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KENILWORTH, N.J.--(BUSINESS WIRE)--Merck (NYSE:MRK), known as MSD outside the United States and Canada, today announced financial results for the first quarter of 2015.
|$ in millions, except EPS amounts||2015||2014|
Non-GAAP EPS that excludes items listed below1
GAAP Net Income2
Non-GAAP Net Income that excludes items listed below1,2
Non-GAAP (generally accepted accounting principles) earnings per share (EPS) of $0.85 for the first quarter exclude acquisition- and divestiture-related costs and restructuring costs.
A reconciliation of GAAP to non-GAAP net income and EPS is provided in the tables that follow.
|$ in millions, except EPS amounts||First Quarter|
Non-GAAP EPS that excludes items listed below1
|GAAP net income2||$953||$1,705|
|Non-GAAP net income that excludes items listed below1,2||$2,426||$2,601|
|Decrease (Increase) in Net Income Due to Excluded Items:|
|Acquisition- and divestiture-related costs4||$1,526||$1,137|
|Net decrease (increase) in income before taxes||1,751||1,463|
|Income tax (benefit) expense5||(278)||(567)|
|Decrease (increase) in net income||$1,473||$896|
Commentary from Chairman and Chief Executive Officer Kenneth C. Frazier
“Our strong performance this quarter demonstrates that our scientific and business strategies, together with our focused investments, are paying off.”
“We remain focused on bringing forward the best scientific and medical innovations.”
“By capitalizing on the exciting scientific and clinical opportunities that lie ahead, Merck is poised to play a major role in transforming health care for patients, as well as payers and shareholders.”
Select Business Highlights
Worldwide sales were $9.4 billion for the first quarter of 2015, a decrease of 8 percent compared with the first quarter of 2014, including a 5 percent negative impact from foreign exchange and a 9 percent net unfavorable impact resulting from the divestiture of the Consumer Care business and select products, partially offset by the acquisition of Cubist Pharmaceuticals, Inc. (Cubist).
The following table reflects sales of the company’s top pharmaceutical products, as well as total sales of Animal Health and Consumer Care products.
|$ in millions||First Quarter||Change||
|JANUVIA / JANUMET||1,393||1,334||4%||10%|
|ZETIA / VYTORIN||887||972||-9%||-2%|
|GARDASIL / GARDASIL 9||359||383||-6%||-5%|
|PROQUAD, M-M-R II and VARIVAX||348||280||24%||25%|
*divested on Oct. 1, 2014
Commercial and Pipeline Highlights
The company focused on important launches in the first quarter of 2015, including KEYTRUDA (pembrolizumab) for the treatment of advanced melanoma in patients whose disease has progressed after other therapies, BELSOMRA (suvorexant) for the treatment of insomnia and ZERBAXA (ceftolozane/tazobactam), a combination product for the treatment of certain serious bacterial infections in adults. ZERBAXA was acquired through the acquisition of Cubist, which was completed in late January.
Pharmaceutical Revenue Performance
First-quarter pharmaceutical sales declined 2 percent to $8.3 billion, including a 7 percent negative impact from foreign exchange. Excluding the impact of exchange, growth was driven by the four core therapeutic areas – diabetes, vaccines, hospital acute care and oncology. The increase in hospital acute care was driven by strong sales growth of inline brands, as well as the addition of $208 million of Cubist product sales following Merck’s acquisition of Cubist in late January, including $182 million in sales of CUBICIN (daptomycin for injection), an I.V. antibiotic. Sales of CUBICIN in 2015 prior to Merck’s acquisition of Cubist were $74 million. Oncology growth was due to $83 million in sales from the continued launch of KEYTRUDA. Pharmaceutical sales also reflect the continued decline in the HCV portfolio of VICTRELIS (boceprevir) and PEGINTRON (peginterferon alfa-2b).
Animal Health Revenue Performance
Animal Health sales totaled $829 million for the first quarter of 2015, an increase of 2 percent compared with the first quarter of 2014, including an 11 percent negative impact from foreign exchange. Growth was primarily driven by an increase in sales of companion animal products mainly from the continued launch of BRAVECTO (fluralaner), a chewable tablet that kills fleas and ticks in dogs for up to 12 weeks.
Other Revenue Performance
Other revenues – primarily comprising alliance revenue, miscellaneous corporate revenues and third-party manufacturing sales – decreased 28 percent to $328 million compared to the first quarter of 2014. The decrease was driven primarily by $232 million in proceeds from the sale of marketing rights for SAPHRIS (asenapine) in the United States recognized in the first quarter of 2014, as well as the loss of revenue from AstraZeneca recorded by Merck, which was $147 million in the first quarter of 2014.
First-Quarter 2015 Expense and Other Information
The costs detailed below totaled $8.0 billion on a GAAP basis during the first quarter of 2015 and include $1.8 billion of acquisition- and divestiture-related costs and restructuring costs.
|$ in millions||Included in expenses for the period|
|Materials and production||$3,569||$1,250||$105||$2,214|
|Marketing and administrative||2,601||227||36||2,338|
|Research and development||1,737||63||2||1,672|
|Materials and production||$3,903||$1,126||$119||$2,658|
|Marketing and administrative||2,734||11||31||2,692|
|Research and development||1,574||–-||51||1,523|
The gross margin was 62.1 percent for the first quarter of 2015 compared to 62.0 percent for the first quarter of 2014, reflecting 14.4 and 12.1 unfavorable percentage point impacts, respectively, from the acquisition- and divestiture-related costs and restructuring costs noted above. The increase in non-GAAP gross margin was driven by product mix, including the impact of acquisitions and divestitures, and foreign exchange.
Marketing and administrative expenses, on a non-GAAP basis, were $2.3 billion in the first quarter of 2015, a decrease from $2.7 billion in the same period of 2014, which was primarily driven by the sale of the Consumer Care business and declines in direct selling costs.
R&D expenses, on a non-GAAP basis, were $1.7 billion in the first quarter of 2015, a 10 percent increase compared to the first quarter of 2014, largely driven by an increase in licensing expenses.
Other (income) expense, net, was $55 million of expense in the first quarter of 2015 compared to $163 million of income in the first quarter of 2014. The first quarter of 2014 included a $182 million gain on the divestiture of the company’s Sirna Therapeutics, Inc. subsidiary.
The GAAP effective tax rate of 30.6 percent for the first quarter of 2015 reflects the impacts of acquisition- and divestiture-related costs and restructuring costs. The non-GAAP effective tax rate, which excludes these items, was 22.4 percent for the first quarter of 2015.
Merck has narrowed and raised its full-year 2015 non-GAAP EPS range to be between $3.35 and $3.48, including a $0.27 negative impact from foreign exchange. The range excludes acquisition- and divestiture-related costs and costs related to restructuring programs. The company has lowered its full-year 2015 GAAP EPS range to be between $1.58 and $1.85. The change in the GAAP EPS range primarily reflects the incorporation of updated estimated Cubist intangible amortization expense.
At current exchange rates, the company continues to anticipate full-year 2015 revenues to be between $38.3 billion and $39.8 billion, including a $2.8 billion negative impact from foreign exchange and approximately $1 billion of net lost sales from acquisitions and divestitures.
In addition, the company continues to expect full-year 2015 non-GAAP marketing and administrative expenses to be below 2014 levels and R&D expenses to be modestly above 2014 levels.
The company continues to anticipate its full-year 2015 non-GAAP tax rate will be in the range of 22 to 23 percent, not including a 2015 R&D tax credit.
A reconciliation of anticipated 2015 EPS, as reported in accordance with GAAP to non-GAAP EPS that excludes certain items, is provided in the table below.
$ in millions, except EPS amounts
|GAAP EPS||$1.58 to $1.85|
|Difference3||1.77 to 1.63|
|Non-GAAP EPS that excludes items listed below||$3.35 to $3.48|
Acquisition- and divestiture-related costs
$5,400 to $5,100
950 to 750
Net decrease (increase) in income before taxes
6,350 to 5,850
Estimated income tax (benefit) expense
(1,300) to (1,200)
Decrease (increase) in net income
$5,050 to $4,650
As of March 31, 2015, Merck had approximately 70,000 employees worldwide.
Earnings Conference Call
Investors, journalists and the general public may access a live audio webcast of the call today at 8:00 a.m. EDT on Merck’s website at http://www.merck.com/investors/events-and-presentations/home.html. Institutional investors and analysts can participate in the call by dialing (706) 758-9927 or (877) 381-5782 and using ID code number 96680253. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 96680253. Journalists who wish to ask questions are requested to contact a member of Merck’s Media Relations team at the conclusion of the call.
Today’s Merck is a global health care leader working to help the world be well. Merck is known as MSD outside the United States and Canada. Through our prescription medicines, vaccines, biologic therapies and animal health products, we work with customers and operate in more than 140 countries to deliver innovative health solutions. We also demonstrate our commitment to increasing access to health care through far-reaching policies, programs and partnerships. For more information, visit www.merck.com and connect with us on Twitter, Facebook and YouTube. You can also follow our Twitter conversation at $MRK.
This news release 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 Merck’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; Merck’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 Merck’s patents and other protections for innovative products; and the exposure to litigation, including patent litigation, and/or regulatory actions.
Merck 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 Merck’s 2014 Annual Report on Form 10-K and the company’s other filings with the Securities and Exchange Commission (SEC) available at the SEC’s Internet site (www.sec.gov).
1 Merck is providing certain 2015 and 2014 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 performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP. For description of the items, see Table 2a, including the related footnotes, attached to this release.
2 Net income attributable to Merck & Co., Inc.
3 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.
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 fair value measurement of contingent consideration. Also includes integration, transaction and certain other costs related to business acquisitions and divestitures.
5 Includes the estimated tax impact on the reconciling items. In addition, amount for the first quarter of 2014 includes a benefit of approximately $300 million associated with a capital loss generated in the quarter.
|MERCK & CO., INC.|
|CONSOLIDATED STATEMENT OF INCOME - GAAP|
|(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)|
|Costs, Expenses and Other|
|Materials and production (1)||3,569||3,903||-9%|
|Marketing and administrative (1)||2,601||2,734||-5%|
|Research and development (1)||1,737||1,574||10%|
|Restructuring costs (2)||82||125||-34%|
|Other (income) expense, net (1) (3)||55||(163||)||*|
|Income Before Taxes||1,381||2,091||-34%|
|Income Tax Provision||423||360|
|Less: Net Income Attributable to Noncontrolling Interests||5||26|
|Net Income Attributable to Merck & Co., Inc.||$||953||$||1,705||-44%|
|Earnings per Common Share Assuming Dilution||$||0.33||$||0.57||-42%|
|Average Shares Outstanding Assuming Dilution||2,865||2,971|
|Tax Rate (4)||30.6||%||17.2||%|
|* 100% or greater|
(1) Amounts include the impact of acquisition and divestiture-related costs, restructuring costs and certain other items. See accompanying tables for details.
(2) Represents separation and other related costs associated with restructuring activities under the company's formal restructuring programs.
(3) Other (income) expense, net in the first quarter of 2014 includes a gain of $182 million on the divestiture of the company's Sirna Therapeutics, Inc. subsidiary. Other (income) expense, net includes equity income from affiliates. Prior period amounts have been reclassified to conform to the current presentation.
(4) The effective income tax rate for the first quarter of 2014 includes a benefit of approximately $300 million associated with a capital loss generated in the quarter.
|MERCK & CO., INC.|
|CONSOLIDATED STATEMENT OF INCOME|
|GAAP TO NON-GAAP RECONCILIATION|
|FIRST QUARTER 2015|
|(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)|
|Costs, Expenses and Other|
|Materials and production||3,569||1,250||105||1,355||2,214|
|Marketing and administrative||2,601||227||36||263||2,338|
|Research and development||1,737||63||2||65||1,672|
|Other (income) expense, net (4)||55||(14||)||(14||)||69|
|Income Before Taxes||1,381||(1,526||)||(225||)||(1,751||)||3,132|
|Taxes on Income||423||(278||
|Less: Net Income Attributable to Noncontrolling Interests||5||5|
|Net Income Attributable to Merck & Co., Inc.||$||953||(1,473||)||$||2,426|
|Earnings per Common Share Assuming Dilution||$||0.33||$||0.85|
|Average Shares Outstanding Assuming Dilution||2,865||2,865|
Merck is providing 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 performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.
(1) Amounts included in materials and production costs reflect $1.2 billion of expenses for the amortization of intangible assets recognized as a result of acquisitions, as well as $20 million of amortization of purchase accounting adjustments to inventories as a result of the Cubist acquisition. Amounts included in marketing and administrative expenses reflect integration, transaction and certain other costs related to business acquisitions, including severance costs which are not part of the company's formal restructuring programs, as well as transaction and certain other costs related to divestitures. Amounts included in research and development expenses reflect $61 million of charges to increase the fair value of liabilities for contingent consideration, as well as $2 million of in-process research and development (“IPR&D”) impairment charges.
(2) Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to activities under the company's formal restructuring programs.
(3) Represents the estimated tax impact on the reconciling items.
(4) Other (income) expense, net includes equity income from affiliates.
|MERCK & CO., INC.|
|FRANCHISE / KEY PRODUCT SALES|
|(AMOUNTS IN MILLIONS)|
|TOTAL SALES (1)||$||9,425||$||10,264||$||10,934||$||10,557||$||10,482||$||42,237||-8|
|Primary Care & Women's Health|
|General Medicine & Women's Health|
|Implanon / Nexplanon||137||102||119||158||123||502||35|
|Hospital and Specialty Care|
|Hospital Acute Care|
|Cozaar / Hyzaar||185||205||214||195||192||806||-10|
|Gardasil / Gardasil 9||359||383||409||590||356||1,738||-6|
|ProQuad, M-M-R II and Varivax||348||280||326||421||366||1,394||24|
|Other Pharmaceutical (3)||1,075||1,378||1,389||1,326||1,269||5,356||-22|
|Consumer Care (4)||2||546||583||401||16||1,547||*|
|Other Revenues (5)||328||454||392||137||211||1,194||-28|
* 100% or greater
Sum of quarterly amounts may not equal year-to-date amounts due to rounding.
(1) Only select products are shown.
(2) Cubicin results for the first quarter 2015 represent sales for the two months following Merck's acquisition of Cubist. Cubicin sales for 2014 represent the previous licensing agreement in Japan prior to the acquisition.
(3) Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $78 million for the first quarter of 2015. Other Vaccines sales included in Other Pharmaceutical were $98 million, $76 million, $116 million and $88 million for the first, second, third and fourth quarters of 2014, respectively.
(4) On October 1, 2014, the company divested the Consumer Care business to Bayer.
(5) Other revenues are comprised primarily of alliance revenue, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities. On June 30, 2014, AstraZeneca exercised its option to buy Merck's interest in a subsidiary and through it, Merck's interest in Nexium and Prilosec. As a result, the company no longer records supply sales for these products. Other revenues in the first quarter 2014 include $232 million of revenue recognized in connection with the sale of U.S. Saphris rights.
Lainie Keller, 908-236-5036
Steven Cragle, 908-740-1801
Justin Holko, 908-740-1879
Joe Romanelli, 908-740-1986
Merck, known as MSD outside the United States and Canada, is a leading research-driven healthcare company.
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