What can we help you find?

July 29, 2014 5:56 am ET

• Second-Quarter 2014 Non-GAAP EPS of $0.85, Excluding Certain Items, and GAAP EPS of $0.68
• 2014 Full-Year Non-GAAP EPS Target of $3.43 to $3.53, Excluding Potential Venezuelan Bolivar Devaluation and Certain Other Items; 2014 Full-Year GAAP EPS Target of $4.44 to $4.77
  • 2014 Full-Year Non-GAAP EPS Target Includes $0.06 to $0.09 Anticipated Dilution From Planned Sale of Merck Consumer Care and Research Collaboration With Bayer, and Planned Acquisition of Idenix
• Generated Worldwide Sales of $10.9 Billion, a Decrease of 1 Percent, Reflecting Unfavorable Impact of Patent Expiries, Divested Products and Decline in Sales of Hepatitis C Products
• Grew Top Five Franchises by 6 Percent in Total
• Pembrolizumab (MK-3475), an Investigational Anti-PD-1 Antibody, Accepted in Second Quarter for Regulatory Review in Both the United States and European Union

Merck (NYSE:MRK), known as MSD outside the United States and Canada,
today announced financial results for the second quarter of 2014.

Non-GAAP (generally accepted accounting principles) earnings per share
(EPS) for the second quarter of $0.85 exclude acquisition- and
divestiture-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. Year-to-date results can be found in the
attached tables.

“We delivered a strong first half of the year, making progress in
transforming our operating model, fueling innovation and managing costs,
while focusing on our best opportunities,” said Kenneth C. Frazier,
chairman and chief executive officer, Merck. “I’m excited as we are
preparing for a series of important and promising product launches later
this year that we believe will make a meaningful difference to patients,
healthcare providers and payers, while creating value for society and
shareholders.”

Select Revenue Highlights

Worldwide sales were $10.9 billion for the second quarter of 2014, a
decrease of 1 percent compared with the second quarter of 2013, with no
net impact 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
products.

Pharmaceutical Revenue Performance

Second-quarter pharmaceutical sales declined 2 percent to $9.1 billion.
Expected declines occurred due to the ongoing impact of the loss of
market exclusivity for TEMODAR (temozolomide) and NASONEX (mometasone
furoate monohydrate). Additionally, sales from the hepatitis franchise
of VICTRELIS (boceprevir) and PEGINTRON (peginterferon alfa-2b) declined
as a result of increased competition. These declines were partially
offset by growth in REMICADE (infliximab), SIMPONI (golimumab) and
ISENTRESS (raltegravir), as well as the cardiovascular franchise of
ZETIA (ezetimibe)/VYTORIN (ezetimibe/simvastatin) and the diabetes
franchise of JANUVIA (sitagliptin)/JANUMET (sitagliptin and metformin
HCI).

Combined sales of JANUVIA and JANUMET, medicines that help lower blood
sugar levels in adults with type 2 diabetes, grew 2 percent to $1.6
billion in the second quarter. The growth reflects higher sales in
Europe and the emerging markets, which were partially offset by declines
in Japan. Sales in the United States decreased 1 percent.

Combined sales of ZETIA and VYTORIN, medicines for lowering LDL
cholesterol, increased 6 percent to $1.1 billion in the second quarter,
including a 1 percent positive impact from foreign exchange. The growth
was driven by higher sales of ZETIA in the United States, reflecting
wholesaler purchases and price increases.

Combined sales of REMICADE and SIMPONI, treatments for inflammatory
diseases, grew 21 percent to $781 million in the second quarter,
including a 6 percent positive impact from foreign exchange.

Worldwide sales of ISENTRESS, an HIV integrase inhibitor for use in
combination with other antiretroviral agents for the treatment of HIV-1
infection, increased 10 percent to $453 million in the second quarter.
The increase was driven by strong growth in Europe and the emerging
markets.

Animal Health Revenue Performance

Animal Health sales totaled $872 million for the second quarter of 2014,
a 2 percent increase compared with the second quarter of 2013, including
a 1 percent negative impact due to foreign exchange. The growth was
primarily driven by BRAVECTO (fluralaner), a chewable tablet that kills
fleas and ticks in dogs for up to 12 weeks, which launched in Europe and
the United States, as well as higher sales in poultry and aqua products.
This growth was partially offset by the loss of sales of ZILMAX
(zilpaterol hydrochloride), a feed supplement for beef cattle. The
company decided last year to voluntarily suspend sales of ZILMAX in the
United States and Canada. Excluding the impact of the ZILMAX sales
suspension, Animal Health sales increased 9 percent in the second
quarter.

Consumer Care Revenue Performance

Second-quarter global sales of Consumer Care products were $583 million,
an increase of 19 percent compared to the second quarter of 2013,
including a 1 percent negative impact due to foreign exchange. The
increase reflects sales reversals in the second quarter of 2013 from the
termination in China of certain Consumer Care distribution arrangements
together with associated termination costs. Excluding those actions,
Consumer Care global sales grew 4 percent, including the 1 percent
negative impact due to foreign exchange. Consumer Care global sales in
the second quarter of 2014 benefited from the strong performance of
CLARITIN and COPPERTONE.

Other Revenue Performance

Other revenues – primarily comprising alliance revenue, miscellaneous
corporate revenues and third-party manufacturing sales – increased 9
percent to $392 million compared to the second quarter of 2013. The
increase was primarily driven by higher revenue from AstraZeneca (AZ)
recorded by Merck, which grew 29 percent to $316 million in the second
quarter of 2014, partially offset by lower third-party manufacturing
sales.

On June 30, 2014, AZ exercised its option to buy the company’s interest
in a subsidiary and, through it, the company’s interest in Nexium and
Prilosec. As of July 1, 2014, Merck no longer records equity income from
AZ and supply sales to AZ have ended.

Second-Quarter Expense and Other Information

The costs detailed below totaled $9.7 billion on a GAAP basis during the
second quarter of 2014 and include $2.2 billion of acquisition- and
divestiture-related costs and restructuring costs.

The gross margin was 55.2 percent for the second quarter of 2014
compared to 61.1 percent for the second quarter of 2013, reflecting 17.4
and 14.6 unfavorable percentage point impacts, respectively, from the
acquisition- and divestiture-related costs, and restructuring costs
noted above. The non-GAAP gross margin decline primarily reflects the
impacts of product mix, patent expiries, foreign exchange and inventory
write-offs, primarily VICTRELIS.

Marketing and administrative expenses, on a non-GAAP basis, were $2.9
billion in the second quarter of 2014, a decrease from $3.1 billion in
the same period of 2013. The decline was primarily due to productivity
measures.

Research and development (R&D) expenses, on a non-GAAP basis, were $1.6
billion in the second quarter of 2014, a decrease from $1.9 billion in
the second 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 in the
second half of 2014.

Equity income from affiliates was $92 million for the second quarter,
primarily reflecting the performance of partnerships with AZ and Sanofi
Pasteur MSD.

Other (income) expense, net, was $558 million of income in the second
quarter of 2014, compared to $201 million of expense in the second
quarter of 2013. The second quarter of 2014 includes a $741 million gain
recorded in connection with AZ’s option exercise.

The GAAP effective tax rate of (7.5) percent for the second quarter of
2014 reflects the impacts of acquisition- and divestiture-related costs
and restructuring costs, as well as a net benefit of $517 million
associated with AZ’s option exercise. The non-GAAP effective tax rate,
which excludes these items, was 24.2 percent for the quarter.

Key Developments

• Merck announced an agreement to acquire Idenix
  Pharmaceuticals, Inc. for $24.50 per share in cash (approximately
  $3.85 billion) to expand its portfolio of investigational therapies
  for hepatitis C. The company commenced a tender offer, which is
  expected to close on Aug. 4, 2014.
• The U.S.
  Food and Drug Administration (FDA) and European
  Medicines Agency have accepted regulatory applications for
  pembrolizumab (MK-3475), an investigational anti-PD-1 antibody, for
  the treatment of patients with advanced melanoma. Regulatory action in
  the United States is expected by Oct. 28, 2014.
• Bayer AG agreed to purchase Merck
  Consumer Care for $14.2 billion; the sale is expected to close in
  the second half of 2014. The companies also announced that Merck will
  pay Bayer AG $1 billion as part of a clinical development
  collaboration.
• Merck received a Complete Response Letter from the U.S. FDA for its
  New Drug Application for corifollitropin alfa, a sustained follicle
  stimulant for controlled ovarian stimulation in women participating in
  assisted reproductive technologies. Merck is evaluating the
  information provided in the Complete Response Letter. Corifollitropin
  alfa is marketed as ELONVA in more than 75 countries.

For a full listing of company developments that occurred in the second
quarter of 2014, visit the newsroom at www.merck.com.

Financial Outlook

Merck expects full-year 2014 non-GAAP EPS to be between $3.43 and $3.53,
which excludes the potential impact of a Venezuelan Bolivar devaluation
that was previously included in the range. The full-year 2014 non-GAAP
EPS range reflects strong performance in the first half of the year and
also includes anticipated dilution of $0.06 to $0.09 from the planned
sale of Merck Consumer Care and the research collaboration with Bayer,
and the planned acquisition of Idenix. The 2014 non-GAAP EPS range
excludes acquisition- and divestiture-related costs and costs related to
restructuring programs. The 2014 non-GAAP EPS range also excludes
one-time gains associated with AZ’s option exercise, the sale of the
company’s ophthalmics business in certain international markets and the
planned sale of Merck Consumer Care, as well as certain other items.
Merck now expects full-year 2014 GAAP EPS to be between $4.44 and $4.77.

At current exchange rates, Merck continues to expect full-year 2014
revenues to be between $42.4 billion and $43.2 billion.

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
table below.

Total Employees

As of June 30, 2014, Merck had approximately 73,000 employees worldwide.
In addition, the company’s joint ventures in China and Brazil, which are
included in the consolidated results of Merck, had about 1,100 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
62998996. Members of the media are invited to monitor the call by
dialing (706) 758-9928 or (800) 399-7917 and using ID code number
62998996. 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.
You can also follow our Twitter conversation at $MRK.

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 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 of $1.1 billion and $1.2 billion in the
second quarter of 2014 and 2013, respectively, for the amortization of
intangible assets recognized as a result of mergers and acquisitions, as
well as intangible asset impairment charges of $660 million and $564
million in the second quarter of 2014 and 2013, respectively. Also
includes merger integration costs, as well as transaction and certain
other costs related to business acquisitions and divestitures.

⁵ Includes the estimated tax impact on the reconciling items,
which for the second quarter of 2014 includes a net benefit of $517
million recorded in connection with AstraZeneca’s option exercise.

* 100% or greater

(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.

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

(4) Other (income) expense, net in the second quarter and first six
months of 2014 includes a gain of $741 million related to AstraZeneca’s
option exercise. In addition, other (income) expense, net in the first
six months of 2014 includes net gains of $168 million related to the
divestiture of the company’s Sirna Therapeutics, Inc. subsidiary. Other
(income) expense, net in the first six months of 2013 reflects
approximately $140 million of exchange losses as a result of a
Venezuelan currency devaluation.

(5) The effective income tax rates for the second quarter and first six
months of 2014 reflect a net benefit of $517 million recorded in
connection with AstraZeneca’s option exercise. In addition, the
effective income tax rate for the first six months of 2014 reflects a
benefit of approximately $300 million associated with a capital loss
generated in the first quarter of 2014.

The effective income tax rates for the second quarter and first six
months of 2013 reflect benefits from reductions in tax reserves upon
expiration of applicable statute of limitations. In addition, the
effective tax rate for the first six months of 2013 reflects the
favorable impact of tax legislation enacted in the first quarter of
2013, as well as a benefit of approximately $160 million associated with
the resolution of a previously disclosed federal income tax issue.

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 $1.1 billion for the amortization of intangible assets recognized as
a result of mergers and acquisitions, as well as $660 million of
impairment charges on product intangibles. Amounts included in marketing
and administrative expenses reflect merger integration costs, as well as
transaction and certain other costs related to business acquisitions and
divestitures.

(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 gain related to AstraZeneca’s option exercise.

(4) Represents the estimated tax impact on the reconciling items,
including a net benefit of $517 million recorded in connection with
AstraZeneca’s option exercise.

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 $2.2 billion for the amortization of intangible assets recognized as
a result of mergers and acquisitions, as well as $660 million of
impairment charges on product intangibles. Amounts included in marketing
and administrative expenses reflect merger integration costs, as well as
transaction and certain other costs related to business acquisitions and
divestitures.

(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 gain related to AstraZeneca’s option exercise.

(4) Represents the estimated tax impact on the reconciling items,
including a net benefit of approximately $517 million recorded in
connection with AstraZeneca’s option exercise, as well as a benefit of
approximately $300 million associated with a capital loss generated in
the first quarter.

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 $98
million and $76 million for the first and second quarters 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, respectively.

⁽³⁾ The decrease in Consumer Care sales in the second quarter
and full year of 2013 resulted from the 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/20140729005509/en/

Merck
Media:
Steve Cragle, 908-423-3461
Lainie Keller, 908-423-4187
or
Investors:
Joe Romanelli, 908-423-5185
Justin Holko, 908-423-5088