Merck Announces Second-Quarter 2013 Financial Results

  • 2013 Second-Quarter Non-GAAP EPS of $0.84, Excluding Certain Items; GAAP EPS of $0.30
  • Worldwide Sales were $11.0 Billion, a Decrease of 11 Percent Reflecting the Unfavorable Impact of Patent Expiries and a 3 Percent Negative Impact from Foreign Exchange Partially Offset by Global Performance of Human Health Products
  • Growth in Key Franchises Including Vaccines, Diabetes and Immunology
  • Continued Return of Cash to Shareholders, Including $5 Billion Accelerated Share Repurchase Announced in May
  • Reaffirmed Full-Year Non-GAAP EPS Target of $3.45 to $3.55, Excluding Certain Items; Revised GAAP EPS Range to $1.84 to $2.05
Tuesday, July 30, 2013 7:00 am EDT

Dateline:

WHITEHOUSE STATION, N.J.

Public Company Information:

NYSE:
MRK
"With seven of our top 10 products growing in the second quarter and solid performance overall, we continue to navigate significant patent expiries and adapt to the evolving global healthcare environment"

WHITEHOUSE STATION, N.J.--(BUSINESS WIRE)--Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the second quarter of 2013.

   
$ in millions, except EPS amounts 

Second
Quarter
2013

 

Second
Quarter
2012

Sales $11,010 $12,311
GAAP EPS 0.30 0.58

Non-GAAP EPS that excludes items listed below1

 0.84 1.05

GAAP Net Income2

 906 1,793
Non-GAAP Net Income that excludes items listed below1,2 2,530 3,227

Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the second quarter of $0.84 exclude acquisition-related costs, restructuring costs and certain other items.

A reconciliation of GAAP to non-GAAP net income and EPS is provided in the tables that follow. Year-to-date results can be found in the attached tables.

   

$ in millions, except EPS amounts

 Second Quarter
  2013 2012
EPS    
GAAP EPS $0.30 $0.58

Difference3

 0.54 0.47
Non-GAAP EPS that excludes items listed below1 $0.84 $1.05
     
Net Income    
GAAP net income2 $906 $1,793
Difference 1,624 1,434
Non-GAAP net income that excludes items listed below1,2 $2,530 $3,227
     
Decrease (Increase) in Net Income Due to Excluded Items:    

Acquisition-related costs4

 $1,768 $1,417
Restructuring costs 278 289
Other (13) -
Net decrease (increase) in income before taxes 2,033 1,706
Estimated income tax (benefit) expense (409) (272)
Decrease (increase) in net income $1,624 $1,434

“With seven of our top 10 products growing in the second quarter and solid performance overall, we continue to navigate significant patent expiries and adapt to the evolving global healthcare environment,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “We remain committed to pursuing innovative, best-in-class science that translates into medically important products, such as our PD-1 inhibitor for oncology. To enable further investment in promising growth opportunities, we continue to manage costs effectively, as reflected in our results for the quarter.”

Select Revenue Highlights

Worldwide sales were $11.0 billion for the second quarter of 2013, a decrease of 11 percent compared with the second quarter of 2012, including a 3 percent negative effect from foreign exchange.

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

 

Second
Quarter
2013

 

Second
Quarter
2012

 

Change

   

Change
Ex-
exchange

Total Sales $11,010 $12,311 -11%   -8%
Pharmaceutical 9,310 10,560 -12%   -9%
JANUVIA 1,072 1,058 1%   7%
ZETIA 650 632 3%   6%
REMICADE 527 518 2%   3%
JANUMET 474 411 16%   17%
VYTORIN 417 445 -6%   -5%
ISENTRESS 412 398 4%   5%
GARDASIL 383 324 18%   19%
PROQUAD, M-M-R II and VARIVAX 339 316 7%   7%
NASONEX 325 293 11%   13%
SINGULAIR 281 1,431 -80%   -79%
Animal Health 851 865 -2%   1%
Consumer Care 490 552 -11%   -10%
Other Revenues 359 333 8%   2%

Pharmaceutical Revenue Performance

Second-quarter pharmaceutical sales declined 12 percent to $9.3 billion, including a 3 percent negative impact due to foreign exchange. Declines of SINGULAIR (montelukast sodium), MAXALT (rizatriptan benzoate), COZAAR (losartan potassium)/HYZAAR (losartan potassium/hydrochlorothiazide) and CLARINEX (desloratadine) following loss of market exclusivity were partially offset by growth of JANUVIA (sitagliptin)/JANUMET (sitagliptin/metformin HCI), GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant] and SIMPONI (golimumab).

Sales from emerging markets increased 7 percent, including a 3 percent negative impact from foreign exchange. Emerging market sales accounted for approximately 22 percent of pharmaceutical sales in the second quarter of 2013. China continues to be a key driver of growth in the emerging markets with sales increasing 13 percent for the second quarter, including a 3 percent benefit from foreign exchange.

Worldwide sales of the combined diabetes franchise of JANUVIA/JANUMET increased 5 percent to $1.5 billion in the second quarter, including a 5 percent negative impact from foreign exchange. Sales growth in all regions was partially offset by a decline in Japan due to foreign exchange.

Sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), medicines for lowering LDL cholesterol, decreased 1 percent to $1.1 billion in the second quarter, including a 2 percent negative impact from foreign exchange. The decrease reflects lower sales of VYTORIN, partially offset by growth of ZETIA mainly in the United States.

Combined sales of REMICADE (infliximab) and SIMPONI, treatments for inflammatory diseases, increased 9 percent, including a 2 percent negative impact from foreign exchange, to $647 million in the second quarter of 2013 primarily reflecting growth of SIMPONI in Europe. Sales of SIMPONI grew 59 percent to $120 million in the quarter.

ISENTRESS (raltegravir), an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, grew 4 percent to $412 million in the second quarter driven by growth in the United States and Europe, partially offset by tenders in Brazil in 2012.

Merck’s sales of GARDASIL, a vaccine to help prevent certain diseases caused by four types of human papillomavirus (HPV), were $383 million, an increase of 18 percent for the quarter. The increase was driven by higher sales in the United States, which reflects continued strong uptake in males, as well as tenders in Latin America in 2013.

Worldwide sales of SINGULAIR, a once-a-day oral medicine for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis, declined 80 percent to $281 million in the second quarter. The patents for SINGULAIR expired in the United States in August 2012 and expired in major European markets in February 2013. The company experienced a significant and rapid reduction in sales in the United States and is now also experiencing a substantial decline in Europe.

Animal Health Revenue Performance

Animal Health sales totaled $851 million for the second quarter of 2013, a 2 percent decline compared with the second quarter of 2012, including a 3 percent negative impact due to foreign exchange. Growth in poultry and companion animal products was partially offset by lower sales of swine products.

Consumer Care Revenue Performance

Second-quarter global sales of Consumer Care were $490 million, a decrease of 11 percent compared to the second quarter of 2012, including a 1 percent negative impact due to foreign exchange. The sales decrease resulted from the ongoing termination in China of certain Consumer Care distribution arrangements and a reversal of sales previously made to those distributors, together with associated termination costs. Excluding those actions, Consumer Care global sales would have increased by 2 percent, including the 1 percent negative impact due to foreign exchange.

Other Revenue Performance

Other revenues – primarily comprising alliance revenue, miscellaneous corporate revenues and third-party manufacturing sales – increased 8 percent to $359 million compared to the second quarter of 2012. The increase was primarily driven by higher revenue from AstraZeneca LP (AZLP) recorded by Merck, which increased 10 percent to $245 million as compared with atypically lower second quarter 2012 AZLP revenues.

Second-Quarter Expense and Other Information

The costs detailed below totaled $9.7 billion on a GAAP basis during the second quarter of 2013 and include $2.0 billion of acquisition-related costs and restructuring costs.

   
$ in millions Included in expenses for the period

Second Quarter
2013

 

GAAP

 

Acquisition-
Related
Costs4

 

Restructuring
Costs

 

Non-GAAP1

Materials and production $4,284 $1,515 $93 $2,676
Marketing and administrative 3,140 19 16 3,105
Research and development 2,101 234 14 1,853
Restructuring costs 155 –- 155 –-
         

Second Quarter
2012

        
Materials and production $4,112 $1,226 $83 $2,803
Marketing and administrative 3,249 64 21 3,164
Research and development 2,165 127 41 1,997
Restructuring costs 144 –- 144 –-

The gross margin was 61.1 percent for the second quarter of 2013 and 66.6 percent for the second quarter of 2012, reflecting 14.6 and 10.6 percentage point unfavorable impacts, respectively, from the acquisition-related costs and restructuring costs noted above. The gross margin decline, on a non-GAAP basis, primarily reflects the impact of the SINGULAIR patent expiries.

Marketing and administrative expenses, on a non-GAAP basis, were $3.1 billion in the second quarter of 2013, a decrease from $3.2 billion in the second quarter of 2012 due to targeted reductions in spending and productivity improvements.

Research and development (R&D) expenses, on a non-GAAP basis, were $1.9 billion in the second quarter of 2013, a decrease from $2.0 billion in the second quarter of 2012 reflecting lower upfront payments from external licensing activity.

Equity income from affiliates was $116 million for the second quarter, primarily reflecting the performance of partnerships with AZLP and Sanofi Pasteur MSD.

Other (income) expense, net was $201 million of expense in the second quarter of 2013, compared to $103 million of expense in the second quarter of 2012.

The company noted the following developments:

  • Presented at the American Society of Clinical Oncology in Chicago preliminary results from an ongoing Phase IB expansion study evaluating the safety and efficacy of MK-3475, Merck’s investigational antibody therapy targeting PD-1, in patients with advanced (inoperable and metastatic) melanoma.
  • Announced an accelerated share repurchase agreement (ASR) to repurchase $5 billion of Merck’s common stock, which is part of Merck’s previously announced $15 billion share repurchase program. Proceeds from the company’s $6.5 billion debt offering were used to execute the ASR.
  • Announced that the U.S. Food and Drug Administration (FDA) has approved LIPTRUZET (ezetimibe and atorvastatin) tablets for the treatment of elevated low-density lipoprotein (LDL) cholesterol in patients with primary or mixed hyperlipidemia as adjunctive therapy to diet when diet alone is not enough.
  • Advised by the FDA that the agency needs additional time to assess the results of a recently completed inspection of a clinical trial site for sugammadex, Merck’s investigational medicine for the reversal of neuromuscular blockade induced by rocuronium or vecuronium.
  • Received a Complete Response Letter from the FDA regarding the New Drug Application for suvorexant, Merck’s investigational medicine for the treatment of insomnia. The company is evaluating the requests outlined in the Complete Response Letter, and plans to submit definitive data in response to the FDA in the first half of 2014.

Financial Targets

Merck reiterated that it expects full-year 2013 non-GAAP EPS to be between $3.45 and $3.55, and revised 2013 GAAP EPS to be between $1.84 and $2.05. The 2013 non-GAAP range excludes acquisition-related costs, costs related to restructuring programs and certain other items.

At current exchange rates, Merck now expects full-year 2013 sales to be approximately 5 to 6 percent below prior year levels with foreign exchange accounting for approximately 3 percentage points of the decline.

In addition, the company now expects full-year 2013 non-GAAP R&D expense to be below 2012 levels. The company continues to expect its full-year 2013 non-GAAP tax rate to be in the range of 22 to 23 percent.

A reconciliation of anticipated 2013 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

  Full Year 2013
GAAP EPS  $1.84 to $2.05
Difference3  1.61 to 1.50
Non-GAAP EPS that excludes items listed below  $3.45 to $3.55
    
    
Acquisition-related costs  $5,400 to $5,200
Restructuring costs  700 to 500
Net decrease (increase) in income before taxes  6,100 to 5,700
Estimated income tax (benefit) expense  (1,275) to (1,195)
Decrease (increase) in net income  $4,825 to $4,505

Total Employees

As of June 30, 2013, Merck had approximately 81,000 employees worldwide. In addition, the company’s joint ventures in China and Brazil, which are included in the consolidated results of Merck, had about 1,300 employees.

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 77194196. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 77194196. 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

Today's Merck is a global healthcare 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 consumer care 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 healthcare through far-reaching policies, programs and partnerships. For more information, visit www.merck.com and connect with us on Twitter, Facebook and YouTube.

Forward-Looking Statement

This news release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States 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 2012 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 2013 and 2012 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 recognized as a result of mergers and acquisitions of $1.2 billion in both the second quarter of 2013 and the second quarter of 2012, as well as intangible asset impairment charges of $564 million and $127 million in the second quarter of 2013 and 2012, respectively. Also includes integration and other costs associated with mergers and acquisitions.

MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS - GAAP
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 1
         
  GAAP % Change GAAP % Change
  2Q13 2Q12  YTD 2013 YTD 2012 
Sales $11,010  $12,311  -11% $21,681  $24,041  -10%
             
Costs, Expenses and Other            
Materials and production (1)  4,284   4,112  4%  8,243   8,150  1%
Marketing and administrative (1)  3,140   3,249  -3%  6,126   6,322  -3%
Research and development (1)  2,101   2,165  -3%  4,008   4,026  - 
Restructuring costs (2)  155   144  8%  274   363  -25%
Equity income from affiliates (3)  (116)  (142) -18%  (249)  (253) -2%
Other (income) expense, net (1) / (4)  201   103  95%  484   247  96%
             
Income Before Taxes  1,245   2,680  -54%  2,795   5,186  -46%
Income Tax Provision  310   860     244   1,599   
Net Income  935   1,820  -49%  2,551   3,587  -29%
Less: Net Income Attributable to Noncontrolling Interests  29   27     52   56   
Net Income Attributable to Merck & Co., Inc. $906  $1,793  -49% $2,499  $3,531  -29%
Earnings per Common Share Assuming Dilution $0.30  $0.58  -48% $0.82  $1.15  -29%
             
Average Shares Outstanding Assuming Dilution  3,010   3,072     3,030   3,074   
Tax Rate (5)  24.9%  32.1%    8.7%  30.8%  
(1) Amounts include the impact of acquisition-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) Primarily reflects equity income from the AstraZeneca LP and Sanofi Pasteur MSD partnerships.
 
(4) Other (income) expense, net in the second quarter and first six months of 2013 reflects higher exchange losses, which for the first six months of 2013 includes approximately $140 million as a result of a Venezuelan currency devaluation.
 
(5) The effective tax rates for the second quarter and first six months of 2013 reflect benefits from reductions in tax reserves upon expiration of applicable statute of limitations. In addition, the effective tax rate for the first six months of 2013 reflects the favorable impact of tax legislation enacted in the first quarter of 2013, as well as a benefit of approximately $160 million associated with the resolution of a previously disclosed legacy Schering-Plough federal income tax issue.
 
 
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS - GAAP
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 1a
       
  2013 2012 % Change
  1Q 2Q YTD 1Q 2Q YTD 3Q 4Q Full Year 2Q YTD
  

 

                    
Sales $10,671  $11,010  $21,681  $11,731  $12,311  $24,041  $11,488  $11,738  $47,267  -11% -10%
                       
Costs, Expenses and Other                      
Materials and production  3,959   4,284   8,243   4,037   4,112   8,150   4,137   4,160   16,446  4% 1%
Marketing and administrative  2,987   3,140   6,126   3,074   3,249   6,322   3,063   3,390   12,776  -3% -3%
Research and development  1,907   2,101   4,008   1,862   2,165   4,026   1,918   2,224   8,168  -3% - 
Restructuring costs  119   155   274   219   144   363   110   191   664  8% -25%
Equity income from affiliates  (133)  (116)  (249)  (110)  (142)  (253)  (158)  (231)  (642) -18% -2%
Other (income) expense, net  282   201   484   142   103   247   200   669   1,116  95% 96%
                       
Income Before Taxes  1,550   1,245   2,795   2,507   2,680   5,186   2,218   1,335   8,739  -54% -46%
Income Tax Provision (Benefit)  (66)  310   244   740   860   1,599   455   385   2,440     
Net Income  1,616   935   2,551   1,767   1,820   3,587   1,763   950   6,299  -49% -29%
Less: Net Income Attributable to Noncontrolling Interests  23   29   52   29   27   56   34   42   131     
Net Income Attributable to Merck & Co., Inc. $1,593  $906  $2,499  $1,738  $1,793  $3,531  $1,729  $908  $6,168  -49% -29%
Earnings per Common Share Assuming Dilution $0.52  $0.30  $0.82  $0.56  $0.58  $1.15  $0.56  $0.30  $2.00  -48% -29%
         
Average Shares Outstanding Assuming Dilution  3,053   3,010   3,030   3,074   3,072   3,074   3,079   3,074   3,076     
Tax Rate  -4.3%  24.9%  8.7%  29.5%  32.1%  30.8%  20.5%  28.8%  27.9%    
                       
Sum of quarterly amounts may not equal year-to-date amounts due to rounding.
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
SECOND QUARTER 2013
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2a
             
  GAAP 

Acquisition-
Related Costs (1)

 

Restructuring
Costs (2)

 

Certain Other
Items

 

Adjustment
Subtotal

 Non-GAAP
             
Sales $11,010          $11,010 
             
Costs, Expenses and Other            
Materials and production  4,284  1,515  93     1,608   2,676 
Marketing and administrative  3,140  19  16     35   3,105 
Research and development  2,101  234  14     248   1,853 
Restructuring costs  155    155     155   - 
Equity income from affiliates  (116)        -   (116)
Other (income) expense, net  201      (13)  (13)  214 
Income Before Taxes  1,245  (1,768) (278) 13   (2,033)  3,278 
Taxes on Income  310         (409

)(3)

  719 
Net Income  935         (1,624)  2,559 
Less: Net Income Attributable to Noncontrolling Interests  29         -   29 
Net Income Attributable to Merck & Co., Inc. $906        $(1,624) $2,530 
Earnings per Common Share Assuming Dilution $0.30          $0.84 
             
Average Shares Outstanding Assuming Dilution  3,010           3,010 
Tax Rate  24.9%          21.9%
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 expenses of $1.2 billion for the amortization of intangible assets recognized as a result of mergers and acquisitions, as well as $330 million of impairment charges on product intangibles. Amounts included in marketing and administrative expenses reflect merger integration costs. Amounts included in research and development expenses represent 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 actions under the company's formal restructuring programs.
  
(3) Represents the estimated tax impact on the reconciling items.
 
 
 
 
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
SIX MONTHS ENDED JUNE 30, 2013
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2b
             
  GAAP 

Acquisition-
Related Costs (1)

 

Restructuring
Costs (2)

 

Certain Other
Items

 

Adjustment
Subtotal

 Non-GAAP
             
Sales $21,681          $21,681 
             
Costs, Expenses and Other            
Materials and production  8,243  2,699  136     2,835   5,408 
Marketing and administrative  6,126  42  33     75   6,051 
Research and development  4,008  264  29     293   3,715 
Restructuring costs  274    274     274   - 
Equity income from affiliates  (249)        -   (249)
Other (income) expense, net  484      (13)  (13)  497 
Income Before Taxes  2,795  (3,005) (472) 13   (3,464)  6,259 
Taxes on Income  244         

(848

)(3)

  1,092 
Net Income  2,551         (2,616)  5,167 
Less: Net Income Attributable to Noncontrolling Interests  52         -   52 
Net Income Attributable to Merck & Co., Inc. $2,499        $(2,616) $5,115 
Earnings per Common Share Assuming Dilution $0.82          $1.69 
             
Average Shares Outstanding Assuming Dilution  3,030           3,030 
Tax Rate  8.7%          17.4%
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 expenses of $2.4 billion for the amortization of intangible assets recognized as a result of mergers and acquisitions, as well as $330 million of impairment charges on product intangibles. Amounts included in marketing and administrative expenses reflect merger integration costs. Amounts included in research and development expenses represent 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 actions under the company's formal restructuring programs.
  
(3) Represents the estimated tax impact on the reconciling items, as well as a benefit of approximately $160 million associated with the resolution of a previously disclosed legacy Schering-Plough federal income tax issue.
 
 
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
SECOND QUARTER 2012
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2c
           
  

GAAP

 

Acquisition-
Related Costs (1)

 

Restructuring
Costs (2)

 

Adjustment
Subtotal

 Non-GAAP
           
Sales $12,311        $12,311 
           
Costs, Expenses and Other          
Materials and production  4,112  1,226  83   1,309   2,803 
Marketing and administrative  3,249  64  21   85   3,164 
Research and development  2,165  127  41   168   1,997 
Restructuring costs  144    144   144   - 
Equity income from affiliates  (142)      -   (142)
Other (income) expense, net  103       -   103 
Income Before Taxes  2,680  (1,417) (289)  (1,706)  4,386 
Taxes on Income  860       (272)(3)  1,132 
Net Income  1,820       (1,434)  3,254 
Less: Net Income Attributable to Noncontrolling Interests  27       -   27 
Net Income Attributable to Merck & Co., Inc. $1,793      $(1,434) $3,227 
Earnings per Common Share Assuming Dilution $0.58        $1.05 
           
Average Shares Outstanding Assuming Dilution  3,072         3,072 
Tax Rate  32.1%        25.8%
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 expenses for the amortization of intangible assets recognized as a result of mergers and acquisitions. Amounts included in marketing and administrative expenses reflect merger integration costs. Amounts included in research and development expenses represent 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 actions under the company's formal restructuring programs.
  
(3) Represents the estimated tax impact on the reconciling items.
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
SIX MONTHS ENDED JUNE 30, 2012
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2d
           
  GAAP 

Acquisition-
Related Costs (1)

 

Restructuring
Costs (2)

 

Adjustment
Subtotal

 Non-GAAP
           
Sales $24,041        $24,041 
           
Costs, Expenses and Other          
Materials and production  8,150  2,455  88   2,543   5,607 
Marketing and administrative  6,322  115  45   160   6,162 
Research and development  4,026  136  86   222   3,804 
Restructuring costs  363    363   363   - 
Equity income from affiliates  (253)      -   (253)
Other (income) expense, net  247       -   247 
Income Before Taxes  5,186  (2,706) (582)  (3,288)  8,474 
Taxes on Income  1,599       (548)(3)  2,147 
Net Income  3,587       (2,740)  6,327 
Less: Net Income Attributable to Noncontrolling Interests  56       -   56 
Net Income Attributable to Merck & Co., Inc. $3,531      $(2,740) $6,271 
Earnings per Common Share Assuming Dilution $1.15        $2.04 
           
Average Shares Outstanding Assuming Dilution  3,074         3,074 
Tax Rate  30.8%        25.3%
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 expenses for the amortization of intangible assets recognized as a result of mergers and acquisitions. Amounts included in marketing and administrative expenses reflect merger integration costs. Amounts included in research and development expenses represent 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 actions under the company's formal restructuring programs.
  
(3) Represents the estimated tax impact on the reconciling items.
   
   
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
Table 3
         
  2013 2012 % Change % Change
      Jun YTD     Jun YTD     Full Year  
  1Q 2Q  1Q 2Q  3Q 4Q  2Q Jun YTD
                       
TOTAL SALES (1) $10,671 $11,010 $21,681 $11,731 $12,311 $24,041 $11,488 $11,738 $47,267 -11 -10
PHARMACEUTICAL 8,891 9,310 18,201 10,082 10,560 20,642 9,875 10,085 40,601 -12 -12
                       
Primary Care and Women's Health                    
Cardiovascular                      
Zetia 629 650 1,279 614 632 1,246 645 676 2,567 3 3
Vytorin 394 417 810 444 445 889 423 435 1,747 -6 -9
                       
Diabetes & Obesity                      
Januvia 884 1,072 1,956 919 1,058 1,977 975 1,134 4,086 1 -1
Janumet 409 474 883 392 411 802 405 452 1,659 16 10
                       
Respiratory                      
Nasonex 385 325 711 375 293 668 292 308 1,268 11 6
Singulair 337 281 618 1,340 1,431 2,771 602 480 3,853 -80 -78
Dulera 68 79 147 39 50 89 52 67 207 57 66
Asmanex 40 49 89 48 51 99 42 44 185 -3 -9
                       
Women's Health & Endocrine                      
NuvaRing 151 171 322 146 157 303 156 164 623 9 6
Fosamax 137 144 281 184 186 370 152 154 676 -22 -24
Follistim AQ 122 134 257 116 125 241 111 116 468 8 6
Implanon 84 102 187 76 85 161 93 94 348 20 16
Cerazette 61 48 108 67 72 139 64 68 271 -34 -22
                       
Other                      
Arcoxia 121 121 242 112 117 229 109 115 453 4 6
Avelox 36 29 65 73 44 117 30 55 201 -34 -45
                       
Hospital and Specialty                      
                       
Immunology                      
Remicade 549 527 1,076 519 518 1,037 490 549 2,076 2 4
Simponi 108 120 228 74 76 150 86 95 331 59 52
                       
Infectious Disease                      
Isentress 362 412 775 337 398 735 399 381 1,515 4 5
Cancidas 162 163 326 145 166 311 163 145 619 -1 5
PegIntron 126 142 268 162 183 345 165 143 653 -22 -22
Invanz 110 120 230 101 110 211 118 116 445 9 9
Victrelis 110 116 226 111 126 238 149 115 502 -8 -5
Noxafil 65 71 136 59 66 125 66 68 258 7 9
                       
Oncology                      
Temodar 216 219 434 237 225 461 227 229 917 -3 -6
Emend 116 135 250 102 145 247 111 131 489 -7 1
                       
Other                      
Cosopt / Trusopt 105 103 209 124 105 229 102 113 444 -2 -9
Bridion 63 69 131 58 60 118 68 75 261 14 11
Integrilin 47 48 95 53 60 113 48 51 211 -20 -15
                       
Diversified Brands                      
Cozaar / Hyzaar 267 255 522 336 337 674 295 315 1,284 -24 -23
Primaxin 84 85 168 88 104 192 109 83 384 -19 -12
Zocor 82 74 156 103 96 199 86 98 383 -23 -22
Propecia 68 67 135 108 100 208 104 112 424 -33 -35
Clarinex 61 64 125 134 140 273 64 56 393 -54 -54
Claritin Rx 76 40 115 87 48 134 47 63 244 -17 -14
Remeron 52 53 106 57 66 123 52 57 232 -19 -14
Proscar 39 58 98 51 55 106 55 56 217 7 -8
Maxalt 40 43 83 156 154 310 166 162 638 -72 -73
                       
Vaccines                      
Gardasil 390 383 773 284 324 608 581 442 1,631 18 27
ProQuad, M-M-R II and Varivax 272 339 611 255 316 571 396 306 1,273 7 7
Zostavax 168 141 309 76 148 224 202 225 651 -5 38
RotaTeq 162 144 306 142 142 284 150 168 601 1 8
Pneumovax 111 108 219 112 101 213 160 208 580 7 3
                       
Other Pharmaceutical (2) 1,022 1,115 2,136 1,066 1,034 2,102 1,065 1,161 4,333 8 2
                       
ANIMAL HEALTH 840 851 1,691 821 865 1,686 815 898 3,399 -2 -
                       
CONSUMER CARE (3) 571 490 1,061 554 552 1,106 451 395 1,952 -11 -4
Claritin OTC 177 78 256 169 145 314 118 100 532 -46 -19
                       
Other Revenues (4) 369 359 727 274 333 608 347 360 1,315 8 20
Astra 262 245 507 186 223 409 255 251 915 10 24
                       
* 100% or greater
Sum of quarterly amounts may not equal year-to-date amounts due to rounding.
(1) Only select products are shown.

(2) Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $53 million and $86 million for the first and second quarters of 2013. Other Vaccines sales included in Other Pharmaceutical were $60 million, $75 million, $116 million, and $69 million for the first, second, third, and fourth quarters of 2012, respectively.

(3) The decrease in Consumer Care sales resulted from the ongoing termination in China of certain Consumer Care distribution arrangements and a reversal of sales previously made to those distributors, together with associated termination costs.

(4) Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales.

 
 
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
SECOND QUARTER 2013
(AMOUNTS IN MILLIONS)
Table 3a
       
  Global U.S. International
  2Q13 2Q12 % Change 2Q13 2Q12 % Change 2Q13 2Q12 % Change
                   
TOTAL SALES (1) $11,010 $12,311 -11 $4,608 $5,555 -17 $6,402 $6,756 -5
PHARMACEUTICAL 9,310 10,560 -12 3,689 4,633 -20 5,622 5,927 -5
                   
Primary Care and Women's Health                  
                   
Cardiovascular                  
Zetia 650 632 3 351 330 6 299 301 -1
Vytorin 417 445 -6 170 195 -13 247 250 -1
                   
Diabetes & Obesity                  
Januvia 1,072 1,058 1 571 532 7 501 525 -5
Janumet 474 411 16 235 210 12 239 201 19
                   
Respiratory                  
Nasonex 325 293 11 177 141 25 148 152 -3
Singulair 281 1,431 -80 15 1,002 -99 266 429 -38
Dulera 79 50 57 75 48 57 4 3 62
Asmanex 49 51 -3 44 46 -4 5 5 4
                   
Women's Health & Endocrine                  
NuvaRing 171 157 9 107 92 17 64 65 -2
Fosamax 144 186 -22 4 9 -49 140 177 -21
Follistim AQ 134 125 8 62 47 32 73 78 -7
Implanon 102 85 20 51 39 31 51 46 10
Cerazette 48 72 -34       48 72 -34
                   
Other                  
Arcoxia 121 117 4       121 117 4
Avelox 29 44 -34 27 42 -37 2 2 43
                   
Hospital and Specialty                  
                   
Immunology                  
Remicade 527 518 2       527 518 2
Simponi 120 76 59       120 76 59
                   
Infectious Disease                  
Isentress 412 398 4 218 203 7 195 195  
Cancidas 163 166 -1 8 7 27 155 159 -3
PegIntron 142 183 -22 13 24 -44 129 159 -19
Invanz 120 110 9 61 55 11 59 55 6
Victrelis 116 126 -8 52 68 -24 64 58 11
Noxafil 71 66 7 22 21 4 49 45 9
                   
Oncology                  
Temodar 219 225 -3 108 106 1 111 119 -6
Emend 135 145 -7 74 73 2 61 73 -17
                   
Other                  
Cosopt / Trusopt 103 105 -2 5 4 30 98 101 -3
Bridion 69 60 14       69 60 14
Integrilin 48 60 -20 44 54 -20 4 5 -17
                   
Diversified Brands                  
Cozaar / Hyzaar 255 337 -24 5 9 -45 250 329 -24
Primaxin 85 104 -19 4 7 -43 81 97 -17
Zocor 74 96 -23 6 7 -13 68 89 -24
Propecia 67 100 -33 5 33 -84 62 68 -8
Clarinex 64 140 -54 2 54 -97 63 86 -27
Proscar 58 55 7 1 1 -45 58 53 8
Remeron 53 66 -19 1 1 -23 52 64 -19
Maxalt 43 154 -72 14 115 -88 29 38 -26
Claritin Rx 40 48 -17       40 48 -17
                   
Vaccines                  
Gardasil 383 324 18 252 224 13 131 101 30
ProQuad, M-M-R II and Varivax 339 316 7 301 285 6 38 31 23
RotaTeq 144 142 1 98 102 -4 46 40 14
Zostavax 141 148 -5 122 137 -11 19 11 77
Pneumovax 23 108 101 7 80 85 -6 28 16 77
                   
Other Pharmaceutical (2) 1,115 1,034 8 304 225 35 808 809 -
                   
ANIMAL HEALTH 851 865 -2 219 238 -8 632 628 1
                   
CONSUMER CARE (3) 490 552 -11 390 383 2 99 169 -41
Claritin OTC 78 145 -46 108 101 7 (29) 45 *
                   
Other Revenues (4) 359 333 8 310 301 3 48 32 52
Astra 245 223 10 245 223 10      

'* 100% or greater

(1) Only select products are shown.  

(2) Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $86 million and $75 million on a global basis for second quarter 2013 and 2012, respectively.

(3) The decrease in Consumer Care sales resulted from the ongoing termination in China of certain Consumer Care distribution arrangements and a reversal of sales previously made to those distributors, together with associated termination costs.

(4) Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales.

 
 
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
JUNE YEAR-TO-DATE 2013
(AMOUNTS IN MILLIONS)
Table 3b
       
  Global U.S. International
  Jun YTD 13 Jun YTD 12 % Change Jun YTD 13 Jun YTD 12 % Change Jun YTD 13 Jun YTD 12 % Change
TOTAL SALES (1) $21,681 $24,041 -10 $8,823 $10,565 -16 $12,858 $13,477 -5
PHARMACEUTICAL 18,201 20,642 -12 6,945 8,823 -21 11,257 11,819 -5
                   
Primary Care and Women's Health                  
                   
Cardiovascular                  
Zetia 1,279 1,246 3 685 639 7 594 607 -2
Vytorin 810 889 -9 326 384 -15 484 505 -4
                   
Diabetes & Obesity                  
Januvia 1,956 1,977 -1 1,033 1,025 1 923 952 -3
Janumet 883 802 10 432 412 5 451 391 15
                   
Respiratory                  
Nasonex 711 668 6 327 303 8 383 365 5
Singulair 618 2,771 -78 16 1,878 -99 601 892 -33
Dulera 147 89 66 140 85 65 7 4 91
Asmanex 89 99 -9 78 89 -12 11 10 17
                   
Women's Health & Endocrine                  
NuvaRing 322 303 6 197 175 12 125 128 -2
Fosamax 281 370 -24 9 16 -41 271 354 -23
Follistim AQ 257 241 6 103 85 21 154 156 -1
Implanon 187 161 16 94 70 34 93 91 2
Cerazette 108 139 -22       108 139 -22
                   
Other                  
Arcoxia 242 229 6       242 229 6
Avelox 65 117 -45 60 112 -46 5 5 2
                   
Hospital and Specialty                  
                   
Immunology                  
Remicade 1,076 1,037 4       1,076 1,037 4
Simponi 228 150 52       228 150 52
                   
Infectious Disease                  
Isentress 775 735 5 405 389 4 370 345 7
Cancidas 326 311 5 15 15 2 311 296 5
PegIntron 268 345 -22 23 56 -60 245 289 -15
Invanz 230 211 9 115 106 8 115 105 10
Victrelis 226 238 -5 88 136 -35 138 102 35
Noxafil 136 125 9 40 36 12 97 89 8
                   
Oncology                  
Temodar 434 461 -6 215 211 2 219 251 -13
Emend 250 247 1 140 135 4 110 112 -1
                   
Other                  
Cosopt / Trusopt 209 229 -9 9 7 22 200 222 -10
Bridion 131 118 11       131 118 11
Integrilin 95 113 -15 87 103 -16 8 9 -13
                   
Diversified Brands                  
Cozaar / Hyzaar 522 674 -23 16 13 16 506 660 -23
Primaxin 168 192 -12 7 11 -33 161 181 -11
Zocor 156 199 -22 12 13 -11 144 186 -22
Propecia 135 208 -35 12 64 -82 124 144 -14
Clarinex 125 273 -54 7 105 -93 118 168 -30
Claritin Rx 115 134 -14       115 134 -14
Remeron 106 123 -14 2 3 -13 103 120 -14
Proscar 98 106 -8 2 2 20 95 104 -8
Maxalt 83 310 -73 23 227 -90 60 82 -26
                   
Vaccines                  
Gardasil 773 608 27 499 397 26 273 211 30
ProQuad, M-M-R II and Varivax 611 571 7 547 514 7 64 58 12
Zostavax 309 224 38 274 204 34 35 20 77
RotaTeq 306 284 8 228 209 9 78 74 5
Pneumovax 23 219 213 3 166 158 6 53 55 -4
                   
Other Pharmaceutical (2) 2,136 2,102 2 513 436 18 1,625 1,669 -3
                   
ANIMAL HEALTH 1,691 1,686 - 450 431 4 1,241 1,255 -1
                   
CONSUMER CARE (3) 1,061 1,106 -4 790 766 3 271 340 -20
Claritin OTC 256 314 -19 254 237 7 2 77 -97
                   
Other Revenues (4) 727 608 20 638 545 17 89 63 42
Astra 507 409 24 507 409 24      
* 100% or greater
(1) Only select products are shown.

(2) Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $140 million and $134 million on a global basis for June YTD 2013 and 2012, respectively.

(3) The decrease in Consumer Care sales resulted from the ongoing termination in China of certain Consumer Care distribution arrangements and a reversal of sales previously made to those distributors, together with associated termination costs.

(4) Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales.

                       
MERCK & CO., INC.
PHARMACEUTICAL GEOGRAPHIC SALES
(AMOUNTS IN MILLIONS)
(UNAUDITED)
Table 3c
       
  1Q13 2Q13 Jun YTD 1Q12 2Q12 Jun YTD 3Q12 4Q12 Full Year 

%
Change
2Q

 

%
Change
Jun YTD

                       
TOTAL PHARMACEUTICAL $8,891 $9,310 $18,201 $10,082 $10,560 $20,642 $9,875 $10,085 $40,601 -12 -12
                       
United States 3,256 3,689 6,945 4,189 4,633 8,823 4,304 3,915 17,041 -20 -21
% Pharmaceutical Sales 36.6% 39.6% 38.2% 41.6% 43.9% 42.7% 43.6% 38.8% 42.0%    
                       
Europe (1) 2,465 2,343 4,808 2,558 2,540 5,099 2,210 2,441 9,750 -8 -6
% Pharmaceutical Sales 27.7% 25.2% 26.4% 25.4% 24.1% 24.7% 22.4% 24.2% 24.0%    
                       
Japan 1,034 948 1,982 1,267 1,199 2,466 1,124 1,388 4,978 -21 -20
% Pharmaceutical Sales 11.6% 10.2% 10.9% 12.6% 11.4% 11.9% 11.4% 13.8% 12.3%    
                       
Latin America 596 676 1,272 627 668 1,295 715 742 2,752 1 -2
% Pharmaceutical Sales 6.7% 7.3% 7.0% 6.2% 6.3% 6.3% 7.2% 7.4% 6.8%    
                       
Asia Pacific 822 874 1,696 762 787 1,548 846 864 3,259 11 10
% Pharmaceutical Sales 9.2% 9.4% 9.3% 7.6% 7.4% 7.5% 8.6% 8.6% 8.0%    
China 271 297 568 221 262 484 262 298 1,044 13 17
                       
Eastern Europe/Middle East Africa 439 479 917 361 441 803 366 416 1,584 8 14
% Pharmaceutical Sales 4.9% 5.1% 5.0% 3.6% 4.2% 3.9% 3.7% 4.1% 3.9%    
                       
Canada 245 257 502 264 236 500 257 276 1,034 9 -
% Pharmaceutical Sales 2.8% 2.8% 2.8% 2.6% 2.2% 2.4% 2.6% 2.7% 2.5%    
                       
Other 34 45 79 53 56 109 52 42 203 -20 -27
% Pharmaceutical Sales 0.4% 0.5% 0.4% 0.5% 0.5% 0.5% 0.5% 0.4% 0.5%    
                       
(1) Europe primarily represents all European Union countries and the European Union accession markets.
 
 
MERCK & CO., INC.
SECOND QUARTER 2013
EQUITY INCOME / JV SALES / OTHER (INCOME) EXPENSE - GAAP
(AMOUNTS IN MILLIONS)
(UNAUDITED)
Table 4
 
                    

EQUITY INCOME FROM AFFILIATES

        
         2Q13   2Q12  YTD 2013  YTD 2012
     ASTRAZENECA LP   

$

105

 

   

$

140

 

  

$

230

 

  

$

253

 

     Other (1)    11     2    19    - 
     TOTAL   $116    $142   $249   $253 
                    
     (1) Includes results for Sanofi Pasteur MSD.              
 
                    

SANOFI PASTEUR MSD JOINT VENTURE SALES DETAIL
All sales reported here are end-market JV sales, presented on a "NET" basis.

        
         2Q13   2Q12  YTD 2013  YTD 2012
     GARDASIL   $61    $60   $134   $115 
     OTHER VIRAL VACCINES    27     30    56    55 
     ROTATEQ    13     12    27    23 
     HEPATITIS VACCINES    7     8    15    17 
     Other Vaccines    99     119    205    225 
     TOTAL SANOFI PASTEUR MSD SALES   $207    $229   $437   $435 
                    
 
                    

OTHER (INCOME) EXPENSE, NET

        
         2Q13   2Q12  YTD 2013  YTD 2012
     INTEREST INCOME   $(65)   $(76)  $(122)  $(129)
     INTEREST EXPENSE    201     172    385    346 
     EXCHANGE LOSSES    55     13    267    80 
     Other, net    10     (6)   (46)   (50)
     TOTAL   $201    $103   $484   $247 
 

 

Contact:

Merck & Co., Inc.
Media Contacts:
Kelley Dougherty, 908-423-4291
Steven Cragle, 908-423-3461
or
Investor Contacts:
Carol Ferguson, 908-423-4465
Joe Romanelli, 908-423-5185

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