Merck Announces Full-Year and Fourth-Quarter 2011 Financial Results

--  2011 Full-Year Non-GAAP EPS of $3.77, Excluding Certain Items; GAAP EPS of $2.02; Fourth-Quarter Non-GAAP EPS of $0.97, Excluding Certain Items; GAAP EPS of $0.49

--  2011 Full-Year Worldwide Sales Grew Four Percent to $48.0 Billion, Including Two Percent from Foreign Exchange; Fourth-Quarter Worldwide Sales Grew Two Percent to $12.3 Billion

--  Full-Year and Fourth-Quarter Double-Digit Global Growth for JANUVIA, JANUMET, ISENTRESS and GARDASIL

--  Company plans to file five major products for approval between 2012 and 2013

--  2012 Full-Year Non-GAAP EPS Target of $3.75 to $3.85, Excluding Certain Items; GAAP EPS Range of $2.04 to $2.30

Category:

Thursday, February 2, 2012 7:00 am EST

Dateline:

WHITEHOUSE STATION, N.J.

Public Company Information:

NYSE:
MRK
"We are positioning Merck to perform well by advancing and growing our innovative pipeline, meeting the evolving needs of customers around the world and achieving a more efficient operating model"

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 2011.

   
$ in millions, except EPS amounts  

Fourth
Quarter
2011

 

Fourth
Quarter
2010

 

Year Ended
Dec. 31,
2011

 

Year Ended
Dec. 31,
2010

Sales   $12,294   $12,094   $48,047   $45,987
GAAP EPS   0.49   (0.17)   2.02   0.28

Non-GAAP EPS that excludes items listed below1

  0.97   0.88   3.77   3.42

GAAP Net Income (Loss)2

  1,512   (531)   6,272   861

Non-GAAP Net Income that excludes items listed below 1,2

  2,978   2,756   11,697   10,715

Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the fourth quarter of $0.97 and $3.77 for the full year of 2011 exclude acquisition-related costs, restructuring costs and certain other items.

A reconciliation of GAAP to non-GAAP net income (loss) and EPS is provided in the tables that follow.

   
Fourth Quarter 2011   Fourth Quarter 2010
$ in millions, except EPS amounts  

Net
Income 2

 

 

EPS

 

Net
(Loss)
Income2

 

 

EPS

GAAP   $1,512   $0.49   $(531)   $(0.17)
Difference   1,466  

0.483

  3,287   1.053
Non-GAAP that excludes items listed below   $2,978   $0.97   $2,756   $0.88
     
 

Year Ended
Dec. 31, 2011

 

Year Ended
Dec. 31, 2010

$ in millions, except EPS amounts  

Net
Income2

 

EPS

 

Net
Income2

 

EPS

GAAP   $6,272   $2.02   $861   $0.28
Difference   5,425   1.753   9,854   3.143
Non-GAAP that excludes items listed below   $11,697   $3.77   $10,715   $3.42
 
 
$ in millions  

Fourth
Quarter
2011

 

Fourth
Quarter
2010

 

Year Ended
Dec. 31, 2011

 

Year Ended
Dec. 31, 2010

Acquisition-related costs4

  $1,479   $3,591   $5,939   $9,403
Restructuring costs   692   354   1,911   1,986
Arbitration settlement charge       500  
Legal reserve         950
Gain on AstraZeneca’s asset option exercise         (443)

Other5

  6     (258)  
Net decrease (increase) in income before taxes   2,177   3,945   8,092   11,896

Income tax (benefit) expense6

  (711)   (658)   (2,667)   (2,042)
Decrease (increase) in net income   $1,466   $3,287   $5,425   $9,854

"We are positioning Merck to perform well by advancing and growing our innovative pipeline, meeting the evolving needs of customers around the world and achieving a more efficient operating model," said Kenneth C. Frazier, chairman and chief executive officer of Merck. "We closed out 2011 with a high-quality fourth quarter by growing the top and bottom lines. Our overall performance for the year confirms our ability to achieve strong operating results while investing for the longer term. As we begin 2012 and look ahead, we are optimistic about our underlying business, our current momentum and the early success of our strategy."

Select Revenue Highlights

Full-year 2011 worldwide sales were $48.0 billion, an increase of 4 percent, which includes a 2 percent benefit from foreign exchange, compared to full-year 2010. Worldwide sales were $12.3 billion for the fourth quarter of 2011, an increase of 2 percent compared with the fourth quarter of 2010. The revenue increases largely reflect strong sales of JANUVIA (sitagliptin), SINGULAIR (montelukast sodium), JANUMET (sitagliptin/metformin hydrochloride), ISENTRESS (raltegravir) and GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant].

Sales from emerging markets accounted for approximately 18 percent of pharmaceutical sales for the full year and 17 percent in the fourth quarter. China grew 37 percent for the full year and continues to be a key driver of growth in the 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

 

Fourth
Quarter
2011

 

Fourth
Quarter
2010

 

 

 

Change

  Year Ended

Dec. 31,

2011

  Year Ended

Dec. 31,

2010

 

 

 

Change

Total Sales   $12,294   $12,094   2%   $48,047   $45,987   4%

Pharmaceutical7

  10,755   10,441   3%   41,289   39,267   5%
SINGULAIR   1,461   1,349   8%   5,479   4,987   10%
JANUVIA   960   675   42%   3,324   2,385   39%
REMICADE   511   710   -28%   2,667   2,714   -2%
ZETIA   640   629   2%   2,428   2,297   6%
VYTORIN   475   562   -16%   1,882   2,014   -7%
COZAAR/HYZAAR   427   415   3%   1,663   2,104   -21%
JANUMET   386   288   34%   1,363   954   43%
ISENTRESS   387   313   24%   1,359   1,090   25%
NASONEX   325   303   7%   1,286   1,219   5%
GARDASIL   274   221   24%   1,209   988   22%
PROQUAD, M-M-R II and VARIVAX   276   285   -3%   1,202   1,378   -13%
Animal Health   868   815   6%   3,253   2,941   11%

Consumer Care 7

  361   381   -5%   1,840   1,823   1%

Other Revenues8

  310   457   -32%   1,666   1,956   -15%

Worldwide sales of the combined diabetes franchise of JANUVIA/JANUMET grew 40 percent to $1.3 billion in the fourth quarter of 2011 driven by growth in all regions. The combined JANUVIA/JANUMET franchise had sales of $4.7 billion for the full year of 2011, an increase of 40 percent.

Worldwide sales of SINGULAIR, a once-a-day oral medicine indicated for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis, grew 8 percent from the fourth quarter of 2010 to $1.5 billion. Full-year worldwide sales for SINGULAIR were $5.5 billion, a 10 percent increase compared with the prior year. The U.S. patent for SINGULAIR will expire in Aug. 2012, and the company expects a significant decline in sales following expiry.

Global sales of REMICADE (infliximab) and SIMPONI (golimumab), treatments for inflammatory diseases, for the full year of 2011 increased 4 percent and declined 24 percent for the fourth quarter. In territories retained, the combined sales of REMICADE and SIMPONI grew 21 percent for the full year and 8 percent for the fourth quarter of 2011. In July 2011, the company transferred exclusive marketing rights for REMICADE and SIMPONI to Johnson & Johnson in Canada, Central and South America, the Middle East, Africa and Asia Pacific. Merck retained exclusive marketing rights in Europe, Russia and Turkey.

ISENTRESS, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection in adults, children and adolescents 2 years of age and older and weighing at least 10 kg, grew 24 percent in the fourth quarter. Global sales of ISENTRESS for the full year of 2011 were $1.4 billion, a 25 percent increase compared with the prior year.

Sales of GARDASIL, a vaccine to help prevent certain diseases caused by four types of human papillomavirus (HPV), were $274 million, an increase of 24 percent for the quarter driven by increased vaccination of males ages 9 through 26. Worldwide sales of GARDASIL for the year were $1.2 billion, a 22 percent increase compared with the prior year.

Sales of VICTRELIS (boceprevir), the company's oral hepatitis C virus NS3/4A protease inhibitor, were $87 million in the quarter and $140 million for the full year of 2011. In addition to the United States, the company has recently launched VICTRELIS in 19 markets including France, Germany, Canada and Brazil.

Sales of ZOSTAVAX (Zoster Vaccine Live) were $78 million in the quarter. Global sales of ZOSTAVAX for the full year of 2011 were $332 million, a 37 percent increase compared with the prior year due to an improved supply status. The company recently filled all back orders and resumed a normal supply schedule in the United States.

As expected, global sales of Merck's antihypertensive medicines COZAAR (losartan potassium) and HYZAAR (losartan potassium and hydrochlorothiazide) declined for the full year of 2011 following loss of marketing exclusivity in the United States and in major European markets in 2010.

Product Performance – Animal Health

Merck Animal Health sales totaled $868 million for the fourth quarter of 2011, a 6 percent increase over the same period last year. Animal Health had strong fourth-quarter performance across most regions, with growth primarily led by increased sales of swine, poultry and companion animal 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. Animal Health global sales for 2011 full year were $3.3 billion, an 11 percent increase, which includes a 3 percent benefit from foreign exchange, compared with the prior year.

Product Performance – Consumer Care

2011 full-year global sales of Consumer Care were $1.8 billion, a 1 percent increase compared to full-year 2010. Fourth-quarter global sales were $361 million, a decrease of 5 percent compared to the fourth quarter of 2010. The sales decrease was primarily due to declines in CLARITIN and COPPERTONE. Despite competition, CLARITIN continues to maintain a leadership position in the over-the-counter allergy market.

Fourth-Quarter and Full-Year Expense and Other Information

The costs detailed below totaled $10.8 billion on a GAAP basis during the fourth quarter of 2011 and include $2.2 billion of acquisition-related costs and restructuring costs.

   
$ in millions Included in the expense for the period
Fourth Quarter 2011  

 

GAAP

 

Acquisition-
Related
Costs 4

 

Restructuring
Costs

 

Certain Other
Items

 

 

Non-GAAP1

Materials and production   $4,176   $1,212   $68   $7   $2,889
Marketing and administrative   3,704   86   42     3,576
Research and development   2,419   244   49     2,126
Restructuring costs   533   –-   533    
 
Fourth Quarter 2010                    
Materials and production   $4,440   $1,206   $105   $ –   $3,129
Marketing and administrative   3,537   160   13     3,364
Research and development   4,559   2,225   115     2,219
Restructuring costs   121     121    

The costs detailed below totaled $40.4 billion on a GAAP basis for full-year 2011 and include $7.9 billion of acquisition-related costs and restructuring costs.

   
$ in millions Included in the expense for the period
Full Year 2011  

GAAP

 

Acquisition-
Related
Costs4

 

Restructuring
Costs

 

Certain Other
Items

 

 

Non-GAAP1

Materials and production   $16,871   $5,137   $348   $7   $11,379
Marketing and administrative   13,733   278   119     13,336
Research and development   8,467   587   138     7,742
Restructuring costs   1,306     1,306    
 
Full Year 2010                    
Materials and production   $18,396   $6,566   $430   $ –   $11,400
Marketing and administrative   13,125   379   143     12,603
Research and development   11,111   2,441   428    

8,242

Restructuring costs   985     985    

The gross margin was 66.0 percent for the fourth quarter of 2011 and 63.3 percent for the fourth quarter of 2010, reflecting 10.5 and 10.8 percentage point unfavorable impacts, respectively, from the acquisition-related costs and restructuring costs noted above.

Marketing and administrative expenses, on a non-GAAP basis, were $3.6 billion in the fourth quarter of 2011, an increase from $3.4 billion in the fourth quarter of 2010. The increase was primarily due to the impact of product launches, U.S. health care reform fees and corporate charges.

Research and development expenses, on a non-GAAP basis, were $2.1 billion in the fourth quarter of 2011, a decrease from $2.2 billion in the fourth quarter of 2010. The decrease was primarily due to efficiency savings.

Equity income from affiliates was $257 million for the fourth quarter and $610 million for the full year, which primarily includes partnerships with AstraZeneca LP and Sanofi Pasteur MSD.

Key Developments

The company noted the following recent developments:

--  Received a Complete Response Letter from the U.S. Food and Drug Administration (FDA) regarding the company's supplemental new drug application for DULERA (mometasone furoate and formoterol fumarate dihydrate) for the treatment of chronic obstructive pulmonary disease. The company is discussing the letter with the FDA to determine next steps

--  Obtained FDA approval to update the label for VYTORIN (ezetimibe/simvastatin) with results from the Study of Heart and Renal Protection in patients with moderate-to-severe chronic kidney disease

--  Received FDA approval for a new use of ISENTRESS in combination with other antiretroviral medicines for the treatment of HIV-1 infection in pediatric patients 2 years of age and older and weighing at least 10 kg

--  Announced the establishment of an Asia Research & Development (R&D) headquarters for innovative drug discovery and development located in Beijing, China

--  Increased the quarterly dividend 11 percent to $0.42 per share

--  The Centers for Disease Control and Prevention's Advisory Committee on Immunization Practices recommended the routine use of GARDASIL in boys ages 11 to 12 and catch-up vaccination for males ages 13 to 21 who have not been vaccinated previously

--  Launched JUVISYNC (sitagliptin and simvastatin) in the U.S. market. JUVISYNC is the first drug to be approved that combines the blood-sugar lowering of a DPP-4 inhibitor with the cholesterol-lowering benefits of simvastatin.

In November, the company held its R&D and Business Briefing for investors, highlighting nearly 20 candidates in Phase III clinical trials targeting a broad range of diseases. Merck plans to advance its pipeline and file five major products for approval between 2012 and 2013, including:

--  BRIDION (sugammadex), a potential first-in-class neuromuscular reversal agent in the United States

--  V503, an investigational vaccine to help protect against certain HPV associated cancers

--  Odanacatib, an investigational once-weekly oral compound with a unique mechanism of action for the treatment of osteoporosis

--  TREDAPTIVE (ER niacin/laropiprant), an investigational extended release niacin plus laropiprant for the treatment of atherosclerosis in the United States

--  Suvorexant, an investigational, first-in-class treatment for patients with insomnia.

Financial Targets

Merck expects full-year 2012 non-GAAP EPS to be between $3.75 and $3.85, and the 2012 GAAP EPS range to be $2.04 to $2.30. The 2012 non-GAAP range excludes acquisition-related costs and costs related to restructuring programs.

Merck expects full-year 2012 revenues to be at or near 2011 levels on a constant currency basis. At current exchange rates, sales would be unfavorably affected by about 2 to 3 percent.

In addition, the company expects full-year 2012 non-GAAP R&D expense to be at approximately the same level as in 2011 and expects its full-year 2012 non-GAAP tax rate to be in the range of 23 to 25 percent.

A reconciliation of anticipated 2012 EPS as reported in accordance with GAAP to non-GAAP EPS that excludes certain items is provided in the table below.9

     

$ in millions, except EPS amounts

   

Full Year 2012

GAAP EPS     $2.04 to $2.30
Difference3     1.71 to 1.55
Non-GAAP EPS that excludes items listed below     $3.75 to $3.85
 
       
Acquisition-related costs4     $5,200 to $4,900
Restructuring costs     1,100 to 800
Net decrease (increase) in income before taxes     6,300 to 5,700
Estimated income tax (benefit) expense     (1,110) to (985)
Decrease (increase) in net income     $5,190 to $4,715

Total Employees

As of Dec. 31, 2011, Merck had approximately 86,000 employees worldwide.

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 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. EST today for approximately one week. To listen to the replay, dial (404) 537-3406 or (855) 859-2056 and enter ID No. 23636062.

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. 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 Tables 2a and 2b, including the related footnotes, attached to this release.

2 Net income (loss) 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 Includes expenses for the amortization of intangible assets and amortization of purchase accounting adjustments to inventories recognized as a result of mergers and acquisitions, as well as intangible asset impairment charges. Also includes integration and other costs associated with mergers and acquisitions.

5 Amount for full year of 2011 includes a gain on the divestiture of the company’s interest in the Johnson & Johnson°Merck Consumer Pharmaceuticals Company joint venture and a gain on the sale of certain manufacturing facilities and related assets.

6 Includes an estimated income tax (benefit) expense on the reconciling items. The full year amount for 2011 includes the net favorable impact of approximately $700 million relating to the settlement of a federal income tax audit. The full year amount for 2010 includes a $147 million tax charge related to U.S. health care reform legislation. In addition, the full year amounts for 2011 and 2010 include $270 million and $391 million, respectively, of net tax benefits from changes in tax rates, which resulted in a reduction of deferred tax liabilities on intangibles established in purchase accounting.

7 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.

8 Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third-party manufacturing sales. Revenue from AstraZeneca LP recorded by Merck was $256 million in the fourth quarter and $1.2 billion for the full year of 2011.

9 Both non-GAAP and GAAP EPS guidance for 2012 assume the potential exercise by AstraZeneca of the Shares Option in mid-2012 and include the estimated associated impact on revenue and equity income from affiliates. They do not reflect any gain on the potential transaction, which would be reflected only in the company's GAAP results.

                 
 

MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS - GAAP
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 1

           
GAAP

% Change

GAAP % Change
4Q11   4Q10  

Full Year
2011

 

Full Year
2010

 

 

       

 

       
Sales $ 12,294 $ 12,094 2% $ 48,047 $ 45,987 4%
 
Costs, Expenses and Other
Materials and production (1) 4,176 4,440 -6% 16,871 18,396 -8%
Marketing and administrative (1) / (2) 3,704 3,537 5% 13,733 13,125 5%
Research and development (1) / (2) 2,419 4,559 -47% 8,467 11,111 -24%
Restructuring costs (3) 533 121 * 1,306 985 33%
Equity income from affiliates (4) (257 ) (171 ) 50% (610 ) (587 ) 4%
Other (income) expense, net (1) / (5) 139 309 -55% 946 1,304 -27%
Income (Loss) Before Taxes 1,580 (701 ) * 7,334 1,653 *
Income Tax Provision (Benefit) 37 (201 ) 942 671
Net Income (Loss) 1,543 (500 ) * 6,392 982 *
Less: Net Income Attributable to Noncontrolling Interests 31 31 120 121

Net Income (Loss) Attributable to Merck & Co., Inc.

$ 1,512 $ (531 ) * $ 6,272 $ 861 *
Earnings (Loss) per Common Share Assuming Dilution (6) $ 0.49     $ (0.17 )   * $ 2.02     $ 0.28   *
           
Average Shares Outstanding Assuming Dilution (7) 3,069 3,081 3,094 3,120
Tax Rate (8)   2.3 %     28.7 %   12.8 %     40.6 %
 
 
*100% or greater

(1) Amounts include the impact of acquisition-related costs, restructuring costs and certain other items. See accompanying tables for details.
 
(2) The fourth quarter and full year of 2010 include a reclassification of certain expenses from marketing and administrative to research and development of $42 million and $120 million, respectively.
 
(3) Represents separation and other related costs associated with restructuring activities under the company's formal restructuring programs.
 
(4) Primarily reflects equity income from the AstraZeneca LP and Sanofi Pasteur MSD partnerships.
 
(5) Other (income) expense, net in the full year of 2011 includes a charge of $500 million related to the resolution of the arbitration proceeding with Johnson & Johnson, a $136 million gain on the sale of the company's interest in the Johnson & JohnsonºMerck Consumer Pharmaceuticals Company joint venture and a $127 million gain on the sale of certain manufacturing facilities and related assets. Other (income) expense, net in the full year of 2010 reflects a $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.
 
(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 (losses are not allocated). Net income attributable to Merck & Co., Inc. common shareholders used to calculate earnings per common share assuming dilution was $1,510 million for the fourth quarter of 2011 and was $6,257 million and $859 million for the full year of 2011 and 2010, respectively.
 
(7) 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.
 
(8) The GAAP effective tax rate for the fourth quarter of 2011 was 2.3%. The GAAP effective tax rate for the full year of 2011 was 12.8%, which reflects the net favorable impact of approximately $700 million related to the settlement of the company's 2002-2005 federal income tax audit. Excluding this item and the other non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 19.9% and 23.4% for the fourth quarter and full year of 2011, respectively. 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 reconciling 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.
 

                     

MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
FOURTH QUARTER 2011
(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 $ 12,294 $ - $ 12,294
 
Materials and production 4,176 1,212 68 7 1,287 2,889
 
Marketing and administrative 3,704 86 42 128 3,576
 
Research and development 2,419 244 49 293 2,126
 
Restructuring costs 533 533 533 -
 
Equity income from affiliates (257 ) - (257 )
 
Other (income) expense, net 139 (63 ) (1 ) (64 ) 203
 
Income Before Taxes 1,580 (1,479 ) (692 ) (6 ) (2,177 ) 3,757
 
Taxes on Income 37 (711 )

(3)

748
 
Net Income 1,543 (1,466 ) 3,009
 
Less: Net Income Attributable to Noncontrolling Interests 31 - 31
 
Net Income Attributable to Merck & Co., Inc. $ 1,512 $ (1,466 ) $ 2,978
 
Earnings per Common Share Assuming Dilution $ 0.49   $ 0.97  

(4)

 
   
Average Shares Outstanding Assuming Dilution 3,069 3,069
Tax Rate   2.3 %   19.9 %

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 for the amortization of intangible assets and the amortization of purchase accounting adjustments to inventories recognized as a result of mergers and acquisitions. Amounts included in marketing and administrative expenses reflect integration costs, as well as other costs associated with mergers and acquisitions, such as severance costs which are not part of the company's formal restructuring programs. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges. Amounts included in other (income) expense, net reflect the favorable resolution of certain reserves assumed in conjunction with the merger.
 
(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) Includes the favorable impact of certain state tax rate changes that resulted in a net $40 million reduction of deferred tax liabilities on intangibles established in purchase accounting, as well as the estimated tax impact on the reconciling items.
 
(4) 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 $2,973 million for the fourth quarter of 2011.
 

                     

MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
 GAAP TO NON-GAAP RECONCILIATION
FULL YEAR 2011
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2b

 
GAAP    

Acquisition-
Related Costs (1)

   

Restructuring
Costs (2)

   

Certain Other
Items (3)

   

Adjustment
Subtotal

    Non-GAAP
   
Sales $ 48,047 $ - $ 48,047
 
Materials and production 16,871 5,137 348 7 5,492 11,379
 
Marketing and administrative 13,733 278 119 397 13,336
 
Research and development 8,467 587 138 725 7,742
 
Restructuring costs 1,306 1,306 1,306 -
 
Equity income from affiliates (610 ) - (610 )
 
Other (income) expense, net 946 (63 ) 235 172 774
 
Income Before Taxes 7,334 (5,939 ) (1,911 ) (242 ) (8,092 ) 15,426
 
Taxes on Income 942 (2,667 )

(4)

3,609
 
Net Income 6,392 (5,425 ) 11,817
 
Less: Net Income Attributable to Noncontrolling Interests 120 - 120
 
Net Income Attributable to Merck & Co., Inc. $ 6,272 $ (5,425 ) $ 11,697
 
Earnings per Common Share Assuming Dilution $ 2.02   $ 3.77  

(5)

 
   
Average Shares Outstanding Assuming Dilution 3,094 3,094
Tax Rate   12.8 %   23.4 %

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 $5.0 billion for the amortization of intangible assets and the amortization of purchase accounting adjustments to inventories recognized as a result of mergers and acquisitions, as well as $118 million of impairment charges on product intangibles. Amounts included in marketing and administrative expenses reflect integration costs, as well as other costs associated with mergers and acquisitions, such as severance costs which are not part of the company's formal restructuring programs. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges. Amounts included in other (income) expense, net reflect the favorable resolution of certain reserves assumed in conjunction with the merger.
 
(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) Included in other (income) expense, net is a $500 million charge related to the resolution of the arbitration proceeding with Johnson & Johnson, a $136 million gain on the divestiture of the company's interest in the Johnson & JohnsonºMerck Consumer Pharmaceuticals Company joint venture, as well as a $127 million gain on the sale of certain manufacturing facilities and related assets.
 
(4) Includes a net benefit of approximately $700 million relating to the settlement of the company's 2002-2005 federal income tax audit, the favorable impact of certain foreign and state tax rate changes that resulted in a net $270 million reduction of deferred tax liabilities on intangibles established in purchase accounting, as well as 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 $11,670 million for 2011.
 

 

MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
Table 3

                   
2011 2010 % Change   % Change
1Q   2Q   3Q   4Q   Full Year 1Q   2Q   3Q   4Q   Full Year 4Q   Full Year
TOTAL SALES (1) $11,580   $12,151   $12,022   $12,294   $48,047 $11,422   $11,346   $11,125   $12,094   $45,987 2   4
PHARMACEUTICAL (2) 9,820   10,360   10,354   10,755   41,289 9,665   9,638   9,523   10,441   39,267 3 5
 
Cardiovascular
Zetia 582 592 614 640 2,428 534 564 571 629 2,297 2 6
Vytorin 480 459 469 475 1,882 477 490 485 562 2,014 -16 -7
Integrilin 64 56 53 57 230 70 70 63 63 266 -9 -14
 
Diabetes & Obesity
Januvia 739 779 846 960 3,324 511 600 600 675 2,385 42 39
Janumet 305 321 350 386 1,363 201 218 247 288 954 34 43
 
Diversified Brands
Cozaar / Hyzaar 426 406 404 427 1,663 782 485 423 415 2,104 3 -21
Zocor 127 107 110 111 456 116 117 114 121 468 -8 -3
Propecia 106 112 112 117 447 100 113 109 124 447 -6 0
Claritin Rx 120 65 55 74 314 98 58 53 86 296 -14 6
Remeron 60 57 65 59 241 51 59 50 62 223 -5 8
Vasotec / Vaseretic 57 59 57 58 231 59 63 69 64 255 -9 -10
Proscar 60 53 58 52 223 58 56 58 44 216 18 3
 
Infectious Disease
Isentress 292 337 343 387 1,359 232 267 278 313 1,090 24 25
PegIntron 166 154 163 175 657 186 185 168 198 737 -12 -11
Cancidas 158 168 150 164 640 153 150 135 174 611 -6 5
Primaxin 136 136 124 119 515 159 158 135 158 610 -25 -16
Invanz 87 103 107 110 406 75 83 91 113 362 -3 12
Avelox 106 61 59 95 322 106 59 59 92 316 3 2
Noxafil 55 56 61 59 230 49 50 52 48 198 24 16
Crixivan / Stocrin 45 50 56 42 192 52 48 49 58 206 -28 -7
Rebetol 53 48 38 36 174 56 55 55 54 221 -34 -21
Victrelis 1 21 31 87 140 0 0 0 0 0 * *
 
Neurosciences & Ophthalmology
Maxalt 173 131 156 178 639 135 133 133 149 550 20 16
Cosopt / Trusopt 114 122 124 117 477 115 123 114 131 484 -11 -1
 
Oncology
Temodar 248 234 223 230 935 274 271 254 266 1,065 -13 -12
Emend 87 120 98 114 419 84 93 91 110 378 4 11
Intron A 49 47 47 51 194 54 51 50 54 209 -5 -7
 
Respiratory & Immunology
Singulair 1,328 1,354 1,336 1,461 5,479 1,165 1,258 1,215 1,349 4,987 8 10
Remicade 753 842 561 511 2,667 674 669 661 710 2,714 -28 -2
Nasonex 373 323 266 325 1,286 320 338 259 303 1,219 7 5
Clarinex 155 209 128 129 621 164 191 131 138 623 -6 0
Arcoxia 114 100 108 110 431 95 95 94 115 398 -4 8
Simponi 54 75 74 61 264 10 18 27 42 97 45 *
Asmanex 60 47 42 57 206 51 56 48 53 208 7 -1
Proventil 42 37 38 38 155 57 55 43 55 210 -31 -26
Dulera 13 25 22 37 96 0 0 2 6 8 * *
 
Vaccines
Gardasil 214 277 445 274 1,209 233 219 316 221 988 24 22
ProQuad, M-M-R II and Varivax 244 291 391 276 1,202 319 340 434 285 1,378 -3 -13
RotaTeq 125 148 184 195 651 93 139 119 169 519 15 25
Pneumovax 79 64 133 222 498 51 59 110 156 376 43 33
Zostavax 24 122 108 78 332 95 18 23 107 243 -27 37
 
Women's Health & Endocrine
Fosamax 208 221 215 211 855 230 241 220 234 926 -10 -8
NuvaRing 142 154 159 168 623 135 145 134 145 559 16 12
Follistim AQ 133 143 129 126 530 134 137 119 138 528 -9 0
Implanon 60 81 80 74 294 51 51 64 71 236 3 25
Cerazette 59 66 74 69 268 55 49 56 49 209 42 28
 
Other Pharmaceutical (3) 744 927 888 953 3,521 946 941 942 1,044 3,879 -9 -9
 
ANIMAL HEALTH 758 802 826 868 3,253 709 731 687 815 2,941 6 11
 
CONSUMER CARE (2) 517 541 421 361 1,840 489 544 409 381 1,823 -5 1
Claritin OTC 167 134 118 92 511 136 167 120 103 526 -11 -3
 
Other Revenues (4) 486 448 421 310 1,666 559 433 506 457 1,956 -32 -15
Astra 322   306   299   256   1,184 364   241   345   302   1,252 -15   -5
 

* 100% or greater
Sum of quarterly amounts may not equal year-to-date amounts due to rounding.

(1) Only select products are shown.
 
(2) Beginning in 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 Vaccine sales included in Other Pharmaceutical were $54 million, $67 million, $100 million and $62 million for the first, second, third and fourth quarters of 2011, respectively. Other Vaccine 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.

Contact:

Merck
Media Contact:
Ron Rogers, 908-423-6449
or
Investor Contacts:
Carol Ferguson, 908-423-4465
Alex Kelly, 908-423-5185

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