Merck Announces Fourth-Quarter and Full-Year 2018 Financial Results

Save

February 1, 2019 6:45 am ET

Fourth-Quarter 2018 Worldwide Sales Were $11.0 Billion, an Increase of 5 Percent, Including a 3 Percent Negative Impact from Foreign Exchange; Full-Year 2018 Worldwide Sales Were $42.3 Billion, an Increase of 5 Percent, Including a Minimal Impact from Foreign Exchange
Fourth-Quarter 2018 GAAP EPS Was $0.69; Fourth-Quarter Non-GAAP EPS Was $1.04; Full-Year 2018 GAAP EPS Was $2.32; Full-Year Non-GAAP EPS Was $4.34
Returned $14 Billion to Shareholders Through Share Repurchases and Dividends in 2018
2019 Financial Outlook
- Anticipates Full-Year 2019 Worldwide Sales to Be Between $43.2 Billion and $44.7 Billion, Including an Approximately 1 Percent Negative Impact from Foreign Exchange
- Expects Full-Year 2019 GAAP EPS to Be Between $3.97 and $4.12; Expects Non-GAAP EPS to Be Between $4.57 and $4.72, Including an Approximately 1 Percent Positive Impact from Foreign Exchange
Merck to Hold an Investor Event on June 20, 2019

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

“Last year was a strong one for Merck marked by substantial progress on
scientific and commercial fronts,” said Kenneth C. Frazier, chairman and
chief executive officer, Merck. “The fourth-quarter and full-year
results further bolster our confidence in Merck’s innovation-based
strategy in which our key pillars – oncology, vaccines, animal health,
and select hospital and specialty care products – are expected to drive
sustainable growth over the long-term. We enter 2019 with good momentum,
anticipating the many opportunities afforded by our broad and
differentiated portfolio and pipeline.”

Financial Summary


$ in millions, except EPS amounts	Fourth Quarter							Year Ended
$ in millions, except EPS amounts		2018		2017		Change	Change Ex- Exchange	Dec. 31, 2018		Dec. 31, 2017		Change	Change Ex- Exchange
Sales	$	10,998	$	10,433		5%	8%	$	42,294	$	40,122	5%	5%
GAAP net income (loss)¹		1,827		(1,046	)	**	**		6,220		2,394	**	**
Non-GAAP net income that excludes certain items^1,2*		2,745		2,665		3%	7%		11,621		10,933	6%	8%
GAAP EPS		0.69		(0.39	)	**	**		2.32		0.87	**	**
Non-GAAP EPS that excludes certain items²*		1.04		0.98		6%	11%		4.34		3.98	9%	11%
*Refer to table on page 12.
**Greater than 100%.

Worldwide sales were $11.0 billion for the fourth quarter of 2018, an
increase of 5 percent compared with the fourth quarter of 2017,
including a 3 percent negative impact from foreign exchange. Full-year
2018 worldwide sales were $42.3 billion, an increase of 5 percent
compared with the full year of 2017.

Sales for the full year of 2018 include approximately $125 million for
the replenishment of doses of GARDASIL 9 (Human Papillomavirus 9-valent
Vaccine, Recombinant), a vaccine to prevent certain cancers and other
diseases caused by Human Papillomavirus (HPV), that were borrowed from
the U.S. Centers for Disease Control and Prevention Pediatric Vaccine
Stockpile in 2017. The borrowing reduced sales in 2017 by approximately
$125 million.

Lost sales due to the cyber-attack that occurred in June 2017
unfavorably affected revenue in the fourth quarter of 2017 by $125
million, and for the full year of 2018 and 2017 by $150 million and $260
million, respectively.

GAAP (generally accepted accounting principles) earnings (loss) per
share assuming dilution (EPS) were $0.69 for the fourth quarter and
$2.32 for the full year of 2018. GAAP EPS for the full year of 2018
reflects a $1.4 billion charge related to the formation of a strategic
oncology collaboration with Eisai Co., Ltd. (Eisai). Non-GAAP EPS of
$1.04 for the fourth quarter and $4.34 for the full year of 2018 exclude
acquisition- and divestiture-related costs, restructuring costs and
certain other items. Non-GAAP EPS for the full year of 2018 also
excludes the charge related to the formation of the collaboration with
Eisai.

GAAP EPS were $(0.39) for the fourth quarter and $0.87 for the full year
of 2017, which reflect a $2.6 billion provisional charge related to the
enactment of U.S. tax legislation and for the full year also reflect a
$2.35 billion charge related to the formation of a strategic oncology
collaboration with AstraZeneca.

Oncology Pipeline Highlights

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

KEYTRUDA

Merck will present data from the pivotal Phase 3 KEYNOTE-426 trial,
studying KEYTRUDA in combination with axitinib in patients with
advanced or metastatic renal cell carcinoma at the annual American
Society for Clinical Oncology (ASCO) Genitourinary Cancers Symposium
in San Francisco in an oral session on February 16, 2019.
Merck announced that the U.S. Food and Drug Administration (FDA)
approved KEYTRUDA for the following indications:
- In combination with carboplatin and either paclitaxel or
  nab-paclitaxel for the first-line treatment of patients with
  metastatic squamous non-small cell lung cancer (NSCLC), making it
  the first anti-PD-1 approved for first-line treatment of squamous
  NSCLC regardless of PD-L1 expression. The approval
  is based on results from the KEYNOTE-407 trial.
- For the treatment
  of patients with hepatocellular carcinoma who have been previously
  treated with sorafenib.
- For the treatment
  of adult and pediatric patients with recurrent locally advanced or
  metastatic Merkel cell carcinoma.
Merck announced
that five new approvals, including three expanded uses in advanced
NSCLC, one in adjuvant melanoma, as well as a new indication in
advanced microsatellite instability-high (MSI-H) tumors were granted
in Japan.
Merck announced
that the European Commission (EC) approved KEYTRUDA for the adjuvant
treatment of adults with stage III melanoma and lymph node involvement
who have undergone complete resection based on data from the pivotal
Phase 3 EORTC1325/KEYNOTE-054 trial.
Merck announced
results from KEYNOTE-181, a Phase 3 trial investigating KEYTRUDA as
monotherapy for the second-line treatment of advanced or metastatic
esophageal or esophagogastric junction carcinoma, which demonstrated a
31 percent reduction in the risk of death compared to chemotherapy in
previously treated patients with advanced esophageal or
esophagogastric junction carcinoma whose tumors expressed PD-L1
(combined positive score [CPS] ≥10). Merck presented the data in
January at the ASCO Gastrointestinal Cancers Symposium.
Merck announced
that the FDA extended the action date for the supplemental Biologics
License Application (sBLA) for KEYTRUDA as monotherapy for the
first-line treatment of locally advanced or metastatic NSCLC in
patients whose tumors express PD-L1 (tumor proportion score [TPS] ≥1%)
without EGFR or ALK genomic tumor aberrations. The sBLA is based on
results of the Phase 3 KEYNOTE-042 trial. The company submitted
additional data and analyses to the FDA, which extends the PDUFA date
by three months to April 11, 2019.

Lynparza

Merck and AstraZeneca announced
that the FDA approved Lynparza for use as maintenance treatment of
adult patients with deleterious or suspected deleterious germline or
somatic BRCA-mutated (gBRCAm or sBRCAm) advanced
epithelial ovarian, fallopian tube or primary peritoneal cancer who
are in complete or partial response to first-line platinum-based
chemotherapy. This is the first regulatory approval for a PARP
inhibitor in the first-line maintenance setting for BRCAm
advanced ovarian cancer and approval was based on positive results
from the pivotal Phase 3 SOLO-1 trial.
Merck and AstraZeneca announced
positive results from the Phase 3 SOLO-3 trial of Lynparza in patients
with relapsed ovarian cancer after two or more lines of treatment.

Lenvima

Merck and Eisai announced
results of new data and analyses of Lenvima in combination with
KEYTRUDA in three different tumor types, including metastatic NSCLC,
metastatic melanoma and metastatic urothelial carcinoma. These were
presented at the 33rd Annual Meeting of the Society for Immunotherapy
of Cancer (SITC) in November 2018.

Other Oncology Pipeline Highlights

Clinical data from Merck’s Phase 1 trials for anti-LAG3 (MK-4280) and
anti-TIGIT (MK-7684) along with preclinical data for ILT4 (MK-4830)
were presented
at SITC. These are each being studied as monotherapy and in
combination with KEYTRUDA for the treatment of advanced solid tumors.

Other Pipeline Highlights

Merck and NGM Biopharmaceuticals, Inc. announced
that Merck exercised its option to license NGM313, renamed MK-3655, an
investigational monoclonal antibody agonist of the β-Klotho/FGFR1c
receptor complex that is currently being evaluated for the treatment
of nonalcoholic steatohepatitis (NASH) and type 2 diabetes.
Merck announced
that V114, the company’s investigational 15-valent pneumococcal
conjugate vaccine, has received Breakthrough Therapy Designation from
the FDA for the prevention of invasive pneumococcal disease (IPD)
caused by the vaccine serotypes in pediatric patients 6 weeks to 18
years of age. V114 is also under development for the prevention of IPD
in adults.
Merck and Instituto Butantan, a non-profit producer of immunobiologic
products for Brazil, announced
a collaboration to develop vaccines to protect against dengue virus
disease, a mosquito-borne infection.
Merck announced
that it started the submission of a rolling Biologics License
Application to the FDA for V920 (rVSV∆G-ZEBOV-GP, live attenuated),
the company’s investigational vaccine for Ebola Zaire disease. This
rolling submission was made pursuant to the FDA’s Breakthrough Therapy
Designation for V920.
Merck announced
that the EC approved DELSTRIGO (doravirine / lamivudine / tenofovir
disoproxil fumarate) and PIFELTRO (doravirine) for the treatment of
HIV-1 infection.
Merck announced
that the FDA accepted for review supplemental New Drug Applications
(sNDAs) seeking approval for PIFELTRO (in combination with other
antiretroviral medicines) and DELSTRIGO for use in people living with
HIV-1 who are switching from a stable antiretroviral regimen and whose
virus is suppressed (HIV-1 RNA <50 copies/mL). The PDUFA date for the
sNDAs is September 20, 2019.

Fourth-Quarter and Full-Year Revenue Performance

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


$ in millions	Fourth Quarter						Year Ended
		2018		2017	Change	Change Ex- Exchange	Dec. 31, 2018		Dec. 31, 2017		Change	Change Ex- Exchange
Total Sales	$	10,998	$	10,433	5%	8%	$	42,294	$	40,122	5%	5%
Pharmaceutical		9,830		9,290	6%	8%		37,689		35,390	6%	6%
KEYTRUDA		2,151		1,297	66%	69%		7,171		3,809	88%	88%
JANUVIA / JANUMET		1,465		1,524	-4%	-2%		5,914		5,896	0%	-1%
GARDASIL / GARDASIL 9		835		633	32%	34%		3,151		2,308	37%	36%
PROQUAD, M-M-R II and VARIVAX		455		403	13%	14%		1,798		1,676	7%	7%
PNEUMOVAX 23		322		263	22%	23%		907		821	10%	10%
ISENTRESS / ISENTRESS HD		280		308	-9%	-5%		1,140		1,204	-5%	-5%
BRIDION		256		209	23%	26%		917		704	30%	30%
ZETIA / VYTORIN		245		509	-52%	-51%		1,355		2,095	-35%	-38%
SIMPONI		220		217	1%	5%		893		819	9%	5%
NUVARING		216		188	15%	17%		902		761	19%	18%
Animal Health		1,036		981	6%	11%		4,212		3,875	9%	9%
Livestock		684		668	2%	8%		2,630		2,484	6%	7%
Companion Animals		352		313	12%	16%		1,582		1,391	14%	13%
Other Revenues		132		162	-18%	-38%		393		857	-54%	-20%

Pharmaceutical Revenue

Fourth-quarter pharmaceutical sales increased 6 percent to $9.8 billion,
including a 2 percent negative impact from foreign exchange. The
increase was driven primarily by growth in oncology and vaccines,
partially offset by lower sales in virology and the ongoing impacts of
the loss of market exclusivity for several products.

Growth in oncology was driven by a significant increase in sales of
KEYTRUDA, reflecting the strong momentum for the treatment of patients
with NSCLC and the company’s continued launches with new indications
globally. Additionally, oncology sales reflect alliance revenue of $71
million related to Lenvima and $62 million related to Lynparza,
representing Merck’s share of profits, which are product sales net of
cost of sales and commercialization costs.

Growth in vaccines was driven by an increase in sales of GARDASIL [Human
Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine,
Recombinant] and GARDASIL 9, vaccines to prevent certain cancers and
other diseases caused by HPV, primarily due to the ongoing commercial
launch in China as well as growth in the United States and Europe. The
increase in U.S. sales reflects the timing of public sector purchases in
2017. Growth in vaccines was partially offset by a significant decrease
in sales of ZOSTAVAX (zoster vaccine live), a vaccine for the prevention
of herpes zoster, primarily due to a competing product that received a
preferential recommendation from the U.S. Advisory Committee on
Immunization Practices in October 2017. The company anticipates that
future sales of ZOSTAVAX will continue to be unfavorably affected by
competition.

Performance in hospital acute care reflects strong demand in the United
States for BRIDION (sugammadex) Injection 100 mg/mL, a medicine for the
reversal of neuromuscular blockade induced by rocuronium bromide or
vecuronium bromide in adults undergoing surgery, and the ongoing launch
of PREVYMIS (letermovir), a medicine for the prevention of
cytomegalovirus (CMV) infection and disease in adult CMV-seropositive
recipients of an allogeneic hematopoietic stem cell transplant.

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

Pharmaceutical sales growth for the quarter was also partially offset by
the impacts from the loss of market exclusivity for ZETIA (ezetimibe)
and VYTORIN (ezetimibe/simvastatin), medicines for lowering LDL
cholesterol; INVANZ (ertapenem sodium), an antibiotic; CANCIDAS
(caspofungin acetate for injection), an antifungal; as well as
biosimilar competition for REMICADE (infliximab), a treatment for
inflammatory diseases, in the company’s marketing territories in Europe.

Full-year 2018 pharmaceutical sales increased 6 percent to $37.7
billion, reflecting growth in oncology, vaccines and hospital acute
care, partially offset by declines in virology and the loss of market
exclusivity for several products.

Animal Health Revenue

Animal Health sales totaled $1.0 billion for the fourth quarter of 2018,
an increase of 6 percent compared with the fourth quarter of 2017,
including a 5 percent negative impact from foreign exchange. Growth for
the quarter was driven by both inline and newly launched products
reflecting sales increases in companion animal products, primarily
companion animal vaccines, and higher sales of livestock products,
particularly swine and poultry products.

Worldwide sales for the full year of 2018 were $4.2 billion, an increase
of 9 percent. Full-year sales 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. Full-year sales growth was also driven by
higher sales of livestock products, including ruminants, poultry and
swine products.

Animal Health segment profits were $387 million in the fourth quarter of
2018, an increase of 10 percent compared with $350 million in the fourth
quarter of 2017, and were $1.7 billion for the full year of 2018, an
increase of 7 percent compared with $1.6 billion in 2017.³

In December 2018, Merck announced
it will acquire privately held Antelliq Group, which will establish
Merck Animal Health as a leader in digital animal identification,
traceability and monitoring solutions, one of the fastest growing parts
of the animal health industry. The transaction is expected to close in
the second quarter of 2019.

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

The tables below present selected expense information.


$ in millions Fourth-Quarter 2018	GAAP			Acquisition- and Divestiture- Related Costs ⁴		Restructuring Costs			Certain Other Items			Non-GAAP ²
Cost of sales	$	3,289		$	525	$	10		$	3		$	2,751
Selling, general and administrative		2,643			6		1			—			2,636
Research and development		2,214			91		1			—			2,122
Restructuring costs		138			—		138			—			—
Other (income) expense, net		110			179		—			(3	)		(66	)

Fourth-Quarter 2017
Cost of sales	$	3,440		$	737	$	17		$	—		$	2,686
Selling, general and administrative		2,643			4		(1	)		—			2,640
Research and development		2,314			221		–			—			2,093
Restructuring costs		306			—		306			—			—
Other (income) expense, net		(149	)		1		–			(7	)		(143	)


$ in millions Year Ended Dec. 31, 2018	GAAP			Acquisition- and Divestiture- Related Costs ⁴		Restructuring Costs		Certain Other Items			Non-GAAP ²
Cost of sales	$	13,509		$	2,672	$	21	$	423		$	10,393
Selling, general and administrative		10,102			32		3		—			10,067
Research and development		9,752			98		2		1,744			7,908
Restructuring costs		632			—		632		—			—
Other (income) expense, net		(402	)		264		—		(57	)		(609	)

Year Ended Dec. 31, 2017
Cost of sales	$	12,912		$	3,187	$	138	$	—		$	9,587
Selling, general and administrative		10,074			44		2		—			10,028
Research and development		10,339			510		11		2,350			7,468
Restructuring costs		776			—		776		—			—
Other (income) expense, net		(500	)		19		—		(16	)		(503	)

GAAP Expense, EPS and Related Information

Gross margin was 70.1 percent for the fourth quarter of 2018 compared to
67.0 percent for the fourth quarter of 2017. The gross margin was 68.1
percent for the full year of 2018 compared to 67.8 percent for the full
year of 2017. The increase in gross margin for both periods was driven
in part by lower acquisition- and divestiture-related costs and
restructuring costs, which negatively affected gross margin by 4.9
percentage points and 6.3 percentage points in the fourth quarter and
full year of 2018, respectively, compared with 7.3 and 8.3 percentage
points for the fourth quarter and full year of 2017, respectively. In
addition, the gross margin improvements in 2018 reflect the favorable
effects of product mix and costs recorded in 2017 related to the
cyber-attack, partially offset by the unfavorable effects of pricing
pressure and the amortization of amounts capitalized for potential
future milestone payments related to collaborations. For the full year
of 2018, the gross margin improvement was also partially offset by a
charge related to the termination of a collaboration agreement with
Samsung Bioepis Co., Ltd. for insulin glargine.

Selling, general and administrative expenses were $2.6 billion in the
fourth quarter of 2018, the same as in the fourth quarter of 2017.
Full-year 2018 selling, general and administrative expenses were $10.1
billion, comparable to the full year of 2017, reflecting higher
administrative costs and the unfavorable effects of foreign exchange,
offset by lower selling and promotion costs.

Research and development (R&D) expenses were $2.2 billion in the fourth
quarter of 2018, a decline of 4 percent compared with the fourth quarter
of 2017, driven primarily by lower expenses relating to business
development activities and lower in-process research and development
(IPR&D) impairment charges, partially offset by higher clinical
development spending, in particular from oncology collaborations, and
investment in discovery and early drug development. R&D expenses were
$9.8 billion for the full year of 2018, a 6 percent decrease compared to
the full year of 2017. The decline primarily reflects a charge recorded
in 2017 related to the formation of a collaboration with AstraZeneca and
lower IPR&D impairment charges, partially offset by a charge in 2018
related to the formation of an oncology collaboration with Eisai, higher
clinical development spending and investment in discovery and early drug
development, as well as higher expenses related to business development
transactions.

Other (income) expense, net, was $110 million of expense in the fourth
quarter of 2018 compared to $149 million of income in the fourth quarter
of 2017. Other (income) expense, net, in the fourth quarter of 2018
reflects goodwill impairment charges, as well as the recognition of
unrealized losses on securities as a result of the adoption of a new
accounting standard for investments in equity securities. Other (income)
expense, net, in the fourth quarter of 2017 reflects gains on sales of
securities, partially offset by a loss on the extinguishment of debt.
Other (income) expense, net, was $402 million of income for the full
year of 2018 compared to $500 million of income for the full year of
2017.

The effective income tax rates of 31.7 percent for the fourth quarter
and 28.8 percent for full year of 2018 include adjustments to the
provisional amounts recorded in 2017 related to the enactment of U.S.
tax legislation. In addition, the effective income tax rate for the full
year of 2018 reflects the unfavorable impact of a $1.4 billion charge
related to the formation of the collaboration with Eisai for which no
tax benefit has been recognized.

GAAP EPS was $0.69 for the fourth quarter of 2018 compared with $(0.39)
for the fourth quarter of 2017. GAAP EPS was $2.32 for the full year of
2018 compared with $0.87 for the full year of 2017.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 75.0 percent for the fourth quarter of
2018, compared to 74.3 percent for the fourth quarter of 2017. The
increase in the fourth-quarter gross margin reflects the favorable
effects of product mix and costs recorded in 2017 related to the
cyber-attack, partially offset by the unfavorable effects of pricing
pressure and the amortization of amounts capitalized for potential
future milestone payments related to collaborations.

The non-GAAP gross margin was 75.4 percent for the full year of 2018
compared to 76.1 percent for the full year of 2017. The decrease in
non-GAAP gross margin for the full year of 2018 reflects the unfavorable
effects of amortization of amounts capitalized for potential future
milestone payments related to collaborations and pricing pressure,
partially offset by the favorable effects of product mix and costs
recorded in 2017 related to the cyber-attack.

Non-GAAP selling, general and administrative expenses were $2.6 billion
in the fourth quarter of 2018, comparable to the fourth quarter of 2017.
Non-GAAP selling, general and administrative expenses were $10.1 billion
for the full year of 2018, comparable to the full year of 2017,
reflecting higher administrative costs and the unfavorable effects of
foreign exchange, offset by lower selling and promotion costs.

Non-GAAP R&D expenses were $2.1 billion in the fourth quarter of 2018, a
1 percent increase compared to the fourth quarter of 2017. Non-GAAP R&D
expenses were $7.9 billion for the full year of 2018, a 6 percent
increase compared to the full year of 2017. The increases reflect higher
clinical development spending and investment in discovery and early drug
development, partially offset by lower business development costs.

Non-GAAP other (income) expense, net, was $66 million of income in the
fourth quarter of 2018 compared to $143 million of income in the fourth
quarter of 2017. Non-GAAP other (income) expense, net, in the fourth
quarter of 2018 reflects the recognition of unrealized losses on
securities as a result of the adoption of a new accounting standard for
investments in equity securities. Non-GAAP other (income) expense, net,
in the fourth quarter of 2017 reflects realized gains on sales of equity
securities, partially offset by a loss on extinguishment of debt.
Non-GAAP other (income) expense, net, for the full year of 2018 was $609
million of income compared to $503 million of income for the full year
of 2017.

The non-GAAP effective income tax rate was 22.5 percent for the fourth
quarter of 2018 compared with 15.3 percent for the fourth quarter of
2017 and was 19.8 percent for the full year of 2018 compared with 19.1
percent for the full year of 2017.

Non-GAAP EPS was $1.04 for the fourth quarter of 2018 compared with
$0.98 for the fourth quarter of 2017. Non-GAAP EPS was $4.34 for the
full year of 2018 compared with $3.98 for the full year of 2017.

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
		2018			2017		Dec. 31, 2018			Dec. 31, 2017
EPS
GAAP EPS	$	0.69		$	(0.39	)	$	2.32		$	0.87
Difference⁵		0.35			1.37			2.02			3.11
Non-GAAP EPS that excludes items listed below²	$	1.04		$	0.98		$	4.34		$	3.98

Net Income
GAAP net (loss) income¹	$	1,827		$	(1,046	)	$	6,220		$	2,394
Difference		918			3,711			5,401			8,539
Non-GAAP net income that excludes items listed below^1,2	$	2,745		$	2,665		$	11,621		$	10,933

Decrease (Increase) in Net Income Due to Excluded Items:
Acquisition- and divestiture-related costs⁴	$	801		$	963		$	3,066		$	3,760
Restructuring costs		150			322			658			927
Charge related to termination of a collaboration agreement with Samsung		3			—			423			—
Charge related to formation of a collaboration with Eisai		—			—			1,400			—
Charge for Viralytics acquisition		—			—			344			—
Charge related to the formation of a collaboration with AstraZeneca		—			—			—			2,350
Other		(3	)		(7	)		(57	)		(16	)
Net decrease (increase) in income before taxes		951			1,278			5,834			7,021
Income tax (benefit) expense⁶		25			2,433			(375	)		1,518
Acquisition- and divestiture-related costs attributable to non-controlling interests		(58	)		—			(58	)		—
Decrease (increase) in net income	$	918		$	3,711		$	5,401		$	8,539

Financial Outlook

At mid-January 2019 exchange rates, Merck anticipates full-year 2019
revenue to be between $43.2 billion and $44.7 billion, including an
approximately 1 percent negative impact from foreign exchange.

Merck expects its full-year 2019 GAAP EPS to be between $3.97 and $4.12.
Merck expects its full-year 2019 non-GAAP EPS to be between $4.57 and
$4.72, including an approximately 1 percent positive impact from foreign
exchange. The non-GAAP range excludes acquisition- and
divestiture-related costs.

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


	GAAP	Non-GAAP ²

Revenue	$43.2 to $44.7 billion	$43.2 to $44.7 billion*
Operating expenses	Lower than 2018 by a mid-single digit rate	Higher than 2018 by a low- to mid-single digit rate
Effective tax rate	18.5% to 19.5%	18.5% to 19.5%
EPS**	$3.97 to $4.12	$4.57 to $4.72
*The company does not have any non-GAAP adjustments to revenue.
**EPS guidance for 2019 assumes a share count (assuming dilution) of approximately 2.6 billion shares.

A reconciliation of anticipated 2019 GAAP EPS to non-GAAP EPS and the
items excluded from non-GAAP EPS are provided in the table below.


$ in millions, except EPS amounts					Full-Year 2019

GAAP EPS					$3.97 to $4.12
Difference⁵					0.60
Non-GAAP EPS that excludes items listed below²					$4.57 to $4.72

Acquisition- and divestiture-related costs					$1,900
Estimated income tax (benefit) expense					(360)
Decrease (increase) in net income					$1,540

Investor Event

Merck will hold an Investor Event on Thursday, June 20, 2019, at which
senior management will provide a review of the company’s key business
priorities, current pillars of growth, future opportunities and research
pipeline. Further details regarding logistics will be announced at a
later date.

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 https://investors.merck.com/events-and-presentations/default.aspx.
Institutional investors and analysts can participate in the call by
dialing (706) 758-9927 or (877) 381-5782 and using ID code number
9872199. Members of the media are invited to monitor the call by dialing
(706) 758-9928 or (800) 399-7917 and using ID code number 9872199.
Journalists who wish to ask questions are requested to contact a member
of Merck’s Media Relations team at the conclusion of the call.

About Merck

For more than a century, Merck, a leading global biopharmaceutical
company known as MSD outside of the United States and Canada, has been
inventing for life, bringing forward medicines and vaccines for many of
the world’s most challenging diseases. Through our prescription
medicines, vaccines, biologic therapies and animal health products, we
work with customers and operate in more than 140 countries to deliver
innovative health solutions. We also demonstrate our commitment to
increasing access to health care through far-reaching policies, programs
and partnerships. Today, Merck continues to be at the forefront of
research to advance the prevention and treatment of diseases that
threaten people and communities around the world – including cancer,
cardio-metabolic diseases, emerging animal diseases, Alzheimer’s disease
and infectious diseases including HIV and Ebola. For more information,
visit www.merck.com
and connect with us on Twitter,
Facebook,
Instagram,
YouTube
and LinkedIn.

Forward-Looking Statement of Merck & Co., Inc., Kenilworth, N.J., USA

This news release of Merck & Co., Inc., Kenilworth, N.J., USA (the
“company”) includes “forward-looking statements” within the meaning of
the safe harbor provisions of the U.S. Private Securities Litigation
Reform Act of 1995. These statements are based upon the current beliefs
and expectations of the company’s management and are subject to
significant risks and uncertainties. There can be no guarantees with
respect to pipeline products that the products will receive the
necessary regulatory approvals or that they will prove to be
commercially successful. If underlying assumptions prove inaccurate or
risks or uncertainties materialize, actual results may differ materially
from those set forth in the forward-looking statements.

Risks and uncertainties include but are not limited to, general industry
conditions and competition; general economic factors, including interest
rate and currency exchange rate fluctuations; the impact of
pharmaceutical industry regulation and health care legislation in the
United States and internationally; global trends toward health care cost
containment; technological advances, new products and patents attained
by competitors; challenges inherent in new product development,
including obtaining regulatory approval; the company’s ability to
accurately predict future market conditions; manufacturing difficulties
or delays; financial instability of international economies and
sovereign risk; dependence on the effectiveness of the company’s patents
and other protections for innovative products; and the exposure to
litigation, including patent litigation, and/or regulatory actions.

The company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future events or otherwise. Additional factors that could cause results
to differ materially from those described in the forward-looking
statements can be found in the company’s 2017 Annual Report on Form 10-K
and the company’s other filings with the Securities and Exchange
Commission (SEC) available at the SEC’s Internet site (www.sec.gov).

###

__________________________
¹		Net income (loss) attributable to Merck & Co., Inc.
²		Merck is providing certain 2018 and 2017 non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s results 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.
³		Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as selling, general and administrative expenses and research and development costs directly incurred by the segment. For internal management reporting, Merck does not allocate general and administrative expenses not directly incurred by the segment, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits.
⁴		Includes expenses for the amortization of intangible assets and purchase accounting adjustments to inventories recognized as a result of acquisitions, intangible asset impairment charges and expense or income related to changes in the estimated fair value measurement of contingent consideration. Also includes integration, transaction and certain other costs related to business acquisitions and divestitures.
⁵		Represents the difference between calculated GAAP EPS and calculated non-GAAP EPS, which may be different than the amount calculated by dividing the impact of the excluded items by the weighted-average shares for the period.
⁶		Includes the estimated tax impact on the reconciling items. In addition, amounts for fourth-quarter and full-year 2018 include adjustments to the provisional amounts recorded in 2017 related to the enactment of U.S. tax legislation. Amounts for fourth-quarter and full-year 2017 include a $2.6 billion provisional charge related to U.S. tax legislation. Additionally, amount for full-year 2017 includes a $234 million net benefit related to the settlement of certain federal income tax issues, as well as a benefit of $88 million related to the settlement of a state income tax issue.


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

	GAAP							GAAP
	4Q18			4Q17			% Change	Full Year 2018			Full Year 2017			% Change
	4Q18			4Q17				Full Year 2018			Full Year 2017

Sales	$	10,998		$	10,433		5%	$	42,294		$	40,122		5%

Costs, Expenses and Other
Cost of sales ^{(1) (2)}		3,289			3,440		-4%		13,509			12,912		5%
Selling, general and administrative ⁽¹⁾		2,643			2,643		—		10,102			10,074		—
Research and development ^{(1) (3)}		2,214			2,314		-4%		9,752			10,339		-6%
Restructuring costs ⁽⁴⁾		138			306		-55%		632			776		-19%
Other (income) expense, net ⁽¹⁾		110			(149	)	*		(402	)		(500	)	-20%
Income Before Taxes		2,604			1,879		39%		8,701			6,521		33%
Taxes on Income ⁽¹⁾		826			2,917				2,508			4,103
Net Income (Loss)		1,778			(1,038	)	*		6,193			2,418		*
Less: Net (Loss) Income Attributable to Noncontrolling Interests ⁽¹⁾		(49	)		8				(27	)		24
Net Income (Loss) Attributable to Merck & Co., Inc.	$	1,827		$	(1,046	)	*	$	6,220		$	2,394		*
Earnings (Loss) per Common Share Assuming Dilution ⁽⁵⁾	$	0.69		$	(0.39	)	*	$	2.32		$	0.87		*

Average Shares Outstanding Assuming Dilution ⁽⁵⁾		2,634			2,715				2,679			2,748
Tax Rate ⁽⁶⁾		31.7	%		155.2	%			28.8	%		62.9	%

* 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⁾Cost of sales for the full year of 2018 include a
$423 million charge related to the termination of a collaboration
agreement with Samsung Bioepis Co., Ltd. (Samsung) for insulin
glargine.

⁽³⁾Research and development expenses for the full year
of 2018 include a $1.4 billion charge related to the formation of a
collaboration with Eisai Co., Ltd. (Eisai), as well as a $344
million charge for the acquisition of Viralytics Limited. Research
and development expenses for the full year of 2017 include a $2.35
billion charge related to the formation of a collaboration with
AstraZeneca PLC (AstraZeneca).

⁽⁴⁾Represents separation and other related costs
associated with restructuring activities under the company’s formal
restructuring programs.

⁽⁵⁾Because the company recorded a net loss in the fourth
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.

⁽⁶⁾The effective income tax rates for the fourth quarter
and full year of 2018 reflect the unfavorable impact of adjustments
to the provisional amounts recorded in the prior year associated
with the enactment of U.S. tax legislation, including $124 million
related to the transition tax. The effective income tax rate for the
full year of 2018 also includes the unfavorable impacts of a $1.4
billion pretax charge related to the formation of a collaboration
with Eisai and a $423 million pretax charge related to the
termination of a collaboration agreement with Samsung for which no
tax benefits were recognized.

The effective income tax rates for the fourth quarter and full year
of 2017 reflect the net unfavorable impact of a $2.6 billion
provisional charge related to the enactment of U.S. tax legislation.
The effective income tax rate for the full year of 2017 also
reflects the unfavorable impact of a $2.35 billion pretax charge
recorded in conjunction with the formation of a collaboration with
AstraZeneca for which no tax benefit was recognized. Additionally,
the effective income tax rate for the full year of 2017 reflects the
favorable impact of a net tax benefit of $234 million related to the
settlement of certain federal income tax issues.


MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
FOURTH QUARTER 2018
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2a

	GAAP		Acquisition and Divestiture-Related Costs ⁽¹⁾		Restructuring Costs ⁽²⁾		Certain Other Items		Adjustment Subtotal	Non-GAAP

Cost of sales	$	3,289	525		10		3		538	$	2,751
Selling, general and administrative		2,643	6		1				7		2,636
Research and development		2,214	91		1				92		2,122
Restructuring costs		138			138				138		–
Other (income) expense, net		110	179				(3)		176		(66)
Income Before Taxes		2,604	(801)		(150)		–		(951)		3,555
Income Tax Provision (Benefit)		826	(148)	⁽³⁾	(13)	⁽³⁾	186	⁽⁴⁾	25		801
Net Income		1,778	(653)		(137)		(186)		(976)		2,754
Less: Net (Loss) Income Attributable to Noncontrolling Interests		(49)	(58)						(58)		9
Net Income Attributable to Merck & Co., Inc.		1,827	(595)		(137)		(186)		(918)		2,745
Earnings per Common Share Assuming Dilution	$	0.69	(0.23)		(0.05)		(0.07)		(0.35)	$	1.04

Tax Rate		31.7%									22.5%

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

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

⁽¹⁾Amounts included in cost of sales reflect expenses
for the amortization of intangible assets recognized as a result of
business acquisitions. Amounts included in selling, general and
administrative expenses reflect integration, transaction and certain
other costs related to business acquisitions and divestitures.
Amounts included in research and development expenses reflect $149
million of in-process research and development (IPR&D) impairment
charges, partially offset by a reduction of expenses related to a
decrease in the estimated fair value measurement of liabilities for
contingent consideration. Amounts included in other (income)
expense, net primarily reflect goodwill impairment charges related
to certain businesses in the Healthcare Services segment and an
increase in the estimated fair value measurement of liabilities for
contingent consideration, partially offset by royalty income related
to the termination of the Sanofi-Pasteur MSD joint venture.

⁽²⁾Amounts primarily include employee separation costs
and accelerated depreciation associated with facilities to be closed
or divested related to activities under the company’s formal
restructuring programs.

⁽³⁾ Represents the estimated tax impact on the
reconciling items based on applying the statutory rate of the
originating territory of the non-GAAP adjustments.

⁽⁴⁾ Includes the estimated tax impact on the reconciling
items based on applying the statutory rate of the originating
territory of the non-GAAP adjustments. Also includes adjustments to
the provisional amounts recorded in the prior year associated with
the enactment of U.S. tax legislation, including $124 million
related to the transition tax.


MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
FULL YEAR 2018
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2b

	GAAP		Acquisition and Divestiture-Related Costs ⁽¹⁾		Restructuring Costs ⁽²⁾		Certain Other Items ⁽³⁾		Adjustment Subtotal	Non-GAAP

Cost of sales	$	13,509	2,672		21		423		3,116	$	10,393
Selling, general and administrative		10,102	32		3				35		10,067
Research and development		9,752	98		2		1,744		1,844		7,908
Restructuring costs		632			632				632		–
Other (income) expense, net		(402)	264				(57)		207		(609)
Income Before Taxes		8,701	(3,066)		(658)		(2,110)		(5,834)		14,535
Income Tax Provision (Benefit)		2,508	(378)	⁽⁴⁾	(82)	⁽⁴⁾	85	⁽⁵⁾	(375)		2,883
Net Income		6,193	(2,688)		(576)		(2,195)		(5,459)		11,652
Less: Net (Loss) Income Attributable to Noncontrolling Interests		(27)	(58)						(58)		31
Net Income Attributable to Merck & Co., Inc.		6,220	(2,630)		(576)		(2,195)		(5,401)		11,621
Earnings per Common Share Assuming Dilution	$	2.32	(0.98)		(0.22)		(0.82)		(2.02)	$	4.34

Tax Rate		28.8%									19.8%

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

⁽¹⁾Amounts included in cost of sales reflect expenses
for the amortization of intangible assets recognized as a result of
business acquisitions. Amounts included in selling, general and
administrative expenses reflect integration, transaction and certain
other costs related to business acquisitions and divestitures.
Amounts included in research and development expenses reflect $152
million of in-process research and development (IPR&D) impairment
charges, partially offset by a reduction of expenses related to a
decrease in the estimated fair value measurement of liabilities for
contingent consideration. Amounts included in other (income)
expense, net primarily reflect goodwill impairment charges related
to certain businesses in the Healthcare Services segment and an
increase in the estimated fair value measurement of liabilities for
contingent consideration, partially offset by royalty income related
to the termination of the Sanofi-Pasteur MSD joint venture.

⁽³⁾ Amount included in cost of sales represents a charge
related to the termination of a collaboration agreement with Samsung
Bioepis Co., Ltd. for insulin glargine. Amounts included in research
and development expenses represent a $1.4 billion charge related to
the formation of a collaboration with Eisai Co., Ltd., as well as a
$344 million charge for the acquisition of Viralytics Limited.

⁽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⁾ Includes the estimated tax impact on the reconciling
items based on applying the statutory rate of the originating
territory of the non-GAAP adjustments. Also includes adjustments to
the provisional amounts recorded in the prior year associated with
the enactment of U.S. tax legislation, including $124 million
related to the transition tax.


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

	2018					2017					4Q		Full Year
	1Q	2Q	3Q	4Q	Full Year	1Q	2Q	3Q	4Q	Full Year	Nom %	Ex-Exch %	Nom %	Ex-Exch %

TOTAL SALES ⁽¹⁾	$10,037	$10,465	$10,794	$10,998	$42,294	$9,434	$9,930	$10,325	$10,433	$40,122	5	8	5	5
PHARMACEUTICAL	8,919	9,282	9,658	9,830	37,689	8,185	8,759	9,156	9,290	35,390	6	8	6	6
Oncology
Keytruda	1,464	1,667	1,889	2,151	7,171	584	881	1,047	1,297	3,809	66	69	88	88
Emend	125	148	123	126	522	133	143	137	143	556	-12	-10	-6	-7
Temodar	57	56	46	56	214	66	65	68	73	271	-24	-20	-21	-21
Alliance Revenue – Lynparza	33	44	49	62	187			5	16	20	*	*	*	*
Alliance Revenue – Lenvima		35	43	71	149
Vaccines ⁽²⁾
Gardasil / Gardasil 9	660	608	1,048	835	3,151	532	469	675	633	2,308	32	34	37	36
ProQuad / M-M-R II / Varivax	392	426	525	455	1,798	355	399	519	403	1,676	13	14	7	7
Pneumovax 23	179	193	214	322	907	163	166	229	263	821	22	23	10	10
RotaTeq	193	156	191	188	728	224	123	179	160	686	17	19	6	6
Zostavax	65	44	54	54	217	154	160	234	121	668	-55	-54	-68	-68
Hospital Acute Care
Bridion	204	240	217	256	917	148	163	185	209	704	23	26	30	30
Noxafil	176	188	188	191	742	141	155	162	179	636	7	9	17	15
Invanz	151	149	137	59	496	136	150	159	157	602	-62	-59	-18	-17
Cubicin	98	94	95	80	367	96	103	91	92	382	-13	-11	-4	-5
Cancidas	91	87	79	69	326	121	112	94	95	422	-27	-24	-23	-25
Primaxin	72	68	72	53	265	62	71	73	74	280	-28	-25	-5	-7
Immunology
Simponi	231	233	210	220	893	184	199	219	217	819	1	5	9	5
Remicade	167	157	135	123	582	229	208	214	186	837	-34	-31	-31	-33
Neuroscience
Belsomra	54	71	66	69	260	42	52	56	60	210	16	17	24	23
Virology
Isentress / Isentress HD	281	305	275	280	1,140	305	282	310	308	1,204	-9	-5	-5	-5
Zepatier	131	113	104	108	455	378	517	468	296	1,660	-64	-62	-73	-73
Cardiovascular
Zetia	305	226	165	162	857	334	367	320	323	1,344	-50	-49	-36	-39
Vytorin	167	155	92	83	497	241	182	142	186	751	-55	-54	-34	-37
Atozet	73	101	84	89	347	49	63	59	54	225	64	67	54	48
Adempas	68	75	94	91	329	84	67	70	79	300	16	17	10	7
Diabetes ⁽³⁾
Januvia	880	949	927	930	3,686	839	948	1,012	938	3,737	-1	1	-1	-2
Janumet	544	585	563	535	2,228	496	563	513	586	2,158	-9	-7	3	2
Women’s Health
NuvaRing	216	236	234	216	902	160	199	214	188	761	15	17	19	18
Implanon / Nexplanon	174	174	186	169	703	170	178	155	183	686	-8	-7	2	3
Diversified Brands
Singulair	175	185	161	187	708	186	203	161	182	732	3	6	-3	-5
Cozaar / Hyzaar	120	125	103	105	453	112	119	128	125	484	-16	-12	-6	-8
Nasonex	122	81	71	102	376	139	85	42	120	387	-15	-12	-3	-3
Arcoxia	83	84	83	86	335	103	89	80	91	363	-5	0	-8	-8
Follistim AQ	67	70	60	70	268	81	79	72	66	298	6	9	-10	-11
Dulera	57	42	50	65	214	82	69	59	77	287	-16	-16	-25	-26
Fosamax	55	59	45	50	209	61	66	53	62	241	-18	-16	-13	-15
Other Pharmaceutical ⁽⁴⁾	989	1,053	980	1,062	4,090	995	1,064	952	1,048	4,065	1	4	1	0
											*
ANIMAL HEALTH	1,065	1,090	1,021	1,036	4,212	939	955	1,000	981	3,875	6	11	9	9
Livestock	652	633	660	684	2,630	578	582	655	668	2,484	2	8	6	7
Companion Animals	413	457	361	352	1,582	361	373	345	313	1,391	12	16	14	13

Other Revenues ⁽⁵⁾	53	93	115	132	393	310	216	169	162	857	-18	-38	-54	-20

* 200% or greater

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

⁽¹⁾ Only select products are shown.

⁽²⁾ Total Vaccines sales were $1,561 million, $1,533
million, $2,159 million and $2,008 million in the first, second,
third and fourth quarters of 2018, respectively, and $1,516 million,
$1,404 million, $1,924 million and $1,704 million for the first,
second, third and fourth quarters of 2017, respectively.

⁽³⁾ Total Diabetes sales were $1,433 million, $1,571
million, $1,506 million and $1,485 million in the first, second,
third and fourth quarters of 2018, respectively, and $1,338 million,
$1,520 million, $1,531 million and $1,533 million for the first,
second, third and fourth quarters of 2017, respectively.

⁽⁴⁾ Includes Pharmaceutical products not individually
shown above.

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

Media:
Jennifer Mauer
(908) 740-1801

Claire Gillespie
(267) 305-0932

Investors:
Teri Loxam
(908) 740-1986

Michael DeCarbo
(908) 740-1807