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EX-99.2 - EX-99.2 - Merck & Co., Inc.a17-3583_1ex99d2.htm
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Exhibit 99.1

 

GRAPHIC

 

News Release

 

FOR IMMEDIATE RELEASE

 

Media Contact:

 

Lainie Keller

 

Investor Contacts:

 

Teri Loxam

 

 

(908) 236-5036

 

 

 

(908) 740-1986

 

 

 

 

 

 

 

 

 

 

 

 

 

Amy Klug

 

 

 

 

 

 

(908) 740-1898

 

Merck Announces Fourth-Quarter and Full-Year 2016 Financial Results

 

·                  Fourth-Quarter 2016 Worldwide Sales Were $10.1 Billion, a Decrease of 1 Percent, Including a 1 Percent Negative Impact from Foreign Exchange; Full-Year 2016 Worldwide Sales Were $39.8 Billion, an Increase of 1 Percent, Including a 2 Percent Negative Impact from Foreign Exchange

 

·                  Fourth-Quarter 2016 GAAP EPS Was $0.42; Fourth-Quarter Non-GAAP EPS Was $0.89; Full-Year 2016 GAAP EPS Was $2.04; Full-Year Non-GAAP EPS Was $3.78

 

·                  2017 Financial Outlook

 

·                  Expects Full-Year 2017 GAAP EPS to be Between $2.47 and $2.62; Expects Non-GAAP EPS to be Between $3.72 and $3.87, Including an Approximately 2 Percent Negative Impact from Foreign Exchange

 

·                  Anticipates Full-Year 2017 Worldwide Sales to be Between $38.6 Billion and $40.1 Billion, Including an Approximately 2 Percent Negative Impact from Foreign Exchange

 

·                  Advanced KEYTRUDA Development Program

 

·                  U.S. Food and Drug Administration (FDA) Approved KEYTRUDA for Previously Untreated Patients with Metastatic Non-Small Cell Lung Cancer (NSCLC) Whose Tumors Have High PD-L1 Expression (Tumor Proportion Score of 50 Percent or More) Without EGFR or ALK Genomic Tumor Aberrations

 

·                  FDA Granted Priority Review for Three Supplemental Biologics License Applications for KEYTRUDA

 

KENILWORTH, N.J., Feb. 2, 2017 — Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the fourth quarter and full year of 2016.

 

“The performance of Merck’s broad and balanced portfolio allows us to remain committed to biomedical innovation that saves and improves lives and delivers long-term value to shareholders,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “The momentum behind our pipeline and key product launches, including the continued growth and expansion of KEYTRUDA into new indications and markets around the world, further reinforces our company’s strategic direction.”

 



 

Financial Summary

 

 

 

Fourth Quarter

 

Year Ended

 

$ in millions, except EPS amounts

 

2016

 

2015

 

Dec. 31, 
2016

 

Dec. 31, 
2015

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$10,115

 

$10,215

 

$39,807

 

$39,498

 

GAAP EPS

 

0.42

 

0.35

 

2.04

 

1.56

 

Non-GAAP EPS that excludes certain items1*

 

0.89

 

0.93

 

3.78

 

3.59

 

GAAP net income2

 

1,177

 

976

 

5,691

 

4,442

 

Non-GAAP net income that excludes certain items1,2*

 

2,470

 

2,608

 

10,538

 

10,195

 

 

*Refer to table on page 8.

 

Worldwide sales were $10.1 billion for the fourth quarter of 2016, a decrease of 1 percent compared with the fourth quarter of 2015, including a 1 percent negative impact from foreign exchange. Sales in the fourth quarter of 2016 reflect the unfavorable impact of approximately $150 million of sales in Japan, which occurred in the third quarter of 2016 rather than in the fourth quarter due to the implementation of a resource planning system. Full-year 2016 worldwide sales were $39.8 billion, an increase of 1 percent compared with the full year of 2015, including a 2 percent negative impact from foreign exchange.

 

GAAP (generally accepted accounting principles) earnings per share assuming dilution (EPS) were $0.42 for the fourth quarter and $2.04 for the full year of 2016. Non-GAAP EPS of $0.89 for the fourth quarter and $3.78 for the full year of 2016 excludes acquisition- and divestiture-related costs, restructuring costs and certain other items, which include a charge to settle the worldwide KEYTRUDA patent litigation.

 

Pipeline Highlights

 

Merck significantly advanced the clinical development program for KEYTRUDA (pembrolizumab), an anti-PD-1 therapy.

 

·                  The FDA approved a supplemental Biologics License Application (sBLA) for KEYTRUDA for the first-line treatment of patients with metastatic NSCLC whose tumors have high PD-L1 expression (Tumor Proportion Score [TPS] of 50 Percent or More) as determined by an FDA-approved test, with no EGFR or ALK genomic tumor aberrations.

 

·                  The FDA granted Priority Review for three additional sBLAs for KEYTRUDA, including:

 

·                  Use in combination with chemotherapy as a first-line treatment for patients with metastatic or advanced NSCLC regardless of PD-L1 expression and with no EGFR or ALK genomic tumor aberrations. The PDUFA action date is May 10, 2017.

 


1  Merck is providing certain 2016 and 2015 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 results and permits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the company along with other metrics. Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS. This information should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP. For a description of the items, see Tables 2a and 2b attached to this release.

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

 

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·                  The treatment of previously treated patients with advanced microsatellite instability-high cancer. The PDUFA action date is March 8, 2017.

 

·                  The treatment of patients with refractory classical Hodgkin lymphoma (cHL) or for patients with cHL who have relapsed after three or more prior lines of therapy. The PDUFA action date is March 15, 2017.

 

·                  KEYTRUDA received Breakthrough Therapy Designations from the FDA for the second-line treatment of patients with urothelial carcinoma with disease progression on or after platinum-containing chemotherapy and for the treatment of patients with primary mediastinal B-cell lymphoma that is refractory to or has relapsed after two prior lines of therapy.

 

·                  The European Commission approved KEYTRUDA for the first-line treatment of metastatic NSCLC in adults whose tumors have high PD-L1 expression (TPS of 50 percent or more) with no EGFR or ALK positive tumor mutations.

 

·                  KEYTRUDA was approved in Japan as a first- and second-line treatment of certain patients with PD-L1-positive unresectable advanced/recurrent NSCLC.

 

·                  Merck and Incyte Corporation recently announced the expansion of the clinical development program investigating KEYTRUDA in combination with epacadostat, Incyte’s investigational oral selective IDO1 inhibitor, to include pivotal studies for NSCLC, renal cell carcinoma, bladder cancer and squamous cell carcinoma of the head and neck.

 

The company recently completed enrollment in its Phase 3 APECS study (NCT01953601) evaluating the safety and efficacy of verubecestat (MK-8931) in people with prodromal, or mild, Alzheimer’s disease. Estimated primary completion date for the trial is February 2019.

 

Fourth-Quarter and Full-Year Revenue Performance

 

The following table reflects sales of the company’s top pharmaceutical products, as well as total sales of Animal Health products.

 

Page 3



 

 

 

Fourth Quarter

 

Year Ended

 

$ in millions

 

2016

 

2015

 

Change

 

Change Ex-
Exchange

 

Dec. 31,
2016

 

Dec. 31,
2015

 

Change

 

Change Ex-
Exchange

 

Total Sales

 

$10,115

 

$10,215

 

-1

%

0

%

$39,807

 

$39,498

 

1

%

3

%

Pharmaceutical

 

8,904

 

9,027

 

-1

%

-1

%

35,151

 

34,782

 

1

%

2

%

JANUVIA/JANUMET

 

1,509

 

1,447

 

4

%

4

%

6,109

 

6,014

 

2

%

2

%

ZETIA/VYTORIN

 

873

 

999

 

-13

%

-13

%

3,701

 

3,777

 

-2

%

-1

%

GARDASIL/GARDASIL 9

 

542

 

497

 

9

%

9

%

2,173

 

1,908

 

14

%

14

%

PROQUAD, M-M-R II and VARIVAX

 

405

 

409

 

-1

%

-1

%

1,640

 

1,505

 

9

%

10

%

KEYTRUDA

 

483

 

214

 

125

%

128

%

1,402

 

566

 

148

%

151

%

ISENTRESS

 

337

 

374

 

-10

%

-9

%

1,387

 

1,511

 

-8

%

-6

%

REMICADE

 

269

 

396

 

-32

%

-31

%

1,268

 

1,794

 

-29

%

-28

%

CUBICIN

 

119

 

322

 

-63

%

-63

%

1,087

 

1,127

 

-4

%

-4

%

SINGULAIR

 

210

 

273

 

-23

%

-26

%

915

 

931

 

-2

%

-4

%

PNEUMOVAX 23

 

238

 

188

 

27

%

25

%

641

 

542

 

18

%

17

%

Animal Health

 

884

 

832

 

6

%

7

%

3,478

 

3,331

 

4

%

8

%

Other Revenues

 

327

 

356

 

-8

%

30

%

1,178

 

1,385

 

-15

%

15

%

 

Pharmaceutical Revenue

 

Fourth-quarter pharmaceutical sales decreased 1 percent to $8.9 billion. The decline was driven primarily by the loss of U.S. market exclusivity in 2016 for CUBICIN (daptomycin for injection), an I.V. antibiotic; NASONEX (mometasone furoate monohydrate), an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms; and ZETIA (ezetimibe), a medicine for lowering LDL cholesterol; as well as by the ongoing impact of biosimilar competition in the company’s marketing territories in Europe for REMICADE (infliximab), a treatment for inflammatory diseases. In the aggregate, sales of these products declined $564 million during the fourth quarter of 2016 compared to the fourth quarter of 2015.

 

These declines were largely offset by growth in oncology, hepatitis C, diabetes and vaccines, which include the ongoing launches of KEYTRUDA and ZEPATIER (elbasvir and grazoprevir), a medicine for the treatment of chronic hepatitis C virus genotypes 1 or 4 infection. Additionally, the ongoing launch of BRIDION (sugammadex) Injection 100 mg/mL, a medicine for the reversal of neuromuscular blockade induced by rocuronium bromide or vecuronium bromide in adults undergoing surgery, generated sales of $139 million during the fourth quarter of 2016.

 

Growth of KEYTRUDA reflects the company’s continued efforts to launch the product with new indications, particularly as a first-line treatment for NSCLC and for previously treated recurrent or metastatic head and neck cancer in the United States, and as a second-line treatment for NSCLC globally.

 

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ZEPATIER sales growth was primarily driven by the ongoing launch in the United States, as well as ongoing launches in emerging markets and the launches in Europe and Japan. In the fourth quarter of 2016, sales of ZEPATIER were $229 million.

 

Pharmaceutical sales also reflect an increase in the diabetes franchise of JANUVIA (sitagliptin) and JANUMET (sitagliptin and metformin HCl), medicines that help lower blood sugar in adults with type 2 diabetes, driven by sales growth in the United States, partially offset by lower sales in Japan due to the timing of shipments.

 

Growth in vaccines resulted from higher sales of PNEUMOVAX 23 (pneumococcal vaccine polyvalent) in the United States due to the adoption of recently issued vaccination guidelines from the Centers for Disease Control and Prevention; and GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant) and GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16, and 18) Vaccine, Recombinant], vaccines to prevent certain cancers and other diseases caused by HPV, due to increased pricing and demand in the United States. On Dec. 31, 2016, Merck and Sanofi Pasteur ended the Sanofi Pasteur MSD vaccines joint venture. As a result, beginning in 2017, Merck will operate its vaccines business in Europe and will record vaccine sales in the 19 European countries previously part of the joint venture.

 

In April 2017 the company will lose market exclusivity in the United States for VYTORIN (ezetimibe/simvastatin), a medicine for lowering LDL cholesterol, and anticipates a significant decline in U.S. VYTORIN sales thereafter. Full-year 2016 U.S. sales of VYTORIN were $473 million.

 

Full-year 2016 pharmaceutical sales increased 1 percent to $35.2 billion, including a 1 percent negative impact from foreign exchange. Growth was driven by sales in oncology, vaccines and hepatitis C products, partially offset by sales declines of $887 million due to the loss of U.S. market exclusivity for NASONEX and CUBICIN, and the impact of biosimilar competition for REMICADE in the company’s marketing territories in Europe.

 

Animal Health Revenue

 

Animal Health sales totaled $884 million for the fourth quarter of 2016, an increase of 6 percent compared with the fourth quarter of 2015, including a 1 percent negative impact from foreign exchange. Worldwide sales for the full year of 2016 were $3.5 billion, an increase of 4 percent, including a 4 percent negative impact from foreign exchange. Sales growth in both periods was primarily driven by an increase in sales of companion animal products, particularly the BRAVECTO (fluralaner) line of products that kill fleas and ticks in dogs and cats for up to 12 weeks.

 

Page 5



 

Fourth-Quarter and Full-Year Expense, EPS and Related Information

 

The tables below present selected expense information.

 

$ in millions

 

GAAP

 

Acquisition- and
Divestiture-
Related Costs
3

 

Restructuring
Costs

 

Certain Other
Items

 

Non-GAAP1

 

Fourth-Quarter 2016

 

 

 

 

 

 

 

 

 

 

 

Materials and production

 

$3,332

 

$756

 

$32

 

$—

 

$2,544

 

Marketing and administrative

 

2,593

 

22

 

4

 

 

2,567

 

Research and development

 

1,720

 

(33

)

9

 

 

1,744

 

Restructuring costs

 

265

 

 

265

 

 

 

Other (income) expense, net

 

721

 

35

 

 

654

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

Fourth-Quarter 2015

 

 

 

 

 

 

 

 

 

 

 

Materials and production

 

$3,850

 

$1,194

 

$81

 

$—

 

$2,575

 

Marketing and administrative

 

2,615

 

47

 

8

 

 

2,560

 

Research and development

 

1,797

 

(24

)

18

 

 

1,803

 

Restructuring costs

 

233

 

 

233

 

 

 

Other (income) expense, net

 

905

 

47

 

 

707

 

151

 

 

$ in millions

 

GAAP

 

Acquisition- and
Divestiture-
Related Costs
3

 

Restructuring
Costs

 

Certain Other
Items

 

Non-GAAP1

 

Year Ended Dec. 31, 2016

 

 

 

 

 

 

 

 

 

 

 

Materials and production

 

$13,891

 

$4,035

 

$181

 

$—

 

$9,675

 

Marketing and administrative

 

9,762

 

78

 

95

 

 

9,589

 

Research and development

 

7,194

 

222

 

142

 

 

6,830

 

Restructuring costs

 

651

 

 

651

 

 

 

Other (income) expense, net

 

810

 

47

 

 

648

 

115

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended Dec. 31, 2015

 

 

 

 

 

 

 

 

 

 

 

Materials and production

 

$14,934

 

$4,869

 

$361

 

$—

 

$9,704

 

Marketing and administrative

 

10,313

 

436

 

78

 

 

9,799

 

Research and development

 

6,704

 

39

 

52

 

 

6,613

 

Restructuring costs

 

619

 

 

619

 

 

 

Other (income) expense, net

 

1,527

 

54

 

 

1,125

 

348

 

 

GAAP Expense, EPS and Related Information

 

On a GAAP basis, the gross margin was 67.1 percent for the fourth quarter of 2016 compared to 62.3 percent for the fourth quarter of 2015. The increase in gross margin for the fourth quarter of 2016 was primarily driven by lower acquisition- and divestiture-related costs and restructuring costs noted above, which negatively affected gross margin by 7.7 percentage points in the fourth quarter of 2016 compared with 12.5 percentage points for the fourth quarter of 2015. The gross margin was 65.1 percent for the full year of 2016 compared to 62.2 percent for the full year of 2015. The increase in gross margin for the full year of 2016 was primarily driven by lower acquisition- and divestiture-related costs and restructuring costs, which

 


3  Includes expenses for the amortization of intangible assets and purchase accounting adjustments to inventories recognized as a result of acquisitions, intangible asset impairment charges and expense or income related to changes in the estimated fair value measurement of contingent consideration. Also includes integration, transaction and certain other costs related to business acquisitions and divestitures.

 

Page 6



 

negatively affected gross margin by 10.6 percentage points in the full year of 2016 compared with 13.2 percentage points for the full year of 2015.

 

Marketing and administrative expenses were $2.6 billion in the fourth quarter of 2016, a 1 percent decrease compared to the fourth quarter of 2015. The decline primarily reflects lower acquisition- and divestiture-related costs. Full-year 2016 marketing and administrative expenses were $9.8 billion, a 5 percent decrease compared to the full year of 2015. The decline reflects lower acquisition- and divestiture-related costs, the favorable impact of foreign exchange and lower direct selling costs.

 

Research and development (R&D) expenses were $1.7 billion in the fourth quarter of 2016, a 4 percent decrease compared to the fourth quarter of 2015. The decline reflects a reduction in expenses resulting from a decrease in the estimated fair value of liabilities for contingent consideration, partially offset by higher in-process research and development (IPR&D) impairment charges. R&D expenses were $7.2 billion for the full year of 2016, a 7 percent increase compared to the full year of 2015. The increase primarily reflects higher IPR&D impairment charges, clinical development spending and restructuring costs, partially offset by a reduction in expenses resulting from a decrease in the estimated fair value of liabilities for contingent consideration.

 

Other (income) expense, net, was $721 million of expense in the fourth quarter of 2016 compared to $905 million of expense in the fourth quarter of 2015 and was $810 million of expense for the full year of 2016 compared to $1.5 billion of expense for the full year of 2015. Other (income) expense, net for the fourth quarter and full year of 2016 includes a $625 million charge to settle the worldwide KEYTRUDA patent litigation. Other (income) expense, net for the fourth quarter and full year of 2015 includes $161 million and $876 million, respectively, of foreign exchange losses related to the devaluation of the company’s net monetary assets in Venezuela and a $680 million net charge to settle the Vioxx shareholder class action litigation.

 

GAAP EPS was $0.42 for the fourth quarter of 2016 compared with $0.35 for the fourth quarter of 2015. GAAP EPS was $2.04 for the full year of 2016 compared with $1.56 for the full year of 2015.

 

Non-GAAP Expense, EPS and Related Information

 

The non-GAAP gross margin was 74.8 percent for the fourth quarter of 2016, the same as the fourth quarter of 2015. The non-GAAP gross margin was 75.7 percent for the full year of 2016 compared to 75.4 percent for the full year of 2015. The increase in GAAP gross margin for the full year of 2016 reflects lower inventory write-offs.

 

Non-GAAP marketing and administrative expenses were $2.6 billion in the fourth quarter of 2016, comparable to the fourth quarter of 2015. Non-GAAP marketing and administrative

 

Page 7



 

expenses were $9.6 billion for the full year of 2016, a 2 percent decrease compared to the full year of 2015. The decline reflects the favorable impact of foreign exchange and lower direct selling costs.

 

Non-GAAP R&D expenses were $1.7 billion in the fourth quarter of 2016, a 3 percent decline compared to the fourth quarter of 2015. The decline reflects lower licensing costs. Non-GAAP R&D expenses were $6.8 billion for the full year of 2016, a 3 percent increase compared to the full year of 2015 reflecting increased clinical development spending.

 

Non-GAAP EPS was $0.89 for the fourth quarter of 2016 compared with $0.93 for the fourth quarter of 2015. Non-GAAP EPS was $3.78 for the full year of 2016 compared with $3.59 for the full year of 2015.

 

Non-GAAP other (income) expense, net, was $32 million of expense in the fourth quarter of 2016 compared to $151 million of expense in the fourth quarter of 2015, primarily reflecting the receipt of a milestone payment. Non-GAAP other (income) expense, net, for the full year of 2016 was $115 million of expense compared to $348 million of expense for the full year of 2015, reflecting lower foreign exchange losses.

 

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

 

 

 

 

 

Year Ended

 

 

 

Fourth Quarter

 

Dec. 31,

 

Dec. 31,

 

$ in millions, except EPS amounts

 

2016

 

2015

 

2016

 

2015

 

EPS

 

 

 

 

 

 

 

 

 

GAAP EPS

 

$0.42

 

$0.35

 

$2.04

 

$1.56

 

Difference4

 

0.47

 

0.58

 

1.74

 

2.03

 

Non-GAAP EPS that excludes items listed below1

 

$0.89

 

$0.93

 

$3.78

 

$3.59

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

 

 

GAAP net income2

 

$1,177

 

$976

 

$5,691

 

$4,442

 

Difference

 

1,293

 

1,632

 

4,847

 

5,753

 

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

 

$2,470

 

$2,608

 

$10,538

 

$10,195

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Acquisition- and divestiture-related costs3

 

$780

 

$1,264

 

$4,382

 

$5,398

 

Restructuring costs

 

310

 

340

 

1,069

 

1,110

 

Charge to settle worldwide KEYTRUDA patent litigation

 

625

 

 

625

 

 

Net charge to settle Vioxx shareholder class action litigation

 

 

680

 

 

680

 

Foreign exchange losses related to Venezuela

 

 

161

 

 

876

 

Gain on divestiture of certain ophthalmic products

 

 

(147

)

 

(147

)

Gain on divestiture of certain migraine clinical development programs

 

 

 

 

(250

)

Other

 

29

 

13

 

23

 

(34

)

Net decrease (increase) in income before taxes

 

1,744

 

2,311

 

6,099

 

7,633

 

Income tax (benefit) expense5

 

(451

)

(679

)

(1,252

)

(1,880

)

Decrease (increase) in net income

 

$1,293

 

$1,632

 

$4,847

 

$5,753

 

 


4  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.

5  Includes the estimated tax impact on the reconciling items. In addition, amounts for fourth-quarter and full-year 2015 include net benefits of $40 million and $410 million, respectively, related to the settlement of certain federal income tax issues.

 

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Financial Outlook

 

Merck expects its full-year 2017 GAAP EPS to be between $2.47 and $2.62. Merck expects its full-year 2017 non-GAAP EPS to be between $3.72 and $3.87, including an approximately 2 percent negative impact from foreign exchange. The non-GAAP range excludes acquisition- and divestiture-related costs and costs related to restructuring programs.

 

At mid-January 2017 exchange rates, Merck anticipates full-year 2017 revenues to be between $38.6 billion and $40.1 billion, including an approximately 2 percent negative impact from foreign exchange.

 

The following table summarizes the company’s 2017 financial guidance.

 

 

 

GAAP

 

Non-GAAP1

 

 

 

 

 

Revenue

 

$38.6 to $40.1 billion

 

$38.6 to $40.1 billion**

Operating expenses

 

Higher than 2016 by a low-single digit rate

 

Higher than 2016 by a low-single digit rate

Effective tax rate

 

22.0% to 23.0%

 

21.0% to 22.0%

EPS

 

$2.47 to $2.62

 

$3.72 to $3.87

 

**The company does not have any non-GAAP adjustments to revenue.

 

A reconciliation of anticipated 2017 GAAP EPS to non-GAAP EPS and the items excluded from non-GAAP EPS are provided in the table below.

 

$ in millions, except EPS amounts

 

Full-Year 2017

 

 

 

 

 

GAAP EPS

 

$2.47 to $2.62

 

Difference4

 

1.25

 

Non-GAAP EPS that excludes items listed below1

 

$3.72 to $3.87

 

 

 

 

 

Acquisition- and divestiture-related costs

 

$3,600

 

Restructuring costs

 

600

 

Net decrease (increase) in income before taxes

 

4,200

 

Estimated income tax (benefit) expense

 

(750

)

Decrease (increase) in net income

 

$3,450

 

 

The expected full-year 2017 GAAP effective tax rate of 22.0 to 23.0 percent reflects an unfavorable impact of approximately 1 percentage point from the above items.

 

Total Employees

 

As of Dec. 31, 2016, Merck had approximately 68,000 employees worldwide.

 

Earnings Conference Call

 

Investors, journalists and the general public may access a live audio webcast of the call today at 8:00 a.m. EST on Merck’s website at http://investors.merck.com/events-and-presentations/default.aspx. Institutional investors and analysts can participate in the call by dialing (706) 758-9927 or (877) 381-5782 and using ID code number 32136167. Members of the

 

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media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 32136167. 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

 

For over a century, Merck has been a global health care 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 health care through far-reaching policies, programs and partnerships. For more information, visit www.merck.com and connect with us on Twitter, Facebook, YouTube and LinkedIn. You can also follow our Twitter conversation at $MRK.

 

Forward-Looking Statement of Merck & Co., Inc., Kenilworth, N.J., USA

 

This news release of Merck & Co., Inc., Kenilworth, N.J., USA (the “company”) includes “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based upon the current beliefs and expectations of the company’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 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; the company’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 the company’s patents and other protections for innovative products; and the exposure to litigation, including patent litigation, and/or regulatory actions.

 

The company 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

 

Page 10



 

found in the company’s 2015 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 11



 

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF INCOME - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1

 

 

 

GAAP

 

 

 

GAAP

 

 

 

 

 

4Q16

 

4Q15

 

% Change

 

Full Year
2016

 

Full Year
2015

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

10,115

 

$

10,215

 

-1

%

$

39,807

 

$

39,498

 

1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs, Expenses and Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Materials and production (1)

 

3,332

 

3,850

 

-13

%

13,891

 

14,934

 

-7

%

Marketing and administrative (1)

 

2,593

 

2,615

 

-1

%

9,762

 

10,313

 

-5

%

Research and development (1)

 

1,720

 

1,797

 

-4

%

7,194

 

6,704

 

7

%

Restructuring costs (2)

 

265

 

233

 

14

%

651

 

619

 

5

%

Other (income) expense, net (1) (3)

 

721

 

905

 

-20

%

810

 

1,527

 

-47

%

Income Before Taxes

 

1,484

 

815

 

82

%

7,499

 

5,401

 

39

%

Income Tax Provision (Benefit)

 

300

 

(166

)

 

 

1,787

 

942

 

 

 

Net Income

 

1,184

 

981

 

21

%

5,712

 

4,459

 

28

%

Less: Net Income Attributable to Noncontrolling Interests

 

7

 

5

 

 

 

21

 

17

 

 

 

Net Income Attributable to Merck & Co., Inc.

 

$

1,177

 

$

976

 

21

%

$

5,691

 

$

4,442

 

28

%

Earnings per Common Share Assuming Dilution

 

$

0.42

 

$

0.35

 

20

%

$

2.04

 

$

1.56

 

31

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Shares Outstanding Assuming Dilution

 

2,776

 

2,813

 

 

 

2,787

 

2,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax Rate (4)

 

20.2

%

-20.4

%

 

 

23.8

%

17.4

%

 

 

 

* 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) Other (income) expense, net in the fourth quarter and full year of 2016 includes a $625 million charge to settle worldwide patent litigation related to KEYTRUDA.  Other (income) expense, net in the fourth quarter and full year of 2015 includes a $680 million net charge related to the settlement of VIOXX shareholder class action litigation, as well as a $147 million gain on the divestiture of the company’s remaining ophthalmics business in international markets.  In addition, other (income) expense, net in the fourth quarter and full year of 2015 includes foreign exchange losses of $161 million and $876 million, respectively, to devalue the company’s net monetary assets in Venezuela.  Other (income) expense, net for the full year of 2015 also includes a $250 million gain on the sale of certain migraine clinical development programs.

 

(4) The effective income tax rates for the fourth quarter and full year of 2015 reflect the impact of the net charge related to the settlement of VIOXX shareholder class action litigation being fully deductible at combined U.S. federal and state tax rates, the favorable impact of tax legislation enacted in the fourth quarter of 2015, as well as the unfavorable effect of non-tax deductible foreign exchange losses related to Venezuela. The effective income tax rates for the fourth quarter and full year of 2015 also reflect net benefits of $40 million and $410 million, respectively, related to the settlement of certain federal income tax issues.

 



 

MERCK & CO., INC.

GAAP TO NON-GAAP RECONCILIATION

FOURTH QUARTER 2016

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2a

 

 

 

GAAP

 

Acquisition and
Divestiture-Related
Costs 
(1)

 

Restructuring
Costs 
(2)

 

Certain Other
Items 
(3)

 

Adjustment
Subtotal

 

Non-GAAP

 

Materials and production

 

$

3,332

 

756

 

32

 

 

 

788

 

$

2,544

 

Marketing and administrative

 

2,593

 

22

 

4

 

 

 

26

 

2,567

 

Research and development

 

1,720

 

(33

)

9

 

 

 

(24

)

1,744

 

Restructuring costs

 

265

 

 

 

265

 

 

 

265

 

 

Other (income) expense, net

 

721

 

35

 

 

 

654

 

689

 

32

 

Income Before Taxes

 

1,484

 

(780

)

(310

)

(654

)

(1,744

)

3,228

 

Income Tax Provision (Benefit)

 

300

 

(253

)(4)

(60

)(4)

(138

)(4)

(451

)

751

 

Net Income

 

1,184

 

(527

)

(250

)

(516

)

(1,293

)

2,477

 

Net Income Attributable to Merck & Co., Inc.

 

1,177

 

(527

)

(250

)

(516

)

(1,293

)

2,470

 

Earnings per Common Share Assuming Dilution

 

$

0.42

 

(0.19

)

(0.09

)

(0.19

)

(0.47

)

$

0.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax Rate

 

20.2

%

 

 

 

 

 

 

 

 

23.3

%

 

Only the line items that are affected by non-GAAP adjustments are shown.

 

Merck is providing certain 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 results and permits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the company along with other metrics. Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS. This information should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP.

 

(1) Amounts included in materials and production costs reflect expenses for the amortization of intangible assets recognized as a result of acquisitions.  Amounts included in marketing and administrative expenses reflect integration, transaction and certain other costs related to business acquisitions, including severance costs which are not part of the company’s formal restructuring programs, as well as transaction and certain other costs related to business divestitures.  Amounts included in research and development expenses reflect a reduction of expenses of $432 million related to decreases in the estimated fair value measurement of liabilities for contingent consideration, largely offset by $399 million of in-process research and development (IPR&D) impairment charges.  Amount included in other (income) expense, net represents a goodwill impairment charge related to a business within the Healthcare Services segment.

 

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

 

(3) Primarily reflects a $625 million charge to settle worldwide patent litigation related to KEYTRUDA.

 

(4) Represents the estimated tax impact on the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments.

 



 

MERCK & CO., INC.

GAAP TO NON-GAAP RECONCILIATION

FULL YEAR 2016

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2b

 

 

 

GAAP

 

Acquisition and
Divestiture-Related
Costs 
(1)

 

Restructuring
Costs 
(2)

 

Certain Other
Items 
(3)

 

Adjustment
Subtotal

 

Non-GAAP

 

Materials and production

 

$

13,891

 

4,035

 

181

 

 

 

4,216

 

$

9,675

 

Marketing and administrative

 

9,762

 

78

 

95

 

 

 

173

 

9,589

 

Research and development

 

7,194

 

222

 

142

 

 

 

364

 

6,830

 

Restructuring costs

 

651

 

 

 

651

 

 

 

651

 

 

Other (income) expense, net

 

810

 

47

 

 

 

648

 

695

 

115

 

Income Before Taxes

 

7,499

 

(4,382

)

(1,069

)

(648

)

(6,099

)

13,598

 

Income Tax Provision (Benefit)

 

1,787

 

(886

)(4)

(229

)(4)

(137

)(4)

(1,252

)

3,039

 

Net Income

 

5,712

 

(3,496

)

(840

)

(511

)

(4,847

)

10,559

 

Net Income Attributable to Merck & Co., Inc.

 

5,691

 

(3,496

)

(840

)

(511

)

(4,847

)

10,538

 

Earnings per Common Share Assuming Dilution

 

$

2.04

 

(1.26

)

(0.30

)

(0.18

)

(1.74

)

$

3.78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax Rate

 

23.8

%

 

 

 

 

 

 

 

 

22.3

%

 

Only the line items that are affected by non-GAAP adjustments are shown.

 

Merck is providing certain 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 results and permits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the company along with other metrics. Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS. This information should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP.

 

(1) Amounts included in materials and production costs primarily reflect $3.7 billion of expenses for the amortization of intangible assets recognized as a result of acquisitions, as well as $347 million of intangible asset impairment charges.  Amounts included in marketing and administrative expenses reflect integration, transaction and certain other costs related to business acquisitions, including severance costs which are not part of the company’s formal restructuring programs, as well as transaction and certain other costs related to business divestitures.  Amounts included in research and development expenses reflect $624 million of in-process research and development (IPR&D) impairment charges, partially offset by a reduction of expenses of $402 million related to a decrease in the estimated fair value measurement of liabilities for contingent consideration.  Amounts included in other (income) expense, net represent goodwill impairment charges related to businesses within the Healthcare Services segment.

 

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

 

(3) Primarily reflects a $625 million charge to settle worldwide patent litigation related to KEYTRUDA.

 

(4) Represents the estimated tax impact on the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments.

 



 

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

(AMOUNTS IN MILLIONS)

Table 3

 

 

 

2016

 

2015

 

% Change

 

 

 

1Q

 

2Q

 

3Q

 

4Q

 

Full Year

 

1Q

 

2Q

 

3Q

 

4Q

 

Full Year

 

4Q

 

Full Year

 

TOTAL SALES (1)

 

$

9,312

 

$

9,844

 

$

10,536

 

$

10,115

 

$

39,807

 

$

9,425

 

$

9,785

 

$

10,073

 

$

10,215

 

$

39,498

 

-1

 

1

 

PHARMACEUTICAL

 

8,104

 

8,700

 

9,443

 

8,904

 

35,151

 

8,266

 

8,564

 

8,925

 

9,027

 

34,782

 

-1

 

1

 

Primary Care and Women’s Health

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cardiovascular

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zetia

 

612

 

702

 

671

 

575

 

2,560

 

568

 

635

 

633

 

691

 

2,526

 

-17

 

1

 

Vytorin

 

277

 

293

 

273

 

299

 

1,141

 

320

 

320

 

302

 

308

 

1,251

 

-3

 

-9

 

Diabetes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Januvia

 

906

 

1,064

 

1,006

 

932

 

3,908

 

884

 

1,044

 

1,014

 

921

 

3,863

 

1

 

1

 

Janumet

 

506

 

569

 

548

 

577

 

2,201

 

509

 

554

 

562

 

526

 

2,151

 

10

 

2

 

General Medicine & Women’s Health

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NuvaRing

 

175

 

200

 

195

 

207

 

777

 

166

 

182

 

190

 

193

 

732

 

7

 

6

 

Implanon / Nexplanon

 

134

 

164

 

148

 

160

 

606

 

137

 

124

 

176

 

151

 

588

 

6

 

3

 

Dulera

 

113

 

121

 

97

 

105

 

436

 

130

 

120

 

133

 

153

 

536

 

-31

 

-19

 

Follistim AQ

 

94

 

73

 

101

 

87

 

355

 

82

 

111

 

95

 

95

 

383

 

-9

 

-7

 

Hospital and Specialty

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hepatitis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zepatier

 

50

 

112

 

164

 

229

 

555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HIV

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Isentress

 

340

 

338

 

372

 

337

 

1,387

 

385

 

375

 

377

 

374

 

1,511

 

-10

 

-8

 

Hospital Acute Care

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cubicin (2)

 

292

 

357

 

320

 

119

 

1,087

 

187

 

293

 

325

 

322

 

1,127

 

-63

 

-4

 

Noxafil

 

145

 

143

 

147

 

161

 

595

 

111

 

117

 

132

 

128

 

487

 

26

 

22

 

Invanz

 

114

 

143

 

152

 

152

 

561

 

132

 

139

 

153

 

144

 

569

 

6

 

-1

 

Cancidas

 

133

 

131

 

142

 

152

 

558

 

163

 

134

 

139

 

137

 

573

 

11

 

-3

 

Bridion

 

90

 

113

 

139

 

139

 

482

 

85

 

87

 

89

 

92

 

353

 

52

 

37

 

Primaxin

 

73

 

81

 

77

 

66

 

297

 

65

 

88

 

75

 

86

 

313

 

-23

 

-5

 

Immunology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remicade

 

349

 

339

 

311

 

269

 

1,268

 

501

 

455

 

442

 

396

 

1,794

 

-32

 

-29

 

Simponi

 

188

 

199

 

193

 

186

 

766

 

158

 

169

 

178

 

185

 

690

 

0

 

11

 

Oncology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Keytruda

 

249

 

314

 

356

 

483

 

1,402

 

83

 

110

 

159

 

214

 

566

 

125

 

148

 

Emend

 

126

 

143

 

137

 

144

 

549

 

122

 

134

 

141

 

139

 

535

 

4

 

3

 

Temodar

 

66

 

73

 

78

 

67

 

283

 

74

 

80

 

83

 

75

 

312

 

-11

 

-9

 

Diversified Brands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Respiratory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Singulair

 

237

 

229

 

239

 

210

 

915

 

245

 

212

 

201

 

273

 

931

 

-23

 

-2

 

Nasonex

 

229

 

101

 

94

 

112

 

537

 

289

 

215

 

121

 

231

 

858

 

-52

 

-37

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cozaar / Hyzaar

 

126

 

132

 

131

 

121

 

511

 

185

 

189

 

150

 

143

 

667

 

-15

 

-23

 

Arcoxia

 

111

 

117

 

114

 

108

 

450

 

123

 

115

 

123

 

110

 

471

 

-2

 

-4

 

Fosamax

 

75

 

73

 

68

 

68

 

284

 

94

 

96

 

86

 

82

 

359

 

-18

 

-21

 

Zocor

 

46

 

50

 

54

 

37

 

186

 

49

 

63

 

56

 

49

 

217

 

-26

 

-14

 

Vaccines

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gardasil / Gardasil 9

 

378

 

393

 

860

 

542

 

2,173

 

359

 

427

 

625

 

497

 

1,908

 

9

 

14

 

ProQuad / M-M-R II / Varivax

 

357

 

383

 

496

 

405

 

1,640

 

348

 

358

 

390

 

409

 

1,505

 

-1

 

9

 

Zostavax

 

125

 

149

 

190

 

221

 

685

 

175

 

149

 

179

 

246

 

749

 

-10

 

-9

 

RotaTeq

 

188

 

130

 

171

 

162

 

652

 

192

 

89

 

160

 

169

 

610

 

-4

 

7

 

Pneumovax 23

 

107

 

120

 

175

 

238

 

641

 

110

 

106

 

138

 

188

 

542

 

27

 

18

 

Other Pharmaceutical (3)

 

1,093

 

1,151

 

1,224

 

1,234

 

4,703

 

1,235

 

1,274

 

1,298

 

1,300

 

5,105

 

-5

 

-8

 

ANIMAL HEALTH (4)

 

829

 

900

 

865

 

884

 

3,478

 

831

 

842

 

827

 

832

 

3,331

 

6

 

4

 

Other Revenues (4)(5)

 

379

 

244

 

228

 

327

 

1,178

 

328

 

379

 

321

 

356

 

1,385

 

-8

 

-15

 

 

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

 

(1) Only select products are shown.

 

(2) First quarter of 2015 reflects approximately two months of sales following the acquisition of Cubist Pharmaceuticals, Inc. by Merck on January 21, 2015.

 

(3) Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $103 million, $91 million, $135 million and $126 million

for the first, second, third and fourth quarters of 2016, respectively. Other Vaccines sales included in Other Pharmaceutical were $78 million, $76 million, $99 million and $148 million for

the first, second, third and fourth quarters of 2015, respectively.

 

(4) Amounts reflect a reclassification of certain revenues between Animal Health and Other Revenues.

 

(5) Other revenues are comprised primarily of alliance revenue, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities.