Merck Announces Second-Quarter 2017 Financial Results

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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

       
    Second Quarter
$ in millions, except EPS amounts 2017             2016
Sales $9,930 $9,844

GAAP net income1

1,946 1,205

Non-GAAP net income that excludes items listed below1,2

2,778 2,587
GAAP EPS 0.71 0.43

Non-GAAP EPS that excludes items listed below2

    1.01             0.93
 

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 77th 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.

           
$ in millions         Second Quarter
2017         2016         Change        

Change

Ex-Exchange

Total Sales $9,930 $9,844 1% 2%
Pharmaceutical 8,759 8,700 1% 2%
JANUVIA / JANUMET 1,511 1,634 -8% -7%
KEYTRUDA 881 314 180% 183%
ZETIA / VYTORIN 549 994 -45% -44%
ZEPATIER 517 112 * *
GARDASIL / GARDASIL 9 469 393 19% 20%
PROQUAD,
M-M-R II and VARIVAX 399 383 4% 5%
ISENTRESS / ISENTRESS HD 282 338 -17% -15%
REMICADE 208 339 -39% -36%
SINGULAIR 203 229 -11% -10%
Animal Health 955 900 6% 7%
Other Revenues         216         244         -11%         -5%

*Growth comparison not meaningful due to ongoing product launch.

 

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.

                             

Second-Quarter 2017

   

 

GAAP

   

Acquisition- and

Divestiture-

Related
Costs

3

   

Restructuring

Costs

       

 

Non-GAAP
2

Materials and production $3,080 $827 $33 $2,220
Marketing and administrative 2,438 9 2 2,427
Research and development 1,749 7 9 1,733
Restructuring costs 166 166

Other (income) expense, net 58 39 19
 
Second-Quarter 2016
Materials and production $3,578 $1,120 $66 $2,392
Marketing and administrative 2,458 18 87 2,353
Research and development 2,151 207 64 1,880
Restructuring costs 134 134
Other (income) expense, net     19                 19
 

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.

       
$ in millions, except EPS amounts     Second Quarter
2017     2016
EPS
GAAP EPS $0.71 $0.43

Difference4

0.30 0.50

Non-GAAP EPS that excludes items listed below2

$1.01 $0.93
 
Net Income

GAAP net income1

$1,946 $1,205
Difference 832 1,382

Non-GAAP net income that excludes items listed below1,2

$2,778 $2,587
 
Decrease (Increase) in Net Income Due to Excluded Items:
Acquisition- and divestiture-related costs3 $882 $1,345
Restructuring costs 210 351
Net decrease (increase) in income before taxes 1,092 1,696
Income tax (benefit) expense5 (260) (314)
Decrease (increase) in net income     $832     $1,382
 

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.

             
    GAAP    

Non-GAAP
2

 
Revenue $39.4 to $40.4 billion $39.4 to $40.4 billion**
Operating expenses Lower than 2016 Higher than 2016 by a mid-single digit rate
Effective tax rate 32.0% to 33.0% 21.0% to 22.0%
EPS     $1.60 to $1.72     $3.76 to $3.88

**The company does not have any non-GAAP adjustments to revenue.

 

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.

       

$ in millions, except EPS amounts

    Full-Year 2017
 
GAAP EPS $1.60 to $1.72
Difference4 2.16
Non-GAAP EPS that excludes items listed below1 $3.76 to $3.88
 
Acquisition- and divestiture-related costs $3,600
Restructuring costs 600
Licensing expense relating to AstraZeneca collaboration 2,350
Net decrease (increase) in income before taxes 6,550
Estimated income tax (benefit) expense (610)
Decrease (increase) in net income     $5,940
 

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.

                                           
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF INCOME – GAAP
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 1
                           
GAAP % Change GAAP % Change
2Q17         2Q16

June YTD

2017

       

June YTD

2016

                           
Sales $ 9,930 $ 9,844 1% $ 19,365 $ 19,156 1%
 
Costs, Expenses and Other
Materials and production (1) 3,080 3,578 -14% 6,095 7,150 -15%
Marketing and administrative (1) 2,438 2,458 -1% 4,849 4,776 2%
Research and development (1) 1,749 2,151 -19% 3,545 3,810 -7%
Restructuring costs (2) 166 134 24% 317 225 41%
Other (income) expense, net (1) 58 19 * 117 67 75%
Income Before Taxes 2,439 1,504 62% 4,442 3,128 42%
Taxes on Income 488 295 935 789
Net Income 1,951 1,209 61% 3,507 2,339 50%
Less: Net Income Attributable to Noncontrolling Interests 5 4 11 9
Net Income Attributable to Merck & Co., Inc. $ 1,946 $ 1,205 61% $ 3,496 $ 2,330 50%
Earnings per Common Share Assuming Dilution $ 0.71         $ 0.43 65% $ 1.27         $ 0.83 53%
                       
Average Shares Outstanding Assuming Dilution 2,752 2,789 2,759 2,792
Tax Rate   20.0%           19.6%   21.0%           25.2%
 

* 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.

 
MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
SECOND QUARTER 2017
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2a
                                           
GAAP

Acquisition and

Divestiture-Related

Costs


(1)

Restructuring

Costs

(2)

Certain Other

Items

Adjustment

Subtotal

Non-GAAP
   
Materials and production $ 3,080 827 33 860 $ 2,220
Marketing and administrative 2,438 9 2 11 2,427
Research and development 1,749 7 9 16 1,733
Restructuring costs 166 166 166
Other (income) expense, net 58 39 39 19
Income Before Taxes 2,439 (882 ) (210 )

 

(1,092 ) 3,531
Income Tax Provision (Benefit) 488 (127 )(3) (45 ) (3) (88 )(4) (260 ) 748
Net Income 1,951 (755 ) (165 ) 88 (832 ) 2,783
Net Income Attributable to Merck & Co., Inc. 1,946 (755 ) (165 ) 88 (832 ) 2,778
Earnings per Common Share Assuming Dilution $ 0.71   (0.27 ) (0.06 ) 0.03 (0.30 ) $ 1.01  
   
Tax Rate   20.0 %   21.2 %
 

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.

 
MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
SIX MONTHS ENDED JUNE 30, 2017
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2b
                                   
GAAP

Acquisition and

Divestiture-Related

Costs


(1)

Restructuring

Costs

(2)

Certain Other

Items

Adjustment

Subtotal

Non-GAAP
   
Materials and production $ 6,095 1,682 96 1,778 $ 4,317
Marketing and administrative 4,849 29 3 32 4,817
Research and development 3,545 18 9 27 3,518
Restructuring costs 317 317 317
Other (income) expense, net 117 36 (9 ) 27 90
Income Before Taxes 4,442 (1,765 ) (425 ) 9 (2,181 ) 6,623
Income Tax Provision (Benefit) 935 (285 )(3) (93 )(3) (85 )(3) (463 ) 1,398
Net Income 3,507 (1,480 ) (332 ) 94 (1,718 ) 5,225
Net Income Attributable to Merck & Co., Inc. 3,496 (1,480 ) (332 ) 94 (1,718 ) 5,214
Earnings per Common Share Assuming Dilution $ 1.27   (0.53 ) (0.12 ) 0.03 (0.62 ) $ 1.89  
   
Tax Rate   21.0 %   21.1 %
 

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.

   
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
Table 3
                                                       
2017 2016 2Q June YTD
1Q   2Q  

June YTD

1Q   2Q   June YTD   3Q   4Q   Full Year Nom %  

Ex-Exch

%

Nom %  

Ex-Exch

%

TOTAL SALES

(1)
$9,434   $9,930  

$19,365

$9,312   $9,844  

$19,156

 

$10,536

  $10,115  

$39,807

1   2 1   2
PHARMACEUTICAL 8,185   8,759   16,944 8,104   8,700   16,804   9,443   8,904   35,151 1   2 1   2
Primary Care and Women’s Health
Cardiovascular
Zetia 334 367 701 612 702 1,314 671 575 2,560 -48 -47 -47 -46
Vytorin 241 182 423 277 293 570 273 299 1,141 -38 -37 -26 -25
Liptruzet 49 63 112 23 33 56 39 50 146 88 90 99 102
Adempas 84 67 151 33 40 72 48 49 169 68 69 109 110
Diabetes
Januvia 839 948 1,787 906 1,064 1,970 1,006 932 3,908 -11 -10 -9 -9
Janumet 496 563 1,059 506 569 1,075 548 577 2,201 -1 0 -2 -1
General Medicine & Women’s Health
NuvaRing 160 199 359 175 200 376 195 207 777 0 0 -4 -4
Implanon / Nexplanon 170 178 349 134 164 298 148 160 606 9 9 17 18
Follistim AQ 81 79 160 94 73 167 101 87 355 9 10 -4 -3
Hospital and Specialty
Hepatitis
Zepatier 378 517 895 50 112 161 164 229 555 * * * *
HIV
Isentress / Isentress HD 305 282 587 340 338 678 372 337 1,387 -17 -15 -13 -13
Hospital Acute Care
Bridion 148 163 310 90 113 204 139 139 482 44 44 52 53
Noxafil 141 155 296 145 143 288 147 161 595 8 11 3 5
Invanz 136 150 286 114 143 257 152 152 561 5 5 11 11
Cancidas 121 112 233 133 131 263 142 152 558 -14 -13 -12 -9
Cubicin 96 103 198 292 357 649 320 119 1,087 -71 -71 -69 -69
Primaxin 62 71 133 73 81 154 77 66 297 -13 -9 -14 -10
Immunology
Remicade 229 208 437 349 339 688 311 269 1,268 -39 -36 -37 -34
Simponi 184 199 383 188 199 387 193 186 766 0 3 -1 3
Oncology
Keytruda 584 881 1,465 249 314 563 356 483 1,402 180 183 160 162
Emend 133 143 276 126 143 268 137 144 549 0 1 3 3
Temodar 66 65 130 66 73 139 78 67 283 -12 -11 -6 -6
Diversified Brands
Respiratory
Singulair 186 203 389 237 229 465 239 210 915 -11 -10 -16 -16
Nasonex 139 85 224 229 101 331 94 112 537 -16 -16 -32 -33
Dulera 82 69 151 113 121 234 97 105 436 -43 -43 -35 -36
Other
Cozaar / Hyzaar 112 119 231 126 132 258 131 121 511 -10 -7 -10 -8
Arcoxia 103 89 192 111 117 228 114 108 450 -24 -24 -16 -15
Fosamax 61 66 127 75 73 148 68 68 284 -10 -9 -14 -13
Vaccines

(2)
Gardasil / Gardasil 9 532 469 1,001 378 393 770 860 542 2,173 19 20 30 30
ProQuad / M-M-R II / Varivax 355 399 754 357 383 739 496 405 1,640 4 5 2 3
RotaTeq 224 123 347 188 130 318 171 162 652 -5 -5 9 9
Pneumovax 23 163 166 329 107 120 228 175 238 641 38 38 44 45
Zostavax 154 160 313 125 149 274 190 221 685 7 7 14 14
Other Pharmaceutical

(3)
1,037 1,116 2,156 1,083 1,128 2,214 1,191 1,172 4,574 -1 0 -3 -2
 
ANIMAL HEALTH 939 955 1,894 829 900 1,729 865 884 3,478 6 7 10 10
 
Other Revenues

(4)
310   216   527 379   244   623   228   327   1,178 -11   -5 -15   -5
 

* 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

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