What can we help you find?

October 25, 2018 5:45 am ET

• Third-Quarter 2018 Worldwide Sales Were $10.8 Billion
• Third-Quarter 2018 GAAP EPS was $0.73, Third-Quarter Non-GAAP EPS was $1.19
• Company Narrows 2018 Full-Year Revenue Range to be Between $42.1 Billion and $42.7 Billion, Including a Minimal Impact from Foreign Exchange
• Company Narrows and Lowers 2018 Full-Year GAAP EPS Range to be Between $2.41 and $2.47; Narrows and Raises 2018 Full-Year Non-GAAP EPS Range to be Between $4.30 and $4.36, Including an Approximately 1 Percent Negative Impact from Foreign Exchange
• Results from KEYNOTE-426 Studying KEYTRUDA in Combination with Axitinib as First-line Treatment for Advanced or Metastatic Renal Cell Carcinoma Met Primary Endpoints of Overall Survival and Progression-Free Survival
• Company Announces 15 Percent Increase to Quarterly Dividend to 55 Cents Per Outstanding Share and Authorizes an Additional $10 Billion Share Repurchase, Including a $5 Billion Accelerated Share Repurchase Program

KENILWORTH, N.J.–(BUSINESS WIRE)–Merck (NYSE: MRK), known as MSD outside the United States and Canada,
today announced financial results for the third quarter of 2018.

“We built on our strong momentum during the quarter and believe that
Merck is well-positioned to continue creating sustainable value for
shareholders and patients,” said Kenneth C. Frazier, Merck Chairman and
CEO. “Our focused execution is driving our operational results, with
KEYTRUDA making a difference to cancer patients around the world. We are
also continuing to advance our broad pipeline, including in oncology,
vaccines, hospital and specialty as well as animal health. With this
strong performance, we are highly confident in our portfolio, strategy
and pipeline as demonstrated by our announced capital return actions
today.”

Financial Summary

Worldwide sales were $10.8 billion for the third quarter of 2018, an
increase of 5 percent compared with the third quarter of 2017, including
a 1 percent negative impact from foreign exchange. The sales increase in
the third quarter of 2018 was partially attributable to a reduction in
sales in the third quarter of 2017 of approximately $240 million due to
a borrowing from the U.S. Centers for Disease Control and Prevention
(CDC) Pediatric Vaccine Stockpile of GARDASIL 9 (Human Papillomavirus
9-valent Vaccine, Recombinant), a vaccine to prevent certain HPV-related
cancers and other diseases, driven in part by the temporary production
shutdown resulting from the cyber-attack that occurred in June of 2017,
as well as overall higher demand than originally planned. Additionally,
sales in the third quarter of 2017 were unfavorably affected by
approximately $135 million from lost revenue in certain markets related
to the cyber-attack.

GAAP (generally accepted accounting principles) earnings (loss) per
share assuming dilution (EPS) were $0.73 for the third quarter of 2018.
Non-GAAP EPS of $1.19 for the third quarter of 2018 excludes
acquisition- and divestiture-related costs, restructuring costs, a
charge of $420 million related to the termination of a collaboration
agreement with Samsung Bioepis Co., Ltd. (Samsung) for insulin glargine
and certain other items. Year-to-date results can be found in the
attached tables.

Oncology Pipeline Highlights

Merck continued to expand its oncology program by further advancing the
development programs for KEYTRUDA (pembrolizumab), the company’s
anti-PD-1 therapy; Lynparza (olaparib), a PARP inhibitor being
co-developed and co-commercialized with AstraZeneca; and Lenvima
(lenvatinib mesylate), an orally available tyrosine kinase inhibitor
being co-developed and co-commercialized with Eisai Co., Ltd. (Eisai).

KEYTRUDA

• Merck announced
  that based on the results of the KEYNOTE-189 trial, the U.S. Food and
  Drug Administration (FDA) and the European Commission (EC) approved
  KEYTRUDA in combination with pemetrexed and platinum chemotherapy for
  the first-line treatment of patients with metastatic nonsquamous
  non-small cell lung cancer (NSCLC), with no EGFR or ALK genomic tumor
  aberrations.
• Merck announced
  that the FDA granted priority review to a new supplemental Biologics
  License Application seeking approval for KEYTRUDA as monotherapy for
  first-line treatment of locally advanced or metastatic nonsquamous or
  squamous NSCLC in patients whose tumors express PD-L1 (tumor
  proportion score [TPS] ≥1%) without EGFR or ALK genomic tumor
  aberrations, based on the results of the pivotal Phase 3 KEYNOTE-042
  trial. The FDA set a PDUFA date of Jan. 11, 2019.
• Merck announced
  top-line results from KEYNOTE-426, a pivotal Phase 3 trial studying
  KEYTRUDA in combination with Pfizer’s axitinib as first-line treatment
  for advanced or metastatic renal cell carcinoma. KEYNOTE-426 met its
  primary endpoints of overall survival (OS) and progression-free
  survival (PFS) demonstrating that the combination made a statistically
  significant and clinically meaningful improvement in survival versus
  sunitinib.
• Merck announced
  interim results from KEYNOTE-048, a pivotal Phase 3 trial studying
  KEYTRUDA as both monotherapy and in combination with chemotherapy, for
  the first-line treatment of recurrent or metastatic head and neck
  squamous cell carcinoma. KEYNOTE-048 met its primary endpoint
  demonstrating that monotherapy and combination therapy showed
  significantly improved OS compared to the standard of care. These
  results were presented at the European Society for Medical Oncology
  (ESMO) 2018 Congress.
• Merck announced
  that the Committee for Medicinal Products for Human Use (CHMP) of the
  European Medicines Agency (EMA) adopted a positive opinion for
  KEYTRUDA as adjuvant therapy in the treatment of patients with
  melanoma based on the significant recurrence-free survival benefit
  demonstrated with KEYTRUDA in the pivotal Phase 3
  EORTC1325/KEYNOTE-054 trial.
• Merck announced
  the first presentation of results from KEYNOTE-057, a Phase 2 trial
  evaluating KEYTRUDA in previously-treated patients with high-risk
  non-muscle invasive bladder cancer at the ESMO 2018 Congress. KEYTRUDA
  demonstrated a complete response rate of nearly 40 percent.

Lynparza

• Merck and AstraZeneca announced
  detailed results from the Phase 3 SOLO-1 trial testing Lynparza as a
  maintenance treatment for patients with newly-diagnosed advanced BRCA-mutated
  ovarian cancer who were in complete or partial response following
  first-line standard platinum-based chemotherapy. Results of the trial
  confirm the statistically-significant and clinically-meaningful
  improvement in PFS for Lynparza as compared to placebo, reducing the
  risk of disease progression or death by 70 percent. At 41 months of
  follow-up, the median PFS for patients treated with Lynparza was not
  reached compared to 13.8 months for patients treated with placebo.
  These results were presented at the ESMO 2018 Congress and published
  simultaneously online in the New England Journal of Medicine.

Lenvima

• Merck and Eisai announced
  that the FDA approved Lenvima for the first-line treatment of patients
  with unresectable hepatocellular carcinoma. Lenvima was also approved
  for the same use in China
  by the China National Drug Administration and in Europe
  by the EC.
• Merck and Eisai announced
  that the FDA granted Breakthrough Therapy Designation for Lenvima in
  combination with KEYTRUDA for the potential treatment of
  patients with advanced and/or metastatic non-microsatellite
  instability high/proficient mismatch repair endometrial carcinoma who
  have progressed following at least one prior systemic therapy. This is
  the third Breakthrough Therapy Designation for Lenvima and the second
  Breakthrough Therapy Designation for Lenvima in combination with
  KEYTRUDA.

Other Oncology Pipeline Highlights

Clinical data from Merck’s early pipeline was presented at the ESMO 2018
Congress in October and additional data on other programs will be
presented at the Society for Immunotherapy of Cancer (SITC) 2018 meeting
in November.

• At ESMO 2018, Merck presented a number of datasets from its early
  pipeline:
  • STING agonist (MK-1454) first-in-human data
    from Merck’s Phase 1 program studying it as a monotherapy and in
    combination with KEYTRUDA in patients with advanced solid tumors
    or lymphomas;
  • RIG-I (MK-4621) data from Merck’s Phase 1/2 trial studying it in
    advanced or recurrent tumors;
  • CAVATAK data from Merck’s Phase 1 KEYNOTE-200 trial studying it in
    combination with KEYTRUDA for treatment of NSCLC and bladder
    cancer; and
  • CTLA-4 (MK-1308) data from Merck’s Phase 1 trial studying it in
    combination with KEYTRUDA for treatment of advanced solid tumors.

• At SITC 2018, Merck will be presenting:
  • LAG3 (MK-4280) data from Merck’s Phase 1 trial studying it as
    monotherapy and in combination with KEYTRUDA for the treatment of
    advanced solid tumors;
  • TIGIT (MK-7684) data from Merck’s Phase 1 trial studying it as
    monotherapy and in combination with KEYTRUDA for the treatment of
    patients with solid tumors; and
  • ILT4 (MK-4830) pre-clinical data.

Other Pipeline Highlights

The company continued to advance its vaccines, antibiotics and HIV
pipelines.

• The FDA approved an expanded age indication for GARDASIL 9 for use in
  women and men ages 27 through 45.
• Merck announced
  that the pivotal Phase 3 clinical study evaluating the company’s
  antibiotic ZERBAXA (ceftolozane and tazobactam) at an investigational
  dose for the treatment of adult patients with either ventilated
  hospital-acquired bacterial pneumonia or ventilator-associated
  bacterial pneumonia met the pre-specified primary endpoints,
  demonstrating non-inferiority to meropenem, the active comparator, in
  day 28 all-cause mortality and in clinical cure rate at the
  test-of-cure visit. Based on these results, Merck plans to submit
  supplemental new drug applications to the FDA and EMA seeking
  regulatory approval of ZERBAXA for these potential new indications.
• Merck announced
  that the FDA approved two new HIV-1 medicines indicated for the
  treatment of HIV-1 infection in adult patients with no prior
  antiretroviral treatment experience: DELSTRIGO, a once-daily
  fixed-dose combination tablet of doravirine (100 mg), lamivudine (3TC,
  300 mg) and tenofovir disoproxil fumarate (TDF, 300 mg); and PIFELTRO
  (doravirine, 100 mg), a new non-nucleoside reverse transcriptase
  inhibitor to be administered in combination with other antiretroviral
  medicines. The CHMP of the EMA adopted
  a positive opinion recommending granting of marketing authorization
  for DELSTRIGO and PIFELTRO for the treatment of adults with HIV-1
  infection without past or present evidence of resistance to the
  non-nucleoside reverse transcriptase class, lamivudine or tenofovir.

Third-Quarter Revenue Performance

The following table reflects sales of the company’s top pharmaceutical
products, as well as sales of animal health products.

Pharmaceutical Revenue

Third-quarter pharmaceutical sales increased 5 percent to $9.7 billion,
including a 2 percent negative impact from foreign exchange. In addition
to the factors mentioned in the Financial Summary above, the increase
was primarily driven by growth in oncology and hospital acute care,
partially offset by lower sales in virology and the ongoing impacts of
the loss of market exclusivity for several products.

Growth in oncology was driven by a significant increase in sales of
KEYTRUDA, reflecting the company’s continued launches with new
indications globally and the strong momentum for the treatment of
patients with NSCLC, as KEYTRUDA is the only anti-PD-1 approved in the
first-line setting. Additionally, oncology sales reflect alliance
revenue of $49 million related to Lynparza and $43 million related to
Lenvima, representing Merck’s share of profits, which are product sales
net of cost of sales and commercialization costs.

Growth in hospital acute care reflects strong demand in the United
States for 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, and strong global
demand for NOXAFIL (posaconazole), a medicine for the prevention of
invasive fungal infections.

Vaccines performance reflects higher sales of GARDASIL [Human
Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine,
Recombinant] and GARDASIL 9, vaccines to prevent certain cancers and
other diseases caused by HPV, in the United States attributable to the
CDC stockpile borrowing in the third quarter of 2017 as described
previously, and growth in international markets, primarily due to higher
sales in Europe and the ongoing commercial launch in China. Vaccines
performance was negatively affected by a significant decrease in sales
of ZOSTAVAX (zoster vaccine live), a vaccine for the prevention of
herpes zoster, primarily due to the approval of a competitor product
that received a preferential recommendation from the U.S. Advisory
Committee on Immunization Practices in October 2017. The company
anticipates that future sales of ZOSTAVAX will continue to be
unfavorably affected by competition.

Pharmaceutical sales growth in the quarter was partially offset by lower
sales in virology, largely reflecting a significant decline in ZEPATIER
(elbasvir and grazoprevir), a medicine for the treatment of chronic
hepatitis C virus genotypes 1 or 4 infection, due to increasing
competition and declining patient volumes, which the company expects to
continue.

Pharmaceutical sales growth for the quarter was also partially offset by
the ongoing impacts from the loss of market exclusivity for ZETIA
(ezetimibe) and VYTORIN (ezetimibe/simvastatin), medicines for lowering
LDL cholesterol; and biosimilar competition for REMICADE (infliximab), a
treatment for inflammatory diseases, in the company’s marketing
territories in Europe.

Animal Health

Animal Health sales totaled $1.0 billion for the third quarter of 2018,
an increase of 2 percent compared with the third quarter of 2017,
including a 4 percent negative impact from foreign exchange. Growth was
primarily driven by higher sales of companion animal products,
predominantly from the BRAVECTO (fluralaner) line of products that kill
fleas and ticks in dogs and cats for up to 12 weeks. Growth was also
driven by higher sales of livestock products including ruminants and
poultry products.

Animal Health segment profits were $409 million in the third quarter of
2018, an increase of 5 percent compared with $389 million in the third
quarter of 2017.³

Third-Quarter Expense, EPS and Related Information

The table below presents selected expense information.

GAAP Expense, EPS and Related Information

Gross margin was 66.5 percent for the third quarter of 2018 compared to
68.0 percent for the third quarter of 2017. The decrease in gross margin
for the third quarter of 2018 was primarily driven by the charge related
to the termination of a collaboration agreement with Samsung. The
decrease was partially offset by the favorable effects of foreign
exchange, as well as costs recorded in the third quarter of 2017 related
to the cyber-attack. In addition, a lower net impact of acquisition- and
divestiture-related costs and restructuring costs, which reduced gross
margin by 6.3 percentage points in the third quarter of 2018 compared
with 7.7 percentage points in the third quarter of 2017, also partially
offset the margin decline.

Marketing and administrative expenses were $2.4 billion in the third
quarter of 2018, a decline of 1 percent compared to the third quarter of
2017, reflecting lower direct selling and promotion costs, as well as
the favorable effects of foreign exchange, largely offset by higher
administrative costs.

Research and development (R&D) expenses were $2.1 billion in the third
quarter of 2018 compared with $4.4 billion in the third quarter of 2017.
The decline primarily reflects a $2.35 billion charge recorded in the
third quarter of 2017 related to the formation of a collaboration with
AstraZeneca and lower in-process research and development (IPR&D)
impairment charges, partially offset by increased clinical development
spending, in particular for oncology, higher licensing costs and
investment in discovery and early drug development.

GAAP EPS was $0.73 for the third quarter of 2018 compared with $(0.02)
for the third quarter of 2017.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 76.7 percent for the third quarter of 2018
compared to 75.7 percent for the third quarter of 2017. The increase was
predominantly due to the favorable effects of foreign exchange, as well
as costs recorded in the third quarter of 2017 related to the
cyber-attack.

Non-GAAP marketing and administrative expenses were $2.4 billion in the
third quarter of 2018, comparable to the third quarter of 2017,
reflecting lower direct selling and promotion costs, as well as the
favorable effects of foreign exchange, offset by higher administrative
costs.

Non-GAAP R&D expenses were $2.1 billion in the third quarter of 2018, an
increase of 15 percent compared to the third quarter of 2017. The
increase primarily reflects higher clinical development spending, in
particular for oncology, higher licensing costs and investment in
discovery and early drug development.

Non-GAAP EPS was $1.19 for the third quarter of 2018 compared with $1.11
for the third quarter of 2017.

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

Financial Outlook

Merck narrowed its full-year 2018 revenue range to be between $42.1
billion and $42.7 billion, including a minimal impact from foreign
exchange at current exchange rates.

Merck narrowed and lowered its full-year 2018 GAAP EPS range to be
between $2.41 and $2.47. The change in the GAAP EPS range reflects the
inclusion of the charge related to the termination of the collaboration
agreement with Samsung. Merck narrowed and raised its full-year 2018
non-GAAP EPS range to be between $4.30 and $4.36, including an
approximately 1 percent negative impact from foreign exchange at current
exchange rates. The non-GAAP range excludes acquisition- and
divestiture-related costs, costs related to restructuring programs,
charges related to the formation of the Eisai collaboration and the
Viralytics acquisition, a charge related to the termination of a
collaboration agreement with Samsung and certain other items.

The following table summarizes the company’s 2018 financial guidance.

A reconciliation of anticipated 2018 GAAP EPS to non-GAAP EPS and the
items excluded from non-GAAP EPS are provided in the table below.

The expected full-year 2018 GAAP effective tax rate of 26.0 percent to
27.0 percent reflects an unfavorable impact of approximately 7.0
percentage points from the above items.

Capital Allocation

Merck’s Board of Directors has approved a 15 percent increase to the
company’s quarterly dividend, raising it to $0.55 per share from $0.48
per share of the company’s outstanding common stock. Payment will be
made on Jan. 8, 2019, to shareholders of record at the close of business
on Dec. 17, 2018. The Board also authorized an additional $10 billion of
treasury stock purchases with no time limit for completion. The company
has entered into a $5 billion accelerated share repurchase program under
its expanded authorization.

In addition, the company also plans to now invest approximately $16
billion on new capital projects through 2022, up $4 billion from its
prior $12 billion commitment announced in February.

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 https://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
2169459. Members of the media are invited to monitor the call by dialing
(706) 758-9928 or (800) 399-7917 and using ID code number 2169459.
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, Instagram,
YouTube
and LinkedIn.

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 2017 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 Net income (loss) attributable to Merck & Co., Inc.

² Merck is providing certain 2018 and 2017 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 Animal Health segment profits are comprised of segment
sales, less all materials and production costs, as well as marketing and
administrative expenses and research and development costs directly
incurred by the segment. For internal management reporting, Merck does
not allocate general and administrative expenses not directly incurred
by the segment, nor the cost of financing these activities. Separate
divisions maintain responsibility for monitoring and managing these
costs, including depreciation related to fixed assets utilized by these
divisions and, therefore, they are not included in segment profits.

⁴ Includes expenses for the amortization of intangible assets
and purchase accounting adjustments to inventories recognized as a
result of acquisitions, intangible asset impairment charges and expense
or income related to changes in the estimated fair value measurement of
contingent consideration. Also includes integration, transaction and
certain other costs related to business acquisitions and divestitures.

⁵ On Jan. 1, 2018, the company adopted a new accounting
standard related to defined benefit plans. Upon adoption, net periodic
benefit cost/credit other than service cost was reclassified to Other
(income) expense, net from the previous classifications within Materials
and production costs, Marketing and administrative expenses and Research
and development costs. Previously reported amounts have been
reclassified to conform to the new presentation.

⁶ 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.

⁷ Includes the estimated tax impact on the reconciling items.
In addition, amount for third quarter 2017 includes a $234 million net
tax benefit related to the settlement of certain federal income tax
issues.

Merck
Media:
Claire Gillespie, (267) 305-0932
or
Investor:
Teri Loxam, (908) 740-1986
Michael DeCarbo, (908) 740-1807