Merck Announces First-Quarter 2014 Financial Results
April 29, 2014 6:00 am ET
- First-Quarter 2014 Non-GAAP EPS of $0.88, Excluding Certain Items; GAAP EPS of $0.57; Confirms 2014 Full-Year Non-GAAP EPS Target of $3.35 to $3.53, Excluding Certain Items; GAAP EPS Range of $2.15 to $2.47
- Worldwide Sales were $10.3 Billion, a Decrease of 4 Percent, Reflecting Unfavorable Impact of Patent Expiries and a 2 Percent Unfavorable Impact from Foreign Exchange
- Strategic Initiatives Drove Cost Reductions and Portfolio Divestitures, Generating First-Quarter 2014 Benefits
- Sales of REMICADE, SIMPONI and ISENTRESS, as well as Diabetes and Vaccines Franchises Grew
- FDA Approved GRASTEK and RAGWITEK Sublingual Allergen Extract Immunotherapy Tablets and Accepted Filings for V503 and Suvorexant; Company Announced Progress in Key Clinical Programs Including HCV and HIV
- Repurchased $7.5 Billion of Common Stock Over Previous 12 Months as Part of Ongoing Share Repurchase Program
Merck (NYSE:MRK), known as MSD outside the United States and Canada,
today announced financial results for the first quarter of 2014.
|$ in millions, except EPS amounts||2014||2013|
Non-GAAP EPS that excludes items listed below1
GAAP Net Income2
|Non-GAAP Net Income that excludes items listed below1,2||2,601||2,585|
Non-GAAP (generally accepted accounting principles) earnings per share
(EPS) for the first quarter of $0.88 exclude acquisition-related costs,
restructuring costs and certain other items.
A reconciliation of GAAP to non-GAAP net income and EPS is provided in
the tables that follow.
|$ in millions, except EPS amounts||2014||2013|
|Non-GAAP EPS that excludes items listed below1||$0.88||$0.85|
|GAAP net income2||$1,705||$1,593|
|Non-GAAP net income that excludes items listed below1,2||$2,601||$2,585|
|Decrease (Increase) in Net Income Due to Excluded Items:|
|Net decrease (increase) in income before taxes||1,463||1,431|
Income tax (benefit) expense5
|Decrease (increase) in net income||$896||$992|
“Investing in the best opportunities for growth while being disciplined
in managing our costs enabled us to deliver bottom-line performance,”
said Kenneth C. Frazier, chairman and chief executive officer, Merck.
“This is an exciting time as we prepare to commercialize the next wave
of innovation coming out of Merck’s research labs over the next few
Select Revenue Highlights
Worldwide sales were $10.3 billion for the first quarter of 2014, a
decrease of 4 percent compared with the first quarter of 2013, including
a 2 percent negative effect from foreign exchange.
The following table reflects sales of the company’s top pharmaceutical
products, as well as total sales of animal health and consumer care
|First Quarter||First Quarter||Change||Change|
|$ in millions||2014||2013||Ex-exchange|
|PROQUAD, M-M-R II and VARIVAX||280||272||3%||4%|
Pharmaceutical Revenue Performance
First-quarter pharmaceutical sales declined 5 percent to $8.5 billion,
including a 2 percent negative impact due to foreign exchange. Expected
declines occurred in several products due to the ongoing impact of the
loss of market exclusivity, including TEMODAR (temozolomide), SINGULAIR
(montelukast sodium), NASONEX (mometasone furoate monohydrate) and
COZAAR (losartan potassium)/HYZAAR (losartan potassium and
hydrochlorothiazide). These declines were partially offset by growth in
the diabetes franchise of JANUVIA (sitagliptin)/JANUMET (sitagliptin and
metformin HCI), as well as REMICADE (infliximab), SIMPONI (golimumab)
and ISENTRESS (raltegravir).
Worldwide combined sales of JANUVIA and JANUMET, medicines that help
lower blood sugar levels in adults with type 2 diabetes, grew 3 percent
to $1.3 billion in the first quarter, including a 2 percent negative
impact from foreign exchange. The growth reflects higher sales in
Europe, the United States and the emerging markets, which were partially
offset by declines in Japan.
Combined sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin),
medicines for lowering LDL cholesterol, decreased 5 percent to $972
million in the first quarter, including a 1 percent negative impact from
foreign exchange. The decrease was driven by lower demand in the United
Combined sales of REMICADE and SIMPONI, treatments for inflammatory
diseases, grew 16 percent to $760 million in the first quarter,
including a 3 percent positive impact from foreign exchange. The growth
reflects continued European launches of SIMPONI and continued growth in
several markets in Europe.
Worldwide sales of ISENTRESS, an HIV integrase inhibitor for use in
combination with other antiretroviral agents for the treatment of HIV-1
infection, increased 8 percent to $390 million in the first quarter. The
increase was driven by strong growth in Europe and the emerging markets.
Merck’s sales of GARDASIL [Human Papillomavirus Quadrivalent (Types 6,
11, 16, and 18) Vaccine, Recombinant], a vaccine to help prevent certain
diseases caused by four types of human papillomavirus (HPV), were $383
million, a decrease of 2 percent for the first quarter, including a 4
percent negative impact from foreign exchange. The results reflect lower
sales in Japan following the government’s decision in July 2013 to
suspend active promotion of HPV vaccines, partially offset by higher
sales in the United States and from the national immunization program in
Worldwide sales of SINGULAIR, a once-a-day oral medicine for the chronic
treatment of asthma and the relief of symptoms of allergic rhinitis,
declined 20 percent to $271 million in the first quarter, mostly due to
patent expiries in major European markets in February 2013.
Animal Health Revenue Performance
Animal Health sales totaled $813 million for the first quarter of 2014,
a 3 percent decrease compared with the first quarter of 2013, including
a 3 percent negative impact due to foreign exchange. The results reflect
the company’s decision last year to voluntarily suspend sales of ZILMAX
(zilpaterol hydrochloride), a feed supplement for beef cattle, in the
United States and Canada. Excluding sales of ZILMAX, Animal Health sales
increased 5 percent in the first quarter, driven by higher sales of
poultry, swine and aqua products. In the first quarter, the European
Commission granted marketing authorization for BRAVECTO (fluralaner), a
chewable tablet that kills fleas and ticks in dogs for up to 12 weeks;
the company anticipates approval in the United States later in 2014.
Consumer Care Revenue Performance
First-quarter global sales of Consumer Care products were $546 million,
a decrease of 4 percent compared to the first quarter of 2013, including
a 1 percent negative impact due to foreign exchange. The sales decrease
was primarily due to product divestitures and a shortened allergy season
in North America.
Other Revenue Performance
Other revenues – primarily comprising alliance revenue, miscellaneous
corporate revenues and third-party manufacturing sales – increased 23
percent to $454 million compared to the first quarter of 2013. The
increase was primarily driven by $232 million in proceeds from the sale
of marketing rights for SAPHRIS (asenapine) in the United States,
partially offset by lower revenue from AstraZeneca (AZ) recorded by
Merck, which declined 44 percent to $147 million in the first quarter of
2014, as well as by lower third-party manufacturing sales.
The company expects that AZ will elect to exercise its option to buy the
company’s interest in a subsidiary and, through it, the company’s
interest in Nexium and Prilosec. If AZ exercises its option, as of July
1, 2014, Merck will no longer record equity income from AZ and supply
sales to AZ will end.
First-Quarter Expense and Other Information
The costs detailed below totaled $8.3 billion on a GAAP basis during the
first quarter of 2014 and include $1.5 billion of acquisition-related
costs and restructuring costs.
|$ in millions||Included in expenses for the period|
|Materials and production||$3,903||$1,126||$119||$2,658|
|Marketing and administrative||2,734||11||31||2,692|
|Research and development||1,574||–-||51||1,523|
|Materials and production||$3,959||$1,184||$43||$2,732|
|Marketing and administrative||2,987||23||17||2,947|
|Research and development||1,907||30||15||1,862|
The gross margin was 62.0 percent for the first quarter of 2014 compared
to 62.9 percent for the first quarter of 2013, reflecting 12.1 and 11.5
percentage point unfavorable impacts, respectively, from the
acquisition-related costs and restructuring costs noted above. The
non-GAAP gross margin decline primarily reflects the impact of product
mix, partially offset by the favorable impact of foreign exchange.
Marketing and administrative expenses, on a non-GAAP basis, were $2.7
billion in the first quarter of 2014, a decrease from $2.9 billion in
the same period of 2013. The decline was primarily due to productivity
Research and development (R&D) expenses, on a non-GAAP basis, were $1.5
billion in the first quarter of 2014, a decrease from $1.9 billion in
the first quarter of 2013. The decline reflects targeted reductions and
lower clinical development spending as a result of portfolio
prioritization and increased focus on the company’s key therapeutic
opportunities, as well as timing of certain programs set to begin
throughout the rest of 2014.
Equity income from affiliates was $124 million for the first quarter,
primarily reflecting the performance of partnerships with AZ and Sanofi
Other (income) expense, net, was $39 million of income in the first
quarter of 2014, compared to $282 million of expense in the first
quarter of 2013. The first quarter of 2014 includes a $182 million gain
on the divestiture of the company’s Sirna Therapeutics, Inc. subsidiary.
The first quarter of 2013 included approximately $140 million of
exchange losses due to a Venezuelan currency devaluation.
The GAAP effective tax rate of 17.2 percent for the first quarter of
2014 reflects the impacts of acquisition-related costs and restructuring
costs, as well as a benefit of approximately $300 million associated
with a capital loss generated in the quarter. The non-GAAP effective tax
rate, which excludes these items, was 26.1 percent for the quarter.
Interim Phase 2 data for MK-5172/MK-8742, an investigational oral
combination regimen for treatment of chronic hepatitis C virus (HCV),
presented at the 2014 Annual Meeting of the European Association for
the Study of the Liver, showed sustained viral response in hard-to-cure
Interim Phase 2b data on doravirine (MK-1439), an investigational
treatment for HIV, presented at the 21st Conference on
Retroviruses and Opportunistic Infections, demonstrated potent
antiretroviral activity in treatment-naïve HIV-1 infected adults in
combination with tenofovir/emtricitabine after 24 weeks of therapy; a
Phase 3 clinical program is planned to begin in the second half of
The U.S. Food and Drug Administration (FDA) approved GRASTEK (Timothy
Grass Pollen Allergen Extract) and RAGWITEK (Short Ragweed Pollen
Allergen Extract), the company’s sublingual allergen extract
The FDA accepted a Biologics License Application for V503, a 9-valent
HPV vaccine candidate, in February.
The FDA accepted the resubmission of a New Drug Application for
suvorexant for insomnia in April.
The European Committee for Medicinal Products for Human Use issued a
positive opinion for vintafolide in patients with platinum-resistant
Merck reiterated that it expects full-year 2014 non-GAAP EPS to be
between $3.35 and $3.53, and 2014 GAAP EPS to be between $2.15 and
$2.47. The 2014 non-GAAP range excludes acquisition-related costs, costs
related to restructuring programs, potential gains associated with the
expected termination of the AZ joint venture and certain other items.
The 2014 EPS targets (both non-GAAP and GAAP) include a potential
devaluation of the Venezuelan Bolivar.
At current exchange rates, Merck continues to expect full-year 2014
revenues to be between $42.4 billion and $43.2 billion. This includes
the expectation that AZ will elect to end the partnership between the
companies at mid-year, as well as lost revenue from patent expirations
across multiple markets and previously announced product divestitures.
In addition, the company continues to expect full-year 2014 non-GAAP
marketing and administrative as well as R&D expenses to be below 2013
levels. The company continues to anticipate its full-year 2014 non-GAAP
tax rate to be in the range of 24 to 26 percent; the rate does not
include a 2014 benefit of an R&D tax credit.
A reconciliation of anticipated 2014 EPS, as reported in accordance with
GAAP to non-GAAP EPS that excludes certain items, is provided in the
|$ in millions, except EPS amounts||2014|
|GAAP EPS||$2.15 to $2.47|
|Difference3||1.20 to 1.06|
|Non-GAAP EPS that excludes items listed below||$3.35 to $3.53|
|Acquisition-related costs4||$4,600 to $4,350|
|Restructuring costs||1,300 to 1,000|
|Gain on AZ option exercise||(700) to (725)|
|Net decrease (increase) in income before taxes||5,200 to 4,625|
|Estimated income tax (benefit) expense||(1,675) to (1,535)|
|Decrease (increase) in net income||$3,525 to $3,090|
As of March 31, 2014, Merck had approximately 74,000 employees
worldwide. In addition, the company’s joint ventures in China and
Brazil, which are included in the consolidated results of Merck, had
about 1,200 employees.
Earnings Conference Call
Investors, journalists and the general public may access a live audio
webcast of the call today at 8:00 a.m. EDT on Merck’s website at http://www.merck.com/investors/events-and-presentations/home.html.
Institutional investors and analysts can participate in the call by
dialing (706) 758-9927 or (877) 381-5782 and using ID code number
17424702. Members of the media are invited to monitor the call by
dialing (706) 758-9928 or (800) 399-7917 and using ID code number
17424702. Journalists who wish to ask questions are requested to contact
a member of Merck’s Media Relations team at the conclusion of the call.
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,
You can also follow our Twitter conversation at $MRK.
This news release includes “forward-looking statements” within the
meaning of the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995. These statements are based
upon the current beliefs and expectations of Merck’s management and are
subject to significant risks and uncertainties. There can be no
guarantees with respect to pipeline products that the products will
receive the necessary regulatory approvals or that they will prove to be
commercially successful. If underlying assumptions prove inaccurate or
risks or uncertainties materialize, actual results may differ materially
from those set forth in the forward-looking statements.
Risks and uncertainties include but are not limited to, general industry
conditions and competition; general economic factors, including interest
rate and currency exchange rate fluctuations; the impact of
pharmaceutical industry regulation and health care legislation in the
United States and internationally; global trends toward health care cost
containment; technological advances, new products and patents attained
by competitors; challenges inherent in new product development,
including obtaining regulatory approval; Merck’s ability to accurately
predict future market conditions; manufacturing difficulties or delays;
financial instability of international economies and sovereign risk;
dependence on the effectiveness of Merck’s patents and other protections
for innovative products; and the exposure to litigation, including
patent litigation, and/or regulatory actions.
Merck undertakes no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or
otherwise. Additional factors that could cause results to differ
materially from those described in the forward-looking statements can be
found in Merck’s 2013 Annual Report on Form 10-K and the company’s other
filings with the Securities and Exchange Commission (SEC) available at
the SEC’s Internet site (www.sec.gov).
1 Merck is providing certain 2014 and 2013 non-GAAP
information that excludes certain items because of the nature of these
items and the impact they have on the analysis of underlying business
performance and trends. Management believes that providing this
information enhances investors’ understanding of the company’s
performance. This information should be considered in addition to, but
not in lieu of, information prepared in accordance with GAAP. For
description of the items, see Table 2a, including the related footnotes,
attached to this release.
2 Net income attributable to Merck & Co., Inc.
3 Represents the difference between calculated GAAP EPS and
calculated non-GAAP EPS, which may be different than the amount
calculated by dividing the impact of the excluded items by the
weighted-average shares for the period.
4 Includes expenses for the amortization of intangible assets
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 estimated tax impact on the reconciling items.
Amount for 2014 also includes a benefit of approximately $300 million
associated with a capital loss generated in the quarter. In addition,
amount for 2013 includes a benefit of approximately $160 million
associated with the resolution of a previously disclosed federal income
|MERCK & CO., INC.|
|CONSOLIDATED STATEMENT OF OPERATIONS – GAAP|
|(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)|
|Costs, Expenses and Other|
|Materials and production (1)||3,903||3,959||-1||%|
|Marketing and administrative (1)||2,734||2,987||-8||%|
|Research and development (1)||1,574||1,907||-17||%|
|Restructuring costs (2)||125||119||5||%|
|Equity income from affiliates (3)||(124||)||(133||)||-7||%|
|Other (income) expense, net (1) (4)||(39||)||282||*|
|Income Before Taxes||2,091||1,550||35||%|
|Income Tax (Benefit) Provision||360||(66||)|
|Less: Net Income Attributable to Noncontrolling Interests||26||23|
|Net Income Attributable to Merck & Co., Inc.||$||1,705||$||1,593||7||%|
|Earnings per Common Share Assuming Dilution||$||0.57||$||0.52||10||%|
|Average Shares Outstanding Assuming Dilution||2,971||3,053|
|Tax Rate (5)||17.2||%||-4.3||%|
* 100% or greater
(1) Amounts include the impact of acquisition-related costs,
restructuring costs and certain other items. See accompanying tables for
(2) Represents separation and other related costs associated with
restructuring activities under the company’s formal restructuring
(3) Primarily reflects equity income from the AstraZeneca LP and Sanofi
Pasteur MSD partnerships.
(4) Other (income) expense, net in the first quarter of 2014 includes a
gain of $182 million on the divestiture of the company’s Sirna
Therapeutics, Inc. subsidiary. Other (income) expense, net in the first
quarter of 2013 reflects approximately $140 million of losses due to
exchange as a result of a Venezuelan currency devaluation.
(5) The GAAP effective tax rate for the first quarter of 2014 reflects a
benefit of approximately $300 million associated with a capital loss
generated in the quarter. The GAAP effective tax rate for the first
quarter of 2013 reflects the favorable impact of various discrete items,
including the impact of tax legislation enacted in the first quarter of
2013, a reduction in tax reserves upon expiration of applicable statute
of limitations, as well as a benefit of approximately $160 million
associated with the resolution of a previously disclosed federal income
|MERCK & CO., INC.|
|CONSOLIDATED STATEMENT OF OPERATIONS|
|GAAP TO NON-GAAP RECONCILIATION|
|FIRST QUARTER 2014|
|(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)|
Related Costs (1)
|Costs, Expenses and Other|
|Materials and production||3,903||1,126||119||1,245||2,658|
|Marketing and administrative||2,734||11||31||42||2,692|
|Research and development||1,574||51||51||1,523|
|Equity income from affiliates||(124||)||–||(124||)|
|Other (income) expense, net||(39||)||–||(39||)|
|Income Before Taxes||2,091||(1,137||)||(326||)||(1,463||)||3,554|
|Taxes on Income||360||(567||)||
|Less: Net Income Attributable to Noncontrolling Interests||26||–||26|
|Net Income Attributable to Merck & Co., Inc.||$||1,705||$||(896||)||$||2,601|
|Earnings per Common Share Assuming Dilution||$||0.57||$||0.88|
|Average Shares Outstanding Assuming Dilution||2,971||2,971|
Merck is providing non-GAAP information that excludes certain items
because of the nature of these items and the impact they have on the
analysis of underlying business performance and trends. Management
believes that providing this information enhances investors’
understanding of the company’s performance. This information should be
considered in addition to, but not in lieu of, information prepared in
accordance with GAAP.
(1) Amounts included in materials and production costs reflect expenses
for the amortization of intangible assets recognized as a result of
mergers and acquisitions. Amounts included in marketing and
administrative expenses reflect merger integration costs.
(2) Amounts primarily include employee separation costs and accelerated
depreciation associated with facilities to be closed or divested related
to actions under the company’s formal restructuring programs.
(3) Represents the estimated tax impact on the reconciling items, as
well as a benefit of approximately $300 million associated with a
capital loss generated in the quarter.
|MERCK & CO., INC.|
|FRANCHISE / KEY PRODUCT SALES|
|(AMOUNTS IN MILLIONS)|
|TOTAL SALES (1)||$10,264||$10,671||$11,010||$11,032||$11,319||$44,033||-4|
|Primary Care and Women’s Health|
|General Medicine & Women’s Health|
|Hospital and Specialty|
|Cosopt / Trusopt||99||105||103||104||103||416||-7|
|Cozaar / Hyzaar||205||267||255||238||246||1,006||-23|
|ProQuad, M-M-R II and Varivax||280||272||339||421||273||1,306||3|
|Other Pharmaceutical (2)||1,175||1,361||1,430||1,350||1,435||5,570||-14|
|CONSUMER CARE (3)||546||571||490||443||390||1,894||-4|
|Other Revenues (4)||454||369||359||314||298||1,340||23|
Sum of quarterly amounts may not equal year-to-date amounts due to
(1) Only select products are shown.
(2) Includes Pharmaceutical products not individually shown
above. Other Vaccines sales included in Other Pharmaceutical were $98
million in the first quarter of 2014. Other Vaccines sales included in
Other Pharmaceutical were $53 million, $86 million, $127 million, and
$101 million for the first, second, third, and fourth quarters of 2013,
(3) The decrease in Consumer Care sales in the second quarter
and full year of 2013 resulted from the ongoing termination in China of
distribution arrangements and a reversal of sales previously made to
those distributors, together with associated termination costs.
(4) Other revenues are comprised primarily of alliance
revenue, third-party manufacturing sales and miscellaneous corporate
revenues, including revenue hedging activities. On October 1, 2013, the
company divested a substantial portion of its third-party manufacturing
sales. In addition, Other revenues in the fourth quarter and full year
of 2013 reflect $50 million of revenue for the out-license of a pipeline
compound. Other revenues in the first quarter 2014 include $232 million
of revenue recognized in connection with the sale of U.S. Saphris rights.
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