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WHITEHOUSE STATION, 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 2011.
$ in millions, except EPS amounts
Non-GAAP EPS that excludes items listed below 1
GAAP Net Income 2
Non-GAAP Net Income that excludes items listed below 1, 2
Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the first quarter of $0.92 excludes purchase accounting adjustments, restructuring costs, merger-related expenses, a $500 million charge related to the resolution of the arbitration proceeding with Johnson & Johnson, and certain other items.
A reconciliation of GAAP to non-GAAP net income and EPS is provided in the tables that follow.
|$ in millions, except EPS amounts|| |
|Non-GAAP that excludes items listed below||$||2,861||$||0.92||$||2,608||$||0.83|
|$ in millions|| |
Purchase accounting adjustments4
|Costs related to restructuring programs||126||351|
|Arbitration settlement charge||500||--|
|Net decrease (increase) in income before taxes||2,149||2,812|
Estimated income tax (benefit) expense 6
|Decrease (increase) in net income||$||1,818||$||2,309|
"Merck's first quarter performance underscores that we are successfully delivering on our intent to grow both the top line and the bottom line," said Kenneth C. Frazier, president and chief executive officer. "Our strong results were largely driven by double-digit growth of key products combined with deliberate cost control measures across all areas of the company as we continue to create a more effective and efficient operating model.
"It is clear that Merck's business momentum is building, and we continue to demonstrate the ongoing value of the merger. We're making progress in our robust late-stage pipeline, and leveraging the benefits of our expanded pharmaceutical and vaccine, animal health and consumer portfolio."
Select Revenue Highlights
Worldwide sales were $11.6 billion for the first quarter of 2011, an increase of 1 percent compared with the first quarter of 2010. The revenue increase largely reflects strong sales of JANUVIA, JANUMET, SINGULAIR, REMICADE, NASONEX and ISENTRESS, partially offset by lower sales of COZAAR 7 and HYZAAR7. In the first quarter of 2011, 18 percent of pharmaceutical sales were from emerging markets.
The table below reflects sales of the company's top Pharmaceutical products, as well as total sales of Animal Health and Consumer Care products.
$ in millions
Consumer Care 8
Other Revenues 9
The combined diabetes franchise for JANUVIA (sitagliptin)/JANUMET (sitagliptin/metformin hydrochloride) continued its strong performance across all geographic regions during the first quarter of 2011, reaching quarterly combined sales of more than $1 billion for the first time – a 47 percent increase compared to the same period last year.
Worldwide sales of SINGULAIR (montelukast sodium), a once-a-day oral medicine indicated for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis, grew 14 percent from the first quarter of 2010 to $1.3 billion, driven by gains in the United States, emerging markets and Japan.
Global sales grew in the quarter for REMICADE (infliximab), a treatment for inflammatory diseases, led by increases in gastrointestinal indications for the treatment of ulcerative colitis and Crohn's disease as well as emerging market gains.
ISENTRESS (raltegravir), an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, continued strong growth in the quarter driven by demand in the United States and Europe.
As expected, global sales of Merck's antihypertensive medicines COZAAR (losartan potassium) and HYZAAR (losartan potassium and hydrochlorothiazide) continue to decline following loss of marketing exclusivity for these products in the United States and in major European markets. Sales of TEMODAR (temozolomide), a treatment for certain types of brain tumors, declined due to generic competition in Europe.
Sales of ZOSTAVAX (zoster vaccine live) declined due to continued intermittent supply issues.
Product Performance – Animal Health
The company drove solid first-quarter performance in the Animal Health business across all regions, with a 7 percent sales increase over the same period last year. The growth was led by increased sales of cattle, swine and aquaculture products. The division's products include pharmaceutical and vaccine products for the prevention, treatment and control of disease in all major farm and companion animal species. In addition, in March of 2011, Merck and sanofi-aventis announced the termination of their agreement to form a new animal health joint venture.
Product Performance – Consumer Care
Merck Consumer Care delivered a first-quarter sales increase of 6 percent compared to the first quarter of 2010, with strong performance across several key brands including CLARITIN and COPPERTONE. Consumer Care includes footcare and suncare consumer products, and a variety of over-the-counter medicines.
First Quarter Expense and Other Information
The costs detailed below on a GAAP basis during the first quarter of 2011 totaled
$9.4 billion and include $1.8 billion of purchase accounting adjustments, restructuring costs and merger-related costs.
Included in expenses for the period
$ in millions
|Materials and production||$||4,059||$||1,278||$||72||$||19||$||2,690|
|Marketing and administrative||3,164||-||23||58||3,083|
|Research and development||2,158||302||45||-||1,811|
|First Quarter 2010|
|Materials and production||$||5,216||$||2,347||$||57||$||-||$||2,812|
|Marketing and administrative||3,222||-||-||80||3,142|
|Research and development||2,051||27||6||-||2,018|
The gross margin was 64.9 percent for the first quarter of 2011 and 54.3 percent for the first quarter of 2010, reflecting 11.9 and 21.1 percentage point unfavorable impacts, respectively, from the purchase accounting adjustments, restructuring and merger-related costs noted above.
Equity income from affiliates was $138 million in the first quarter. Equity income from affiliates primarily includes the AstraZeneca LP, Johnson & Johnson Merck Consumer Pharmaceuticals Company and Sanofi Pasteur MSD partnerships.
Other (income) expense, net was $622 million of expense in the first quarter of 2011 which includes a $500 million charge related to the resolution of the arbitration proceeding with Johnson & Johnson. Other (income) expense, net for the first quarter of 2010 was $167 million of expense.
The GAAP effective tax rate was 38.1 percent for the first quarter of 2011. The non-GAAP effective tax rate, which excludes the impact of purchase accounting adjustments, restructuring costs, merger-related expenses, a $500 million charge related to the resolution of the arbitration proceeding, and certain other items, was 25.5 percent for the quarter.
The company updated its 2011 non-GAAP EPS target range to $3.66 to $3.76 from the previous target range of $3.64 to $3.76. The target range excludes purchase accounting adjustments, restructuring costs, merger-related expenses, the $500 million charge related to the resolution of the arbitration proceeding with Johnson & Johnson, and certain other items. The 2011 GAAP EPS target range is $2.04 to $2.39.
In addition, the company lowered its non-GAAP R&D expense target to a range of $8.0 billion to $8.4 billion for the full year of 2011. This target excludes restructuring costs and in-process R&D impairment charges.
Merck continues to expect full year 2011 revenue to grow in the low- to mid-single digit percent range from a base of $46.0 billion in 2010.
Merck continues to estimate that its consolidated non-GAAP 2011 tax rate will be approximately 20 percent to 22 percent.
A reconciliation of anticipated 2011 EPS as reported in accordance with GAAP to non-GAAP EPS that excludes certain items is provided in the table below.
|$ in millions, except EPS amounts|| |
Full Year 2011
|GAAP EPS||$2.04 to $2.39|
|1.62 to 1.37|
|Non-GAAP EPS that excludes items listed below||$3.66 to $3.76|
|Purchase accounting adjustments 4||$5,400 to $5,100|
|Costs related to restructuring programs||900 to 700|
|Merger-related costs||200 to 100|
|Arbitration settlement charge||500|
|Net decrease (increase) in income before taxes||6,866 to 6,266|
Estimated income tax (benefit) expense 10
|(1,840) to (2,000)|
|Decrease (increase) in net income||$5,026 to $4,266|
As of March 31, 2011, Merck had approximately 93,000 employees worldwide.
Earnings Conference Call
Investors are invited to a live audio webcast of Merck's first quarter earnings conference call today at 8:00 a.m. EDT by visiting Merck's Web site, 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. Journalists are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917. A replay of the call will be available starting at 11 a.m. EDT today for approximately one week. To listen to the replay, dial (706) 645-9291 or (800) 642-1687 and enter ID No. 51049889.
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.
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. Such statements may include, but are not limited to, statements about the benefits of the merger between Merck and Schering-Plough, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Merck’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements.
The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the possibility that the expected synergies from the merger of Merck and Schering-Plough will not be realized, or will not be realized within the expected time period; the impact of pharmaceutical industry regulation and health care legislation; the risk that the businesses will not be integrated successfully; disruption from the merger making it more difficult to maintain business and operational relationships; Merck’s ability to accurately predict future market conditions; dependence on the effectiveness of Merck’s patents and other protections for innovative products; the risk of new and changing regulation and health policies in the U.S. and internationally and the exposure to 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 2010 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 2011 and 2010 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 a 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.
4 Amounts for the first quarter of 2011 and 2010 reflect $302 million and $27 million, respectively, of in-process research and development impairment charges. The remaining amounts represent expenses for the amortization of intangible assets and amortization of purchase accounting adjustments to inventories recognized as a result of the merger.
5 Represents a gain on the sale of certain manufacturing facilities and related assets reflected in other (income) expense, net.
6 Includes an estimated income tax (benefit) expense on the reconciling items. In addition, amount for the first quarter of 2010 includes a $147 million tax charge related to U.S. healthcare reform legislation.
7 COZAAR and HYZAAR are registered trademarks of E.I. duPont de Nemours and Company, Wilmington, Del.
8 In the first quarter of 2011, Merck changed the reporting for certain over-the-counter products. Sales of these products outside the United States were previously recorded in the Pharmaceutical business, and are now reported in the Consumer Care business. Prior period amounts have been recast on a comparative basis.
9 Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales. Revenue from AstraZeneca LP recorded by Merck was $322 million in the first quarter of 2011.
10 Includes an estimated income tax (benefit) expense on the reconciling items as well as a range of estimated tax benefits expected to be recorded in the second quarter as a result of the conclusion of federal tax audits.
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS - GAAP
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
|Sales||$ 11,580||$ 11,422||1%|
|Costs, Expenses and Other|
|Materials and production (1)||4,059||5,216||-22%|
|Marketing and administrative (1) / (2)||3,164||3,222||-2%|
|Research and development (1) / (2)||2,158||2,051||5%|
|Restructuring costs (3)||(14)||288||*|
|Equity income from affiliates (4)||(138)||(138)||-|
|Other (income) expense, net (1) / (5)||622||167||*|
|Income Before Taxes||1,729||616||*|
|Income Tax Provision||658||286|
|Less: Net Income Attributable to Noncontrolling Interests||28||31|
|Net Income Attributable to Merck & Co., Inc.||$ 1,043||$ 299||*|
|Earnings per Common Share Assuming Dilution (6)||$ 0.34||$ 0.09||*|
|Average Shares Outstanding Assuming Dilution||3,104||3,141|
|Tax Rate (7)||38.1%||46.4%|
|(1) Amounts include the impact of purchase accounting adjustments, restructuring costs, merger-related costs and certain other items. See accompanying tables for details.|
|(2) The first quarter of 2010 includes a $24 million reclassification of certain expenses from marketing and administrative to research and development.|
|(3) Represents separation and other related costs associated with restructuring activities.|
|(4) Primarily reflects equity income from AstraZeneca LP, Johnson & JohnsonºMerck Consumer Pharmaceuticals Company and Sanofi Pasteur MSD partnerships.|
|(5) Other (income) expense, net in the first quarter of 2011 includes a charge of $500 million related to the resolution of the arbitration proceeding with Johnson & Johnson and a $134 million gain on the sale of certain manufacturing facilities and related assets. Other (income) expense, net in the first quarter of 2010 includes $102 million of income on the settlement of certain disputed royalties and $80 million of exchange losses due to a Venezuelan currency devaluation.|
|(6) The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate earnings per common share assuming dilution was $1,040 million and $298 million for the first quarter of 2011 and 2010, respectively.|
|(7) The GAAP effective tax rate for the first quarter of 2011 was 38.1%. Excluding the impact of the non-GAAP items detailed in the accompanying table, the effective tax rate was 25.5% for the first quarter of 2011. The GAAP effective tax rate for the first quarter of 2010 was 46.4%. Excluding the impact of the non-GAAP items detailed in the accompanying table, the effective tax rate was 23.0% for the first quarter of 2010.|
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
FIRST QUARTER 2011
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
|Restructuring Costs (2)||Merger-Related Costs (3)|| |
Certain Other Items (4)
|Sales||$ 11,580||$ -||$ 11,580|
|Materials and production||4,059||1,278||72||19||1,369||2,690|
|Marketing and administrative||3,164||23||58||81||3,083|
|Research and development||2,158||302||45||347||1,811|
|Equity income from affiliates||(138)||-||(138)|
|Other (income) expense, net||622||366||366||256|
|Income Before Taxes||1,729||(1,580)||(126)||(77)||(366)||(2,149)||3,878|
|Taxes on Income||658||(331)||(5)||989|
|Less: Net Income Attributable to Noncontrolling Interests||28||-||28|
|Net Income Attributable to Merck & Co., Inc.||$ 1,043||$ (1,818)||$ 2,861|
|Earnings per Common Share Assuming Dilution||$ 0.34||$ 0.92||(6)|
|Average Shares Outstanding Assuming Dilution||3,104||3,104|
|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 and the amortization of purchase accounting adjustments to inventories recognized as a result of the merger. 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.|
|(3) Merger-related costs include integration costs associated with the merger.|
|(4) Included in other (income) expense, net is a $500 million charge related to the resolution of the arbitration proceeding with Johnson & Johnson and a $134 million gain on the sale of certain manufacturing facilities and related assets.|
|(5) Represents the estimated tax impact on the reconciling items.|
|(6) The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $2,853 million for the first quarter of 2011.|
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
FIRST QUARTER 2011
(AMOUNTS IN MILLIONS)
|TOTAL SALES (1)||$11,580||$11,422||$11,346||$11,125||$12,094||$45,987||1|
|Diabetes & Obesity|
|Cozaar / Hyzaar||426||782||485||423||415||2,104||-46|
|Vasotec / Vaseretic||57||59||63||69||64||255||-4|
|Crixivan / Stocrin||45||52||48||49||58||206||-13|
|Neurosciences & Ophthalmology|
|Cosopt / Trusopt||114||115||123||114||131||484||-1|
|Respiratory & Immunology|
|ProQuad, M-M-R II and Varivax||244||319||340||434||285||1,378||-23|
|Women's Health & Endocrine|
|Other Pharmaceutical (3)||745||946||941||942||1,044||3,879||-21|
|CONSUMER CARE (2)||517||489||544||409||381||1,823||6|
|Other Revenues (4)||486||559||433||506||457||1,956||-13|
|* 100% or over|
|Sum of quarterly amounts may not equal year-to-date amounts due to rounding.|
|(1) Only select products are shown.|
|(2) In the first quarter of 2011, Merck changed the reporting for certain over-the-counter products. Sales of these products outside the United States were previously recorded in the Pharmaceutical business, and are now reported in the Consumer Care business. Prior period amounts have been recast on a comparative basis.|
|(3) Includes pharmaceutical products not individually shown above. Other vaccines sales included in Other Pharmaceutical were $54 million for the first quarter of 2011. Other vaccines sales included in Other Pharmaceutical were $55 million, $57 million, $94 million and $75 million for the first, second, third and fourth quarters of 2010, respectively.|
|(4) Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales.|
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