Merck Announces Fourth-Quarter and Full-Year 2019 Financial Results

February 05, 2020
  • Fourth-Quarter 2019 Worldwide Sales Were $11.9 Billion, an Increase of 8%; Excluding the Impact from Foreign Exchange, Sales Grew 9%
  • Fourth-Quarter 2019 GAAP EPS Was $0.92; Fourth-Quarter Non-GAAP EPS Was $1.16
  • Full-Year 2019 Worldwide Sales Were $46.8 Billion, an Increase of 11%; Excluding the Impact from Foreign Exchange, Sales Grew 13%
    • KEYTRUDA 2019 Worldwide Sales Grew 55% to $11.1 Billion; Excluding the Impact from Foreign Exchange, Sales Grew 58%
    • Human Health Vaccines 2019 Worldwide Sales Grew 15% to $8.4 Billion; Excluding the Impact from Foreign Exchange, Sales Grew 17%
    • BRIDION 2019 Worldwide Sales Grew 23% to $1.1 Billion; Excluding the Impact from Foreign Exchange, Sales Grew 26%
    • Animal Health 2019 Worldwide Sales Grew 4% to $4.4 Billion; Excluding the Impact from Foreign Exchange, Sales Grew 9%
  • Full-Year 2019 GAAP EPS Was $3.81; Full-Year Non-GAAP EPS Was $5.19
  • 2020 Financial Outlook
    • Anticipates Full-Year 2020 Worldwide Sales to Be Between $48.8 Billion and $50.3 Billion, Including a Negative Impact from Foreign Exchange of Less Than 1%
    • Expects Full-Year 2020 GAAP EPS to Be Between $4.57 and $4.72; Expects Non-GAAP EPS to Be Between $5.62 and $5.77, Including a Negative Impact from Foreign Exchange of Approximately 1.5%
  • In Conjunction with Fourth-Quarter Results, Merck Announces its Intention to Focus on Key Growth Pillars Through Spinoff of Women’s Health, Trusted Legacy Brands and Biosimilar Products into NewCo

 

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 2019.

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“As evidenced by our results and our 2020 guidance, Merck had an extraordinary year and is in a position of operational and financial strength,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “It is this position of strength, born of our focused execution, that gives us the confidence to spin off our Women’s Health, trusted Legacy Brands and Biosimilar products into a new company, which will position us to deliver even greater value to patients and shareholders.”

Financial Summary

$ in millions, except EPS amounts

Fourth Quarter

Year Ended

2019

 

 

2018

 

 

Change

 

 

Change
Ex-
Exchange

 

 

Dec. 31,
2019

 

 

Dec. 31,
2018

 

 

Change

 

 

Change
Ex-
Exchange

Sales

$11,868

$10,998

8%

9%

$46,840

$42,294

11%

13%

GAAP net income1

2,357

1,827

29%

29%

9,843

6,220

58%

61%

Non-GAAP net income that excludes certain items1,2*

2,978

2,745

8%

8%

13,382

11,621

15%

16%

GAAP EPS

0.92

0.69

33%

32%

3.81

2.32

64%

67%

Non-GAAP EPS that excludes certain items2*

1.16

1.04

12%

12%

5.19

4.34

20%

21%

*Refer to table on page 10.

GAAP (generally accepted accounting principles) earnings per share assuming dilution (EPS) was $0.92 for the fourth quarter and $3.81 for the full year of 2019. GAAP EPS for the full year of 2019 reflects a $993 million charge for the acquisition of Peloton Therapeutics, Inc. (Peloton) and a $612 million pretax intangible asset impairment charge related to SIVEXTRO (tedizolid phosphate). Non-GAAP EPS of $1.16 for the fourth quarter and $5.19 for the full year of 2019 excludes acquisition- and divestiture-related costs, restructuring costs and certain other items. Non-GAAP EPS for the full year of 2019 also excludes the charge for the acquisition of Peloton and the SIVEXTRO impairment charge.

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 Co., Ltd. (Eisai).

  • Merck announced the following regulatory milestones for KEYTRUDA:
    • Approval in the United States by the Food and Drug Administration (FDA) as monotherapy for the treatment of certain patients with high-risk, non-muscle invasive bladder cancer (NMIBC) based on the KEYNOTE-057 trial;
    • Approval in Japan for three new first-line indications across advanced renal cell carcinoma (RCC) based on the KEYNOTE-426 trial and recurrent or distant metastatic head and neck cancer based on the KEYNOTE-048 trial;
    • Approval in China for first-line treatment of metastatic squamous non-small cell lung cancer (NSCLC) in combination with chemotherapy based on the KEYNOTE-407 trial; and
    • Approval in Europe for two new regimens of KEYTRUDA, as monotherapy or in combination with chemotherapy, for the first-line treatment of metastatic or unresectable recurrent head and neck squamous cell carcinoma (HNSCC) in adults whose tumors express PD-L1 with a Combined Positive Score (CPS) >1 based on the KEYNOTE-048 trial.
  • Merck presented results from an exploratory analysis of the pivotal Phase 3 KEYNOTE-042 trial that showed KEYTRUDA improved overall survival as monotherapy for the first-line treatment of metastatic NSCLC regardless of KRAS mutational status.
  • Merck announced that the Phase 3 KEYNOTE-604 trial investigating KEYTRUDA in combination with chemotherapy significantly improved progression-free survival (PFS) compared to chemotherapy alone in the first-line treatment of patients with extensive-stage small cell lung cancer (ES-SCLC) but did not meet the other dual primary endpoint of overall survival.
  • Merck and AstraZeneca announced the following regulatory milestones for Lynparza:
    • Approval in the United States by the FDA as first-line maintenance treatment of germline BRCA-mutated (BRCAm) metastatic pancreatic cancer in patients whose disease had not progressed on at least 16 weeks of a first-line platinum-based chemotherapy regimen based on the Phase 3 POLO trial;
    • Approval in China as a first-line maintenance therapy in BRCAm advanced ovarian cancer following response to platinum-based chemotherapy based on the Phase 3 SOLO-1 trial;
    • Filing acceptance for priority review by the FDA for a supplemental New Drug Application (sNDA) seeking approval of Lynparza in combination with bevacizumab for the maintenance treatment of women with advanced ovarian cancer whose disease showed a complete or partial response to first-line treatment with platinum-based chemotherapy and bevacizumab based on results from the Phase 3 PAOLA-1 trial. A Prescription Drug User Fee Act (PDUFA) date is set for the second quarter of 2020; and
    • Filing acceptance for priority review by the FDA for a sNDA for the treatment of patients with metastatic castration-resistant prostate cancer (mCRPC) and deleterious or suspected deleterious germline or somatic homologous recombination repair (HRR) gene mutations, who have progressed following prior treatment with a new hormonal agent based on results from the Phase 3 PROfound trial. A PDUFA date is set for the second quarter of 2020.
  • Merck and AstraZeneca announced filing acceptance for priority review by the FDA of a New Drug Application (NDA) for selumetinib, an oral MEK 1/2 inhibitor, for the treatment of certain pediatric patients with neurofibromatosis Type 1 (NF1) based on the results from the National Cancer Institute (NCI) Cancer Therapy Evaluation Program (CTEP)-sponsored SPRINT Phase 2 Stratum 1 trial. A PDUFA date is set for the second quarter of 2020.

Other Pipeline Highlights

  • Merck announced conditional approval in Europe as well as U.S. approval for ERVEBO (Ebola Zaire Vaccine, Live) for the prevention of disease caused by Zaire ebolavirus in individuals 18 years of age and older.
  • Merck announced FDA approval of DIFICID (fidaxomicin) tablets and oral suspension for the treatment of Clostridioidesdifficile-associated diarrhea (CDAD) in children aged six months and older.
  • Merck announced the adoption of a positive opinion by the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) for RECARBRIO (imipenem, cilastatin, and relebactam) for the treatment of infections due to aerobic gram-negative organisms in adults with limited treatment options.
  • Merck announced filing acceptance for priority review by the FDA for a sNDA seeking approval of RECARBRIO to treat adult patients with hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (HABP/VABP) caused by certain susceptible Gram-negative microorganisms. The PDUFA date is June 4, 2020.
  • Merck announced that the Phase 3 VICTORIA study evaluating vericiguat, a soluble guanylate cyclase (sGC) stimulator being jointly developed with Bayer AG, met its primary composite endpoint in reducing the risk of heart failure hospitalization or cardiovascular death in patients with worsening chronic heart failure with reduced ejection fraction (HFrEF) compared to placebo when given in combination with available heart failure therapies.

Business Development

  • Merck acquired ArQule, Inc., diversifying its oncology portfolio with the expansion into targeted therapies that treat hematological malignancies with the addition of ARQ 531, a novel, oral Bruton’s tyrosine kinase (BTK) inhibitor currently in a Phase 2 development, among other candidates. The acquisition closed in January 2020.
  • Merck entered into a strategic oncology collaboration with Taiho Pharmaceutical Co., Ltd., and Astex Pharmaceuticals focused on the development of small molecule inhibitors against several drug targets, including the KRAS oncogene, which are currently being investigated for the treatment of cancer.
  • Merck Animal Health acquired Vaki, a leader in fish farming monitoring equipment and real-time video monitoring technology to advance fish health and welfare. The acquisition closed in December.

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

 

2019

2018

Change

Change Ex
Exchange

 

 

Dec. 31,
2019

Dec. 31,
2018

Change

Change Ex
Exchange

Total Sales

$11,868

$10,998

8%

9%

$46,840

$42,294

11%

13%

Pharmaceutical

10,533

9,830

7%

8%

41,751

37,689

11%

14%

KEYTRUDA

3,111

2,151

45%

46%

11,084

7,171

55%

58%

JANUVIA / JANUMET

1,418

1,465

-3%

-2%

5,524

5,914

-7%

-4%

GARDASIL / GARDASIL 9

693

835

-17%

-16%

3,737

3,151

19%

21%

PROQUAD, M-M-R II and VARIVAX

481

455

6%

7%

2,275

1,798

27%

28%

PNEUMOVAX 23

334

322

4%

4%

926

907

2%

3%

BRIDION

313

256

22%

24%

1,131

917

23%

26%

ROTATEQ

227

188

21%

21%

791

728

9%

10%

ISENTRESS / ISENTRESS HD

223

280

-20%

-18%

975

1,140

-15%

-10%

IMPLANON / NEXPLANON

206

169

22%

23%

787

703

12%

14%

SIMPONI

205

220

-7%

-3%

830

893

-7%

-2%

Animal Health

1,122

1,036

8%

10%

4,393

4,212

4%

9%

Livestock

777

684

14%

16%

2,784

2,630

6%

11%

Companion Animals

345

352

-2%

0%

1,609

1,582

2%

5%

Other Revenues

213

132

61%

30%

696

393

77%

-26%

Pharmaceutical Revenue

Fourth-quarter pharmaceutical sales increased 7% to $10.5 billion, excluding the unfavorable effect from foreign exchange, sales grew 8%. The increase was driven primarily by growth in oncology, partially offset by the ongoing impacts of the loss of market exclusivity for several products. Additionally, fourth quarter 2019 sales were reduced by $120 million due to a previously disclosed borrowing of doses of GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant) from the U.S. Centers for Disease Control and Prevention’s (CDC) Pediatric Vaccine Stockpile. Sales in the fourth quarter of 2018 were increased by $125 million due to the replenishment of previously borrowed doses of GARDASIL 9.

Growth in oncology was largely driven by sales of KEYTRUDA, which were $3.1 billion for the quarter, reflecting strong momentum from the NSCLC indications as well as continued uptake in other indications, including the recently launched RCC and adjuvant melanoma indications. Additionally, oncology sales reflect alliance revenue of $132 million related to Lynparza and $124 million related to Lenvima, representing Merck’s share of profits, which are product sales net of cost of sales and commercialization costs.

Performance in vaccines for the fourth quarter reflects the negative impact of borrowing doses of GARDASIL 9 from the CDC Pediatric Vaccine Stockpile as discussed above, partially offset by higher demand in Europe and China, as well as higher demand and pricing in the United States. Excluding the borrowing-related activity in both periods, GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant] and GARDASIL 9 sales grew 15% in the quarter, including a 1% negative impact from foreign exchange.

Performance in hospital acute care reflects higher demand globally, particularly 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 prophylaxis (prevention) of cytomegalovirus (CMV) infection and disease in adult CMV-seropositive recipients of an allogeneic hematopoietic stem cell transplant.

Pharmaceutical sales growth for the quarter was partially offset by the ongoing impacts from the loss of market exclusivity, including for NOXAFIL (posaconazole), EMEND (aprepitant), ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), CUBICIN (daptomycin) and REMICADE (infliximab). A generic entrant of NUVARING (etonogestrel/ethinyl estradiol vaginal ring) in the U.S. also negatively affected sales for the quarter and will continue to negatively affect sales in the future. In addition, the decline in sales of JANUVIA (sitagliptin) and JANUMET (sitagliptin and metformin HCI) reflects continued pricing pressure in the United States, which more than offset higher demand globally.

Full-year 2019 pharmaceutical sales increased 11% to $41.8 billion; excluding the unfavorable effect from foreign exchange, sales grew 14%, primarily reflecting growth in oncology and vaccines, partially offset by the ongoing effects from the loss of market exclusivity for several products and continued pricing pressure in diabetes.

Animal Health Revenue

Animal Health sales totaled $1.1 billion for the fourth quarter of 2019, an increase of 8% compared with the fourth quarter of 2018; excluding the unfavorable effect from foreign exchange, Animal Health sales grew 10%. Growth for the quarter was mainly driven by livestock products due to the Antelliq acquisition.

Worldwide sales for the full year of 2019 were $4.4 billion, an increase of 4%; excluding the unfavorable effect from foreign exchange, sales grew 9%. Full-year sales growth was mainly driven by livestock products due to the Antelliq acquisition, along with higher sales of companion animal products, primarily the BRAVECTO (fluralaner) line of products for parasitic control.

Animal Health segment profits were $366 million in the fourth quarter of 2019, a decrease of 5% compared with $387 million in the fourth quarter of 2018, primarily driven by unfavorable product mix and higher investments in selling and product development, partially offset by higher sales. Segment profits were $1.6 billion for the full year of 2019, a decrease of 3% compared with $1.7 billion in 2018, primarily driven by the unfavorable effects of foreign exchange.3

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

The tables below present selected expense information.

$ in millions

 

Fourth-Quarter 2019

 

 

GAAP

Acquisition- and
Divestiture-
Related Costs
4

 

Restructuring
Costs

 

Certain Other
Items

 

 

Non-GAAP 2

Cost of sales

$3,669

$325

$90

$−

$3,254

Selling, general and administrative

2,888

44

1

2,843

Research and development

2,548

166

11

2,371

Restructuring costs

194

194

Other (income) expense, net

(223)

(37)

7

(193)

 

Fourth-Quarter 2018

 

 

 

 

 

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)

 

$ in millions

 

Year Ended Dec. 31, 2019

 

 

GAAP

Acquisition- and
Divestiture-
Related Costs
4

 

Restructuring
Costs

Certain Other
Items

 

 

Non-GAAP 2

Cost of sales

$14,112

$2,126

$251

$−

$11,735

Selling, general and administrative

10,615

126

34

10,455

Research and development

9,872

145

4

993

8,730

Restructuring costs

638

638

Other (income) expense, net

139

284

55

(200)

 

Year Ended Dec. 31, 2018

 

 

 

 

 

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)

GAAP Expense, EPS and Related Information

Gross margin was 69.1% for the fourth quarter of 2019 compared to 70.1% for the fourth quarter of 2018. The decrease reflects unfavorable manufacturing variances, inventory write-offs, higher amortization of intangible assets related to collaborations, the unfavorable effects of pricing pressure and restructuring costs, partially offset by favorable product mix and lower acquisition- and divestiture-related costs.

Gross margin was 69.9% for the full year of 2019 compared to 68.1% for the full year of 2018. The increase in gross margin for the full year of 2019 reflects a charge in 2018 related to the termination of a collaboration agreement with Samsung Bioepis Co., Ltd., favorable product mix and lower acquisition- and divestiture-related costs, partially offset by unfavorable manufacturing variances, inventory write-offs, the unfavorable effects of pricing pressure, higher amortization of intangible assets related to collaborations and higher restructuring costs.

Selling, general and administrative expenses were $2.9 billion in the fourth quarter of 2019, an increase of 9% compared to the fourth quarter of 2018. Full-year 2019 selling, general and administrative expenses were $10.6 billion, an increase of 5% compared to the full year of 2018. The increase in both periods reflects higher administrative costs, acquisition- and divestiture-related costs, and promotion costs primarily in support of strategic brands, partially offset by the favorable effects of foreign exchange.

Research and development (R&D) expenses were $2.5 billion in the fourth quarter of 2019, an increase of 15% compared with the fourth quarter of 2018. R&D expenses were $9.9 billion for the full year of 2019, a 1% increase compared to the full year of 2018. The increase in both periods primarily reflects higher expenses related to clinical development and increased investment in discovery research and early drug development. In addition, the increase for the full year of 2019 was driven by a $993 million charge for the acquisition of Peloton. The increase in R&D expenses for the full year of 2019 was partially offset by charges in 2018 including $1.4 billion related to the formation of an oncology collaboration with Eisai and $344 million related to the Viralytics Limited acquisition.

Other (income) expense, net, was $223 million of income in the fourth quarter of 2019 compared to $110 million of expense in the fourth quarter of 2018 primarily reflecting income from investments in equity securities in 2019 compared with losses in 2018. In addition, the fourth quarter of 2018 included goodwill impairment charges. Other (income) expense, net, was $139 million of expense for the full year of 2019 compared to $402 million of income for the full year of 2018 driven by lower income from investments in equity securities and higher net interest expense.

The effective income tax rates were 15.3% for the fourth quarter and 14.7% for full year of 2019. The effective income tax rate for the full year of 2019 reflects a net tax benefit of $364 million related to the settlement of certain federal income tax matters, partially offset by the unfavorable impact of the charge for the acquisition of Peloton for which no tax benefit was recognized.

GAAP EPS was $0.92 for the fourth quarter of 2019 compared with $0.69 for the fourth quarter of 2018. GAAP EPS was $3.81 for the full year of 2019 compared with $2.32 for the full year of 2018.

Non-GAAP Expense, EPS and Related Information

Non-GAAP gross margin was 72.6% for the fourth quarter of 2019 compared to 75.0% for the fourth quarter of 2018. Non-GAAP gross margin was 74.9% for the full year of 2019 compared to 75.4% for the full year of 2018. The decrease in both periods reflects unfavorable manufacturing variances, inventory write-offs, the unfavorable effects of pricing pressure and higher amortization of intangible assets related to collaborations, partially offset by favorable product mix.

Non-GAAP selling, general and administrative expenses were $2.8 billion in the fourth quarter of 2019, an increase of 8% compared to the fourth quarter of 2018. Full-year 2019 non-GAAP selling, general and administrative expenses were $10.5 billion, an increase of 4% compared to the full year of 2018. The increase in both periods primarily reflects higher administrative costs and higher promotion costs primarily in support of strategic brands, partially offset by the favorable effects of foreign exchange.

Non-GAAP R&D expenses were $2.4 billion in the fourth quarter of 2019, a 12% increase compared to the fourth quarter of 2018. Non-GAAP R&D expenses were $8.7 billion for the full year of 2019, a 10% increase compared to the full year of 2018. The increases in both periods primarily reflect higher expenses related to clinical development and increased investment in discovery research and early drug development.

Non-GAAP other (income) expense, net, was $193 million of income in the fourth quarter of 2019 compared to $66 million of income in the fourth quarter of 2018, primarily reflecting income from investments in equity securities in 2019 compared with losses in 2018, partially offset by higher net interest expense. Non-GAAP other (income) expense, net, for the full year of 2019 was $200 million of income compared to $609 million of income for the full year of 2018, primarily driven by lower income from investments in equity securities and higher net interest expense.

The non-GAAP effective income tax rates were 16.9% for the fourth quarter of 2019 and 16.8% for the full year of 2019.

Non-GAAP EPS was $1.16 for the fourth quarter of 2019 compared with $1.04 for the fourth quarter of 2018. Non-GAAP EPS was $5.19 for the full year of 2019 compared with $4.34 for the full year of 2018.

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

2019

2018

Dec. 31,
2019

Dec. 31,
2018

EPS

 

 

 

 

GAAP EPS

$0.92

$0.69

$3.81

$2.32

Difference5

0.24

0.35

1.38

2.02

Non-GAAP EPS that excludes items listed below2

$1.16

$1.04

$5.19

$4.34

 

 

 

 

 

Net Income

 

 

 

 

GAAP net income1

$2,357

$1,827

$9,843

$6,220

Difference

621

918

3,539

5,401

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

$2,978

$2,745

$13,382

$11,621

 

 

 

 

 

Decrease (Increase) in Net Income Due to Excluded Items:

 

 

 

 

Acquisition- and divestiture-related costs4

$498

$801

$2,681

$3,066

Restructuring costs

285

150

927

658

Charge for the acquisition of Peloton

11

993

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 the acquisition of Viralytics

344

Other

7

(3)

55

(57)

Net decrease (increase) in income before taxes

801

951

4,656

5,834

Income tax (benefit) expense6

(180)

25

(1,028)

(375)

Acquisition- and divestiture-related costs attributable to non-controlling interests

(58)

(89)

(58)

Decrease (increase) in net income

$621

$918

$3,539

$5,401

Financial Outlook

At mid-January 2020 exchange rates, Merck anticipates full-year 2020 revenue to be between $48.8 billion and $50.3 billion, including a negative impact from foreign exchange of less than 1%.

Merck expects full-year 2020 GAAP EPS to be between $4.57 and $4.72. Merck expects full-year 2020 non-GAAP EPS to be between $5.62 and $5.77, including an approximately 1.5% negative impact from foreign exchange. The non-GAAP range excludes acquisition- and divestiture-related costs and costs related to restructuring programs.

The following table summarizes the company’s full-year 2020 financial guidance.

 

GAAP

   

Non-GAAP 2

 

 

 

 

   

 

 

Revenue

 

$48.8 to $50.3 billion

   

$48.8 to $50.3 billion*

 

Operating expenses

 

Slightly lower than 2019

   

Higher than 2019 by a low-single-digit rate

 

Effective tax rate

 

17% to 18%

   

17.5% to 18.5%

 

EPS**

 

$4.57 to $4.72

   

$5.62 to $5.77

 

*The company does not have any non-GAAP adjustments to revenue.

**EPS guidance for 2020 assumes a share count (assuming dilution) of approximately 2.54 billion shares.

A reconciliation of anticipated 2020 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 2020

 

 

GAAP EPS

$4.57 to $4.72

Difference5

1.05

Non-GAAP EPS that excludes items listed below2

$5.62 to $5.77

 

 

Acquisition- and divestiture-related costs

Restructuring costs

Net decrease (increase) in income before taxes

$2,500

800

3,300

Estimated income tax (benefit) expense

(640)

Decrease (increase) in net income

$2,660

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 8583879. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 8583879. 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 125 years, Merck, 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 in pursuit of our mission to save and improve lives. We demonstrate our commitment to patients and population health by increasing access to health care through far-reaching policies, programs and partnerships. Today, Merck continues to be at the forefront of research to prevent and treat diseases that threaten people and animals – including cancer, infectious diseases such as HIV and Ebola, and emerging animal diseases – as we aspire to be the premier research-intensive biopharmaceutical company in the world. 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. Examples of forward-looking statements include statements with respect to the company’s plans to spin-off certain of its businesses into an independent company, the timing and structure of such spin-off, the characteristics of the business to be separated, the expected benefits of the spin-off to the company and the expected effect on the company’s dividends. 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 whether the proposed spin-off will be completed on the proposed timetable or at all. 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, uncertainties as to the timing of the proposed spin-off; uncertainties as to the status of any required regulatory approvals; the possibility that various conditions to the consummation of the spin-off may not be satisfied; the effects of disruption from the transactions contemplated in connection with the spin-off; 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 2018 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 attributable to Merck & Co., Inc.

2

Merck is providing certain 2019 and 2018 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 liabilities for 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. Amounts for full-year 2019 include a $364 million net tax benefit related to the settlement of certain federal income tax matters, an $86 million tax benefit related to the reversal of tax reserves established in conjunction with the divestiture of Merck’s Consumer Care business in 2014 as a result of the lapse in the statute of limitations, and a $117 million tax charge related to the finalization of treasury regulations associated with the 2017 enactment of U.S. tax legislation. Amounts for fourth-quarter and full-year 2018 include adjustments to the provisional amounts recorded in 2017 related to the enactment of the U.S. tax legislation.

MERCK & CO., INC.
CONSOLIDATED STATEMENT OF INCOME - GAAP
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 1
 
GAAP % Change GAAP % Change
 
4Q19 4Q18 Full Year
2019
Full Year
2018
 
 
Sales

$

11,868

 

$

10,998

 

8%

$

46,840

 

$

42,294

 

11%

 

 

Costs, Expenses and Other

 

 

Cost of sales (1)

 

3,669

 

 

3,289

 

12%

 

14,112

 

 

13,509

 

4%

Selling, general and administrative (1)

 

2,888

 

 

2,643

 

9%

 

10,615

 

 

10,102

 

5%

Research and development (1)(2)

 

2,548

 

 

2,214

 

15%

 

9,872

 

 

9,752

 

1%

Restructuring costs (3)

 

194

 

 

138

 

41%

 

638

 

 

632

 

1%

Other (income) expense, net (1)

 

(223

)

 

110

 

*

 

139

 

 

(402

)

*

Income Before Taxes

 

2,792

 

 

2,604

 

7%

 

11,464

 

 

8,701

 

32%

Taxes on Income (1)

 

428

 

 

826

 

 

 

1,687

 

 

2,508

 

 

Net Income

 

2,364

 

 

1,778

 

33%

 

9,777

 

 

6,193

 

58%

Less: Net Income (Loss) Attributable to Noncontrolling Interests (1)

 

7

 

 

(49

)

 

 

(66

)

 

(27

)

 

Net Income Attributable to Merck & Co., Inc.

$

2,357

 

$

1,827

 

29%

$

9,843

 

$

6,220

 

58%

Earnings per Common Share Assuming Dilution

$

0.92

 

$

0.69

 

33%

$

3.81

 

$

2.32

 

64%

 
Average Shares Outstanding Assuming Dilution

 

2,559

 

 

2,634

 

 

2,580

 

 

2,679

 

Tax Rate (4)

 

15.3

%

 

31.7

%

 

14.7

%

 

28.8

%

* 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 full year of 2019 include a $993 million charge for the acquisition of Peloton Therapeutics (Peloton). 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.
 
(3) Represents separation and other related costs associated with restructuring activities under the company's formal restructuring programs.
 
(4) The effective income tax rates for the fourth quarter and the full year of 2019 include the unfavorable impact of a charge for the acquisition of Peloton for which no tax benefit was recognized and the favorable impact of product mix. The effective income tax rate for the full year of 2019 also reflects a net tax benefit of $364 million related to the settlement of certain federal income tax matters.
 
The effective income tax rates for the fourth quarter and full year of 2018 include 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 charge related to the formation of a collaboration with Eisai and a charge related to the termination of a collaboration agreement with Samsung for which no tax benefits were recognized.
MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
FOURTH QUARTER 2019
(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

$

3,669

 

325

 

90

 

415

 

$

3,254

 

Selling, general and administrative

 

2,888

 

44

 

1

 

45

 

 

2,843

 

Research and development

 

2,548

 

166

 

11

 

177

 

 

2,371

 

Restructuring costs

 

194

 

194

 

194

 

 

-

 

Other (income) expense, net

 

(223

)

(37

)

7

 

(30

)

 

(193

)

Income Before Taxes

 

2,792

 

(498

)

(285

)

(18

)

(801

)

 

3,593

 

Income Tax Provision (Benefit)

 

428

 

(55

)

(3)

(49

)

(3)

(76

)

(4)

(180

)

 

608

 

Net Income

 

2,364

 

(443

)

(236

)

58

 

(621

)

 

2,985

 

Net Income Attributable to Merck & Co., Inc.

 

2,357

 

(443

)

(236

)

58

 

(621

)

 

2,978

 

Earnings per Common Share Assuming Dilution

$

0.92

 

(0.17

)

(0.09

)

0.02

 

(0.24

)

$

1.16

 

 
Tax Rate

 

15.3

%

 

16.9

%

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) Amount included in cost of sales primarily reflects $306 million of expenses for the amortization of intangible assets recognized as a result of business acquisitions, as well as $12 million of intangible asset impairment charges. Amount included in selling, general and administrative expenses primarily reflects integration, transaction and certain other costs related to business acquisitions and divestitures. Amount included in research and development expenses primarily reflects $164 million of in-process research and development (IPR&D) impairment charges.
 
(2) Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to activities under the company's formal restructuring programs.
 
(3) 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) Primarily reflects an $86 million tax benefit related to the reversal of tax reserves established in conjunction with the divestiture of Merck's Consumer Care business in 2014 as a result of the lapse in the statute of limitations.
MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
FULL YEAR 2019
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2b
 
GAAP Acquisition and Divestiture-Related Costs (1) Restructuring Costs (2) Certain Other Items (4) Adjustment Subtotal Non-GAAP
 
 
Cost of sales

$

14,112

 

2,126

 

251

 

2,377

 

$

11,735

 

Selling, general and administrative

 

10,615

 

126

 

34

 

160

 

 

10,455

 

Research and development

 

9,872

 

145

 

4

 

993

 

1,142

 

 

8,730

 

Restructuring costs

 

638

 

638

 

638

 

 

-

 

Other (income) expense, net

 

139

 

284

 

55

 

339

 

 

(200

)

Income Before Taxes

 

11,464

 

(2,681

)

(927

)

(1,048

)

(4,656

)

 

16,120

 

Income Tax Provision (Benefit)

 

1,687

 

(493

)

(3)

(155

)

(3)

(380

)

(5)

(1,028

)

 

2,715

 

Net Income

 

9,777

 

(2,188

)

(772

)

(668

)

(3,628

)

 

13,405

 

Less: Net (Loss) Income Attributable to Noncontrolling Interests

 

(66

)

(89

)

(89

)

 

23

 

Net Income Attributable to Merck & Co., Inc.

 

9,843

 

(2,099

)

(772

)

(668

)

(3,539

)

 

13,382

 

Earnings per Common Share Assuming Dilution

$

3.81

 

(0.82

)

(0.30

)

(0.26

)

(1.38

)

$

5.19

 

 
Tax Rate

 

14.7

%

 

16.8

%

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) Amount included in cost of sales primarily reflects $1.4 billion of expenses for the amortization of intangible assets recognized as a result of business acquisitions, as well as $705 million of intangible asset impairment charges, including $612 million related to SIVEXTRO. Amount included in selling, general and administrative expenses primarily reflects integration, transaction and certain other costs related to business acquisitions and divestitures, including costs related to the acquisition of Antelliq Corporation. Amounts included in research and development expenses primarily reflect $172 million of in-process research and development (IPR&D) impairment charges, partially offset by a reduction in expenses related to a decrease in the estimated fair value measurement of liabilities for contingent consideration. Amount included in other (income) expense, net primarily reflects goodwill and intangible asset impairment charges related to certain businesses in the Healthcare Services segment and expenses related to 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) Amount included in research and development represents the charge related to the acquisition of Peloton.
 
(5) Primarily reflects a $364 million net tax benefit related to the settlement of certain federal income tax matters, an $86 million tax benefit related to the reversal of tax reserves established in conjunction with the divestiture of Merck's Consumer Care business in 2014 as a result of the lapse in the statute of limitations, and a $117 million tax charge related to the finalization of treasury regulations associated with the 2017 enactment of U.S. tax legislation.
 
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
(UNAUDITED)
Table 3
                                 

2019

 

 

 

2018

 

 

 

4Q

 

 

 

Full Year

1Q

 

2Q

 

3Q

 

4Q

 

Full Year

 

 

 

1Q

 

2Q

 

3Q

 

4Q

 

Full Year

 

 

 

Nom %

 

Ex-Exch %

 

 

 

Nom %

 

Ex-Exch %

                                 
TOTAL SALES (1)

$10,816

 

$11,760

 

$12,397

 

$11,868

 

$46,840

   

$10,037

 

$10,465

 

$10,794

 

$10,998

 

$42,294

   

8

 

9

   

11

 

13

PHARMACEUTICAL

9,663

 

10,460

 

11,095

 

10,533

 

41,751

   

8,919

 

9,282

 

9,658

 

9,830

 

37,689

   

7

 

8

   

11

 

14

Oncology                                
Keytruda

2,269

 

2,634

 

3,070

 

3,111

 

11,084

   

1,464

 

1,667

 

1,889

 

2,151

 

7,171

   

45

 

46

   

55

 

58

Alliance Revenue – Lynparza (2)

79

 

111

 

123

 

132

 

444

   

33

 

44

 

49

 

62

 

187

   

111

 

112

   

137

 

141

Alliance Revenue – Lenvima (2)

74

 

97

 

109

 

124

 

404

     

35

 

43

 

71

 

149

   

74

 

73

   

171

 

173

Emend

117

 

121

 

98

 

53

 

388

   

125

 

148

 

123

 

126

 

522

   

-58

 

-58

   

-26

 

-24

Vaccines (3)                                
Gardasil / Gardasil 9

838

 

886

 

1,320

 

693

 

3,737

   

660

 

608

 

1,048

 

835

 

3,151

   

-17

 

-16

   

19

 

21

ProQuad / M-M-R II / Varivax

496

 

675

 

623

 

481

 

2,275

   

392

 

426

 

525

 

455

 

1,798

   

6

 

7

   

27

 

28

Pneumovax 23

185

 

170

 

237

 

334

 

926

   

179

 

193

 

214

 

322

 

907

   

4

 

4

   

2

 

3

RotaTeq

211

 

172

 

180

 

227

 

791

   

193

 

156

 

191

 

188

 

728

   

21

 

21

   

9

 

10

Vaqta

47

 

58

 

62

 

71

 

238

   

37

 

65

 

66

 

72

 

239

   

-2

 

-1

   

0

 

2

Hospital Acute Care                                
Bridion

255

 

278

 

284

 

313

 

1,131

   

204

 

240

 

217

 

256

 

917

   

22

 

24

   

23

 

26

Noxafil

190

 

193

 

177

 

103

 

662

   

176

 

188

 

188

 

191

 

742

   

-46

 

-44

   

-11

 

-7

Primaxin

59

 

71

 

77

 

67

 

273

   

72

 

68

 

72

 

53

 

265

   

25

 

27

   

3

 

7

Invanz

72

 

78

 

57

 

57

 

263

   

151

 

149

 

137

 

59

 

496

   

-5

 

-2

   

-47

 

-44

Cubicin

88

 

67

 

52

 

50

 

257

   

98

 

94

 

95

 

80

 

367

   

-38

 

-37

   

-30

 

-28

Cancidas

61

 

67

 

62

 

58

 

249

   

91

 

87

 

79

 

69

 

326

   

-17

 

-15

   

-24

 

-20

Immunology                                
Simponi

208

 

214

 

203

 

205

 

830

   

231

 

233

 

210

 

220

 

893

   

-7

 

-3

   

-7

 

-2

Remicade

123

 

98

 

101

 

89

 

411

   

167

 

157

 

135

 

123

 

582

   

-27

 

-25

   

-29

 

-25

Neuroscience                                
Belsomra

67

 

76

 

80

 

83

 

306

   

54

 

71

 

66

 

69

 

260

   

19

 

16

   

18

 

17

Virology                                
Isentress / Isentress HD

255

 

247

 

250

 

223

 

975

   

281

 

305

 

275

 

280

 

1,140

   

-20

 

-18

   

-15

 

-10

Zepatier

114

 

108

 

83

 

66

 

370

   

131

 

113

 

104

 

108

 

455

   

-38

 

-38

   

-19

 

-16

Cardiovascular                                
Zetia

140

 

156

 

147

 

146

 

590

   

305

 

226

 

165

 

162

 

857

   

-9

 

-11

   

-31

 

-30

Vytorin

97

 

76

 

57

 

54

 

285

   

167

 

155

 

92

 

83

 

497

   

-35

 

-33

   

-43

 

-40

Atozet

94

 

92

 

97

 

108

 

391

   

73

 

101

 

84

 

89

 

347

   

22

 

26

   

13

 

18

Adempas

90

 

104

 

107

 

117

 

419

   

68

 

75

 

94

 

91

 

329

   

28

 

29

   

27

 

30

Diabetes (4)                                
Januvia

824

 

908

 

807

 

943

 

3,482

   

880

 

949

 

927

 

930

 

3,686

   

1

 

2

   

-6

 

-4

Janumet

530

 

533

 

503

 

475

 

2,041

   

544

 

585

 

563

 

535

 

2,228

   

-11

 

-9

   

-8

 

-5

Women's Health                                
NuvaRing

219

 

240

 

241

 

179

 

879

   

216

 

236

 

234

 

216

 

902

   

-17

 

-17

   

-3

 

-2

Implanon / Nexplanon

199

 

183

 

199

 

206

 

787

   

174

 

174

 

186

 

169

 

703

   

22

 

23

   

12

 

14

Diversified Brands                                
Singulair

191

 

160

 

152

 

195

 

698

   

175

 

185

 

161

 

187

 

708

   

4

 

5

   

-1

 

1

Cozaar / Hyzaar

103

 

109

 

116

 

113

 

442

   

120

 

125

 

103

 

105

 

453

   

8

 

9

   

-3

 

2

Nasonex

96

 

72

 

58

 

67

 

293

   

122

 

81

 

71

 

102

 

376

   

-34

 

-34

   

-22

 

-19

Arcoxia

75

 

75

 

72

 

67

 

288

   

83

 

84

 

83

 

86

 

335

   

-23

 

-22

   

-14

 

-10

Follistim AQ

57

 

63

 

62

 

58

 

241

   

67

 

70

 

60

 

70

 

268

   

-16

 

-15

   

-10

 

-7

Other Pharmaceutical (5)

1,140

 

1,268

 

1,229

 

1,265

 

4,901

   

1,186

 

1,189

 

1,109

 

1,215

 

4,705

   

4

 

6

   

4

 

7

                                 
ANIMAL HEALTH

1,025

 

1,124

 

1,122

 

1,122

 

4,393

   

1,065

 

1,090

 

1,021

 

1,036

 

4,212

   

8

 

10

   

4

 

9

Livestock

611

 

671

 

726

 

777

 

2,784

   

652

 

633

 

660

 

684

 

2,630

   

14

 

16

   

6

 

11

Companion Animals

414

 

453

 

396

 

345

 

1,609

   

413

 

457

 

361

 

352

 

1,582

   

-2

 

0

   

2

 

5

                                 
Other Revenues (6)

128

 

176

 

180

 

213

 

696

   

53

 

93

 

115

 

132

 

393

   

61

 

30

   

77

 

-26

* 200% or greater
 
Sum of quarterly amounts may not equal year-to-date amounts due to rounding.
 
(1) Only select products are shown.
(2) Alliance Revenue represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs.
(3) Total Vaccines sales were $1,887 million, $2,037 million, $2,517 million and $1,928 million in the first, second, third and fourth quarters of 2019, respectively, and $1,561 million, $1,533 million, $2,159 million and $2,008 million for the first, second, third and fourth quarters of 2018, respectively.
(4) Total Diabetes sales were $1,402 million, $1,480 million, $1,360 million and $1,472 million in the first, second, third and fourth quarters of 2019, respectively, and $1,433 million, $1,571 million, $1,506 million and $1,485 million for the first, second, third and fourth quarters of 2018, respectively.
(5) Includes Pharmaceutical products not individually shown above.
(6) Other Revenues are comprised primarily of Healthcare Services segment revenues, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities.

 

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Source: Merck