Merck Announces Second-Quarter 2015 Financial Results

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July 28, 2015 6:00 am ET

  • Second-Quarter 2015 Non-GAAP EPS of $0.86, Excluding Certain Items; GAAP EPS of $0.24
  • Company Narrows and Raises 2015 Full-Year Non-GAAP EPS Target to $3.45 to $3.55, Excluding Certain Items; Lowers 2015 Full-Year GAAP EPS Target to $1.52 to $1.71
  • Second-Quarter 2015 Worldwide Sales Were $9.8 Billion, a Decrease of 11 Percent, Including a 7 Percent Net Unfavorable Impact from Acquisitions and Divestitures and a 7 Percent Negative Impact from Foreign Exchange
  • Second-Quarter Results Reflect Sales Growth in Hospital Acute Care, Oncology and Diabetes and Sales Declines in Cardiovascular and Hepatitis C
  • European Commission Approved KEYTRUDA for the Treatment of Advanced Melanoma; FDA Accepted sBLA for KEYTRUDA in Advanced Non-Small Cell Lung Cancer
  • Grazoprevir/Elbasvir Chronic Hepatitis C Combination Regimen Accepted 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 2015.

   
Second Quarter
$ in millions, except EPS amounts   2015   2014
Sales   $9,785   $10,934
GAAP EPS   0.24   0.68

Non-GAAP EPS that excludes items listed below1

  0.86   0.85

GAAP Net Income2

  687   2,004

Non-GAAP Net Income that excludes items listed below 1,2

  2,441   2,493

Non-GAAP (generally accepted accounting principles) earnings per share
(EPS) of $0.86 for the second quarter exclude acquisition- and
divestiture-related costs, restructuring costs and certain other items,
including foreign exchange losses related to Venezuela.

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.

   
$ in millions, except EPS amounts Second Quarter
2015   2014
EPS        
GAAP EPS   $0.24   $0.68

Difference3

  0.62   0.17

Non-GAAP EPS that excludes items listed below1

  $0.86   $0.85
 
Net Income        
GAAP net income2   $687   $2,004
Difference   1,754   489
Non-GAAP net income that excludes items listed below1,2   $2,441   $2,493
 
Decrease (Increase) in Net Income Due to Excluded Items:        
Acquisition- and divestiture-related costs4   $1,448   $1,756
Restructuring costs   328   421
Foreign exchange losses related to Venezuela   715   –-
Gain on AstraZeneca option exercise   –-   (741)
Net decrease (increase) in income before taxes   2,491   1,436
Income tax (benefit) expense5   (737)   (947)
Decrease (increase) in net income   $1,754   $489

Commentary from Chairman and Chief Executive Officer Kenneth C.
Frazier

“We’re investing resources to grow our strongest brands and to support
the most promising assets in our pipeline, while at the same time
lowering our cost base and delivering operating leverage.”

“We’ve made significant progress this quarter in two of our most
important assets, the KEYTRUDA and hepatitis C programs, and will be
fully prepared to take advantage of these potentially breakthrough
opportunities.”

“We’re witnessing the introduction of breakthrough therapies for some of
the most difficult-to-treat diseases. Merck’s late-stage pipeline and
ongoing launches reflect scientific and therapeutic progress with the
potential to provide significant value to patients and society.”

Select Business Highlights

Worldwide sales were $9.8 billion for the second quarter of 2015, a
decrease of 11 percent compared with the second quarter of 2014,
including a 7 percent negative impact from foreign exchange and a 7
percent net unfavorable impact resulting from the divestiture of the
Consumer Care business and select products, partially offset by the
acquisition of Cubist Pharmaceuticals, Inc. (Cubist).

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

$ in millions   Second Quarter   Change   Change

Ex-Exchange

    2015   2014    
Total Sales   $9,785   $10,934   -11%   -4%
Pharmaceutical   8,564   9,087   -6%   3%
JANUVIA / JANUMET   1,598   1,577   1%   9%
ZETIA / VYTORIN   955   1,134   -16%   -8%
REMICADE   455   607   -25%   -7%
GARDASIL / GARDASIL 9   427   409   4%   6%
ISENTRESS   375   453   -17%   -10%
PROQUAD, M-M-R II and VARIVAX   358   326   10%   12%
CUBICIN   293   6*   **   **
Animal Health   840   872   -4%   10%
Consumer Care***   –-   583   **   **
Other Revenues   381   392   -3%   -51%
*Reflects licensing agreement with Cubist in Japan prior to
acquisition by Merck on Jan. 21, 2015
**≥100%
***divested on Oct. 1, 2014

Commercial and Pipeline Highlights

During the second quarter of 2015, Merck continued to advance its
pipeline while also focusing on the ongoing launches of KEYTRUDA
(pembrolizumab), its anti-PD-1 therapy, for the treatment of advanced
melanoma in patients whose disease has progressed after other therapies;
BELSOMRA (suvorexant) for the treatment of insomnia; and ZERBAXA
(ceftolozane and tazobactam), a combination product for the treatment of
certain serious bacterial infections in adults.

  • The company accelerated its KEYTRUDA clinical development program.

    • The European Commission approved
      KEYTRUDA last week at a dose of 2 mg/kg every three weeks for the
      treatment of advanced (unresectable or metastatic) melanoma in
      adults, allowing marketing of KEYTRUDA in all 28 European Union
      member states.
    • The U.S. Food and Drug Administration (FDA) accepted
      for review the supplemental Biologics License Application (sBLA)
      for KEYTRUDA for the treatment of patients with advanced non-small
      cell lung cancer whose disease has progressed on or after
      platinum-containing chemotherapy and an FDA-approved therapy for
      EGFR or ALK genomic tumor aberrations, if present. The FDA granted
      Priority Review with a PDUFA action date of Oct. 2, 2015; the sBLA
      will be reviewed under the FDA’s Accelerated Approval program.
    • At the 51st Annual Meeting of the American Society of
      Clinical Oncology in June, data sets were presented investigating
      the use of KEYTRUDA in advanced head and neck cancer (KEYNOTE-012)
      and in multiple difficult-to-treat cancers, including advanced
      small cell lung cancer, esophageal cancer and ovarian cancer (KEYNOTE-028).
      Additionally, data
      were presented and simultaneously published in The New England
      Journal of Medicine
      suggesting that the presence of DNA repair
      mutations in colorectal cancer cells is associated with favorable
      responses to KEYTRUDA.
  • The clinical development program for the treatment of chronic
    hepatitis C virus (HCV) infection made substantial progress in the
    second quarter of 2015.

    • As announced earlier today, the FDA has accepted
      for review
      the New Drug Application (NDA) for
      grazoprevir/elbasvir, an investigational once-daily, single tablet
      combination therapy for the treatment of adult patients infected
      with chronic HCV genotypes (GT) 1, 4 or 6. The FDA granted
      Priority Review with a PDUFA action date of Jan. 28, 2016.
    • Last week the European Medicines Agency (EMA) accepted
      for review
      the company’s marketing authorization application
      (MAA) for grazoprevir/elbasvir for the treatment of adult patients
      infected with chronic HCV GT 1, 3, 4 or 6. The EMA said it will
      initiate a review of the MAA under accelerated assessment
      timelines.
  • Results from the Trial
    Evaluating Cardiovascular Outcomes with Sitagliptin (TECOS)
    of
    JANUVIA (sitagliptin), a medicine that helps lower blood sugar levels
    in adults with type 2 diabetes, were presented in June at the
    75th Scientific Sessions of the American Diabetes Association and
    simultaneously published online in The New England Journal of
    Medicine
    . The study found that, added to usual care, treatment
    with JANUVIA did not increase the risk of major adverse cardiovascular
    events in the primary composite endpoint, or hospitalization for heart
    failure, compared to placebo.
  • The FDA has accepted the resubmission of the NDA for sugammadex
    injection, an investigational medicine for the reversal of
    neuromuscular blockade induced by rocuronium or vecuronium, with a
    PDUFA action date of Dec. 19, 2015. Sugammadex injection is marketed
    as BRIDION in more than 60 countries.
  • The FDA has extended its planned review timeline of the Biologics
    License Application for V419, the investigational pediatric hexavalent
    combination vaccine, DTaP5-IPV-Hib-HepB, which is being developed and,
    if approved, will be commercialized through a partnership of Merck and
    Sanofi Pasteur. The FDA has not requested additional clinical studies
    for licensure.

Pharmaceutical Revenue Performance

Second-quarter pharmaceutical sales declined 6 percent to $8.6 billion,
including a 9 percent negative impact from foreign exchange. Excluding
the impact of exchange, growth was driven by sales in the core
therapeutic areas of hospital acute care, oncology and diabetes. The
increase in hospital acute care was driven by the addition of the Cubist
portfolio and sales growth of inline brands. Growth in oncology reflects
sales of $110 million for KEYTRUDA. Growth in diabetes primarily
reflects higher sales in the United States, Europe and emerging markets.

Second-quarter pharmaceutical sales reflect declines in the
cardiovascular portfolio of ZETIA (ezetimibe) and VYTORIN
(ezetimibe/simvastatin), medicines for lowering LDL cholesterol,
primarily due to loss of exclusivity of ZETIA in Canada (where it is
marketed as EZETROL) and volume declines of both products in the United
States, as well as lower sales of REMICADE (infliximab), a treatment for
inflammatory diseases, due to loss of exclusivity in Europe.
Pharmaceutical sales also reflect declines in the HCV portfolio of
VICTRELIS (boceprevir) and PEGINTRON (peginterferon alfa-2b), as well as
for ISENTRESS (raltegravir), an HIV integrase inhibitor for use in
combination with other antiretroviral agents for the treatment of HIV-1
infection. The decline for ISENTRESS was due to timing of tender
purchases in the emerging markets and volume declines in the United
States.

Animal Health Revenue Performance

Animal Health sales totaled $840 million for the second quarter of 2015,
a decrease of 4 percent compared with the second quarter of 2014,
including a 14 percent negative impact from foreign exchange. Excluding
the impact of exchange, growth was primarily driven by an increase in
sales of companion animal and swine products, including continued strong
growth from BRAVECTO (fluralaner), a chewable tablet that kills fleas
and ticks in dogs for up to 12 weeks.

Other Revenue Performance

Other revenues – primarily comprising alliance revenue, miscellaneous
corporate revenues and third-party manufacturing sales – decreased 3
percent to $381 million compared to the second quarter of 2014. The
decrease was driven primarily by the loss of revenue from AstraZeneca
recorded by Merck, which was $316 million in the second quarter of 2014,
partially offset by higher third-party manufacturing sales.

Second-Quarter 2015 Expense and Other Information

The costs detailed below totaled $8.2 billion on a GAAP basis during the
second quarter of 2015 and include $1.8 billion of acquisition- and
divestiture-related costs and restructuring costs.

   
$ in millions   Included in expenses for the period
  Acquisition-    
and
Second Quarter Divestiture- Restructuring
2015   GAAP  

Related Costs4

  Costs  

Non-GAAP1

Materials and production   $3,754   $1,241   $105   $2,408
Marketing and administrative   2,624   136   17   2,471
Research and development   1,670   71   15   1,584
Restructuring costs   191   –-   191   –-
 
Second Quarter
2014                
Materials and production   $4,893   $1,724   $171   $2,998
Marketing and administrative   2,973   32   44   2,897
Research and development   1,664   –-   43   1,621
Restructuring costs   163   –-   163   –-

The gross margin was 61.6 percent for the second quarter of 2015
compared to 55.2 percent for the second quarter of 2014, reflecting 13.8
and 17.4 unfavorable percentage point impacts, respectively, from the
acquisition- and divestiture-related costs and restructuring costs noted
above. The increase in non-GAAP gross margin was driven by lower
inventory write-offs and foreign exchange.

Marketing and administrative expenses, on a non-GAAP basis, were $2.5
billion in the second quarter of 2015, a decrease from $2.9 billion in
the same period of 2014, which was primarily driven by the sale of the
Consumer Care business, the favorable impact of foreign exchange and
declines in direct selling costs.

Research and development (R&D) expenses, on a non-GAAP basis, were $1.6
billion in the second quarter of 2015, a 2 percent decrease compared to
the second quarter of 2014.

Other (income) expense, net, was $739 million of expense in the second
quarter of 2015 compared to $650 million of income in the second quarter
of 2014. The second quarter of 2015 includes foreign exchange losses of
$715 million related to the revaluation of the company’s net monetary
assets in Venezuela. The second quarter of 2014 includes a $741 million
gain recorded in connection with AstraZeneca’s option exercise.

The GAAP effective tax rate of 14.7 percent for the second quarter of
2015 reflects the impacts of acquisition- and divestiture-related costs
and restructuring costs, as well as the favorable impact of a net
benefit of $370 million related to the settlement of certain federal
income tax issues and the unfavorable impact of foreign exchange losses
related to Venezuela for which no tax benefit was recorded. The non-GAAP
effective tax rate, which excludes these items, was 26.0 percent for the
second quarter of 2015.

Financial Outlook

Merck has narrowed and raised its full-year 2015 non-GAAP EPS range to
be between $3.45 and $3.55, including a negative impact from foreign
exchange. The range excludes acquisition- and divestiture-related costs,
costs related to restructuring programs and certain other items. The
company has lowered its full-year 2015 GAAP EPS range to be between
$1.52 and $1.71. The change in the GAAP EPS range reflects the
incorporation of foreign exchange losses related to Venezuela, as well
as the anticipated gain on the previously announced sale of certain
migraine clinical development programs.

At current exchange rates, the company now anticipates full-year 2015
revenues to be between $38.6 billion and $39.8 billion, including a
negative impact from foreign exchange and approximately $1 billion of
net lost sales from acquisitions and divestitures.

In addition, the company continues to expect full-year 2015 non-GAAP
marketing and administrative expenses to be below 2014 levels and R&D
expenses to be modestly above 2014 levels. The company anticipates total
operating expenses in the second half of 2015 to be approximately $200
million lower than in the second half of 2014.

The company now anticipates its full-year 2015 non-GAAP tax rate will be
in the range of 23 to 24 percent, not including a 2015 R&D tax credit.

A reconciliation of anticipated 2015 EPS, as reported in accordance with
GAAP to non-GAAP EPS that excludes certain items, is provided in the
table below.

   
Full Year
$ in millions, except EPS amounts   2015
GAAP EPS   $1.52 to $1.71
Difference3   1.93 to 1.84
Non-GAAP EPS that excludes items listed below   $3.45 to $3.55
 
 
Acquisition- and divestiture-related costs   $5,500 to $5,300
Restructuring costs   950 to 850
Foreign exchange losses related to Venezuela   715
Gain on sale of certain migraine clinical development programs   (250)
Net decrease (increase) in income before taxes   6,915 to 6,615
Estimated income tax (benefit) expense   (1,415) to (1,360)
Decrease (increase) in net income   $5,500 to $5,255

Total Employees

As of June 30, 2015, 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://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
73597302. Members of the media are invited to monitor the call by
dialing (706) 758-9928 or (800) 399-7917 and using ID code number
73597302. 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 health care 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
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. 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 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 2014 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 2015 and 2014 non-GAAP
information that excludes certain items because of the nature of these
items and the impact they have on the analysis of underlying business
performance and trends. Management believes that providing this
information enhances investors’ understanding of the company’s
performance. This information should be considered in addition to, but
not in lieu of, information prepared in accordance with GAAP. For
description of the items, see Table 2a, including the related footnotes,
attached to this release.

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

3 Represents the difference between calculated GAAP EPS and
calculated non-GAAP EPS, which may be different than the amount
calculated by dividing the impact of the excluded items by the
weighted-average shares for the period.

4 Includes expenses for the amortization of intangible assets
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 fair value measurement of contingent
consideration. Also includes integration, transaction and certain other
costs related to business acquisitions and divestitures.

5 Includes the estimated tax impact on the reconciling items.
In addition, amount for the second quarter of 2015 includes a net
benefit of $370 million related to the settlement of certain federal
income tax issues. The estimated tax impact on the reconciling items for
the second quarter of 2014 includes a net benefit of $517 million
recorded in connection with AstraZeneca’s option exercise.

 
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF INCOME – GAAP
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 1
                 

GAAP

GAAP

2Q15   2Q14

% Change

June YTD   June YTD

% Change

        2015   2014
       
Sales $ 9,785 $ 10,934 -11% $ 19,210 $ 21,198 -9%
 
Costs, Expenses and Other
Materials and production (1) 3,754 4,893 -23% 7,323 8,796 -17%
Marketing and administrative (1) 2,624 2,973 -12% 5,226 5,707 -8%
Research and development (1) 1,670 1,664 3,407 3,238 5%
Restructuring costs (2) 191 163 17% 273 288 -5%
Other (income) expense, net (1) (3) 739 (650 ) * 793 (813 ) *
Income Before Taxes 807 1,891 -57% 2,188 3,982 -45%
Income Tax Provision 119 (142 ) 542 218
Net Income 688 2,033 -66% 1,646 3,764 -56%
Less: Net Income Attributable to Noncontrolling Interests 1 29 7 55
Net Income Attributable to Merck & Co., Inc. $ 687 $ 2,004 -66% $ 1,639 $ 3,709 -56%
Earnings per Common Share Assuming Dilution $ 0.24     $ 0.68   -65% $ 0.57     $ 1.25   -54%
           
Average Shares Outstanding Assuming Dilution 2,850 2,949 2,856 2,957
Tax Rate (4)   14.7 %     -7.5 %   24.8 %     5.5 %

* 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) Other (income) expense, net in the second quarter and first six
months of 2015 includes foreign exchange losses of $715 million to
revalue the company’s net monetary assets in Venezuela. 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 gains of $204 million related to the divestiture of the
company’s Sirna Therapeutics, Inc. subsidiary. Other (income) expense,
net includes equity income from affiliates. Prior period amounts have
been reclassified to conform to the current presentation.

(4) The effective income tax rates for the second quarter and first six
months of 2015 reflect a net benefit of $370 million related to the
settlement of certain federal income tax issues, partially offset by the
unfavorable impact of foreign exchange losses recorded in connection
with the revaluation of the company’s net monetary assets in Venezuela
for which no tax benefit was recorded. 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.

 
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF INCOME
GAAP TO NON-GAAP RECONCILIATION
SECOND QUARTER 2015
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2a
                       
Acquisition and Restructuring Certain Other Adjustment
GAAP Divestiture-

Costs (2)

Items (3)

Subtotal Non-GAAP
 

Related Costs (1)

       
   
Sales $ 9,785 $ 9,785
 
Costs, Expenses and Other
Materials and production 3,754 1,241 105 1,346 2,408
Marketing and administrative 2,624 136 17 153 2,471
Research and development 1,670 71 15 86 1,584
Restructuring costs 191 191 191
Other (income) expense, net (4) 739 715 715 24
Income Before Taxes 807 (1,448 ) (328 ) (715 ) (2,491 ) 3,298
Taxes on Income 119 (737 )

(5)

856
Net Income 688 (1,754 ) 2,442
Less: Net Income Attributable to Noncontrolling Interests 1 1
Net Income Attributable to Merck & Co., Inc. $ 687 (1,754 ) $ 2,441
Earnings per Common Share Assuming Dilution $ 0.24   $ 0.86  
   
Average Shares Outstanding Assuming Dilution 2,850 2,850
Tax Rate   14.7 %   26.0 %

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 $1.2
billion of expenses for the amortization of intangible assets recognized
as a result of acquisitions, as well as $44 million of amortization of
purchase accounting adjustments to inventories as a result of the Cubist
acquisition. 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 divestitures. Amounts included in
research and development expenses reflect $59 million of in-process
research and development (“IPR&D”) impairment charges, as well as $12
million of charges to increase the fair value 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 foreign exchange losses of $715 million to revalue the
company’s net monetary assets in Venezuela.

(4) Other (income) expense, net includes equity income from affiliates.

(5) Represents the estimated tax impact on the reconciling items, as
well as a net benefit of $370 million on the settlement of certain
federal income tax issues.

 
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF INCOME
GAAP TO NON-GAAP RECONCILIATION
SIX MONTHS ENDED JUNE 30, 2015
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2b
                       
Acquisition and Restructuring Certain Other Adjustment
GAAP Divestiture-

Costs (2)

Items (3)

Subtotal Non-GAAP
 

Related Costs (1)

       
   
Sales $ 19,210 $ 19,210
 
Costs, Expenses and Other
Materials and production 7,323 2,491 210 2,701 4,622
Marketing and administrative 5,226 363 53 416 4,810
Research and development 3,407 134 17 151 3,256
Restructuring costs 273 273 273
Other (income) expense, net (4) 793 701 701 92
Income Before Taxes 2,188 (2,988 ) (553 ) (701 ) (4,242 ) 6,430
Taxes on Income 542 (1,015 )

(5)

1,557
Net Income 1,646 (3,227 ) 4,873
Less: Net Income Attributable to Noncontrolling Interests 7 7
Net Income Attributable to Merck & Co., Inc. $ 1,639 (3,227 ) $ 4,866
Earnings per Common Share Assuming Dilution $ 0.57   $ 1.70  
   
Average Shares Outstanding Assuming Dilution 2,856 2,856
Tax Rate   24.8 %   24.2 %

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 $2.4
billion of expenses for the amortization of intangible assets recognized
as a result of acquisitions, as well as $65 million of amortization of
purchase accounting adjustments to inventories as a result of the Cubist
acquisition. 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 divestitures. Amounts included in
research and development expenses reflect $73 million of charges to
increase the fair value of liabilities for contingent consideration, as
well as $61 million of 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 activities under the company’s formal restructuring programs.

(3) Includes foreign exchange losses of $715 million to revalue the
company’s net monetary assets in Venezuela.

(4) Other (income) expense, net includes equity income from affiliates.

(5) Represents the estimated tax impact on the reconciling items, as
well as a net benefit of $370 million on the settlement of certain
federal income tax issues.

 
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
Table 3
               
2015 2014 % Change
    June     June       Full June
1Q   2Q   YTD 1Q   2Q   YTD   3Q   4Q   Year 2Q   YTD
TOTAL SALES (1) $ 9,425   $ 9,785   $ 19,210 $ 10,264   $ 10,934   $ 21,198   $ 10,557   $ 10,482   $ 42,237 -11   -9
PHARMACEUTICAL 8,266 8,564 16,830 8,451 9,087 17,538 9,134 9,370 36,042 -6 -4
Primary Care & Women’s Health
Cardiovascular
Zetia 568 635 1,202 611 717 1,328 660 662 2,650 -11 -9
Vytorin 320 320 640 361 417 777 369 370 1,516 -23 -18
Diabetes
Januvia 884 1,044 1,928 858 1,058 1,916 933 1,082 3,931 -1 1
Janumet 509 554 1,063 476 519 995 505 570 2,071 7 7
General Medicine & Women’s Health
NuvaRing 166 182 348 168 178 346 186 191 723 2 1
Implanon / Nexplanon 137 124 261 102 119 221 158 123 502 4 18
Dulera 130 120 251 102 103 205 124 132 460 17 22
Follistim AQ 82 111 193 110 102 213 97 102 412 9 -9
Hospital and Specialty
Hepatitis
PegIntron 56 52 108 112 103 216 84 81 381 -50 -50
HIV
Isentress 385 375 760 390 453 843 412 418 1,673 -17 -10
Hospital Acute Care
Cubicin(2) 187 293 480 5 6 11 7 7 25 * *
Cancidas 163 134 297 166 156 322 183 175 681 -14 -8
Invanz 132 139 271 114 134 249 141 139 529 4 9
Noxafil 111 117 228 74 98 172 107 122 402 19 32
Bridion 85 87 172 73 82 155 90 95 340 6 11
Primaxin 65 88 153 71 81 151 91 86 329 9 1
Immunology
Remicade 501 455 956 604 607 1,211 604 557 2,372 -25 -21
Simponi 158 169 327 157 174 330 170 188 689 -3 -1
Oncology
Emend 122 134 255 122 144 266 136 151 553 -7 -4
Keytruda 83 110 192 0 0 0 4 50 55 * *
Temodar 74 80 155 83 93 176 88 86 350 -14 -12
Diversified Brands
Respiratory
Nasonex 289 215 504 312 258 570 261 268 1,099 -16 -11
Singulair 245 212 457 271 284 554 218 319 1,092 -25 -18
Clarinex 51 55 106 62 69 131 49 52 232 -20 -19
Other
Cozaar / Hyzaar 185 189 374 205 214 419 195 192 806 -12 -11
Arcoxia 123 115 238 128 141 268 132 118 519 -18 -11
Fosamax 94 96 190 123 121 245 114 112 470 -21 -22
Zocor 49 63 112 64 69 133 61 64 258 -9 -16
Propecia 53 39 92 74 58 131 66 67 264 -32 -30
Vaccines
Gardasil / Gardasil 9 359 427 785 383 409 792 590 356 1,738 4 -1
ProQuad, M-M-R II and Varivax 348 358 705 280 326 606 421 366 1,394 10 16
Zostavax 175 149 324 142 156 298 181 285 765 -4 9
RotaTeq 192 89 281 169 147 316 174 169 659 -40 -11
Pneumovax 23 110 106 216 101 102 203 197 346 746 4 7
Other Pharmaceutical (3) 1,075 1,128 2,206 1,378 1,389 2,769 1,326 1,269 5,356 -19 -20
 
ANIMAL HEALTH 829 840 1,669 813 872 1,685 885 885 3,454 -4 -1
 
CONSUMER CARE (4) 2 0 2 546 583 1,130 401 16 1,547 * *
 
Other Revenues (5) 328   381   709 454   392   845   137   211   1,194 -3   -16

* 100% or greater

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

(1) Only select products are shown.

(2) Cubicin results for the first quarter 2015 represent
sales for the two months following Merck’s acquisition of Cubist.
Cubicin sales for 2014 represent the previous licensing agreement in
Japan prior to the acquisition.

(3) Includes Pharmaceutical products not individually shown
above. Other Vaccines sales included in Other Pharmaceutical were $78
million and $76 million for the first and second quarters of 2015. Other
Vaccines sales included in Other Pharmaceutical were $98 million, $76
million, $116 million and $88 million for the first, second, third and
fourth quarters of 2014, respectively.

(4) On October 1, 2014, the company divested the Consumer
Care business to Bayer.

(5) Other revenues are comprised primarily of alliance
revenue, third-party manufacturing sales and miscellaneous corporate
revenues, including revenue hedging activities. On June 30, 2014,
AstraZeneca exercised its option to buy Merck’s interest in a subsidiary
and through it, Merck’s interest in Nexium and Prilosec. As a result,
the company no longer records supply sales for these products. Other
revenues in the first quarter 2014 include $232 million of revenue
recognized in connection with the sale of U.S. Saphris rights.

Merck
Media:
Lainie Keller, 908-236-5036
Steven Cragle, 908-740-1801
or
Investors:
Justin Holko, 908-740-1879
Joe Romanelli, 908-740-1986

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