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October 27, 2017 5:45 am ET

• Third-Quarter 2017 Worldwide Sales Were $10.3 Billion, a Decrease of 2 Percent, Including a 1 Percent Positive Impact from Foreign Exchange
• KEYTRUDA as well as Animal Health Business Achieved Quarterly Sales of $1.0 Billion
• Third-Quarter 2017 GAAP EPS was $(0.02), Reflecting a $2.35 Billion Charge Related to the Formation of a Strategic Oncology Collaboration with AstraZeneca; Third-Quarter Non-GAAP EPS was $1.11
• Company Narrows and Raises 2017 Full-Year Revenue Range to be Between $40.0 Billion and $40.5 Billion, Including a Less Than 1 Percent Negative Impact from Foreign Exchange
• Company Narrows and Raises 2017 Full-Year GAAP EPS Range to be Between $1.78 and $1.84; Narrows and Raises 2017 Full-Year Non-GAAP EPS Range to be Between $3.91 and $3.97, Including a Less Than 1 Percent Negative Impact from Foreign Exchange
• KEYTRUDA Development Program Advances with Key Regulatory Approvals

Merck (NYSE:MRK), known as MSD outside the United States and Canada,
today announced financial results for the third quarter of 2017.

“Our performance in the third quarter demonstrates the strength of our
underlying business, with growth from key product launches, good global
demand for vaccines, as well as strength from our Animal Health
business,” said Kenneth C. Frazier, chairman and chief executive
officer, Merck. “We will continue augmenting our pipeline through
value-creating business development like our oncology collaboration with
AstraZeneca to address unmet medical need and drive future growth.”

Financial Summary

Worldwide sales were $10.3 billion for the third quarter of 2017, a
decrease of 2 percent compared with the third quarter of 2016, including
a 1 percent positive impact from foreign exchange.

Sales in the third quarter of 2017 were reduced by approximately $240
million due to a borrowing from the U.S. Centers for Disease Control and
Prevention Pediatric Vaccine Stockpile of GARDASIL 9 (Human
Papillomavirus 9-valent Vaccine, Recombinant), a vaccine to prevent
certain cancers and other diseases caused by HPV, driven in part by the
temporary production shutdown resulting from the cyber-attack, as well
as overall higher demand than originally planned.

Additionally, as expected, revenue was unfavorably impacted by
approximately $135 million from lost sales in certain markets related to
the cyber-attack. Sales in the third quarter of 2017 compared with the
third quarter of 2016 were also unfavorably impacted by approximately
$150 million of additional sales in Japan in the third quarter of 2016
resulting from the timing of shipments. Sales in the third quarter of
2017 reflect incremental sales of approximately $130 million due to the
recording of vaccine sales from 19 European countries that were part of
the Sanofi Pasteur MSD (SPMSD) vaccines joint venture, which was
terminated on Dec. 31, 2016.

GAAP (generally accepted accounting principles) earnings (loss) per
share assuming dilution (EPS) were $(0.02) for the third quarter of
2017, which reflects a $2.35 billion aggregate charge related to the
formation of a strategic oncology collaboration with AstraZeneca.
Non-GAAP EPS of $1.11 for the third quarter of 2017 excludes
acquisition- and divestiture-related costs, restructuring costs, the
charge related to the AstraZeneca collaboration referenced above and
certain other items. Year-to-date results can be found in the attached
tables.

Pipeline Highlights

Merck expanded its focus in oncology by further advancing the
development program for KEYTRUDA (pembrolizumab), an anti-PD-1 therapy,
receiving key regulatory approvals and through business development
transactions.

• The U.S. Food and Drug Administration (FDA) approved
  KEYTRUDA under its Accelerated Approval program for the
  treatment of patients with recurrent locally advanced or metastatic
  gastric or gastroesophageal junction adenocarcinoma whose tumors
  express PD-L1 and who have already received two or more lines of
  chemotherapy.
• The European Commission approved
  KEYTRUDA for the treatment of certain patients with locally advanced
  or metastatic urothelial carcinoma.
• At the European Society for Medical Oncology 2017 Congress, data were presented
  from studies evaluating the use of KEYTRUDA as a monotherapy and
  combination therapy in 12 cancers.
• Merck is amending the KEYNOTE-189 study to include overall survival as
  a co-primary endpoint. The updated completion date is Feb. 2019 and
  there will be opportunities for the company to conduct interim
  analyses. KEYNOTE-189 is a Phase 3 study of platinum-pemetrexed
  chemotherapy with or without KEYTRUDA in patients with first line
  metastatic non-squamous non-small cell lung cancer (NSCLC).
• Merck entered
  into an oncology collaboration with AstraZeneca to co-develop and
  co-commercialize AstraZeneca’s Lynparza (olaparib), a PARP inhibitor,
  and investigational medicine selumetinib, a MEK inhibitor, as
  monotherapy and in combination treatments for multiple cancer types.
• The FDA approved
  Lynparza for new and additional uses in ovarian cancer, including as a
  maintenance treatment for recurrent epithelial ovarian, fallopian tube
  or primary peritoneal adult cancer patients who are in response to
  platinum-based chemotherapy, regardless of BRCA status, and in tablets
  for the use in patients with deleterious or suspected deleterious
  germline BRCA-mutated advanced ovarian cancer, who have been treated
  with three or more prior lines of chemotherapy.
• The FDA accepted
  for review the supplemental New Drug Application (NDA) for the use of
  Lynparza tablets in patients with germline BRCA-mutated, HER2-negative
  metastatic breast cancer who have been previously treated with
  chemotherapy either in the neoadjuvant, adjuvant or metastatic
  settings. The FDA granted Priority Review with a PDUFA action date in
  the first quarter of 2018. A NDA was also submitted
  to Japan’s Pharmaceuticals and Medical Devices Agency.
• Merck acquired
  Rigontec, a pioneer in accessing the retinoic acid-inducible gene I
  (RIG-I) pathway, part of the innate immune system, as a novel and
  distinct approach in cancer immunotherapy to induce both immediate and
  long-term anti-tumor immunity. Rigontec’s lead candidate, RGT100, is
  currently in Phase I development evaluating treatment in patients with
  various tumors. The acquisition closed in October.

Merck presented
results at the European Research Organization on Genital Infection and
Neoplasia Congress from the final analyses of the pivotal Phase 3
efficacy, immunogenicity and safety clinical trial for GARDASIL 9
showing sustained efficacy for up to six years in the per protocol
population.

Merck presented
data at ID Week 2017 from the pivotal Phase 3 clinical study of
letermovir, an investigational antiviral medicine for prophylaxis of
cytomegalovirus (CMV) infection or disease in adult CMV-seropositive
recipients of an allogeneic hematopoietic stem cell transplant. Data
were also presented from the Phase 1 trial for V160, an investigational
vaccine for human CMV, evaluating safety, tolerability and
immunogenicity in healthy adults.

Merck announced
it will not submit applications for regulatory approval for anacetrapib,
the investigational cholesteryl ester transfer protein inhibitor,
following a thorough review of the clinical profile of anacetrapib,
including discussions with external experts.

Merck announced
the strategic decision to discontinue the development of the
investigational combination regimens MK-3682B
(grazoprevir/ruzasvir/uprifosbuvir) and MK-3682C (ruzasvir/uprifosbuvir)
for the treatment of chronic hepatitis C virus (HCV) infection. This
decision was made based on a review of available Phase 2 efficacy data
and in consideration of the evolving marketplace and the growing number
of treatment options available for patients with chronic HCV infection,
including ZEPATIER (elbasvir and grazoprevir).

Third-Quarter Revenue Performance

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

Pharmaceutical Revenue

Third-quarter pharmaceutical sales decreased 3 percent to $9.2 billion,
including a 1 percent positive impact from foreign exchange. In addition
to the factors mentioned in the Financial Summary above, sales in the
third quarter of 2017 reflect the loss of market exclusivity for several
products, as well as lower sales of JANUVIA (sitagliptin) and JANUMET
(sitagliptin and metformin HCl), medicines that help lower blood sugar
in adults with type 2 diabetes. These declines were partially offset by
significant growth in KEYTRUDA and from other product launches, as well
as from growth in certain in-line brands.

The pharmaceutical sales decline was largely driven by the loss of U.S.
market exclusivity for ZETIA (ezetimibe) in late 2016 and VYTORIN
(ezetimibe/simvastatin) in April 2017, medicines for lowering LDL
cholesterol, and the ongoing impacts of generic competition for CUBICIN
(daptomycin for injection), an I.V. antibiotic, and biosimilar
competition for REMICADE (infliximab), a treatment for inflammatory
diseases, in the company’s marketing territories in Europe. In the
aggregate, sales of these products declined approximately $800 million
during the third quarter of 2017 compared to the third quarter of 2016.

Additionally, the decline reflects lower 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, largely attributable to lower sales in the
United States as described previously, partially offset by growth in
Europe due to the termination of the SPMSD vaccines joint venture noted
above, and growth in Asia Pacific reflecting strong demand.

The decrease in the diabetes franchise of JANUVIA and JANUMET was
primarily due to pricing pressure partially offset by continued volume
growth globally.

Higher sales of KEYTRUDA reflect the company’s continued launch with new
indications globally. Strong momentum from the treatment of patients
with NSCLC contributed significantly to KEYTRUDA’s overall growth, as
KEYTRUDA is the only anti-PD-1 approved in the first-line setting.

Growth in ZEPATIER is due to ongoing launches globally. The company
anticipates that future sales of ZEPATIER will be unfavorably affected
by increasing competition and declining patient volumes.

Additionally, the ongoing launch of BRIDION (sugammadex) Injection 100
mg/mL, a medicine for the reversal of neuromuscular blockade induced by
rocuronium bromide or vecuronium bromide in adults undergoing surgery,
generated sales of $185 million in the quarter driven largely by strong
growth in the United States.

Growth in PNEUMOVAX 23 (pneumococcal vaccine polyvalent), a vaccine to
help prevent pneumococcal disease, was largely due to higher demand and
pricing in the United States.

Animal Health Revenue

Animal Health sales totaled $1.0 billion for the third quarter of 2017,
an increase of 16 percent compared with the third quarter of 2016,
including a 2 percent positive impact from foreign exchange. Growth was
driven by sales increases in companion animal products, primarily the
BRAVECTO (fluralaner) line of products that kill fleas and ticks in dogs
and cats for up to 12 weeks, and companion animal vaccines.
Additionally, higher sales of ruminants products, including the positive
impact of the Vallée S.A. acquisition which closed in March, swine
products and poultry products all contributed to growth.

Third-Quarter Expense, EPS and Related Information

The table below presents selected expense information.

GAAP Expense, EPS and Related Information

On a GAAP basis, the gross margin was 68.3 percent for the third quarter
of 2017 compared to 67.6 percent for the third quarter of 2016. The
increase in gross margin for the third quarter of 2017 was primarily
driven by the favorable effects of product mix partially offset by costs
related to the cyber-attack.

Marketing and administrative expenses were $2.4 billion in the third
quarter of 2017, essentially flat as compared to the third quarter of
2016. Lower acquisition- and divestiture-related costs were offset by
costs associated with the company now operating its European vaccines
business in the countries that were previously part of the SPMSD
vaccines joint venture, higher promotion expenses related to product
launches and remediation costs related to the cyber-attack.

Research and development (R&D) expenses were $4.4 billion in the third
quarter of 2017 compared with $1.7 billion in the third quarter of 2016.
The increase primarily reflects a $2.35 billion aggregate charge related
to the formation of the collaboration with AstraZeneca, higher
in-process research and development (IPR&D) impairment charges driven by
a $240 million charge resulting from the decision to discontinue the
development of investigational HCV combination regimens MK-3682B and
MK-3682C noted above, and increased investment in early drug development.

The GAAP effective income tax rate of 125.5 percent for the third
quarter of 2017 reflects the unfavorable impact of a $2.35 billion
aggregate charge related to the formation of the AstraZeneca
collaboration for which no tax benefit has been recognized, partially
offset by the favorable impact of a net tax benefit of $234 million
related to the settlement of certain federal income tax issues.

GAAP EPS was $(0.02) for the third quarter of 2017 compared with $0.78
for the third quarter of 2016.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 76.0 percent for the third quarter of 2017
compared to 75.3 percent for the third quarter of 2016. The increase in
non-GAAP gross margin was largely driven by the favorable effects of
product mix partially offset by costs related to the cyber-attack.

Non-GAAP marketing and administrative expenses were $2.4 billion in the
third quarter of 2017, an increase of 1 percent compared to the third
quarter of 2016. The increase in non-GAAP marketing and administrative
expenses was driven primarily by costs associated with the company now
operating its European vaccines business in the countries that were
previously part of the SPMSD vaccines joint venture, higher promotion
expenses related to product launches and remediation costs related to
the cyber-attack.

Non-GAAP R&D expenses were $1.8 billion in the third quarter of 2017, an
8 percent increase compared to the third quarter of 2016. The increase
reflects increased investment in early drug development.

The non-GAAP effective income tax rate was 18.7 percent compared to 23.8
percent in the third quarter of 2016.

Non-GAAP EPS was $1.11 for the third quarter of 2017 compared with $1.07
for the third quarter of 2016.

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

Financial Outlook

Merck has narrowed and raised its full-year 2017 GAAP EPS range to be
between $1.78 and $1.84. Merck narrowed and raised its full-year 2017
non-GAAP EPS range to be between $3.91 and $3.97, including a less than
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, a charge related to the
formation of the collaboration with AstraZeneca and certain other items.

Merck has narrowed and raised its full-year 2017 revenue range to be
between $40.0 billion and $40.5 billion, including a less than 1 percent
negative impact from foreign exchange at current exchange rates.

The following table summarizes the company’s 2017 financial guidance.

A reconciliation of anticipated 2017 GAAP EPS to non-GAAP EPS and the
items excluded from non-GAAP EPS are provided in the table below.

The expected full-year 2017 GAAP effective tax rate of 24.5 to 25.5
percent reflects an unfavorable impact of approximately 4.5 percentage
points from the above items.

Total Employees

As of Sept. 30, 2017, Merck had approximately 69,500 employees worldwide.

Earnings Conference Call

Investors, journalists and the general public may access a live audio
webcast of the call today at 8:00 a.m. EDT on Merck’s website at http://investors.merck.com/events-and-presentations/default.aspx.
Institutional investors and analysts can participate in the call by
dialing (706) 758-9927 or (877) 381-5782 and using ID code number
83569475. Members of the media are invited to monitor the call by
dialing (706) 758-9928 or (800) 399-7917 and using ID code number
83569475. 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 2016 Annual Report on Form 10-K
and the company’s other filings with the Securities and Exchange
Commission (SEC) available at the SEC’s Internet site (www.sec.gov).

¹ Net (loss) income attributable to Merck & Co., Inc.

² Merck is providing certain 2017 and 2016 non-GAAP
information that excludes certain items because of the nature of these
items and the impact they have on the analysis of underlying business
performance and trends. Management believes that providing this
information enhances investors’ understanding of the company’s results
as it permits investors to understand how management assesses
performance. Management uses these measures internally for planning and
forecasting purposes and to measure the performance of the company along
with other metrics. Senior management’s annual compensation is derived
in part using non-GAAP income and non-GAAP EPS. This information should
be considered in addition to, but not as a substitute for or superior
to, information prepared in accordance with GAAP. For a description of
the items, see Table 2a attached to this release.

³ Includes expenses for the amortization of intangible assets
and purchase accounting adjustments to inventories recognized as a
result of acquisitions, intangible asset impairment charges and expense
or income related to changes in the estimated fair value measurement of
contingent consideration. Also includes integration, transaction and
certain other costs related to business acquisitions and divestitures.

⁴ Represents the difference between calculated GAAP EPS and
calculated non-GAAP EPS, which may be different than the amount
calculated by dividing the impact of the excluded items by the
weighted-average shares for the period.

⁵ Includes the estimated tax impact on the reconciling items,
as well as a $234 million net tax benefit related to the settlement of
certain federal income tax issues.

* 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 for the third quarter and first
nine months of 2017 include a $2.35 billion aggregate charge recorded in
conjunction with the formation of a collaboration with AstraZeneca.

(3) Represents separation and other related costs associated with
restructuring activities under the company’s formal restructuring
programs.

(4) Because the company recorded a net loss in the third quarter of
2017, no potential dilutive common shares were used in the computation
of loss per common share assuming dilution as the effect would have been
anti-dilutive.

(5) The effective income tax rates for the third quarter and first nine
months of 2017 reflect the unfavorable impact of a $2.35 billion
aggregate pretax charge recorded in conjunction with the formation of a
collaboration with AstraZeneca for which no tax benefit has been
recognized, partially offset by the favorable impact of a net tax
benefit of $234 million related to the settlement of certain federal
income tax issues.

Only the line items that are affected by non-GAAP adjustments are shown.

Merck is providing certain non-GAAP information that excludes certain
items because of the nature of these items and the impact they have on
the analysis of underlying business performance and trends. Management
believes that providing this information enhances investors’
understanding of the company’s results as it permits investors to
understand how management assesses performance. Management uses these
measures internally for planning and forecasting purposes and to measure
the performance of the company along with other metrics. Senior
management’s annual compensation is derived in part using non-GAAP
income and non-GAAP EPS. This information should be considered in
addition to, but not as a substitute for or superior to, information
prepared in accordance with GAAP.

(1) Amounts included in materials and production costs primarily reflect
expenses for the amortization of intangible assets recognized as a
result of business acquisitions. Amounts included in marketing and
administrative expenses reflect integration, transaction and certain
other costs related to business acquisitions and divestitures. Amounts
included in research and development expenses reflect $245 million of
in-process research and development (IPR&D) impairment charges and $26
million of expenses related to an increase in the estimated fair value
measurement of liabilities for contingent consideration. Amount included
in other (income) expense, net represents royalty income in connection
with 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) Amount included in research and development expenses represents an
aggregate charge recorded in conjunction with the formation of a
collaboration with AstraZeneca.

(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.

(5) Represents a net tax benefit related to the settlement of certain
federal income tax issues.

Only the line items that are affected by non-GAAP adjustments are shown.

Merck is providing certain non-GAAP information that excludes certain
items because of the nature of these items and the impact they have on
the analysis of underlying business performance and trends. Management
believes that providing this information enhances investors’
understanding of the company’s results as it permits investors to
understand how management assesses performance. Management uses these
measures internally for planning and forecasting purposes and to measure
the performance of the company along with other metrics. Senior
management’s annual compensation is derived in part using non-GAAP
income and non-GAAP EPS. This information should be considered in
addition to, but not as a substitute for or superior to, information
prepared in accordance with GAAP.

(1) Amounts included in materials and production costs primarily reflect
$2.3 billion of expenses for the amortization of intangible assets
recognized as a result of business acquisitions, as well as intangible
asset impairment charges of $123 million. Amounts included in marketing
and administrative expenses reflect integration, transaction and certain
other costs related to business acquisitions and divestitures. Amounts
included in research and development expenses reflect $253 million of
in-process research and development (IPR&D) impairment charges and $36
million of expenses related to an increase in the estimated fair value
measurement of liabilities for contingent consideration. Amounts
included in other (income) expense, net reflect changes in the estimated
fair value measurement of liabilities for contingent consideration,
partially offset by royalty income in connection with 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) Amount included in research and development expense represents an
aggregate charge recorded in conjunction with the formation of a
collaboration with AstraZeneca.

(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.

(5) Represents the estimated tax impact on the reconciling items based
on applying the statutory rate of the originating territory of the
non-GAAP adjustments, as well as a $234 million net tax benefit related
to the settlement of certain federal income tax issues and an $88
million tax benefit related to the settlement of a state income tax
issue.

* 200% or greater

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

⁽¹⁾ Only select products are shown.

⁽²⁾ Vaccine sales in 2017 include sales in the European
markets that were previously part of the Sanofi Pasteur MSD (SPMSD)
joint venture that was terminated on December 31, 2016. Amounts for 2016
reflect supply sales to SPMSD.

⁽³⁾ Includes Pharmaceutical products not individually shown
above. Other Vaccines sales included in Other Pharmaceutical were $88
million in the first quarter, $87 million in the second quarter and $89
million in the third quarter of 2017 and $103 million, $91 million, $135
million and $126 million for the first, second, third and fourth
quarters of 2016, respectively.

⁽⁴⁾ Other Revenues are comprised primarily of alliance
revenue, third-party manufacturing sales and miscellaneous corporate
revenues, including revenue hedging activities.

Merck
Media:
Tracy Ogden, 908-740-1747
or
Claire Gillespie, 267-305-0932
or
Investors:
Teri Loxam, 908-740-1986
or
Amy Klug, 908-740-1898