Merck Announces Second Quarter 2011 Financial Results

  • Double-Digit Non-GAAP EPS Growth in Second Quarter 2011: Non-GAAP EPS of $0.95; GAAP EPS of $0.65
  • Total Company and Pharmaceutical Sales Grow by 7 Percent, Including Foreign Exchange
  • Double-Digit Global Growth Continues for JANUVIA, JANUMET, REMICADE, and ISENTRESS
  • VICTRELIS and Other Product Launches Underway
  • Company Raises Lower End of its 2011 Non-GAAP EPS Range; Provides New Range of $3.68 to $3.76; Also Updates GAAP EPS Range to $1.95 to $2.17
  • Company Announces New Phase of Merger Restructuring Program

Category:

Friday, July 29, 2011 7:00 am EDT

Dateline:

WHITEHOUSE STATION, N.J.

Public Company Information:

NYSE:
MRK
"We're delivering on our promise to grow both the top and bottom lines while continuing our efforts to streamline and transform Merck."

WHITEHOUSE STATION, N.J.--(BUSINESS WIRE)--Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the second quarter of 2011.

       
$ in millions, except EPS amounts       Second

Quarter

2011

  Second

Quarter

2010

Sales       $ 12,151   $ 11,346
GAAP EPS         0.65     0.24

Non-GAAP EPS that excludes items listed below 1

        0.95     0.86

GAAP Net Income 2

        2,024     752

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

        2,950     2,708

Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the second quarter of $0.95 excludes acquisition-related costs, restructuring costs and the benefit of certain tax items.

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

     
Second

Quarter

2011

  Second

Quarter

2010

$ in millions, except EPS amounts    

Net

Income 2

  EPS  

Net

Income 2

  EPS
GAAP     $ 2,024   $ 0.65     $ 752   $ 0.24  
Difference       926    

0.30

 3

   

1,956

   

0.62

 3

Non-GAAP that excludes items listed below     $ 2,950   $ 0.95     $ 2,708   $ 0.86  
       
$ in millions   Second

Quarter

2011

  Second

Quarter

2010

Acquisition-related costs 4

  $ 1,440     $ 1,747  
Costs related to restructuring programs     816       894  
Gain on AstraZeneca's asset option exercise     -       (443 )
Other     7       -  
Net decrease (increase) in income before taxes     2,263       2,198  

Income tax (benefit) expense 5

    (1,337 )     (242 )
Decrease (increase) in net income   $ 926     $ 1,956  

Year-to-date results can be found in the attached financial tables.

"Double-digit growth from key products, and successful new product launches in markets worldwide led to Merck's strong second quarter results," said Kenneth C. Frazier, president and chief executive officer. "We're delivering on our promise to grow both the top and bottom lines while continuing our efforts to streamline and transform Merck.

"By improving the effectiveness and efficiency of our operations and focusing on scientific innovation, we are well-positioned for sustained and profitable growth in the future."

Update to Merger Restructuring Program

Merck said today that it remains on track to achieve its goal of $3.5 billion in annual cost synergies by the end of 2012.

The company said it will more aggressively reduce its cost structure so Merck can continue to invest in long term profitable growth opportunities while driving a more efficient operating model. As a result, Merck announced the next phase of its Merger Restructuring Program today. As part of this next phase, the company expects to reduce its workforce, as measured at December 31, 2009, by an additional 12 to 13 percent by the end of 2015. At the same time, Merck said it will continue to hire new employees in strategic growth areas of the business such as emerging markets.

"Merck is taking these difficult actions so that we can grow profitably and continue to deliver on our mission well into the future," said Frazier. "The environment we operate in is changing rapidly and dramatically, and these steps will help us more efficiently serve customers and patients around the world."

By the end of 2015, Merck now expects the overall Merger Restructuring Program to yield annual ongoing savings of $4.0 billion to $4.6 billion from the original estimate of $2.7 billion to $3.1 billion. Total cumulative pretax costs for the Program are estimated to range between $5.8 billion to $6.6 billion.

Select Revenue Highlights

Worldwide sales were $12.2 billion for the second quarter of 2011, the highest quarterly sales total for the combined company and an increase of 7 percent compared with the second quarter of 2010. Foreign exchange for the quarter favorably affected global sales performance by 4 percent. The revenue increase largely reflects strong sales of JANUVIA (sitagliptin), JANUMET (sitagliptin/metformin hydrochloride), REMICADE (infliximab), SINGULAIR (montelukast sodium), ISENTRESS (raltegravir), GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant], and ZOSTAVAX (zoster vaccine live). Pharmaceutical sales from emerging markets accounted for 18 percent of sales in the quarter.

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

      Second

Quarter

2011

  Second

Quarter

2010

 

Change

Total Sales       $ 12,151   $ 11,346   7%

Pharmaceutical 6

        10,360     9,638   7%
SINGULAIR         1,354     1,258   8%
REMICADE         842     669   26%
JANUVIA         779     600   30%
ZETIA         592     564   5%
VYTORIN         459     490   -6%
COZAAR/HYZAAR         406     485   -16%
ISENTRESS         337     267   26%
NASONEX         323     338   -4%
JANUMET         321     218   47%
GARDASIL         277     219   27%
Animal Health         802     731   10%
Consumer Care 6         541     544   -1%

Other Revenues 7

        448     433   3%

The combined diabetes franchise of JANUVIA/JANUMET grew 35 percent to $1.1 billion in the second quarter of 2011.

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 second quarter of 2010 to $1.4 billion, driven by Japan and the United States.

Global sales grew 26 percent in the quarter for REMICADE, a treatment for inflammatory diseases, due to growth in Europe, Canada and the emerging markets, as well as increases in gastrointestinal indications for the treatment of ulcerative colitis and Crohn's disease. Under an agreement reached in the second quarter, Merck has transferred exclusive marketing rights for REMICADE and SIMPONI (golimumab) to Johnson & Johnson in territories including Canada, Central and South America, the Middle East, Africa and Asia Pacific, effective July 1, 2011. Merck retains exclusive marketing rights to these products throughout Europe, Russia and Turkey.

ISENTRESS, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, grew 26 percent in the second 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 were $122 million in the quarter as a significant number of backorders were filled. The company anticipates that backorders will continue until inventory levels are sufficient to meet market demand.

Product Performance – Animal Health

Merck Animal Health sales totaled $802 million for the second quarter of 2011, a 10 percent increase over the same period last year, including an 8 percent contribution from foreign exchange. Animal Health had strong second-quarter performance across all regions. The growth was primarily led by increased sales of new products in cattle, companion animal and poultry. 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.

Product Performance – Consumer Care

Merck Consumer Care second-quarter global sales were comparable to the second quarter of 2010, reflecting declines in CLARITIN due to a weak allergy season that were partially offset by increases in suncare. Consumer Care includes a variety of over-the-counter medicines, as well as footcare and suncare products.

Second Quarter Expense and Other Information

The costs detailed below on a GAAP basis during the second quarter of 2011 totaled $10.4 billion and include $2.3 billion of acquisition-related costs and restructuring costs.

   
$ in millions Included in the expense for the period
Second Quarter 2011   GAAP  

Acquisition-
Related Costs 4

 

Restructuring Costs

 

Non-GAAP 1

Materials and production   $ 4,284   $ 1,344   $ 109   $ 2,831
Marketing and administrative     3,525     77     23     3,425
Research and development     1,936     19     16     1,901
Restructuring costs     668     -     668     -
     
 
Second Quarter 2010                
Materials and production   $ 4,549   $ 1,662   $ 224   $ 2,663
Marketing and administrative     3,175     75     -     3,100
Research and development     2,179     -     144     2,035
Restructuring costs     526     -     526     -

The gross margin was 64.7 percent for the second quarter of 2011 and 59.9 percent for the second quarter of 2010, reflecting 12.0 and 16.6 percentage point unfavorable impacts, respectively, from the acquisition-related costs and restructuring costs noted above.

Equity income from affiliates was $55 million in the second 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 $121 million of expense in the second quarter of 2011 compared with $281 million of income in the second quarter of 2010. The second quarter of 2010 reflects $443 million of income recognized upon AstraZeneca's asset option exercise.

The GAAP tax benefit for the second quarter of 2011 primarily reflects a net favorable impact of approximately $700 million relating to the settlement of the company's 2002 to 2005 federal income tax audit, as well as a favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting. The non-GAAP effective tax rate, which excludes the impact of these items as well as acquisition-related costs, restructuring costs, and certain other items, was 24.3 percent for the quarter.

Key Developments

New Drug Approvals

  • VICTRELIS (boceprevir), the company's oral hepatitis C protease inhibitor, was approved by the U.S. Food and Drug Administration (FDA) and in Europe by the European Medicines Agency. The U.S. launch of VICTRELIS is underway. Separately, the company entered into strategic agreements with Roche to market VICTRELIS globally to physicians as part of a triple combination therapy regimen.
  • The Japanese Ministry of Health, Labour and Welfare approved three products – GARDASIL, ZOLINZA (vorinostat), and CUBICIN (daptomycin for injection).

Other Pipeline Updates

  • Supplemental New Drug Applications (sNDAs) for the cholesterol-lowering medicines VYTORIN (ezetimibe/simvastatin) and ZETIA (ezetimibe) have been accepted for standard review by the FDA. The sNDAs seek indications for VYTORIN, and for ZETIA when used in combination with simvastatin, for the prevention of major cardiovascular events in patients with chronic kidney disease.
  • An sNDA for DULERA (mometasone furoate and formoterol fumarate dihydrate) for the treatment of chronic obstructive pulmonary disease (COPD) has been accepted for review by the FDA. DULERA is currently indicated in the United States for the treatment of asthma.
  • Merck is discontinuing the clinical development program for telcagepant, the company's investigational calcitonin gene-related peptide receptor antagonist for the treatment of acute migraine. The decision is based on an assessment of data across the clinical program, including findings from a recently completed six-month Phase III study.
  • The company received a Complete Response letter from the FDA for the extended release formulation of JANUMET related to the resolution of pre-approval inspection issues. Merck is responding to the questions raised by the FDA.

Business Development

  • The company and China's Simcere Pharmaceutical Group announced last week the establishment of a joint venture that will serve China's rapidly expanding healthcare needs by providing significantly improved access to quality medicines in major therapeutic areas.
  • Merck and Hanwha Chemical Corporation entered into an exclusive global agreement to develop and commercialize a candidate biosimilar form of Enbrel® (etanercept).
  • Earlier this week Merck announced the acquisition of exclusive rights to develop and commercialize the investigational intravenous formulation of vernakalant (vernakalant i.v.) in Canada, Mexico and the United States. The company now has secured worldwide rights to vernakalant i.v., which is currently approved in the EU for rapid conversion of recent onset atrial fibrillation to sinus rhythm and has launched in more than 10 European countries.

Financial Targets

The company raised the lower end of its 2011 non-GAAP EPS range and is now targeting a range of $3.68 to $3.76 and a 2011 GAAP EPS target range of $1.95 to $2.17. The 2011 non-GAAP range excludes acquisition-related costs, costs related to restructuring programs, the benefit of certain tax items, a charge related to the resolution of the arbitration proceeding with Johnson & Johnson, and certain other items.

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.

In addition, the company lowered the top end of its non-GAAP R&D expense target to a range of $8.0 billion to $8.3 billion for the full year of 2011.

The company updated its anticipated consolidated non-GAAP 2011 tax rate to a range of 23 to 24 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       $1.95 to $2.17
Difference 3       1.73 to 1.59
Non-GAAP EPS that excludes items listed below       $3.68 to $3.76
 
 
         
Acquisition-related costs 4       $5,600 to $5,250
Costs related to restructuring programs       1,500 to 1,300
Arbitration settlement charge       500

Other 8

      (127)
Net decrease (increase) in income before taxes       7,473 to 6,923
Income tax (benefit) expense 5       (2,109) to (1,993)
Decrease (increase) in net income       $5,364 to $4,930

Total Employees

As of June 30, 2011, Merck had approximately 91,000 employees worldwide.

Earnings Conference Call

Investors are invited to a live audio webcast of Merck's second 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. 76798557.

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.

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

5 Includes an estimated income tax (benefit) expense on the reconciling items. In addition, amount for 2011 includes the net favorable impact of approximately $700 million relating to the settlement of a federal income tax audit, as well as the favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting.

6 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.

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 $306 million in the second quarter of 2011.

8 Represents a gain on the sale of certain manufacturing facilities and related assets reflected in other (income) expense, net.

 

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

                     
GAAP

% Change

GAAP

% Change

2Q11   2Q10 YTD 2011   YTD 2010
Sales $ 12,151 $ 11,346 7% $ 23,732 $ 22,768 4%
 
Costs, Expenses and Other
Materials and production (1) 4,284 4,549 -6% 8,343 9,764 -15%
Marketing and administrative (1) / (2) 3,525 3,175 11% 6,689 6,397 5%
Research and development (1) / (2) 1,936 2,179 -11% 4,094 4,230 -3%
Restructuring costs (3) 668 526 27% 654 814 -20%
Equity income from affiliates (4) (55 ) (43 ) 28% (193 ) (180 ) 7%
Other (income) expense, net (1) / (5) 121 (281 ) * 744 (113 ) *
 
Income Before Taxes 1,672 1,241 35% 3,401 1,856 83%
Income Tax (Benefit) Provision (382 ) 461 276 746
Net Income 2,054 780 * 3,125 1,110 *
Less: Net Income Attributable to Noncontrolling Interests 30 28 58 59
Net Income Attributable to Merck & Co., Inc. $ 2,024 $ 752 * $ 3,067 $ 1,051 *
Earnings per Common Share Assuming Dilution (6) $ 0.65 $ 0.24 * $ 0.98 $ 0.33 *
               
           
Average Shares Outstanding Assuming Dilution 3,110 3,125 3,106 3,132
Tax Rate (7)   -22.8 %     37.1 %   8.1 %     40.2 %
 
*≥ 100%
(1) Amounts include the impact of acquisition-related costs and restructuring costs. See accompanying tables for details.
 
(2) The second quarter and first six months of 2010 include a reclassification of certain expenses from marketing and administrative to research and development of $28 million and $52 million, respectively.
 
(3) Represents separation and other related costs associated with restructuring activities.
 
(4) Primarily reflects equity income from the AstraZeneca LP, Johnson & JohnsonºMerck Consumer Pharmaceuticals Company, and Sanofi Pasteur MSD partnerships.
 
(5) Other (income) expense, net in the first six months of 2011 includes a charge of $500 million related to the resolution of the arbitration proceeding with Johnson & Johnson and a $127 million gain on the sale of certain manufacturing facilities and related assets. Other (income) expense, net in the second quarter and first six months of 2010 includes $443 million of income recognized upon AstraZeneca's asset option exercise. In addition, other (income) expense, net in the first six months of 2010 reflects $102 million of income on the settlement of certain disputed royalties.
 
(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 $2,020 million and $749 million for the second quarter of 2011 and 2010, respectively, and was $3,059 million and $1,047 million for the first six months of 2011 and 2010, respectively.
 
(7) The GAAP effective tax rates for the second quarter and first six months of 2011 were (22.8)% and 8.1%, respectively, which reflect the net favorable impact of approximately $700 million related to the settlement of the company's 2002-2005 federal income tax audit and the favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting. Excluding these items and the other non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 24.3% and 24.9% for the second quarter and first six months of 2011, respectively. The GAAP effective tax rates for the second quarter and first six months of 2010 were 37.1% and 40.2%, respectively. Excluding the impact of the non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 20.5% and 21.7% for the second quarter and first six months of 2010, respectively.
 
 

MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
SECOND 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 $ 12,151 $ - $ 12,151
 
Materials and production 4,284 1,344 109 1,453 2,831
 
Marketing and administrative 3,525 77 23 100 3,425
 
Research and development 1,936 19 16 35 1,901
 
Restructuring costs 668 668 668 -
 
Equity income from affiliates (55 ) - (55 )
 
Other (income) expense, net 121 7 7 114
 
Income Before Taxes 1,672 (1,440 ) (816 ) (7 ) (2,263 ) 3,935
 
Taxes on Income (382 ) (1,337 )

 (3)

955
 
Net Income 2,054 (926 ) 2,980
 
Less: Net Income Attributable to Noncontrolling Interests 30 - 30
 
Net Income Attributable to Merck & Co., Inc. $ 2,024 $ (926 ) $ 2,950
 
Earnings per Common Share Assuming Dilution $ 0.65 $ 0.95

 (4)

   
   
Average Shares Outstanding Assuming Dilution 3,110 3,110
Tax Rate   -22.8 %   24.3 %
Merck is providing non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.
 
(1) Amounts included in materials and production costs reflect expenses of $1.2 billion for the amortization of intangible assets and the amortization of purchase accounting adjustments to inventories recognized as a result of the merger, 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.
 
(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 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 $230 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 $2,942 million for the second quarter of 2011.
 
 
MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

SIX MONTHS ENDED JUNE 30, 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 $ 23,732 $ - $ 23,732
 
Materials and production 8,343 2,641 181 2,822 5,521
 
Marketing and administrative 6,689 135 46 181 6,508
 
Research and development 4,094 321 61 382 3,712
 
Restructuring costs 654 654 654 -
 
Equity income from affiliates (193 ) - (193 )
 
Other (income) expense, net 744 373 373 371
 
Income Before Taxes 3,401 (3,097 ) (942 ) (373 ) (4,412 ) 7,813
 
Taxes on Income 276 (1,668 )

 (4)

1,944
 
Net Income 3,125 (2,744 ) 5,869
 
Less: Net Income Attributable to Noncontrolling Interests 58 - 58
 
Net Income Attributable to Merck & Co., Inc. $ 3,067 $ (2,744 ) $ 5,811
 
Earnings per Common Share Assuming Dilution $ 0.98 $ 1.87

 (5)

   
   
Average Shares Outstanding Assuming Dilution 3,106 3,106
Tax Rate   8.1 %   24.9 %
Merck is providing non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.
 
(1) Amounts included in materials and production costs reflect expenses of $2.5 billion for the amortization of intangible assets and the amortization of purchase accounting adjustments to inventories recognized as a result of the merger, 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.
 
(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 and 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 $230 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 $5,795 million for the first six months of 2011.
 
 
MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

(AMOUNTS IN MILLIONS)

Table 3

                   
2011 2010 % Change   % Change
   

Jun

         
1Q 2Q

YTD

1Q 2Q Jun YTD 3Q 4Q Full Year 2Q Jun YTD
 
TOTAL SALES (1) $11,580 $12,151 $23,732 $11,422 $11,346 $22,768 $11,125 $12,094 $45,987 7 4
PHARMACEUTICAL (2) 9,820 10,360 20,179 9,665 9,638 19,303 9,523 10,441 39,267 7 5
 
Cardiovascular
Zetia 582 592 1,174 534 564 1,098 571 629 2,297 5 7
Vytorin 480 459 939 477 490 967 485 562 2,014 -6 -3
Integrilin 64 56 120 70 70 140 63 63 266 -20 -14
 
Diabetes & Obesity
Januvia 739 779 1,518 511 600 1,111 600 675 2,385 30 37
Janumet 305 321 626 201 218 419 247 288 954 47 50
 
Diversified Brands
Cozaar / Hyzaar 426 406 832 782 485 1,267 423 415 2,104 -16 -34
Zocor 127 107 234 116 117 233 114 121 468 -9 --
Propecia 106 112 218 100 113 213 109 124 447 -1 3
Claritin Rx 120 65 186 98 58 157 53 86 296 12 19
Remeron 60 57 117 51 59 110 50 62 223 -4 6
Vasotec / Vaseretic 57 59 116 59 63 122 69 64 255 -6 -5
Proscar 60 53 113 58 56 114 58 44 216 -5 -1
 
Infectious Disease
Isentress 292 337 629 232 267 499 278 313 1,090 26 26
Cancidas 158 168 326 153 150 303 135 174 611 12 8
PegIntron 166 154 319 186 185 371 168 198 737 -17 -14
Primaxin 136 136 272 159 158 317 135 158 610 -13 -14
Invanz 87 103 189 75 83 158 91 113 362 24 20
Avelox 106 61 167 106 59 165 59 92 316 3 1
Noxafil 55 56 110 49 50 99 52 48 198 12 12
Rebetol 53 48 100 56 55 111 55 54 221 -13 -10
Crixivan / Stocrin 45 50 95 52 48 100 49 58 206 4 -5
 
Neurosciences & Ophthalmology
Maxalt 173 131 304 135 133 268 133 149 550 -1 14
Cosopt / Trusopt 114 122 236 115 123 238 114 131 484 -1 -1
 
Oncology
Temodar 248 234 481 274 271 545 254 266 1,065 -14 -12
Emend 87 120 207 84 93 177 91 110 378 29 17
Intron A 49 47 96 54 51 105 50 54 209 -7 -9
 
Respiratory & Immunology
Singulair 1,328 1,354 2,682 1,165 1,258 2,423 1,215 1,349 4,987 8 11
Remicade 753 842 1,595 674 669 1,343 661 710 2,714 26 19
Nasonex 373 323 696 320 338 658 259 303 1,219 -4 6
Clarinex 155 209 364 164 191 355 131 138 623 9 3
Arcoxia 114 100 214 95 95 190 94 115 398 5 12
Simponi 54 75 129 10 18 28 27 42 97 * *
Asmanex 60 47 107 51 56 107 48 53 208 -16 -1
Proventil 42 37 80 57 55 112 43 55 210 -32 -29
Dulera 13 25 37 0 0 0 2 6 8 * *
 
Vaccines
ProQuad, M-M-R II and Varivax 244 291 535 319 340 659 434 285 1,378 -14 -19
Gardasil 214 277 490 233 219 451 316 221 988 27 9
RotaTeq 125 148 272 93 139 231 119 169 519 7 18
Zostavax 24 122 146 95 18 114 23 107 243 * 28
Pneumovax 79 64 143 51 59 110 110 156 376 8 29
 
Women's Health & Endocrine
Fosamax 208 221 429 230 241 472 220 234 926 -9 -9
NuvaRing 142 154 297 135 145 280 134 145 559 6 6
Follistim AQ 133 143 276 134 137 270 119 138 528 4 2
Implanon 60 81 141 51 51 101 64 71 236 60 39
Cerazette 59 66 125 55 49 104 56 49 209 34 20
 
Other Pharmaceutical (3) 745 948 1,697 946 941 1,888 942 1,044 3,879 1 -10
 
ANIMAL HEALTH 758 802 1,560 709 731 1,440 687 815 2,941 10 8
 
CONSUMER CARE (2) 517 541 1,058 489 544 1,032 409 381 1,823 -1 2
Claritin OTC 167 134 301 136 167 303 120 103 526 -19 -1
 
Other Revenues (4) 486 448 935 559 433 993 506 457 1,956 3 -6
Astra 322 306 628 364 241 605 345 302 1,252 27 4
* 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 vaccines sales included in Other Pharmaceutical were $54 million and $67 million for the first and second quarters of 2011, respectively. 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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Merck & Co., Inc.
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David Caouette, 908-423-3461
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