Exhibit 99.1

 

Media Contacts:		Ron Rogers		Investor Contacts:		Carol Ferguson
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		David Caouette				Alex Kelly
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Merck Announces Third Quarter 2011 Financial Results

 

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Double-Digit Non-GAAP EPS Growth in Third Quarter 2011; Non-GAAP EPS of $0.94; GAAP EPS of $0.55

 

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Worldwide Sales Growth of 8 Percent, Including 5 Percent From Foreign Exchange; Increase Driven by Pharmaceutical and Animal Health Sales

 

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Double-Digit Global Growth for JANUVIA, GARDASIL, SINGULAIR, JANUMET and ISENTRESS

 

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JUVISYNC and VICTRELIS and Other Product Launches Underway

 

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Company Raises Lower End of 2011 Non-GAAP EPS Range; Provides New Range of $3.72 to $3.76; Also Updates GAAP EPS Range to $2.03 to $2.20; Expects Full Year 2011 Revenue Growth in the Mid-Single Digit Range

WHITEHOUSE STATION, N.J., Oct. 28, 2011 – Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the third quarter of 2011.

 

$ in millions, except EPS amounts		Third Quarter 2011				Third Quarter 2010
Sales		$	12,022			$	11,125
GAAP EPS			0.55				0.11
Non-GAAP EPS that excludes items listed below 1			0.94				0.85
GAAP Net Income 2			1,692				342
Non-GAAP Net Income that excludes items listed below 1, 2			2,908				2,645

 

1

Merck is providing certain 2011 and 2010 non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP. For a description of the items, see Table 2a, including the related footnotes, attached to this release.

2	Net income attributable to Merck & Co., Inc.

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Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the third quarter of $0.94 excludes acquisition-related costs, restructuring costs and certain other items.

A reconciliation of GAAP to non-GAAP net income and EPS is provided in the tables that follow.

 

		Third Quarter 2011								Third Quarter 2010
$ in millions, except EPS amounts		Net Income 2				EPS				Net Income 2				EPS
GAAP		$	1,692			$	0.55			$	342			$	0.11
Difference			1,216				0.39	3			2,303				0.74	3
Non-GAAP that excludes items listed below		$	2,908			$	0.94			$	2,645			$	0.85

 

$ in millions		Third Quarter 2011				Third Quarter 2010
Acquisition-related costs 4		$	1,363			$	1,604
Costs related to restructuring programs			277				387
Other 5			(137	)			—
Legal reserve			—				950
Net decrease (increase) in income before taxes			1,503				2,941
Income tax (benefit) expense 6			(287	)			(638	)
Decrease (increase) in net income		$	1,216			$	2,303

Year-to-date results can be found in the attached financial tables.

“Merck once again delivered a strong quarter,” said Kenneth C. Frazier, president and chief executive officer, “coupling top line growth and strong expense management to report an 11 percent increase to the bottom line.

“Going forward, Merck will continue to implement our growth strategy, while transforming the way we operate our business,” he said. “Three consecutive quarters of top and bottom line growth demonstrate our ability to consistently perform while at the same time make the strategic investments necessary for the future. We remain focused on driving innovation and value for our customers and shareholders over the long term.”

 

 

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

4

Includes expenses for the amortization of intangible assets and amortization of purchase accounting adjustments to inventories recognized as a result of mergers and acquisitions, as well as intangible asset impairment charges. Also includes integration and other costs associated with mergers and acquisitions.

5	Includes the gain on the divestiture of the company’s interest in the Johnson & Johnson°Merck Consumer Pharmaceuticals Company joint venture.

6	Includes an estimated income tax (benefit) expense on the reconciling items. In addition, the amount for 2010 includes a $380 million tax benefit from changes in a foreign entity’s tax rate, which resulted in a reduction of deferred tax liabilities on intangibles established in purchase accounting.

 

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Select Revenue Highlights

Worldwide sales were $12.0 billion for the third quarter of 2011, an increase of 8 percent compared with the third quarter of 2010. Foreign exchange for the quarter favorably affected global sales performance by approximately 5 percent. The revenue increase largely reflects strong sales of JANUVIA (sitagliptin), GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant], SINGULAIR (montelukast sodium), JANUMET (sitagliptin/metformin hydrochloride), ISENTRESS (raltegravir) and ZOSTAVAX (zoster vaccine live). Sales from emerging markets accounted for approximately 17 percent of pharmaceutical sales in the quarter.

The table below reflects sales of the company’s top Pharmaceutical products, as well as total sales of Animal Health and Consumer Care products.

 

$ in millions		Third Quarter 2011				Third Quarter 2010				Change
Total Sales		$	12,022			$	11,125				8	%
Pharmaceutical 7			10,354				9,523				9	%
SINGULAIR			1,336				1,215				10	%
JANUVIA			846				600				41	%
ZETIA			614				571				8	%
REMICADE			561				661				-15	%
VYTORIN			469				485				-3	%
GARDASIL			445				316				41	%
COZAAR/HYZAAR			404				423				-4	%
PROQUAD, M-M-R II and VARIVAX			391				434				-10	%
JANUMET			350				247				42	%
ISENTRESS			343				278				23	%
NASONEX			266				259				3	%
Animal Health			826				687				20	%
Consumer Care 7			421				409				3	%
Other Revenues 8			421				506				-17	%

Worldwide sales of the combined diabetes franchise of JANUVIA/JANUMET grew 41 percent to $1.2 billion in the third quarter of 2011 driven by growth in all regions.

Worldwide sales of SINGULAIR, a once-a-day oral medicine indicated for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis, grew 10 percent from the third quarter of 2010 to $1.3 billion.

 

 

7

In the first quarter of 2011, Merck changed the reporting for certain over-the-counter products. Sales of these products outside the United States were previously recorded in the Pharmaceutical business, and are now reported in the Consumer Care business. Prior period amounts have been recast on a comparative basis.

8	Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales. Revenue from AstraZeneca LP recorded by Merck was $299 million in the third quarter of 2011.

 

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Global sales declined 8 percent in the quarter for REMICADE (infliximab) and SIMPONI (golimumab), treatments for inflammatory diseases, as the company transferred exclusive marketing rights for REMICADE and SIMPONI to Johnson & Johnson in territories including Canada, Central and South America, the Middle East, Africa and Asia Pacific, effective July 1, 2011. Merck retained exclusive marketing rights to these products throughout Europe, Russia and Turkey. In territories retained by Merck, the combined sales of REMICADE and SIMPONI grew 35 percent.

Sales of GARDASIL, a vaccine to help prevent certain diseases caused by human papillomavirus, were $445 million in the quarter driven by increased vaccination of both females and males and wholesaler purchases in conjunction with the launch in Japan.

As expected, global sales of Merck’s antihypertensive medicines COZAAR (losartan potassium) and HYZAAR (losartan potassium and hydrochlorothiazide) continue to decline following loss of marketing exclusivity in the United States and in major European markets in 2010. Sales of TEMODAR (temozolomide), a treatment for certain types of brain tumors, declined due to generic competition in Europe.

ISENTRESS, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, grew 23 percent in the third quarter driven by demand in the United States and Europe.

Sales of ZOSTAVAX were $108 million in the quarter. Supply availability has improved and current wait time for delivery is now under one month. The company anticipates that backorders will continue until inventory levels are sufficient to meet market demand.

Product Performance – Animal Health

Merck Animal Health sales totaled $826 million for the third quarter of 2011, a 20 percent increase over the same period last year, including a 6 percent contribution from foreign exchange. Animal Health had strong third-quarter performance across all regions, with growth primarily led by increased sales of cattle, swine and poultry products. This growth was driven equally by new products and existing products. The division’s products include pharmaceutical and vaccine products for the prevention, treatment and control of disease in all major farm and companion animal species.

Product Performance – Consumer Care

Merck Consumer Care third-quarter global sales were $421 million, an increase of 3 percent compared to the third quarter of 2010, including a 2 percent contribution from foreign exchange. The sales growth was primarily led by increased sales of MIRALAX and ZEGERID OTC. Consumer Care includes a variety of over-the-counter medicines, as well as footcare and suncare products.

 

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Third Quarter Expense and Other Information

The costs detailed below on a GAAP basis during the third quarter of 2011 totaled $9.8 billion and include $1.6 billion of acquisition-related costs and restructuring costs.

 

$ in millions		Included in the expense for the period
Third Quarter 2011		GAAP				Acquisition- Related Costs 4				Restructuring Costs				Non-GAAP  1
Materials and production		$	4,352			$	1,284			$	99			$	2,969
Marketing and administrative			3,340				57				31				3,252
Research and development			1,954				22				28				1,904
Restructuring costs			119				—				119				—
Third Quarter 2010
Materials and production		$	4,191			$	1,351			$	44			$	2,796
Marketing and administrative			3,192				64				130				2,998
Research and development			2,322				189				163				1,970
Restructuring costs			50				—				50				—

The gross margin was 63.8 percent for the third quarter of 2011 and 62.3 percent for the third quarter of 2010, reflecting 11.5 and 12.6 percentage point unfavorable impacts, respectively, from the acquisition-related costs and restructuring costs noted above.

Marketing and administrative expenses, on a non-GAAP basis, were $3.3 billion in the third quarter of 2011, an increase from $3.0 billion in the third quarter of 2010. The increase was due to the impact of foreign exchange, investments in emerging markets and product launches, and U.S. health care reform fees.

Research and development expenses, on a non-GAAP basis, were $1.9 billion in the third quarter of 2011, a decrease from $2.0 billion in the third quarter of 2010. The decrease was primarily due to efficiency savings and lower clinical trial grant expenses.

Equity income from affiliates was $161 million in the third quarter, which primarily includes partnerships with AstraZeneca LP, Sanofi Pasteur MSD and the recently divested Johnson & Johnson°Merck Consumer Pharmaceuticals Company joint venture.

Other (income) expense, net was $66 million of expense in the third quarter of 2011, which reflects a $136 million gain on the divestiture of the company’s interest in the Johnson & Johnson°Merck Consumer Pharmaceuticals Company joint venture, compared with $1.1 billion of expense in the third quarter of 2010, which includes the unfavorable impact of a $950 million legal reserve.

 

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Key Developments

 

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The U.S. Food and Drug Administration (FDA) approved JUVISYNC (sitagliptin and simvastatin), a new treatment for type 2 diabetes that combines the glucose-lowering medication sitagliptin, the active component of JANUVIA, with the cholesterol-lowering medication ZOCOR (simvastatin).

 

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The European Commission approved ZOELY (nomegestrol acetate 2.5 mg /17-beta estradiol 1.5 mg), formerly known as NOMAC-E2, a monophasic combined oral contraceptive tablet for use by women to prevent pregnancy.

 

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The FDA and the European Medicines Agency have accepted the company’s applications for the approval of ridaforolimus, an investigational oral mTOR inhibitor developed for the treatment of metastatic soft-tissue or bone sarcomas in patients who had a favorable response to chemotherapy.

 

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VICTRELIS (boceprevir), the company’s oral hepatitis C virus NS3/4A protease inhibitor, has launched in 10 markets in the third quarter: Brazil, Canada and eight markets in the European Union including France, Germany, the UK and Spain.

 

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Merck is collaborating with Beijing-based BGI, the world’s largest genomics center, to focus on the discovery and development of biomarkers and genomics technologies. Scientists will work together to identify and characterize biomarkers with an emphasis on drug discovery, drug development and diagnostics applications across a wide range of therapeutic areas.

 

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Richard R. DeLuca Jr. joined Merck as president of Animal Health and Cuong Viet Do joined as the company’s chief strategy officer.

 

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The company is hosting its 2011 R&D and Business Briefing on Nov. 10.

Financial Targets

The company raised the lower end of its 2011 non-GAAP EPS range and is now targeting a range of $3.72 to $3.76. The company updated the 2011 GAAP EPS range to $2.03 to $2.20. The 2011 non-GAAP range excludes acquisition-related costs, costs related to restructuring programs, the benefit of certain tax items and certain other items.

Merck now expects full year 2011 revenue to grow in the mid-single digit percent range from a base of $46.0 billion in 2010.

In addition, the company lowered its non-GAAP R&D expense target range to $7.8 billion to $8.0 billion for the full year of 2011.

The company expects its non-GAAP 2011 tax rate to be at the upper end of its target range of 23 to 24 percent.

 

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A reconciliation of anticipated 2011 EPS as reported in accordance with GAAP to non-GAAP EPS that excludes certain items is provided in the table below.

 

$ in millions, except EPS amounts		Full Year 2011
GAAP EPS		$2.03 to $2.20
Difference 3		1.69 to 1.56
Non-GAAP EPS that excludes items listed below		$3.72 to $3.76
Acquisition-related costs 4		$5,700 to $5,400
Costs related to restructuring programs		1,500 to 1,300
Arbitration settlement charge		500
Other 9		(263)
Net decrease (increase) in income before taxes		7,437 to 6,937
Income tax (benefit) expense 10		(2,210) to (2,110)
Decrease (increase) in net income		$5,227 to $4,827

Total Employees

As of September 30, 2011, Merck had approximately 90,000 employees worldwide.

Earnings Conference Call

Investors are invited to a live audio webcast of Merck’s third quarter earnings conference call today at 8:00 a.m. EDT by visiting Merck’s Web site, www.merck.com/investors/events-and-presentations/home.html. Institutional investors and analysts can participate in the call by dialing (706) 758-9927 or (877) 381-5782. Journalists are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917. A replay of the call will be available starting at 11 a.m. EDT today for approximately one week. To listen to the replay, dial (706) 645-9291 or (800) 642-1687 and enter ID No. 11773565.

About Merck

Today’s Merck is a global healthcare leader working to help the world be well. Merck is known as MSD outside the United States and Canada. Through our prescription medicines, vaccines, biologic therapies, and consumer care and animal health products, we work with customers and operate in more than 140 countries to deliver innovative health solutions. We also demonstrate our commitment to increasing access to healthcare through far-reaching policies, programs and partnerships. For more information, visit www.merck.com and connect with us on Twitter, Facebook and YouTube.

 

 

9	Includes a gain on the divestiture of the company’s interest in the Johnson & Johnson°Merck Consumer Pharmaceuticals Company joint venture and a gain on the sale of certain manufacturing facilities and related assets.

10

Includes an estimated income tax (benefit) expense on the reconciling items. In addition, amount includes the net favorable impact of approximately $700 million relating to the settlement of a federal income tax audit, as well as the favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting.

 

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Forward-Looking Statement

This news release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, statements about the benefits of the merger between Merck and Schering-Plough, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Merck’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the possibility that the expected synergies from the merger of Merck and Schering-Plough will not be realized, or will not be realized within the expected time period; the impact of pharmaceutical industry regulation and health care legislation; the risk that the businesses will not be integrated successfully; disruption from the merger making it more difficult to maintain business and operational relationships; Merck’s ability to accurately predict future market conditions; dependence on the effectiveness of Merck’s patents and other protections for innovative products; the risk of new and changing regulation and health policies in the U.S. and internationally and the exposure to litigation and/or regulatory actions.

Merck undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in Merck’s 2010 Annual Report on Form 10-K and the company’s other filings with the Securities and Exchange Commission (SEC) available at the SEC’s Internet site (www.sec.gov).

# # #

 

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MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1

 

		GAAP												GAAP
		3Q11				3Q10				% Change				Sep YTD 2011				Sep YTD 2010				% Change
Sales		$	12,022			$	11,125				8	%		$	35,753			$	33,893				5	%
Costs, Expenses and Other
Materials and production (1)			4,352				4,191				4	%			12,695				13,956				-9	%
Marketing and administrative (1) / (2)			3,340				3,192				5	%			10,029				9,589				5	%
Research and development (1) / (2)			1,954				2,322				-16	%			6,048				6,552				-8	%
Restructuring costs (3)			119				50				*				773				864				-11	%
Equity income from affiliates (4)			(161	)			(236	)			-32	%			(354	)			(417	)			-15	%
Other (income) expense, net (1) / (5)			66				1,108				-94	%			809				995				-19	%
Income Before Taxes			2,352				498				*				5,753				2,354				*
Income Tax Provision			628				126								904				872
Net Income			1,724				372				*				4,849				1,482				*
Less: Net Income Attributable to Noncontrolling Interests			32				30								89				89
Net Income Attributable to Merck & Co., Inc.		$	1,692			$	342				*			$	4,760			$	1,393				*
Earnings per Common Share Assuming Dilution (6)		$	0.55			$	0.11				*			$	1.53			$	0.44				*
Average Shares Outstanding Assuming Dilution			3,091				3,102								3,102				3,123
Tax Rate (7)			26.7	%			25.3	%							15.7	%			37.1	%

 

*

³ 100%

(1)	Amounts include the impact of acquisition-related costs and restructuring costs. See accompanying tables for details.

(2)	The third quarter and first nine months of 2010 include a reclassification of certain expenses from marketing and administrative to research and development of $26 million and $78 million, respectively.

(3)	Represents separation and other related costs associated with restructuring activities under the company’s formal restructuring programs.

(4)	Primarily reflects equity income from the AstraZeneca LP, Johnson & JohnsonºMerck Consumer Pharmaceuticals Company (“JJMCP”), and Sanofi Pasteur MSD partnerships. In the third quarter of 2011, the company divested its interest in the JJMCP joint venture.

(5)

Other (income) expense, net in the third quarter and first nine months of 2011 includes a $136 million gain on the sale of the company’s interest in the JJMCP joint venture. In addition, other (income) expense, net in the first nine months of 2011 includes a charge of $500 million related to the resolution of the arbitration proceeding with Johnson & Johnson and a $127 million gain on the sale of certain manufacturing facilities and related assets. Other (income) expense, net in the third quarter and first nine months of 2010 includes a $950 million legal reserve. In addition, other (income) expense, net in the first nine months of 2010 reflects $443 million of income recognized upon AstraZeneca’s asset option exercise and $102 million of income on the settlement of certain disputed royalties.

(6)

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate earnings per common share assuming dilution was $1,689 million and $340 million for the third quarter of 2011 and 2010, respectively, and was $4,748 million and $1,387 million for the first nine months of 2011 and 2010, respectively.

(7)

The GAAP effective tax rate for the third quarter of 2011 was 26.7%. The GAAP effective tax rate for the first nine months of 2011 was 15.7%, which reflects the net favorable impact of approximately $700 million related to the settlement of the company’s 2002-2005 federal income tax audit. Excluding this item and the other non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 23.7% and 24.5% for the third quarter and first nine months of 2011, respectively. The GAAP effective tax rates for the third quarter and first nine months of 2010 were 25.3% and 37.1%, respectively. Excluding the impact of the non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 22.2% and 21.9% for the third quarter and first nine months of 2010, respectively.

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MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1a

 

		2011																2010																								% Change
		1Q				2Q				3Q				Sep YTD				1Q				2Q				3Q				Sep YTD				4Q				Full Year				3Q				Sep YTD
Sales		$	11,580			$	12,151			$	12,022			$	35,753			$	11,422			$	11,346			$	11,125			$	33,893			$	12,094			$	45,987				8	%			5	%
Costs, Expenses and Other
Materials and production			4,059				4,284				4,352				12,695				5,216				4,549				4,191				13,956				4,440				18,396				4	%			-9	%
Marketing and administrative (1)			3,164				3,525				3,340				10,029				3,222				3,175				3,192				9,589				3,537				13,125				5	%			5	%
Research and development (1)			2,158				1,936				1,954				6,048				2,051				2,179				2,322				6,552				4,559				11,111				-16	%			-8	%
Restructuring costs			(14	)			668				119				773				288				526				50				864				121				985				*				-11	%
Equity income from affiliates			(138	)			(55	)			(161	)			(354	)			(138	)			(43	)			(236	)			(417	)			(171	)			(587	)			-32	%			-15	%
Other (income) expense, net			622				121				66				809				167				(281	)			1,108				995				309				1,304				-94	%			-19	%
Income (Loss) Before Taxes			1,729				1,672				2,352				5,753				616				1,241				498				2,354				(701	)			1,653				*				*
Income Tax Provision (Benefit)			658				(382	)			628				904				286				461				126				872				(201	)			671
Net Income (Loss)			1,071				2,054				1,724				4,849				330				780				372				1,482				(500	)			982				*				*
Less: Net Income Attributable to Noncontrolling Interests			28				30				32				89				31				28				30				89				31				121
Net Income (Loss) Attributable to Merck & Co., Inc.		$	1,043			$	2,024			$	1,692			$	4,760			$	299			$	752			$	342			$	1,393			$	(531	)		$	861				*				*
Earnings (Loss) per Common Share Assuming Dilution		$	0.34			$	0.65			$	0.55			$	1.53			$	0.09			$	0.24			$	0.11			$	0.44			$	(0.17	)		$	0.28				*				*
Average Shares Outstanding Assuming Dilution			3,104				3,110				3,091				3,102				3,141				3,125				3,102				3,123				3,081				3,120
Tax Rate			38.1	%			-22.8	%			26.7	%			15.7	%			46.4	%			37.1	%			25.3	%			37.1	%			28.7	%			40.6	%

Sum of quarterly amounts may not equal year-to-date amounts due to rounding.

 

*

> 100%

(1)	Amounts in 2010 include a reclassification of certain expenses from marketing and administrative to research and development of $24 million, $28 million, $26 million, $42 million and $120 million in 1Q, 2Q, 3Q, 4Q and full year, respectively.

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MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

THIRD QUARTER 2011

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2a

 

		GAAP				Acquisition- Related Costs  (1)				Restructuring Costs (2)				Certain Other Items (3)				Adjustment Subtotal				Non-GAAP
Sales		$	12,022															$	—			$	12,022
Materials and production			4,352				1,284				99								1,383				2,969
Marketing and administrative			3,340				57				31								88				3,252
Research and development			1,954				22				28								50				1,904
Restructuring costs			119								119								119				—
Equity income from affiliates			(161	)															—				(161	)
Other (income) expense, net			66												(137	)			(137	)			203
Income Before Taxes			2,352				(1,363	)			(277	)			137				(1,503	)			3,855
Taxes on Income			628																(287	)(4)			915
Net Income			1,724																(1,216	)			2,940
Less: Net Income Attributable to Noncontrolling Interests			32																—				32
Net Income Attributable to Merck & Co., Inc.		$	1,692															$	(1,216	)		$	2,908
Earnings per Common Share Assuming Dilution		$	0.55																			$	0.94	(5)
Average Shares Outstanding Assuming Dilution			3,091																				3,091
Tax Rate			26.7	%																			23.7	%

Merck is providing non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.

 

(1)

Amounts included in materials and production costs reflect expenses for the amortization of intangible assets and the amortization of purchase accounting adjustments to inventories recognized as a result of mergers and acquisitions. Amounts included in marketing and administrative expenses reflect integration costs, as well as other costs associated with mergers and acquisitions, such as severance costs which are not part of the company’s formal restructuring programs. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges.

(2)	Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to actions under the company’s formal restructuring programs.

(3)	Reflects the gain on the divestiture of the company’s interest in the Johnson & JohnsonºMerck Consumer Pharmaceuticals Company joint venture.

(4)	Represent the estimated tax impact on the reconciling items.

(5)

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $2,903 million for the third quarter of 2011.

---

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

NINE MONTHS ENDED SEPTEMBER 30, 2011

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2b

 

		GAAP				Acquisition- Related Costs  (1)				Restructuring Costs (2)				Certain Other Items (3)				Adjustment Subtotal				Non-GAAP
Sales		$	35,753															$	—			$	35,753
Materials and production			12,695				3,925				280								4,205				8,490
Marketing and administrative			10,029				192				77								269				9,760
Research and development			6,048				343				89								432				5,616
Restructuring costs			773								773								773				—
Equity income from affiliates			(354	)															—				(354	)
Other (income) expense, net			809												236				236				573
Income Before Taxes			5,753				(4,460	)			(1,219	)			(236	)			(5,915	)			11,668
Taxes on Income			904																(1,955	) (4)			2,859
Net Income			4,849																(3,960	)			8,809
Less: Net Income Attributable to Noncontrolling Interests			89																—				89
Net Income Attributable to Merck & Co., Inc.		$	4,760															$	(3,960	)		$	8,720
Earnings per Common Share Assuming Dilution		$	1.53																			$	2.80	(5)
Average Shares Outstanding Assuming Dilution			3,102																				3,102
Tax Rate			15.7	%																			24.5	%

Merck is providing non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.

 

(1)

Amounts included in materials and production costs reflect expenses of $3.8 billion for the amortization of intangible assets and the amortization of purchase accounting adjustments to inventories recognized as a result of mergers and acquisitions, as well as $118 million of impairment charges on product intangibles. Amounts included in marketing and administrative expenses reflect integration costs, as well as other costs associated with mergers and acquisitions, such as severance costs which are not part of the company’s formal restructuring programs. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges.

(2)	Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to actions under the company’s formal restructuring programs.

(3)

Included in other (income) expense, net is a $500 million charge related to the resolution of the arbitration proceeding with Johnson & Johnson, a $136 million gain on the divestiture of the company’s interest in the Johnson & JohnsonºMerck Consumer Pharmaceuticals Company joint venture, as well as a $127 million gain on the sale of certain manufacturing facilities and related assets.

(4)

Includes a net benefit of approximately $700 million relating to the settlement of the company’s 2002-2005 federal income tax audit, the favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting, as well as the estimated tax impact on the reconciling items.

(5)

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $8,697 million for the first nine months of 2011.

---

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

(AMOUNTS IN MILLIONS)

Table 3

 

		2011																2010																								% Change				% Change
		1Q				2Q				3Q				Sep YTD				1Q				2Q				3Q				Sep YTD				4Q				Full Year				3Q				Sep YTD
TOTAL SALES (1)		$	11,580			$	12,151			$	12,022			$	35,753			$	11,422			$	11,346			$	11,125			$	33,893			$	12,094			$	45,987				8				5
PHARMACEUTICAL (2)			9,820				10,360				10,354				30,534				9,665				9,638				9,523				28,826				10,441				39,267				9				6
Cardiovascular
Zetia			582				592				614				1,788				534				564				571				1,668				629				2,297				8				7
Vytorin			480				459				469				1,407				477				490				485				1,452				562				2,014				-3				-3
Integrilin			64				56				53				172				70				70				63				203				63				266				-16				-15
Diabetes & Obesity
Januvia			739				779				846				2,364				511				600				600				1,710				675				2,385				41				38
Janumet			305				321				350				977				201				218				247				666				288				954				42				47
Diversified Brands
Cozaar / Hyzaar			426				406				404				1,236				782				485				423				1,690				415				2,104				-4				-27
Zocor			127				107				110				345				116				117				114				347				121				468				-3				-1
Propecia			106				112				112				330				100				113				109				322				124				447				2				2
Claritin Rx			120				65				55				240				98				58				53				210				86				296				3				15
Remeron			60				57				65				181				51				59				50				160				62				223				29				13
Vasotec / Vaseretic			57				59				57				173				59				63				69				191				64				255				-18				-10
Proscar			60				53				58				171				58				56				58				172				44				216				—				-1
Infectious Disease
Isentress			292				337				343				972				232				267				278				777				313				1,090				23				25
PegIntron			166				154				163				482				186				185				168				539				198				737				-3				-11
Cancidas			158				168				150				476				153				150				135				437				174				611				11				9
Primaxin			136				136				124				397				159				158				135				452				158				610				-8				-12
Invanz			87				103				107				296				75				83				91				249				113				362				17				19
Avelox			106				61				59				227				106				59				59				224				92				316				1				1
Noxafil			55				56				61				171				49				50				52				150				48				198				17				14
Crixivan / Stocrin			45				50				56				151				52				48				49				148				58				206				16				2
Rebetol			53				48				38				138				56				55				55				166				54				221				-32				-17
Victrelis			1				21				31				53				0				0				0				0				0				0				*				*
Neurosciences & Ophthalmology
Maxalt			173				131				156				460				135				133				133				401				149				550				17				15
Cosopt / Trusopt			114				122				124				360				115				123				114				353				131				484				9				2
Oncology
Temodar			248				234				223				704				274				271				254				799				266				1,065				-12				-12
Emend			87				120				98				305				84				93				91				268				110				378				8				14
Intron A			49				47				47				143				54				51				50				155				54				209				-6				-8
Respiratory & Immunology
Singulair			1,328				1,354				1,336				4,018				1,165				1,258				1,215				3,638				1,349				4,987				10				10
Remicade			753				842				561				2,156				674				669				661				2,004				710				2,714				-15				8
Nasonex			373				323				266				962				320				338				259				917				303				1,219				3				5
Clarinex			155				209				128				492				164				191				131				486				138				623				-2				1
Arcoxia			114				100				108				321				95				95				94				284				115				398				15				13
Simponi			54				75				74				203				10				18				27				55				42				97				*				*
Asmanex			60				47				42				149				51				56				48				155				53				208				-12				-4
Proventil			42				37				38				117				57				55				43				155				55				210				-12				-24
Dulera			13				25				22				59				0				0				2				2				6				8				*				*
Vaccines
Gardasil			214				277				445				935				233				219				316				768				221				988				41				22
ProQuad, M-M-R II and Varivax			244				291				391				927				319				340				434				1,093				285				1,378				-10				-15
RotaTeq			125				148				184				457				93				139				119				350				169				519				55				31
Pneumovax			79				64				133				276				51				59				110				220				156				376				21				25
Zostavax			24				122				108				254				95				18				23				136				107				243				*				86
Women’s Health & Endocrine
Fosamax			208				221				215				644				230				241				220				692				234				926				-2				-7
NuvaRing			142				154				159				455				135				145				134				414				145				559				18				10
Follistim AQ			133				143				129				404				134				137				119				389				138				528				8				4
Implanon			60				81				80				220				51				51				64				165				71				236				25				34
Cerazette			59				66				74				199				55				49				56				160				49				209				32				24
Other Pharmaceutical (3)			744				927				888				2,567				946				941				942				2,834				1,044				3,879				-6				-9
ANIMAL HEALTH			758				802				826				2,385				709				731				687				2,126				815				2,941				20				12
CONSUMER CARE (2)			517				541				421				1,479				489				544				409				1,442				381				1,823				3				3
Claritin OTC			167				134				118				419				136				167				120				423				103				526				-2				-1
Other Revenues (4)			486				448				421				1,355				559				433				506				1,499				457				1,956				-17				-10
Astra			322				306				299				928				364				241				345				950				302				1,252				-13				-2

 

*	100% or greater

Sum of quarterly amounts may not equal year-to-date amounts due to rounding.

 

(1)	Only select products are shown.

(2)

Beginning in 2011, Merck changed the reporting for certain over-the-counter products. Sales of these products outside the United States were previously recorded in the Pharmaceutical business, and are now reported in the Consumer Care business. Prior period amounts have been recast on a comparative basis.

(3)

Includes pharmaceutical products not individually shown above. Other vaccines sales included in Other Pharmaceutical were $54 million, $67 million and $100 million for the first, second and third quarters of 2011, respectively. Other vaccines sales included in Other Pharmaceutical were $55 million, $57 million, $94 million and $75 million for the first, second, third and fourth quarters of 2010, respectively.

(4)	Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales.