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July 29, 2016 5:45 am ET

• Second-Quarter 2016 Worldwide Sales Were $9.8 Billion, an Increase of 1 Percent, Including a 2 Percent Negative Impact from Foreign Exchange
• Second-Quarter 2016 GAAP EPS Was $0.43; Second-Quarter Non-GAAP EPS Was $0.93
• Company Updates EPS Guidance: Full-Year 2016 GAAP EPS Range to be Between $1.98 and $2.08; Full-Year 2016 Non-GAAP EPS Range of $3.67 to $3.77
• Advanced KEYTRUDA Development Program
  • KEYTRUDA Demonstrated Superior Progression-Free Survival and Overall Survival Compared to Chemotherapy in Patients with Previously Untreated Advanced Non-Small Cell Lung Cancer (NSCLC) Whose Tumors Expressed PD-L1 in KEYNOTE-024 Study
  • Merck Received Positive Opinion from Committee for Medicinal Products for Human Use of the European Medicines Agency for KEYTRUDA for the Treatment of Previously Treated Advanced NSCLC in Patients Whose Tumors Express PD-L1

Merck (NYSE:MRK), known as MSD outside the United States and Canada,
today announced financial results for the second quarter of 2016.

“Our results this quarter reflect our strategic focus on key launches,
including KEYTRUDA and ZEPATIER, as well as our priority inline
programs,” said Kenneth C. Frazier, chairman and chief executive
officer, Merck. “We remain committed to advancing our pipeline,
delivering a balanced and differentiated portfolio, and achieving
long-term, sustainable growth.”

Worldwide sales were $9.8 billion for the second quarter of 2016, an
increase of 1 percent compared with the second quarter of 2015,
including a 2 percent negative impact from foreign exchange.

GAAP (generally accepted accounting principles) earnings per share (EPS)
were $0.43 for the second quarter. Non-GAAP EPS of $0.93 for the second
quarter excludes acquisition- and divestiture-related costs and
restructuring costs.

Pipeline Highlights

In the second quarter of 2016, the company advanced its late-stage
pipeline in multiple priority areas and executed on key launches,
including KEYTRUDA (pembrolizumab), an anti-PD-1 therapy for the
treatment of metastatic NSCLC in previously treated patients whose
tumors express PD-L1, as well as advanced melanoma; and ZEPATIER
(elbasvir and grazoprevir), a once-daily, fixed-dose combination tablet
for the treatment of adult patients with chronic hepatitis C virus (HCV)
genotype (GT) 1 or GT4 infection, with or without ribavirin.

• The company advanced its clinical development program for KEYTRUDA.
  • The company announced
    topline results from the KEYNOTE-024 trial investigating the use
    of KEYTRUDA in patients with previously untreated advanced NSCLC
    whose tumors expressed high levels of PD-L1 (tumor proportion
    score of 50 percent or more).
    • In this study, KEYTRUDA was superior compared to chemotherapy
      for the primary endpoint of progression-free survival and the
      secondary endpoint of overall survival.
    • Based on these results, an independent Data Monitoring
      Committee recommended that the trial be stopped and that
      patients receiving chemotherapy in KEYNOTE-024 be offered the
      opportunity to receive KEYTRUDA.
  • The U.S. Food and Drug Administration (FDA) accepted
    for review a supplemental Biologics License Application for
    KEYTRUDA for the treatment of patients with recurrent or
    metastatic head and neck squamous cell carcinoma with disease
    progression on or after platinum-containing chemotherapy. The FDA
    granted Priority Review with a PDUFA action date of Aug. 9, 2016.
  • The Committee for Medicinal Products for Human Use (CHMP) of the
    European Medicines Agency (EMA) adopted
    a positive opinion recommending approval of KEYTRUDA for
    the treatment of locally advanced or metastatic NSCLC in adults
    whose tumors express PD-L1 and who have received at least one
    prior chemotherapy regimen.
  • At the 52^nd Annual Meeting of the American Society of
    Clinical Oncology in June, data were
    presented evaluating the use of KEYTRUDA as a monotherapy and
    in combination with other therapies in more than 15 different
    cancers, including melanoma, NSCLC, head and neck cancer,
    classical Hodgkin lymphoma, multiple myeloma, colorectal cancer
    and esophageal cancer. Data evaluating KEYTRUDA in new tumor types
    were presented for the first time in cervical, endometrial,
    pancreatic, salivary and thyroid cancers.
  • The KEYTRUDA research program includes more than 300 clinical
    trials evaluating KEYTRUDA across more than 30 tumor types. To
    date, clinical activity has been shown in more than 20 tumor types.
• Last week, the European Commission approved ZEPATIER for the treatment
  of chronic HCV in adult patients, allowing marketing of ZEPATIER in
  all 28 European Union (EU) member states. The company continues to
  work to supply the EU market, with product launches estimated to begin
  between the fourth quarter of 2016 and the first quarter of 2017.
  Product launches are expected to continue across the EU through 2017.
• At the 76^th Scientific Sessions of the American Diabetes
  Association in June, Merck and Pfizer announced
  that two pivotal Phase 3 studies of ertugliflozin, an investigational
  oral SGLT-2 inhibitor for the treatment of patients with type 2
  diabetes, met their primary endpoints, showing significant reductions
  in A1C (a measure of average blood glucose). The companies continue to
  expect to submit New Drug Applications to the FDA for ertugliflozin as
  a monotherapy and two fixed-dose combination tablets (ertugliflozin
  plus JANUVIA [sitagliptin], and ertugliflozin plus metformin) by the
  end of 2016.

Business Development Highlights

Business development remains a critical component of Merck’s strategy,
and the company is actively engaged in seeking external opportunities to
complement and strengthen its pipeline and portfolio. The company
recently engaged in the following scientific collaborations and
acquisitions:

• Earlier this week, the company completed its acquisition
  of Afferent Pharmaceuticals, a leader in the development of
  investigational therapeutic candidates for the treatment of common,
  poorly managed, neurogenic conditions, such as chronic cough.
• The company announced
  a new collaboration with Moderna Therapeutics to develop and
  commercialize personalized cancer vaccines, combining KEYTRUDA and
  Moderna’s messenger-RNA technology.
• Merck Animal Health announced
  it will acquire a controlling interest in Vallée S.A., a privately
  held producer of animal health products in Brazil with a portfolio of
  more than 100 products for livestock, horses and companion animals.

Second-Quarter Revenue Performance

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

Pharmaceutical Revenue

Second-quarter pharmaceutical sales increased 2 percent to $8.7 billion,
reflecting higher sales in oncology, hospital acute care, the
cardiovascular franchise and vaccines.

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

Growth in hospital acute care reflects higher sales of CUBICIN
(daptomycin for injection), an I.V. antibiotic, partially due to price
increases in the United States, and the U.S. launch of BRIDION
(sugammadex) Injection 100 mg/mL, an agent for the reversal of
neuromuscular blockade induced by rocuronium bromide or vecuronium
bromide in adults undergoing surgery. In June 2016, the company lost
U.S. patent protection for CUBICIN, and, going forward, the company
anticipates a significant decline in CUBICIN sales.

Higher sales in the cardiovascular portfolio were primarily driven by an
increase in sales of ZETIA (ezetimibe), a medicine for lowering LDL
cholesterol, largely due to price increases in the United States, and
ADEMPAS (riociguat), a medicine for treating pulmonary arterial
hypertension and chronic thromboembolic pulmonary hypertension, which
the company is now promoting and distributing in Europe.

Growth in vaccines resulted largely from higher sales of pediatric
vaccines, partially offset by lower sales in the franchise of GARDASIL 9
(Human Papillomavirus 9-valent Vaccine, Recombinant) and GARDASIL [Human
Papillomavirus Quadrivalent (Types 6, 11, 16, and 18) Vaccine,
Recombinant], vaccines to prevent cancers and other diseases caused by
HPV, due to the timing of public sector purchases.

Pharmaceutical sales growth also reflects the launch of ZEPATIER, which
had sales of $112 million in the quarter.

Second-quarter pharmaceutical sales reflect a decline in REMICADE
(infliximab), a treatment for inflammatory diseases, due to the impact
of biosimilar competition in the company’s marketing territories in
Europe. Pharmaceutical sales also reflect a decrease in sales of NASONEX
(mometasone furoate monohydrate), an inhaled nasal corticosteroid for
the treatment of nasal allergy symptoms, due to loss of exclusivity in
the United States.

Animal Health Revenue

Animal Health sales totaled $898 million for the second quarter of 2016,
an increase of 7 percent compared with the second quarter of 2015,
including a 3 percent negative impact from foreign exchange. Excluding
the impact of exchange, sales across all species grew, particularly in
products for companion animals, led by BRAVECTO (fluralaner), a chewable
tablet that kills fleas and ticks in dogs for up to 12 weeks.

In the second quarter, the company received
marketing approval from the EMA for BRAVECTO Spot-On Solution for cats
and dogs; last week, the company received
approval in the United States to market the product under the tradename
BRAVECTO Topical (fluralaner topical solution) for cats and dogs.

Second-Quarter Expense, EPS and Related Information

The tables below present selected expense information.

GAAP Expense, EPS and Related Information

On a GAAP basis, the gross margin was 63.7 percent for the second
quarter of 2016 compared to 61.6 percent for the second quarter of 2015.
The increase for the second quarter of 2016 reflects the favorable
impacts of foreign exchange; product mix; lower acquisition- and
divestiture-related costs; and lower restructuring costs. Acquisition-
and divestiture-related costs and restructuring costs negatively
affected gross margin by 12.0 and 13.8 percentage points for the second
quarters of 2016 and 2015, respectively.

Marketing and administrative expenses were $2.5 billion in the second
quarter of 2016, a 6 percent decrease compared to the second quarter of
2015. The decline reflects lower acquisition- and divestiture-related
costs, as well as lower administrative costs, such as legal defense
reserves, partially offset by higher restructuring costs.

Research and development (R&D) expenses were $2.2 billion in the second
quarter of 2016, a 29 percent increase compared to the second quarter of
2015. The increase primarily reflects higher licensing costs, increased
clinical development spending and intangible asset impairment charges.

Other (income) expense, net, was $19 million of expense in the second
quarter of 2016 compared to $739 million of expense in the second
quarter of 2015. The second quarter of 2015 includes foreign exchange
losses of $715 million related to the devaluation of the company’s net
monetary assets in Venezuela.

GAAP EPS was $0.43 for the second quarter of 2016 compared with $0.24
for the second quarter of 2015.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 75.7 percent for the second quarter of
2016 compared to 75.4 percent for the second quarter of 2015. The
increase for the second quarter of 2016 reflects the favorable impacts
of foreign exchange and product mix.

Non-GAAP marketing and administrative expenses were $2.4 billion in the
second quarter of 2016, a 5 percent decline compared to the second
quarter of 2015. The decline reflects lower administrative costs, such
as legal defense reserves.

Non-GAAP R&D expenses were $1.9 billion in the second quarter of 2016, a
19 percent increase compared to the second quarter of 2015. The increase
primarily reflects higher licensing costs and increased clinical
development spending.

Non-GAAP EPS was $0.93 for the second quarter of 2016 compared with
$0.86 for the second quarter of 2015.

A reconciliation of GAAP to non-GAAP net income and EPS is provided in
the table that follows. Year-to-date results can be found in the
attached tables.

Financial Outlook

Merck has lowered its full-year 2016 GAAP EPS range to be between $1.98
and $2.08, reflecting the impact of intangible asset impairment charges
and higher restructuring costs incurred in the second quarter of 2016.
The company has raised the bottom end of its full-year 2016 non-GAAP EPS
range and is now targeting a range of $3.67 to $3.77, including an
approximately 1 percent negative impact from foreign exchange at current
exchange rates. The non-GAAP range excludes acquisition- and
divestiture-related costs and costs related to restructuring programs.

Merck has narrowed its full-year 2016 revenue range to be between $39.1
billion and $40.1 billion, including an approximately 2 percent negative
impact from foreign exchange at current exchange rates.

The following table summarizes the company’s 2016 financial guidance.

A reconciliation of anticipated 2016 GAAP EPS to non-GAAP EPS and the
items excluded from non-GAAP EPS are provided in the table below.

The expected full-year 2016 GAAP effective tax rate of 26.0 to 27.0
percent reflects an unfavorable impact of approximately 4.5 percentage
points from the above items.

Total Employees

As of June 30, 2016, Merck had approximately 68,000 employees worldwide.

Earnings Conference Call

Investors, journalists and the general public may access a live audio
webcast of the call today at 8:00 a.m. EDT on Merck’s website at http://investors.merck.com/investors/webcasts-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
34462082. Members of the media are invited to monitor the call by
dialing (706) 758-9928 or (800) 399-7917 and using ID code number
34462082. 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 125 years, Merck has been 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,
YouTube
and LinkedIn.
You can also follow our Twitter conversation at $MRK.

Forward-Looking Statement of Merck & Co., Inc., Kenilworth, N.J., USA

This news release of Merck & Co., Inc., Kenilworth, N.J., USA (the
“company”) includes “forward-looking statements” within the meaning of
the safe harbor provisions of the U.S. Private Securities Litigation
Reform Act of 1995. These statements are based upon the current beliefs
and expectations of the company’s management and are subject to
significant risks and uncertainties. There can be no guarantees with
respect to pipeline products that the products will receive the
necessary regulatory approvals or that they will prove to be
commercially successful. If underlying assumptions prove inaccurate or
risks or uncertainties materialize, actual results may differ materially
from those set forth in the forward-looking statements.

Risks and uncertainties include but are not limited to, general industry
conditions and competition; general economic factors, including interest
rate and currency exchange rate fluctuations; the impact of
pharmaceutical industry regulation and health care legislation in the
United States and internationally; global trends toward health care cost
containment; technological advances, new products and patents attained
by competitors; challenges inherent in new product development,
including obtaining regulatory approval; the company’s ability to
accurately predict future market conditions; manufacturing difficulties
or delays; financial instability of international economies and
sovereign risk; dependence on the effectiveness of the company’s patents
and other protections for innovative products; and the exposure to
litigation, including patent litigation, and/or regulatory actions.

The company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future events or otherwise. Additional factors that could cause results
to differ materially from those described in the forward-looking
statements can be found in the company’s 2015 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 2016 and 2015 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. Management uses these measures internally for planning and
forecasting purposes and to measure the performance of the company along
with other metrics. Senior management’s annual compensation is derived
in part using non-GAAP income and non-GAAP EPS. This information should
be considered in addition to, but not as a substitute for or superior
to, information prepared in accordance with GAAP. For a description of
the items, see Table 2a attached to this release.

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

³ Includes expenses for the amortization of intangible assets
and purchase accounting adjustments to inventories recognized as a
result of acquisitions, intangible asset impairment charges and expense
or income related to changes in the estimated fair value measurement of
contingent consideration. Also includes integration, transaction and
certain other costs related to business acquisitions and divestitures.

⁴ Represents the difference between calculated GAAP EPS and
calculated non-GAAP EPS, which may be different than the amount
calculated by dividing the impact of the excluded items by the
weighted-average shares for the period.

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.

Merck
Media:
Lainie Keller, 908-236-5036
or
Investors:
Teri Loxam, 908-740-1986
Justin Holko, 908-740-1879