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October 27, 2014 7:00 am ET

• Third-Quarter 2014 Non-GAAP EPS of $0.90, Excluding Certain Items, and GAAP EPS of $0.31
• Narrows 2014 Full-Year Non-GAAP EPS Target to $3.46 to $3.50, Excluding Certain Items; Updates 2014 Full-Year GAAP EPS Target to $4.06 to $4.29; Now Expects 2014 Full-Year Revenues to be Between $42.4 Billion and $42.8 Billion
• Generated Worldwide Sales of $10.6 Billion, a Decrease of 4 Percent, Reflecting Unfavorable Impact of Divested Products, Patent Expiries and Decline in Sales of Hepatitis C Products
• Increased Sales of Acute Care, Immunology, Diabetes and Animal Health Products
• FDA Approved KEYTRUDA for the Treatment of Advanced Melanoma in Patients Who Have Progressed after Other Therapies and BELSOMRA for the Treatment of Insomnia
• KEYTRUDA Received Breakthrough Therapy Designation from the FDA for Patients with Advanced Non-Small Cell Lung Cancer Who Have Progressed Following Platinum-Containing Chemotherapy

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

Non-GAAP (generally accepted accounting principles) earnings per share
(EPS) for the third quarter of $0.90 exclude acquisition- and
divestiture-related costs, restructuring costs and certain other items.

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

“Last October, we launched a multi-year initiative to transform Merck
and build a platform for sustained, future growth,” said Kenneth C.
Frazier, chairman and chief executive officer, Merck. “One year later,
we delivered solid third-quarter results and are making steady progress
in our transformation, including divesting non-core assets, reducing our
expense base and investing in our promising new product launches and
pipeline.”

Select Revenue Highlights

Worldwide sales were $10.6 billion for the third quarter of 2014, a
decrease of 4 percent compared with the third quarter of 2013, including
a 1 percent positive impact from foreign exchange. The decline includes
$425 million of lower sales due to divestitures and the termination of
the joint venture with AstraZeneca (AZ).

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

Pharmaceutical Revenue Performance

Third-quarter pharmaceutical sales declined 4 percent to $9.1 billion.
Expected declines occurred due to the ongoing impact of product
divestitures, as well as the loss of market exclusivity for certain
products, including TEMODAR (temozolomide) and SINGULAIR (montelukast
sodium). Also contributing to the decline were lower sales from the
hepatitis franchise of VICTRELIS (boceprevir) and PEGINTRON
(peginterferon alfa-2b) as a result of increased competition, as well as
of GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16, and 18)
Vaccine, Recombinant]. These declines were partially offset by growth in
the global acute care franchise, including NOXAFIL (posaconazole) and
BRIDION (sugammadex); the diabetes franchise of JANUVIA
(sitagliptin)/JANUMET (sitagliptin and metformin HCI); REMICADE
(infliximab); SIMPONI (golimumab); and DULERA (mometasone furoate and
formoterol fumarate dihydrate).

Combined sales of JANUVIA and JANUMET, medicines that help lower blood
sugar levels in adults with type 2 diabetes, grew 5 percent to $1.4
billion in the third quarter. The growth reflects higher sales in the
United States and Europe, which were partially offset by price
reductions in Japan.

Combined sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin),
medicines for lowering LDL cholesterol, declined 3 percent to $1.0
billion in the third quarter, driven by lower sales in the United States.

Combined sales of REMICADE and SIMPONI, treatments for inflammatory
diseases, grew 11 percent to $774 million in the third quarter,
including a 2 percent positive impact from foreign exchange. Over the
last 12 months, SIMPONI has been the fastest growing anti-TNF agent in
all countries where marketed by Merck.

Merck’s sales of GARDASIL, a vaccine to help prevent certain diseases
caused by four types of human papillomavirus, were $590 million, a
decrease of 11 percent for the third quarter. The results reflect lower
purchases in the U.S. public sector.

Worldwide sales of ISENTRESS, an HIV integrase inhibitor for use in
combination with other antiretroviral agents for the treatment of HIV-1
infection, decreased 3 percent to $412 million in the third quarter. The
decline reflects lower sales in the United States, partially offset by
growth in Europe.

On Sept. 4, 2014, the U.S. Food and Drug Administration (FDA) granted
accelerated approval of KEYTRUDA
(pembrolizumab), the first approved anti-PD-1 therapy in the United
States. KEYTRUDA has been approved for the treatment of patients with
unresectable or metastatic melanoma and disease progression following
ipilimumab and, if BRAF V600 mutation positive, a BRAF inhibitor. Within
a few days of approval, initial orders shipped, and the Merck team has
already reached more than 75 percent of key physicians. Merck believes
there are currently approximately 1,200 patients who may be eligible for
KEYTRUDA, based on the product’s label, and to date, approximately 900
patients are being treated with KEYTRUDA.

Animal Health Revenue Performance

Animal Health sales totaled $885 million for the third quarter of 2014,
an increase of 11 percent compared with the third quarter of 2013,
including a 1 percent positive impact due to foreign exchange. Growth
was driven by increases across all species. In companion animals, growth
was supported by ongoing launches in Europe and the United States of
BRAVECTO (fluralaner), a chewable tablet that kills fleas and ticks in
dogs for up to 12 weeks. Growth was partially offset by the loss of
sales of ZILMAX (zilpaterol hydrochloride), a feed supplement for beef
cattle. The company decided last year to voluntarily suspend sales of
ZILMAX in the United States and Canada. Excluding the impact of the
ZILMAX sales suspension, Animal Health sales increased 14 percent in the
third quarter.

Consumer Care Revenue Performance

Third-quarter global sales of Consumer Care products were $401 million,
a decline of 9 percent compared to the third quarter of 2013. As
previously announced, Merck completed the sale of its Consumer
Care business to Bayer AG on Oct. 1, 2014.

Other Revenue Performance

Other revenues – primarily comprising alliance revenue, miscellaneous
corporate revenues and third-party manufacturing sales – decreased 56
percent to $137 million compared to the third quarter of 2013. The
decrease was driven primarily by the loss of revenue from AZ recorded by
Merck, which was $220 million in the third quarter of 2013. On June 30,
2014, AZ exercised its option to buy the company’s interest in a
subsidiary and, through it, the company’s interest in Nexium and
Prilosec. As of July 1, 2014, Merck no longer records equity income from
AZ and supply sales to AZ have ended. The decline in other revenues also
reflects $50 million of lower third-party manufacturing sales, primarily
driven by the divestiture of a substantial portion of this business in
2013.

Third-Quarter Expense and Other Information

The costs detailed below totaled $9.2 billion on a GAAP basis during the
third quarter of 2014 and include $2.4 billion of acquisition- and
divestiture-related costs, restructuring costs and certain other items.

The gross margin was 60.0 percent for the third quarter of 2014 compared
to 62.8 percent for the third quarter of 2013, reflecting 14.3 and 11.2
unfavorable percentage point impacts, respectively, from the
acquisition- and divestiture-related costs, and restructuring costs
noted above.

Marketing and administrative expenses, on a non-GAAP basis, were $2.6
billion in the third quarter of 2014, a decrease primarily due to
productivity measures from $2.8 billion in the same period of 2013.

Research and development (R&D) expenses, on a non-GAAP basis, were $1.5
billion in the third quarter of 2014, a decrease from $1.7 billion in
the third quarter of 2013. The decline reflects targeted cost reductions
and lower clinical development spending resulting from portfolio
prioritization.

Other (income) expense, net, was $142 million of income in the third
quarter of 2014 compared to $172 million of expense in the third quarter
of 2013. The third quarter of 2014 includes a gain of $396 million on
the divestiture of certain ophthalmic products in several international
markets, partially offset by a $93 million goodwill impairment charge
related to the company’s joint venture with Supera Farma Laboratorios
S.A. in Brazil.

The GAAP effective tax rate of 43.5 percent for the third quarter of
2014 reflects the impacts of acquisition- and divestiture-related costs,
restructuring costs and certain other items, including an additional
year of expense related to the non-tax deductible health care reform
fee. The non-GAAP effective tax rate, which excludes these items, was
26.5 percent for the quarter.

Key Developments

• The FDA granted accelerated approval of KEYTRUDA
  on Sept. 4, 2014, for the treatment of advanced melanoma in patients
  who have progressed after other therapies.
• As announced earlier today, KEYTRUDA received Breakthrough
  Therapy Designation from the FDA for patients with advanced
  non-small cell lung cancer who have progressed following
  platinum-containing chemotherapy.
• Interim data
  in five tumor types exploring investigational uses of KEYTRUDA was
  presented at the 2014 European Society for Medical Oncology 2014
  Congress.
• On Aug. 13, 2014, the FDA approved BELSOMRA
  (suvorexant) for the treatment of adults with insomnia who have
  difficulty falling asleep and/or staying asleep.
• Merck completed the sale of its Consumer
  Care business to Bayer AG on Oct. 1, 2014. As previously
  announced, the companies have entered into a worldwide collaboration
  to develop and commercialize soluble guanylate cyclase modulators. The
  collaboration includes Bayer’s Adempas (riociguat), which is approved
  to treat pulmonary arterial hypertension and chronic thromboembolic
  pulmonary hypertension.
• On Aug. 5, 2014, Merck completed its acquisition of Idenix
  Pharmaceuticals, Inc. to expand its portfolio of investigational
  therapies for hepatitis C.
• On Oct. 15, 2014, the company announced
  that it accepted for purchase $1.8 billion in principal amount of
  eight series of notes as part of a previously
  announced tender offer. In addition, the company intends to redeem
  its $1.0 billion 4% Notes due 2015 and its $1.0 billion 6% Senior
  Notes due 2017. As a result of these transactions, Merck expects to
  record a pre-tax charge of approximately $650 million in the fourth
  quarter of 2014, which will be excluded from non-GAAP results.

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

Financial Outlook

Merck has narrowed its full-year 2014 non-GAAP EPS range to be between
$3.46 and $3.50. The range excludes acquisition- and divestiture-related
costs and costs related to restructuring programs, as well as certain
other items. Merck now expects the company’s full-year 2014 GAAP EPS
range to be between $4.06 and $4.29.

At current exchange rates, Merck now anticipates full-year 2014 revenues
to be between $42.4 billion and $42.8 billion.

In addition, the company continues to expect full-year 2014 non-GAAP
marketing and administrative and R&D expenses will be below 2013 levels.
In the fourth quarter of 2014, the company anticipates R&D expenses will
be higher than the fourth quarter of 2013 due to timing of certain
programs. The company continues to anticipate its full-year 2014
non-GAAP tax rate will be in the range of 24 to 26 percent, not
including a 2014 R&D tax credit.

A reconciliation of anticipated 2014 EPS, as reported in accordance with
GAAP to non-GAAP EPS that excludes certain items, is provided in the
table below.

Total Employees

As of Sept. 30, 2014, Merck had approximately 71,000 employees
worldwide. In addition, the company’s joint ventures in China and
Brazil, which are included in the consolidated results of Merck, had
about 1,200 employees.

Earnings Conference Call

Investors, journalists and the general public may access a live audio
webcast of the call today at 8:00 a.m. EDT on Merck’s website at http://www.merck.com/investors/events-and-presentations/home.html.
Institutional investors and analysts can participate in the call by
dialing (706) 758-9927 or (877) 381-5782 and using ID code number
5243903. Members of the media are invited to monitor the call by dialing
(706) 758-9928 or (800) 399-7917 and using ID code number 5243903.
Journalists who wish to ask questions are requested to contact a member
of Merck’s Media Relations team at the conclusion of the call.

About Merck

Today’s Merck is a global healthcare leader working to help the world be
well. Merck is known as MSD outside the United States and Canada.
Through our prescription medicines, vaccines, biologic therapies and
animal health products, we work with customers and operate in more than
140 countries to deliver innovative health solutions. We also
demonstrate our commitment to increasing access to healthcare through
far-reaching policies, programs and partnerships. For more information,
visit www.merck.com
and connect with us on Twitter,
Facebook
and YouTube.
You can also follow our Twitter conversation at $MRK.

Forward-Looking Statement

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

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

Merck undertakes no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or
otherwise. Additional factors that could cause results to differ
materially from those described in the forward-looking statements can be
found in Merck’s 2013 Annual Report on Form 10-K and the company’s other
filings with the Securities and Exchange Commission (SEC) available at
the SEC’s Internet site (www.sec.gov).

###

¹ Merck is providing certain 2014 and 2013 non-GAAP
information that excludes certain items because of the nature of these
items and the impact they have on the analysis of underlying business
performance and trends. Management believes that providing this
information enhances investors’ understanding of the company’s
performance. This information should be considered in addition to, but
not in lieu of, information prepared in accordance with GAAP. For
description of the items, see Table 2a, including the related footnotes,
attached to this release.

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

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

⁴ Includes expenses of $1.0 billion and $1.2 billion in the
third quarter of 2014 and 2013, respectively, for the amortization of
intangible assets recognized as a result of mergers and acquisitions, as
well as intangible asset impairment charges of $541 million in the third
quarter of 2014. Also includes merger integration costs, as well as
transaction and certain other costs related to business acquisitions and
divestitures.

⁵ Includes the estimated tax impact on the reconciling items.

* 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) Reflects the performance of the company’s joint ventures and other
equity method affiliates, including the Sanofi Pasteur MSD partnership,
as well as the AstraZeneca LP partnership until its termination on June
30, 2014.

(4) Other (income) expense, net in the third quarter and first nine
months of 2014 includes a gain of $396 million on the divestiture of
certain ophthalmic products in several international markets, partially
offset by a $93 million goodwill impairment charge related to the
company’s joint venture with Supera Farma Laboratorios S.A. Other
(income) expense, net in the first nine months of 2014 also includes a
gain of $741 million related to AstraZeneca’s option exercise and net
gains of $168 million related to the divestiture of the company’s Sirna
Therapeutics, Inc. subsidiary. Other (income) expense, net in the first
nine months of 2013 reflects approximately $140 million of exchange
losses as a result of a Venezuelan currency devaluation.

(5) The effective income tax rate for the first nine months of 2014
reflects a net benefit of $517 million recorded in connection with
AstraZeneca’s option exercise, as well as a benefit of approximately
$300 million associated with a capital loss generated in the first
quarter of 2014.

The effective income tax rate for the first nine months of 2013 reflects
net benefits from the settlements of certain federal income tax issues,
reductions in tax reserves upon expiration of applicable statute of
limitations and the favorable impact of tax legislation enacted in the
first quarter of 2013.

Merck is providing non-GAAP information that excludes certain items
because of the nature of these items and the impact they have on the
analysis of underlying business performance and trends. Management
believes that providing this information enhances investors’
understanding of the company’s performance. This information should be
considered in addition to, but not in lieu of, information prepared in
accordance with GAAP.

(1) Amounts included in materials and production costs reflect expenses
of $1.0 billion for the amortization of intangible assets recognized as
a result of mergers and acquisitions, as well as $412 million of
impairment charges on product intangibles. Amounts included in marketing
and administrative expenses reflect merger integration costs, as well as
transaction and certain other costs related to business acquisitions and
divestitures. Amounts included in research and development expenses
represent in-process research and development (“IPR&D”) impairment
charges primarily related to the company’s joint venture with Supera.
Amount included in other (income) expense, net represents a goodwill
impairment charge related to the joint venture with Supera. Amount
included in net (loss) income attributable to non-controlling interests
represents the portion of intangible asset and goodwill impairment
charges related to the joint venture with Supera that are attributable
to non-controlling interests.

(2) Amounts primarily include employee separation costs and accelerated
depreciation associated with facilities to be closed or divested related
to actions under the company’s formal restructuring programs.

(3) Amount included in marketing and administrative expenses represents
an additional year of expense related to the healthcare reform fee in
accordance with final regulations issued in the third quarter by the
Internal Revenue Service. Included in other (income) expenese, net is a
$396 million gain on the divestiture of certain ophthalmic products in
several international markets.

(4) Represents the estimated tax impact on the reconciling items.

Merck is providing non-GAAP information that excludes certain items
because of the nature of these items and the impact they have on the
analysis of underlying business performance and trends. Management
believes that providing this information enhances investors’
understanding of the company’s performance. This information should be
considered in addition to, but not in lieu of, information prepared in
accordance with GAAP.

(1) Amounts included in materials and production costs reflect expenses
of $3.2 billion for the amortization of intangible assets recognized as
a result of mergers and acquisitions, as well as $1.1 billion of
impairment charges on product intangibles. Amounts included in marketing
and administrative expenses reflect merger integration costs, as well as
transaction and certain other costs related to business acquisitions and
divestitures. Amounts included in research and development expenses
represent in-process research and development (“IPR&D”) impairment
charges primarily related to the company’s joint venture with Supera.
Amount included in other (income) expense, net is a goodwill impairment
charge related to the joint venture with Supera. Amount included in net
income (loss) attributable to non-controlling interests represents the
portion of intangible asset and goodwill impairment charges related to
the joint venture with Supera that are attributable to non-controlling
interests.

(2) Amounts primarily include employee separation costs and accelerated
depreciation associated with facilities to be closed or divested related
to actions under the company’s formal restructuring programs.

(3) Amount included in marketing and administrative expenses represents
an additional year of expense related to the healthcare reform fee in
accordance with final regulations issued in the third quarter by the
Internal Revenue Service. Included in other (income) expense, net is a
$396 million gain on the divestiture of certain ophthalmic products in
several international markets and a $741 million net gain related to
AstraZeneca’s option exercise.

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

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

⁽¹⁾ Only select products are shown.

⁽²⁾ Includes Pharmaceutical products not individually shown
above. Other Vaccines sales included in Other Pharmaceutical were $98
million, $76 million and $116 million for the first, second and third
quarters of 2014, respectively. Other Vaccines sales included in Other
Pharmaceutical were $53 million, $86 million, $127 million, and $101
million for the first, second, third, and fourth quarters of 2013,
respectively.

⁽³⁾ The decrease in Consumer Care sales in the second quarter
and full year of 2013 resulted from the termination in China of
distribution arrangements and a reversal of sales previously made to
those distributors, together with associated termination costs.

⁽⁴⁾ Other revenues are comprised primarily of alliance
revenue, third-party manufacturing sales and miscellaneous corporate
revenues, including revenue hedging activities. On October 1, 2013, the
company divested a substantial portion of its third-party manufacturing
sales. 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 and September YTD
2014 include $232 million of revenue recognized in connection with the
sale of U.S. Saphris rights. In addition, Other revenues in the
fourth quarter and full year of 2013 reflect $50 million of revenue for
the out-license of a pipeline compound.

Photos/Multimedia Gallery Available: http://www.businesswire.com/multimedia/home/20141027005422/en/

Merck
Media:
Steve Cragle, 908-423-3461
Lainie Keller, 908-236-5036
or
Investors:
Joe Romanelli, 908-423-5185
Justin Holko, 908-423-5088