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July 28, 2017 5:45 am ET

• Second-Quarter 2017 Worldwide Sales Were $9.9 Billion, an Increase of 1 Percent, Including a 1 Percent Negative Impact from Foreign Exchange
• Second-Quarter 2017 GAAP EPS Was $0.71; Second-Quarter Non-GAAP EPS Was $1.01
• Company Narrows and Raises 2017 Full-Year Revenue Range to be Between $39.4 Billion and $40.4 Billion, Including an Approximately 1 Percent Negative Impact from Foreign Exchange
• Company Reduces 2017 Full-Year GAAP EPS Range to be Between $1.60 and $1.72; Continues to Expect 2017 Full-Year Non-GAAP EPS Range to be Between $3.76 and $3.88, Including an Approximately 1 Percent Negative Impact from Foreign Exchange
• KEYTRUDA Development Program Significantly Advances with Several Key Regulatory Approvals
• Merck Enters Global Strategic Oncology Collaboration with AstraZeneca

Merck (NYSE:MRK), known as MSD outside the United States and Canada,
today announced financial results for the second quarter of 2017.

“We continued to deliver strong results in the second quarter, driven by
robust momentum for KEYTRUDA and good progress with other products in
our portfolio,” said Kenneth C. Frazier, chairman and chief executive
officer, Merck. “The company continues to invest in innovative science
that addresses the critical needs of population health, which benefits
patients while creating long-term value for shareholders.”

Financial Summary

Worldwide sales were $9.9 billion for the second quarter of 2017, an
increase of 1 percent compared with the second quarter of 2016,
including a 1 percent negative impact from foreign exchange.

GAAP (generally accepted accounting principles) earnings per share
assuming dilution (EPS) were $0.71 for the second quarter of 2017.
Non-GAAP EPS of $1.01 for the second quarter of 2017 excludes
acquisition- and divestiture-related costs, restructuring costs and
certain other items. Year-to-date results can be found in the attached
tables.

Pipeline Highlights

Merck made significant advances in the development program for KEYTRUDA
(pembrolizumab), an anti-PD-1 therapy, receiving key regulatory
approvals and a supplemental Biologics License Application (sBLA)
acceptance.

• The U.S. Food and Drug Administration (FDA) approved KEYTRUDA under
  its Accelerated Approval program:
  • In combination with pemetrexed and carboplatin for the treatment
    of patients with metastatic nonsquamous non-small cell lung cancer
    (NSCLC) regardless of PD-L1 expression. This is the first
    regulatory approval of KEYTRUDA in combination with another
    treatment. The National Cancer Care Network (NCCN) also
    recommended the combination for the treatment of patients with
    metastatic nonsquamous NSCLC.
  • For the treatment
    of previously treated patients with advanced microsatellite
    instability-high cancers.
  • For the treatment
    of certain patients with locally advanced or metastatic urothelial
    carcinoma, a type of bladder cancer, for first-line use in
    patients who are ineligible for cisplatin-containing therapy.
• The FDA approved
  KEYTRUDA for the treatment of certain patients with locally advanced
  or metastatic urothelial carcinoma in the second-line setting for
  patients who have disease progression during or following
  platinum-containing chemotherapy.
• The European Commission approved KEYTRUDA
  for the treatment of adult patients with relapsed or refractory
  classical Hodgkin lymphoma who have failed autologous stem cell
  transplant and brentuximab vedotin (BV), or who are
  transplant-ineligible and have failed BV.
• The Committee for Medicinal Products for Human Use of the European
  Medicines Agency (EMA) adopted
  a positive opinion recommending approval of KEYTRUDA for
  the treatment of certain patients with locally advanced or metastatic
  urothelial carcinoma, with a final decision expected in the third
  quarter of 2017.
• The FDA accepted
  for review the sBLA for KEYTRUDA for the treatment of patients with
  recurrent or advanced gastric or gastroesophageal junction
  adenocarcinoma who have already received two or more lines of
  chemotherapy. The FDA granted Priority Review with a PDUFA action date
  of Sept. 22, 2017.
• The FDA granted Breakthrough Therapy Designation for KEYTRUDA in
  combination with axitnib as a first-line treatment for patients with
  advanced or metastatic renal cell carcinoma.

The company previously announced that the pivotal Phase 3 KEYNOTE-040 trial
investigating KEYTRUDA in previously treated patients with recurrent or
metastatic head and neck squamous cell carcinoma did not meet its
primary endpoint of overall survival (HR, 0.82 [95% CI, 0.67-1.01];
one-sided p = 0.03). The safety profile observed in KEYNOTE-040 was
consistent with that observed in previously reported studies of KEYTRUDA
without new safety signals identified. The final data from KEYNOTE-040
will be presented at an upcoming medical meeting.

At the 77^th Scientific Sessions of the American Diabetes
Association, Merck in partnership with Pfizer presented
data from two Phase 3 studies of ertugliflozin, an investigational oral
SGLT-2 inhibitor in development to help improve glycemic control in
adults with type 2 diabetes, which met their primary endpoints. Three
New Drug Applications for medicines containing ertugliflozin are
currently under review with the FDA and EMA.

Phase 3 results from the REVEAL (Randomized EValuation of the Effects of
Anacetrapib through Lipid modification) outcomes study
of anacetrapib met its primary endpoint, significantly reducing major
coronary events (defined as the composite of coronary death, myocardial
infarction, and coronary revascularization) compared to placebo in
patients at risk for cardiac events who are already receiving an
effective LDL-C lowering regimen. The safety profile of anacetrapib in
the early analysis was generally consistent with that demonstrated in
previous studies of the drug, including accumulation of anacetrapib in
adipose tissue, as has been previously reported. Merck plans to review
the results of the trial with external experts, and will consider
whether to file new drug applications with the FDA and other regulatory
agencies.

New data from the company’s HIV portfolio and pipeline were presented at
the 9th IAS Conference on HIV Science.

• Week 96 results
  from the pivotal Phase 3 ONCEMRK study evaluating the efficacy and
  safety of ISENTRESS HD, a 1200 mg once-daily dose of the company’s
  integrase inhibitor, ISENTRESS (raltegravir), met its primary efficacy
  endpoint of non-inferiority to twice-daily ISENTRESS, with a similar
  safety and tolerability profile, reaffirming the comparable efficacy
  and safety of ISENTRESS HD. ISENTRESS HD is now approved in the United
  States and European Union.
• 48 week data
  from DRIVE-AHEAD, the second of two pivotal Phase 3 studies evaluating
  doravirine (MK-1439), an investigational non-nucleoside reverse
  transcriptase inhibitor, for the treatment of HIV-1 infection showed
  that a once-daily single tablet, fixed-dose combination of doravirine,
  lamivudine and tenofovir disoproxil fumarate met its primary endpoint.
  Based on these findings the company plans to file regulatory
  applications in the fourth quarter of 2017.
• Results from a Phase 1 study of MK-8591, Merck’s investigational
  nucleoside reverse transcriptase translocation inhibitor in adult
  patients with HIV-1 infection.

Merck entered into an exclusive worldwide license agreement
with Teijin Pharma for the development, manufacture and
commercialization of an investigational preclinical antibody candidate
targeting the protein tau. Changes in tau are
associated with a number of diseases affecting the nervous system,
including Alzheimer’s disease.

Recent Developments

Merck entered a global strategic oncology collaboration with AstraZeneca
to co-develop and co-commercialize AstraZeneca’s Lynparza (olaparib), a
PARP inhibitor, and investigational medicine selemetinib, a MEK
inhibitor, as monotherapy and in combination treatments for multiple
cancer types. Merck and AstraZeneca will independently develop and
commercialize Lynparza and selumetinib in combinations with the
companies’ respective PD-1 and PD-L1 immuno-oncology medicines KEYTRUDA
and Imfinzi (durvalumab). The companies will share development and
marketing costs equally, as well as gross profits from Lynparza and
selumetinib.

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 1 percent to $8.8 billion,
including a 1 percent negative impact from foreign exchange. The growth
was primarily driven by product launches and vaccines, largely offset by
the loss of market exclusivity for several products, as well as lower
sales in the diabetes franchise.

Growth in oncology was due to higher sales of KEYTRUDA as the company
continues to launch the product with new indications globally. Strong
momentum from NSCLC, as KEYTRUDA is the only anti-PD-1 approved in the
first-line setting, contributed significantly to KEYTRUDA’s overall
growth.

Growth in hepatitis C was driven by ZEPATIER (elbasvir and grazoprevir),
a medicine for the treatment of chronic hepatitis C virus genotypes 1 or
4 infection, due to ongoing launches globally.

Additionally, the ongoing launch of 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,
generated sales of $163 million and also contributed to growth during
the second quarter of 2017.

Growth in vaccines was primarily driven by higher sales of GARDASIL
[Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine,
Recombinant] and GARDASIL 9 (Human Papillomavirus 9-valent Vaccine,
Recombinant), vaccines to prevent certain cancers and other diseases
caused by HPV, reflecting strong demand in Asia Pacific and the timing
of sales in Brazil. Growth in vaccines also reflects higher sales of
PNEUMOVAX 23 (pneumococcal vaccine polyvalent), a vaccine to help
prevent pneumococcal disease, largely driven by volume growth and
pricing in the United States. Additionally, vaccines sales growth
reflects incremental sales of approximately $70 million, of which
approximately $40 million relates to GARDASIL and GARDASIL 9, due to the
recording of vaccine sales from 19 European countries that were part of
the Sanofi Pasteur MSD (SPMSD) vaccines joint venture, which was
terminated on Dec. 31, 2016.

Pharmaceutical sales reflect a decrease in the diabetes franchise of
JANUVIA and JANUMET (sitagliptin and metformin HCl), medicines that help
lower blood sugar in adults with type 2 diabetes, primarily due to lower
sales in the United States, reflecting continued pricing pressure and
lower customer inventory levels that were partially offset by continued
volume growth. Pharmaceutical sales growth also was offset by the loss
of U.S. market exclusivity for ZETIA (ezetimibe) in late 2016 and
VYTORIN (ezetimibe/simvastatin) in April 2017, medicines for lowering
LDL cholesterol, and the ongoing impacts of generic competition for
CUBICIN (daptomycin for injection), an I.V. antibiotic, and biosimilar
competition for REMICADE (infliximab), a treatment for inflammatory
diseases, in the company’s marketing territories in Europe. In the
aggregate, sales of these products declined $830 million during the
second quarter of 2017 compared to the second quarter of 2016.

Animal Health Revenue

Animal Health sales totaled $955 million for the second quarter of 2017,
an increase of 6 percent compared with the second quarter of 2016,
including a 1 percent negative impact from foreign exchange. Growth was
primarily due to sales increases in companion animal products, driven by
the BRAVECTO (fluralaner) line of products that kill fleas and ticks in
dogs and cats for up to 12 weeks, and the NOBIVAC Canine Flu Bivalent
vaccine, as well as sales increases in ruminants products, reflecting
the positive impact of the Vallée S.A. acquisition.

Second-Quarter Expense, EPS and Related Information

The table below presents selected expense information.

GAAP Expense, EPS and Related Information

On a GAAP basis, the gross margin was 69.0 percent for the second
quarter of 2017 compared to 63.7 percent for the second quarter of 2016.
The increase in gross margin for the second quarter of 2017 was
primarily driven by lower acquisition- and divestiture-related costs and
restructuring costs, which reduced gross margin by 8.6 percentage points
in the second quarter of 2017 compared with 12.0 percentage points in
the second quarter of 2016. The increase also reflects the favorable
effects of product mix and lower inventory write-offs.

Marketing and administrative expenses were $2.4 billion in the second
quarter of 2017, a 1 percent decrease compared to the second quarter of
2016. The decrease primarily reflects lower restructuring costs
partially offset by higher administrative costs including costs
associated with the company now operating its European vaccines business
in the countries that were part of the SPMSD vaccines joint venture,
which was terminated on Dec. 31, 2016, and higher promotion expenses
related to product launches.

Research and development (R&D) expenses were $1.7 billion in the second
quarter of 2017, a 19 percent decrease compared to the second quarter of
2016. The decrease primarily reflects lower intangible asset impairment
charges and licensing costs.

GAAP EPS was $0.71 for the second quarter of 2017 compared with $0.43
for the second quarter of 2016.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 77.6 percent for the second quarter of
2017 compared to 75.7 percent for the second quarter of 2016. The
increase in non-GAAP gross margin was largely driven by the favorable
effects of product mix and lower inventory write-offs.

Non-GAAP marketing and administrative expenses were $2.4 billion in the
second quarter of 2017, an increase of 3 percent compared to the second
quarter of 2016. The increase was driven primarily by higher
administrative costs, including costs associated with the company now
operating its European vaccines business in the countries that were
previously part of the SPMSD vaccines joint venture, and higher
promotion expenses related to product launches.

Non-GAAP R&D expenses were $1.7 billion in the second quarter of 2017,
an 8 percent decrease compared to the second quarter of 2016. The
decrease primarily reflects lower licensing costs.

Non-GAAP EPS was $1.01 for the second quarter of 2017 compared with
$0.93 for the second quarter of 2016.

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

Financial Outlook

On June 27, 2017, the company experienced a network cyber-attack that
led to a disruption of its worldwide operations, including
manufacturing, research and sales operations. While the company does not
yet know the magnitude of the impact of the disruption, which remains
ongoing in certain operations, it continues to work to minimize the
effects.

The company is in the process of restoring its manufacturing operations.
To date, Merck has largely restored its packaging operations and has
partially restored its formulation operations. The company is in the
process of restoring its Active Pharmaceutical Ingredient operations but
is not yet producing bulk product. The company’s external manufacturing
was not impacted. Throughout this time, Merck has continued to fulfill
orders and ship product.

The company is confident in the continuous supply of key products such
as KEYTRUDA, JANUVIA and ZEPATIER. In addition, Merck does not currently
expect a significant impact to sales of its other top products; however,
the company anticipates that it will have temporary delays in fulfilling
orders for certain other products in certain markets.

The financial outlook below reflects the current state of the company’s
manufacturing operations as well as its plans to restore those
operations and potential costs associated with the remediation efforts.

Merck has reduced its full-year 2017 GAAP EPS range to be between $1.60
and $1.72. The change in the GAAP EPS range reflects the inclusion of
licensing expenses related to the collaboration with AstraZeneca. Merck
has maintained its full-year 2017 non-GAAP EPS range to be between $3.76
and $3.88, including an approximately 1 percent negative impact from
foreign exchange at mid-July 2017 exchange rates. The non-GAAP range
excludes acquisition- and divestiture-related costs, costs related to
restructuring programs and certain other items, including licensing
expenses related to the collaboration with AstraZeneca as shown in the
table below.

Merck has narrowed and raised its full-year 2017 revenue range to be
between $39.4 billion and $40.4 billion, including an approximately 1
percent negative impact from foreign exchange at mid-July 2017 exchange
rates.

The following table summarizes the company’s 2017 financial guidance.

A reconciliation of anticipated 2017 GAAP EPS to non-GAAP EPS and the
items excluded from non-GAAP EPS are provided in the table below.

The expected full-year 2017 GAAP effective tax rate of 32.0 to 33.0
percent reflects an unfavorable impact of approximately 11 percentage
points from the above items.

Total Employees

As of June 30, 2017, 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://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
36593115. Members of the media are invited to monitor the call by
dialing (706) 758-9928 or (800) 399-7917 and using ID code number
36593115. 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,
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 2016 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).

¹Net income attributable to Merck & Co., Inc.

² Merck is providing certain 2017 and 2016 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 results
as it permits investors to understand how management assesses
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.

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
based on applying the statutory rate of the originating territory of the
non-GAAP adjustments, as well as a benefit of $88 million related to the
settlement of a state income tax issue.

* 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.

Only the line items that are affected by non-GAAP adjustments are shown.

Merck is providing certain 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 results as it permits investors to
understand how management assesses 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.

(1) Amounts included in materials and production costs primarily reflect
$779 million of expenses for the amortization of intangible assets
recognized as a result of acquisitions, as well as intangible asset
impairment charges of $47 million. Amounts included in marketing and
administrative expenses reflect integration, transaction and certain
other costs related to business acquisitions and divestitures. Amounts
included in research and development expenses reflect changes in the
estimated fair value measurement of liabilities for contingent
consideration. Amounts included in other (income) expense, net primarily
reflect changes in the estimated fair value measurement of liabilities
for contingent consideration related to the termination of the
Sanofi-Pasteur MSD joint venture.

(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 the estimated tax impact on the reconciling items based
on applying the statutory rate of the originating territory of the
non-GAAP adjustments.

(4) Represents a benefit related to the settlement of a state income tax
issue.

Only the line items that are affected by non-GAAP adjustments are shown.

Merck is providing certain 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 results as it permits investors to
understand how management assesses 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.

(1) Amounts included in materials and production costs primarily reflect
$1.6 billion of expenses for the amortization of intangible assets
recognized as a result of acquisitions, as well as intangible asset
impairment charges of $123 million. Amounts included in marketing and
administrative expenses reflect integration, transaction and certain
other costs related to business acquisitions and divestitures. Amounts
included in research and development expenses primarily reflect changes
in the estimated fair value measurement of liabilities for contingent
consideration. Amounts included in other (income) expense, net primarily
reflect changes in the estimated fair value measurement of liabilities
for contingent consideration related to the termination of the
Sanofi-Pasteur MSD joint venture.

(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 the estimated tax impact on the reconciling items based
on applying the statutory rate of the originating territory of the
non-GAAP adjustments, as well as a benefit of $88 million related to the
settlement of a state income tax issue.

* 200% or greater

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

(1) Only select products are shown.

(2) Vaccine sales in 2017 include sales in the European markets that
were previously part of the Sanofi Pasteur MSD (SPMSD) joint venture
that was terminated on December 31, 2016. Amounts for 2016 reflect
supply sales to SPMSD.

(3) Includes Pharmaceutical products not individually shown above. Other
Vaccines sales included in Other Pharmaceutical were $88 million in the
first quarter and $87 million in the second quarter of 2017 and $103
million, $91 million, $135 million and $126 million for the first,
second, third and fourth quarters of 2016, respectively.

(4) Other Revenues are comprised primarily of alliance revenue,
third-party manufacturing sales and miscellaneous corporate revenues,
including revenue hedging activities.

Merck
Media:
Tracy Ogden, 908-740-1747
or
Claire Gillespie, 267-305-0932
or
Investors:
Teri Loxam, 908-740-1986
or
Amy Klug, 908-740-1898