What can we help you find?

May 2, 2017 5:45 am ET

• First-Quarter 2017 Worldwide Sales Were $9.4 Billion, an Increase of 1 Percent, Including a 2 Percent Negative Impact from Foreign Exchange
• First-Quarter 2017 GAAP EPS Was $0.56; First-Quarter Non-GAAP EPS Was $0.88
• Company Narrows and Raises 2017 Full-Year Revenue Range to be Between $39.1 Billion and $40.3 Billion, Including an Approximately 1.5 Percent Negative Impact from Foreign Exchange
• Company Narrows and Raises 2017 Full-Year GAAP EPS Range to be Between $2.51 and $2.63; Narrows and Raises 2017 Full-Year Non-GAAP EPS Range to be Between $3.76 and $3.88, Including an Approximately 1.5 Percent Negative Impact from Foreign Exchange
• KEYTRUDA Development Program Advances with Two Additional Regulatory Approvals and CHMP Positive Opinion; Four sBLAs Currently Under Priority Review with PDUFA Action Dates in Second Quarter

Merck (NYSE:MRK), known as MSD outside the United States and Canada,
today announced financial results for the first quarter of 2017.

“Merck delivered solid performance across our broad range of products
that address major disease categories and the needs of global health,”
said Kenneth C. Frazier, chairman and chief executive officer, Merck.
“The continued momentum of KEYTRUDA in oncology, along with the strength
of the vaccine and other franchises and animal health, helped to drive
revenue growth in the quarter.”

Financial Summary

Worldwide sales were $9.4 billion for the first quarter of 2017, an
increase of 1 percent compared with the first quarter of 2016, including
a 2 percent negative impact from foreign exchange.

GAAP (generally accepted accounting principles) earnings per share
assuming dilution (EPS) were $0.56 for the first quarter of 2017.
Non-GAAP EPS of $0.88 for the first quarter of 2017 excludes
acquisition- and divestiture-related costs, restructuring costs and
certain other items.

Pipeline Highlights

Merck continued to deliver significant progress in the development
program for KEYTRUDA (pembrolizumab), an anti-PD-1 therapy, receiving
key regulatory approvals or opinions and supplemental Biologics License
Application (sBLA) acceptances.

• The U.S. Food and Drug Administration (FDA) approved
  under its Accelerated Approval program KEYTRUDA for 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 European Commission approved KEYTRUDA
  for the first-line treatment of non-small cell lung cancer (NSCLC) in
  adults whose tumors have high PD-L1 expression (tumor proportion score
  of 50 percent or more) with no EGFR or ALK positive tumor mutations.
• The Committee for Medicinal Products for Human Use of the European
  Medicines Agency (EMA) adopted a
  positive opinion recommending approval of KEYTRUDA for
  the treatment of adult patients with relapsed or refractory cHL who
  have failed autologous stem cell transplant and brentuximab vedotin
  (BV), or who are transplant-ineligible and have failed BV.
• The FDA accepted
  for review under its Accelerated Approval program the sBLA for
  KEYTRUDA in combination with pemetrexed and carboplatin for the
  treatment of patients with metastatic or advanced NSCLC regardless of
  PD-L1 expression. This is the first application for regulatory
  approval of KEYTRUDA in combination with another treatment. The FDA
  granted Priority Review with a PDUFA action date of May 10, 2017.
• The FDA accepted
  and granted Priority Review for the sBLA for the treatment of patients
  with locally advanced or metastatic urothelial cancer, a type of
  bladder cancer, for first-line use in patients who are ineligible for
  cisplatin-containing therapy. The application for second-line use was
  also accepted for Priority Review. The PDUFA action date for both
  applications is June 14, 2017.
• The company recently submitted
  additional data and analyses to the FDA for the pending sBLA
  application for the treatment of previously treated patients with
  advanced microsatellite instability-high cancer. The PDUFA action date
  for this Priority Review has been extended to June 9, 2017.

The FDA and EMA accepted
for review three New Drug Applications (NDAs) in the company’s diabetes
franchise for medicines containing ertugliflozin, an investigational
SGLT2 inhibitor in development to help improve glycemic control in
adults with type 2 diabetes as part of Merck’s collaboration with Pfizer
Inc. The PDUFA action date from the FDA is in December 2017 for the
three NDAs.

Merck presented phase 3 data across our late-stage pipeline in studies
that met their primary endpoints.

• At the Conference on Retroviruses and Opportunistic Infections in
  February, data were presented
  from the ongoing “DRIVE-FORWARD” phase 3 clinical trial evaluating the
  safety and efficacy of doravirine (MK-1439), an investigational
  non-nucleoside reverse transcriptase inhibitor for previously
  untreated adults with HIV-1 infection. The study met its primary
  efficacy endpoint, demonstrating the non-inferiority of once-daily
  doravirine to once-daily ritonavir-boosted darunavir.
• Positive results from a study of letermovir, an investigational
  antiviral medicine for the prevention of cytomegalovirus infection in
  high-risk bone marrow transplant patients, were presented
  at the BMT Tandem Meetings in February.
• Merck presented
  data from a trial for V212, an investigational inactivated varicella
  zoster virus vaccine for the prevention of herpes zoster or HZ, also
  known as shingles. The data demonstrated a reduction in the incidence
  of confirmed HZ cases by an estimated 64 percent in immunocompromised
  patients and also were presented at the BMT Tandem Meetings.

First-Quarter Revenue Performance

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

Pharmaceutical Revenue

First-quarter pharmaceutical sales increased 1 percent to $8.2 billion,
including a 1 percent negative impact from foreign exchange. The growth
was driven by oncology, hepatitis C and vaccines, largely offset by the
loss of market exclusivity for several products, as well as lower sales
in the diabetes franchise.

Growth in oncology was due to higher sales of KEYTRUDA as the company
continues to launch the product with new indications globally.

Growth in hepatitis C was driven by ZEPATIER (elbasvir and grazoprevir),
a medicine for the treatment of chronic hepatitis C virus genotypes 1 or
4 infection, due to ongoing launches globally. Sales in the United
States also reflect an approximately $40 million favorable adjustment to
rebate accruals due to mix of business.

Growth in vaccines was primarily driven by higher sales of GARDASIL
[Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine,
Recombinant] and GARDASIL 9 (Human Papillomavirus 9-valent Vaccine,
Recombinant), vaccines to prevent certain cancers and other diseases
caused by HPV, in the United States reflecting the timing of public
sector purchases, underlying demand and increased price, as well as
higher sales of PNEUMOVAX 23 (pneumococcal vaccine polyvalent) largely
driven by demand in the United States. Growth in vaccines also reflects
incremental sales of approximately $65 million, of which approximately
$50 million relates to GARDASIL and GARDASIL 9, due to Merck now
recording vaccine sales in the 19 European countries previously part of
the Sanofi Pasteur MSD vaccines joint venture, which was terminated on
Dec. 31, 2016.

Pharmaceutical sales reflect a decrease 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,
primarily due to the timing of customer purchases in the United States
as anticipated for the quarter.

Sales growth also was offset by the loss of U.S. market exclusivity in
2016 for ZETIA (ezetimibe), a medicine for lowering LDL cholesterol;
CUBICIN (daptomycin for injection), an I.V. antibiotic; and NASONEX
(mometasone furoate monohydrate), an inhaled nasal corticosteroid for
the treatment of nasal allergy symptoms; 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 $686
million during the first quarter of 2017 compared to the first quarter
of 2016.

Animal Health Revenue

Animal Health sales totaled $939 million for the first quarter of 2017,
an increase of 13 percent compared with the first quarter of 2016,
including a 1 percent negative impact from foreign exchange. Growth was
primarily due to sales increases in companion animal products, driven by
the BRAVECTO (fluralaner) line of products that kill fleas and ticks in
dogs and cats for up to 12 weeks, as well as in ruminants, poultry and
swine products. In March, Animal Health completed the acquisition of
Vallée S.A., a leading privately held producer of animal health products
in Brazil.

First-Quarter Expense, EPS and Related Information

The table below presents selected expense information.

GAAP Expense, EPS and Related Information

On a GAAP basis, the gross margin was 68.0 percent for the first quarter
of 2017 compared to 61.6 percent for the first quarter of 2016. The
increase in gross margin for the first quarter of 2017 was primarily
driven by a lower net impact from acquisition- and divestiture-related
costs and restructuring costs which reduced gross margin by 9.8
percentage points in the first quarter of 2017 as compared with 15.4
percentage points in the first quarter of 2016. The increase in gross
margin also reflects the favorable effects of foreign exchange and lower
inventory write-offs.

Marketing and administrative expenses were $2.4 billion in the first
quarter of 2017, a 4 percent increase compared to the first quarter of
2016. The increase primarily reflects higher health care reform fee
expenses, administrative costs, and promotion and direct selling
expenses.

Research and development (R&D) expenses were $1.8 billion in the first
quarter of 2017, an 8 percent increase compared to the first quarter of
2016. The increase reflects higher clinical development spending,
partially offset by lower restructuring costs.

GAAP EPS was $0.56 for the first quarter of 2017 compared with $0.40 for
the first quarter of 2016.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 77.8 percent for the first quarter of 2017
compared to 77.0 percent for the first quarter of 2016. The increase in
non-GAAP gross margin was largely driven by the favorable effects of
foreign exchange and lower inventory write-offs.

Non-GAAP marketing and administrative expenses were $2.4 billion in the
first quarter of 2017, an increase of 3 percent compared to the first
quarter of 2016. The increase was driven primarily by higher health care
reform fee expenses, administrative costs, and promotion and direct
selling expenses.

Non-GAAP R&D expenses were $1.8 billion in the first quarter of 2017, a
14 percent increase compared to the first quarter of 2016. The increase
primarily reflects higher clinical development spending.

Non-GAAP EPS was $0.88 for the first quarter of 2017 compared with $0.89
for the first quarter of 2016.

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

Financial Outlook

Merck has narrowed and raised its full-year 2017 GAAP EPS range to be
between $2.51 and $2.63. Merck has narrowed and raised its full-year
2017 non-GAAP EPS range to be between $3.76 and $3.88, including an
approximately 1.5 percent negative impact from foreign exchange at
mid-April 2017 exchange rates. The non-GAAP range excludes acquisition-
and divestiture-related costs, costs related to restructuring programs
and certain other items.

Merck has narrowed and raised its full-year 2017 revenue range to be
between $39.1 billion and $40.3 billion, including an approximately 1.5
percent negative impact from foreign exchange at mid-April 2017 exchange
rates.

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

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.

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 March 31, 2017, Merck had approximately 69,000 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. 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
91134398. Members of the media are invited to monitor the call by
dialing (706) 758-9928 or (800) 399-7917 and using ID code number
91134398. 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 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 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).

###

¹ 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.

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

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.

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.

(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.                                                            

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
$773 million of expenses for the amortization of intangible assets
recognized as a result of acquisitions, as well as intangible asset
impairment charges of $76 million.  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
primarily reflect changes in the estimated fair value measurement of
liabilities for contingent consideration.

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

* 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
include 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 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.

Merck
Media:
Tracy Ogden, 908-740-1747
or
Investors:
Teri Loxam, 908-740-1986
Amy Klug, 908-740-1898