Merck Announces Second-Quarter 2019 Financial Results

  • Second-Quarter 2019 Worldwide Sales Were $11.8 Billion, an Increase of 12%; Sales Increased 15% Excluding Negative Impact from Foreign Exchange; Growth Driven by Oncology and Human Health Vaccines
    • KEYTRUDA Sales Grew 58% to $2.6 Billion; Excluding the Impact of Foreign Exchange, Sales Grew 63%
    • Human Health Vaccines Sales Grew 33% to $2.0 Billion; Excluding the Impact of Foreign Exchange, Sales Grew 36%
  • Second-Quarter 2019 GAAP EPS was $1.03, Second-Quarter Non-GAAP EPS was $1.30
  • Company Narrows and Raises 2019 Full-Year Revenue Range to be Between $45.2 Billion and $46.2 Billion, Including a Negative Impact from Foreign Exchange of Slightly More Than 1%
  • Company Narrows and Reduces 2019 Full-Year GAAP EPS Range to be Between $3.78 and $3.88, Reflecting Charge Related to Acquisition of Peloton Therapeutics
  • Company Narrows and Raises 2019 Full-Year Non-GAAP EPS Range to be Between $4.84 and $4.94, Including a Slightly Negative Impact from Foreign Exchange
  • KEYTRUDA in Combination with Chemotherapy Met Primary Endpoint of Pathological Complete Response (pCR) in Pivotal Phase 3 KEYNOTE-522 Trial as Neoadjuvant Therapy in Patients with Triple-Negative Breast Cancer
Tuesday, July 30, 2019 6:45 am EDT

Dateline:

KENILWORTH, N.J.

Public Company Information:

NYSE:
MRK
"We remain confident that our innovative products and significant pipeline opportunities will continue to deliver strong results and provide sustainable value to patients and shareholders."

KENILWORTH, N.J.--(BUSINESS WIRE)--Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the second quarter of 2019.

“Our science-led strategy and execution across our key growth pillars have driven another quarter of accelerating revenue growth with strength across our global portfolio,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “We remain confident that our innovative products and significant pipeline opportunities will continue to deliver strong results and provide sustainable value to patients and shareholders.”

Financial Summary

$ in millions, except EPS amounts

Second Quarter

2019

2018

Change

Change
Ex-
Exchange

Sales

$11,760

$10,465

12%

15%

GAAP net income1

2,670

1,707

56%

61%

Non-GAAP net income that excludes certain items1,2*

3,356

2,854

18%

20%

GAAP EPS

1.03

0.63

63%

67%

Non-GAAP EPS that excludes certain items2

1.30

1.06

23%

25%

*Refer to table on page 10

 

Worldwide sales were $11.8 billion for the second quarter of 2019, an increase of 12% compared with the second quarter of 2018; excluding the negative impact from foreign exchange, worldwide sales grew 15%.

GAAP (generally accepted accounting principles) earnings per share assuming dilution (EPS) were $1.03 for the second quarter of 2019. Non-GAAP EPS of $1.30 for the second quarter of 2019 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

Oncology

Merck continued to advance 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 the U.S. Food and Drug Administration (FDA) approved KEYTRUDA for the following indications:
    • First-line treatment of patients with metastatic or with unresectable, recurrent head and neck squamous cell carcinoma (HNSCC) as monotherapy for patients whose tumors express PD-L1 (Combined Positive Score [CPS] >1) or in combination with platinum and fluorouracil (FU), a commonly used chemotherapy regimen, based on overall survival results from the KEYNOTE-048 trial; and
    • Treatment of patients with metastatic small cell lung cancer (SCLC) with disease progression on or after platinum-based chemotherapy and at least one other prior line of therapy based on the results from the KEYNOTE-158 and KEYNOTE-028 trials.
  • Merck announced that the European Medicines Agency (EMA) adopted a positive opinion for KEYTRUDA in combination with axitinib as a first-line treatment for advanced renal cell carcinoma (RCC) based on the findings from the pivotal KEYNOTE-426 trial.
  • Merck announced that the FDA has accepted for review six supplemental Biologics License Applications (sBLAs) to update the dosing frequency for KEYTRUDA to include an every-six-weeks (Q6W) dosing schedule option for certain monotherapy indications. The FDA has set a PDUFA date of Feb. 18, 2020.
  • Merck presented five-year survival data for KEYTRUDA in advanced non-small cell lung cancer (NSCLC) from the first KEYNOTE trial (Phase 1b KEYNOTE-001) and updated overall survival analysis and new data for disease progression after next-line treatment (progression-free survival2) from the KEYNOTE-189 trial in metastatic nonsquamous NSCLC at the 2019 American Society of Clinical Oncology (ASCO) annual meeting.
  • Merck announced that the Phase 3 KEYNOTE-522 trial investigating KEYTRUDA in combination with chemotherapy met the primary endpoint of pathological complete response (pCR) following the neoadjuvant part of the neoadjuvant/adjuvant study regimen in patients with triple-negative breast cancer (TNBC). The trial will continue to evaluate the other dual-primary endpoint of event-free survival (EFS). Results will be presented at an upcoming medical congress.

Lynparza

  • Merck and AstraZeneca announced approval of Lynparza in Japan and separately in the European Union for use as first-line maintenance therapy in patients with BRCA-mutated advanced ovarian cancer based on the results of the Phase 3 SOLO-1 trial. Lynparza is the only PARP inhibitor approved for this indication and the only PARP inhibitor approved in Japan.
  • Merck and AstraZeneca presented results from the Phase 3 POLO trial in patients with germline BRCA-mutated metastatic pancreatic cancer whose disease had not progressed following platinum-based chemotherapy. In the trial, Lynparza reduced the risk of disease progression or death by nearly half (47%). These results were presented at the 2019 ASCO annual meeting and simultaneously published in the New England Journal of Medicine.
  • Merck and AstraZeneca also presented results from the Phase 3 SOLO3 trial at the 2019 ASCO annual meeting. This study evaluated the objective response rate of Lynparza compared to chemotherapy in patients with platinum-sensitive relapsed germline BRCA1/2-mutated advanced ovarian cancer, who have received two or more prior lines of chemotherapy.

Lenvima

  • Merck and Eisai announced receipt of a Breakthrough Therapy Designation from the FDA for the KEYTRUDA plus Lenvima combination regimen for potential first-line treatment of patients with advanced unresectable hepatocellular carcinoma not amenable to loco-regional treatment, representing the third such designation.

Vaccines

  • Merck announced the U.S. Centers for Disease Control and Prevention’s (CDC’s) Advisory Committee on Immunization Practices (ACIP) voted to recommend Human Papillomavirus (HPV) vaccination with GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant) based on shared clinical decision making for individuals ages 27 through 45 who are not adequately vaccinated. The ACIP also voted to expand routine and catch-up recommendations for males through age 26 who are not adequately vaccinated.
  • Merck presented Phase 2 trial results of V114, the company’s investigational 15-valent pneumococcal conjugate vaccine, which demonstrated noninferiority to PCV 13 for all shared serotypes and an immune response for two additional disease-causing serotypes, 22F and 33F in healthy infants. Results were presented at the European Society for Paediatric Infectious Diseases (ESPID). V114 is currently in Phase 3 development.

HIV and Hospital Acute Care

  • Merck presented late-breaking data with islatravir (formerly MK-8591), the company’s investigational nucleoside reverse transcriptase translocation inhibitor (NRTTI) in development for the prevention and treatment of HIV-1 infection, at the recent 10th International AIDS Society Conference on HIV Science (IAS 2019), which included:
    • Phase 2b results demonstrating the combination of islatravir with doravirine maintained antiviral activity in treatment-naïve adults through 48 weeks. Based on these results, the company plans to initiate a Phase 3 program evaluating islatravir in combination with doravirine across diverse patient populations; and
    • Phase 1 results evaluating the pharmacokinetics and safety of a prototype subdermal drug-eluting implant for extended administration of islatravir in healthy volunteers for HIV pre-exposure prophylaxis (PrEP).
  • Merck announced FDA approval of an expanded use for ZERBAXA (ceftolozane and tazobactam) for the treatment of adults with hospital-acquired and ventilator-associated bacterial pneumonia (HABP/VABP) and separately announced the EMA adopted a positive opinion recommending ZERBAXA for HABP and VABP, which is now under consideration by the European Commission.
  • Merck announced FDA approval of RECARBRIO (imipenem, cilastatin, and relebactam) for the treatment of adults with complicated urinary tract and complicated intra-abdominal bacterial infections where limited or no alternative treatment options are available.

Business Development Highlights

  • Merck acquired Peloton Therapeutics (Peloton), a biopharmaceutical company focused on the development of novel small molecule therapeutic candidates targeting hypoxia-inducible factor-2A (HIF-2a) for the treatment of patients with cancer and other non-oncology diseases, including a novel oral HIF-2a inhibitor in late-stage development for RCC. The acquisition closed in July.
  • Merck acquired Tilos Therapeutics, gaining a portfolio of investigational antibodies targeting TGFβ for the potential application in the treatment of cancer, fibrosis and autoimmune diseases. The acquisition closed in June.
  • Merck acquired Immune Design, providing potential next-generation in vivo approaches to enable the body’s immune system to fight disease. The acquisition closed in April.

Second-Quarter Revenue Performance

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

$ in millions

Second Quarter

 

 

2019

 

2018

 

Change

Change Ex-
Exchange

Total Sales

$11,760

$10,465

12%

15%

Pharmaceutical

10,460

9,282

13%

17%

KEYTRUDA

2,634

1,667

58%

63%

JANUVIA / JANUMET

1,441

1,535

-6%

-3%

GARDASIL / GARDASIL 9

886

608

46%

50%

PROQUAD, M-M-R II and

VARIVAX

 

675

 

426

 

58%

 

61%

BRIDION

278

240

16%

20%

ISENTRESS / ISENTRESS HD

247

305

-19%

-13%

NUVARING

240

236

2%

3%

ZETIA / VYTORIN

232

381

-39%

-36%

SIMPONI

214

233

-8%

-1%

ROTATEQ

172

156

10%

13%

Animal Health

1,124

1,090

3%

9%

Livestock

671

633

6%

13%

Companion Animals

453

457

-1%

4%

Other Revenues

176

93

88%

-62%

Pharmaceutical Revenue

Second-quarter pharmaceutical sales were $10.5 billion, an increase of 13% compared with the second quarter of 2018; excluding the unfavorable effect of foreign exchange, sales grew 17% in the second quarter. The increase was driven primarily by growth in oncology and vaccines, partially offset by the ongoing impacts of the loss of market exclusivity for several products. International pharmaceutical sales represented 55% of total sales in the quarter. Performance in international markets was led by China, which had pharmaceutical sales of $745 million representing growth of 41% compared with the second quarter of 2018, driven by oncology and vaccines. Excluding the unfavorable effect of foreign exchange, pharmaceutical sales in China grew by 51%.

Growth in oncology was largely driven by a nearly $1 billion increase in sales for KEYTRUDA to $2.6 billion, reflecting strong momentum from the NSCLC indications as well as continued uptake in other indications, including the recently launched RCC and adjuvant melanoma indications, along with growth from Lynparza and Lenvima.

Growth in vaccines 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, primarily due to public sector buying patterns, demand and pricing in the United States, and the ongoing commercial launch in China. Higher demand in Europe, driven primarily by increased vaccination rates for both boys and girls, also contributed to sales growth.

Growth in pediatric vaccines was driven by M-M-R II (Measles, Mumps and Rubella Virus Vaccine Live), a vaccine to help prevent measles, mumps and rubella; VARIVAX (Varicella Virus Vaccine Live), a vaccine to help prevent chickenpox; and PROQUAD (Measles, Mumps, Rubella and Varicella Virus Vaccine Live), a combination vaccine to help protect against measles, mumps, rubella and varicella; reflecting higher demand, including private-sector buy-in, and pricing in the United States; government tenders in Latin America and higher demand in Europe.

Performance 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 the ongoing launch of PREVYMIS (letermovir), a medicine for the prevention of cytomegalovirus (CMV) infection and disease in adult CMV-seropositive recipients of an allogeneic hematopoietic stem cell transplant.

Pharmaceutical sales growth for the quarter was partially offset by the ongoing impacts from the loss of market exclusivity for ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), INVANZ (ertapenem sodium) and REMICADE (infliximab). In addition, the decline in sales of JANUVIA (sitagliptin) and JANUMET (sitagliptin and metformin HCI) reflects continued pricing pressure in the United States, which more than offset higher demand globally.

Animal Health Revenue

Animal Health sales totaled $1.1 billion for the second quarter of 2019, an increase of 3% compared with the second quarter of 2018. Excluding the unfavorable effect from foreign exchange, Animal Health sales grew 9%. Growth in the second quarter was primarily driven by livestock, predominantly due to products acquired in the Antelliq acquisition. Companion animal sales performance reflects volume growth in vaccine and insulin products, partially offset by the timing of customer purchases in the prior year for the BRAVECTO (fluralaner) line of products for parasitic control.

Animal Health segment profits were $405 million in the second quarter of 2019, a decrease of 10% compared with $450 million in the second quarter of 2018, primarily reflecting the unfavorable impact of foreign exchange.3

Second-Quarter Expense, EPS and Related Information

The tables below present selected expense information.

$ in millions

 

Second-Quarter 2019

 

 

GAAP

Acquisition- and
Divestiture-
Related Costs
4

 

Restructuring
Costs

 

Certain Other
Items

 

 

Non-GAAP 2

Cost of sales

$3,401

$447

$65

$–

$2,889

Selling, general and administrative

2,712

61

32

2,619

Research and development

2,189

4

3

2,182

Restructuring costs

59

­­–

59

Other (income) expense, net

140

148

48

(56)

 

Second-Quarter 2018

 

 

 

 

 

Cost of sales

$3,417

$733

$3

$–

$2,681

Selling, general and administrative

2,508

16

1

2,491

Research and development

2,274

1

3

344

1,926

Restructuring costs

228

228

Other (income) expense, net

(48)

105

(32)

(121)

GAAP Expense, EPS and Related Information

Gross margin was 71.1% for the second quarter of 2019 compared to 67.3% for the second quarter of 2018. The increase in gross margin for the second quarter of 2019 was primarily driven by lower acquisition- and divestiture-related costs, favorable product mix and lower amortization of intangible assets related to collaborations, partially offset by higher restructuring costs.

Selling, general and administrative expenses were $2.7 billion in the second quarter of 2019, an 8% increase compared to the second quarter of 2018. The increase primarily reflects higher administrative, acquisition- and divestiture-related, restructuring and promotion costs, partially offset by the favorable effects of foreign exchange.

Research and development (R&D) expenses were $2.2 billion in the second quarter of 2019, a decline of 4% compared with the second quarter of 2018. The decline was driven primarily by lower expenses related to business development transactions, largely reflecting a $344 million charge recorded in the second quarter of 2018 related to the Viralytics Limited acquisition. The decline was partially offset by higher expenses related to clinical development and increased investment in discovery research and early drug development.

Other (income) expense, net, was $140 million of expense in the second quarter of 2019 compared to $48 million of income in the second quarter of 2018. Other (income) expense, net, in the second quarter of 2019 reflects impairment charges and lower income from investments in equity securities.

GAAP EPS was $1.03 for the second quarter of 2019 compared with $0.63 for the second quarter of 2018.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 75.4% for the second quarter of 2019, compared to 74.4% for the second quarter of 2018. The increase in non-GAAP gross margin reflects favorable product mix and lower amortization of intangible assets related to collaborations.

Non-GAAP selling, general and administrative expenses were $2.6 billion in the second quarter of 2019, a 5% increase compared to the second quarter of 2018. The increase reflects higher administrative and promotion costs, partially offset by the favorable effects of foreign exchange.

Non-GAAP R&D expenses were $2.2 billion in the second quarter of 2019, a 13% increase compared to the second quarter of 2018. The increase reflects higher expenses related to clinical development, investment in discovery research and early drug development, as well as business development transactions.

Non-GAAP other (income) expense, net, was $56 million of income in the second quarter of 2019 compared to $121 million of income in the second quarter of 2018, driven primarily by lower income from investments in equity securities.

Non-GAAP EPS was $1.30 for the second quarter of 2019 compared with $1.06 for the second quarter of 2018.

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

2019

 

 

 

2018

EPS

 

 

GAAP EPS

$1.03

$0.63

Difference5

0.27

0.43

Non-GAAP EPS that excludes items listed below2

$1.30

$1.06

 

 

 

Net Income

 

 

GAAP net income1

$2,670

$1,707

Difference

686

1,147

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

$3,356

$2,854

 

 

 

Decrease (Increase) in Net Income Due to Excluded Items:

 

 

Acquisition- and divestiture-related costs4

$660

$855

Restructuring costs

159

235

Charge for the acquisition of Viralytics

344

Other

48

(32)

Net decrease (increase) in income before taxes

867

1,402

Estimated income tax (benefit) expense

(145)

(255)

Acquisition- and divestiture-related costs attributable to noncontrolling interests

(36)

Decrease (increase) in net income

$686

$1,147

Financial Outlook

Merck narrowed and raised its full-year 2019 revenue range to be between $45.2 billion and $46.2 billion, including a negative impact from foreign exchange of slightly more than 1% at mid-July exchange rates.

Merck narrowed and reduced its full-year 2019 GAAP EPS range to be between $3.78 and $3.88. The reduction in the GAAP EPS range primarily reflects the inclusion of an approximately $1.1 billion charge related to the acquisition of Peloton. Merck narrowed and raised its full-year 2019 non-GAAP EPS range to be between $4.84 and $4.94, including a slightly negative impact from foreign exchange at mid-July exchange rates. The non-GAAP range excludes acquisition- and divestiture-related costs, costs related to restructuring programs, a net benefit from the settlement of certain federal income tax matters, the charge for the acquisition of Peloton and certain other items.

The following table summarizes the company’s full year 2019 financial guidance.

GAAP

Non-GAAP 2

 

 

 

Revenue

$45.2 to $46.2 billion

$45.2 to $46.2 billion*

Operating expenses

Higher than 2018 by a low-single digit rate

Higher than 2018 by a mid-single digit rate

Effective tax rate

16.0% to 17.0%

18.5% to 19.5%

EPS**

$3.78 to $3.88

$4.84 to $4.94

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

**EPS guidance for 2019 assumes a share count (assuming dilution) of approximately 2.6 billion shares.

A reconciliation of anticipated 2019 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 2019

 

 

GAAP EPS

$3.78 to $3.88

Difference5

1.06

Non-GAAP EPS that excludes items listed below2

$4.84 to $4.94

 

 

Acquisition- and divestiture-related costs4

$2,100

Restructuring costs

500

Charge for the acquisition of Peloton

1,100

Net decrease (increase) in income before taxes

3,700

Income tax (benefit) expense6

(950)

Decrease (increase) in net income

$2,750

The expected full-year GAAP effective tax rate of 16.0% to 17.0% reflects a net favorable impact of approximately 2.5 percentage points from the above items.

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 4263838. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 4263838. 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 2018 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 attributable to Merck & Co., Inc.

2

Merck is providing certain 2019 and 2018 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 and 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 cost of sales, as well as selling, general 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 liabilities for contingent consideration. Also includes integration, transaction and certain other costs related to business acquisitions and divestitures.

5

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.

6

Includes the estimated tax impact on the reconciling items. In addition, includes a $360 million net tax benefit related to the settlement of certain federal income tax matters and a $67 million tax charge related to the finalization of treasury regulations for the Tax Cuts and Jobs Act of 2017.

 
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF INCOME - GAAP
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 1
 
GAAP % Change GAAP % Change
 
2Q19 2Q18 June YTD
2019
June YTD
2018
 
 
Sales

$

11,760

 

$

10,465

 

12%

$

22,575

 

$

20,502

 

10%

 

 

Costs, Expenses and Other

 

 

Cost of sales (1)

 

3,401

 

 

3,417

 

--

 

6,453

 

 

6,601

 

-2%

Selling, general and administrative (1)

 

2,712

 

 

2,508

 

8%

 

5,138

 

 

5,016

 

2%

Research and development (1)(2)

 

2,189

 

 

2,274

 

-4%

 

4,119

 

 

5,470

 

-25%

Restructuring costs (3)

 

59

 

 

228

 

-74%

 

212

 

 

323

 

-34%

Other (income) expense, net (1)

 

140

 

 

(48

)

*

 

327

 

 

(340

)

*

Income Before Taxes

 

3,259

 

 

2,086

 

56%

 

6,326

 

 

3,432

 

84%

Taxes on Income (1)

 

615

 

 

370

 

 

 

820

 

 

975

 

 

Net Income

 

2,644

 

 

1,716

 

54%

 

5,506

 

 

2,457

 

*

Less: Net (Loss) Income Attributable to Noncontrolling Interests (1)

 

(26

)

 

9

 

 

 

(79

)

 

14

 

 

Net Income Attributable to Merck & Co., Inc.

$

2,670

 

$

1,707

 

56%

$

5,585

 

$

2,443

 

*

Earnings per Common Share Assuming Dilution

$

1.03

 

$

0.63

 

63%

$

2.15

 

$

0.90

 

*

 
Average Shares Outstanding Assuming Dilution

 

2,588

 

 

2,696

 

 

2,596

 

 

2,702

 

Tax Rate (4)

 

18.9

%

 

17.8

%

 

13.0

%

 

28.4

%

 
* 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) Research and development expenses in the second quarter and first six months of 2018 include a $344 million charge for the acquisition of Viralytics Limited. Research and development expenses in the first six months of 2018 also include a $1.4 billion charge related to the formation of a collaboration with Eisai Co., Ltd. (Eisai).
 
(3) Represents separation and other related costs associated with restructuring activities under the company's formal restructuring programs.
 
(4) The effective income tax rate for the first six months of 2019 reflects a net tax benefit of $360 million related to the settlement of certain federal income tax matters. The effective income tax rate for the first six months of 2018 reflects the unfavorable impact of a $1.4 billion pretax charge related to the formation of a collaboration with Eisai for which no tax benefit was recognized.
MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
SECOND QUARTER 2019
(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
 
 
Cost of sales

$

3,401

 

447

 

65

 

512

 

$

2,889

 

Selling, general and administrative

 

2,712

 

61

 

32

 

93

 

 

2,619

 

Research and development

 

2,189

 

4

 

3

 

7

 

 

2,182

 

Restructuring costs

 

59

 

59

 

59

 

 

-

 

Other (income) expense, net

 

140

 

148

 

48

 

196

 

 

(56

)

Income Before Taxes

 

3,259

 

(660

)

(159

)

(48

)

(867

)

 

4,126

 

Income Tax Provision (Benefit)

 

615

 

(109

)

(3)

(25

)

(3)

(11

)

(3)

(145

)

 

760

 

Net Income

 

2,644

 

(551

)

(134

)

(37

)

(722

)

 

3,366

 

Less: Net (Loss) Income Attributable to Noncontrolling Interests

 

(26

)

(36

)

(36

)

 

10

 

Net Income Attributable to Merck & Co., Inc.

 

2,670

 

(515

)

(134

)

(37

)

(686

)

 

3,356

 

Earnings per Common Share Assuming Dilution

$

1.03

 

(0.20

)

(0.05

)

(0.02

)

(0.27

)

$

1.30

 

 
Tax Rate

 

18.9

%

 

18.4

%

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) Amount included in cost of sales primarily reflects $373 million of expenses for the amortization of intangible assets recognized as a result of business acquisitions, as well as $69 million of intangible asset impairment charges. Amount included in selling, general and administrative expenses primarily reflects integration, transaction and certain other costs related to business acquisitions and divestitures, including costs related to the acquisition of Antelliq Corporation. Amount included in other (income) expense, net primarily reflects goodwill impairment charges related to certain businesses in the Healthcare Services segment and expenses related to an increase in the estimated fair value 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.
MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
SIX MONTHS ENDED JUNE 30, 2019
(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
 
 
Cost of sales

$

6,453

 

860

 

99

 

959

 

$

5,494

 

Selling, general and administrative

 

5,138

 

60

 

32

 

92

 

 

5,046

 

Research and development

 

4,119

 

(27

)

3

 

(24

)

 

4,143

 

Restructuring costs

 

212

 

212

 

212

 

 

-

 

Other (income) expense, net

 

327

 

315

 

48

 

363

 

 

(36

)

Income Before Taxes

 

6,326

 

(1,208

)

(346

)

(48

)

(1,602

)

 

7,928

 

Income Tax Provision (Benefit)

 

820

 

(207

)

(3)

(56

)

(3)

(304

)

(4)

(567

)

 

1,387

 

Net Income

 

5,506

 

(1,001

)

(290

)

256

 

(1,035

)

 

6,541

 

Less: Net (Loss) Income Attributable to Noncontrolling Interests

 

(79

)

(89

)

(89

)

 

10

 

Net Income Attributable to Merck & Co., Inc.

 

5,585

 

(912

)

(290

)

256

 

(946

)

 

6,531

 

Earnings per Common Share Assuming Dilution

$

2.15

 

(0.36

)

(0.11

)

0.10

 

(0.37

)

$

2.52

 

 
Tax Rate

 

13.0

%

 

17.5

%

 
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) Amount included in cost of sales primarily reflects $771 million of expenses for the amortization of intangible assets recognized as a result of business acquisitions, as well as $81 million of intangible asset impairment charges. Amount included in selling, general and administrative expenses primarily reflects integration, transaction and certain other costs related to business acquisitions and divestitures, including costs related to the acquisition of Antelliq Corporation. Amount included in research and development expenses primarily reflects a reduction in expenses related to a decrease in the estimated fair value measurement of liabilities for contingent consideration. Amount included in other (income) expense, net primarily reflects goodwill impairment charges related to certain businesses in the Healthcare Services segment and expenses related to an increase in the estimated fair value measurement of liabilities for contingent consideration, partially offset by royalty income 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 the estimated tax impact on the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments. Also includes a $360 million net tax benefit related to the settlement of certain federal income tax matters and a $67 million tax charge related to the finalization of treasury regulations associated with the 2017 enactment of U.S. tax legislation.
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
(UNAUDITED)
Table 3
 
 

2019

 

2018

 

2Q

 

June YTD

1Q

2Q

June
YTD

 

1Q

2Q

June YTD

3Q

4Q

Full Year

 

Nom %

Ex-Exch %

 

Nom %

Ex-Exch %

 
TOTAL SALES (1)

$

10,816

$

11,760

$

22,575

$

10,037

$

10,465

$

20,502

$

10,794

$

10,998

$

42,294

12

15

10

13

PHARMACEUTICAL

 

9,663

 

10,460

 

20,123

 

8,919

 

9,282

 

18,201

 

9,658

 

9,830

 

37,689

13

17

11

15

Oncology
Keytruda

 

2,269

 

2,634

 

4,903

 

1,464

 

1,667

 

3,131

 

1,889

 

2,151

 

7,171

58

63

57

62

Emend

 

117

 

121

 

237

 

125

 

148

 

273

 

123

 

126

 

522

-18

-15

-13

-10

Alliance Revenue – Lynparza (2)

 

79

 

111

 

190

 

33

 

44

 

76

 

49

 

62

 

187

154

159

149

155

Alliance Revenue – Lenvima (2)

 

74

 

97

 

171

 

35

 

35

 

43

 

71

 

149

177

182

* *
Vaccines (3)
Gardasil / Gardasil 9

 

838

 

886

 

1,724

 

660

 

608

 

1,269

 

1,048

 

835

 

3,151

46

50

36

40

ProQuad / M-M-R II / Varivax

 

496

 

675

 

1,171

 

392

 

426

 

818

 

525

 

455

 

1,798

58

61

43

46

RotaTeq

 

211

 

172

 

383

 

193

 

156

 

349

 

191

 

188

 

728

10

13

10

12

Pneumovax 23

 

185

 

170

 

355

 

179

 

193

 

372

 

214

 

322

 

907

-12

-10

-4

-3

Vaqta

 

47

 

58

 

105

 

37

 

65

 

101

 

66

 

72

 

239

-10

-8

4

6

Hospital Acute Care
Bridion

 

255

 

278

 

533

 

204

 

240

 

444

 

217

 

256

 

917

16

20

20

25

Noxafil

 

190

 

193

 

383

 

176

 

188

 

363

 

188

 

191

 

742

3

7

5

10

Cubicin

 

88

 

67

 

155

 

98

 

94

 

192

 

95

 

80

 

367

-29

-25

-19

-16

Invanz

 

72

 

78

 

150

 

151

 

149

 

300

 

137

 

59

 

496

-48

-44

-50

-46

Primaxin

 

59

 

71

 

130

 

72

 

68

 

140

 

72

 

53

 

265

5

12

-7

-2

Cancidas

 

61

 

67

 

129

 

91

 

87

 

178

 

79

 

69

 

326

-22

-17

-28

-23

Immunology
Simponi

 

208

 

214

 

422

 

231

 

233

 

464

 

210

 

220

 

893

-8

-1

-9

-2

Remicade

 

123

 

98

 

221

 

167

 

157

 

324

 

135

 

123

 

582

-37

-32

-32

-26

Neuroscience
Belsomra

 

67

 

76

 

143

 

54

 

71

 

125

 

66

 

69

 

260

8

9

15

16

Virology
Isentress / Isentress HD

 

255

 

247

 

502

 

281

 

305

 

586

 

275

 

280

 

1,140

-19

-13

-14

-8

Zepatier

 

114

 

108

 

221

 

131

 

113

 

243

 

104

 

108

 

455

-5

0

-9

-5

Cardiovascular
Zetia

 

140

 

156

 

296

 

305

 

226

 

531

 

165

 

162

 

857

-31

-28

-44

-42

Vytorin

 

97

 

76

 

174

 

167

 

155

 

322

 

92

 

83

 

497

-51

-47

-46

-42

Atozet

 

94

 

92

 

186

 

73

 

101

 

174

 

84

 

89

 

347

-9

-3

7

14

Adempas

 

90

 

104

 

194

 

68

 

75

 

143

 

94

 

91

 

329

39

43

36

40

Diabetes (4)
Januvia

 

824

 

908

 

1,732

 

880

 

949

 

1,829

 

927

 

930

 

3,686

-4

-2

-5

-3

Janumet

 

530

 

533

 

1,063

 

544

 

585

 

1,129

 

563

 

535

 

2,228

-9

-5

-6

-1

Women's Health
NuvaRing

 

219

 

240

 

459

 

216

 

236

 

452

 

234

 

216

 

902

2

3

2

3

Implanon / Nexplanon

 

199

 

183

 

382

 

174

 

174

 

348

 

186

 

169

 

703

6

8

10

12

Diversified Brands
Singulair

 

191

 

160

 

352

 

175

 

185

 

360

 

161

 

187

 

708

-13

-8

-2

3

Cozaar / Hyzaar

 

103

 

109

 

213

 

120

 

125

 

245

 

103

 

105

 

453

-13

-7

-13

-8

Nasonex

 

96

 

72

 

168

 

122

 

81

 

203

 

71

 

102

 

376

-11

-6

-17

-13

Arcoxia

 

75

 

75

 

149

 

83

 

84

 

166

 

83

 

86

 

335

-11

-5

-10

-4

Follistim AQ

 

57

 

63

 

121

 

67

 

70

 

138

 

60

 

70

 

268

-10

-6

-12

-9

Other Pharmaceutical (5)

 

1,140

 

1,268

 

2,406

 

1,186

 

1,189

 

2,378

 

1,109

 

1,215

 

4,705

7

11

1

6

 
ANIMAL HEALTH

 

1,025

 

1,124

 

2,149

 

1,065

 

1,090

 

2,155

 

1,021

 

1,036

 

4,212

3

9

0

6

Livestock

 

611

 

671

 

1,282

 

652

 

633

 

1,286

 

660

 

684

 

2,630

6

13

0

7

Companion Animals

 

414

 

453

 

867

 

413

 

457

 

869

 

361

 

352

 

1,582

-1

4

0

5

 
Other Revenues (6)

 

128

 

176

 

303

 

53

 

93

 

146

 

115

 

132

 

393

88

-62

107

-82

 
* 200% or greater
 
Sum of quarterly amounts may not equal year-to-date amounts due to rounding.
 
(1) Only select products are shown.
(2) Alliance Revenue represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs.
(3) Total Vaccines sales were $1,887 million and $2,037 million in the first and second quarters of 2019, respectively, and $1,561 million, $1,533 million, $2,159 million and $2,008 million for the first, second, third and fourth quarters of 2018, respectively.
(4) Total Diabetes sales were $1,402 million and $1,480 million in the first and second quarters of 2019, respectively, and $1,433 million, $1,571 million, $1,506 million and $1,485 million for the first, second, third and fourth quarters of 2018, respectively.
(5) Includes Pharmaceutical products not individually shown above.
(6) Other Revenues are comprised primarily of Healthcare Services segment revenues, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities.

 

Contact:

Media:
Jessica Fine
(908) 740-1707

Pamela Eisele
(267) 305-3558

Investors:
Teri Loxam
(908) 740-1986

Michael DeCarbo
(908) 740-1807

$Cashtags

Multimedia Files:

Financial Highlights Package
Preview image