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February 1, 2019 6:45 am ET

• Fourth-Quarter 2018 Worldwide Sales Were $11.0 Billion, an Increase of 5 Percent, Including a 3 Percent Negative Impact from Foreign Exchange; Full-Year 2018 Worldwide Sales Were $42.3 Billion, an Increase of 5 Percent, Including a Minimal Impact from Foreign Exchange
• Fourth-Quarter 2018 GAAP EPS Was $0.69; Fourth-Quarter Non-GAAP EPS Was $1.04; Full-Year 2018 GAAP EPS Was $2.32; Full-Year Non-GAAP EPS Was $4.34
• Returned $14 Billion to Shareholders Through Share Repurchases and Dividends in 2018
• 2019 Financial Outlook
  • Anticipates Full-Year 2019 Worldwide Sales to Be Between $43.2 Billion and $44.7 Billion, Including an Approximately 1 Percent Negative Impact from Foreign Exchange
  • Expects Full-Year 2019 GAAP EPS to Be Between $3.97 and $4.12; Expects Non-GAAP EPS to Be Between $4.57 and $4.72, Including an Approximately 1 Percent Positive Impact from Foreign Exchange
• Merck to Hold an Investor Event on June 20, 2019

KENILWORTH, N.J.–(BUSINESS WIRE)–Merck (NYSE:MRK), known as MSD outside the United States and Canada,
today announced financial results for the fourth quarter and full year
of 2018.

“Last year was a strong one for Merck marked by substantial progress on
scientific and commercial fronts,” said Kenneth C. Frazier, chairman and
chief executive officer, Merck. “The fourth-quarter and full-year
results further bolster our confidence in Merck’s innovation-based
strategy in which our key pillars – oncology, vaccines, animal health,
and select hospital and specialty care products – are expected to drive
sustainable growth over the long-term. We enter 2019 with good momentum,
anticipating the many opportunities afforded by our broad and
differentiated portfolio and pipeline.”

Financial Summary

Worldwide sales were $11.0 billion for the fourth quarter of 2018, an
increase of 5 percent compared with the fourth quarter of 2017,
including a 3 percent negative impact from foreign exchange. Full-year
2018 worldwide sales were $42.3 billion, an increase of 5 percent
compared with the full year of 2017.

Sales for the full year of 2018 include approximately $125 million for
the replenishment of doses of GARDASIL 9 (Human Papillomavirus 9-valent
Vaccine, Recombinant), a vaccine to prevent certain cancers and other
diseases caused by Human Papillomavirus (HPV), that were borrowed from
the U.S. Centers for Disease Control and Prevention Pediatric Vaccine
Stockpile in 2017. The borrowing reduced sales in 2017 by approximately
$125 million.

Lost sales due to the cyber-attack that occurred in June 2017
unfavorably affected revenue in the fourth quarter of 2017 by $125
million, and for the full year of 2018 and 2017 by $150 million and $260
million, respectively.

GAAP (generally accepted accounting principles) earnings (loss) per
share assuming dilution (EPS) were $0.69 for the fourth quarter and
$2.32 for the full year of 2018. GAAP EPS for the full year of 2018
reflects a $1.4 billion charge related to the formation of a strategic
oncology collaboration with Eisai Co., Ltd. (Eisai). Non-GAAP EPS of
$1.04 for the fourth quarter and $4.34 for the full year of 2018 exclude
acquisition- and divestiture-related costs, restructuring costs and
certain other items. Non-GAAP EPS for the full year of 2018 also
excludes the charge related to the formation of the collaboration with
Eisai.

GAAP EPS were $(0.39) for the fourth quarter and $0.87 for the full year
of 2017, which reflect a $2.6 billion provisional charge related to the
enactment of U.S. tax legislation and for the full year also reflect a
$2.35 billion charge related to the formation of a strategic oncology
collaboration with AstraZeneca.

Oncology Pipeline Highlights

Merck continued to advance the development programs for KEYTRUDA
(pembrolizumab), the company’s anti-PD-1 therapy; Lynparza (olaparib), a
PARP inhibitor being co-developed and co-commercialized with
AstraZeneca; and Lenvima (lenvatinib mesylate), an orally available
tyrosine kinase inhibitor being co-developed and co-commercialized with
Eisai.

KEYTRUDA

• Merck will present data from the pivotal Phase 3 KEYNOTE-426 trial,
  studying KEYTRUDA in combination with axitinib in patients with
  advanced or metastatic renal cell carcinoma at the annual American
  Society for Clinical Oncology (ASCO) Genitourinary Cancers Symposium
  in San Francisco in an oral session on February 16, 2019.
• Merck announced that the U.S. Food and Drug Administration (FDA)
  approved KEYTRUDA for the following indications:
  • In combination with carboplatin and either paclitaxel or
    nab-paclitaxel for the first-line treatment of patients with
    metastatic squamous non-small cell lung cancer (NSCLC), making it
    the first anti-PD-1 approved for first-line treatment of squamous
    NSCLC regardless of PD-L1 expression. The approval
    is based on results from the KEYNOTE-407 trial.
  • For the treatment
    of patients with hepatocellular carcinoma who have been previously
    treated with sorafenib.
  • For the treatment
    of adult and pediatric patients with recurrent locally advanced or
    metastatic Merkel cell carcinoma.
• Merck announced
  that five new approvals, including three expanded uses in advanced
  NSCLC, one in adjuvant melanoma, as well as a new indication in
  advanced microsatellite instability-high (MSI-H) tumors were granted
  in Japan.
• Merck announced
  that the European Commission (EC) approved KEYTRUDA for the adjuvant
  treatment of adults with stage III melanoma and lymph node involvement
  who have undergone complete resection based on data from the pivotal
  Phase 3 EORTC1325/KEYNOTE-054 trial.
• Merck announced
  results from KEYNOTE-181, a Phase 3 trial investigating KEYTRUDA as
  monotherapy for the second-line treatment of advanced or metastatic
  esophageal or esophagogastric junction carcinoma, which demonstrated a
  31 percent reduction in the risk of death compared to chemotherapy in
  previously treated patients with advanced esophageal or
  esophagogastric junction carcinoma whose tumors expressed PD-L1
  (combined positive score [CPS] ≥10). Merck presented the data in
  January at the ASCO Gastrointestinal Cancers Symposium.
• Merck announced
  that the FDA extended the action date for the supplemental Biologics
  License Application (sBLA) for KEYTRUDA as monotherapy for the
  first-line treatment of locally advanced or metastatic NSCLC in
  patients whose tumors express PD-L1 (tumor proportion score [TPS] ≥1%)
  without EGFR or ALK genomic tumor aberrations. The sBLA is based on
  results of the Phase 3 KEYNOTE-042 trial. The company submitted
  additional data and analyses to the FDA, which extends the PDUFA date
  by three months to April 11, 2019.

Lynparza

• Merck and AstraZeneca announced
  that the FDA approved Lynparza for use as maintenance treatment of
  adult patients with deleterious or suspected deleterious germline or
  somatic BRCA-mutated (gBRCAm or sBRCAm) advanced
  epithelial ovarian, fallopian tube or primary peritoneal cancer who
  are in complete or partial response to first-line platinum-based
  chemotherapy. This is the first regulatory approval for a PARP
  inhibitor in the first-line maintenance setting for BRCAm
  advanced ovarian cancer and approval was based on positive results
  from the pivotal Phase 3 SOLO-1 trial.
• Merck and AstraZeneca announced
  positive results from the Phase 3 SOLO-3 trial of Lynparza in patients
  with relapsed ovarian cancer after two or more lines of treatment.

Lenvima

• Merck and Eisai announced
  results of new data and analyses of Lenvima in combination with
  KEYTRUDA in three different tumor types, including metastatic NSCLC,
  metastatic melanoma and metastatic urothelial carcinoma. These were
  presented at the 33rd Annual Meeting of the Society for Immunotherapy
  of Cancer (SITC) in November 2018.

Other Oncology Pipeline Highlights

• Clinical data from Merck’s Phase 1 trials for anti-LAG3 (MK-4280) and
  anti-TIGIT (MK-7684) along with preclinical data for ILT4 (MK-4830)
  were presented
  at SITC. These are each being studied as monotherapy and in
  combination with KEYTRUDA for the treatment of advanced solid tumors.

Other Pipeline Highlights

• Merck and NGM Biopharmaceuticals, Inc. announced
  that Merck exercised its option to license NGM313, renamed MK-3655, an
  investigational monoclonal antibody agonist of the β-Klotho/FGFR1c
  receptor complex that is currently being evaluated for the treatment
  of nonalcoholic steatohepatitis (NASH) and type 2 diabetes.
• Merck announced
  that V114, the company’s investigational 15-valent pneumococcal
  conjugate vaccine, has received Breakthrough Therapy Designation from
  the FDA for the prevention of invasive pneumococcal disease (IPD)
  caused by the vaccine serotypes in pediatric patients 6 weeks to 18
  years of age. V114 is also under development for the prevention of IPD
  in adults.
• Merck and Instituto Butantan, a non-profit producer of immunobiologic
  products for Brazil, announced
  a collaboration to develop vaccines to protect against dengue virus
  disease, a mosquito-borne infection.
• Merck announced
  that it started the submission of a rolling Biologics License
  Application to the FDA for V920 (rVSV∆G-ZEBOV-GP, live attenuated),
  the company’s investigational vaccine for Ebola Zaire disease. This
  rolling submission was made pursuant to the FDA’s Breakthrough Therapy
  Designation for V920.
• Merck announced
  that the EC approved DELSTRIGO (doravirine / lamivudine / tenofovir
  disoproxil fumarate) and PIFELTRO (doravirine) for the treatment of
  HIV-1 infection.
• Merck announced
  that the FDA accepted for review supplemental New Drug Applications
  (sNDAs) seeking approval for PIFELTRO (in combination with other
  antiretroviral medicines) and DELSTRIGO for use in people living with
  HIV-1 who are switching from a stable antiretroviral regimen and whose
  virus is suppressed (HIV-1 RNA <50 copies/mL). The PDUFA date for the
  sNDAs is September 20, 2019.

Fourth-Quarter and Full-Year Revenue Performance

The following table reflects sales of the company’s top pharmaceutical
products, as well as sales of animal health products.

Pharmaceutical Revenue

Fourth-quarter pharmaceutical sales increased 6 percent to $9.8 billion,
including a 2 percent negative impact from foreign exchange. The
increase was driven primarily by growth in oncology and vaccines,
partially offset by lower sales in virology and the ongoing impacts of
the loss of market exclusivity for several products.

Growth in oncology was driven by a significant increase in sales of
KEYTRUDA, reflecting the strong momentum for the treatment of patients
with NSCLC and the company’s continued launches with new indications
globally. Additionally, oncology sales reflect alliance revenue of $71
million related to Lenvima and $62 million related to Lynparza,
representing Merck’s share of profits, which are product sales net of
cost of sales and commercialization costs.

Growth in vaccines was driven by an increase in 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, primarily due to the ongoing commercial
launch in China as well as growth in the United States and Europe. The
increase in U.S. sales reflects the timing of public sector purchases in
2017. Growth in vaccines was partially offset by a significant decrease
in sales of ZOSTAVAX (zoster vaccine live), a vaccine for the prevention
of herpes zoster, primarily due to a competing product that received a
preferential recommendation from the U.S. Advisory Committee on
Immunization Practices in October 2017. The company anticipates that
future sales of ZOSTAVAX will continue to be unfavorably affected by
competition.

Performance in hospital acute care reflects strong demand in the United
States for 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, and the ongoing launch
of PREVYMIS (letermovir), a medicine for the prevention of
cytomegalovirus (CMV) infection and disease in adult CMV-seropositive
recipients of an allogeneic hematopoietic stem cell transplant.

Pharmaceutical sales growth was partially offset by lower sales in
virology largely reflecting a significant decline in sales of ZEPATIER
(elbasvir and grazoprevir), a medicine for the treatment of chronic
hepatitis C virus genotypes 1 or 4 infection, due to increasing
competition and declining patient volumes, which the company expects to
continue.

Pharmaceutical sales growth for the quarter was also partially offset by
the impacts from the loss of market exclusivity for ZETIA (ezetimibe)
and VYTORIN (ezetimibe/simvastatin), medicines for lowering LDL
cholesterol; INVANZ (ertapenem sodium), an antibiotic; CANCIDAS
(caspofungin acetate for injection), an antifungal; as well as
biosimilar competition for REMICADE (infliximab), a treatment for
inflammatory diseases, in the company’s marketing territories in Europe.

Full-year 2018 pharmaceutical sales increased 6 percent to $37.7
billion, reflecting growth in oncology, vaccines and hospital acute
care, partially offset by declines in virology and the loss of market
exclusivity for several products.

Animal Health Revenue

Animal Health sales totaled $1.0 billion for the fourth quarter of 2018,
an increase of 6 percent compared with the fourth quarter of 2017,
including a 5 percent negative impact from foreign exchange. Growth for
the quarter was driven by both inline and newly launched products
reflecting sales increases in companion animal products, primarily
companion animal vaccines, and higher sales of livestock products,
particularly swine and poultry products.

Worldwide sales for the full year of 2018 were $4.2 billion, an increase
of 9 percent. Full-year sales 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. Full-year sales growth was also driven by
higher sales of livestock products, including ruminants, poultry and
swine products.

Animal Health segment profits were $387 million in the fourth quarter of
2018, an increase of 10 percent compared with $350 million in the fourth
quarter of 2017, and were $1.7 billion for the full year of 2018, an
increase of 7 percent compared with $1.6 billion in 2017.³

In December 2018, Merck announced
it will acquire privately held Antelliq Group, which will establish
Merck Animal Health as a leader in digital animal identification,
traceability and monitoring solutions, one of the fastest growing parts
of the animal health industry. The transaction is expected to close in
the second quarter of 2019.

Fourth-Quarter and Full-Year Expense, EPS and Related Information

The tables below present selected expense information.

GAAP Expense, EPS and Related Information

Gross margin was 70.1 percent for the fourth quarter of 2018 compared to
67.0 percent for the fourth quarter of 2017. The gross margin was 68.1
percent for the full year of 2018 compared to 67.8 percent for the full
year of 2017. The increase in gross margin for both periods was driven
in part by lower acquisition- and divestiture-related costs and
restructuring costs, which negatively affected gross margin by 4.9
percentage points and 6.3 percentage points in the fourth quarter and
full year of 2018, respectively, compared with 7.3 and 8.3 percentage
points for the fourth quarter and full year of 2017, respectively. In
addition, the gross margin improvements in 2018 reflect the favorable
effects of product mix and costs recorded in 2017 related to the
cyber-attack, partially offset by the unfavorable effects of pricing
pressure and the amortization of amounts capitalized for potential
future milestone payments related to collaborations. For the full year
of 2018, the gross margin improvement was also partially offset by a
charge related to the termination of a collaboration agreement with
Samsung Bioepis Co., Ltd. for insulin glargine.

Selling, general and administrative expenses were $2.6 billion in the
fourth quarter of 2018, the same as in the fourth quarter of 2017.
Full-year 2018 selling, general and administrative expenses were $10.1
billion, comparable to the full year of 2017, reflecting higher
administrative costs and the unfavorable effects of foreign exchange,
offset by lower selling and promotion costs.

Research and development (R&D) expenses were $2.2 billion in the fourth
quarter of 2018, a decline of 4 percent compared with the fourth quarter
of 2017, driven primarily by lower expenses relating to business
development activities and lower in-process research and development
(IPR&D) impairment charges, partially offset by higher clinical
development spending, in particular from oncology collaborations, and
investment in discovery and early drug development. R&D expenses were
$9.8 billion for the full year of 2018, a 6 percent decrease compared to
the full year of 2017. The decline primarily reflects a charge recorded
in 2017 related to the formation of a collaboration with AstraZeneca and
lower IPR&D impairment charges, partially offset by a charge in 2018
related to the formation of an oncology collaboration with Eisai, higher
clinical development spending and investment in discovery and early drug
development, as well as higher expenses related to business development
transactions.

Other (income) expense, net, was $110 million of expense in the fourth
quarter of 2018 compared to $149 million of income in the fourth quarter
of 2017. Other (income) expense, net, in the fourth quarter of 2018
reflects goodwill impairment charges, as well as the recognition of
unrealized losses on securities as a result of the adoption of a new
accounting standard for investments in equity securities. Other (income)
expense, net, in the fourth quarter of 2017 reflects gains on sales of
securities, partially offset by a loss on the extinguishment of debt.
Other (income) expense, net, was $402 million of income for the full
year of 2018 compared to $500 million of income for the full year of
2017.

The effective income tax rates of 31.7 percent for the fourth quarter
and 28.8 percent for full year of 2018 include adjustments to the
provisional amounts recorded in 2017 related to the enactment of U.S.
tax legislation. In addition, the effective income tax rate for the full
year of 2018 reflects the unfavorable impact of a $1.4 billion charge
related to the formation of the collaboration with Eisai for which no
tax benefit has been recognized.

GAAP EPS was $0.69 for the fourth quarter of 2018 compared with $(0.39)
for the fourth quarter of 2017. GAAP EPS was $2.32 for the full year of
2018 compared with $0.87 for the full year of 2017.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 75.0 percent for the fourth quarter of
2018, compared to 74.3 percent for the fourth quarter of 2017. The
increase in the fourth-quarter gross margin reflects the favorable
effects of product mix and costs recorded in 2017 related to the
cyber-attack, partially offset by the unfavorable effects of pricing
pressure and the amortization of amounts capitalized for potential
future milestone payments related to collaborations.

The non-GAAP gross margin was 75.4 percent for the full year of 2018
compared to 76.1 percent for the full year of 2017. The decrease in
non-GAAP gross margin for the full year of 2018 reflects the unfavorable
effects of amortization of amounts capitalized for potential future
milestone payments related to collaborations and pricing pressure,
partially offset by the favorable effects of product mix and costs
recorded in 2017 related to the cyber-attack.

Non-GAAP selling, general and administrative expenses were $2.6 billion
in the fourth quarter of 2018, comparable to the fourth quarter of 2017.
Non-GAAP selling, general and administrative expenses were $10.1 billion
for the full year of 2018, comparable to the full year of 2017,
reflecting higher administrative costs and the unfavorable effects of
foreign exchange, offset by lower selling and promotion costs.

Non-GAAP R&D expenses were $2.1 billion in the fourth quarter of 2018, a
1 percent increase compared to the fourth quarter of 2017. Non-GAAP R&D
expenses were $7.9 billion for the full year of 2018, a 6 percent
increase compared to the full year of 2017. The increases reflect higher
clinical development spending and investment in discovery and early drug
development, partially offset by lower business development costs.

Non-GAAP other (income) expense, net, was $66 million of income in the
fourth quarter of 2018 compared to $143 million of income in the fourth
quarter of 2017. Non-GAAP other (income) expense, net, in the fourth
quarter of 2018 reflects the recognition of unrealized losses on
securities as a result of the adoption of a new accounting standard for
investments in equity securities. Non-GAAP other (income) expense, net,
in the fourth quarter of 2017 reflects realized gains on sales of equity
securities, partially offset by a loss on extinguishment of debt.
Non-GAAP other (income) expense, net, for the full year of 2018 was $609
million of income compared to $503 million of income for the full year
of 2017.

The non-GAAP effective income tax rate was 22.5 percent for the fourth
quarter of 2018 compared with 15.3 percent for the fourth quarter of
2017 and was 19.8 percent for the full year of 2018 compared with 19.1
percent for the full year of 2017.

Non-GAAP EPS was $1.04 for the fourth quarter of 2018 compared with
$0.98 for the fourth quarter of 2017. Non-GAAP EPS was $4.34 for the
full year of 2018 compared with $3.98 for the full year of 2017.

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

Financial Outlook

At mid-January 2019 exchange rates, Merck anticipates full-year 2019
revenue to be between $43.2 billion and $44.7 billion, including an
approximately 1 percent negative impact from foreign exchange.

Merck expects its full-year 2019 GAAP EPS to be between $3.97 and $4.12.
Merck expects its full-year 2019 non-GAAP EPS to be between $4.57 and
$4.72, including an approximately 1 percent positive impact from foreign
exchange. The non-GAAP range excludes acquisition- and
divestiture-related costs.

The following table summarizes the company’s full-year 2019 financial
guidance.

A reconciliation of anticipated 2019 GAAP EPS to non-GAAP EPS and the
items excluded from non-GAAP EPS are provided in the table below.

Investor Event

Merck will hold an Investor Event on Thursday, June 20, 2019, at which
senior management will provide a review of the company’s key business
priorities, current pillars of growth, future opportunities and research
pipeline. Further details regarding logistics will be announced at a
later date.

Earnings Conference Call

Investors, journalists and the general public may access a live audio
webcast of the call today at 8:00 a.m. EST on Merck’s website at https://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
9872199. Members of the media are invited to monitor the call by dialing
(706) 758-9928 or (800) 399-7917 and using ID code number 9872199.
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,
Instagram,
YouTube
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 2017 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).

###

Media:
Jennifer Mauer
(908) 740-1801

Claire Gillespie
(267) 305-0932

Investors:
Teri Loxam
(908) 740-1986

Michael DeCarbo
(908) 740-1807