Merck Announces Fourth Quarter and Full Year 2010 Financial Results

  • Company Reports Double-Digit Non-GAAP EPS Growth in the Fourth Quarter
  • Fourth Quarter Non-GAAP EPS of $0.88, Excluding Certain Items; GAAP EPS of $(0.17); Full Year 2010 Non-GAAP EPS of $3.42, Excluding Certain Items; GAAP EPS of $0.28
  • Continued Strong Global Growth from JANUVIA/JANUMET, SINGULAIR, ISENTRESS, REMICADE
  • Realized More than $2 Billion in Net Synergy Savings in 2010; On Track to Reach $3.5 Billion in Annual Savings by End of 2012
  • Company Withdraws Previous Long-Term Non-GAAP EPS Target; Full Year 2011 Non-GAAP EPS Target of $3.64 to $3.76, Excluding Certain Items; GAAP EPS Range of $2.05 to $2.33

Category:

Thursday, February 3, 2011 7:00 am EST

Dateline:

WHITEHOUSE STATION, N.J.

Public Company Information:

NYSE:
MRK
"Merck today reported a high quality fourth quarter characterized by strong revenue performance, significant cost reductions and double-digit earnings growth"

WHITEHOUSE STATION, 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 2010. The company reported non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the fourth quarter of $0.88, which excludes purchase accounting adjustments, restructuring costs and merger-related expenses. The purchase accounting adjustments include a $1.7 billion pre-tax charge related to its vorapaxar clinical research program. Fourth quarter GAAP EPS was $(0.17). Merck also announced full year 2010 non-GAAP EPS of $3.42, excluding certain items, and full year GAAP EPS of $0.28.

Worldwide sales for the fourth quarter of 2010 were $12.1 billion. GAAP net loss1 for the fourth quarter was $531 million. For the full year of 2010, worldwide sales were $46.0 billion and GAAP net income was $861 million.

A reconciliation of EPS as reported in accordance with GAAP to non-GAAP EPS that excludes certain items is provided in the table that follows. The fourth quarter and full year 2009 results below include legacy Schering-Plough results only for the post-merger period, which began on Nov. 4, 2009.

               
   

Fourth
Quarter
2010

 

Fourth
Quarter
2009

 

Year Ended
Dec. 31,
2010

 

Year Ended
Dec. 31,
2009

GAAP EPS

  $ (0.17 )   $ 2.35     $ 0.28   $ 5.65  

EPS difference2

    1.05       (1.56 )     3.14     (2.40 )

Non-GAAP EPS that excludes certain items, listed below3

 

$

0.88

   

$

0.79

   

$

3.42

 

$

3.25

 
               

 

 

Fourth
Quarter
2010

 

Fourth
Quarter
2009

 

Year Ended
Dec. 31,
2010

 

Year Ended
Dec. 31,
2009

Purchase accounting adjustments4

  $ 3,431     $ 2,286     $ 9,007     $ 2,286  
Merger restructuring program     298       1,460       1,795       1,460  
Costs related to other restructuring programs     56       36       191       521  
Merger-related costs     160       288       396       544  
Legal reserve     --       --       950       --  
Gain on AstraZeneca's asset option exercise     --       --       (443 )     --  
Gain associated with Merck/Schering-Plough partnership     --       (7,530 )     --       (7,530 )
Gain from sale of interest in Merial     --       (400 )     --       (3,163 )
Net decrease (increase) in income before taxes     3,945       (3,860 )     11,896       (5,882 )

Income tax (benefit) expense5

    (658 )     (458 )     (2,042 )     390  
Decrease (increase) in net income   $ 3,287     $ (4,318 )   $ 9,854     $ (5,492 )

EPS difference2

  $ 1.05     $ (1.56 )   $ 3.14     $ (2.40 )

"Merck today reported a high quality fourth quarter characterized by strong revenue performance, significant cost reductions and double-digit earnings growth," said Kenneth C. Frazier, president and chief executive officer. "These results clearly demonstrate the benefits of the post-merger Merck with our broader product portfolio, robust late-stage pipeline and expanded global footprint.

"Looking ahead, our focus will be on delivering sustainable, profitable top-line growth," Frazier added. "To do that, Merck will continue to innovate, make disciplined investments in our business and continue to drive out inefficiencies in our operations. Coming out of our first year as a combined company, Merck employees in markets all over the world are energized and excited about capitalizing on the many new opportunities we have to bring value to patients, customers and shareholders."

Select Business Highlights

  • Merck is currently launching more than 10 medicines in key markets around the world.
  • The company continues to make progress in its pipeline, including:
    • Boceprevir, an investigational oral hepatitis C virus (HCV) protease inhibitor, was granted Priority Review status by the U.S. Food and Drug Administration (FDA) and accelerated assessment status by the European Union.
    • The FDA accepted a new drug application for an investigational extended-release formulation of JANUMET (sitagliptin/metformin HCI).
    • In the Phase III DEFINE study with Merck's investigational CETP inhibitor, anacetrapib, patients with coronary heart disease or CHD risk equivalents showed no significant differences from placebo in the primary safety measures studied. In addition, at 24 weeks, anacetrapib decreased LDL-C (bad cholesterol) by 40 percent and increased HDL-C (good cholesterol) by 138 percent in patients already treated with a statin and at guideline-recommended LDL-C goal.
    • Top-line results for Phase III SUCCEED trial of ridaforolimus showed it met the primary endpoint in patients with metastatic soft-tissue or bone sarcomas.
  • Also in the quarter, the company announced the results of the SHARP trial, which showed that VYTORIN (ezetimibe/simvastatin) significantly reduced major vascular events in patients with chronic kidney disease. The SHARP study is the first and only prospective clinical study in patients with chronic kidney disease to show that an LDL cholesterol-lowering medicine reduced major vascular and atherosclerotic events.
  • Merck continued its commitment to develop biosimilars through an alliance with Parexel International Corporation.
  • The company acquired SmartCells, Inc., a privately held company developing a glucose responsive insulin formulation potentially for the treatment of type 1 and type 2 diabetes.
  • The company completed a $2 billion public offering of senior notes. Proceeds will be used for general corporate purposes.

Fourth Quarter and Full Year Sales Results

The following supplemental combined 2009 non-GAAP sales are adjusted to reflect a full quarter and a full year of legacy Merck and legacy Schering-Plough combined results. See Explanatory Note on page 12 of this release for further information.

                               

 

 

GAAP
4Q10

 

GAAP
4Q09

 

Adj.
4Q09

 

Supp.
Comb.
Non-
GAAP
4Q09

 

GAAP
FY10

 

GAAP
FY09

 

Adj.
FY09

 

Supp.
Comb.
Non-
GAAP
FY09

Total Sales   $12,094   $ 10,093   $ 2,123   $ 12,216   $ 45,987   $27,428   $ 18,537   $ 45,964

Human Health6

  10,581   9,072   1,733   10,805   39,811   25,236   14,862   40,098
Animal Health   815   494   265   759   2,941   494   2,222   2,716

Consumer Care6

  251   149   83   232   1,342   149   1,131   1,281

Other Revenues7

  447   379   41   420   1,893   1,548   322   1,870

Fourth Quarter and Full Year Expense and Other Information

The fourth quarter and full year 2010 results below reflect the performance of the combined company. The increases in 2010 non-GAAP expenses are largely due to the inclusion of legacy Schering-Plough post-merger results.

The costs detailed below on a GAAP basis during the fourth quarter of 2010 totaled $12.7 billion and include $3.9 billion of purchase accounting adjustments, restructuring costs and merger-related costs.

On a full year 2010 GAAP basis, these costs totaled $43.6 billion and include $11.4 billion in purchase accounting adjustments, restructuring costs and merger-related costs. See below for 2009 comparable periods.

 
Fourth Quarter
       
    Included in expenses for the period    

GAAP

 

Purchase
Accounting
Adjustments4

 

Restructuring
Costs

 

Merger-
Related
Costs

 

Non-GAAP3

2010                    
Materials and production   $4,440   $1,206   $105   $ -   $3,129
Marketing and administrative   3,579   -   13   160   3,406
Research and development   4,517   2,225   115   -   2,177
Restructuring costs   121   -   121   -   -
   
2009                    
Materials and production   $4,901   $2,286   $19   $ -   $2,596
Marketing and administrative   3,455   -   -   265   3,190
Research and development   1,971   -   (13)   -   1,984
Restructuring costs   1,490   -   1,490   -   -
 
Full Year
       
    Included in expenses for the period    

GAAP

 

Purchase
Accounting
Adjustments4

 

Restructuring
Costs

 

Merger-
Related
Costs

 

Non-GAAP3

2010                    
Materials and production   $18,396   $6,566   $430   $ -   $11,400
Marketing and administrative   13,245   -   143   379   12,723
Research and development   10,991   2,441   428   -   8,122
Restructuring costs   985   -   985   -   -
   
2009                    
Materials and production   $9,019   $2,286   $115   $ -   $6,618
Marketing and administrative   8,543   -   -   371   8,172
Research and development   5,845   -   232   -   5,613
Restructuring costs   1,634   -   1,634   -   -

The gross margin was 63.3 percent for the fourth quarter and 60.0 percent for the full year of 2010, reflecting 10.8 and 15.2 percentage point unfavorable impacts, respectively, from the purchase accounting adjustments and restructuring costs noted above.

Equity income from affiliates was $171 million in the fourth quarter and $587 million for the full year of 2010. Equity income from affiliates primarily includes the AstraZeneca LP, Johnson & Johnson Merck Consumer Pharmaceuticals Company and Sanofi Pasteur MSD partnerships, and no longer reflects any contribution from the Merck/Schering-Plough partnership or from Merial Limited (Merial).

Other (income) expense, net was $309 million of expense in the fourth quarter of 2010 which includes $120 million of exchange losses due to the Venezuelan currency devaluation. Other (income) expense, net was $1.3 billion of expense for the full year of 2010, which reflects a previously disclosed $950 million legal reserve, $200 million of exchange losses due to Venezuelan currency devaluations and $443 million of income recognized upon AstraZeneca's asset option exercise in the second quarter. Other (income) expense, net for the fourth quarter of 2009 was $7.8 billion of income primarily reflecting a $7.5 billion gain associated with obtaining a controlling interest in the Merck/Schering-Plough partnership. Other (income) expense, net for the full year of 2009 was $10.7 billion of income which included the $7.5 billion gain associated with obtaining a controlling interest in the Merck/Schering-Plough partnership, and a $3.2 billion gain from the sale of Merck's interest in Merial.

The GAAP effective tax rate of 28.7 percent for the fourth quarter of 2010 reflects the impact of purchase accounting adjustments, restructuring costs and merger-related costs. The non-GAAP effective tax rate, which excludes these items, was 14.1 percent for the quarter. Both the GAAP and non-GAAP effective tax rates reflect a benefit of approximately $80 million as a result of the fourth quarter 2010 enactment of the tax extenders legislation, including the R&D tax credit.

Financial Targets

The company expects full year 2011 revenue to grow in the low to mid-single digit percent range from the base of $46.0 billion in the full year 2010.

In 2011, Merck is targeting full year non-GAAP EPS in the range of $3.64 to $3.76, excluding certain items, and a 2011 GAAP EPS range of $2.05 to $2.33. The 2011 non-GAAP EPS range excludes purchase accounting adjustments, restructuring and merger-related costs.

EPS and other financial targets for 2011 assume that Merck will retain full rights to REMICADE and SIMPONI in the applicable markets. The 2011 targets also assume that the results from the animal health business will continue to be reported in net sales and operating expenses for the entire year, and these targets will be adjusted upon formation of the joint venture.

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.

Non-GAAP research and development expense, which excludes joint ventures, is anticipated to be approximately $8.1 billion to $8.5 billion for the full year of 2011. This target excludes restructuring costs and in-process R&D impairment charges.

Merck estimates that its consolidated non-GAAP 2011 tax rate will be approximately 20 percent to 22 percent.

Given industry pressures such as greater E.U. austerity measures and the additional impact of U.S. health care reform, as well as developments in its vorapaxar clinical program, the company has withdrawn its previous long-term target of high single-digit non-GAAP EPS compound annual growth rate from 2009 to 2013.

   
    Full Year 2011
GAAP EPS   $2.05 to $2.33

EPS difference2

  $1.59 to $1.43

Non-GAAP EPS that excludes certain items,
listed below

  $3.64 to $3.76
   
    Full Year 2011
Purchase accounting adjustments   $4,800 to $4,500
Costs related to restructuring programs   900 to 700
Merger-related costs   200 to 100
Net decrease (increase) in income before taxes   5,900 to 5,300

Income tax (benefit) expense8

  (980) to (860)
Decrease (increase) in net income   $4,920 to $4,440

EPS difference2

 

$1.59 to $1.43

Product Performance – Human Health

Bone, Respiratory, Immunology and Dermatology

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, were $1.3 billion for the fourth quarter of 2010, an increase of 7 percent compared with the fourth quarter of 2009. Full year worldwide sales for SINGULAIR were $5.0 billion, a 7 percent increase compared with the prior year.

Global sales of NASONEX (mometasone furoate monohydrate) nasal spray, an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms, were $303 million for the fourth quarter and $1.2 billion for the full year of 2010.

Sales of REMICADE (infliximab) were $710 million for the fourth quarter and $2.7 billion for the full year of 2010. REMICADE is a treatment for inflammatory diseases. Sales of SIMPONI (golimumab) were $42 million for the fourth quarter and $97 million for the full year of 2010. SIMPONI, a once-monthly, subcutaneous treatment for certain inflammatory diseases, has been launched in 18 countries and launches in other international markets are planned. A subsidiary of Merck has exclusive marketing rights for REMICADE and SIMPONI outside the United States except in China, Japan, Indonesia, Taiwan and Hong Kong. The subsidiary's rights to market REMICADE and SIMPONI are the subject of an ongoing arbitration process with Centocor, which has been previously disclosed.

Cardiovascular

Global sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), the company's cholesterol-lowering medicines, were $629 million and $562 million, respectively, for the fourth quarter of 2010. Annual worldwide sales of ZETIA for 2010 were $2.3 billion and $2.0 billion for VYTORIN.

Diabetes and Obesity

JANUVIA (sitagliptin), Merck's DPP-4 inhibitor for the treatment of type 2 diabetes, recorded worldwide sales of $675 million during the fourth quarter of 2010, representing a 21 percent increase compared with the same quarter in 2009. JANUMET (sitagliptin/metformin hydrochloride), a single tablet that targets all three key defects of type 2 diabetes, achieved worldwide sales of $288 million during the quarter, an increase of 42 percent compared with the fourth quarter 2009. The JANUVIA/JANUMET combined franchise had sales of $962 million during the fourth quarter of 2010, an increase of 27 percent compared to the same quarter in 2009. JANUVIA reached $2.4 billion in worldwide sales in 2010, while JANUMET achieved $954 million in global sales for the year. The combined JANUVIA/JANUMET franchise had sales of $3.3 billion for the full year of 2010, an increase of 29 percent.

Infectious Disease

ISENTRESS (raltegravir), an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, reported worldwide sales of $313 million for the fourth quarter of 2010, an increase of 34 percent compared with the fourth quarter of 2009. Global sales of ISENTRESS for the full year of 2010 were $1.1 billion, a 45 percent increase compared with the prior year.

Worldwide sales of PEGINTRON (peginterferon alfa-2b) for chronic hepatitis C were $198 million for the fourth quarter and $737 million for the full year of 2010.

Diversified Brands

Merck's diversified brands are human health pharmaceutical products that are approaching the expiration of their marketing exclusivity or are no longer protected by patents in developed markets, but continue to be a core part of the company's offering in other markets around the world.

Global sales of Merck's antihypertensive medicines, COZAAR (losartan potassium) and HYZAAR9 (losartan potassium and hydrochlorothiazide), were $415 million for the fourth quarter of 2010, representing a 57 percent decrease compared with the fourth quarter of 2009. Full year worldwide sales for COZAAR/HYZAAR were $2.1 billion, a 41 percent decrease compared to the full year of 2009. The company continues to experience a significant decline in COZAAR/HYZAAR sales since these medicines have lost marketing exclusivity in the United States and in major European markets.

Neuroscience and Ophthalmology

Global sales of MAXALT (rizatriptan benzoate), Merck's tablet for the acute treatment of migraine, were $149 million for the fourth quarter of 2010, a 5 percent decrease from the same quarter last year. MAXALT reported global sales of $550 million for the full year of 2010, a 4 percent decrease from the full year 2009.

Sales of BRIDION (sugammadex), for the reversal of certain muscle relaxants during surgery, were $40 million in the fourth quarter of 2010 and $103 million for the full year of 2010. BRIDION is currently launching in more than 30 countries outside of the United States.

Oncology

Sales of TEMODAR (temozolomide), a treatment for certain types of brain tumors, were $266 million for the fourth quarter and $1.1 billion for the full year of 2010.

Global sales of EMEND (aprepitant), a treatment for chemotherapy-induced nausea and vomiting, were $110 million for the fourth quarter, an increase of 23 percent compared with the same quarter of 2009, and $378 million for full year 2010, an increase of 19 percent compared with the same period last year.

Sales of CAELYX (pegylated liposomal doxorubicin hydrochloride) for the treatment of ovarian cancer, metastatic breast cancer and Kaposi's sarcoma, were $75 million for the fourth quarter and $284 million for the full year of 2010. As previously disclosed, marketing rights for CAELYX returned to Johnson & Johnson on Dec. 31, 2010.

Vaccines10

Total sales as recorded by Merck of its cervical cancer vaccine, GARDASIL (human papillomavirus (HPV) quadrivalent (types 6, 11, 16, 18) vaccine, recombinant), were $221 million for the fourth quarter of 2010, a 20 percent decrease from the same quarter in 2009. The decrease is primarily a result of a government purchase for the CDC Strategic National Stockpile in the fourth quarter 2009. Worldwide sales of GARDASIL for the year were $988 million, a 12 percent decrease compared with the prior year.

Worldwide sales of Merck's other viral vaccines, which include VARIVAX (varicella virus vaccine live), M-M-R II (measles, mumps and rubella virus vaccine live) and PROQUAD (measles, mumps, rubella and varicella virus vaccine live), as recorded by Merck, were $285 million for the fourth quarter of 2010, a decrease of 14 percent compared with the same period a year earlier. The decrease is primarily a result of a 2009 government purchase of VARIVAX for the CDC Strategic National Stockpile. Sales of other viral vaccines for the year were $1.4 billion, an increase of 1 percent over full year 2009.

ZOSTAVAX (zoster vaccine live), the company’s vaccine to help prevent shingles (herpes zoster), recorded sales of $107 million for the fourth quarter of 2010 compared with $76 million for the fourth quarter of 2009. Sales for the full year of 2010 were $243 million compared with $277 million for 2009. Sales this quarter were driven by significant backorder fulfillment. Product backorders are expected to continue through at least the first quarter of 2011 and the company anticipates sales in future quarters will be affected by availability of supply.

Women's Health and Endocrine

Global sales of NUVARING (etonogestrel/ethinyl estradiol) vaginal ring, a contraceptive product, were $145 million for the fourth quarter and $559 million for the full year of 2010.

Sales of FOLLISTIM AQ (follitropin beta injection), a fertility treatment, were $138 million for the fourth quarter and $528 million for the full year of 2010.

Product Performance ― Animal Health

Animal Health sales totaled $815 million for the fourth quarter and $2.9 billion for the full year of 2010, reflecting continued solid performance among ruminant and swine products. Animal Health includes pharmaceutical and vaccine products for the prevention, treatment and control of disease in all major farm and companion animal species. Merck and sanofi-aventis continue the process of forming the proposed Animal Health joint venture and expect to close the transaction in the first half of 2011.

Product Performance ― Consumer Care

Consumer Care sales were $251 million for the fourth quarter and $1.3 billion for the full year of 2010, which reflect continued strong performance of a number of key brands including DR. SCHOLL's and COPPERTONE. Consumer Care includes footcare and suncare consumer products, and a variety of over-the-counter medicines.

Total Employees

As of Dec. 31, 2010, Merck had approximately 94,000 employees worldwide.

Explanatory Note

Supplemental combined non-GAAP sales are provided on page 4 and in the attached schedules at the end of this news release to reflect the revenues of the company's product sales on a comparable basis to periods prior to the merger. Merck has defined supplemental combined non-GAAP sales as GAAP sales adjusted to reflect a full quarter and full year of Merck and Schering-Plough performance as if the merger closed at the beginning of the periods indicated in the applicable table. This supplemental information is provided to enhance investors' understanding of the company's products and overall business performance. This information should be considered in addition to, but not in lieu of, sales recorded in accordance with GAAP. Supplemental combined non-GAAP sales are available in Tables 3 and 3a as part of this news release, and additional information is included in the 8-K filing today.

Earnings Conference Call

Investors are invited to a live audio webcast of Merck's fourth quarter earnings conference call today at 8:00 a.m. EST 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 listen in on the call by dialing (706) 758-9928 or (800) 399-7917. A replay of the call will be available starting at 11 a.m. EST on Feb. 3 through 11:59 p.m. EST on Feb. 11. To listen to the replay, dial (706) 645-9291 or (800) 642-1687 and enter ID No. 30176534.

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 that donate and deliver our products to the people who need them. For more information, visit www.merck.com.

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. 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 2009 Annual Report on Form 10-K and the company’s other filings with the Securities and Exchange Commission (SEC) available at the SEC’s Internet site (www.sec.gov).

1 Net loss attributable to Merck & Co., Inc.

2 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.

3 Merck is providing certain 2010 and 2009 non-GAAP information in the charts on this page and in the charts on pages 5 and 6 related to expenses 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 Tables 2a and 2b, including the related footnotes, attached to this release.

4 Amounts for the fourth quarter and full year of 2010 reflect $2.2 billion and $2.4 billion, respectively, of in-process research and development impairment charges, including a charge of $1.7 billion to write-down the intangible asset related to vorapaxar recorded in conjunction with the merger. The remaining amounts in 2010 and the amounts in 2009 represent expenses for the amortization of intangible assets and amortization of purchase accounting adjustments to inventories recognized as a result of the merger.

5 Includes an estimated income tax (benefit) expense on the reconciling items. In addition, amounts for the full year of 2010 include a $391 million tax benefit from changes in a foreign entity's tax rate, which resulted in a reduction in deferred tax liabilities on product intangibles recorded in conjunction with the merger, as well as a $147 million tax charge related to U.S. health care reform legislation.

6 Human Health includes worldwide prescription pharmaceutical sales and consumer product sales excluding the U.S. and Canada. Consumer Care includes U.S. and Canada consumer product sales.

7 Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales. Revenue from AstraZeneca LP recorded by Merck was $302 million in the fourth quarter and $1.3 billion for the full year of 2010.

8 Represents an estimated income tax (benefit) expense on the reconciling items. on above items

9 COZAAR and HYZAAR are registered trademarks of E.I. duPont de Nemours and Company, Wilmington, Del.

10 Vaccines in most major European markets are sold through the company’s joint venture, Sanofi Pasteur MSD, and the results from the company's interest in the joint venture are recorded in equity income from affiliates.

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1

 
                       

GAAP

 

%
Change

GAAP  

%
Change

4Q10

  4Q09 Full Year

2010

  Full Year

2009

           
                   
Sales $ 12,094 $ 10,093 20% $ 45,987 $ 27,428 68%
 
Costs, Expenses and Other
Materials and production (1) 4,440 4,901 -9% 18,396 9,019 *
Marketing and administrative (1) 3,579 3,455 4% 13,245 8,543 55%
Research and development (1) 4,517 1,971 * 10,991 5,845 88%
Restructuring costs (2) 121 1,490 -92% 985 1,634 -40%
Equity income from affiliates (3) (171 ) (374 ) -54% (587 ) (2,235 ) -74%
Other (income) expense, net (4) 309 (7,813 ) * 1,304 (10,668 ) *
 
(Loss) Income Before Taxes (701 ) 6,463 * 1,653 15,290 -89%
Income Tax (Benefit) Provision (201 ) (60 ) 671 2,268
Net (Loss) Income (500 ) 6,523 * 982 13,022 -92%
Less: Net Income Attributable to Noncontrolling Interests 31 29 121 123
Net (Loss) Income Attributable to Merck & Co., Inc. $ (531 ) $ 6,494 * $ 861 $ 12,899 -93%
(Loss) Earnings per Common Share Assuming Dilution (5) $ (0.17 ) $ 2.35 * $ 0.28 $ 5.65 -95%
                   
           
Average Shares Outstanding Assuming Dilution (6) 3,081 2,753 3,120 2,273
Tax Rate (7)   28.7 %     -0.9 %   40.6 %     14.8 %
 
 
*≥ 100%
 
(1) Amounts include the impact of purchase accounting adjustments, restructuring costs and merger-related costs. See accompanying tables for details.
 
(2) Represents separation and other related costs associated with restructuring activities.
 
(3) In 2010, equity income from affiliates no longer reflects any contribution from the Merck/Schering-Plough partnership, which is now wholly-owned by the company as a result of the merger, or from Merial Limited due to the divesture of Merck’s interest in September 2009.
 
(4) Other (income) expense, net in the fourth quarter and full year of 2010 includes $120 million and $200 million, respectively, of exchange losses due to Venezuelan currency devaluations. Other (income) expense, net for the full year of 2010 also includes a $950 million legal reserve and a $443 million gain recognized upon AstraZeneca’s exercise of the asset option. Other (income) expense, net in the fourth quarter of 2009 includes a $7.5 billion gain related to the Merck/Schering-Plough partnership recognized in connection with the merger. In addition, other (income) expense, net for the full year of 2009 includes a $3.2 billion gain on the divestiture of Merck’s interest in Merial Limited. Other (income) expense, net includes merger-related costs of $17 million for the full year of 2010 and $23 million and $173 million for the fourth quarter and full year of 2009, respectively.
 
(5) 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 (losses are not allocated). Net income attributable to Merck & Co., Inc. common shareholders used to calculate earnings per common share assuming dilution was $6,463 million for the fourth quarter of 2009 and was $859 million and $12,853 million for the full year of 2010 and 2009, respectively.
 
(6) Because the company recorded a loss in the fourth quarter of 2010, no potential dilutive common shares were used in the computation of loss per share assuming dilution as the effect would have been anti-dilutive.
 

(7) The GAAP effective tax rates for the fourth quarter and full year of 2010 were 28.7% and 40.6%, respectively. Excluding the impact of the non-GAAP items detailed in the accompanying tables, the effective tax rates were 14.1% and 20.0% for the fourth quarter and full year of 2010, respectively. The fourth quarter and full year of 2010 GAAP and non-GAAP effective tax rates reflect a benefit of approximately $80 million as a result of the fourth quarter 2010 enactment of the tax extenders legislation, including the R&D tax credit.

 
The GAAP effective tax rates for the fourth quarter and full year of 2009 were (0.9)% and 14.8%, respectively. Excluding the impact of the non-GAAP items detailed in the accompanying tables, the effective tax rates were 15.3% and 20.0% for the fourth quarter and full year of 2009, respectively. The fourth quarter and full year of 2009 GAAP and non-GAAP effective tax rates were impacted by the favorable effect of tax settlements.
 

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

FOURTH QUARTER 2010

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2a

                       

GAAP

Purchase
Accounting(1)

Restructuring
Costs (2)

Merger-Related
Costs (3)

Adjustment
Subtotal

Non-GAAP
 
   
Sales $ 12,094 $ - $ 12,094
 
Materials and production 4,440 1,206 105 1,311 3,129
 
Marketing and administrative 3,579 13 160 173 3,406
 
Research and development 4,517 2,225 115 2,340 2,177
 
Restructuring costs 121 121 121 -
 
Equity income from affiliates (171 ) - (171 )
 
Other (income) expense, net 309 - 309
 
(Loss) Income Before Taxes (701 ) (3,431 ) (354 ) (160 ) (3,945 ) 3,244
 
Income Tax (Benefit) Provision (201 ) (658 )

(4)

457
 
Net (Loss) Income (500 ) (3,287 ) 2,787
 
Less: Net Income Attributable to Noncontrolling Interests 31 - 31
 
Net (Loss) Income Attributable to Merck & Co., Inc. $ (531 ) $ (3,287 ) $ 2,756
 
(Loss) Earnings per Common Share Assuming Dilution $ (0.17 ) $ 0.88  

(5)

   
Average Shares Outstanding Assuming Dilution 3,081 3,106
Tax Rate   28.7 %   14.1 %
 
 
 
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, including a $1.7 billion charge to write-down the intangible asset related to vorapaxar.
 
(2) Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested.
 
(3) Merger-related costs include transaction and integration costs associated with the merger.
 
(4) Represents the estimated tax impact on the reconciling items.
 
(5) 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 $2,746 million for the fourth quarter of 2010.
 

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

FULL YEAR 2010

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2b

 
                         
GAAP

Purchase
Accounting(1)

Restructuring
Costs (2)

Merger-Related
Costs (3)

Certain Other
Items (4)

Adjustment
Subtotal

Non-GAAP

 
   
Sales $ 45,987 $ - $ 45,987
 
Materials and production 18,396 6,566 430 6,996 11,400
 
Marketing and administrative 13,245 143 379 522 12,723
 
Research and development 10,991 2,441 428 2,869 8,122
 
Restructuring costs 985 985 985 -
 
Equity income from affiliates (587 ) - (587 )
 
Other (income) expense, net 1,304 17 507 524 780
 
Income Before Taxes 1,653 (9,007 ) (1,986 ) (396 ) (507 ) (11,896 ) 13,549
 
Taxes on Income 671 (2,042 )

(5)

2,713
 
Net Income 982 (9,854 ) 10,836
 
Less: Net Income Attributable to Noncontrolling Interests 121 - 121
 
Net Income Attributable to Merck & Co., Inc. $ 861 $ (9,854 ) $ 10,715
 
Earnings per Common Share Assuming Dilution $ 0.28   $ 3.42  

(6)

   
Average Shares Outstanding Assuming Dilution 3,120 3,120
Tax Rate   40.6 %   20.0 %
 
 
 
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, including a $1.7 billion charge to write-down the intangible asset related to vorapaxar.
 
(2) Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested.
 
(3) Merger-related costs include transaction and integration costs associated with the merger.
 
(4) Included in other (income) expense, net is a $950 million legal reserve and a $443 million gain recognized upon AstraZeneca's exercise of the asset option.
 
(5) Includes a $391 million tax benefit from changes in a foreign entity's tax rate, a charge of $147 million associated with a change in tax law enacted as part of U.S. health care reform legislation, as well as the estimated tax impact on the other 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 $10,673 million for the full year of 2010.

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

FOURTH QUARTER 2010

(AMOUNTS IN MILLIONS)

Table 3

 
The following Table reflects Supplemental Combined Non-GAAP sales for the prior year which were adjusted to reflect a full quarter of Merck and Schering-Plough combined results as if the merger closed as of January 1, 2009.
                   

GAAP

GAAP   Adjustment  

Supp. Comb.

Non-GAAP

% Change
(4Q10 GAAP vs Supp.
Comb. Non-GAAP 4Q09)

   
4Q10 4Q09   4Q09   4Q09  
 
TOTAL SALES (1) $12,094 $10,093 $2,123 $12,216 -1
         

 

 
HUMAN HEALTH (2) 10,581 9,072 1,733 10,805 -2
 
Bone, Resp., Imm., & Dermatology
Singulair 1,349 1,260 1,260 7
Remicade 710 431 205 635 12
Nasonex 303 165 121 286 6
Fosamax 234 285 285 -18
Clarinex 146 101 55 155 -6
Arcoxia 115 98 98 17
Proventil 55 26 30 56 -2
Asmanex 53 37 21 58 -8
 
Cardiovascular
Zetia 629 399 215 614 2
Vytorin 562 384 194 577 -3
Integrilin 63 46 26 72 -12
 
Diabetes & Obesity
Januvia 675 558 558 21
Janumet 288 202 202 42
 
Infectious Disease
Isentress 313 234 234 34
PegIntron 198 149 67 216 -8
Cancidas 174 175 175 --
Primaxin 158 196 196 -19
Invanz 113 88 88 29
Avelox 92 66 52 118 -22
Rebetol 54 36 21 57 -4
Crixivan / Stocrin 58 52 52 11
 
Diversified Brands
Cozaar / Hyzaar 415 955 955 -57
Zocor 121 139 139 -13
Propecia 124 123 123 1
Claritin Rx 122 71 38 109 11
Vasotec / Vaseretic 64 85 85 -25
Remeron 62 38 21 60 5
Proscar 44 72 72 -39
 
Neurosciences & Ophthalmology
Maxalt 149 156 156 -5
Cosopt / Trusopt 131 134 134 -2
Subutex / Suboxone 1 36 20 56 -98
 
Oncology
Temodar 266 188 103 292 -9
Emend 110 89

 

89 23
Caelyx 75 47 24 70 7
Intron A 54 38 16 54 -1
 
Vaccines
ProQuad, M-M-R II and Varivax 285 333 333 -14
Gardasil 221 277 277 -20
RotaTeq 169 135 135 25
Pneumovax 156 128 128 22
Zostavax 107 76 76 41
 
Women's Health & Endocrine
NuvaRing 145 88 47 135 7
Follistim AQ 138 96 53 149 -7
Implanon 71 37 16 53 34
Cerazette 49 35 18 53 -8
 
Other Human Health (3) 1,160 708 372 1,079 8
 
ANIMAL HEALTH 815 494 265 759 7
 
CONSUMER CARE (2) 251 149 83 232 8
Claritin OTC 67 39 25 63 6
 
Other Revenues (4) 447 379 41 420 6
Astra 302 332 332 -9
             
 
(1) Only select products are shown.
 
(2) Human Health includes worldwide prescription pharmaceutical sales and consumer product sales excluding the US and Canada. Consumer Care includes US and Canada consumer product sales.
(3) Includes Human Health products not individually shown above. Other Vaccines sales included in Other Human Health were $75 million and $50 million for fourth quarter 2010 and 2009, respectively.
(4) Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales.
 
Note: The company is providing Supplemental Combined Non-GAAP sales to reflect the revenues of the company's product sales on a comparable basis to periods prior to the merger. Merck has defined Supplemental Combined Non-GAAP sales as GAAP sales adjusted to reflect a full quarter of Merck and Schering-Plough performance as if the merger closed at the beginning of the periods indicated in this table. This supplemental information is provided to enhance investors' understanding of the company's sales performance. This information should be considered in addition to, but not in lieu of, sales reported in accordance with GAAP.

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

FULL YEAR 2010

(AMOUNTS IN MILLIONS)

Table 3a

 
The following Table reflects Supplemental Combined Non-GAAP sales for the prior year which were adjusted to reflect the period of Merck and Schering-Plough combined results as if the merger closed as of January 1, 2009.
                   

GAAP

GAAP   Adjustment  

Supp. Comb.

Non-GAAP

% Change
(FY 10 GAAP vs
Supp. Comb. Non-
GAAP FY 09)

   
Full Year 10 Full Year 09   Full Year 09   Full Year 09
 
TOTAL SALES (1) $45,987 $27,428 $18,537 $45,964 --
         

 

 
HUMAN HEALTH (2) 39,811 25,236 14,862 40,098 -1
 
Bone, Resp., Imm., & Dermatology
Singulair 4,987 4,660

 

4,660 7
Remicade 2,714 431 1,896 2,327 17
Nasonex 1,220 165 1,014 1,179 3
Fosamax 926 1,100

 

1,100 -16
Clarinex 659 101 619 719 -8
Arcoxia 398 358

 

358 11
Proventil 210 26 198 225 -7
Asmanex 208 37 177 214 -3
 
Cardiovascular
Zetia 2,297 403 1,841 2,244 2
Vytorin 2,014 441 1,671 2,112 -5
Integrilin 266 46 249 295 -10
 
Diabetes & Obesity
Januvia 2,385 1,922

 

1,922 24
Janumet 954 658

 

658 45
 
Infectious Disease
Isentress 1,090 752

 

752 45
PegIntron 737 149 696 844 -13
Cancidas 611 617

 

617 -1
Primaxin 610 689

 

689 -11
Invanz 362 293

 

293 24
Avelox 316 66 302 368 -14
Rebetol 221 36 218 254 -13
Crixivan / Stocrin 206 206

 

206 --
 
Diversified Brands
Cozaar / Hyzaar 2,104 3,561

 

3,561 -41
Zocor 468 558

 

558 -16
Propecia 447 440

 

440 1
Claritin Rx 420 71 362 433 -3
Vasotec / Vaseretic 255 311

 

311 -18
Remeron 223 38 195 234 -5
Proscar 216 291

 

291 -26
 
Neurosciences & Ophthalmology
Maxalt 550 575

 

575 -4
Cosopt / Trusopt 484 503

 

503 -4
Subutex / Suboxone 111 36 175 211 -47
 
Oncology
Temodar 1,065 188 885 1,073 -1
Emend 378 317

 

317 19
Caelyx 284 47 219 265 7
Intron A 209 38 192 231 -9
 
Vaccines
ProQuad, M-M-R II and Varivax 1,378 1,369

 

1,369 1
Gardasil 988 1,118

 

1,118 -12
RotaTeq 519 522

 

522 -1
Pneumovax 376 346

 

346 9
Zostavax 243 277

 

277 -12
 
Women's Health & Endocrine
NuvaRing 559 88 422 511 9
Follistim AQ 528 96 450 546 -3
Implanon 236 37 142 179 32
Cerazette 209 35 153 187 11
 
Other Human Health (3) 4,170 1,218 2,787 4,005 4
 
ANIMAL HEALTH 2,941 494 2,222 2,716 8
 
CONSUMER CARE (2) 1,342 149 1,131 1,281 5
Claritin OTC 401 39 367 406 -1
 
Other Revenues (4) 1,893 1,548 322 1,870 1
Astra 1,252 1,414

 

1,414 -11
             
 
(1) Only select products are shown.
 
(2) Human Health includes worldwide prescription pharmaceutical sales and consumer product sales excluding the US and Canada. Consumer Care includes US and Canada consumer product sales.
(3) Includes Human Health products not individually shown above. Other Vaccines sales included in Other Human Health were $282 million and $188 million for the full year 2010 and 2009, respectively.
(4) Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales.
 
Note: The company is providing Supplemental Combined Non-GAAP sales to reflect the revenues of the company's product sales on a comparable basis to periods prior to the merger. Merck has defined Supplemental Combined Non-GAAP sales as GAAP sales adjusted to reflect the full year of Merck and Schering-Plough performance as if the merger closed at the beginning of the periods indicated in this table. This supplemental information is provided to enhance investors' understanding of the company's sales performance. This information should be considered in addition to, but not in lieu of, sales reported in accordance with GAAP.

Contact:

Merck & Co., Inc.
Media Contacts:
David Caouette, 908-423-3461
Steven Campanini, 908-423-4291
or
Investor Contacts:
Alex Kelly, 908-423-5185
Joe Romanelli, 908-423-5088

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