Merck Announces Third-Quarter 2017 Financial Results

October 27, 2017
  • 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

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

This press release features multimedia. View the full release here: http://www.businesswire.com/news/home/20171027005199/en/

“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

       
Third Quarter
$ in millions, except EPS amounts       2017     2016
Sales       $10,325     $10,536

GAAP net (loss) income1

      (56)     2,184

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

      3,054     2,989
GAAP EPS       (0.02)     0.78

Non-GAAP EPS that excludes items listed below2

      1.11     1.07
   

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.

         
$ in millions       Third Quarter
2017     2016     Change    

Change

Ex-Exchange

Total Sales $10,325 $10,536 -2% -3%
Pharmaceutical 9,156 9,443 -3% -4%
JANUVIA / JANUMET 1,525 1,554 -2% -2%
KEYTRUDA 1,047 356 194% 192%
GARDASIL / GARDASIL 9 675 860 -22% -22%
PROQUAD,

M-M-R II and VARIVAX

519 496 4% 5%
ZEPATIER 468 164 185% 184%
ZETIA / VYTORIN 462 944 -51% -52%
ISENTRESS / ISENTRESS HD 310 372 -17% -18%
ZOSTAVAX 234 190 23% 23%
PNEUMOVAX 23 229 175 31% 31%
Animal Health 1,000 865 16% 14%
Other Revenues       169     228     -26%     -13%
 

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.

 
$ in millions

Third-Quarter 2017

     

 

GAAP

   

Acquisition- and
Divestiture-
Related Costs3

   

Restructuring
Costs

   

Certain Other
Items

       

 

Non-GAAP2

Materials and production $3,274 $768 $25 $-- $2,481
Marketing and administrative 2,401 11 -- -- 2,390
Research and development 4,383 271 2 2,350 1,760
Restructuring costs 153 -- 153 -- --
Other (income) expense, net (86) (18) -- -- (68)
 
Third-Quarter 2016
Materials and production $3,409 $773 $36 $-- $2,600
Marketing and administrative 2,393 36 1 -- 2,356
Research and development 1,664 13 14 -- 1,637
Restructuring costs 161 -- 161 -- --
Other (income) expense, net       22     12     --     (6)         16
 

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.

         
$ in millions, except EPS amounts       Third Quarter
2017     2016
EPS
GAAP EPS $(0.02) $0.78

Difference4

1.13 0.29
Non-GAAP EPS that excludes items listed below2 $1.11 $1.07
 
Net Income
GAAP net (loss) income1 $(56) $2,184
Difference 3,110 805
Non-GAAP net income that excludes items listed below1,2 $3,054 $2,989
 
Decrease (Increase) in Net Income Due to Excluded Items:
Acquisition- and divestiture-related costs3 $1,032 $834
Restructuring costs 180 212
Aggregate charge related to the formation of the collaboration with AstraZeneca 2,350 --
Other -- (6)
Net decrease (increase) in income before taxes 3,562 1,040

Income tax (benefit) expense5

(452) (235)
Decrease (increase) in net income       $3,110     $805
 

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.

             
    GAAP     Non-GAAP2
 
Revenue $40.0 to $40.5 billion

$40.0 to $40.5 billion*

Operating expenses Lower than 2016 Higher than 2016 by a mid-single digit rate
Effective tax rate 24.5% to 25.5% 20.0% to 21.0%
EPS     $1.78 to $1.84     $3.91 to $3.97

*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 $1.78 to $1.84
Difference4 2.13
Non-GAAP EPS that excludes items listed below2 $3.91 to $3.97
 
Acquisition- and divestiture-related costs $3,800
Restructuring costs 850
Aggregate charge related to the formation of the collaboration with AstraZeneca 2,350
Net decrease (increase) in income before taxes 7,000
Estimated income tax (benefit) expense (1,130)
Decrease (increase) in net income     $5,870
 

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 TwitterFacebookInstagram, 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.

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

GAAP

% Change GAAP % Change
3Q17     3Q16

Sep YTD
2017

   

Sep YTD
2016

                   
Sales $ 10,325     $ 10,536 -2% $ 29,689     $ 29,692 --
 
Costs, Expenses and Other
Materials and production (1) 3,274 3,409 -4% 9,369 10,559 -11%
Marketing and administrative (1) 2,401 2,393 -- 7,251 7,169 1%
Research and development (1) (2) 4,383 1,664 * 7,927 5,475 45%
Restructuring costs (3) 153 161 -5% 470 386 22%
Other (income) expense, net (1) (86 ) 22 * 30 88 -66%
Income Before Taxes 200 2,887 -93% 4,642 6,015 -23%
Taxes on Income (1) 251 699 1,186 1,487
Net (Loss) Income (51 ) 2,188 * 3,456 4,528 -24%
Less: Net Income Attributable to Noncontrolling Interests 5 4 16 13
Net (Loss) Income Attributable to Merck & Co., Inc. $ (56 ) $ 2,184 * $ 3,440 $ 4,515 -24%
(Loss) Earnings per Common Share Assuming Dilution (4) $ (0.02 )     $ 0.78   * $ 1.25       $ 1.62   -23%
               
Average Shares Outstanding Assuming Dilution (4) 2,727 2,786 2,754 2,791
Tax Rate (5)   125.5 %       24.2 %   25.5 %       24.7 %
 

* 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.

 
MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
THIRD QUARTER 2017
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2a
 
                                     
GAAP

Acquisition and
Divestiture-Related
Costs (1)

Restructuring
Costs (2)

Certain Other
Items (3)

Adjustment
Subtotal

Non-GAAP
   
Materials and production $ 3,274 768 25 793 $ 2,481
Marketing and administrative 2,401 11 11 2,390
Research and development 4,383 271 2 2,350 2,623 1,760
Restructuring costs 153 153 153 -
Other (income) expense, net (86 ) (18 ) (18 ) (68 )
Income Before Taxes 200 (1,032 ) (180 ) (2,350 ) (3,562 ) 3,762
Income Tax Provision (Benefit) 251 (179

(4)

(39

(4)

(234

(5)

(452 ) 703
Net (Loss) Income (51 ) (853 ) (141 ) (2,116 ) (3,110 ) 3,059
Net (Loss) Income Attributable to Merck & Co., Inc. (56 ) (853 ) (141 ) (2,116 ) (3,110 ) 3,054
(Loss) Earnings per Common Share Assuming Dilution $ (0.02 ) (0.31 ) (0.05 ) (0.77 ) (1.13 ) $ 1.11  
   
Tax Rate   125.5 %   18.7 %
 

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.

 
MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
NINE MONTHS ENDED SEPTEMBER 30, 2017
(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
   
Materials and production $ 9,369 2,450 121 2,571 $ 6,798
Marketing and administrative 7,251 40 3 43 7,208
Research and development 7,927 289 11 2,350 2,650 5,277
Restructuring costs 470 470 470 -
Other (income) expense, net 30 18 (9 ) 9 21
Income Before Taxes 4,642 (2,797 ) (605 ) (2,341 ) (5,743 ) 10,385
Income Tax Provision (Benefit) 1,186 (464

(4)

(132

(4)

(319

(5)

(915 ) 2,101
Net Income 3,456 (2,333 ) (473 ) (2,022 ) (4,828 ) 8,284
Net Income Attributable to Merck & Co., Inc. 3,440 (2,333 ) (473 ) (2,022 ) (4,828 ) 8,268
Earnings per Common Share Assuming Dilution $ 1.25   (0.85 ) (0.17 ) (0.73 ) (1.75 ) $ 3.00  
   
Tax Rate   25.5 %   20.2 %
 

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.

 
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
Table 3
 
                                                                 
2017 2016 3Q Sep YTD
1Q   2Q   3Q   Sep YTD 1Q   2Q   3Q   Sep YTD   4Q   Full Year Nom %   Ex-Exch % Nom %   Ex-Exch %
TOTAL SALES (1) $9,434   $9,930   $10,325   $29,689 $9,312   $9,844   $10,536   $29,692   $10,115   $39,807 -2   -3 0   1
PHARMACEUTICAL 8,185   8,759   9,156   26,101 8,104   8,700   9,443   26,247   8,904   35,151 -3   -4 -1   0
Primary Care and Women's Health
Cardiovascular
Zetia 334 367 320 1,021 612 702 671 1,985 575 2,560 -52 -53 -49 -48
Vytorin 241 182 142 565 277 293 273 843 299 1,141 -48 -51 -33 -33
Atozet 49 63 59 171 23 33 39 96 50 146 50 43 78 77
Adempas 84 67 70 221 33 40 48 120 49 169 46 45 84 84
Diabetes
Januvia 839 948 1,012 2,799 906 1,064 1,006 2,976 932 3,908 1 1 -6 -5
Janumet 496 563 513 1,572 506 569 548 1,624 577 2,201 -6 -8 -3 -3
General Medicine & Women's Health
NuvaRing 160 199 214 573 175 200 195 571 207 777 10 8 0 0
Implanon / Nexplanon 170 178 155 503 134 164 148 446 160 606 5 4 13 13
Follistim AQ 81 79 72 232 94 73 101 268 87 355 -29 -29 -13 -13
Hospital and Specialty
Hepatitis
Zepatier 378 517 468 1,363 50 112 164 326 229 555 185 184 * *
HIV
Isentress / Isentress HD 305 282 310 896 340 338 372 1,050 337 1,387 -17 -18 -15 -14
Hospital Acute Care
Bridion 148 163 185 495 90 113 139 343 139 482 33 33 44 45
Noxafil 141 155 162 458 145 143 147 434 161 595 10 9 5 6
Invanz 136 150 159 445 114 143 152 409 152 561 5 3 9 8
Cancidas 121 112 94 327 133 131 142 406 152 558 -34 -35 -19 -18
Cubicin 96 103 91 290 292 357 320 969 119 1,087 -71 -72 -70 -70
Primaxin 62 71 73 206 73 81 77 231 66 297 -5 -5 -11 -8
Immunology
Remicade 229 208 214 651 349 339 311 999 269 1,268 -31 -34 -35 -34
Simponi 184 199 219 602 188 199 193 581 186 766 13 9 4 5
Oncology
Keytruda 584 881 1,047 2,512 249 314 356 919 483 1,402 194 192 173 174
Emend 133 143 137 413 126 143 137 405 144 549 0 -1 2 2
Temodar 66 65 68 198 66 73 78 216 67 283 -13 -12 -8 -8
Diversified Brands
Respiratory
Singulair 186 203 161 550 237 229 239 705 210 915 -33 -32 -22 -21
Nasonex 139 85 42 266 229 101 94 425 112 537 -55 -56 -37 -38
Dulera 82 69 59 210 113 121 97 331 105 436 -39 -40 -37 -37
Other
Cozaar / Hyzaar 112 119 128 360 126 132 131 389 121 511 -3 -1 -8 -6
Arcoxia 103 89 80 272 111 117 114 342 108 450 -30 -32 -20 -20
Fosamax 61 66 53 180 75 73 68 217 68 284 -23 -23 -17 -16
Vaccines (2)
Gardasil / Gardasil 9 532 469 675 1,675 378 393 860 1,631 542 2,173 -22 -22 3 3
ProQuad / M-M-R II / Varivax 355 399 519 1,273 357 383 496 1,236 405 1,640 4 5 3 4
Pneumovax 23 163 166 229 558 107 120 175 403 238 641 31 31 38 39
Zostavax 154 160 234 547 125 149 190 464 221 685 23 23 18 17
RotaTeq 224 123 179 525 188 130 171 489 162 652 4 4 7 7
Other Pharmaceutical (3) 1,037 1,116 1,013 3,172 1,083 1,128 1,191 3,398 1,172 4,574 -15 -15 -7 -7
 
ANIMAL HEALTH 939 955 1,000 2,894 829 900 865 2,594 884 3,478 16 14 12 11
 
Other Revenues (4) 310   216   169   694 379   244   228   851   327   1,178 -26   -13 -18   -7
 

* 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.

Source: Merck

Merck

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