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EX-99.2 - EX-99.2 - Merck & Co., Inc.a14-22973_1ex99d2.htm

Exhibit 99.1

 

GRAPHIC

News Release

 

 

Media Contacts:

Steve Cragle

Investor Contacts:

Joe Romanelli

 

(908) 423-3461

 

(908) 423-5185

 

 

 

 

 

Lainie Keller

 

Justin Holko

 

(908) 236-5036

 

(908) 423-5088

 

Merck Announces Third-Quarter 2014 Financial Results

 

·                  Third-Quarter 2014 Non-GAAP EPS of $0.90, Excluding Certain Items, and GAAP EPS of $0.31

 

·                  Narrows 2014 Full-Year Non-GAAP EPS Target to $3.46 to $3.50, Excluding Certain Items; Updates 2014 Full-Year GAAP EPS Target to $4.06 to $4.29; Now Expects 2014 Full-Year Revenues to be Between $42.4 Billion and $42.8 Billion

 

·                  Generated Worldwide Sales of $10.6 Billion, a Decrease of 4 Percent, Reflecting Unfavorable Impact of Divested Products, Patent Expiries and Decline in Sales of Hepatitis C Products

 

·                  Increased Sales of Acute Care, Immunology, Diabetes and Animal Health Products

 

·                  FDA Approved KEYTRUDA for the Treatment of Advanced Melanoma in Patients Who Have Progressed after Other Therapies and BELSOMRA for the Treatment of Insomnia

 

·                  KEYTRUDA Received Breakthrough Therapy Designation from the FDA for Patients with Advanced Non-Small Cell Lung Cancer Who Have Progressed Following Platinum-Containing Chemotherapy

 

WHITEHOUSE STATION, N.J., Oct. 27, 2014 — Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the third quarter of 2014.

 

$ in millions, except EPS amounts

 

Third Quarter
2014

 

Third Quarter
2013

 

Sales

 

$10,557

 

$11,032

 

GAAP EPS

 

0.31

 

0.38

 

Non-GAAP EPS that excludes items listed below1

 

0.90

 

0.92

 

GAAP Net Income2

 

895

 

1,124

 

Non-GAAP Net Income that excludes items listed below1,2

 

2,617

 

2,729

 

 


1  Merck is providing certain 2014 and 2013 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 description of the items, see Table 2a, including the related footnotes, attached to this release.

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

 



 

Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the third quarter of $0.90 exclude acquisition- and divestiture-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. Year-to-date results can be found in the attached tables.

 

$ in millions, except EPS amounts

 

Third Quarter
2014

 

Third Quarter
2013

 

EPS

 

 

 

 

 

GAAP EPS

 

$0.31

 

$0.38

 

Difference3

 

0.59

 

0.54

 

Non-GAAP EPS that excludes items listed below1

 

$0.90

 

$0.92

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

GAAP net income2

 

$895

 

$1,124

 

Difference

 

1,722

 

1,605

 

Non-GAAP net income that excludes items listed below1,2

 

$2,617

 

$2,729

 

 

 

 

 

 

 

Decrease (Increase) in Net Income Due to Excluded Items:

 

 

 

 

 

Acquisition- and divestiture-related costs4

 

$1,659

 

$1,196

 

Restructuring costs

 

612

 

967

 

Additional year of health care reform fee

 

193

 

 

Gain on divestiture of certain ophthalmic products

 

(396

)

 

Other

 

5

 

 

Net decrease (increase) in income before taxes

 

2,073

 

2,163

 

Income tax (benefit) expense5

 

(295

)

(558

)

Acquisition- and divestiture-related costs attributable to non-controlling interests

 

(56

)

 

Decrease (increase) in net income2

 

$1,722

 

$1,605

 

 

“Last October, we launched a multi-year initiative to transform Merck and build a platform for sustained, future growth,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “One year later, we delivered solid third-quarter results and are making steady progress in our transformation, including divesting non-core assets, reducing our expense base and investing in our promising new product launches and pipeline.”

 


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

4  Includes expenses of $1.0 billion and $1.2 billion in the third quarter of 2014 and 2013, respectively, for the amortization of intangible assets recognized as a result of mergers and acquisitions, as well as intangible asset impairment charges of $541 million in the third quarter of 2014. Also includes merger integration costs, as well as transaction and certain other costs related to business acquisitions and divestitures.

5 Includes the estimated tax impact on the reconciling items.

 

Page 2



 

Select Revenue Highlights

 

Worldwide sales were $10.6 billion for the third quarter of 2014, a decrease of 4 percent compared with the third quarter of 2013, including a 1 percent positive impact from foreign exchange. The decline includes $425 million of lower sales due to divestitures and the termination of the joint venture with AstraZeneca (AZ).

 

The following table 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
2014

 

Third Quarter
2013

 

Change

 

Change
Ex-exchange

 

Total Sales

 

$10,557

 

$11,032

 

-4

%

-5

%

Pharmaceutical

 

9,134

 

9,475

 

-4

%

-4

%

JANUVIA/JANUMET

 

1,439

 

1,369

 

5

%

5

%

ZETIA/VYTORIN

 

1,028

 

1,059

 

-3

%

-3

%

REMICADE

 

604

 

574

 

5

%

3

%

GARDASIL

 

590

 

665

 

-11

%

-11

%

PROQUAD, M-M-R II and VARIVAX

 

421

 

421

 

0

%

0

%

ISENTRESS

 

412

 

427

 

-3

%

-3

%

NASONEX

 

261

 

297

 

-12

%

-12

%

SINGULAIR

 

218

 

280

 

-22

%

-20

%

Animal Health

 

885

 

800

 

11

%

10

%

Consumer Care

 

401

 

443

 

-9

%

-9

%

Other Revenues

 

137

 

314

 

-56

%

-71

%

 

Pharmaceutical Revenue Performance

 

Third-quarter pharmaceutical sales declined 4 percent to $9.1 billion. Expected declines occurred due to the ongoing impact of product divestitures, as well as the loss of market exclusivity for certain products, including TEMODAR (temozolomide) and SINGULAIR (montelukast sodium). Also contributing to the decline were lower sales from the hepatitis franchise of VICTRELIS (boceprevir) and PEGINTRON (peginterferon alfa-2b) as a result of increased competition, as well as of GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16, and 18) Vaccine, Recombinant]. These declines were partially offset by growth in the global acute care franchise, including NOXAFIL (posaconazole) and BRIDION (sugammadex); the diabetes franchise of JANUVIA (sitagliptin)/JANUMET (sitagliptin and metformin HCI); REMICADE (infliximab); SIMPONI (golimumab); and DULERA (mometasone furoate and formoterol fumarate dihydrate).

 

Combined sales of JANUVIA and JANUMET, medicines that help lower blood sugar levels in adults with type 2 diabetes, grew 5 percent to $1.4 billion in the third quarter. The growth reflects higher sales in the United States and Europe, which were partially offset by price reductions in Japan.

 

Page 3



 

Combined sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), medicines for lowering LDL cholesterol, declined 3 percent to $1.0 billion in the third quarter, driven by lower sales in the United States.

 

Combined sales of REMICADE and SIMPONI, treatments for inflammatory diseases, grew 11 percent to $774 million in the third quarter, including a 2 percent positive impact from foreign exchange. Over the last 12 months, SIMPONI has been the fastest growing anti-TNF agent in all countries where marketed by Merck.

 

Merck’s sales of GARDASIL, a vaccine to help prevent certain diseases caused by four types of human papillomavirus, were $590 million, a decrease of 11 percent for the third quarter. The results reflect lower purchases in the U.S. public sector.

 

Worldwide sales of ISENTRESS, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, decreased 3 percent to $412 million in the third quarter. The decline reflects lower sales in the United States, partially offset by growth in Europe.

 

On Sept. 4, 2014, the U.S. Food and Drug Administration (FDA) granted accelerated approval of KEYTRUDA (pembrolizumab), the first approved anti-PD-1 therapy in the United States. KEYTRUDA has been approved for the treatment of patients with unresectable or metastatic melanoma and disease progression following ipilimumab and, if BRAF V600 mutation positive, a BRAF inhibitor. Within a few days of approval, initial orders shipped, and the Merck team has already reached more than 75 percent of key physicians. Merck believes there are currently approximately 1,200 patients who may be eligible for KEYTRUDA, based on the product’s label, and to date, approximately 900 patients are being treated with KEYTRUDA.

 

Animal Health Revenue Performance

 

Animal Health sales totaled $885 million for the third quarter of 2014, an increase of 11 percent compared with the third quarter of 2013, including a 1 percent positive impact due to foreign exchange. Growth was driven by increases across all species. In companion animals, growth was supported by ongoing launches in Europe and the United States of BRAVECTO (fluralaner), a chewable tablet that kills fleas and ticks in dogs for up to 12 weeks. Growth was partially offset by the loss of sales of ZILMAX (zilpaterol hydrochloride), a feed supplement for beef cattle. The company decided last year to voluntarily suspend sales of ZILMAX in the United States and Canada. Excluding the impact of the ZILMAX sales suspension, Animal Health sales increased 14 percent in the third quarter.

 

Page 4



 

Consumer Care Revenue Performance

 

Third-quarter global sales of Consumer Care products were $401 million, a decline of 9 percent compared to the third quarter of 2013. As previously announced, Merck completed the sale of its Consumer Care business to Bayer AG on Oct. 1, 2014.

 

Other Revenue Performance

 

Other revenues — primarily comprising alliance revenue, miscellaneous corporate revenues and third-party manufacturing sales — decreased 56 percent to $137 million compared to the third quarter of 2013. The decrease was driven primarily by the loss of revenue from AZ recorded by Merck, which was $220 million in the third quarter of 2013. On June 30, 2014, AZ exercised its option to buy the company’s interest in a subsidiary and, through it, the company’s interest in Nexium and Prilosec. As of July 1, 2014, Merck no longer records equity income from AZ and supply sales to AZ have ended. The decline in other revenues also reflects $50 million of lower third-party manufacturing sales, primarily driven by the divestiture of a substantial portion of this business in 2013.

 

Third-Quarter Expense and Other Information

 

The costs detailed below totaled $9.2 billion on a GAAP basis during the third quarter of 2014 and include $2.4 billion of acquisition- and divestiture-related costs, restructuring costs and certain other items.

 

 

 

Included in expenses for the period

 

$ in millions

 

GAAP

 

Acquisition-
and
Divestiture-
Related
Costs
4

 

Restructuring
Costs

 

Certain
Other Items

 

Non-GAAP1

 

Third Quarter 2014

 

 

 

 

 

 

 

 

 

 

 

Materials and production

 

$4,223

 

$1,420

 

$87

 

$—

 

$2,716

 

Marketing and administrative

 

2,975

 

110

 

68

 

193

 

2,604

 

Research and development

 

1,659

 

36

 

81

 

 

1,542

 

Restructuring costs

 

376

 

 

376

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third Quarter 2013

 

 

 

 

 

 

 

 

 

 

 

Materials and production

 

$4,104

 

$1,176

 

$57

 

$—

 

$2,871

 

Marketing and administrative

 

2,803

 

20

 

31

 

 

2,752

 

Research and development

 

1,660

 

 

9

 

 

1,651

 

Restructuring costs

 

870

 

 

870

 

 

 

 

Page 5



 

The gross margin was 60.0 percent for the third quarter of 2014 compared to 62.8 percent for the third quarter of 2013, reflecting 14.3 and 11.2 unfavorable percentage point impacts, respectively, from the acquisition- and divestiture-related costs, and restructuring costs noted above.

 

Marketing and administrative expenses, on a non-GAAP basis, were $2.6 billion in the third quarter of 2014, a decrease primarily due to productivity measures from $2.8 billion in the same period of 2013.

 

Research and development (R&D) expenses, on a non-GAAP basis, were $1.5 billion in the third quarter of 2014, a decrease from $1.7 billion in the third quarter of 2013. The decline reflects targeted cost reductions and lower clinical development spending resulting from portfolio prioritization.

 

Other (income) expense, net, was $142 million of income in the third quarter of 2014 compared to $172 million of expense in the third quarter of 2013. The third quarter of 2014 includes a gain of $396 million on the divestiture of certain ophthalmic products in several international markets, partially offset by a $93 million goodwill impairment charge related to the company’s joint venture with Supera Farma Laboratorios S.A. in Brazil.

 

The GAAP effective tax rate of 43.5 percent for the third quarter of 2014 reflects the impacts of acquisition- and divestiture-related costs, restructuring costs and certain other items, including an additional year of expense related to the non-tax deductible health care reform fee. The non-GAAP effective tax rate, which excludes these items, was 26.5 percent for the quarter.

 

Key Developments

 

·                  The FDA granted accelerated approval of KEYTRUDA on Sept. 4, 2014, for the treatment of advanced melanoma in patients who have progressed after other therapies.

 

·                  As announced earlier today, KEYTRUDA received Breakthrough Therapy Designation from the FDA for patients with advanced non-small cell lung cancer who have progressed following platinum-containing chemotherapy.

 

·                  Interim data in five tumor types exploring investigational uses of KEYTRUDA was presented at the 2014 European Society for Medical Oncology 2014 Congress.

 

·                  On Aug. 13, 2014, the FDA approved BELSOMRA (suvorexant) for the treatment of adults with insomnia who have difficulty falling asleep and/or staying asleep.

 

·                  Merck completed the sale of its Consumer Care business to Bayer AG on Oct. 1, 2014. As previously announced, the companies have entered into a worldwide collaboration to develop and commercialize soluble guanylate cyclase modulators. The collaboration includes Bayer’s Adempas (riociguat), which is approved to treat pulmonary arterial hypertension and chronic thromboembolic pulmonary hypertension.

 

Page 6



 

·                  On Aug. 5, 2014, Merck completed its acquisition of Idenix Pharmaceuticals, Inc. to expand its portfolio of investigational therapies for hepatitis C.

 

·                  On Oct. 15, 2014, the company announced that it accepted for purchase $1.8 billion in principal amount of eight series of notes as part of a previously announced tender offer. In addition, the company intends to redeem its $1.0 billion 4% Notes due 2015 and its $1.0 billion 6% Senior Notes due 2017. As a result of these transactions, Merck expects to record a pre-tax charge of approximately $650 million in the fourth quarter of 2014, which will be excluded from non-GAAP results.

 

For a full listing of company developments that occurred in the third quarter of 2014, visit the newsroom at www.merck.com.

 

Financial Outlook

 

Merck has narrowed its full-year 2014 non-GAAP EPS range to be between $3.46 and $3.50. The range excludes acquisition- and divestiture-related costs and costs related to restructuring programs, as well as certain other items. Merck now expects the company’s full-year 2014 GAAP EPS range to be between $4.06 and $4.29.

 

At current exchange rates, Merck now anticipates full-year 2014 revenues to be between $42.4 billion and $42.8 billion.

 

In addition, the company continues to expect full-year 2014 non-GAAP marketing and administrative and R&D expenses will be below 2013 levels. In the fourth quarter of 2014, the company anticipates R&D expenses will be higher than the fourth quarter of 2013 due to timing of certain programs. The company continues to anticipate its full-year 2014 non-GAAP tax rate will be in the range of 24 to 26 percent, not including a 2014 R&D tax credit.

 

A reconciliation of anticipated 2014 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
2014

 

GAAP EPS

 

$4.06 to $4.29

 

Difference3

 

(0.60) to (0.79)

 

Non-GAAP EPS that excludes items listed below

 

$3.46 to $3.50

 

 

 

 

 

Acquisition- and divestiture-related costs

 

$5,700 to $5,500

 

Restructuring costs

 

1,700 to 1,500

 

Loss on extinguishment of debt

 

675 to 625

 

Additional year of health care reform fee

 

193

 

Gain on AZ option exercise

 

(741)

 

Gain on divestiture of certain ophthalmic products

 

(490) to (510)

 

Gain on sale of Merck Consumer Care

 

(11,000) to (11,300)

 

Net decrease (increase) in income before taxes

 

(3,963) to (4,733)

 

Estimated income tax (benefit) expense

 

2,250 to 2,475

 

Decrease (increase) in net income

 

(1,713) to (2,258)

 

Acquisition- and divestiture-related costs attributable to non-controlling interests

 

(56)

 

Decrease (increase) in net income2

 

($1,769) to ($2,314)

 

 

Page 7



 

Total Employees

 

As of Sept. 30, 2014, Merck had approximately 71,000 employees worldwide. In addition, the company’s joint ventures in China and Brazil, which are included in the consolidated results of Merck, had about 1,200 employees.

 

Earnings Conference Call

 

Investors, journalists and the general public may access a live audio webcast of the call today at 8:00 a.m. EDT on Merck’s website at http://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 and using ID code number 5243903. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 5243903. Journalists who wish to ask questions are requested to contact a member of Merck’s Media Relations team at the conclusion of the call.

 

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 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. You can also follow our Twitter conversation at $MRK.

 

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. These statements are based upon the current beliefs and expectations of Merck’s management and are subject to significant risks and uncertainties. There can be no guarantees with respect to pipeline products that the products will receive the necessary regulatory approvals or that they will prove to be commercially successful. If underlying assumptions prove inaccurate or risks or

 

Page 8



 

uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements.

 

Risks and uncertainties include but are not limited to, general industry conditions and competition; general economic factors, including interest rate and currency exchange rate fluctuations; the impact of pharmaceutical industry regulation and health care legislation in the United States and internationally; global trends toward health care cost containment; technological advances, new products and patents attained by competitors; challenges inherent in new product development, including obtaining regulatory approval; Merck’s ability to accurately predict future market conditions; manufacturing difficulties or delays; financial instability of international economies and sovereign risk; dependence on the effectiveness of Merck’s patents and other protections for innovative products; and the exposure to litigation, including patent 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 2013 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).

 

###

 

Page 9



 

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF INCOME - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1

 

 

 

 

 

 

 

 

 

GAAP

 

 

 

 

 

GAAP

 

 

 

Sep YTD

 

Sep YTD

 

 

 

 

 

3Q14

 

3Q13

 

% Change

 

2014

 

2013

 

% Change

 

Sales

 

$

10,557

 

$

11,032

 

-4

%

$

31,755

 

$

32,713

 

-3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs, Expenses and Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Materials and production (1)

 

4,223

 

4,104

 

3

%

13,019

 

12,347

 

5

%

Marketing and administrative (1)

 

2,975

 

2,803

 

6

%

8,681

 

8,929

 

-3

%

Research and development (1)

 

1,659

 

1,660

 

 

4,897

 

5,668

 

-14

%

Restructuring costs (2)

 

376

 

870

 

-57

%

664

 

1,144

 

-42

%

Equity income from affiliates (3)

 

(24

)

(102

)

-76

%

(241

)

(351

)

-31

%

Other (income) expense, net (1) (4)

 

(142

)

172

 

*

 

(737

)

656

 

*

 

Income Before Taxes

 

1,490

 

1,525

 

-2

%

5,472

 

4,320

 

27

%

Income Tax Provision

 

648

 

375

 

 

 

865

 

618

 

 

 

Net Income

 

842

 

1,150

 

-27

%

4,607

 

3,702

 

24

%

Less: Net (Loss) Income Attributable to Noncontrolling Interests

 

(53

)

26

 

 

 

3

 

79

 

 

 

Net Income Attributable to Merck & Co., Inc.

 

$

895

 

$

1,124

 

-20

%

$

4,604

 

$

3,623

 

27

%

Earnings per Common Share Assuming Dilution

 

$

0.31

 

$

0.38

 

-18

%

$

1.57

 

$

1.20

 

31

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Shares Outstanding Assuming Dilution

 

2,911

 

2,960

 

 

 

2,942

 

3,007

 

 

 

Tax Rate (5)

 

43.5

%

24.6

%

 

 

15.8

%

14.3

%

 

 

 

* 100% or greater

 

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

 

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

 

(3) Reflects the performance of the company’s joint ventures and other equity method affiliates, including the Sanofi Pasteur MSD partnership, as well as the AstraZeneca LP partnership until its termination on June 30, 2014.

 

(4) Other (income) expense, net in the third quarter and first nine months of 2014 includes a gain of $396 million on the divestiture of certain ophthalmic products in several international markets, partially offset by a $93 million goodwill impairment charge related to the company’s joint venture with Supera Farma Laboratorios S.A. Other (income) expense, net in the first nine months of 2014 also includes a gain of $741 million related to AstraZeneca’s option exercise and net gains of $168 million related to the divestiture of the company’s Sirna Therapeutics, Inc. subsidiary. Other (income) expense, net in the first nine months of 2013 reflects approximately $140 million of exchange losses as a result of a Venezuelan currency devaluation.

 

(5) The effective income tax rate for the first nine months of 2014 reflects a net benefit of $517 million recorded in connection with AstraZeneca’s option exercise, as well as a benefit of approximately $300 million associated with a capital loss generated in the first quarter of 2014.

 

The effective income tax rate for the first nine months of 2013 reflects net benefits from the settlements of certain federal income tax issues, reductions in tax reserves upon expiration of applicable statute of limitations and the favorable impact of tax legislation enacted in the first quarter of 2013.

 



 

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF INCOME

GAAP TO NON-GAAP RECONCILIATION

THIRD QUARTER 2014

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2a

 

 

 

 

 

Acquisition and

 

 

 

 

 

 

 

 

 

 

 

 

 

Divestiture-

 

Restructuring

 

Certain Other

 

Adjustment

 

 

 

 

 

GAAP

 

Related Costs (1)

 

Costs (2)

 

Items (3)

 

Subtotal

 

Non-GAAP

 

Sales

 

$

10,557

 

 

 

 

 

 

 

 

 

$

10,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs, Expenses and Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Materials and production

 

4,223

 

1,420

 

87

 

 

 

1,507

 

2,716

 

Marketing and administrative

 

2,975

 

110

 

68

 

193

 

371

 

2,604

 

Research and development

 

1,659

 

36

 

81

 

 

 

117

 

1,542

 

Restructuring costs

 

376

 

 

 

376

 

 

 

376

 

 

Equity income from affiliates

 

(24

)

 

 

 

 

 

 

 

 

(24

)

Other (income) expense, net

 

(142

)

93

 

 

 

(391

)

(298

)

156

 

Income Before Taxes

 

1,490

 

(1,659

)

(612

)

198

 

(2,073

)

3,563

 

Taxes on Income

 

648

 

 

 

 

 

 

 

(295

)(4)

943

 

Net Income

 

842

 

 

 

 

 

 

 

(1,778

)

2,620

 

Less: Net (Loss) Income Attributable to Noncontrolling Interests

 

(53

)

(56

)

 

 

 

 

(56

)

3

 

Net Income Attributable to Merck & Co., Inc.

 

$

895

 

 

 

 

 

 

 

$

(1,722

)

$

2,617

 

Earnings per Common Share Assuming Dilution

 

$

0.31

 

 

 

 

 

 

 

 

 

$

0.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Shares Outstanding Assuming Dilution

 

2,911

 

 

 

 

 

 

 

 

 

2,911

 

Tax Rate

 

43.5

%

 

 

 

 

 

 

 

 

26.5

%

 

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 $1.0 billion for the amortization of intangible assets recognized as a result of mergers and acquisitions, as well as $412 million of impairment charges on product intangibles. Amounts included in marketing and administrative expenses reflect merger integration costs, as well as transaction and certain other costs related to business acquisitions and divestitures. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges primarily related to the company’s joint venture with Supera. Amount included in other (income) expense, net represents a goodwill impairment charge related to the joint venture with Supera. Amount included in net (loss) income attributable to non-controlling interests represents the portion of intangible asset and goodwill impairment charges related to the joint venture with Supera that are attributable to non-controlling interests.

 

(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) Amount included in marketing and administrative expenses represents an additional year of expense related to the healthcare reform fee in accordance with final regulations issued in the third quarter by the Internal Revenue Service. Included in other (income) expenese, net is a $396 million gain on the divestiture of certain ophthalmic products in several international markets.

 

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

 



 

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF INCOME

GAAP TO NON-GAAP RECONCILIATION

NINE MONTHS ENDED SEPTEMBER 30, 2014

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2b

 

 

 

 

 

Acquisition and

 

 

 

 

 

 

 

 

 

 

 

 

 

Divestiture-

 

Restructuring

 

Certain Other

 

Adjustment

 

 

 

 

 

GAAP

 

Related Costs (1)

 

Costs (2)

 

Items (3)

 

Subtotal

 

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

31,755

 

 

 

 

 

 

 

 

 

$

31,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs, Expenses and Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Materials and production

 

13,019

 

4,270

 

377

 

 

 

4,647

 

8,372

 

Marketing and administrative

 

8,681

 

153

 

143

 

193

 

489

 

8,192

 

Research and development

 

4,897

 

36

 

175

 

 

 

211

 

4,686

 

Restructuring costs

 

664

 

 

 

664

 

 

 

664

 

 

Equity income from affiliates

 

(241

)

 

 

 

 

 

 

 

 

(241

)

Other (income) expense, net

 

(737

)

93

 

 

 

(1,132

)

(1,039

)

302

 

Income Before Taxes

 

5,472

 

(4,552

)

(1,359

)

939

 

(4,972

)

10,444

 

Taxes on Income

 

865

 

 

 

 

 

 

 

(1,809

)(4)

2,674

 

Net Income

 

4,607

 

 

 

 

 

 

 

(3,163

)

7,770

 

Less: Net Income (Loss) Attributable to Noncontrolling Interests

 

3

 

(56

)

 

 

 

 

(56

)

59

 

Net Income Attributable to Merck & Co., Inc.

 

$

4,604

 

 

 

 

 

 

 

$

(3,107

)

$

7,711

 

Earnings per Common Share Assuming Dilution

 

$

1.57

 

 

 

 

 

 

 

 

 

$

2.62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Shares Outstanding Assuming Dilution

 

2,942

 

 

 

 

 

 

 

 

 

2,942

 

Tax Rate

 

15.8

%

 

 

 

 

 

 

 

 

25.6

%

 

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 $3.2 billion for the amortization of intangible assets recognized as a result of mergers and acquisitions, as well as $1.1 billion of impairment charges on product intangibles. Amounts included in marketing and administrative expenses reflect merger integration costs, as well as transaction and certain other costs related to business acquisitions and divestitures. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges primarily related to the company’s joint venture with Supera. Amount included in other (income) expense, net is a goodwill impairment charge related to the joint venture with Supera. Amount included in net income (loss) attributable to non-controlling interests represents the portion of intangible asset and goodwill impairment charges related to the joint venture with Supera that are attributable to non-controlling interests.

 

(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) Amount included in marketing and administrative expenses represents an additional year of expense related to the healthcare reform fee in accordance with final regulations issued in the third quarter by the Internal Revenue Service. Included in other (income) expense, net is a $396 million gain on the divestiture of certain ophthalmic products in several international markets and a $741 million net gain related to AstraZeneca’s option exercise.

 

(4) Represents the estimated tax impact on the reconciling items, including a net benefit of approximately $517 million recorded in connection with AstraZeneca’s option exercise, as well as a benefit of approximately $300 million associated with a capital loss generated in the first quarter.

 



 

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

(AMOUNTS IN MILLIONS)

Table 3

 

 

 

2014

 

2013

 

% Change

 

% Change

 

 

 

1Q

 

2Q

 

3Q

 

Sep YTD

 

1Q

 

2Q

 

3Q

 

Sep YTD

 

4Q

 

Full Year

 

3Q

 

Sep YTD

 

TOTAL SALES (1)

 

$

10,264

 

$

10,934

 

$

10,557

 

$

31,755

 

$

10,671

 

$

11,010

 

$

11,032

 

$

32,713

 

$

11,319

 

$

44,033

 

-4

 

-3

 

PHARMACEUTICAL

 

8,451

 

9,087

 

9,134

 

26,672

 

8,891

 

9,310

 

9,475

 

27,677

 

9,760

 

37,437

 

-4

 

-4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Primary Care and Women’s Health

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cardiovascular

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zetia

 

611

 

717

 

660

 

1,988

 

629

 

650

 

662

 

1,941

 

716

 

2,658

 

 

 

2

 

Vytorin

 

361

 

417

 

369

 

1,146

 

394

 

417

 

396

 

1,207

 

436

 

1,643

 

-7

 

-5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diabetes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Januvia / Janumet

 

1,334

 

1,577

 

1,439

 

4,350

 

1,293

 

1,547

 

1,369

 

4,208

 

1,624

 

5,833

 

5

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General Medicine & Women’s Health

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NuvaRing

 

168

 

178

 

186

 

531

 

151

 

171

 

170

 

492

 

193

 

686

 

9

 

8

 

Implanon / Nexplanon

 

102

 

119

 

158

 

379

 

84

 

102

 

96

 

282

 

120

 

403

 

65

 

34

 

Dulera

 

102

 

103

 

124

 

328

 

68

 

79

 

82

 

229

 

95

 

324

 

51

 

43

 

Follistim AQ

 

110

 

102

 

97

 

309

 

122

 

134

 

124

 

380

 

101

 

481

 

-22

 

-19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hospital and Specialty

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hepatitis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peglntron

 

112

 

103

 

84

 

300

 

126

 

142

 

104

 

372

 

124

 

496

 

-19

 

-19

 

Victrelis

 

59

 

46

 

27

 

132

 

110

 

116

 

121

 

347

 

81

 

428

 

-78

 

-62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HIV

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Isentress

 

390

 

453

 

412

 

1,255

 

362

 

412

 

427

 

1,201

 

442

 

1,643

 

-3

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acute Care

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancidas

 

166

 

156

 

183

 

505

 

162

 

163

 

151

 

477

 

183

 

660

 

21

 

6

 

Invanz

 

114

 

134

 

141

 

390

 

110

 

120

 

130

 

360

 

128

 

488

 

9

 

8

 

Noxafil

 

74

 

98

 

107

 

280

 

65

 

71

 

75

 

212

 

98

 

309

 

42

 

32

 

Bridion

 

73

 

82

 

90

 

245

 

63

 

69

 

75

 

206

 

82

 

288

 

20

 

19

 

Primaxin

 

71

 

81

 

91

 

243

 

84

 

85

 

88

 

256

 

79

 

335

 

4

 

-5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Immunology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remicade

 

604

 

607

 

604

 

1,815

 

549

 

527

 

574

 

1,651

 

620

 

2,271

 

5

 

10

 

Simponi

 

157

 

174

 

170

 

500

 

108

 

120

 

126

 

354

 

146

 

500

 

35

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cosopt / Trusopt

 

99

 

100

 

34

 

232

 

105

 

103

 

104

 

313

 

103

 

416

 

-68

 

-26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oncology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Emend

 

122

 

144

 

136

 

402

 

116

 

135

 

123

 

373

 

134

 

507

 

11

 

8

 

Temodar

 

83

 

93

 

88

 

264

 

216

 

219

 

162

 

596

 

111

 

708

 

-46

 

-56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diversified Brands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Respiratory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nasonex

 

312

 

258

 

261

 

830

 

385

 

325

 

297

 

1,008

 

327

 

1,335

 

-12

 

-18

 

Singulair

 

271

 

284

 

218

 

773

 

337

 

281

 

280

 

898

 

298

 

1,196

 

-22

 

-14

 

Clarinex

 

62

 

69

 

49

 

180

 

61

 

64

 

54

 

180

 

55

 

235

 

-10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cozaar / Hyzaar

 

205

 

214

 

195

 

614

 

267

 

255

 

238

 

760

 

246

 

1,006

 

-18

 

-19

 

Arcoxia

 

128

 

141

 

132

 

400

 

121

 

121

 

112

 

354

 

131

 

484

 

18

 

13

 

Fosamax

 

123

 

121

 

114

 

358

 

137

 

144

 

140

 

421

 

139

 

560

 

-19

 

-15

 

Propecia

 

74

 

58

 

66

 

197

 

68

 

67

 

71

 

206

 

77

 

283

 

-7

 

-4

 

Zocor

 

64

 

69

 

61

 

194

 

82

 

74

 

65

 

221

 

79

 

301

 

-6

 

-12

 

Remeron

 

50

 

40

 

47

 

137

 

52

 

53

 

44

 

150

 

56

 

206

 

7

 

-8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vaccines

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gardasil

 

383

 

409

 

590

 

1,382

 

390

 

383

 

665

 

1,438

 

394

 

1,831

 

-11

 

-4

 

ProQuad, M-M-R II and Varivax

 

280

 

326

 

421

 

1,027

 

272

 

339

 

421

 

1,032

 

273

 

1,306

 

 

 

-1

 

RotaTeq

 

169

 

147

 

174

 

490

 

162

 

144

 

201

 

507

 

129

 

636

 

-14

 

-3

 

Zostavax

 

142

 

156

 

181

 

479

 

168

 

141

 

185

 

494

 

264

 

758

 

-2

 

-3

 

Pneumovax 23

 

101

 

102

 

197

 

400

 

111

 

108

 

193

 

412

 

241

 

653

 

2

 

-3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Pharmaceutical (2)

 

1,175

 

1,209

 

1,228

 

3,617

 

1,361

 

1,430

 

1,350

 

4,139

 

1,435

 

5,570

 

-9

 

-13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ANIMAL HEALTH

 

813

 

872

 

885

 

2,569

 

840

 

851

 

800

 

2,491

 

871

 

3,362

 

11

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSUMER CARE (3)

 

546

 

583

 

401

 

1,531

 

571

 

490

 

443

 

1,504

 

390

 

1,894

 

-9

 

2

 

Claritin OTC

 

170

 

153

 

110

 

433

 

177

 

78

 

123

 

379

 

92

 

471

 

-11

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Revenues (4)

 

454

 

392

 

137

 

983

 

369

 

359

 

314

 

1,041

 

298

 

1,340

 

-56

 

-5

 

Astra

 

147

 

316

 

1

 

465

 

262

 

245

 

220

 

727

 

193

 

920

 

-99

 

-36

 

 

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

(1) Only select products are shown.

 

(2) Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $98 million, $76 million and $116 million for the first, second and third quarters of 2014, respectively. Other Vaccines sales included in Other Pharmaceutical were $53 million, $86 million, $127 million, and $101 million for the first, second, third, and fourth quarters of 2013, respectively.

 

(3) The decrease in Consumer Care sales in the second quarter and full year of 2013 resulted from the termination in China of distribution arrangements and a reversal of sales previously made to those distributors, together with associated termination costs.

 

(4) Other revenues are comprised primarily of alliance revenue, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities. On October 1, 2013, the company divested a substantial portion of its third-party manufacturing sales. On June 30, 2014, AstraZeneca exercised its option to buy Merck’s interest in a subsidiary and through it, Merck’s interest in Nexium and Prilosec. As a result, the company no longer records supply sales for these products. Other revenues in the first quarter and September YTD 2014 include $232 million of revenue recognized in connection with the sale of U.S. Saphris rights. In addition, Other revenues in the fourth quarter and full year of 2013 reflect $50 million of revenue for the out-license of a pipeline compound.