Merck Announces Fourth-Quarter and Full-Year 2016 Financial Results

February 2, 2017 6:45 am ET

Fourth-Quarter 2016 Worldwide Sales Were $10.1 Billion, a Decrease of 1 Percent, Including a 1 Percent Negative Impact from Foreign Exchange; Full-Year 2016 Worldwide Sales Were $39.8 Billion, an Increase of 1 Percent, Including a 2 Percent Negative Impact from Foreign Exchange
Fourth-Quarter 2016 GAAP EPS Was $0.42; Fourth-Quarter Non-GAAP EPS Was $0.89; Full-Year 2016 GAAP EPS Was $2.04; Full-Year Non-GAAP EPS Was $3.78
2017 Financial Outlook
- Expects Full-Year 2017 GAAP EPS to be Between $2.47 and $2.62; Expects Non-GAAP EPS to be Between $3.72 and $3.87, Including an Approximately 2 Percent Negative Impact from Foreign Exchange
- Anticipates Full-Year 2017 Worldwide Sales to be Between $38.6 Billion and $40.1 Billion, Including an Approximately 2 Percent Negative Impact from Foreign Exchange
Advanced KEYTRUDA Development Program
- U.S. Food and Drug Administration (FDA) Approved KEYTRUDA for Previously Untreated Patients with Metastatic Non-Small Cell Lung Cancer (NSCLC) Whose Tumors Have High PD-L1 Expression (Tumor Proportion Score of 50 Percent or More) Without EGFR or ALK Genomic Tumor Aberrations
- FDA Granted Priority Review for Three Supplemental Biologics License Applications for KEYTRUDA

Merck (NYSE:MRK), known as MSD outside the United States and Canada,
today announced financial results for the fourth quarter and full year
of 2016.

“The performance of Merck’s broad and balanced portfolio allows us to
remain committed to biomedical innovation that saves and improves lives
and delivers long-term value to shareholders,” said Kenneth C. Frazier,
chairman and chief executive officer, Merck. “The momentum behind our
pipeline and key product launches, including the continued growth and
expansion of KEYTRUDA into new indications and markets around the world,
further reinforces our company’s strategic direction.”

Financial Summary
$ in millions, except EPS amounts	Fourth Quarter		Year Ended
			Dec. 31,	Dec. 31,
	2016	2015	2016	2015
Sales	$10,115	$10,215	$39,807	$39,498
GAAP EPS	0.42	0.35	2.04	1.56
Non-GAAP EPS that excludes certain items¹*	0.89	0.93	3.78	3.59
GAAP net income²	1,177	976	5,691	4,442
Non-GAAP net income that excludes certain items^1,2*	2,470	2,608	10,538	10,195
		*Refer to table on page 8.

Worldwide sales were $10.1 billion for the fourth quarter of 2016, a
decrease of 1 percent compared with the fourth quarter of 2015,
including a 1 percent negative impact from foreign exchange. Sales in
the fourth quarter of 2016 reflect the unfavorable impact of
approximately $150 million of sales in Japan, which occurred in the
third quarter of 2016 rather than in the fourth quarter due to the
implementation of a resource planning system. Full-year 2016 worldwide
sales were $39.8 billion, an increase of 1 percent compared with the
full year of 2015, including a 2 percent negative impact from foreign
exchange.

GAAP (generally accepted accounting principles) earnings per share
assuming dilution (EPS) were $0.42 for the fourth quarter and $2.04 for
the full year of 2016. Non-GAAP EPS of $0.89 for the fourth quarter and
$3.78 for the full year of 2016 excludes acquisition- and
divestiture-related costs, restructuring costs and certain other items,
which include a charge to settle the worldwide KEYTRUDA patent
litigation.

Pipeline Highlights

Merck significantly advanced the clinical development program for
KEYTRUDA (pembrolizumab), an anti-PD-1 therapy.

The FDA approved
a supplemental Biologics License Application (sBLA) for KEYTRUDA for
the first-line treatment of patients with metastatic NSCLC whose
tumors have high PD-L1 expression (Tumor Proportion Score [TPS] of 50
Percent or More) as determined by an FDA-approved test, with no EGFR
or ALK genomic tumor aberrations.

The FDA granted Priority Review for three additional sBLAs for
KEYTRUDA, including:
- Use in combination with chemotherapy as a first-line treatment
  for patients with metastatic or advanced NSCLC regardless of PD-L1
  expression and with no EGFR or ALK genomic tumor aberrations. The
  PDUFA action date is May 10, 2017.
- The treatment
  of previously treated patients with advanced microsatellite
  instability-high cancer. The PDUFA action date is March 8, 2017.
- The treatment
  of patients with refractory classical Hodgkin lymphoma (cHL) or
  for patients with cHL who have relapsed after three or more prior
  lines of therapy. The PDUFA action date is March 15, 2017.
KEYTRUDA received Breakthrough Therapy Designations from the FDA for
the second-line treatment of patients with urothelial carcinoma with
disease progression on or after platinum-containing chemotherapy and
for the treatment of patients with primary mediastinal B-cell lymphoma
that is refractory to or has relapsed after two prior lines of therapy.
The European Commission approved
KEYTRUDA for the first-line treatment of metastatic NSCLC in adults
whose tumors have high PD-L1 expression (TPS of 50 percent or more)
with no EGFR or ALK positive tumor mutations.
KEYTRUDA was
approved in Japan as a first- and second-line treatment of certain
patients with PD-L1-positive unresectable advanced/recurrent NSCLC.
Merck and Incyte Corporation recently announced
the expansion of the clinical development program investigating
KEYTRUDA in combination with epacadostat, Incyte’s investigational
oral selective IDO1 inhibitor, to include pivotal studies for NSCLC,
renal cell carcinoma, bladder cancer and squamous cell carcinoma of
the head and neck.

The company recently completed enrollment in its Phase 3 APECS study (NCT01953601)
evaluating the safety and efficacy of verubecestat (MK-8931) in people
with prodromal, or mild, Alzheimer’s disease. Estimated primary
completion date for the trial is February 2019.

Fourth-Quarter and Full-Year Revenue Performance

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


$ in millions	Fourth Quarter				Year Ended
				Change Ex-	Dec. 31,	Dec. 31,		Change Ex-
	2016	2015	Change	Exchange	2016	2015	Change	Exchange
Total Sales	$10,115	$10,215	-1%	0%	$39,807	$39,498	1%	3%
Pharmaceutical	8,904	9,027	-1%	-1%	35,151	34,782	1%	2%
JANUVIA/JANUMET	1,509	1,447	4%	4%	6,109	6,014	2%	2%
ZETIA/VYTORIN	873	999	-13%	-13%	3,701	3,777	-2%	-1%
GARDASIL/GARDASIL 9	542	497	9%	9%	2,173	1,908	14%	14%
PROQUAD, M-M-R II and VARIVAX	405	409	-1%	-1%	1,640	1,505	9%	10%
KEYTRUDA	483	214	125%	128%	1,402	566	148%	151%
ISENTRESS	337	374	-10%	-9%	1,387	1,511	-8%	-6%
REMICADE	269	396	-32%	-31%	1,268	1,794	-29%	-28%
CUBICIN	119	322	-63%	-63%	1,087	1,127	-4%	-4%
SINGULAIR	210	273	-23%	-26%	915	931	-2%	-4%
PNEUMOVAX 23	238	188	27%	25%	641	542	18%	17%
Animal Health	884	832	6%	7%	3,478	3,331	4%	8%
Other Revenues	327	356	-8%	30%	1,178	1,385	-15%	15%

Pharmaceutical Revenue

Fourth-quarter pharmaceutical sales decreased 1 percent to $8.9 billion.
The decline was driven primarily by the loss of U.S. market exclusivity
in 2016 for CUBICIN (daptomycin for injection), an I.V. antibiotic;
NASONEX (mometasone furoate monohydrate), an inhaled nasal
corticosteroid for the treatment of nasal allergy symptoms; and ZETIA
(ezetimibe), a medicine for lowering LDL cholesterol; as well as by the
ongoing impact of biosimilar competition in the company’s marketing
territories in Europe for REMICADE (infliximab), a treatment for
inflammatory diseases. In the aggregate, sales of these products
declined $564 million during the fourth quarter of 2016 compared to the
fourth quarter of 2015.

These declines were largely offset by growth in oncology, hepatitis C,
diabetes and vaccines, which include the ongoing launches of KEYTRUDA
and ZEPATIER (elbasvir and grazoprevir), a medicine for the treatment of
chronic hepatitis C virus genotypes 1 or 4 infection. 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
$139 million during the fourth quarter of 2016.

Growth of KEYTRUDA reflects the company’s continued efforts to launch
the product with new indications, particularly as a first-line treatment
for NSCLC and for previously treated recurrent or metastatic head and
neck cancer in the United States, and as a second-line treatment for
NSCLC globally.

ZEPATIER sales growth was primarily driven by the ongoing launch in the
United States, as well as ongoing launches in emerging markets and the
launches in Europe and Japan. In the fourth quarter of 2016, sales of
ZEPATIER were $229 million.

Pharmaceutical sales also reflect an increase in the diabetes franchise
of JANUVIA (sitagliptin) and JANUMET (sitagliptin and metformin HCl),
medicines that help lower blood sugar in adults with type 2 diabetes,
driven by sales growth in the United States, partially offset by lower
sales in Japan due to the timing of shipments.

Growth in vaccines resulted from higher sales of PNEUMOVAX 23
(pneumococcal vaccine polyvalent) in the United States due to the
adoption of recently issued vaccination guidelines from the Centers for
Disease Control and Prevention; and GARDASIL 9 (Human Papillomavirus
9-valent Vaccine, Recombinant) and GARDASIL [Human Papillomavirus
Quadrivalent (Types 6, 11, 16, and 18) Vaccine, Recombinant], vaccines
to prevent certain cancers and other diseases caused by HPV, due to
increased pricing and demand in the United States. On Dec. 31, 2016,
Merck and Sanofi Pasteur ended the Sanofi Pasteur MSD vaccines joint
venture. As a result, beginning in 2017, Merck will operate its vaccines
business in Europe and will record vaccine sales in the 19 European
countries previously part of the joint venture.

In April 2017 the company will lose market exclusivity in the United
States for VYTORIN (ezetimibe/simvastatin), a medicine for lowering LDL
cholesterol, and anticipates a significant decline in U.S. VYTORIN sales
thereafter. Full-year 2016 U.S. sales of VYTORIN were $473 million.

Full-year 2016 pharmaceutical sales increased 1 percent to $35.2
billion, including a 1 percent negative impact from foreign exchange.
Growth was driven by sales in oncology, vaccines and hepatitis C
products, partially offset by sales declines of $887 million due to the
loss of U.S. market exclusivity for NASONEX and CUBICIN, and the impact
of biosimilar competition for REMICADE in the company’s marketing
territories in Europe.

Animal Health Revenue

Animal Health sales totaled $884 million for the fourth quarter of 2016,
an increase of 6 percent compared with the fourth quarter of 2015,
including a 1 percent negative impact from foreign exchange. Worldwide
sales for the full year of 2016 were $3.5 billion, an increase of 4
percent, including a 4 percent negative impact from foreign exchange.
Sales growth in both periods was primarily driven by an increase in
sales of companion animal products, particularly the BRAVECTO
(fluralaner) line of products that kill fleas and ticks in dogs and cats
for up to 12 weeks.

Fourth-Quarter and Full-Year Expense, EPS and Related Information

The tables below present selected expense information.


$ in millions		Acquisition- and
		Divestiture-	Restructuring	Certain Other
Fourth-Quarter 2016	GAAP	Related Costs ³	Costs	Items	Non-GAAP ¹
Materials and production	$3,332	$756	$32	$–	$2,544
Marketing and administrative	2,593	22	4	–	2,567
Research and development	1,720	(33)	9	–	1,744
Restructuring costs	265	–	265	–	–
Other (income) expense, net	721	35	–	654	32

Fourth-Quarter 2015
Materials and production	$3,850	$1,194	$81	$–	$2,575
Marketing and administrative	2,615	47	8	–	2,560
Research and development	1,797	(24)	18	–	1,803
Restructuring costs	233	–	233	–	–
Other (income) expense, net	905	47	–	707	151


$ in millions		Acquisition- and
		Divestiture-	Restructuring	Certain Other
Year Ended Dec. 31, 2016	GAAP	Related Costs ³	Costs	Items	Non-GAAP ¹
Materials and production	$13,891	$4,035	$181	$–	$9,675
Marketing and administrative	9,762	78	95	–	9,589
Research and development	7,194	222	142	–	6,830
Restructuring costs	651	–	651	–	–
Other (income) expense, net	810	47	–	648	115

Year Ended Dec. 31, 2015
Materials and production	$14,934	$4,869	$361	$–	$9,704
Marketing and administrative	10,313	436	78	–	9,799
Research and development	6,704	39	52	–	6,613
Restructuring costs	619	–	619	–	–
Other (income) expense, net	1,527	54	–	1,125	348

GAAP Expense, EPS and Related Information

On a GAAP basis, the gross margin was 67.1 percent for the fourth
quarter of 2016 compared to 62.3 percent for the fourth quarter of 2015.
The increase in gross margin for the fourth quarter of 2016 was
primarily driven by lower acquisition- and divestiture-related costs and
restructuring costs noted above, which negatively affected gross margin
by 7.7 percentage points in the fourth quarter of 2016 compared with
12.5 percentage points for the fourth quarter of 2015. The gross margin
was 65.1 percent for the full year of 2016 compared to 62.2 percent for
the full year of 2015. The increase in gross margin for the full year of
2016 was primarily driven by lower acquisition- and divestiture-related
costs and restructuring costs, which negatively affected gross margin by
10.6 percentage points in the full year of 2016 compared with 13.2
percentage points for the full year of 2015.

Marketing and administrative expenses were $2.6 billion in the fourth
quarter of 2016, a 1 percent decrease compared to the fourth quarter of
2015. The decline primarily reflects lower acquisition- and
divestiture-related costs. Full-year 2016 marketing and administrative
expenses were $9.8 billion, a 5 percent decrease compared to the full
year of 2015. The decline reflects lower acquisition- and
divestiture-related costs, the favorable impact of foreign exchange and
lower direct selling costs.

Research and development (R&D) expenses were $1.7 billion in the fourth
quarter of 2016, a 4 percent decrease compared to the fourth quarter of
2015. The decline reflects a reduction in expenses resulting from a
decrease in the estimated fair value of liabilities for contingent
consideration, partially offset by higher in-process research and
development (IPR&D) impairment charges. R&D expenses were $7.2 billion
for the full year of 2016, a 7 percent increase compared to the full
year of 2015. The increase primarily reflects higher IPR&D impairment
charges, clinical development spending and restructuring costs,
partially offset by a reduction in expenses resulting from a decrease in
the estimated fair value of liabilities for contingent consideration.

Other (income) expense, net, was $721 million of expense in the fourth
quarter of 2016 compared to $905 million of expense in the fourth
quarter of 2015 and was $810 million of expense for the full year of
2016 compared to $1.5 billion of expense for the full year of 2015.
Other (income) expense, net for the fourth quarter and full year of 2016
includes a $625 million charge to settle the worldwide KEYTRUDA patent
litigation. Other (income) expense, net for the fourth quarter and full
year of 2015 includes $161 million and $876 million, respectively, of
foreign exchange losses related to the devaluation of the company’s net
monetary assets in Venezuela and a $680 million net charge to settle the
Vioxx shareholder class action litigation.

GAAP EPS was $0.42 for the fourth quarter of 2016 compared with $0.35
for the fourth quarter of 2015. GAAP EPS was $2.04 for the full year of
2016 compared with $1.56 for the full year of 2015.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 74.8 percent for the fourth quarter of
2016, the same as the fourth quarter of 2015. The non-GAAP gross margin
was 75.7 percent for the full year of 2016 compared to 75.4 percent for
the full year of 2015. The increase in GAAP gross margin for the full
year of 2016 reflects lower inventory write-offs.

Non-GAAP marketing and administrative expenses were $2.6 billion in the
fourth quarter of 2016, comparable to the fourth quarter of 2015.
Non-GAAP marketing and administrative expenses were $9.6 billion for the
full year of 2016, a 2 percent decrease compared to the full year of
2015. The decline reflects the favorable impact of foreign exchange and
lower direct selling costs.

Non-GAAP R&D expenses were $1.7 billion in the fourth quarter of 2016, a
3 percent decline compared to the fourth quarter of 2015. The decline
reflects lower licensing costs. Non-GAAP R&D expenses were $6.8 billion
for the full year of 2016, a 3 percent increase compared to the full
year of 2015 reflecting increased clinical development spending.

Non-GAAP EPS was $0.89 for the fourth quarter of 2016 compared with
$0.93 for the fourth quarter of 2015. Non-GAAP EPS was $3.78 for the
full year of 2016 compared with $3.59 for the full year of 2015.

Non-GAAP other (income) expense, net, was $32 million of expense in the
fourth quarter of 2016 compared to $151 million of expense in the fourth
quarter of 2015, primarily reflecting the receipt of a milestone
payment. Non-GAAP other (income) expense, net, for the full year of 2016
was $115 million of expense compared to $348 million of expense for the
full year of 2015, reflecting lower foreign exchange losses.

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


$ in millions, except EPS amounts	Fourth Quarter		Year Ended
			Dec. 31,	Dec. 31,
	2016	2015	2016	2015
EPS
GAAP EPS	$0.42	$0.35	$2.04	$1.56
Difference⁴	0.47	0.58	1.74	2.03
Non-GAAP EPS that excludes items listed below¹	$0.89	$0.93	$3.78	$3.59

Net Income
GAAP net income²	$1,177	$976	$5,691	$4,442
Difference	1,293	1,632	4,847	5,753
Non-GAAP net income that excludes items listed below^1,2	$2,470	$2,608	$10,538	$10,195

Decrease (Increase) in Net Income Due to Excluded Items:
Acquisition- and divestiture-related costs³	$780	$1,264	$4,382	$5,398
Restructuring costs	310	340	1,069	1,110
Charge to settle worldwide KEYTRUDA patent litigation	625	–	625	–
Net charge to settle Vioxx shareholder class action litigation	–	680	–	680
Foreign exchange losses related to Venezuela	–	161	–	876
Gain on divestiture of certain ophthalmic products	–	(147)	–	(147)
Gain on divestiture of certain migraine clinical development programs	–	–	–	(250)
Other	29	13	23	(34)
Net decrease (increase) in income before taxes	1,744	2,311	6,099	7,633
Income tax (benefit) expense⁵	(451)	(679)	(1,252)	(1,880)
Decrease (increase) in net income	$1,293	$1,632	$4,847	$5,753

Financial Outlook

Merck expects its full-year 2017 GAAP EPS to be between $2.47 and $2.62.
Merck expects its full-year 2017 non-GAAP EPS to be between $3.72 and
$3.87, including an approximately 2 percent negative impact from foreign
exchange. The non-GAAP range excludes acquisition- and
divestiture-related costs and costs related to restructuring programs.

At mid-January 2017 exchange rates, Merck anticipates full-year 2017
revenues to be between $38.6 billion and $40.1 billion, including an
approximately 2 percent negative impact from foreign exchange.

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


	GAAP	Non-GAAP ¹

Revenue	$38.6 to $40.1 billion	$38.6 to $40.1 billion**
Operating expenses	Higher than 2016 by a low-single digit rate	Higher than 2016 by a low-single digit rate
Effective tax rate	22.0% to 23.0%	21.0 % to 22.0%
EPS	$2.47 to $2.62	$3.72 to $3.87
	**The company does not have any non-GAAP adjustments to revenue.

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.


$ in millions, except EPS amounts				Full-Year 2017

GAAP EPS				$2.47 to $2.62
Difference⁴				1.25
Non-GAAP EPS that excludes items listed below¹				$3.72 to $3.87

Acquisition- and divestiture-related costs				$3,600
Restructuring costs				600
Net decrease (increase) in income before taxes				4,200
Estimated income tax (benefit) expense				(750)
Decrease (increase) in net income				$3,450

The expected full-year 2017 GAAP effective tax rate of 22.0 to 23.0
percent reflects an unfavorable impact of approximately 1 percentage
point from the above items.

Total Employees

As of Dec. 31, 2016, Merck had approximately 68,000 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. EST 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
32136167. Members of the media are invited to monitor the call by
dialing (706) 758-9928 or (800) 399-7917 and using ID code number
32136167. 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 over a century, Merck has been 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,
YouTube
and LinkedIn.
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 2015 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 2016 and 2015 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 Tables 2a and 2b attached to this release.

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

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.
In addition, amounts for fourth-quarter and full-year 2015 include net
benefits of $40 million and $410 million, respectively, related to the
settlement of certain federal income tax issues.


MERCK & CO., INC.
CONSOLIDATED STATEMENT OF INCOME – GAAP
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 1

	GAAP								GAAP
	4Q16			4Q15			% Change		Full Year			Full Year			% Change
									2016			2015

Sales	$	10,115		$	10,215		-1	%	$	39,807		$	39,498		1	%

Costs, Expenses and Other
Materials and production ⁽¹⁾		3,332			3,850		-13	%		13,891			14,934		-7	%
Marketing and administrative ⁽¹⁾		2,593			2,615		-1	%		9,762			10,313		-5	%
Research and development ⁽¹⁾		1,720			1,797		-4	%		7,194			6,704		7	%
Restructuring costs ⁽²⁾		265			233		14	%		651			619		5	%
Other (income) expense, net ^{(1) (3)}		721			905		-20	%		810			1,527		-47	%
Income Before Taxes		1,484			815		82	%		7,499			5,401		39	%
Income Tax Provision (Benefit)		300			(166	)				1,787			942
Net Income		1,184			981		21	%		5,712			4,459		28	%
Less: Net Income Attributable to Noncontrolling Interests		7			5					21			17
Net Income Attributable to Merck & Co., Inc.	$	1,177		$	976		21	%	$	5,691		$	4,442		28	%
Earnings per Common Share Assuming Dilution	$	0.42		$	0.35		20	%	$	2.04		$	1.56		31	%

Average Shares Outstanding Assuming Dilution		2,776			2,813					2,787			2,841
Tax Rate ⁽⁴⁾		20.2	%		-20.4	%				23.8	%		17.4	%

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

(3) Other (income) expense, net in the fourth quarter and full year of
2016 includes a $625 million charge to settle worldwide patent
litigation related to KEYTRUDA. Other (income) expense, net in the
fourth quarter and full year of 2015 includes a $680 million net charge
related to the settlement of VIOXX shareholder class action litigation,
as well as a $147 million gain on the divestiture of the company’s
remaining ophthalmics business in international markets. In addition,
other (income) expense, net in the fourth quarter and full year of 2015
includes foreign exchange losses of $161 million and $876 million,
respectively, to devalue the company’s net monetary assets in Venezuela.
Other (income) expense, net for the full year of 2015 also includes a
$250 million gain on the sale of certain migraine clinical development
programs.

(4) The effective income tax rates for the fourth quarter and full year
of 2015 reflect the impact of the net charge related to the settlement
of VIOXX shareholder class action litigation being fully deductible at
combined U.S. federal and state tax rates, the favorable impact of tax
legislation enacted in the fourth quarter of 2015, as well as the
unfavorable effect of non-tax deductible foreign exchange losses related
to Venezuela. The effective income tax rates for the fourth quarter and
full year of 2015 also reflect net benefits of $40 million and $410
million, respectively, related to the settlement of certain federal
income tax issues.


MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
FOURTH QUARTER 2016
(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⁾

Materials and production	$ 3,332	756		32				788	$ 2,544
Marketing and administrative	2,593	22		4				26	2,567
Research and development	1,720	(33)		9				(24)	1,744
Restructuring costs	265			265				265	–
Other (income) expense, net	721	35				654		689	32
Income Before Taxes	1,484	(780)		(310)		(654)		(1,744)	3,228
Income Tax Provision (Benefit)	300	(253)	⁽⁴⁾	(60)	⁽⁴⁾	(138)	⁽⁴⁾	(451)	751
Net Income	1,184	(527)		(250)		(516)		(1,293)	2,477
Net Income Attributable to Merck & Co., Inc.	1,177	(527)		(250)		(516)		(1,293)	2,470
Earnings per Common Share Assuming Dilution	$ 0.42	(0.19)		(0.09)		(0.19)		(0.47)	$ 0.89

Tax Rate	20.2%								23.3%

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 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.

(1) Amounts included in materials and production costs reflect expenses
for the amortization of intangible assets recognized as a result of
acquisitions. 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 business divestitures. Amounts included
in research and development expenses reflect a reduction of expenses of
$432 million related to decreases in the estimated fair value
measurement of liabilities for contingent consideration, largely offset
by $399 million of in-process research and development (IPR&D)
impairment charges. Amount included in other (income) expense, net
represents a goodwill impairment charge related to a business within the
Healthcare Services segment.

(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) Primarily reflects a $625 million charge to settle worldwide patent
litigation related to KEYTRUDA.

(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.


MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
FULL YEAR 2016
(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⁾

Materials and production	$ 13,891	4,035		181				4,216	$ 9,675
Marketing and administrative	9,762	78		95				173	9,589
Research and development	7,194	222		142				364	6,830
Restructuring costs	651			651				651	–
Other (income) expense, net	810	47				648		695	115
Income Before Taxes	7,499	(4,382)		(1,069)		(648)		(6,099)	13,598
Income Tax Provision (Benefit)	1,787	(886)	⁽⁴⁾	(229)	⁽⁴⁾	(137)	⁽⁴⁾	(1,252)	3,039
Net Income	5,712	(3,496)		(840)		(511)		(4,847)	10,559
Net Income Attributable to Merck & Co., Inc.	5,691	(3,496)		(840)		(511)		(4,847)	10,538
Earnings per Common Share Assuming Dilution	$ 2.04	(1.26)		(0.30)		(0.18)		(1.74)	$ 3.78

Tax Rate	23.8%								22.3%

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

(1) Amounts included in materials and production costs primarily reflect
$3.7 billion of expenses for the amortization of intangible assets
recognized as a result of acquisitions, as well as $347 million of
intangible asset impairment charges. 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 business
divestitures. Amounts included in research and development expenses
reflect $624 million of in-process research and development (IPR&D)
impairment charges, partially offset by a reduction of expenses of $402
million related to a decrease in the estimated fair value measurement of
liabilities for contingent consideration. Amounts included in other
(income) expense, net represent goodwill impairment charges related to
businesses within the Healthcare Services segment.

(3) Primarily reflects a $625 million charge to settle worldwide patent
litigation related to KEYTRUDA.

(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.


MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
Table 3


	2016										2015										% Change
	1Q		2Q		3Q		4Q		Full Year		1Q		2Q		3Q		4Q		Full Year		4Q	Full Year
TOTAL SALES ⁽¹⁾	$	9,312	$	9,844	$	10,536	$	10,115	$	39,807	$	9,425	$	9,785	$	10,073	$	10,215	$	39,498	-1	1
PHARMACEUTICAL		8,104		8,700		9,443		8,904		35,151		8,266		8,564		8,925		9,027		34,782	-1	1
Primary Care and Women’s Health
Cardiovascular
Zetia		612		702		671		575		2,560		568		635		633		691		2,526	-17	1
Vytorin		277		293		273		299		1,141		320		320		302		308		1,251	-3	-9
Diabetes
Januvia		906		1,064		1,006		932		3,908		884		1,044		1,014		921		3,863	1	1
Janumet		506		569		548		577		2,201		509		554		562		526		2,151	10	2
General Medicine & Women’s Health
NuvaRing		175		200		195		207		777		166		182		190		193		732	7	6
Implanon / Nexplanon		134		164		148		160		606		137		124		176		151		588	6	3
Dulera		113		121		97		105		436		130		120		133		153		536	-31	-19
Follistim AQ		94		73		101		87		355		82		111		95		95		383	-9	-7
Hospital and Specialty
Hepatitis
Zepatier		50		112		164		229		555
HIV
Isentress		340		338		372		337		1,387		385		375		377		374		1,511	-10	-8
Hospital Acute Care
Cubicin ⁽²⁾		292		357		320		119		1,087		187		293		325		322		1,127	-63	-4
Noxafil		145		143		147		161		595		111		117		132		128		487	26	22
Invanz		114		143		152		152		561		132		139		153		144		569	6	-1
Cancidas		133		131		142		152		558		163		134		139		137		573	11	-3
Bridion		90		113		139		139		482		85		87		89		92		353	52	37
Primaxin		73		81		77		66		297		65		88		75		86		313	-23	-5
Immunology
Remicade		349		339		311		269		1,268		501		455		442		396		1,794	-32	-29
Simponi		188		199		193		186		766		158		169		178		185		690	0	11
Oncology
Keytruda		249		314		356		483		1,402		83		110		159		214		566	125	148
Emend		126		143		137		144		549		122		134		141		139		535	4	3
Temodar		66		73		78		67		283		74		80		83		75		312	-11	-9
Diversified Brands
Respiratory
Singulair		237		229		239		210		915		245		212		201		273		931	-23	-2
Nasonex		229		101		94		112		537		289		215		121		231		858	-52	-37
Other
Cozaar / Hyzaar		126		132		131		121		511		185		189		150		143		667	-15	-23
Arcoxia		111		117		114		108		450		123		115		123		110		471	-2	-4
Fosamax		75		73		68		68		284		94		96		86		82		359	-18	-21
Zocor		46		50		54		37		186		49		63		56		49		217	-26	-14
Vaccines
Gardasil / Gardasil 9		378		393		860		542		2,173		359		427		625		497		1,908	9	14
ProQuad / M-M-R II / Varivax		357		383		496		405		1,640		348		358		390		409		1,505	-1	9
Zostavax		125		149		190		221		685		175		149		179		246		749	-10	-9
RotaTeq		188		130		171		162		652		192		89		160		169		610	-4	7
Pneumovax 23		107		120		175		238		641		110		106		138		188		542	27	18
Other Pharmaceutical ⁽³⁾		1,093		1,151		1,224		1,234		4,703		1,235		1,274		1,298		1,300		5,105	-5	-8

ANIMAL HEALTH ⁽⁴⁾		829		900		865		884		3,478		831		842		827		832		3,331	6	4

Other Revenues ⁽⁴⁾⁽⁵⁾		379		244		228		327		1,178		328		379		321		356		1,385	-8	-15

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

⁽¹⁾ Only select products are shown.

⁽²⁾ First quarter of 2015 reflects approximately two months
of sales following the acquisition of Cubist Pharmaceuticals, Inc. by
Merck on January 21, 2015.

⁽³⁾ Includes Pharmaceutical products not individually shown
above. Other Vaccines sales included in Other Pharmaceutical were $103
million, $91 million, $135 million and $126 million for the first,
second, third and fourth quarters of 2016, respectively. Other Vaccines
sales included in Other Pharmaceutical were $78 million, $76 million,
$99 million and $148 million for the first, second, third and fourth
quarters of 2015, respectively.

⁽⁴⁾ Amounts reflect a reclassification of certain revenues
between Animal Health and Other Revenues.

⁽⁵⁾ Other revenues are comprised primarily of alliance
revenue, third-party manufacturing sales and miscellaneous corporate
revenues, including revenue hedging activities.