Merck Announces Second-Quarter 2015 Financial Results
July 28, 2015 6:00 am ET
- Second-Quarter 2015 Non-GAAP EPS of $0.86, Excluding Certain Items; GAAP EPS of $0.24
- Company Narrows and Raises 2015 Full-Year Non-GAAP EPS Target to $3.45 to $3.55, Excluding Certain Items; Lowers 2015 Full-Year GAAP EPS Target to $1.52 to $1.71
- Second-Quarter 2015 Worldwide Sales Were $9.8 Billion, a Decrease of 11 Percent, Including a 7 Percent Net Unfavorable Impact from Acquisitions and Divestitures and a 7 Percent Negative Impact from Foreign Exchange
- Second-Quarter Results Reflect Sales Growth in Hospital Acute Care, Oncology and Diabetes and Sales Declines in Cardiovascular and Hepatitis C
- European Commission Approved KEYTRUDA for the Treatment of Advanced Melanoma; FDA Accepted sBLA for KEYTRUDA in Advanced Non-Small Cell Lung Cancer
- Grazoprevir/Elbasvir Chronic Hepatitis C Combination Regimen Accepted for Regulatory Review in Both the United States and European Union
Merck (NYSE:MRK), known as MSD outside the United States and Canada,
today announced financial results for the second quarter of 2015.
Second Quarter | |||||
$ in millions, except EPS amounts | 2015 | 2014 | |||
Sales | $9,785 | $10,934 | |||
GAAP EPS | 0.24 | 0.68 | |||
Non-GAAP EPS that excludes items listed below1 |
0.86 | 0.85 | |||
GAAP Net Income2 |
687 | 2,004 | |||
Non-GAAP Net Income that excludes items listed below 1,2 |
2,441 | 2,493 |
Non-GAAP (generally accepted accounting principles) earnings per share
(EPS) of $0.86 for the second quarter exclude acquisition- and
divestiture-related costs, restructuring costs and certain other items,
including foreign exchange losses related to Venezuela.
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.
$ in millions, except EPS amounts | Second Quarter | ||||
2015 | 2014 | ||||
EPS | |||||
GAAP EPS | $0.24 | $0.68 | |||
Difference3 |
0.62 | 0.17 | |||
Non-GAAP EPS that excludes items listed below1 |
$0.86 | $0.85 | |||
Net Income | |||||
GAAP net income2 | $687 | $2,004 | |||
Difference | 1,754 | 489 | |||
Non-GAAP net income that excludes items listed below1,2 | $2,441 | $2,493 | |||
Decrease (Increase) in Net Income Due to Excluded Items: | |||||
Acquisition- and divestiture-related costs4 | $1,448 | $1,756 | |||
Restructuring costs | 328 | 421 | |||
Foreign exchange losses related to Venezuela | 715 | –- | |||
Gain on AstraZeneca option exercise | –- | (741) | |||
Net decrease (increase) in income before taxes | 2,491 | 1,436 | |||
Income tax (benefit) expense5 | (737) | (947) | |||
Decrease (increase) in net income | $1,754 | $489 |
Commentary from Chairman and Chief Executive Officer Kenneth C.
Frazier
“We’re investing resources to grow our strongest brands and to support
the most promising assets in our pipeline, while at the same time
lowering our cost base and delivering operating leverage.”
“We’ve made significant progress this quarter in two of our most
important assets, the KEYTRUDA and hepatitis C programs, and will be
fully prepared to take advantage of these potentially breakthrough
opportunities.”
“We’re witnessing the introduction of breakthrough therapies for some of
the most difficult-to-treat diseases. Merck’s late-stage pipeline and
ongoing launches reflect scientific and therapeutic progress with the
potential to provide significant value to patients and society.”
Select Business Highlights
Worldwide sales were $9.8 billion for the second quarter of 2015, a
decrease of 11 percent compared with the second quarter of 2014,
including a 7 percent negative impact from foreign exchange and a 7
percent net unfavorable impact resulting from the divestiture of the
Consumer Care business and select products, partially offset by the
acquisition of Cubist Pharmaceuticals, Inc. (Cubist).
The following table reflects sales of the company’s top pharmaceutical
products, as well as total sales of Animal Health and Consumer Care
products.
$ in millions | Second Quarter | Change |
Change
Ex-Exchange |
||||||
2015 | 2014 | ||||||||
Total Sales | $9,785 | $10,934 | -11% | -4% | |||||
Pharmaceutical | 8,564 | 9,087 | -6% | 3% | |||||
JANUVIA / JANUMET | 1,598 | 1,577 | 1% | 9% | |||||
ZETIA / VYTORIN | 955 | 1,134 | -16% | -8% | |||||
REMICADE | 455 | 607 | -25% | -7% | |||||
GARDASIL / GARDASIL 9 | 427 | 409 | 4% | 6% | |||||
ISENTRESS | 375 | 453 | -17% | -10% | |||||
PROQUAD, M-M-R II and VARIVAX | 358 | 326 | 10% | 12% | |||||
CUBICIN | 293 | 6* | ** | ** | |||||
Animal Health | 840 | 872 | -4% | 10% | |||||
Consumer Care*** | –- | 583 | ** | ** | |||||
Other Revenues | 381 | 392 | -3% | -51% | |||||
*Reflects licensing agreement with Cubist in Japan prior to acquisition by Merck on Jan. 21, 2015 |
|||||||||
**≥100% | |||||||||
***divested on Oct. 1, 2014 |
Commercial and Pipeline Highlights
During the second quarter of 2015, Merck continued to advance its
pipeline while also focusing on the ongoing launches of KEYTRUDA
(pembrolizumab), its anti-PD-1 therapy, for the treatment of advanced
melanoma in patients whose disease has progressed after other therapies;
BELSOMRA (suvorexant) for the treatment of insomnia; and ZERBAXA
(ceftolozane and tazobactam), a combination product for the treatment of
certain serious bacterial infections in adults.
-
The company accelerated its KEYTRUDA clinical development program.
-
The European Commission approved
KEYTRUDA last week at a dose of 2 mg/kg every three weeks for the
treatment of advanced (unresectable or metastatic) melanoma in
adults, allowing marketing of KEYTRUDA in all 28 European Union
member states. -
The U.S. Food and Drug Administration (FDA) accepted
for review the supplemental Biologics License Application (sBLA)
for KEYTRUDA for the treatment of patients with advanced non-small
cell lung cancer whose disease has progressed on or after
platinum-containing chemotherapy and an FDA-approved therapy for
EGFR or ALK genomic tumor aberrations, if present. The FDA granted
Priority Review with a PDUFA action date of Oct. 2, 2015; the sBLA
will be reviewed under the FDA’s Accelerated Approval program. -
At the 51st Annual Meeting of the American Society of
Clinical Oncology in June, data sets were presented investigating
the use of KEYTRUDA in advanced head and neck cancer (KEYNOTE-012)
and in multiple difficult-to-treat cancers, including advanced
small cell lung cancer, esophageal cancer and ovarian cancer (KEYNOTE-028).
Additionally, data
were presented and simultaneously published in The New England
Journal of Medicine suggesting that the presence of DNA repair
mutations in colorectal cancer cells is associated with favorable
responses to KEYTRUDA.
-
The European Commission approved
-
The clinical development program for the treatment of chronic
hepatitis C virus (HCV) infection made substantial progress in the
second quarter of 2015.-
As announced earlier today, the FDA has accepted
for review the New Drug Application (NDA) for
grazoprevir/elbasvir, an investigational once-daily, single tablet
combination therapy for the treatment of adult patients infected
with chronic HCV genotypes (GT) 1, 4 or 6. The FDA granted
Priority Review with a PDUFA action date of Jan. 28, 2016. -
Last week the European Medicines Agency (EMA) accepted
for review the company’s marketing authorization application
(MAA) for grazoprevir/elbasvir for the treatment of adult patients
infected with chronic HCV GT 1, 3, 4 or 6. The EMA said it will
initiate a review of the MAA under accelerated assessment
timelines.
-
As announced earlier today, the FDA has accepted
-
Results from the Trial
Evaluating Cardiovascular Outcomes with Sitagliptin (TECOS) of
JANUVIA (sitagliptin), a medicine that helps lower blood sugar levels
in adults with type 2 diabetes, were presented in June at the
75th Scientific Sessions of the American Diabetes Association and
simultaneously published online in The New England Journal of
Medicine. The study found that, added to usual care, treatment
with JANUVIA did not increase the risk of major adverse cardiovascular
events in the primary composite endpoint, or hospitalization for heart
failure, compared to placebo. -
The FDA has accepted the resubmission of the NDA for sugammadex
injection, an investigational medicine for the reversal of
neuromuscular blockade induced by rocuronium or vecuronium, with a
PDUFA action date of Dec. 19, 2015. Sugammadex injection is marketed
as BRIDION in more than 60 countries. -
The FDA has extended its planned review timeline of the Biologics
License Application for V419, the investigational pediatric hexavalent
combination vaccine, DTaP5-IPV-Hib-HepB, which is being developed and,
if approved, will be commercialized through a partnership of Merck and
Sanofi Pasteur. The FDA has not requested additional clinical studies
for licensure.
Pharmaceutical Revenue Performance
Second-quarter pharmaceutical sales declined 6 percent to $8.6 billion,
including a 9 percent negative impact from foreign exchange. Excluding
the impact of exchange, growth was driven by sales in the core
therapeutic areas of hospital acute care, oncology and diabetes. The
increase in hospital acute care was driven by the addition of the Cubist
portfolio and sales growth of inline brands. Growth in oncology reflects
sales of $110 million for KEYTRUDA. Growth in diabetes primarily
reflects higher sales in the United States, Europe and emerging markets.
Second-quarter pharmaceutical sales reflect declines in the
cardiovascular portfolio of ZETIA (ezetimibe) and VYTORIN
(ezetimibe/simvastatin), medicines for lowering LDL cholesterol,
primarily due to loss of exclusivity of ZETIA in Canada (where it is
marketed as EZETROL) and volume declines of both products in the United
States, as well as lower sales of REMICADE (infliximab), a treatment for
inflammatory diseases, due to loss of exclusivity in Europe.
Pharmaceutical sales also reflect declines in the HCV portfolio of
VICTRELIS (boceprevir) and PEGINTRON (peginterferon alfa-2b), as well as
for ISENTRESS (raltegravir), an HIV integrase inhibitor for use in
combination with other antiretroviral agents for the treatment of HIV-1
infection. The decline for ISENTRESS was due to timing of tender
purchases in the emerging markets and volume declines in the United
States.
Animal Health Revenue Performance
Animal Health sales totaled $840 million for the second quarter of 2015,
a decrease of 4 percent compared with the second quarter of 2014,
including a 14 percent negative impact from foreign exchange. Excluding
the impact of exchange, growth was primarily driven by an increase in
sales of companion animal and swine products, including continued strong
growth from BRAVECTO (fluralaner), a chewable tablet that kills fleas
and ticks in dogs for up to 12 weeks.
Other Revenue Performance
Other revenues – primarily comprising alliance revenue, miscellaneous
corporate revenues and third-party manufacturing sales – decreased 3
percent to $381 million compared to the second quarter of 2014. The
decrease was driven primarily by the loss of revenue from AstraZeneca
recorded by Merck, which was $316 million in the second quarter of 2014,
partially offset by higher third-party manufacturing sales.
Second-Quarter 2015 Expense and Other Information
The costs detailed below totaled $8.2 billion on a GAAP basis during the
second quarter of 2015 and include $1.8 billion of acquisition- and
divestiture-related costs and restructuring costs.
$ in millions | Included in expenses for the period | ||||||||
Acquisition- | |||||||||
and | |||||||||
Second Quarter | Divestiture- | Restructuring | |||||||
2015 | GAAP |
Related Costs4 |
Costs |
Non-GAAP1 |
|||||
Materials and production | $3,754 | $1,241 | $105 | $2,408 | |||||
Marketing and administrative | 2,624 | 136 | 17 | 2,471 | |||||
Research and development | 1,670 | 71 | 15 | 1,584 | |||||
Restructuring costs | 191 | –- | 191 | –- | |||||
Second Quarter | |||||||||
2014 | |||||||||
Materials and production | $4,893 | $1,724 | $171 | $2,998 | |||||
Marketing and administrative | 2,973 | 32 | 44 | 2,897 | |||||
Research and development | 1,664 | –- | 43 | 1,621 | |||||
Restructuring costs | 163 | –- | 163 | –- |
The gross margin was 61.6 percent for the second quarter of 2015
compared to 55.2 percent for the second quarter of 2014, reflecting 13.8
and 17.4 unfavorable percentage point impacts, respectively, from the
acquisition- and divestiture-related costs and restructuring costs noted
above. The increase in non-GAAP gross margin was driven by lower
inventory write-offs and foreign exchange.
Marketing and administrative expenses, on a non-GAAP basis, were $2.5
billion in the second quarter of 2015, a decrease from $2.9 billion in
the same period of 2014, which was primarily driven by the sale of the
Consumer Care business, the favorable impact of foreign exchange and
declines in direct selling costs.
Research and development (R&D) expenses, on a non-GAAP basis, were $1.6
billion in the second quarter of 2015, a 2 percent decrease compared to
the second quarter of 2014.
Other (income) expense, net, was $739 million of expense in the second
quarter of 2015 compared to $650 million of income in the second quarter
of 2014. The second quarter of 2015 includes foreign exchange losses of
$715 million related to the revaluation of the company’s net monetary
assets in Venezuela. The second quarter of 2014 includes a $741 million
gain recorded in connection with AstraZeneca’s option exercise.
The GAAP effective tax rate of 14.7 percent for the second quarter of
2015 reflects the impacts of acquisition- and divestiture-related costs
and restructuring costs, as well as the favorable impact of a net
benefit of $370 million related to the settlement of certain federal
income tax issues and the unfavorable impact of foreign exchange losses
related to Venezuela for which no tax benefit was recorded. The non-GAAP
effective tax rate, which excludes these items, was 26.0 percent for the
second quarter of 2015.
Financial Outlook
Merck has narrowed and raised its full-year 2015 non-GAAP EPS range to
be between $3.45 and $3.55, including a negative impact from foreign
exchange. The range excludes acquisition- and divestiture-related costs,
costs related to restructuring programs and certain other items. The
company has lowered its full-year 2015 GAAP EPS range to be between
$1.52 and $1.71. The change in the GAAP EPS range reflects the
incorporation of foreign exchange losses related to Venezuela, as well
as the anticipated gain on the previously announced sale of certain
migraine clinical development programs.
At current exchange rates, the company now anticipates full-year 2015
revenues to be between $38.6 billion and $39.8 billion, including a
negative impact from foreign exchange and approximately $1 billion of
net lost sales from acquisitions and divestitures.
In addition, the company continues to expect full-year 2015 non-GAAP
marketing and administrative expenses to be below 2014 levels and R&D
expenses to be modestly above 2014 levels. The company anticipates total
operating expenses in the second half of 2015 to be approximately $200
million lower than in the second half of 2014.
The company now anticipates its full-year 2015 non-GAAP tax rate will be
in the range of 23 to 24 percent, not including a 2015 R&D tax credit.
A reconciliation of anticipated 2015 EPS, as reported in accordance with
GAAP to non-GAAP EPS that excludes certain items, is provided in the
table below.
Full Year | ||
$ in millions, except EPS amounts | 2015 | |
GAAP EPS | $1.52 to $1.71 | |
Difference3 | 1.93 to 1.84 | |
Non-GAAP EPS that excludes items listed below | $3.45 to $3.55 | |
Acquisition- and divestiture-related costs | $5,500 to $5,300 | |
Restructuring costs | 950 to 850 | |
Foreign exchange losses related to Venezuela | 715 | |
Gain on sale of certain migraine clinical development programs | (250) | |
Net decrease (increase) in income before taxes | 6,915 to 6,615 | |
Estimated income tax (benefit) expense | (1,415) to (1,360) | |
Decrease (increase) in net income | $5,500 to $5,255 |
Total Employees
As of June 30, 2015, Merck had approximately 69,000 employees worldwide.
Earnings Conference Call
Investors, journalists and the general public may access a live audio
webcast of the call today at 8:00 a.m. EDT on Merck’s website at http://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
73597302. Members of the media are invited to monitor the call by
dialing (706) 758-9928 or (800) 399-7917 and using ID code number
73597302. 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 health care 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 health care 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 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 2014 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 2015 and 2014 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 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 fair value measurement of contingent
consideration. Also includes integration, transaction and certain other
costs related to business acquisitions and divestitures.
5 Includes the estimated tax impact on the reconciling items.
In addition, amount for the second quarter of 2015 includes a net
benefit of $370 million related to the settlement of certain federal
income tax issues. The estimated tax impact on the reconciling items for
the second quarter of 2014 includes a net benefit of $517 million
recorded in connection with AstraZeneca’s option exercise.
MERCK & CO., INC. | ||||||||||||||||||||||
CONSOLIDATED STATEMENT OF INCOME – GAAP | ||||||||||||||||||||||
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES) | ||||||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||||||
Table 1 | ||||||||||||||||||||||
GAAP |
GAAP |
|||||||||||||||||||||
2Q15 | 2Q14 |
% Change |
June YTD | June YTD |
% Change |
|||||||||||||||||
2015 | 2014 | |||||||||||||||||||||
Sales | $ | 9,785 | $ | 10,934 | -11% | $ | 19,210 | $ | 21,198 | -9% | ||||||||||||
Costs, Expenses and Other | ||||||||||||||||||||||
Materials and production (1) | 3,754 | 4,893 | -23% | 7,323 | 8,796 | -17% | ||||||||||||||||
Marketing and administrative (1) | 2,624 | 2,973 | -12% | 5,226 | 5,707 | -8% | ||||||||||||||||
Research and development (1) | 1,670 | 1,664 | — | 3,407 | 3,238 | 5% | ||||||||||||||||
Restructuring costs (2) | 191 | 163 | 17% | 273 | 288 | -5% | ||||||||||||||||
Other (income) expense, net (1) (3) | 739 | (650 | ) | * | 793 | (813 | ) | * | ||||||||||||||
Income Before Taxes | 807 | 1,891 | -57% | 2,188 | 3,982 | -45% | ||||||||||||||||
Income Tax Provision | 119 | (142 | ) | 542 | 218 | |||||||||||||||||
Net Income | 688 | 2,033 | -66% | 1,646 | 3,764 | -56% | ||||||||||||||||
Less: Net Income Attributable to Noncontrolling Interests | 1 | 29 | 7 | 55 | ||||||||||||||||||
Net Income Attributable to Merck & Co., Inc. | $ | 687 | $ | 2,004 | -66% | $ | 1,639 | $ | 3,709 | -56% | ||||||||||||
Earnings per Common Share Assuming Dilution | $ | 0.24 | $ | 0.68 | -65% | $ | 0.57 | $ | 1.25 | -54% | ||||||||||||
Average Shares Outstanding Assuming Dilution | 2,850 | 2,949 | 2,856 | 2,957 | ||||||||||||||||||
Tax Rate (4) | 14.7 | % | -7.5 | % | 24.8 | % | 5.5 | % |
* 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) Other (income) expense, net in the second quarter and first six
months of 2015 includes foreign exchange losses of $715 million to
revalue the company’s net monetary assets in Venezuela. Other (income)
expense, net in the second quarter and first six months of 2014 includes
a gain of $741 million related to AstraZeneca’s option exercise. In
addition, other (income) expense, net in the first six months of 2014
includes gains of $204 million related to the divestiture of the
company’s Sirna Therapeutics, Inc. subsidiary. Other (income) expense,
net includes equity income from affiliates. Prior period amounts have
been reclassified to conform to the current presentation.
(4) The effective income tax rates for the second quarter and first six
months of 2015 reflect a net benefit of $370 million related to the
settlement of certain federal income tax issues, partially offset by the
unfavorable impact of foreign exchange losses recorded in connection
with the revaluation of the company’s net monetary assets in Venezuela
for which no tax benefit was recorded. The effective income tax rates
for the second quarter and first six months of 2014 reflect a net
benefit of $517 million recorded in connection with AstraZeneca’s option
exercise. In addition, the effective income tax rate for the first six
months of 2014 reflects a benefit of approximately $300 million
associated with a capital loss generated in the first quarter of 2014.
MERCK & CO., INC. | |||||||||||||||||||||
CONSOLIDATED STATEMENT OF INCOME | |||||||||||||||||||||
GAAP TO NON-GAAP RECONCILIATION | |||||||||||||||||||||
SECOND QUARTER 2015 | |||||||||||||||||||||
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES) | |||||||||||||||||||||
(UNAUDITED) | |||||||||||||||||||||
Table 2a | |||||||||||||||||||||
Acquisition and | Restructuring | Certain Other | Adjustment | ||||||||||||||||||
GAAP | Divestiture- |
Costs (2) |
Items (3) |
Subtotal | Non-GAAP | ||||||||||||||||
Related Costs (1) |
|||||||||||||||||||||
Sales | $ | 9,785 | $ | 9,785 | |||||||||||||||||
Costs, Expenses and Other | |||||||||||||||||||||
Materials and production | 3,754 | 1,241 | 105 | 1,346 | 2,408 | ||||||||||||||||
Marketing and administrative | 2,624 | 136 | 17 | 153 | 2,471 | ||||||||||||||||
Research and development | 1,670 | 71 | 15 | 86 | 1,584 | ||||||||||||||||
Restructuring costs | 191 | 191 | 191 | – | |||||||||||||||||
Other (income) expense, net (4) | 739 | 715 | 715 | 24 | |||||||||||||||||
Income Before Taxes | 807 | (1,448 | ) | (328 | ) | (715 | ) | (2,491 | ) | 3,298 | |||||||||||
Taxes on Income | 119 | (737 | ) |
(5) |
856 | ||||||||||||||||
Net Income | 688 | (1,754 | ) | 2,442 | |||||||||||||||||
Less: Net Income Attributable to Noncontrolling Interests | 1 | 1 | |||||||||||||||||||
Net Income Attributable to Merck & Co., Inc. | $ | 687 | (1,754 | ) | $ | 2,441 | |||||||||||||||
Earnings per Common Share Assuming Dilution | $ | 0.24 | $ | 0.86 | |||||||||||||||||
Average Shares Outstanding Assuming Dilution | 2,850 | 2,850 | |||||||||||||||||||
Tax Rate | 14.7 | % | 26.0 | % |
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 $1.2
billion of expenses for the amortization of intangible assets recognized
as a result of acquisitions, as well as $44 million of amortization of
purchase accounting adjustments to inventories as a result of the Cubist
acquisition. Amounts included in marketing and administrative expenses
reflect integration, transaction and certain other costs related to
business acquisitions, including severance costs which are not part of
the company’s formal restructuring programs, as well as transaction and
certain other costs related to divestitures. Amounts included in
research and development expenses reflect $59 million of in-process
research and development (“IPR&D”) impairment charges, as well as $12
million of charges to increase the fair value of liabilities for
contingent consideration.
(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 foreign exchange losses of $715 million to revalue the
company’s net monetary assets in Venezuela.
(4) Other (income) expense, net includes equity income from affiliates.
(5) Represents the estimated tax impact on the reconciling items, as
well as a net benefit of $370 million on the settlement of certain
federal income tax issues.
MERCK & CO., INC. | |||||||||||||||||||||
CONSOLIDATED STATEMENT OF INCOME | |||||||||||||||||||||
GAAP TO NON-GAAP RECONCILIATION | |||||||||||||||||||||
SIX MONTHS ENDED JUNE 30, 2015 | |||||||||||||||||||||
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES) | |||||||||||||||||||||
(UNAUDITED) | |||||||||||||||||||||
Table 2b | |||||||||||||||||||||
Acquisition and | Restructuring | Certain Other | Adjustment | ||||||||||||||||||
GAAP | Divestiture- |
Costs (2) |
Items (3) |
Subtotal | Non-GAAP | ||||||||||||||||
Related Costs (1) |
|||||||||||||||||||||
Sales | $ | 19,210 | $ | 19,210 | |||||||||||||||||
Costs, Expenses and Other | |||||||||||||||||||||
Materials and production | 7,323 | 2,491 | 210 | 2,701 | 4,622 | ||||||||||||||||
Marketing and administrative | 5,226 | 363 | 53 | 416 | 4,810 | ||||||||||||||||
Research and development | 3,407 | 134 | 17 | 151 | 3,256 | ||||||||||||||||
Restructuring costs | 273 | 273 | 273 | – | |||||||||||||||||
Other (income) expense, net (4) | 793 | 701 | 701 | 92 | |||||||||||||||||
Income Before Taxes | 2,188 | (2,988 | ) | (553 | ) | (701 | ) | (4,242 | ) | 6,430 | |||||||||||
Taxes on Income | 542 | (1,015 | ) |
(5) |
1,557 | ||||||||||||||||
Net Income | 1,646 | (3,227 | ) | 4,873 | |||||||||||||||||
Less: Net Income Attributable to Noncontrolling Interests | 7 | 7 | |||||||||||||||||||
Net Income Attributable to Merck & Co., Inc. | $ | 1,639 | (3,227 | ) | $ | 4,866 | |||||||||||||||
Earnings per Common Share Assuming Dilution | $ | 0.57 | $ | 1.70 | |||||||||||||||||
Average Shares Outstanding Assuming Dilution | 2,856 | 2,856 | |||||||||||||||||||
Tax Rate | 24.8 | % | 24.2 | % |
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 $2.4
billion of expenses for the amortization of intangible assets recognized
as a result of acquisitions, as well as $65 million of amortization of
purchase accounting adjustments to inventories as a result of the Cubist
acquisition. Amounts included in marketing and administrative expenses
reflect integration, transaction and certain other costs related to
business acquisitions, including severance costs which are not part of
the company’s formal restructuring programs, as well as transaction and
certain other costs related to divestitures. Amounts included in
research and development expenses reflect $73 million of charges to
increase the fair value of liabilities for contingent consideration, as
well as $61 million of in-process research and development (“IPR&D”)
impairment charges.
(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) Includes foreign exchange losses of $715 million to revalue the
company’s net monetary assets in Venezuela.
(4) Other (income) expense, net includes equity income from affiliates.
(5) Represents the estimated tax impact on the reconciling items, as
well as a net benefit of $370 million on the settlement of certain
federal income tax issues.
MERCK & CO., INC. | |||||||||||||||||||||||||
FRANCHISE / KEY PRODUCT SALES | |||||||||||||||||||||||||
(AMOUNTS IN MILLIONS) | |||||||||||||||||||||||||
Table 3 | |||||||||||||||||||||||||
2015 | 2014 | % Change | |||||||||||||||||||||||
June | June | Full | June | ||||||||||||||||||||||
1Q | 2Q | YTD | 1Q | 2Q | YTD | 3Q | 4Q | Year | 2Q | YTD | |||||||||||||||
TOTAL SALES (1) | $ 9,425 | $ 9,785 | $ 19,210 | $ 10,264 | $ 10,934 | $ 21,198 | $ 10,557 | $ 10,482 | $ 42,237 | -11 | -9 | ||||||||||||||
PHARMACEUTICAL | 8,266 | 8,564 | 16,830 | 8,451 | 9,087 | 17,538 | 9,134 | 9,370 | 36,042 | -6 | -4 | ||||||||||||||
Primary Care & Women’s Health | |||||||||||||||||||||||||
Cardiovascular | |||||||||||||||||||||||||
Zetia | 568 | 635 | 1,202 | 611 | 717 | 1,328 | 660 | 662 | 2,650 | -11 | -9 | ||||||||||||||
Vytorin | 320 | 320 | 640 | 361 | 417 | 777 | 369 | 370 | 1,516 | -23 | -18 | ||||||||||||||
Diabetes | |||||||||||||||||||||||||
Januvia | 884 | 1,044 | 1,928 | 858 | 1,058 | 1,916 | 933 | 1,082 | 3,931 | -1 | 1 | ||||||||||||||
Janumet | 509 | 554 | 1,063 | 476 | 519 | 995 | 505 | 570 | 2,071 | 7 | 7 | ||||||||||||||
General Medicine & Women’s Health | |||||||||||||||||||||||||
NuvaRing | 166 | 182 | 348 | 168 | 178 | 346 | 186 | 191 | 723 | 2 | 1 | ||||||||||||||
Implanon / Nexplanon | 137 | 124 | 261 | 102 | 119 | 221 | 158 | 123 | 502 | 4 | 18 | ||||||||||||||
Dulera | 130 | 120 | 251 | 102 | 103 | 205 | 124 | 132 | 460 | 17 | 22 | ||||||||||||||
Follistim AQ | 82 | 111 | 193 | 110 | 102 | 213 | 97 | 102 | 412 | 9 | -9 | ||||||||||||||
Hospital and Specialty | |||||||||||||||||||||||||
Hepatitis | |||||||||||||||||||||||||
PegIntron | 56 | 52 | 108 | 112 | 103 | 216 | 84 | 81 | 381 | -50 | -50 | ||||||||||||||
HIV | |||||||||||||||||||||||||
Isentress | 385 | 375 | 760 | 390 | 453 | 843 | 412 | 418 | 1,673 | -17 | -10 | ||||||||||||||
Hospital Acute Care | |||||||||||||||||||||||||
Cubicin(2) | 187 | 293 | 480 | 5 | 6 | 11 | 7 | 7 | 25 | * | * | ||||||||||||||
Cancidas | 163 | 134 | 297 | 166 | 156 | 322 | 183 | 175 | 681 | -14 | -8 | ||||||||||||||
Invanz | 132 | 139 | 271 | 114 | 134 | 249 | 141 | 139 | 529 | 4 | 9 | ||||||||||||||
Noxafil | 111 | 117 | 228 | 74 | 98 | 172 | 107 | 122 | 402 | 19 | 32 | ||||||||||||||
Bridion | 85 | 87 | 172 | 73 | 82 | 155 | 90 | 95 | 340 | 6 | 11 | ||||||||||||||
Primaxin | 65 | 88 | 153 | 71 | 81 | 151 | 91 | 86 | 329 | 9 | 1 | ||||||||||||||
Immunology | |||||||||||||||||||||||||
Remicade | 501 | 455 | 956 | 604 | 607 | 1,211 | 604 | 557 | 2,372 | -25 | -21 | ||||||||||||||
Simponi | 158 | 169 | 327 | 157 | 174 | 330 | 170 | 188 | 689 | -3 | -1 | ||||||||||||||
Oncology | |||||||||||||||||||||||||
Emend | 122 | 134 | 255 | 122 | 144 | 266 | 136 | 151 | 553 | -7 | -4 | ||||||||||||||
Keytruda | 83 | 110 | 192 | 0 | 0 | 0 | 4 | 50 | 55 | * | * | ||||||||||||||
Temodar | 74 | 80 | 155 | 83 | 93 | 176 | 88 | 86 | 350 | -14 | -12 | ||||||||||||||
Diversified Brands | |||||||||||||||||||||||||
Respiratory | |||||||||||||||||||||||||
Nasonex | 289 | 215 | 504 | 312 | 258 | 570 | 261 | 268 | 1,099 | -16 | -11 | ||||||||||||||
Singulair | 245 | 212 | 457 | 271 | 284 | 554 | 218 | 319 | 1,092 | -25 | -18 | ||||||||||||||
Clarinex | 51 | 55 | 106 | 62 | 69 | 131 | 49 | 52 | 232 | -20 | -19 | ||||||||||||||
Other | |||||||||||||||||||||||||
Cozaar / Hyzaar | 185 | 189 | 374 | 205 | 214 | 419 | 195 | 192 | 806 | -12 | -11 | ||||||||||||||
Arcoxia | 123 | 115 | 238 | 128 | 141 | 268 | 132 | 118 | 519 | -18 | -11 | ||||||||||||||
Fosamax | 94 | 96 | 190 | 123 | 121 | 245 | 114 | 112 | 470 | -21 | -22 | ||||||||||||||
Zocor | 49 | 63 | 112 | 64 | 69 | 133 | 61 | 64 | 258 | -9 | -16 | ||||||||||||||
Propecia | 53 | 39 | 92 | 74 | 58 | 131 | 66 | 67 | 264 | -32 | -30 | ||||||||||||||
Vaccines | |||||||||||||||||||||||||
Gardasil / Gardasil 9 | 359 | 427 | 785 | 383 | 409 | 792 | 590 | 356 | 1,738 | 4 | -1 | ||||||||||||||
ProQuad, M-M-R II and Varivax | 348 | 358 | 705 | 280 | 326 | 606 | 421 | 366 | 1,394 | 10 | 16 | ||||||||||||||
Zostavax | 175 | 149 | 324 | 142 | 156 | 298 | 181 | 285 | 765 | -4 | 9 | ||||||||||||||
RotaTeq | 192 | 89 | 281 | 169 | 147 | 316 | 174 | 169 | 659 | -40 | -11 | ||||||||||||||
Pneumovax 23 | 110 | 106 | 216 | 101 | 102 | 203 | 197 | 346 | 746 | 4 | 7 | ||||||||||||||
Other Pharmaceutical (3) | 1,075 | 1,128 | 2,206 | 1,378 | 1,389 | 2,769 | 1,326 | 1,269 | 5,356 | -19 | -20 | ||||||||||||||
ANIMAL HEALTH | 829 | 840 | 1,669 | 813 | 872 | 1,685 | 885 | 885 | 3,454 | -4 | -1 | ||||||||||||||
CONSUMER CARE (4) | 2 | 0 | 2 | 546 | 583 | 1,130 | 401 | 16 | 1,547 | * | * | ||||||||||||||
Other Revenues (5) | 328 | 381 | 709 | 454 | 392 | 845 | 137 | 211 | 1,194 | -3 | -16 |
* 100% or greater
Sum of quarterly amounts may not equal year-to-date amounts due to
rounding.
(1) Only select products are shown.
(2) Cubicin results for the first quarter 2015 represent
sales for the two months following Merck’s acquisition of Cubist.
Cubicin sales for 2014 represent the previous licensing agreement in
Japan prior to the acquisition.
(3) Includes Pharmaceutical products not individually shown
above. Other Vaccines sales included in Other Pharmaceutical were $78
million and $76 million for the first and second quarters of 2015. Other
Vaccines sales included in Other Pharmaceutical were $98 million, $76
million, $116 million and $88 million for the first, second, third and
fourth quarters of 2014, respectively.
(4) On October 1, 2014, the company divested the Consumer
Care business to Bayer.
(5) Other revenues are comprised primarily of alliance
revenue, third-party manufacturing sales and miscellaneous corporate
revenues, including revenue hedging activities. 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 2014 include $232 million of revenue
recognized in connection with the sale of U.S. Saphris rights.
Merck
Media:
Lainie Keller, 908-236-5036
Steven Cragle, 908-740-1801
or
Investors:
Justin Holko, 908-740-1879
Joe Romanelli, 908-740-1986