool. This has enabled us to unify, simplify andmonitor the review and approval process for promotionalmaterials and monitor that process in accordance with thedual-control principle. If the material has promotional intentand is product-related, there is a review by medical, legaland regulatory functions. This also helps us identify oppor-tunities for improvement.

Direct-to-consumer advertising only in certaincountriesDirect-to-consumer (DTC) advertising for prescription drugsis permitted in some countries, such as the United States. Inaccordance with applicable local laws, we use DTC advert-ising in these countries to help increase people’s awarenessof certain diseases and the available therapies. In doing so,we empower patients to make informed decisions abouttheir own treatment.

Our commitment: Group-wide guidelines andindustry standardsIn addition to applicable laws and our own internal stand-ards, we comply with the codes of conduct of variousindustry organizations, such as the Code of Practicepublished by the International Federation of PharmaceuticalManufacturers & Associations (IFPMA) and the EuropeanFederation of Pharmaceutical Industries and Associations’(EFPIA) Code of Practice.

We are a member of the German Association of Volun-tary Self-Regulation for the Pharmaceutical Industry (FSA),which has defined its own Code of Conduct for collaborationbetween physicians and the pharmaceutical industry.

Our Group-wide Pharma Code for Conducting Pharma-ceutical Business and Pharmaceutical Operations defines therelevant general compliance for our activities in the Health-care sector. It also governs our interactions with physicians,medical institutions and patient advocacy groups along withour promotional practices.

Our new Standard on Medical Activities provides thegeneral principles and requirements that must be respectedin all medical activities, including interactions with health-care providers. The specific governance for the different

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types of activities and interactions is detailed in furtherpolicies and standards, standard operational procedures andother governance documents.

We introduced new Healthcare Ethical Guiding Prin-ciples in October 2020 to provide our Healthcare employeeswith ethical guidance for decisions and activities specific tothe particular challenges and responsibilities of this businesssector. They complement our other policies by providing anaccessible general guide for responsibility towards patients,the independence of safeguarding mechanisms, scientificintegrity, responsible promotional activities, responsibleinteraction with healthcare stakeholders, and organizationalresponsibility and accountability. We have specificgovernance documents, procedures and tools for differenttypes of interactions with healthcare stakeholders, coveringtopics, such as engagements, hospitality, payments (at fairmarket value) and sponsorships to participate in events.

Collaborating with patient advocacy groupsOur Policy on Interactions with Patients, Patient OpinionLeaders and Patient Organizations provides a compre-hensive framework for our interactions with these keystakeholders. Our guideline entitled Good Practice andProcess Guidance: Engagement with Patients, PatientOpinion Leaders and Patient Organizations provides addi-tional guidance for our interactions with these stakeholders.It reflects our commitment to prioritizing patient well-being.Through this policy, the supplementary guideline andspecific local policies, we provide a robust guidance struc-ture to support our employees in remaining compliantthroughout their interactions with patients, patient opinionleaders and patient organizations.

We seek to improve patients’ quality of life, which iswhy we support the work of patient advocacy groups. Thesegroups in turn provide patients, family members and care-givers with information on disease management.

Supporting medical research and educationThrough our Global Grants for Innovation, we sponsorresearch and medical education worldwide in order tocontribute to medical advances that benefit patients.

We organize non-promotional medical educationprograms through our Global Medical Education andAcademic Organization Relations unit. We deliver these

either directly as Merck Medical Education Programs or byproviding grants to third-party medical education providersto fund independent and continuing medical educationprograms. We take an ethical, transparent and respons-ible approach aimed at providing fair, balanced andobjective content, designed to allow the expression of adiverse range of theories and recognized opinions.

All requests for medical education funding are channeledthrough an approval process that falls under our R&D andCompliance functions, in line with our Medical EducationFunding and our Merck Programs Policies. This processensures that all funds available for medical educationprograms are granted according to established internalguidelines and criteria, while also complying with all applic-able laws and industry codes.

We also partner with industry associations, such asGlobal Alliance for Medical Education (GAME), InternationalAlliance for Continuing Medical Education, (iPACME),European Federation of Pharmaceutical Industries and Asso-ciations (EFPIA), and Medical Affairs Professional Society(MAPS). Together with these associations, we discuss howto improve and harmonize quality standards for medicaleducation.

Transparent reportingIn 2020, we continued to publish financial and non-financialcontributions that we made to healthcare stakeholders inthe health industry where required according to local lawsand codes. As required by applicable laws and codes, thisinformation includes the names of individual recipients andtheir addresses as well as the purpose and amount ofthe transfer. Before publishing, we secured all necessaryinformed consent forms, as required by the applicable dataprivacy regulations.

In addition to disclosing monetary transfers of value onan individual level, we continue to publish overallspending on our research and development activities asrequired.

We ensure transparency on our voluntary unsoliciteddonations by publishing the details of contributions toEuropean patient organizations on our website. The reportis updated annually and includes all amounts, recipients andthe purpose of each transfer of value, thus fulfilling ourobligation as a member of EFPIA.

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Regular employee trainingIn 2020, we rolled out our Code of Conduct-related trainingcurriculum on dealing with dilemmas in healthcare-specific situations to several countries after piloting theproject in China in 2019. This is a comprehensive trainingcourse that seeks to improve participants’ awareness andunderstanding of such dilemmas, for example when over-hearing a conversation that may or may not constituteattempted bribery. We plan to implement this trainingprogram in all countries where our Healthcare businesssector operates.

In 2020, we also rolled out a Healthcare Ethical GuidingPrinciples training for our leadership teams, explaining theprinciples and discussing how they can be used in differentscenarios. The goal is to enable our employees to makeethical decisions relating to scenarios that are not clearlydefined in other governance documents, where necessary.

For 2021, an e-learning course is planned for all Healthcareemployees.

Employees who are responsible for the promotion ofour pharmaceutical products receive regular training oncurrent guidelines. This applies to individuals working insales, marketing and drug registration in particular. Weeither conduct these seminars locally in a classroom settingor as e-learning courses.

New employees participate in onboarding trainingdealing with the review and approval of promotional mater-ials. Additionally, employees in charge of marketing andpromotion of pharmaceutical products can also access ourrespective guidelines via our intranet.

Relevant employees participate in mandatory e-learningcourses and classroom seminars to stay up-to-date on ourpolicies and guidelines and important changes to transfer ofvalue reporting requirements.

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Tax governanceTax governance

We are aware that our company operates in a complex legal environment and incurs various tax obligations with

its domestic and foreign business activities. It is our responsibility to ensure compliance with tax legislation in

all countries in which we operate and to be transparent. For this we have a tax organization that clearly defines

responsibilities, processes and controls.

Our approach to taxesWe believe that fair taxation serves as a backbone of anyfunctioning society. Therefore, we expect public authoritiesto take transparency, predictability and non-discriminationinto consideration when implementing taxation measures.We understand that tax is embedded in almost every aspectof commercial operations and our company therefore actsas a responsible taxpayer with respect to the followingobjectives:

How we organize our tax governanceTaxes are managed in different units within Merck KGaA.Group Tax is generally responsible for tax matters of MerckKGaA and provides tax standards for the Merck Group – withthe exception of customs, consumption tax and wage tax.The Export Control and Customs Regulations unit within theGroup Environment, Health, Safety, Security, Quality (EQ)function is responsible for customs and consumption tax.Human Resources is responsible for wage tax. Certain taxtasks are managed by other units of Merck KGaA or MerckBusiness Services (MBS).

The Group Chief Financial Officer (CFO) is responsible forthe Group Tax function. He delegates his tasks related to taxmatters to the Head of Group Tax. The Head of Group Taxis also responsible for defining the organizational structureof the function, for monitoring it on an ongoing basis andfor adapting it if necessary. Group Tax consists of five units.In addition, the local tax unit in the United States reportsdirectly to the Head of Group Tax.

At the subsidiary level, the local CFO is generallyresponsible for tax matters, managed either by local taxunits, by external advisors, or, for Germany and the U.S.subsidiaries, by Group Tax. The local CFOs report to theregional CFO. The regional CFO ultimately reports to theHead of MBS, who reports to the Group CFO. If no localCFO is assigned, the tasks are taken over by a designatedemployee in the Finance unit.

Our SpeakUp Line, i.e. our general whistleblowingsystem, is also open for tax topics.

Our commitment: a tax principleOur tax principle is part of our tax internal controlsystem. The principle represents the framework andminimum requirements for all tax-relevant processes,methods and structures within our company and:

The Tax Principle was issued by the Executive Board andapplies to the entire Group. We review it at least once ayear and modify it if necessary. In case of extraordinaryevents, such as changes to the business strategy, organiz-ational structures or risk management processes, the prin-ciple is reviewed on an ad-hoc basis and adapted if required.The responsibility for annual and ad-hoc reviews as well asmodifications to the principle lies with the Head of GroupTax. Modifications to the principle are discussed by theExecutive Board.

Ensure timely and proper execution of tax obligations;Secure material correctness of tax positions determinedin the annual financial statements and tax declarations;Assure effective tax risk management and tax monit-oring;Avoid inappropriate structuring leading to benefits notprovided by tax law.

Outlines the tax compliance culture within the Group;Defines our tax compliance objectives;Specifies the organizational framework for tasks, rolesand responsibilities, which ensures compliance with taxrules within the Group;Establishes basic rules for the exchange of tax-relevantinformation.

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SuppliersSuppliers

Supply chain standardsSupply chain standards

Part of the non-financial report

Our company procures many raw and packaging materials, technical products, components, and services from

around the world. We aim to promote supply chain stability while providing our customers with high-quality

products and services. We expect our suppliers to share our ethical, social and compliance standards, as set out

in our Responsible Sourcing Principles, and to apply these within their own supply chains as well.

Our approach to making our supply chainsmore sustainableOne of the goals of our supplier management endeavorsis compliance with fundamental environmental andsocial standards, alongside high-quality, reliable deliveryand competitive prices. To achieve this, we have introducedrelevant strategies, processes and guidelines that we arecontinuously improving to prevent violations of supply chainstandards. To ensure supply security, we select oursuppliers based on diverse criteria such as country risk,material risk, supplier risk, and business criticality. Thishelps our sourcing employees to identify potential mitigationactions with relevant suppliers and work on improvements.The approach towards our strategic suppliers, whichaccount for approximately 43% of our total spend, includesthe identification, monitoring and assessment of supplysecurity risks. It comprises four main elements:

1. Supplier Risk Assessments: to capture the over-arching risks at supplier legal entity level, includingmultiple risk domains.

2. Alert system: to notify our Procurement organizationwhen any of our suppliers faces a potential disruption.

3. Material Risk Assessments: to determine the risksof relevant materials that make up our most significantfinished products.

4. Risk Response Tracker: to create and monitor riskmitigation activities.

We calculate risk factors for suppliers and raw materials bymultiplying risk probability and risk impact. For the supplierevaluation, we consider 29 risk titles, including, but notlimited to economic freedom, social unrest, unfair businesspractices, and poor labor practices. We have also includedcriteria for identifying supplier relationships impacted bykey sustainability risks, such as mineral sourcing oranimal welfare.

In 2020, we extended this program to include moresuppliers. Additionally, we are streamlining the criteria andintegrating other relevant topics in order to arrive at a morecomprehensive and solid evaluation. We expect to imple-ment this project by the middle of 2021. Amid the Covid-19pandemic, our Procurement team also successfully securedthe supply of raw materials, services and finished goods. It

achieved this predominantly through effective supplier rela-tionships.

We have developed a company-wide due diligenceprocess for Responsible Supply Chains of Minerals fromConflict-Affected and High-Risk Areas, according to OECDguidance, which will integrate and strengthen existingmeasures used in our business sectors. A working groupmanages and implements this process. It comprises variousbusiness sector and Group function representatives.

We understand our approach to supply chain sustainab-ility as a journey and are continuously working to improveand further develop our policies and processes. While doingso, we make sure that all legal requirements are consideredand corresponding measures are initiated where necessary.In this context, we are closely monitoring the developmentsrelating to a potential supply chain law and the resultingrequirements.

Learn more about our efforts to reduce our scope 3emissions in the Climate action chapter.

How we implement sustainability standardsin the supply chainGroup Procurement is responsible for integrating sustainab-ility requirements into the relevant stages of our sourcingand supplier management processes. It is a global organ-ization with direct accountability and resources in procure-ment-relevant local subsidiaries. Our Center of Excellencefor Supplier Security coordinates the relevant measures,such as updating our guidelines where necessary,examining processes and coordinating our participation inexternal initiatives. Sourcing employees responsible forselecting and contracting suppliers are aware of and regu-larly updated on our guidelines and sustainabilityrequirements through internal communication channelsand training.

In 2020, we introduced a TfS training course in Asia.We invited our Procurement employees to participate invarious Ecovadis webinars. Part of the training programdeals with TfS assessments and audits. In addition, we arein the process of developing a global training program forpurchasers and suppliers together with TfS.

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Our commitment: Guidelines and standardsWe expect all our suppliers and service providers to complywith environmental and social standards, which areprimarily derived from the core labor standards of the Inter-national Labour Organization (ILO) and the UN GlobalCompact.

Moreover, we support the Compliance Initiative of theGerman Association for Supply Chain Management, Procure-ment and Logistics (BME) and have endorsed the BME Codeof Conduct. In particular, this code sets out rules forcombating corruption, antitrust violations and child labor, aswell as for upholding human rights, protecting the environ-ment and public health and promoting fair working condi-tions.

We seek to conduct our business activities in compliancewith labor, social and environmental standards while alsorespecting human rights. Additionally, we abide by thestandards set out in our Code of Conduct and our HumanRights Charter. We expect our suppliers to comply withthe labor, social and environmental standards definedin our Responsible Sourcing Principles and to ensure thattheir subcontractors do the same.

We recognize that risks of significant adverse impactmay be associated with extracting, trading, handling, andexporting minerals from conflict-affected and high-riskareas (“CAHRAs”). We have a responsibility to respect and

safeguard human rights and not to contribute to conflicts.That’s why we published our commitment to responsiblesourcing of minerals from CAHRAs with our ResponsibleMinerals Sourcing Charter in 2020. This complements therequirements set out in our Responsible Sourcing Principles.The primary focus of the Responsible Minerals SourcingCharter is on mined material such as tin, tungsten,tantalum, gold (also known as the “3TGs”), andcobalt sourced from CAHRAs. This Charter is also intendedto cover CAHRA-related risks in other supply chains, asidentified by our internal risk evaluation processes. ThisCharter applies to all Merck entities and subsidiaries world-wide, all Merck employees as well as any third party actingon behalf of Merck.

Global ProcurementThe total value of the goods and services we purchasedin 2020 from approximately 60,000 suppliers in almost160 countries amounted to around € 7.9 billion, comparedwith approximately € 7.5 billion in 2019, representing anincrease of 5%. Of these (including R&D services), wepurchased 27% from suppliers based in North America,49% from suppliers based in Europe, 18% from suppliersbased in the Asia-Pacific region, 1% from suppliers based inthe Middle East and Africa, and 3% from suppliers based inLatin America.

Purchase volume and suppliers per region – 20201

1) For data processing reasons, 3% of our purchase volume (1,196 suppliers) is currently not assigned to any purchase region.

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How we monitor our supply chainA number of different approaches are used to keep track ofour suppliers and ensure compliance with our standards andvalues. These are generally based on the risk the supplierspose and combine the factors of country risk, industry riskand impact on business.

TfS supplier assessments and auditsUnder TfS, suppliers are assessed either based on inform-ation obtained during audits, or based on self-reported andpublicly accessible information provided by EcoVadis, anindependent rating agency. EcoVadis assesses suppliersfrom 160 countries and 200 sectors across the fourcategories of Environment, Labor and Human Rights,Ethics, and Sustainable Procurement. The results areshared among TfS member companies in compliance withall restrictions stipulated by antitrust law. From a strategicperspective, TfS activities focus on achieving demonstrableimprovements in supplier sustainability standards. In 2020,we began rolling out a new strategic framework, “Grow &Deliver”, which defines TfS activities for the next five years.Our core objective is to move from measuring and monit-oring to delivering a substantial positive impact in the chem-ical supply chain.

Through the TfS initiative, we have access to more than1,250 valid scorecards on the assessment of our suppliers,

717 of which took part in a new assessment or re-assess-ment in 2020. In some cases, these were initiated by us andin other cases by other TfS members.

TfS also began a pilot for a more inclusive audit processin 2020. As a TfS member, we can use SQAS, SMETA andPSCI audits in addition to TfS audits, as they are nowaccepted as equivalent.

Conducting our own auditsWe continuously conduct our own audits in selected casesbased on business requirements. In 2020, none of theserevealed indications of violations of the right of association,the right to collective bargaining or cases of child labor,forced labor or compulsory labor.

Supplier diversityIn the United States, we have a specific supplier diversityprogram in place to comply with regional legislation. Wefocused our efforts on enhancing our current supplierlocator tool by broadening the rollout among sourcingmanagers to improve our ability to connect with and poten-tially award business to diverse vendors. Additionally, weare continuing to work on internal awareness campaignsand training seminars for our sourcing managers and areinvesting in tools to expand our small and diverse vendordatabase.

Ambassadors for more sustainable supplychainsSince becoming established on the social network LinkedInin 2019, the Sustainable Procurement Pledge (a TfS initi-ative) has evolved to become a knowledge exchange plat-form for procurement professionals, academics and otherstakeholders. The platform has hosted various online bestpractice exchange events. At Merck, we actively participatein the Sustainable Procurement Pledge.

Under the Together for Sustainability (TfS) initiativelaunched by companies in the chemical industry, weencourage our suppliers to be assessed either on self-reported information or via audits. We have been amember of TfS since 2014.In selected cases, we conduct our own sustainabilityaudits of suppliers.Regarding our mica supply chain, we engage with a globalconsultancy to conduct audits and with the Indian organ-ization IGEP to conduct inspections.

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Mica supply chainMica supply chain

Part of the non-financial report

Mica is an important raw material for our effect pigments, which are used in automotive, industrial coatings and

plastics, as well as in the cosmetics and food industries. We procure the majority of our mica from India, specific-

ally the north-eastern states of Jharkhand and Bihar. This region suffers from political instability and poverty,

with widespread child labor. We’ve taken special measures to comply with our social and environmental stand-

ards.

Our approach to responsibility in the micasupply chainIn procuring mica from northeast India, we are supportingthis region by safeguarding local employment and liveli-hoods. We source the raw material only from suppliersacting in formal working environments and monitor compli-ance with our standards, including our prohibition of childlabor.

Our mica suppliers are informed of our standards andhave confirmed that they adhere to the principles of ourHuman Rights Charter as well as the requirements of ourResponsible Sourcing Principles. We do not tolerate childlabor and contractually prohibit our suppliers fromemploying children. Hence, we are driving initiatives andtaking measures to improve the conditions of mica sourcingbased on our high standards. We constantly review ourmonitoring processes and work on improving their effective-ness.

How we organize our mica supply chainGroup Procurement has overall responsibility for sourcingmica. A steering committee is in place to involve therelevant functions and inform responsible Board membersabout significant developments.

We have established direct business relationships withthose suppliers who handle the mica supply chain in India.Our procurement unit is in direct contact with the suppliersto reiterate the importance we place on ethical, social andenvironmental standards. In case of non-compliance withour standards, we work with suppliers to ensure the appro-priate implementation of corrective measures.

Our commitment: Compliance with guidelinesand standardsAs a signatory to the United Nations Global Compact, weare actively involved in working to abolish child labor. OurHuman Rights Charter underscores this commitment. In ourResponsible Sourcing Principles, we set out our expecta-tions for our suppliers in terms of corporate responsibilityand human rights, including prohibition of child labor. OurResponsible Sourcing Principles are also an integral part ofour supplier contracts.

Auditing our mica supply chainWe have implemented a series of oversight mechanismsthrough a system that monitors and audits compliance withour social and environmental standards. In addition to visitsby Merck employees, regular inspections are conducted by

third parties, who conduct comprehensive announced auditsas well as frequent, unannounced check visits.

External auditsEnvironmental Resources Management (ERM), a leadingglobal provider of environmental, health, safety, risk, socialconsulting services, conducts external audits of mines andprocessing plants, investigating working conditions as wellas environmental, health and safety issues. The auditreports document any identified shortcomings in thisrespect and propose corrective actions. Our employees inKolkata (India) and Darmstadt (Germany) then follow up towork on resolving any identified issues.

If shortcomings are not rectified, we take further action,up to freezing relations with the respective company or eventerminating the business relationship altogether if neces-sary.

Unannounced inspectionsSince 2013, the IGEP Foundation, a local non-governmentorganization, has been arranging regular unannouncedinspections to check labor standards along the supply chain.During these visits, IGEP monitors occupational safety aswell as compliance on child labor. In 2020, the inspec-tions focused on the availability of first aid kits with suffi-cient medicine, medical health check-ups for workers andhealth and safety training. Due to an improved escalationprocess, our suppliers have successfully improved theworking conditions on the sites.

Tracking system for mica sourcesWe use a tracking system to help ensure that the micawe purchase is derived from sources qualified by ourcompany, and to monitor their productivity. Based onwritten records of the daily extraction quantities, we reviewthe volumes of mica reported and supplied to the processingcompanies.

Community outreach in the mica supply chainThe states of Jharkhand and Bihar are among the mostimpoverished regions in India. Together with IGEP, we areworking to improve the living conditions of the familiesin the mica mining areas. The literacy rate and the numberof children who attend school are far below the Indiannational average, according to a study conducted in 2016and a report published in 2018 by the organization Terre

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des Hommes and the Centre for Research on MultinationalCorporations.

As part of our efforts, we are funding three schools inJharkhand run by our partner IGEP, which are attended bynearly 500 children and adolescents. In 2020, two schoolsintroduced an eighth grade. Tailoring and carpentry coursesare also offered in vocational training centers nearby theschools. In the reporting year, we also assessed the feas-ibility offering new options for vocational trainings such asplumber or electrician. At a fourth school run by one of ourmica suppliers, we provide scholarships for 200 children outof 450 enrolled at the school.

In addition to our education efforts, we are committedto improving local access to healthcare. To this end, wehave established a health center operated by IGEP to servethe 20,000 residents in the region. Two medical profes-sionals work at the center and also provide regular healthservices to schools. This center provides an importantcontribution to improving the medical care of the populationin the region, particularly during the Covid-19 pandemic,which continues to have a significant impact on the Indianeconomy and society.

Stronger together: Joint action in the micasupply chainWe are a founding member of the multi-stakeholder groupResponsible Mica Initiative (RMI). In 2020, we once againheld the presidency of the organization. The initiative aimsto eradicate child labor and unacceptable working conditionsin the Indian mica supply chain by joining forces acrossindustries. During the reporting year, we continued toactively support the RMI’s work on its three main programpillars:

In 2020, the RMI further developed its multi-stakeholderconsultations, including representatives from processors,local authorities and non-government organizations. Animportant outcome of this is the “Ranchi principles,” whichrepresent a cornerstone for alignment among all key playersat a local level. They are a set of principles intended to helpcreate a sustainable mica eco-system in the Indian micaregion.

The RMI responded rapidly to the Covid-19 outbreak.At the outset, the RMI funded community kitchens in theGiridih district until local authorities took over. Thesecommunity kitchens supplied two meals per day, prioritizingvulnerable groups, such as the elderly, migrant workers andunderprivileged families. At a later stage, the RMI organ-ized e-consultations so that all its stakeholders were able tocontinue the dialog on sustainable mica.

New sources of micaOur processes undergo constant review and improvement.We are evaluating other sources for mica according to ourquality, social and environmental standards both in Indiaand in other regions. In 2020, we obtained a considerableamount of our mica from Brazil, where we have also estab-lished oversight mechanisms to monitor and audit adher-ence to these standards. In addition, we manufacture effectpigments based on synthetic substrates as an alternative topigments based on natural mica.

Responsible workplace standards: In 2020, RMI heldtraining sessions on workplace standards for local busi-nesses.

Community empowerment: Building on the firstcommunity empowerment program in 2018, the RMI hasexpanded the programs to cover 80 villages, reachingmore than 5,800 households in 2020. The goal is toaddress the root causes of child labor and to improve live-lihoods within the local community.Advocacy: Through continuous advocacy work, the RMIis recognized as an important partner for drafting futurepolicies to help ensure sustainable mica mining whileeradicating the root causes of child labor.

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Human rightsHuman rights

As an international corporate group, we have a duty to respect human rights worldwide within our sphere of

influence and to ensure that they are not compromised by our business activities. Upholding human rights is

indispensable and non-negotiable for us, which is why we also expect our business partners to guarantee that

human rights are respected. By meeting our human rights due diligence obligations, we fulfill our social respons-

ibility and secure our social license to operate. At the same time, this helps us to remain competitive over the

long term.

Our approach to human rights due diligenceWe are committed to upholding human rights, which is whywe became a signatory to the UN Global Compact back in2005. We endeavor to reduce the risk of human rights viol-ations as far as possible, not only at our own sites but also

along our entire supply chain. That is why we are continu-ously integrating human rights due diligence more firmlyinto our business processes.

Our approach to human rights due diligence encom-passes six main components.

Our human rights due diligence process

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We view human rights due diligence as a continuousprocess, which we constantly adapt and improve. Weclosely monitor regulatory developments – for example, theNational Action Plan (NAP) on Business and Human Rightsof the German federal government on the implementationof the UN Guiding Principles and the planned EU directiveon human rights due diligence. Regulations such as theseprompt us to continually review our approach to humanrights due diligence.

How we promote respect for human rightsTo ensure that human rights are respected in our sphere ofinfluence, we have defined clear responsibilities.

Our Executive Board has ultimate responsibility forhuman rights within our organization. The Executive Boardexercises this responsibility by requiring our ManagingDirectors to comply with human rights.

Our Group Corporate Sustainability (CS) unit is respons-ible for coordinating all human rights due diligence activitiesand processes. Specific need for action, progress and meas-ures are regularly discussed at CS Committee meetings. Thepersons responsible for these issues in the respective Groupfunctions, business sectors and local units implement themeasures decided.

The interdisciplinary Human Rights Working Group isdeveloping cross-functional measures that we are usingto meet our responsibility to respect human rights. Thisgroup meets three to four times per year. In 2020, itdefined internal focus areas that build on our approachto human rights due diligence. Within these focus areasand based on the specific risk situation, we will implementfurther measures in order to better comply with humanrights due diligence obligations.

Within the German Global Compact Network, we area member of the Business & Human Rights Peer LearningGroup, a working group in which we engage in dialoguewith other companies to discuss challenges, current issues,experiences and successful approaches in exercising humanrights due diligence.

Our commitment: guiding principles, chartersand lawsOur Human Rights Charter aligns with the UN Guiding Prin-ciples on Business and Human Rights. It is our overarchinghuman rights directive and defines the relevant require-ments for our company. We expect all our employees aswell as our suppliers and business partners to comply withthis charter.

The charter interlinks and complements our existingrules and regulations pertaining to human rights, including,for example, our Code of Conduct, Social and Labor Stand-ards Policy, EHS Policy (Group Environment, Health andSafety Policy), Responsible Sourcing Principles as well asthe Charter on Access to Health in Developing Countries.Our standards cover a broad range of topics related tohuman rights. These include, for instance, product safety,occupational health and safety, equal opportunity, fair pay,freedom of association and collective bargaining as well asthe exclusion of child labor.

In 2020, we also added human rights aspects to ourSite Security Standard. In doing so, we want to ensure thatthese aspects are also included in the selection of securityservice providers, for instance.

In addition, we developed a Conflict Minerals Charter in2020. This regulates responsible sourcing of minerals fromconflict and high-risk regions.

Identifying actual and potential impacts onhuman rightsWe perform risk assessments to understand the potentialimpacts our operations and business relationships couldhave on human rights. For instance, we investigate humanrights risks at our sites as well as risks related to productand service sourcing. The following risk assessments enableus to derive the corresponding strategies and measures:

Within the scope our Group-wide Compliance RiskReporting & Self-Monitoring process, we monitor and eval-uate compliance risks. This has included human rightsissues since 2019. In 2020, the consolidated results showeda low risk of human rights violations throughout the Group.

Furthermore, we also track human rights risks throughour strategic supplier risk process. We plan to extendour risk assessment of the selection of new suppliersregarding modern slavery.

We are currently developing a new approach throughwhich we aim to identify whether our external manpoweris at risk. We are thus broadening the scope of the pilotproject we conducted in 2019. Within the scope of thisproject, we conducted a Group-wide analysis of the workconditions of external manpower, especially in high-riskcountries, such as China, Vietnam and the Philippines.

We take responsibility when deploying new techno-logies and comply with our human rights due diligenceobligations. We are currently compiling an overview of thetechnologies we use in the company and are evaluating thehuman rights risks, if any, that are associated with them.

Measures to protect human rights

Auditing our suppliers and sitesWe use internal audits to check whether the workplacerequirements of our Human Rights Charter are beingobserved at our sites. More information can be found underCompliance management.

In addition, we have been reviewing human rightsaspects at our sites through site security risk assessmentssince 2019. Starting in 2021, these will be formalized assecurity audits and implemented at regular intervals in linewith the audit plan. The audits are one control mechanismof our security governance framework and are thus a centralelement of it. We derive appropriate measures from theresults. This allows us to ensure that our sites meetsecurity-relevant human rights aspects.

Through the Together for Sustainability (TfS) initiative,we determine whether our strategic suppliers comply withhuman rights standards. For selected suppliers, we conductour own sustainability audits. To prevent modern slaveryand human trafficking, we will regularly review our supplier

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assessment and audit processes and are devising long-termmeasures together with our suppliers to this end.

Human rights and investment decisionsWhen projects exceed a certain cost threshold, our Invest-ment Committee must approve the expenditure. In itsdecision, the committee considers various aspects relatedto the project, including environmental impact and healthand safety. Furthermore, our Code of Conduct is bindingwhere investment decisions are concerned. We are workingto integrate human rights topics even more firmly into ourdecision-making process.

Creating awareness among our employeesTo embed respect for human rights even more stronglythroughout the company, we are expanding our internalcommunication and awareness training on human rights andmodern slavery.

To train our Managing Directors and senior leadersreporting directly to the Executive Board, we offer an e-learning course on the requirements of our Human RightsCharter and our Social and Labor Standards Policy and theimplementation thereof in their areas of responsibility. Inaddition, all new EHS managers took the “EHS StartUp!”onboarding course, which has been covering the topics ofhuman rights and modern slavery since 2018. Ouremployees can find information about human rights on ourintranet.

Training courses for our suppliersIn 2020, we introduced a TfS training course in Asia. Weinvited our Procurement employees to participate in various

Ecovadis webinars. Part of the training program deals withTfS assessments and audits, which include compliance withhuman rights as an essential audit component.

In addition, we are in the process of developing a globaltraining program for purchasers and suppliers together withTfS. This is to include training on human rights.

Transparent reportingWe use various formats to inform the public about ourapproaches, measures and results of human rights duediligence. We provide information on this annually in ourSustainability Report. Additionally, in the United Kingdom,the UK Modern Slavery Act requires us to publish the stepswe are taking to counter forced labor and human trafficking.In 2020, we published our fourth UK Modern Slavery State-ment. It has been endorsed by our Executive Board and isavailable on our website.

Our complaint mechanismsOur SpeakUp Line is the most important channel forreporting complaints about potential human rights viola-tions. Both our employees and all external stakeholderscan report suspected cases in their respective nationallanguage, free of charge and anonymously, either by tele-phone or a web-based application. We thoroughly invest-igate all complaints that we receive and takecountermeasures if necessary. In 2020, we noted no viol-ations, either with respect to child or forced labor or withrespect to the right to collective bargaining or freedom ofassociation.

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BioethicsBioethics

Part of the non-financial report

Bioethics guides us in how to use the rapidly advancing power of life science and the resulting technologies

responsibly and ethically to the ultimate benefit of society, humans and other living beings. However, factors

such as diverse cultural backgrounds have led to heated debates on divisive bioethical topics and issues arising

from the explosive progress in science. In light of this situation, we feel the need to clarify our own position on

bioethical approaches.

Our approach to ethical business conductIn our work, we encounter various bioethical and digitalethics topics and issues, including animal testing and clinicalresearch, stem cell use, the use of genetically modifiedmicroorganisms, use of health data, and the potentialimpact of new genome editing techniques such as CRISPR/Cas. We are strongly committed to conducting this researchin an ethical manner. Patient well-being and benefit isalways our number one priority. This applies to clinicalstudies as well as to treatment with our drugs and distri-bution of our products to academic researchers and thebiopharmaceutical industry. We carefully evaluate our posi-tion on controversial topics so that we can develop frame-works and make informed decisions that meet rigorousethical standards.

How we assess bioethics and digital ethicsThe Merck Bioethics Advisory Panel (MBAP), co-chaired bytwo of our senior executive scientific experts, gives clearguidance on bioethical topics and issues, which steers ouractions and entrepreneurial conduct. The MBAP consistsof renowned external international experts in the fieldsof bioethics, theology, science, and law. The panel’scomposition reflects the fact that the evaluation and assess-ment of bioethics are strongly contingent on cultural andregional factors. The bioethical assessment of topics mustbe viewed holistically. The MBAP meets once per year butcan also be convened on an ad-hoc basis, if required, inresponse to emerging urgent bioethical issues. We publisha summary of the discussions and resulting guidance fromeach meeting on our intranet. Our employees can ask MBAPmembers for advice and are able to report concerns onbioethical issues through channels such as our SpeakUp Lineor by reaching out to the Bioethics Office.

Our dedicated guidance panels for genome editing andstem cell matters operate under the overarching MBAP.Using our internal guidelines as a basis, they make recom-mendations on issues relating to specific topics and areinformed by the operational teams about the progress madewith respect to implementation. Our Stem Cell ResearchOversight Committee (SCROC) performs tasks such as veri-fying all internal research proposals that employ humanstem cells and ensuring compliance with our ethicalguidelines and any legal requirements. This also includescollaboration with external partners.

Our Digital Ethics Advisory Panel (DEAP) guides our newdigital business models with an initial focus on digital health.The DEAP consists of world-leading experts in digital healthbusiness models as well as experts in ethics and medicine. Itplays a pivotal role in ensuring that we develop new digitaltechnologies responsibly and address potential digital ethicsissues arising from the usage of digital technologies anddata-driven business models at an early stage.

Our commitment: Identifying topics andissues early onAs a global company, it is crucial for us to promptly identifyand address new developments concerning bioethical topicsand issues in order to define our own stance. Althoughwe align all our business activities with international andnational legislation, many bioethical discussions raise ques-tions that far exceed the current scope of legislators, whichis why we also seek the advice of external experts.

The birth of the first babies from genome-editedembryos in China significantly challenged the field ofbioethics in 2019. This breach of law, ethics and academicself-regulation led to marked global criticism. Subsequentdiscussions emphasized the need for profound bioethicaldebate and meaningful governance of genome-editingresearch in the human germline. Statements and positionswere issued by the National Academy of Sciences, the RoyalSociety and the German Ethics Council. This led to thecreation of the World Health Organization (WHO) expertadvisory committee on Developing Global Standards forGovernance and Oversight of Human Genome Editing.Regulation in this research field is expected to emerge in thefollowing years.

Our Genome Editing Principle provides a mandatoryethical and operational framework for our employees. Itsets clear operational boundaries for us both as a supplierof custom targeted nucleases and genetically modified celllines, and as a user of genome editing technologies forscientific research. The principle includes backgroundinformation on the topic and explains our position ongenome editing. It furthermore specifically addresses thesubject of human germline editing.

The Genome Editing Principle is complemented by addi-tional principles that shape our approach to ethicallyconducted research and business. Our Stem Cell Principlesets the ethical boundaries for the use of human stem cells

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in our research. Our Fertility Principle guides our research infertility treatment and in-vitro fertilization by setting a clearframework for practices aligned with highest ethical stand-ards. Our principles for disseminating information regardingthe off-label use of our products are set out in corres-ponding policies that apply Group-wide.

Topics currently being addressed by ourBioethics Advisory PanelThe Merck Bioethics Advisory Panel (MBAP) convened inOctober 2020 to discuss important topics such as the use ofgenome editing tools in agriculture. We sought the MBAP’sinput in light of the heterogeneity of regulatory frameworks

across regions along with calls to reform from the scientificcommunity and the ongoing public controversy aroundgenetically modified foods. The panel also addressed thesourcing of human biosamples: The need in pre-clinicaldevelopment for this material is growing and requires aframework on donor consent as well as an understandingof ethical implications of its usage. Further topics of discus-sion included the off-label use of products and how wecan provide appropriate information and obtain authoriz-ation for the treatment of children in large-scale publichealth programs such as our Praziquantel Donation Program(informed consent).

Our Bioethics Advisory Panel (MBAP) members

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Digital Ethics Advisory PanelOur ethics horizon extends beyond bioethical questions. Wealso strive to be the “digital ethics company”, adhering torigorous ethical standards in critical areas such as healthdata handling. In 2019, we therefore created the DigitalEthics Advisory Panel (DEAP) to deal with all ethical ques-tions resulting from our Digital (Health) Businesses,especially from the joint venture Syntropy with Palantir. Itheld four sessions in 2020. Together with the DEAP andadditional academic partners, we currently develop a Codeof Digital Ethics (CoDE). The CoDE is to serve as a guidelinefor our digital business models, a tool for analyzing ethicalchallenges, and a basis for practical DEAP guidance.

Biotechnology and genetic engineeringAcross our Group, we manufacture our biotech products inaccordance with the highest standards. All related activ-ities are subject to strict statutory regulations worldwide.Compliance with these regulations is monitored byour biological safety officers. We continuously track localregulatory changes that relate to biotech products andadapt our processes accordingly, thus ensuring we adhereto all statutory requirements.

Using genome-editing techniquesWe are a leading supplier of technologies such as CRISPR/Cas9, which can be used to target and modify specificgenes, a process known as genome editing. CRISPR/Cas9opens up new possibilities in genetic engineering researchthat could bring about major advances in the treatment ofserious diseases or in “green genetic engineering”, which isthe use of genome editing techniques in plant cultivation.Statutes in different countries allow for a varying degreeof latitude in applying this technique. Bioethical views ongermline editing have been evolving for years in academicand societal discussions. Our statement on human germlineediting is as follows:

“Merck does not support the use of genome editingin human embryos and clinical applications ofgermline interventions in humans in accordance withthe German Embryo Protection Act. Merck recog-nizes that there may be value of responsiblyconducted related research.”

Stem cell researchAt the present time we neither participate in clinicalprograms that utilize human embryonic stem cells orcloned human cells for the treatment of diseases, nor dowe pursue such approaches ourselves. We do, however, usehuman embryonic stem cells in our research and offer ourcustomers several selected stem cell lines. Thus, our StemCell Principle ensures compliance with our ethical approach.All projects are reviewed and approved by the SCROCbefore any stem cells are used for research purposes. Weonly use cell lines approved by the United States NationalInstitute of Health (NIH) and allowed under the GermanEmbryo Protection Act and the German Stem Cell Law. TheSCROC did not hold any meetings in 2020 as no pressingmatters had to be discussed.

Fertility researchWe develop treatments for infertility and seek to improvethe success rate of in vitro fertilization. As a result, weare frequently confronted with various related bioethicalissues. Our legislative point of reference for these issues isthe German Embryo Protection Act, and we are guided byour Fertility Principle, which was developed based on inputfrom the MBAP.

Biosampling and biobankingBiological samples obtained from patients within clinicalstudies are indispensable to the development of new preci-sion treatments and advanced diagnostic methods. Wehandle these samples in a responsible and ethical manner,in compliance with all regulatory requirements andaccording to the consent given by patients for the useof their samples. This may include the permission to usebiospecimens for further medical research beyond theclinical study through an optional consent. Since 2017, wehave had a policy and standard operating procedures inplace that define our principles and processes for humanbiosample management during and after clinical studies.

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Clinical studiesClinical studies

Part of the non-financial report

Our company discovers and develops medicines that help people with serious diseases. Before obtaining regu-

latory approval, we conduct clinical studies with patients and, if necessary, also with healthy volunteers to

investigate the safety and efficacy of these products. Before they begin, extensive preclinical testing must be

performed to demonstrate that the drug poses no unacceptable risks. This typically includes procedures such as

animal studies.

Our approach to safe and transparent clinicalstudiesWe conduct high-caliber clinical research that alwayscomplies with applicable laws and regulations. Whenperforming clinical studies, we adhere to the highestethical and scientific standards worldwide.

We only conduct clinical studies to investigate issuesthat are relevant to patients, healthcare professionals orsociety, and only when the medicines being tested showsignificant therapeutic promise and have a positivebenefit-risk ratio. In addition, a sound, establishedscientific methodology must be available to investigatethese scientific or medical questions. We only enroll thenumber of participants required to answer each of the ques-tions.

Protecting the safety, well-being, dignity and rights ofthe patients and healthy volunteers participating in our clin-ical studies is of utmost importance to us. We do not inten-tionally expose study subjects to undue risk or irreversibleharm. Personal data privacy is also very important to us,and we maintain a strong focus on data protection andconfidentiality, in compliance with statutory regulations.

Clinical studies in low- and middle-incomecountriesWe conduct all our clinical studies in accordance with locallaws and regulations and we adhere to all relevant inter-national scientific and ethical standards, irrespective of theregion or country. We are deliberately expanding our medi-cinal product development to more diverse markets in orderto address pressing healthcare needs in low-and middle-income countries and support the development of theirhealthcare systems.

When performing clinical studies in low- and middle-income countries, where there is usually a lower level ofhealthcare and limited healthcare infrastructure, thefollowing also applies:

How we govern clinical studiesClinical drug development, including clinical studies, andthe related governance process are the responsibility of theHead of Global Development unit. The Head of Global Devel-opment reports to the Member of the Executive Board andCEO Healthcare.

We review the progress of new drug development atdefined milestones, and make decisions about the continu-ation, modification or discontinuation of development,depending on the results of clinical studies.

We have established two internal committees to overseeour clinical studies. The Development Studies Committee(DSC) is responsible for the studies performed by thecompany on medicines that are under clinical development,while the Global Medical Decision Board (GMDB) is respons-ible for our own studies with approved medicines, as well asfor all studies performed by independent investigators andsupported by us (so-called investigator-sponsored studies).Both bodies consist of medical-scientific experts and exec-utives with long-standing experience in clinicalresearch. Our development and study teams present clinicalstudy concepts to the appropriate committee. Eachcommittee meets regularly to conduct a comprehensivereview of the proposed concepts and ascertains that ourstudies are scientifically sound, have a legitimate scientificpurpose and are performed according to the latest stand-ards and best practices.

Before administering a new drug to human subjects,there must be sufficient evidence that it offers a poten-tial therapeutic benefit, is sufficiently safe for use inhumans and has a positive benefit-risk ratio. We only takethe critical step of a first-in-human clinical trial after dili-gently conducting extensive preclinical testing. The decisionlies with a separate committee, the Human Exposure Groupchaired by our Global Chief Medical Officer.

We continuously analyze potential risks for studyparticipants before and during the course of our clinicalstudies. Our Medical Safety and Ethics Board (MSEB) over-sees the safety of subjects participating in our clinical

We only do so in an environment in which the principlesof Good Clinical Practice can be upheld.We only investigate diseases and innovative medicinesthat are relevant to the local population.We only conduct clinical studies in countries where weexpect that the drug being tested will be submitted for

marketing authorization and made available to patientsafter we have proven its efficacy and safety.We assure that no subject enrolling in a clinical study isdiscriminated against on the basis of ethnic origin, genderor socio-economic status.

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studies and, as necessary, reviews the benefit-risk profilesof investigational drugs. You can find further information onthe MSEB under Patient safety.

Issues may be submitted to the relevant committees byproduct teams or other committees (as defined in relevantSOPs or committee charters). If individual employees wishto seek advice or report concerns on ethical questions, theycan contact the chairperson or a permanent member of acommittee directly.

Our commitment: International guidelinesand requirementsOur Human Subjects Research and Development Policyprovides the framework for conducting clinical studies andhelps ensure that we adhere to all applicable legal, ethicaland scientific standards. In addition to the relevantnational laws and regulations, these standards also include:

Regular supervision of clinical studiesOur clinical study procedures are regularly inspected bythe relevant regulatory authorities to verify compliance withthe applicable laws and guidelines. The Covid-19 pandemichad only a minimal impact on inspections by the regulatory

authorities. They continued to carry out their inspections,yet virtually.

Our Research & Development Quality unit identifiesareas for auditing based on a quality risk assessmentapproach. We perform quality assurance audits internallywithin Healthcare R&D as well as externally among ourpartners (for example, at vendors’ sites and investigationalsites). We respond immediately to any issues found duringaudits by defining and implementing corrective andpreventive actions to improve processes and promotecompliance. Due to the Covid-19 pandemic, we pausedbusiness travel and postponed various on-site audits to2021. We also developed virtual auditing concepts and suit-able alternatives for the postponed audits.

Conducting clinical studies responsiblyPrior to enrolling subjects, every clinical trial must first beassessed and approved by a qualified independent ethicscommittee. Furthermore, all regulatory authorizationsrequired in the respective country must be obtained. Inaccordance with Good Clinical Practice guidelines(ICH-GCP), all study participants must give their explicitinformed consent before enrolling in a clinical study. Parti-cipants are fully informed about all aspects of the clinicaltrial in a language that they understand. This includes thepotential risks and benefits from participating in the studyand the opportunity to enquire about details. As far aspossible, non-interventional (observational) studies are alsoassessed by an ethics committee.

Every study follows precisely defined procedures toensure that it is conducted to the highest quality stand-ards in line with good working practices for the develop-ment and manufacture of drugs (GxP), the ethical principlesof the Declaration of Helsinki and other internationalguidelines and regulations. In 2020 there were no signi-ficant issues which had any impact on patient rights, patientsafety or data integrity of a study raised by third parties orregulatory agencies.

We continuously collect and communicate safety dataon our investigational drugs and promptly provide clin-ical investigators with important new findings relevant tothe safety of the study participants. In this way, we helpto ensure the safe use of our pharmaceuticals. Potentialadverse effects and risks are taken into consideration inan effort to evaluate the benefit-risk ratio of our productsand manage any risk. Product information, including theInvestigator’s Brochure and Information for study parti-cipants, is updated accordingly. More information is avail-able under Patient safety.

The Good Clinical Practice (GCP) guidelines of the Inter-national Council for Harmonisation of Technical Require-ments for Pharmaceuticals for Human Use (ICH)The Declaration of Helsinki, published by the WorldMedical AssociationThe Belmont Report by the U.S. Office for HumanResearch ProtectionsGood Pharmacovigilance/Laboratory/Manufacturing/Distribution Practices (GVP/GLP/GMP/GDP)The International Ethical Guidelines for Health-relatedResearch Involving Humans, published by the Council forInternational Organizations of Medical Sciences (CIOMS)The Joint Position on the Disclosure of Clinical TrialInformation via Clinical Trial Registries and Data-bases and the Joint Position on the Publication of ClinicalTrial Results in the Scientific Literature, published by theInternational Federation of Pharmaceutical Manufacturers& Associations (IFPMA) the European Federation of Phar-maceutical Industries and Associations (EFPIA), the JapanPharmaceutical Manufacturers Association (JPMA), andthe Pharmaceutical Research and Manufacturers ofAmerica (PhRMA)The Principles for Responsible Clinical Trial Data Sharing,published by EFPIA and PhRMA, and the IFPMA Principlesfor Responsible Clinical Trial Data Sharing

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Conducting clinical trials in vulnerablepopulationsThe implementation of clinical studies in vulnerable popu-lations, such as children or people with disabilities,requires special attention and care in order to complywith the highest ethical and scientific standards. The well-being of the individual is our highest priority. For thisreason, we only conduct studies with participants fromvulnerable population groups if scientifically justified and ifthere is no other way to achieve conclusive results. Whenperforming such studies, especially when informing studyparticipants and obtaining their consent, we comply strictlywith all statutory regulations.

Under our leadership and in collaboration with a consor-tium of partners, the Pediatric Praziquantel Program hasconducted clinical trials with vulnerable populations in low-and middle-income countries. Our aim is to develop,register and provide access to a pediatric formulation ofpraziquantel for treating schistosomiasis in children youngerthan six years of age. The program is currently in Phase IIIof clinical development.

We collectively designed the clinical program in line withthe recommendations of the U.S. Food and Drug Adminis-tration (FDA) and the European Medicines Agency (EMA) forpediatric development. Planning and implementation wereundertaken in close cooperation with regulatory authoritiesand a panel of international experts, including cliniciansfrom endemic countries. Further details can be found in theHealth for all chapter.

Teaming up to get resultsThe clinical trial investigators participating in our clinicalstudies by enrolling and caring for patients are critical tothe successful development of new medicines. Furthermore,in order to achieve a broad, in-depth basis for the devel-opment of new treatments, we seek advice from medical-scientific advisory boards, and frequently conduct clinicalstudies in collaboration with external partners inacademia and industry. We also rely on the support ofcontract research organizations (CROs) and other serviceproviders and vendors. We expect all our partners to abideby the same set of high standards in terms of ethicalconduct and quality in clinical research.

As a member of TransCelerate, a consortium of 20 phar-maceutical companies, we seek to drive the efficient,effective and high-quality delivery of new medicines.

In this context, we are currently leading an initiative tomodernize clinical trials with innovative solutions such astelemedicine, direct to patient medication, home healthnursing services and others.

Close dialogue with patients and advocacygroupsWe want to ensure that the voices and needs ofpatients and their caregivers are adequately heard andtaken into consideration when developing and conductingclinical studies. That is why we have established the PatientAdvisory Boards (PAB) as one of our crucial communicationchannels. Our PAB Charter describes how to involve patientadvocacy groups in our clinical research process. DuringAdvisory Board meetings, patients, caregivers and repres-entatives from patient advocacy groups are invited to sharetheir experience and perspectives related to clinical trials.We use this opportunity to discuss multiple aspects of thedrug development process, including but not limited to,protocol design, educational materials, technology andinnovative approaches to clinical trials. Our Global ClinicalOperations (GCO) unit values and leverages such inform-ation in multiple ways, with a clear focus on prioritizingpatient centricity in everything we do.

Furthermore, we are involved in multiple activities thatfocus on this relevant aspect of patient centricity in clin-ical studies. For example, in the United States, we are anactive member of the Clinical Trials Transformation Initi-ative (CTTI), which focuses on quality and efficiency in clin-ical trials.

Responsible data sharingWe support professional circles in advancing medical andscientific knowledge, thereby enabling informed health-care decisions for the benefit of patients. Upon request, weprovide qualified researchers with study protocols, anonym-ized patient data, study data, and clinical study reports. Weshare data and information in a manner that is consistentwith the joint Principles for Responsible Clinical Trial DataSharing of the EFPIA and PhRMA:

Safeguarding the privacy of patientsRespecting the integrity of national regulatory systemsMaintaining incentives for investment in biomedicalresearch

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Disclosure of clinical studies and publicationof resultsWe are obligated to disclose findings from our clinicalstudies. We do this publicly in a complete, accurate,balanced, transparent and timely manner, as laid out inour Clinical Trial Disclosure Policy. Our clinical study designsand results are made public in the international Clinical-Trials.gov database run by the U.S. National Institutes ofHealth (NIH), which can also be accessed via the WorldHealth Organization’s International Clinical Trials RegistryPlatform (ICTRP). Furthermore, in accordance with EU regu-lations, we publish results from our clinical studies in theEU Drug Regulating Authorities Clinical Trials (EudraCT)database, which is run by the European Medicines Agency(EMA). If required by local laws and regulations, we publishstudy results on other publicly accessible platforms. Weprovide clinical study report synopses and Lay PatientSummaries, which explain the results in plain language, onour clinical trials website.

We publish results from our clinical studies in medicaljournals in line with applicable laws and industry codes. Inthis way, we adhere in particular to the current version ofthe Good Publication Practice (GPP3) and follow the recom-mendations of the International Committee of MedicalJournal Editors (ICMJE). Our Medical Publications Policyensures compliance with all relevant standards and we usedefined standard procedures for scientific publications onour products.

Our standard on clinical trial data transparency under-scores our strong commitment in this matter.

Enabling early access to new medicinesNot all patients have the opportunity to take part in aclinical study and must therefore wait for a new pharma-ceutical product to be approved. Through our Early AccessProgram, we can, under specific circumstances, enablepatients to gain early access to new, potentially life-savingmedicines. The offer is aimed at people with serious condi-tions who have already received all available therapieswithout success. It allows them to be treated with medicinesthat have already been clinically tested but have not yetbeen approved. Furthermore, we offer patients who parti-cipated in one of our clinical studies post-study access tothe investigational product, provided that certain conditionsare met. Here, too, we meet stringent statutory, ethical andscientific standards. By performing a thorough assessmentof all available data, we ensure that the potential bene-fits outweigh the potential risks for patients. Position paperson early access and post-study access are available on ourwebsite.

Supporting independent human subjectresearchIn addition to conducting our own clinical research programsand studies, we also support studies proposed by inde-pendent investigators, so-called investigator-sponsoredstudies (ISS). Our ISS Principle defines an ISS as “an unso-licited request for funding and/or supply of an investiga-tional or marketed product by a third-party investigator/institution that initiates and conducts an independentscientific investigation as the regulatory sponsor”. Bygranting financial or material support for independenthuman subject research, we seek to stimulate the advance-ment of clinical and medical knowledge and patient carein our therapeutic areas of interest, and to support thesafe and effective use of our products. We give priorityto research that is innovative and has the potential toaddress specific unmet medical or scientific needs. Our prin-ciples, framework and standards for granting support forISS and for our collaboration with independent investigatorsare specified in our ISS Principle, which is available on ourwebsite, as well as in our corresponding policy and standardoperating procedure.

Joining forces to combat the pandemicThe Covid-19 pandemic presented a major challenge forhealthcare systems and clinical research in 2020.Researchers from academia, industry and supranationalorganizations initiated numerous research projects in aneffort to find effective and safe therapies to treat Covid-19,the disease caused by the SARS-CoV-2 virus. We supportedthese initiatives by donating up to 300,000 units of Rebif®

(interferon beta-1a) for use in Covid-19 clinical studies.This helped to enable the implementation of three majorclinical trials with thousands of patients worldwide: theSolidarity trial performed by the World Health Organization(WHO), the Discovery trial undertaken by the Frenchresearch institution INSERM, and the ACTT 3 trial initiatedby the Unites States National Institute of Allergic and Infec-tious Diseases (NIAID). In addition, we are supportingseveral Covid-19-related studies performed by independentresearchers. We have established a dedicated task forcewithin our Healthcare R&D function to oversee the collab-oration with independent external institutions and investig-ators studying Rebif® as a potential Covid-19 treatment.

We have also initiated our own Phase II randomized,controlled clinical study to evaluate the efficacy and safetyof our investigational product M5049 in patients sufferingfrom Covid-19 pneumonia. M5049 blocks the activation oftwo innate immune sensors that detect single-stranded RNAfrom viruses such as SARS-CoV-2. The activation leadsto immune cell activation and inflammation, which whennot properly controlled, can cause severe immunopatho-logy. The aim of the study is to determine whether M5049can reduce the life-threatening complications of Covid-19,including severe respiratory symptoms that often neces-sitate further medical interventions such as mechanicalventilation.

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Managing the crisisSoon after the news about the Covid-19 pandemic had beenpublished around the world, it became apparent that thesituation could have a major impact on our clinical researchactivities. First and foremost, our focus has been on thesafety and well-being of the patients participating in ourclinical studies and the continuity of their treatment andcare.

A task force was established within Healthcare R&Din March 2020 to continuously monitor the impact of theCovid-19 pandemic on our ongoing and planned clinicalstudies, to guide the investigators, monitor clinical trialparticipants’ well-being, and safeguard the integrity of ourclinical studies during the pandemic.

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Animal welfareAnimal welfare

In our Healthcare and Performance Materials business sectors, we conduct animal studies as part of the official

drug development process and, as required by law, for chemical safety and biological quality control. Animal

testing enables us to verify the safety of our medicinal and chemical products and the efficacy of our pharma-

ceuticals. Our Life Science business sector uses animals to, for instance, generate substances essential for in

vitro methods or to generate antibodies for diagnostics.

Our approach to animal welfareAs part of our internal due diligence, all work by ourcompany involving the use of animals was subjected to astringent internal audit conducted from the end of 2019 tothe beginning of 2020. In 2020, we adopted a new animalwelfare strategy in response to the audit and the improve-ment potential it had identified. The new strategy alignswith our high ethical standards. It enables our company tomeet the most rigorous animal welfare standards and toadopt a consistent and transparent Group-wide approach.We already started implementing the organizationalchanges and the new processes in 2020 and expect tocomplete this work by the end of 2021.

Our long-term ambition to replace all our animal usewith non-animal alternatives is firmly embedded in thestrategy. Until then, we are committed to applying thehighest ethical and animal welfare standards relatedto the housing, husbandry and veterinary care of all animalsinvolved in our work. These standards also apply to thequality of all animal work as well as related activities, suchas data assessment. We ensure comprehensive transpar-ency and ongoing assessment, monitoring, auditing, andimprovement of all work involving the use of animals by ourcompany and by trusted third parties. We always use as fewanimals as possible and replace their use whenever feas-ible with alternative methods. We continuously improve ouranimal testing processes, striving to enhance the animals’quality of life.

We subscribe to the internationally recognized 3Rs foranimal-based research and have now added Respons-ibility as our fourth animal welfare principle:

With our internal 4Rs Award, we recognize best practice andfurther strengthen our commitment to apply and activelypromote the 4Rs in our animal work. The 2020 winnerswere recognized for their project “Organ-on-a-chip”, whichstands to deliver improved, predictable and translational cellculture models for the liver and intestine and their applica-

tion in the drug development process. Furthermore, we planto hold an internal virtual 4Rs Day in early 2021.

In addition, we advocate for the global acceptance ofreplacement methods. To this end, we join forces withindustry and academia, communicate with authorities andthe public. Our aim is to launch products and processes toreplace, reduce or refine the use of animals in our work.

How we ensure animal welfareBased on our new corporate Animal Welfare strategy, whichhas been endorsed by the Executive Board and all Groupentities, we are introducing fundamental organizationalchanges in line with our corporate sustainability strategy.

In 2020, we reformed our existing Animal Science andWelfare governance and set up a new Animal Affairs unitwith clear roles and responsibilities. The unit will deliver acomprehensive corporate framework of rules and imple-ment organizational changes and processes to enable thebusinesses to conduct animal testing in line with ourrequirements.

Within the new Animal Affairs unit, we reorganized ourAnimal Science and Welfare governance and sectoralcompliance under four thematic pillars:

Our Group Animal Welfare Council, chaired by the ViceChair of the Executive Board and Deputy CEO of Merck, iscomprised of representatives from all our business sectorsand meets at least twice annually. The council steers theAnimal Affairs unit and acts as a decision-making and escal-ation body as needed.

Currently, all work involving the use of animals by ourcompany is overseen by designated regional bodies orcommittees. As part of our organizational changes, inde-pendent, cross-sectoral and multidisciplinary MerckAnimal Usage Review Boards will be implementedGroup-wide in 2021. These boards will be responsible forapproving all work involving the use of animals conductedby or on behalf of our company.

If employees identify an issue regarding animal welfare,they can report it directly to the Animal Affairs unit, tolocal Animal Welfare officers or via our SpeakUp Line.

Reduction – using the minimum number of animalsrequiredRefinement – minimizing distress or discomfort before,during and after testingReplacement – replacing animal studies with non-animalsystemsResponsibility – accepting the responsibility for allanimals in our reach internally and among our businesspartners

Animal Welfare and Veterinary CareVivarium OversightAnimal Using Vendor and Supplier QualificationThe Group-wide 4Rs program

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Comprehensive employee trainingAlong with the establishment of the new Animal Affairsunit, we launched our Animal Affairs Academy in 2020. TheAnimal Affairs Academy will ensure regular, comprehensive,high-quality, and up-to-date staff training on practical workand governance documents.

Our employees also regularly participate in externalcontinuing education programs, such as accredited labor-atory animal science courses offered by the Federation ofEuropean Laboratory Animal Science Associations (FELASA),the American Association for Laboratory Animal Science(AALAS), the Society of Laboratory Animal Science, theLaboratory Animal Science Association (LASA) andthe Interessengemeinschaft Tierpfleger (Community ofAnimal Technicians).

Work with committees and associationsAs part of our efforts to improve animal welfare, we areinvolved in several organizations and industry initiatives,including the European Federation of Pharmaceutical Indus-tries and Associations (EFPIA). The goal is to create efficien-cies and learn from one another regarding the improvementof animal welfare. Activities include joint auditing processes,knowledge exchange and shared responsibility whenphasing out animal use and fostering the approval of altern-ative methods.

As part of our collaboration with Interpharma, a feder-ation of research-based pharmaceutical companies inSwitzerland, we also worked with other member companies

to develop a cross-company audit concept for suppliersof animal studies and animal breeders. The results areshared among Interpharma member companies and treatedconfidentially. Based on the audit results, it is up to thediscretion of each company whether or not to collaboratewith the respective suppliers.

Our commitment: Group-wide standardsBeyond compliance with all applicable laws and regulations,we are committed to following our own internal guidelines.In 2020, as part of our strategic realignment, we adopted anew Animal Affairs Policy and rewrote our Group animalwelfare standards and procedures for animal testingconducted internally and by trusted third parties. Theseguidelines corroborate a comprehensive and stringentgovernance framework based on our four pillars of animaluse governance.

Our new standards and procedures entail, for example,the definition of housing and husbandry standards thatalso apply to external partners. The Animal Using VendorManagement standard describes the requirements fromplanning to the approval of vendors and suppliers by AnimalAffairs. The standard entitled “Audit Management of AnimalAffairs and of Animal Using Vendors” defines how we eval-uate the quality of animal welfare practices employed in ourown vivariums and by our suppliers and partners. Furtherdocuments, including guidance for our 4Rs efforts and ourrisk management, augment the Animal Affairs governanceframework.

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Number of laboratory animals used for medical study purposesIn 2020, a total of 179,425 animals were used within thescope of our business activities, either in our own vivariumsor on the premises of organizations contracted on ourbehalf. This represents an overall decrease of 5.9%compared with 2019. Rodents (mice or rats) comprised 95%

of all animals used in 2020, compared with 96% in 2019.Regulatory agencies sometimes require studies of the safetyof investigational drugs in non-rodent species. This allowsresearchers to identify potential adverse effects accuratelyand include them in the risk assessment of a substance.

Animal types

Collaborating with partners and suppliersWe perform the majority (89%) of animal studies ourselvesand procure the required animals from specialized breeders.We also hire CROs to conduct animal studies on our behalf.Furthermore, we work with academic institutions. Whenevercollaborating with such organizations, we require them toabide by our standards.

Covid-19 and animal welfareIn 2020, it was our policy to restrict travel on a Group-wide scale as part of our Covid-19-related measures toprotect our employees. Therefore, only limited audits couldbe performed in the reporting year. With the help of part-

ners, we were able to perform a total of 11 on-site auditsof CRO facilities. Additionally, we set up five remote auditsby carrying out virtual facility tours either with photos orwith pre-casted videos. In the future, the Animal UsingVendor governance team will perform regular audits everythree years to assess all animal testing vendors.

Employee safety and animal well-being remained ourhighest priorities throughout the pandemic. Employees of allvivariums worked alternate shifts, for example, to reducethe number of contacts and to protect our teams. We begannew studies only if they were indispensable for the business,for example to ensure the ongoing supply of medicines forpatients.

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