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EX-99.2 - EX-99.2 - Merck & Co., Inc.a17-24456_1ex99d2.htm
8-K - 8-K - Merck & Co., Inc.a17-24456_18k.htm

Exhibit 99.1

 

 

News Release

 

 

 

 

FOR IMMEDIATE RELEASE

 

Media Contacts:

Tracy Ogden

Investor Contacts:

Teri Loxam

 

(908) 740-1747

 

(908) 740-1986

 

 

 

 

 

Claire Gillespie

 

Amy Klug

 

(267) 305-0932

 

(908) 740-1898

 

Merck Announces Third-Quarter 2017 Financial Results

 

·                  Third-Quarter 2017 Worldwide Sales Were $10.3 Billion, a Decrease of 2 Percent, Including a 1 Percent Positive Impact from Foreign Exchange

 

·                  KEYTRUDA as well as Animal Health Business Achieved Quarterly Sales of $1.0 Billion

 

·                  Third-Quarter 2017 GAAP EPS was $(0.02), Reflecting a $2.35 Billion Charge Related to the Formation of a Strategic Oncology Collaboration with AstraZeneca; Third-Quarter Non-GAAP EPS was $1.11

 

·                  Company Narrows and Raises 2017 Full-Year Revenue Range to be Between $40.0 Billion and $40.5 Billion, Including a Less Than 1 Percent Negative Impact from Foreign Exchange

 

·                  Company Narrows and Raises 2017 Full-Year GAAP EPS Range to be Between $1.78 and $1.84; Narrows and Raises 2017 Full-Year Non-GAAP EPS Range to be Between $3.91 and $3.97, Including a Less Than 1 Percent Negative Impact from Foreign Exchange

 

·                  KEYTRUDA Development Program Advances with Key Regulatory Approvals

 

KENILWORTH, N.J., Oct. 27, 2017 — Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the third quarter of 2017.

 

“Our performance in the third quarter demonstrates the strength of our underlying business, with growth from key product launches, good global demand for vaccines, as well as strength from our Animal Health business,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “We will continue augmenting our pipeline through value-creating business development like our oncology collaboration with AstraZeneca to address unmet medical need and drive future growth.”

 

Page 1



 

Financial Summary

 

 

 

Third Quarter

 

$ in millions, except EPS amounts

 

2017

 

2016

 

Sales

 

$10,325

 

$10,536

 

GAAP net (loss) income1

 

(56

)

2,184

 

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

 

3,054

 

2,989

 

GAAP EPS

 

(0.02

)

0.78

 

Non-GAAP EPS that excludes items listed below2

 

1.11

 

1.07

 

 

Worldwide sales were $10.3 billion for the third quarter of 2017, a decrease of 2 percent compared with the third quarter of 2016, including a 1 percent positive impact from foreign exchange.

 

Sales in the third quarter of 2017 were reduced by approximately $240 million due to a borrowing from the U.S. Centers for Disease Control and Prevention Pediatric Vaccine Stockpile of GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant), a vaccine to prevent certain cancers and other diseases caused by HPV, driven in part by the temporary production shutdown resulting from the cyber-attack, as well as overall higher demand than originally planned.

 

Additionally, as expected, revenue was unfavorably impacted by approximately $135 million from lost sales in certain markets related to the cyber-attack. Sales in the third quarter of 2017 compared with the third quarter of 2016 were also unfavorably impacted by approximately $150 million of additional sales in Japan in the third quarter of 2016 resulting from the timing of shipments. Sales in the third quarter of 2017 reflect incremental sales of approximately $130 million due to the recording of vaccine sales from 19 European countries that were part of the Sanofi Pasteur MSD (SPMSD) vaccines joint venture, which was terminated on Dec. 31, 2016.

 

GAAP (generally accepted accounting principles) earnings (loss) per share assuming dilution (EPS) were $(0.02) for the third quarter of 2017, which reflects a $2.35 billion aggregate charge related to the formation of a strategic oncology collaboration with AstraZeneca. Non-GAAP EPS of $1.11 for the third quarter of 2017 excludes acquisition- and divestiture-related costs, restructuring costs, the charge related to the AstraZeneca collaboration referenced above and certain other items. Year-to-date results can be found in the attached tables.

 


1  Net (loss) income attributable to Merck & Co., Inc.

2  Merck is providing certain 2017 and 2016 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 as it 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 Table 2a attached to this release.

 

Page 2



 

Pipeline Highlights

 

Merck expanded its focus in oncology by further advancing the development program for KEYTRUDA (pembrolizumab), an anti-PD-1 therapy, receiving key regulatory approvals and through business development transactions.

 

·                  The U.S. Food and Drug Administration (FDA) approved KEYTRUDA under its Accelerated Approval program for the treatment of patients with recurrent locally advanced or metastatic gastric or gastroesophageal junction adenocarcinoma whose tumors express PD-L1 and who have already received two or more lines of chemotherapy.

 

·                  The European Commission approved KEYTRUDA for the treatment of certain patients with locally advanced or metastatic urothelial carcinoma.

 

·                  At the European Society for Medical Oncology 2017 Congress, data were presented from studies evaluating the use of KEYTRUDA as a monotherapy and combination therapy in 12 cancers.

 

·                  Merck is amending the KEYNOTE-189 study to include overall survival as a co-primary endpoint. The updated completion date is Feb. 2019 and there will be opportunities for the company to conduct interim analyses. KEYNOTE-189 is a Phase 3 study of platinum-pemetrexed chemotherapy with or without KEYTRUDA in patients with first line metastatic non-squamous non-small cell lung cancer (NSCLC).

 

·                  Merck entered into an oncology collaboration with AstraZeneca to co-develop and co-commercialize AstraZeneca’s Lynparza (olaparib), a PARP inhibitor, and investigational medicine selumetinib, a MEK inhibitor, as monotherapy and in combination treatments for multiple cancer types.

 

·                  The FDA approved Lynparza for new and additional uses in ovarian cancer, including as a maintenance treatment for recurrent epithelial ovarian, fallopian tube or primary peritoneal adult cancer patients who are in response to platinum-based chemotherapy, regardless of BRCA status, and in tablets for the use in patients with deleterious or suspected deleterious germline BRCA-mutated advanced ovarian cancer, who have been treated with three or more prior lines of chemotherapy.

 

·                  The FDA accepted for review the supplemental New Drug Application (NDA) for the use of Lynparza tablets in patients with germline BRCA-mutated, HER2-negative metastatic breast cancer who have been previously treated with chemotherapy either in the neoadjuvant, adjuvant or metastatic settings. The FDA granted Priority Review with a

 

Page 3



 

PDUFA action date in the first quarter of 2018. A NDA was also submitted to Japan’s Pharmaceuticals and Medical Devices Agency.

 

·                  Merck acquired Rigontec, a pioneer in accessing the retinoic acid-inducible gene I (RIG-I) pathway, part of the innate immune system, as a novel and distinct approach in cancer immunotherapy to induce both immediate and long-term anti-tumor immunity. Rigontec’s lead candidate, RGT100, is currently in Phase I development evaluating treatment in patients with various tumors. The acquisition closed in October.

 

Merck presented results at the European Research Organization on Genital Infection and Neoplasia Congress from the final analyses of the pivotal Phase 3 efficacy, immunogenicity and safety clinical trial for GARDASIL 9 showing sustained efficacy for up to six years in the per protocol population.

 

Merck presented data at ID Week 2017 from the pivotal Phase 3 clinical study of letermovir, an investigational antiviral medicine for prophylaxis of cytomegalovirus (CMV) infection or disease in adult CMV-seropositive recipients of an allogeneic hematopoietic stem cell transplant. Data were also presented from the Phase 1 trial for V160, an investigational vaccine for human CMV, evaluating safety, tolerability and immunogenicity in healthy adults.

 

Merck announced it will not submit applications for regulatory approval for anacetrapib, the investigational cholesteryl ester transfer protein inhibitor, following a thorough review of the clinical profile of anacetrapib, including discussions with external experts.

 

Merck announced the strategic decision to discontinue the development of the investigational combination regimens MK-3682B (grazoprevir/ruzasvir/uprifosbuvir) and MK-3682C (ruzasvir/uprifosbuvir) for the treatment of chronic hepatitis C virus (HCV) infection. This decision was made based on a review of available Phase 2 efficacy data and in consideration of the evolving marketplace and the growing number of treatment options available for patients with chronic HCV infection, including ZEPATIER (elbasvir and grazoprevir).

 

Page 4



 

Third-Quarter Revenue Performance

 

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

 

 

 

Third Quarter

 

$ in millions

 

2017

 

2016

 

Change

 

Change
Ex-Exchange

 

Total Sales

 

$10,325

 

$10,536

 

-2

%

-3

%

Pharmaceutical

 

9,156

 

9,443

 

-3

%

-4

%

JANUVIA / JANUMET

 

1,525

 

1,554

 

-2

%

-2

%

KEYTRUDA

 

1,047

 

356

 

194

%

192

%

GARDASIL / GARDASIL 9

 

675

 

860

 

-22

%

-22

%

PROQUAD, M-M-R II and VARIVAX

 

519

 

496

 

4

%

5

%

ZEPATIER

 

468

 

164

 

185

%

184

%

ZETIA / VYTORIN

 

462

 

944

 

-51

%

-52

%

ISENTRESS / ISENTRESS HD

 

310

 

372

 

-17

%

-18

%

ZOSTAVAX

 

234

 

190

 

23

%

23

%

PNEUMOVAX 23

 

229

 

175

 

31

%

31

%

Animal Health

 

1,000

 

865

 

16

%

14

%

Other Revenues

 

169

 

228

 

-26

%

-13

%

 

Pharmaceutical Revenue

 

Third-quarter pharmaceutical sales decreased 3 percent to $9.2 billion, including a 1 percent positive impact from foreign exchange. In addition to the factors mentioned in the Financial Summary above, sales in the third quarter of 2017 reflect the loss of market exclusivity for several products, as well as lower sales of JANUVIA (sitagliptin) and JANUMET (sitagliptin and metformin HCl), medicines that help lower blood sugar in adults with type 2 diabetes. These declines were partially offset by significant growth in KEYTRUDA and from other product launches, as well as from growth in certain in-line brands.

 

The pharmaceutical sales decline was largely driven by the loss of U.S. market exclusivity for ZETIA (ezetimibe) in late 2016 and VYTORIN (ezetimibe/simvastatin) in April 2017, medicines for lowering LDL cholesterol, and the ongoing impacts of generic competition for CUBICIN (daptomycin for injection), an I.V. antibiotic, and biosimilar competition for REMICADE (infliximab), a treatment for inflammatory diseases, in the company’s marketing territories in Europe. In the aggregate, sales of these products declined approximately $800 million during the third quarter of 2017 compared to the third quarter of 2016.

 

Additionally, the decline reflects lower sales of GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant] and GARDASIL 9, vaccines to prevent certain cancers and other diseases caused by HPV, largely attributable to lower sales in

 

Page 5



 

the United States as described previously, partially offset by growth in Europe due to the termination of the SPMSD vaccines joint venture noted above, and growth in Asia Pacific reflecting strong demand.

 

The decrease in the diabetes franchise of JANUVIA and JANUMET was primarily due to pricing pressure partially offset by continued volume growth globally.

 

Higher sales of KEYTRUDA reflect the company’s continued launch with new indications globally. Strong momentum from the treatment of patients with NSCLC contributed significantly to KEYTRUDA’s overall growth, as KEYTRUDA is the only anti-PD-1 approved in the first-line setting.

 

Growth in ZEPATIER is due to ongoing launches globally. The company anticipates that future sales of ZEPATIER will be unfavorably affected by increasing competition and declining patient volumes.

 

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 $185 million in the quarter driven largely by strong growth in the United States.

 

Growth in PNEUMOVAX 23 (pneumococcal vaccine polyvalent), a vaccine to help prevent pneumococcal disease, was largely due to higher demand and pricing in the United States.

 

Animal Health Revenue

 

Animal Health sales totaled $1.0 billion for the third quarter of 2017, an increase of 16 percent compared with the third quarter of 2016, including a 2 percent positive impact from foreign exchange. Growth was driven by sales increases in companion animal products, primarily the BRAVECTO (fluralaner) line of products that kill fleas and ticks in dogs and cats for up to 12 weeks, and companion animal vaccines. Additionally, higher sales of ruminants products, including the positive impact of the Vallée S.A. acquisition which closed in March, swine products and poultry products all contributed to growth.

 

Page 6



 

Third-Quarter Expense, EPS and Related Information

 

The table below presents selected expense information.

 

$ in millions

 

GAAP

 

Acquisition- and
Divestiture-
Related Costs
3

 

Restructuring
Costs

 

Certain Other
Items

 

Non-GAAP2

 

Third-Quarter 2017

 

 

 

 

 

 

 

 

 

 

 

Materials and production

 

$3,274

 

$768

 

$25

 

$—

 

$2,481

 

Marketing and administrative

 

2,401

 

11

 

 

 

2,390

 

Research and development

 

4,383

 

271

 

2

 

2,350

 

1,760

 

Restructuring costs

 

153

 

 

153

 

 

 

Other (income) expense, net

 

(86

)

(18

)

 

 

(68

)

 

 

 

 

 

 

 

 

 

 

 

 

Third-Quarter 2016

 

 

 

 

 

 

 

 

 

 

 

Materials and production

 

$3,409

 

$773

 

$36

 

$—

 

$2,600

 

Marketing and administrative

 

2,393

 

36

 

1

 

 

2,356

 

Research and development

 

1,664

 

13

 

14

 

 

1,637

 

Restructuring costs

 

161

 

 

161

 

 

 

Other (income) expense, net

 

22

 

12

 

 

(6

)

16

 

 

GAAP Expense, EPS and Related Information

 

On a GAAP basis, the gross margin was 68.3 percent for the third quarter of 2017 compared to 67.6 percent for the third quarter of 2016. The increase in gross margin for the third quarter of 2017 was primarily driven by the favorable effects of product mix partially offset by costs related to the cyber-attack.

 

Marketing and administrative expenses were $2.4 billion in the third quarter of 2017, essentially flat as compared to the third quarter of 2016. Lower acquisition- and divestiture-related costs were offset by costs associated with the company now operating its European vaccines business in the countries that were previously part of the SPMSD vaccines joint venture, higher promotion expenses related to product launches and remediation costs related to the cyber-attack.

 

Research and development (R&D) expenses were $4.4 billion in the third quarter of 2017 compared with $1.7 billion in the third quarter of 2016. The increase primarily reflects a $2.35 billion aggregate charge related to the formation of the collaboration with AstraZeneca, higher in-process research and development (IPR&D) impairment charges driven by a $240 million charge resulting from the decision to discontinue the development of investigational HCV combination regimens MK-3682B and MK-3682C noted above, and increased investment in early drug development.

 

The GAAP effective income tax rate of 125.5 percent for the third quarter of 2017 reflects the unfavorable impact of a $2.35 billion aggregate charge related to the formation of

 


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 7



 

the AstraZeneca collaboration for which no tax benefit has been recognized, partially offset by the favorable impact of a net tax benefit of $234 million related to the settlement of certain federal income tax issues.

 

GAAP EPS was $(0.02) for the third quarter of 2017 compared with $0.78 for the third quarter of 2016.

 

Non-GAAP Expense, EPS and Related Information

 

The non-GAAP gross margin was 76.0 percent for the third quarter of 2017 compared to 75.3 percent for the third quarter of 2016. The increase in non-GAAP gross margin was largely driven by the favorable effects of product mix partially offset by costs related to the cyber-attack.

 

Non-GAAP marketing and administrative expenses were $2.4 billion in the third quarter of 2017, an increase of 1 percent compared to the third quarter of 2016. The increase in non-GAAP marketing and administrative expenses was driven primarily by costs associated with the company now operating its European vaccines business in the countries that were previously part of the SPMSD vaccines joint venture, higher promotion expenses related to product launches and remediation costs related to the cyber-attack.

 

Non-GAAP R&D expenses were $1.8 billion in the third quarter of 2017, an 8 percent increase compared to the third quarter of 2016. The increase reflects increased investment in early drug development.

 

The non-GAAP effective income tax rate was 18.7 percent compared to 23.8 percent in the third quarter of 2016.

 

Non-GAAP EPS was $1.11 for the third quarter of 2017 compared with $1.07 for the third quarter of 2016.

 

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

 

Page 8



 

 

 

Third Quarter

 

$ in millions, except EPS amounts

 

2017

 

2016

 

EPS

 

 

 

 

 

GAAP EPS

 

$(0.02

)

$0.78

 

Difference4

 

1.13

 

0.29

 

Non-GAAP EPS that excludes items listed below2

 

$1.11

 

$1.07

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

GAAP net (loss) income1

 

$(56

)

$2,184

 

Difference

 

3,110

 

805

 

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

 

$3,054

 

$2,989

 

 

 

 

 

 

 

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

 

 

 

 

 

Acquisition- and divestiture-related costs3

 

$1,032

 

$834

 

Restructuring costs

 

180

 

212

 

Aggregate charge related to the formation of the collaboration with AstraZeneca

 

2,350

 

 

Other

 

 

(6

)

Net decrease (increase) in income before taxes

 

3,562

 

1,040

 

Income tax (benefit) expense5

 

(452

)

(235

)

Decrease (increase) in net income

 

$3,110

 

$805

 

 

Financial Outlook

 

Merck has narrowed and raised its full-year 2017 GAAP EPS range to be between $1.78 and $1.84. Merck narrowed and raised its full-year 2017 non-GAAP EPS range to be between $3.91 and $3.97, including a less than 1 percent negative impact from foreign exchange at current exchange rates. The non-GAAP range excludes acquisition- and divestiture-related costs, costs related to restructuring programs, a charge related to the formation of the collaboration with AstraZeneca and certain other items.

 

Merck has narrowed and raised its full-year 2017 revenue range to be between $40.0 billion and $40.5 billion, including a less than 1 percent negative impact from foreign exchange at current exchange rates.

 

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

 

 

 

GAAP

 

Non-GAAP2

 

 

 

 

 

Revenue

 

$40.0 to $40.5 billion

 

$40.0 to $40.5 billion*

Operating expenses

 

Lower than 2016

 

Higher than 2016 by a mid-single digit rate

Effective tax rate

 

24.5% to 25.5%

 

20.0% to 21.0%

EPS

 

$1.78 to $1.84

 

$3.91 to $3.97

 

*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.

 


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, as well as a $234 million net tax benefit related to the settlement of certain federal income tax issues.

 

Page 9



 

$ in millions, except EPS amounts

 

Full-Year 2017

 

 

 

 

 

GAAP EPS

 

$1.78 to $1.84

 

Difference4

 

2.13

 

Non-GAAP EPS that excludes items listed below2

 

$3.91 to $3.97

 

 

 

 

 

Acquisition- and divestiture-related costs

 

$3,800

 

Restructuring costs

 

850

 

Aggregate charge related to the formation of the collaboration with AstraZeneca

 

2,350

 

Net decrease (increase) in income before taxes

 

7,000

 

Estimated income tax (benefit) expense

 

(1,130

)

Decrease (increase) in net income

 

$5,870

 

 

The expected full-year 2017 GAAP effective tax rate of 24.5 to 25.5 percent reflects an unfavorable impact of approximately 4.5 percentage points from the above items.

 

Total Employees

 

As of Sept. 30, 2017, Merck had approximately 69,500 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. EDT 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 83569475. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 83569475. 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 more than a century, Merck, a leading global biopharmaceutical company known as MSD outside of the United States and Canada, has been inventing for life, bringing forward medicines and vaccines for many of the world’s most challenging diseases. 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. Today, Merck continues to be at the forefront of research to advance the prevention and treatment of diseases that threaten people and communities around the world - including cancer, cardio-metabolic diseases, emerging animal diseases, Alzheimer’s disease and infectious diseases including HIV and Ebola. For more information, visit www.merck.com and connect with us on TwitterFacebookInstagram, YouTube

 

Page 10



 

and LinkedIn.

 

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 found in the company’s 2016 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 INCOME - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1

 

 

 

GAAP

 

 

 

GAAP

 

 

 

 

 

3Q17

 

3Q16

 

% Change

 

Sep YTD
2017

 

Sep YTD
2016

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

10,325

 

$

10,536

 

-2

%

$

29,689

 

$

29,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs, Expenses and Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Materials and production (1)

 

3,274

 

3,409

 

-4

%

9,369

 

10,559

 

-11

%

Marketing and administrative (1) 

 

2,401

 

2,393

 

 

7,251

 

7,169

 

1

%

Research and development (1) (2)

 

4,383

 

1,664

 

*

 

7,927

 

5,475

 

45

%

Restructuring costs (3) 

 

153

 

161

 

-5

%

470

 

386

 

22

%

Other (income) expense, net (1)

 

(86

)

22

 

*

 

30

 

88

 

-66

%

Income Before Taxes

 

200

 

2,887

 

-93

%

4,642

 

6,015

 

-23

%

Taxes on Income (1)

 

251

 

699

 

 

 

1,186

 

1,487

 

 

 

Net (Loss) Income

 

(51

)

2,188

 

*

 

3,456

 

4,528

 

-24

%

Less: Net Income Attributable to Noncontrolling Interests

 

5

 

4

 

 

 

16

 

13

 

 

 

Net (Loss) Income Attributable to Merck & Co., Inc.

 

$

(56

)

$

2,184

 

*

 

$

3,440

 

$

4,515

 

-24

%

(Loss) Earnings per Common Share Assuming Dilution (4)

 

$

(0.02

)

$

0.78

 

*

 

$

1.25

 

$

1.62

 

-23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Shares Outstanding Assuming Dilution (4)

 

2,727

 

2,786

 

 

 

2,754

 

2,791

 

 

 

Tax Rate (5)

 

125.5

%

24.2

%

 

 

25.5

%

24.7

%

 

 

 

* 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) Research and development expenses for the third quarter and first nine months of 2017 include a $2.35 billion aggregate charge recorded in conjunction with the formation of a collaboration with AstraZeneca.

 

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

 

(4)  Because the company recorded a net loss in the third quarter of 2017, no potential dilutive common shares were used in the computation of loss per common share assuming dilution as the effect would have been anti-dilutive.

 

(5) The effective income tax rates for the third quarter and first nine months of 2017 reflect the unfavorable impact of a $2.35 billion aggregate pretax charge recorded in conjunction with the formation of a collaboration with AstraZeneca for which no tax benefit has been recognized, partially offset by the favorable impact of a net tax benefit of $234 million related to the settlement of certain federal income tax issues.

 



 

MERCK & CO., INC.

GAAP TO NON-GAAP RECONCILIATION

THIRD QUARTER 2017

(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

 

$

3,274

 

768

 

25

 

 

 

793

 

$

2,481

 

Marketing and administrative

 

2,401

 

11

 

 

 

 

 

11

 

2,390

 

Research and development

 

4,383

 

271

 

2

 

2,350

 

2,623

 

1,760

 

Restructuring costs

 

153

 

 

 

153

 

 

 

153

 

 

Other (income) expense, net

 

(86

)

(18

)

 

 

 

 

(18

)

(68

)

Income Before Taxes

 

200

 

(1,032

)

(180

)

(2,350

)

(3,562

)

3,762

 

Income Tax Provision (Benefit)

 

251

 

(179

)(4)

(39

)(4)

(234

)(5)

(452

)

703

 

Net (Loss) Income

 

(51

)

(853

)

(141

)

(2,116

)

(3,110

)

3,059

 

Net (Loss) Income Attributable to Merck & Co., Inc.

 

(56

)

(853

)

(141

)

(2,116

)

(3,110

)

3,054

 

(Loss) Earnings per Common Share Assuming Dilution

 

$

(0.02

)

(0.31

)

(0.05

)

(0.77

)

(1.13

)

$

1.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax Rate

 

125.5

%

 

 

 

 

 

 

 

 

18.7

%

 

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 as it 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 expenses for the amortization of intangible assets recognized as a result of business acquisitions.  Amounts included in marketing and administrative expenses reflect integration, transaction and certain other costs related to business acquisitions and divestitures.  Amounts included in research and development expenses reflect $245 million of in-process research and development (IPR&D) impairment charges and $26 million of expenses related to an increase in the estimated fair value measurement of liabilities for contingent consideration.  Amount included in other (income) expense, net represents royalty income in connection with the termination of the Sanofi-Pasteur MSD joint venture.

 

(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) Amount included in research and development expenses represents an aggregate charge recorded in conjunction with the formation of a collaboration with AstraZeneca.

 

(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.

 

(5) Represents a net tax benefit related to the settlement of certain federal income tax issues.

 



 

MERCK & CO., INC.

GAAP TO NON-GAAP RECONCILIATION

NINE MONTHS ENDED SEPTEMBER 30, 2017

(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

 

$

9,369

 

2,450

 

121

 

 

 

2,571

 

$

6,798

 

Marketing and administrative

 

7,251

 

40

 

3

 

 

 

43

 

7,208

 

Research and development

 

7,927

 

289

 

11

 

2,350

 

2,650

 

5,277

 

Restructuring costs

 

470

 

 

 

470

 

 

 

470

 

 

Other (income) expense, net

 

30

 

18

 

 

 

(9

)

9

 

21

 

Income Before Taxes

 

4,642

 

(2,797

)

(605

)

(2,341

)

(5,743

)

10,385

 

Income Tax Provision (Benefit)

 

1,186

 

(464

)(4)

(132

)(4)

(319

)(5)

(915

)

2,101

 

Net Income

 

3,456

 

(2,333

)

(473

)

(2,022

)

(4,828

)

8,284

 

Net Income Attributable to Merck & Co., Inc.

 

3,440

 

(2,333

)

(473

)

(2,022

)

(4,828

)

8,268

 

Earnings per Common Share Assuming Dilution

 

$

1.25

 

(0.85

)

(0.17

)

(0.73

)

(1.75

)

$

3.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax Rate

 

25.5

%

 

 

 

 

 

 

 

 

20.2

%

 

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 as it 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 $2.3 billion of expenses for the amortization of intangible assets recognized as a result of business acquisitions, as well as intangible asset impairment charges of $123 million.  Amounts included in marketing and administrative expenses reflect integration, transaction and certain other costs related to business acquisitions and divestitures.  Amounts included in research and development expenses reflect $253 million of in-process research and development (IPR&D) impairment charges and $36 million of expenses related to an increase in the estimated fair value measurement of liabilities for contingent consideration.  Amounts included in other (income) expense, net reflect changes in the estimated fair value measurement of liabilities for contingent consideration, partially offset by royalty income in connection with the termination of the Sanofi-Pasteur MSD joint venture.

 

(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) Amount included in research and development expense represents an aggregate charge recorded in conjunction with the formation of a collaboration with AstraZeneca.

 

(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.

 

(5) Represents the estimated tax impact on the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments, as well as a $234 million net tax benefit related to the settlement of certain federal income tax issues and an $88 million tax benefit related to the settlement of a state income tax issue.

 



 

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

(AMOUNTS IN MILLIONS)

Table 3

 

 

 

2017

 

2016

 

3Q

 

Sep YTD

 

 

 

1Q

 

2Q

 

3Q

 

Sep YTD

 

1Q

 

2Q

 

3Q

 

Sep YTD

 

4Q

 

Full Year

 

Nom %

 

Ex-Exch %

 

Nom %

 

Ex-Exch %

 

TOTAL SALES (1)

 

$

9,434

 

$

9,930

 

$

10,325

 

$

29,689

 

$

9,312

 

$

9,844

 

$

10,536

 

$

29,692

 

$

10,115

 

$

39,807

 

-2

 

-3

 

0

 

1

 

PHARMACEUTICAL

 

8,185

 

8,759

 

9,156

 

26,101

 

8,104

 

8,700

 

9,443

 

26,247

 

8,904

 

35,151

 

-3

 

-4

 

-1

 

0

 

Primary Care and Women’s Health

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cardiovascular

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zetia

 

334

 

367

 

320

 

1,021

 

612

 

702

 

671

 

1,985

 

575

 

2,560

 

-52

 

-53

 

-49

 

-48

 

Vytorin

 

241

 

182

 

142

 

565

 

277

 

293

 

273

 

843

 

299

 

1,141

 

-48

 

-51

 

-33

 

-33

 

Atozet

 

49

 

63

 

59

 

171

 

23

 

33

 

39

 

96

 

50

 

146

 

50

 

43

 

78

 

77

 

Adempas

 

84

 

67

 

70

 

221

 

33

 

40

 

48

 

120

 

49

 

169

 

46

 

45

 

84

 

84

 

Diabetes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Januvia

 

839

 

948

 

1,012

 

2,799

 

906

 

1,064

 

1,006

 

2,976

 

932

 

3,908

 

1

 

1

 

-6

 

-5

 

Janumet

 

496

 

563

 

513

 

1,572

 

506

 

569

 

548

 

1,624

 

577

 

2,201

 

-6

 

-8

 

-3

 

-3

 

General Medicine & Women’s Health

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NuvaRing

 

160

 

199

 

214

 

573

 

175

 

200

 

195

 

571

 

207

 

777

 

10

 

8

 

0

 

0

 

Implanon / Nexplanon

 

170

 

178

 

155

 

503

 

134

 

164

 

148

 

446

 

160

 

606

 

5

 

4

 

13

 

13

 

Follistim AQ

 

81

 

79

 

72

 

232

 

94

 

73

 

101

 

268

 

87

 

355

 

-29

 

-29

 

-13

 

-13

 

Hospital and Specialty

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hepatitis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zepatier

 

378

 

517

 

468

 

1,363

 

50

 

112

 

164

 

326

 

229

 

555

 

185

 

184

 

*

 

*

 

HIV

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Isentress / Isentress HD

 

305

 

282

 

310

 

896

 

340

 

338

 

372

 

1,050

 

337

 

1,387

 

-17

 

-18

 

-15

 

-14

 

Hospital Acute Care

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bridion

 

148

 

163

 

185

 

495

 

90

 

113

 

139

 

343

 

139

 

482

 

33

 

33

 

44

 

45

 

Noxafil

 

141

 

155

 

162

 

458

 

145

 

143

 

147

 

434

 

161

 

595

 

10

 

9

 

5

 

6

 

Invanz

 

136

 

150

 

159

 

445

 

114

 

143

 

152

 

409

 

152

 

561

 

5

 

3

 

9

 

8

 

Cancidas

 

121

 

112

 

94

 

327

 

133

 

131

 

142

 

406

 

152

 

558

 

-34

 

-35

 

-19

 

-18

 

Cubicin

 

96

 

103

 

91

 

290

 

292

 

357

 

320

 

969

 

119

 

1,087

 

-71

 

-72

 

-70

 

-70

 

Primaxin

 

62

 

71

 

73

 

206

 

73

 

81

 

77

 

231

 

66

 

297

 

-5

 

-5

 

-11

 

-8

 

Immunology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remicade

 

229

 

208

 

214

 

651

 

349

 

339

 

311

 

999

 

269

 

1,268

 

-31

 

-34

 

-35

 

-34

 

Simponi

 

184

 

199

 

219

 

602

 

188

 

199

 

193

 

581

 

186

 

766

 

13

 

9

 

4

 

5

 

Oncology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Keytruda

 

584

 

881

 

1,047

 

2,512

 

249

 

314

 

356

 

919

 

483

 

1,402

 

194

 

192

 

173

 

174

 

Emend

 

133

 

143

 

137

 

413

 

126

 

143

 

137

 

405

 

144

 

549

 

0

 

-1

 

2

 

2

 

Temodar

 

66

 

65

 

68

 

198

 

66

 

73

 

78

 

216

 

67

 

283

 

-13

 

-12

 

-8

 

-8

 

Diversified Brands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Respiratory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Singulair

 

186

 

203

 

161

 

550

 

237

 

229

 

239

 

705

 

210

 

915

 

-33

 

-32

 

-22

 

-21

 

Nasonex

 

139

 

85

 

42

 

266

 

229

 

101

 

94

 

425

 

112

 

537

 

-55

 

-56

 

-37

 

-38

 

Dulera

 

82

 

69

 

59

 

210

 

113

 

121

 

97

 

331

 

105

 

436

 

-39

 

-40

 

-37

 

-37

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cozaar / Hyzaar

 

112

 

119

 

128

 

360

 

126

 

132

 

131

 

389

 

121

 

511

 

-3

 

-1

 

-8

 

-6

 

Arcoxia

 

103

 

89

 

80

 

272

 

111

 

117

 

114

 

342

 

108

 

450

 

-30

 

-32

 

-20

 

-20

 

Fosamax

 

61

 

66

 

53

 

180

 

75

 

73

 

68

 

217

 

68

 

284

 

-23

 

-23

 

-17

 

-16

 

Vaccines (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gardasil / Gardasil 9

 

532

 

469

 

675

 

1,675

 

378

 

393

 

860

 

1,631

 

542

 

2,173

 

-22

 

-22

 

3

 

3

 

ProQuad / M-M-R II / Varivax

 

355

 

399

 

519

 

1,273

 

357

 

383

 

496

 

1,236

 

405

 

1,640

 

4

 

5

 

3

 

4

 

Pneumovax 23

 

163

 

166

 

229

 

558

 

107

 

120

 

175

 

403

 

238

 

641

 

31

 

31

 

38

 

39

 

Zostavax

 

154

 

160

 

234

 

547

 

125

 

149

 

190

 

464

 

221

 

685

 

23

 

23

 

18

 

17

 

RotaTeq

 

224

 

123

 

179

 

525

 

188

 

130

 

171

 

489

 

162

 

652

 

4

 

4

 

7

 

7

 

Other Pharmaceutical (3)

 

1,037

 

1,116

 

1,013

 

3,172

 

1,083

 

1,128

 

1,191

 

3,398

 

1,172

 

4,574

 

-15

 

-15

 

-7

 

-7

 

ANIMAL HEALTH

 

939

 

955

 

1,000

 

2,894

 

829

 

900

 

865

 

2,594

 

884

 

3,478

 

16

 

14

 

12

 

11

 

Other Revenues (4)

 

310

 

216

 

169

 

694

 

379

 

244

 

228

 

851

 

327

 

1,178

 

-26

 

-13

 

-18

 

-7

 

 

* 200% or greater

 

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

 

(1) Only select products are shown.

 

(2) Vaccine sales in 2017 include sales in the European markets that were previously part of the Sanofi Pasteur MSD (SPMSD) joint venture that was terminated on December 31, 2016. Amounts for 2016 reflect supply sales to SPMSD.

 

(3) Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $88 million in the first quarter, $87 million in the second quarter and $89 million in the third quarter of 2017 and $103 million, $91 million, $135 million and $126 million for the first, second, third and fourth quarters of 2016, respectively.

 

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