What can we help you find?

February 5, 2014 7:00 am ET

• Fourth-Quarter 2013 Non-GAAP EPS Increased by 6 Percent Over Prior Year to $0.88, Excluding Certain Items; GAAP EPS Decreased by 13 Percent to $0.26. Full-Year 2013 Non-GAAP EPS of $3.49, Excluding Certain Items; GAAP EPS of $1.47.
• Fourth-Quarter 2013 Worldwide Sales Were $11.3 Billion, a Decrease of 4 Percent Reflecting Unfavorable Impact of Patent Expiries and a 3 Percent Negative Impact from Foreign Exchange.
• Full-Year 2013 Worldwide Sales Were $44.0 Billion, a Decrease of 7 Percent Reflecting Unfavorable Impact of Patent Expiries and a 2 Percent Negative Impact from Foreign Exchange.
• Strong Full-Year Sales Growth for GARDASIL, REMICADE, SIMPONI, ISENTRESS, ZOSTAVAX and the Diabetes Franchise.
• Returned $11 Billion to Shareholders in 2013 Through Dividends and Share Repurchases.
• Accelerated Development Program for MK-3475, Including Announcement of Four Collaborations to Evaluate Novel Combination Regimens, Initiation of a Phase I Study in 20 New Cancer Types and Rolling Submission of a BLA to the FDA.
• 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.

Merck (NYSE:MRK), known as MSD outside the United States and Canada,
today announced financial results for the fourth quarter and full year
of 2013.

Non-GAAP (generally accepted accounting principles) earnings per share
(EPS) for the fourth quarter of $0.88 and $3.49 for the full year of
2013 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 2013 we took decisive action to sharpen our focus, reduce our cost
structure and advance our innovative research and development,” said
Kenneth C. Frazier, chairman and chief executive officer, Merck. “This
year we are excited about the potential of our near- and long-term
pipeline, poised for long-term growth and committed to providing
continued value to patients, customers and our shareholders.”

Select Revenue Highlights

Worldwide sales were $11.3 billion for the fourth quarter of 2013, a
decrease of 4 percent, which includes a 3 percent negative impact from
foreign exchange compared with the fourth quarter of 2012. Full-year
2013 worldwide sales were $44.0 billion, a decrease of 7 percent, which
includes a 2 percent negative impact from foreign exchange, compared to
full-year 2012.

The following table reflects sales of the company’s top human health
pharmaceutical products, as well as total sales of animal health and
consumer care products.

Pharmaceutical Revenue Performance

Fourth-quarter pharmaceutical sales declined 3 percent to $9.8 billion,
including a 3 percent negative impact due to foreign exchange. Strong
sales growth for REMICADE (infliximab), ISENTRESS (raltegravir), SIMPONI
(golimumab), JANUMET (sitagliptin and metformin HCI) and ZOSTAVAX
(zoster vaccine live) offset the expected declines in sales of SINGULAIR
(montelukast sodium), MAXALT (rizatriptan benzoate) and TEMODAR
(temozolomide) following loss of market exclusivity. Full-year
pharmaceutical sales declined 8 percent to $37.4 billion, including a 3
percent negative impact due to foreign exchange.

Sales from emerging markets grew 2 percent, including a 6 percent
negative impact due to foreign exchange, and accounted for approximately
21 percent of pharmaceutical sales in the fourth quarter. Sales growth
in the emerging markets was driven by vaccines, acute care and diabetes
products. Full-year sales from emerging markets grew 3 percent,
including a 4 percent negative impact due to foreign exchange.

Worldwide sales of the combined diabetes franchise of JANUVIA
(sitagliptin)/JANUMET, medicines that help lower blood sugar levels in
adults with type 2 diabetes, were $1.6 billion in the fourth quarter of
2013, growing 2 percent compared to the prior year quarter, including a
negative 4 percent impact from foreign exchange, primarily driven by
growth in Europe and the emerging markets. The combined franchise had
sales of $5.8 billion for the full year of 2013, an increase of 2
percent compared with the prior year, including a negative 3 percent
impact from foreign exchange.

Sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin),
medicines for lowering LDL cholesterol, were $1.2 billion in the fourth
quarter, growing 4 percent compared to the prior year quarter, including
a 1 percent negative impact from foreign exchange. The combined
ZETIA/VYTORIN franchise had sales of $4.3 billion for the full year of
2013, comparable to the prior year.

Combined sales of REMICADE and SIMPONI, treatments for inflammatory
diseases, increased 19 percent to $766 million for the fourth quarter of
2013, including a 4 percent benefit from foreign exchange. Global
combined sales for the full year increased to $2.8 billion, 15 percent
over the prior year, including a 2 percent benefit from foreign
exchange. These increases were driven by market growth trends and
continued launch activities for SIMPONI. SIMPONI sales were $500 million
for the full year of 2013.

Sales recorded by Merck for 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), decreased 11 percent to $394 million for the fourth quarter,
including a 2 percent negative impact from foreign exchange. This
decrease was driven by lower sales in the United States as a result of
the timing of public sector purchases and in Japan reflecting the
government’s decision to suspend active promotion of HPV vaccines. These
declines were partially offset by growth in the emerging markets.
Worldwide sales of GARDASIL recorded by Merck for the full year were
$1.8 billion, a 12 percent increase compared to the prior year,
including a 2 percent unfavorable impact from foreign exchange.

Sales of ISENTRESS, an HIV integrase inhibitor for use in combination
with other antiretroviral agents for the treatment of HIV-1 infection,
increased 16 percent to $442 million in the fourth quarter driven by
growth in most markets. Global sales of ISENTRESS for the full year of
2013 were $1.6 billion, an 8 percent increase compared to 2012.

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 38 percent to $298 million in the fourth quarter. Full-year
2013 worldwide sales for SINGULAIR were $1.2 billion, a 69 percent
decrease compared to the prior year. The patent for SINGULAIR expired in
the United States in August 2012 and in major European markets in
February 2013.

Sales recorded by Merck for ZOSTAVAX, a vaccine for the prevention of
herpes zoster, grew 18 percent to $264 million in the fourth quarter
compared to the prior year quarter, driven by new launches, primarily in
Asia. Global sales of ZOSTAVAX recorded by Merck for the full year of
2013 grew 16 percent to $758 million.

Animal Health Revenue Performance

Global sales of Animal Health products totaled $871 million for the
fourth quarter of 2013, a 3 percent decline compared with the same
period last year, including a 2 percent negative impact due to foreign
exchange. Revenue performance in the quarter reflects lower sales of
ruminant products, which were partially offset by growth in poultry and
aqua products. Global sales for the full year of 2013 were $3.4 billion,
a decline of 1 percent, including a 2 percent negative impact from
foreign exchange, when compared with 2012. Lower sales of ruminant
products were partially offset by growth in companion animal and poultry
products. During the third quarter of 2013, Merck Animal Health
voluntarily suspended the sale of ZILMAX (zilpaterol hydrochloride), a
feed supplement for beef cattle, in the United States and Canada.

Consumer Care Revenue Performance

Fourth-quarter global sales of Consumer Care were $390 million, a
decrease of 1 percent, including a 2 percent negative impact from
foreign exchange, compared to the fourth quarter of 2012. Full-year 2013
global sales were $1.9 billion, a 3 percent decrease compared to
full-year 2012, including a 1 percent negative impact due to foreign
exchange.

Other Revenue Performance

Other revenues – primarily comprised of alliance revenue, miscellaneous
corporate revenues and third-party manufacturing sales – decreased 17
percent to $298 million in the fourth quarter driven by lower revenue
from AstraZeneca (AZ) recorded by Merck as well as by lower third-party
manufacturing sales. Other revenues increased 2 percent to $1.3 billion
for the full year of 2013. Merck anticipates that AZ will exercise its
option to buy Merck’s interest in a subsidiary and, through it, Merck’s
interest in Nexium and Prilosec. If AZ does so, as of July 1, 2014,
Merck will no longer record equity income from AZ and supply sales to AZ
are expected to terminate. The company recorded $920 million of revenue
and $352 million of equity income from AZ for the full year of 2013.

Fourth-Quarter and Full-Year Expense and Other Information

The costs detailed below totaled $10.0 billion on a GAAP basis for the
fourth quarter of 2013 and include $2.3 billion of acquisition-related
costs and restructuring costs.

The costs detailed below totaled $38.1 billion on a GAAP basis for
full-year 2013 and include $8.0 billion of acquisition-related costs and
restructuring costs.

The gross margin was 59.3 percent for the fourth quarter of 2013
compared to 64.6 percent for last year’s fourth quarter, reflecting
unfavorable impacts of 13.7 and 10.4 percentage points, respectively,
from the acquisition-related and restructuring costs noted above. The
gross margin was 61.5 percent for the full year of 2013 compared to 65.2
percent for the full year of 2012, reflecting unfavorable impacts of
12.8 and 10.7 percentage points, respectively, from the
acquisition-related and restructuring costs noted above. The non-GAAP
gross margin declines in the fourth quarter and full year of 2013
reflect the unfavorable impacts of recent patent expiries, product mix
and continued pricing pressure in mature markets.

Marketing and administrative expenses, on a non-GAAP basis, were $2.9
billion in the fourth quarter of 2013, a decrease from $3.3 billion in
last year’s fourth quarter. Full-year marketing and administrative
expenses in 2013, on a non-GAAP basis, were $11.7 billion, a decrease
from $12.4 billion in 2012. The declines were primarily due to
productivity measures and the beneficial impact of foreign exchange.

Research and development (R&D) expenses, on a non-GAAP basis, were $1.8
billion in the fourth quarter of 2013, a decrease from $2.2 billion in
the fourth quarter of 2012. For full-year 2013, these expenses, on a
non-GAAP basis, were $7.1 billion, a decrease from $7.9 billion in 2012.
The declines reflect targeted reductions and lower clinical development
spend as a result of portfolio prioritization and increased focus on the
company’s key therapeutic opportunities, as well as lower payments for
licensing activity.

Equity income from affiliates was $53 million for the fourth quarter and
$404 million for the full year, which primarily reflects partnerships
with AZ and Sanofi Pasteur.

Other (income) expense, net, was $157 million of expense in the fourth
quarter of 2013 compared with $669 million of expense in last year’s
fourth quarter, and for the full-year 2013 was $815 million of expense
compared with $1.1 billion of expense in 2012. The fourth quarter of
2012 includes a $493 million net charge related to the settlement of
certain shareholder litigation.

Key Developments

Clinical

• Accelerated development program for MK-3475, the company’s anti-PD-1
  immunotherapy, including announcement of four collaborations to
  evaluate novel combination regimens and initiation of a Phase I study
  in 20 new cancer types;
• Interim data for MK-5172/MK-8742, the company’s investigational oral
  combination regimen for treatment of chronic hepatitis C virus (HCV),
  presented at the 2013 American Association for the Study of Liver
  Diseases Annual Meeting showed sustained virologic response in
  100 percent of patients reaching post-treatment follow-up week 12 in
  two of the three combination arms studied;
• MK-5172/MK-8742 advanced into Phase IIB in a diverse range of chronic
  HCV patients;
• Interim data for MK-3475, presented at the 10^th
  International Congress of the Society for Melanoma Research, showed an
  estimated survival rate of 81 percent at one year in patients with
  advanced melanoma;
• Phase III data on V503, the company’s 9-valent HPV vaccine candidate,
  showed prevention of 97 percent of cervical, vaginal and vulvar
  pre-cancers caused by five additional HPV types;
• Phase III trials for MK-8931, the company’s investigational BACE
  inhibitor for Alzheimer’s disease, were initiated; and
• BACE inhibitor dosing in Phase III study of prodromal disease
  patients is planned.

Regulatory

• Breakthrough Therapy designation was granted by U.S. Food and Drug
  Administration (FDA) for MK-5172/MK-8742;
• FDA advisory committee recommended approval of vorapaxar, Merck’s
  investigational antiplatelet medicine; and
• FDA advisory committee discussed GRASTEK (Timothy Grass Pollen
  Allergen Extract) and RAGWITEK (Short Ragweed Pollen Allergen
  Extract), Merck’s investigational sublingual allergy immunotherapy
  tablets.

Business

• $11 billion returned to shareholders in 2013 through dividends and
  share repurchases;
• Divested a portion of the company’s U.S. ophthalmics business; and
• In January 2014, sold the U.S. marketing rights for SAPHRIS; announced
  plans to divest Sirna Therapeutics, Inc. to Alnylam Pharmaceuticals,
  Inc.

Looking Ahead

• Rolling submission for MK-3475 in patients with advanced melanoma who
  have previously been treated with ipilimumab to be completed in first
  half of 2014; and
• New Drug Applications anticipated to the FDA for odanacatib for
  osteoporosis, suvorexant for insomnia and sugammadex sodium injection
  for reversal of neuromuscular blockade induced by rocuronium or
  vecuronium.
• Anticipate regulatory actions for:
  • V503 (submitted Biologics License Application to the FDA in 2013);
  • Vintafolide in the European Union for use in platinum-resistant
    ovarian cancer;
  • Vorapaxar for the reduction of atherothrombotic events when added
    to standard of care in patients with a history of heart attack and
    no history of stroke or transient ischemic attack;
  • NOXAFIL IV for fungal infections;
  • Vaniprevir in Japan for the treatment of chronic HCV;
  • Allergy immunotherapies GRASTEK and RAGWITEK;

• Exploring strategic options for the company’s Animal Health and
  Consumer Care businesses to determine the most value-creating option
  for each and could reach different decisions about the two businesses.
  The company expects to complete the process and take action, if any,
  in 2014; and
• Merck will hold an R&D event for investors and media scheduled for May
  6, 2014.⁶

Financial Targets

Merck 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 and costs related to restructuring
programs, as well as potential gains associated with the expected
termination of the AZ joint venture. The 2014 EPS targets (both non-GAAP
and GAAP) include a potential devaluation of the Venezuelan Bolivar.

Merck expects full-year 2014 revenues to be between $42.4 billion and
$43.2 billion at today’s currency rates. 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 recently announced product divestitures.

In addition, the company expects full-year 2014 non-GAAP marketing and
administrative as well as R&D expenses to be below 2013 levels due to
continuing prioritization and focused spending on core product lines and
upcoming launches.

The company expects 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
table below.

Total Employees

As of Dec. 31, 2013, Merck had approximately 76,000 employees worldwide.
In addition, the company’s joint ventures in China and Brazil, which are
included in the consolidated results of Merck, had about 1,300 employees.

Earnings Conference Call

Investors are invited to a live audio webcast of Merck’s fourth-quarter
earnings conference call today at 8:00 a.m. EST by visiting Merck’s
website, 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
26402847. Journalists are invited to monitor the call by dialing (706)
758-9928 or (800) 399-7917 and using ID code number 26402847.
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

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.

Merck 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. 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 2012 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 2013 and 2012 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 Tables 2a and 2b, 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 Amount for 2012 represents a net charge related to the
settlement of certain shareholder litigation.

⁶ Includes an estimated income tax (benefit) expense on the
reconciling items. In addition, the full year amount for 2013 includes
net benefits of approximately $325 million related to the settlements of
certain federal income tax issues.

* 100% or greater

(1) Amounts include the impact of acquisition-related costs,
restructuring costs and certain other items. See accompanying tables for
details.

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

(3) Primarily reflects equity income from the AstraZeneca LP and Sanofi
Pasteur MSD partnerships.

(4) Other (income) expense, net in the fourth quarter and full year of
2012 reflect a $493 million net charge related to the settlement of
certain shareholder litigation.

(5) The effective tax rate for the full year of 2013 reflects net
benefits from the settlements of certain federal income tax issues,
reductions in tax reserves upon expiration of applicable statute of
limitations and the favorable impact of tax legislation enacted in the
first quarter of 2013. The effective tax rates for the fourth quarter
and full year of 2012 reflect a favorable ruling on a state tax matter.
In addition, the effective tax rate for the full year of 2012 reflects
the favorable impacts of a settlement with a foreign tax authority and
the realization of foreign tax credits.

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.

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
of $4.7 billion for the amortization of intangible assets recognized as
a result of mergers and acquisitions, as well as $486 million of
impairment charges on product intangibles. Amounts included in marketing
and administrative expenses reflect merger integration costs. Amounts
included in research and development expenses represent in-process
research and development (“IPR&D”) impairment charges.

(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 net benefits of approximately $325 million related to the
settlements of certain federal income tax issues.

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

⁽¹⁾ Only select products are shown.

⁽²⁾ Includes Pharmaceutical products not individually shown
above. 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. Other Vaccines sales
included in Other Pharmaceutical were $60 million, $75 million, $116
million, and $69 million for the first, second, third, and fourth
quarters of 2012, respectively.

⁽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.

Photos/Multimedia Gallery Available: http://www.businesswire.com/multimedia/home/20140205005626/en/

Merck
Media:
Kelley Dougherty, 908- 423-4291
Steve Cragle, 908-423-3461
or
Investors:
Carol Ferguson, 908-423-4465
Joe Romanelli, 908-423-5185