Merck Announces Third Quarter 2011 Financial Results

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

¹ Merck is providing certain 2011 and 2010 non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP. For a description of the items, see Table 2a, including the related footnotes, attached to this release.

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

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

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

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

⁴ Includes expenses for the amortization of intangible assets and amortization of purchase accounting adjustments to inventories recognized as a result of mergers and acquisitions, as well as intangible asset impairment charges.  Also includes integration and other costs associated with mergers and acquisitions.

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

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

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

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

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

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

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

⁷ In the first quarter of 2011, Merck changed the reporting for certain over-the-counter products. Sales of these products outside the United States were previously recorded in the Pharmaceutical business, and are now reported in the Consumer Care business. Prior period amounts have been recast on a comparative basis.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

¹⁰ Includes an estimated income tax (benefit) expense on the reconciling items. In addition, amount includes the net favorable impact of approximately $700 million relating to the settlement of a federal income tax audit, as well as the favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting.

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

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

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

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

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

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

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