EX-99.1 2 tm206551d1_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

News Release
   

FOR IMMEDIATE RELEASE

 

Media Contacts: Jennifer Mauer Investor Contacts: Peter Dannenbaum
  (908) 740-1801   (908) 740-1037
       
  Pamela Eisele   Michael DeCarbo
  (267) 305-3558     (908) 740-1807

 

Merck Announces Fourth-Quarter and Full-Year 2019 Financial Results

 

·Fourth-Quarter 2019 Worldwide Sales Were $11.9 Billion, an Increase of 8%; Excluding the Impact from Foreign Exchange, Sales Grew 9%

 

·Fourth-Quarter 2019 GAAP EPS Was $0.92; Fourth-Quarter Non-GAAP EPS Was $1.16

 

·Full-Year 2019 Worldwide Sales Were $46.8 Billion, an Increase of 11%; Excluding the Impact from Foreign Exchange, Sales Grew 13%

 

oKEYTRUDA 2019 Worldwide Sales Grew 55% to $11.1 Billion; Excluding the Impact from Foreign Exchange, Sales Grew 58%

 

oHuman Health Vaccines 2019 Worldwide Sales Grew 15% to $8.4 Billion; Excluding the Impact from Foreign Exchange, Sales Grew 17%

 

oBRIDION 2019 Worldwide Sales Grew 23% to $1.1 Billion; Excluding the Impact from Foreign Exchange, Sales Grew 26%

 

oAnimal Health 2019 Worldwide Sales Grew 4% to $4.4 Billion; Excluding the Impact from Foreign Exchange, Sales Grew 9%

 

·Full-Year 2019 GAAP EPS Was $3.81; Full-Year Non-GAAP EPS Was $5.19

 

·2020 Financial Outlook

 

oAnticipates Full-Year 2020 Worldwide Sales to Be Between $48.8 Billion and $50.3 Billion, Including a Negative Impact from Foreign Exchange of Less Than 1%

 

oExpects Full-Year 2020 GAAP EPS to Be Between $4.57 and $4.72; Expects Non-GAAP EPS to Be Between $5.62 and $5.77, Including a Negative Impact from Foreign Exchange of Approximately 1.5%

 

·In Conjunction with Fourth-Quarter Results, Merck Announces its Intention to Focus on Key Growth Pillars Through Spinoff of Women’s Health, Trusted Legacy Brands and Biosimilar Products into NewCo

 

KENILWORTH, N.J., Feb. 5, 2020 – Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the fourth quarter and full year of 2019.

 

“As evidenced by our results and our 2020 guidance, Merck had an extraordinary year and is in a position of operational and financial strength,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “It is this position of strength, born of our focused execution, that gives us the confidence to spin off our Women’s Health, trusted Legacy Brands and Biosimilar products into a new company, which will position us to deliver even greater value to patients and shareholders.”

 

 

 

 

Financial Summary

 

   Fourth Quarter   Year Ended 
$ in millions, except EPS amounts  2019   2018   Change   Change
Ex-Exchange
   Dec. 31,
2019
   Dec. 31,
2018
   Change   Change
Ex-Exchange
 
Sales  $11,868   $10,998    8%   9%  $46,840   $42,294    11%   13%
GAAP net income1   2,357    1,827    29%   29%   9,843    6,220    58%   61%
Non-GAAP net income that excludes certain items1,2*   2,978    2,745    8%   8%   13,382    11,621    15%   16%
GAAP EPS   0.92    0.69    33%   32%   3.81    2.32    64%   67%
Non-GAAP EPS that excludes certain items2*   1.16    1.04    12%   12%   5.19    4.34    20%   21%

 

*Refer to table on page 10.

 

GAAP (generally accepted accounting principles) earnings per share assuming dilution (EPS) was $0.92 for the fourth quarter and $3.81 for the full year of 2019. GAAP EPS for the full year of 2019 reflects a $993 million charge for the acquisition of Peloton Therapeutics, Inc. (Peloton) and a $612 million pretax intangible asset impairment charge related to SIVEXTRO (tedizolid phosphate). Non-GAAP EPS of $1.16 for the fourth quarter and $5.19 for the full year of 2019 excludes acquisition- and divestiture-related costs, restructuring costs and certain other items. Non-GAAP EPS for the full year of 2019 also excludes the charge for the acquisition of Peloton and the SIVEXTRO impairment charge.

 

Oncology Pipeline Highlights

 

Merck continued to advance the development programs for KEYTRUDA (pembrolizumab), the company’s anti-PD-1 therapy; Lynparza (olaparib), a PARP inhibitor being co-developed and co-commercialized with AstraZeneca; and Lenvima (lenvatinib mesylate), an orally available tyrosine kinase inhibitor being co-developed and co-commercialized with Eisai Co., Ltd. (Eisai).

 

·Merck announced the following regulatory milestones for KEYTRUDA:
 oApproval in the United States by the Food and Drug Administration (FDA) as monotherapy for the treatment of certain patients with high-risk, non-muscle invasive bladder cancer (NMIBC) based on the KEYNOTE-057 trial;
 oApproval in Japan for three new first-line indications across advanced renal cell carcinoma (RCC) based on the KEYNOTE-426 trial and recurrent or distant metastatic head and neck cancer based on the KEYNOTE-048 trial;
 oApproval in China for first-line treatment of metastatic squamous non-small cell lung cancer (NSCLC) in combination with chemotherapy based on the KEYNOTE-407 trial; and

 

 

 

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

2 Merck is providing certain 2019 and 2018 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 results and permits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the company along with other metrics. Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS. This information should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP. For a description of the items, see Tables 2a and 2b attached to this release.

 

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 oApproval in Europe for two new regimens of KEYTRUDA, as monotherapy or in combination with chemotherapy, for the first-line treatment of metastatic or unresectable recurrent head and neck squamous cell carcinoma (HNSCC) in adults whose tumors express PD-L1 with a Combined Positive Score (CPS) >1 based on the KEYNOTE-048 trial.
·Merck presented results from an exploratory analysis of the pivotal Phase 3 KEYNOTE-042 trial that showed KEYTRUDA improved overall survival as monotherapy for the first-line treatment of metastatic NSCLC regardless of KRAS mutational status.
·Merck announced that the Phase 3 KEYNOTE-604 trial investigating KEYTRUDA in combination with chemotherapy significantly improved progression-free survival (PFS) compared to chemotherapy alone in the first-line treatment of patients with extensive-stage small cell lung cancer (ES-SCLC) but did not meet the other dual primary endpoint of overall survival.
·Merck and AstraZeneca announced the following regulatory milestones for Lynparza:
oApproval in the United States by the FDA as first-line maintenance treatment of germline BRCA-mutated (BRCAm) metastatic pancreatic cancer in patients whose disease had not progressed on at least 16 weeks of a first-line platinum-based chemotherapy regimen based on the Phase 3 POLO trial;
oApproval in China as a first-line maintenance therapy in BRCAm advanced ovarian cancer following response to platinum-based chemotherapy based on the Phase 3 SOLO-1 trial;
oFiling acceptance for priority review by the FDA for a supplemental New Drug Application (sNDA) seeking approval of Lynparza in combination with bevacizumab for the maintenance treatment of women with advanced ovarian cancer whose disease showed a complete or partial response to first-line treatment with platinum-based chemotherapy and bevacizumab based on results from the Phase 3 PAOLA-1 trial. A Prescription Drug User Fee Act (PDUFA) date is set for the second quarter of 2020; and
oFiling acceptance for priority review by the FDA for a sNDA for the treatment of patients with metastatic castration-resistant prostate cancer (mCRPC) and deleterious or suspected deleterious germline or somatic homologous recombination repair (HRR) gene mutations, who have progressed following prior treatment with a new hormonal agent based on results from the Phase 3 PROfound trial. A PDUFA date is set for the second quarter of 2020.
·Merck and AstraZeneca announced filing acceptance for priority review by the FDA of a New Drug Application (NDA) for selumetinib, an oral MEK 1/2 inhibitor, for the treatment of certain pediatric patients with neurofibromatosis Type 1 (NF1) based on the results from the National Cancer Institute (NCI) Cancer Therapy Evaluation Program (CTEP)-sponsored SPRINT Phase 2 Stratum 1 trial. A PDUFA date is set for the second quarter of 2020.

 

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Other Pipeline Highlights

 

·Merck announced conditional approval in Europe as well as U.S. approval for ERVEBO (Ebola Zaire Vaccine, Live) for the prevention of disease caused by Zaire ebolavirus in individuals 18 years of age and older.
·Merck announced FDA approval of DIFICID (fidaxomicin) tablets and oral suspension for the treatment of Clostridioides difficile-associated diarrhea (CDAD) in children aged six months and older.
·Merck announced the adoption of a positive opinion by the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) for RECARBRIO (imipenem, cilastatin, and relebactam) for the treatment of infections due to aerobic gram-negative organisms in adults with limited treatment options.
·Merck announced filing acceptance for priority review by the FDA for a sNDA seeking approval of RECARBRIO to treat adult patients with hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (HABP/VABP) caused by certain susceptible Gram-negative microorganisms. The PDUFA date is June 4, 2020.
·Merck announced that the Phase 3 VICTORIA study evaluating vericiguat, a soluble guanylate cyclase (sGC) stimulator being jointly developed with Bayer AG, met its primary composite endpoint in reducing the risk of heart failure hospitalization or cardiovascular death in patients with worsening chronic heart failure with reduced ejection fraction (HFrEF) compared to placebo when given in combination with available heart failure therapies.

 

Business Development

 

·Merck acquired ArQule, Inc., diversifying its oncology portfolio with the expansion into targeted therapies that treat hematological malignancies with the addition of ARQ 531, a novel, oral Bruton’s tyrosine kinase (BTK) inhibitor currently in a Phase 2 development, among other candidates. The acquisition closed in January 2020.
·Merck entered into a strategic oncology collaboration with Taiho Pharmaceutical Co., Ltd., and Astex Pharmaceuticals focused on the development of small molecule inhibitors against several drug targets, including the KRAS oncogene, which are currently being investigated for the treatment of cancer.
·Merck Animal Health acquired Vaki, a leader in fish farming monitoring equipment and real-time video monitoring technology to advance fish health and welfare. The acquisition closed in December.

 

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Fourth-Quarter and Full-Year Revenue Performance

 

The following table reflects sales of the company’s top pharmaceutical products, as well as sales of animal health products.

 

   Fourth Quarter   Year Ended 
$ in millions  2019   2018   Change   Change
Ex-Exchange
  

Dec. 31,

2019

  

Dec. 31,

2018

   Change   Change
Ex-Exchange
 
Total Sales  $11,868   $10,998         8%   9%  $46,840   $42,294        11%                  13%
Pharmaceutical   10,533    9,830    7%   8%   41,751    37,689    11%   14%
KEYTRUDA   3,111    2,151    45%   46%   11,084    7,171    55%   58%
JANUVIA / JANUMET   1,418    1,465    -3%   -2%   5,524    5,914    -7%   -4%
GARDASIL / GARDASIL 9   693    835    -17%   -16%   3,737    3,151    19%   21%
PROQUAD, M-M-R II and VARIVAX   481    455    6%   7%   2,275    1,798    27%   28%
PNEUMOVAX 23   334    322    4%   4%   926    907    2%   3%
BRIDION   313    256    22%   24%   1,131    917    23%   26%
ROTATEQ   227    188    21%   21%   791    728    9%   10%
ISENTRESS / ISENTRESS HD   223    280    -20%   -18%   975    1,140    -15%   -10%
IMPLANON / NEXPLANON   206    169    22%   23%   787    703    12%   14%
SIMPONI   205    220    -7%   -3%   830    893    -7%   -2%
Animal Health   1,122    1,036    8%   10%   4,393    4,212    4%   9%
Livestock   777    684    14%   16%   2,784    2,630    6%   11%
Companion Animals   345    352    -2%   0%   1,609    1,582    2%   5%
Other Revenues   213    132    61%   30%   696    393    77%   -26%

 

Pharmaceutical Revenue

 

Fourth-quarter pharmaceutical sales increased 7% to $10.5 billion, excluding the unfavorable effect from foreign exchange, sales grew 8%. The increase was driven primarily by growth in oncology, partially offset by the ongoing impacts of the loss of market exclusivity for several products. Additionally, fourth quarter 2019 sales were reduced by $120 million due to a previously disclosed borrowing of doses of GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant) from the U.S. Centers for Disease Control and Prevention’s (CDC) Pediatric Vaccine Stockpile. Sales in the fourth quarter of 2018 were increased by $125 million due to the replenishment of previously borrowed doses of GARDASIL 9.

 

Growth in oncology was largely driven by sales of KEYTRUDA, which were $3.1 billion for the quarter, reflecting strong momentum from the NSCLC indications as well as continued uptake in other indications, including the recently launched RCC and adjuvant melanoma indications. Additionally, oncology sales reflect alliance revenue of $132 million related to Lynparza and $124 million related to Lenvima, representing Merck’s share of profits, which are product sales net of cost of sales and commercialization costs.

 

Performance in vaccines for the fourth quarter reflects the negative impact of borrowing doses of GARDASIL 9 from the CDC Pediatric Vaccine Stockpile as discussed above, partially offset by higher demand in Europe and China, as well as higher demand and pricing in the United States. Excluding the borrowing-related activity in both periods, GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant] and GARDASIL 9 sales grew 15% in the quarter, including a 1% negative impact from foreign exchange.

 

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Performance in hospital acute care reflects higher demand globally, particularly in the United States, for BRIDION (sugammadex) Injection 100 mg/mL, a medicine for the reversal of neuromuscular blockade induced by rocuronium bromide or vecuronium bromide in adults undergoing surgery; and the ongoing launch of PREVYMIS (letermovir), a medicine for prophylaxis (prevention) of cytomegalovirus (CMV) infection and disease in adult CMV-seropositive recipients of an allogeneic hematopoietic stem cell transplant.

 

Pharmaceutical sales growth for the quarter was partially offset by the ongoing impacts from the loss of market exclusivity, including for NOXAFIL (posaconazole), EMEND (aprepitant), ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), CUBICIN (daptomycin) and REMICADE (infliximab). A generic entrant of NUVARING (etonogestrel/ethinyl estradiol vaginal ring) in the U.S. also negatively affected sales for the quarter and will continue to negatively affect sales in the future. In addition, the decline in sales of JANUVIA (sitagliptin) and JANUMET (sitagliptin and metformin HCI) reflects continued pricing pressure in the United States, which more than offset higher demand globally.

 

Full-year 2019 pharmaceutical sales increased 11% to $41.8 billion; excluding the unfavorable effect from foreign exchange, sales grew 14%, primarily reflecting growth in oncology and vaccines, partially offset by the ongoing effects from the loss of market exclusivity for several products and continued pricing pressure in diabetes.

 

Animal Health Revenue

 

Animal Health sales totaled $1.1 billion for the fourth quarter of 2019, an increase of 8% compared with the fourth quarter of 2018; excluding the unfavorable effect from foreign exchange, Animal Health sales grew 10%. Growth for the quarter was mainly driven by livestock products due to the Antelliq acquisition.

 

Worldwide sales for the full year of 2019 were $4.4 billion, an increase of 4%; excluding the unfavorable effect from foreign exchange, sales grew 9%. Full-year sales growth was mainly driven by livestock products due to the Antelliq acquisition, along with higher sales of companion animal products, primarily the BRAVECTO (fluralaner) line of products for parasitic control.

 

Animal Health segment profits were $366 million in the fourth quarter of 2019, a decrease of 5% compared with $387 million in the fourth quarter of 2018, primarily driven by unfavorable product mix and higher investments in selling and product development, partially offset by higher sales. Segment profits were $1.6 billion for the full year of 2019, a decrease of 3% compared with $1.7 billion in 2018, primarily driven by the unfavorable effects of foreign exchange.3

 

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Fourth-Quarter and Full-Year Expense, EPS and Related Information

The tables below present selected expense information.

 

$ in millions   GAAP     Acquisition- and
Divestiture-
Related Costs4
    Restructuring
Costs
     Certain Other
Items
    Non-GAAP2  
Fourth-Quarter 2019                              
Cost of sales   $ 3,669     $             325     $            90     $             -     $ 3,254  
Selling, general and administrative     2,888       44       1       -       2,843  
Research and development     2,548       166       -       11       2,371  
Restructuring costs     194       -       194       -       -  
Other (income) expense, net     (223 )     (37 )     -       7       (193 )
                                         
Fourth-Quarter 2018                                        
Cost of sales   $ 3,289     $ 525     $ 10     $ 3     $ 2,751  
Selling, general and administrative     2,643       6       1       -       2,636  
Research and development     2,214       91       1       -       2,122  
Restructuring costs     138       -       138       -       -  
Other (income) expense, net     110       179             (3 )     (66 )

 

$ in millions    GAAP   Acquisition- and
Divestiture-
Related Costs4
   Restructuring
Costs
   Certain Other
Items
     Non-GAAP2 
Year Ended Dec. 31, 2019                    
Cost of sales  $14,112   $           2,126   $             251   $               -   $11,735 
Selling, general and administrative   10,615    126    34    -    10,455 
Research and development   9,872    145    4    993    8,730 
Restructuring costs   638    -    638    -    - 
Other (income) expense, net   139    284    -    55    (200)
                          
Year Ended Dec. 31, 2018                         
Cost of sales  $13,509   $2,672   $21   $423   $10,393 
Selling, general and administrative   10,102    32    3    -    10,067 
Research and development   9,752    98    2    1,744    7,908 
Restructuring costs   632    -    632    -    - 
Other (income) expense, net   (402)   264    -    (57)   (609)

 

GAAP Expense, EPS and Related Information

 

Gross margin was 69.1% for the fourth quarter of 2019 compared to 70.1% for the fourth quarter of 2018. The decrease reflects unfavorable manufacturing variances, inventory write-offs, higher amortization of intangible assets related to collaborations, the unfavorable effects of pricing pressure and restructuring costs, partially offset by favorable product mix and lower acquisition- and divestiture-related costs.

 

 

 

3 Animal Health segment profits are comprised of segment sales, less all cost of sales, as well as selling, general and administrative expenses and research and development costs directly incurred by the segment. For internal management reporting, Merck does not allocate general and administrative expenses not directly incurred by the segment, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits.

4 Includes expenses for the amortization of intangible assets and purchase accounting adjustments to inventories recognized as a result of acquisitions, intangible asset impairment charges, and expense or income related to changes in the estimated fair value measurement of liabilities for contingent consideration. Also includes integration, transaction and certain other costs related to business acquisitions and divestitures.

 

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Gross margin was 69.9% for the full year of 2019 compared to 68.1% for the full year of 2018. The increase in gross margin for the full year of 2019 reflects a charge in 2018 related to the termination of a collaboration agreement with Samsung Bioepis Co., Ltd., favorable product mix and lower acquisition- and divestiture-related costs, partially offset by unfavorable manufacturing variances, inventory write-offs, the unfavorable effects of pricing pressure, higher amortization of intangible assets related to collaborations and higher restructuring costs.

 

Selling, general and administrative expenses were $2.9 billion in the fourth quarter of 2019, an increase of 9% compared to the fourth quarter of 2018. Full-year 2019 selling, general and administrative expenses were $10.6 billion, an increase of 5% compared to the full year of 2018. The increase in both periods reflects higher administrative costs, acquisition- and divestiture-related costs, and promotion costs primarily in support of strategic brands, partially offset by the favorable effects of foreign exchange.

 

Research and development (R&D) expenses were $2.5 billion in the fourth quarter of 2019, an increase of 15% compared with the fourth quarter of 2018. R&D expenses were $9.9 billion for the full year of 2019, a 1% increase compared to the full year of 2018. The increase in both periods primarily reflects higher expenses related to clinical development and increased investment in discovery research and early drug development. In addition, the increase for the full year of 2019 was driven by a $993 million charge for the acquisition of Peloton. The increase in R&D expenses for the full year of 2019 was partially offset by charges in 2018 including $1.4 billion related to the formation of an oncology collaboration with Eisai and $344 million related to the Viralytics Limited acquisition.

 

Other (income) expense, net, was $223 million of income in the fourth quarter of 2019 compared to $110 million of expense in the fourth quarter of 2018 primarily reflecting income from investments in equity securities in 2019 compared with losses in 2018. In addition, the fourth quarter of 2018 included goodwill impairment charges. Other (income) expense, net, was $139 million of expense for the full year of 2019 compared to $402 million of income for the full year of 2018 driven by lower income from investments in equity securities and higher net interest expense.

 

The effective income tax rates were 15.3% for the fourth quarter and 14.7% for full year of 2019. The effective income tax rate for the full year of 2019 reflects a net tax benefit of $364 million related to the settlement of certain federal income tax matters, partially offset by the unfavorable impact of the charge for the acquisition of Peloton for which no tax benefit was recognized.

 

GAAP EPS was $0.92 for the fourth quarter of 2019 compared with $0.69 for the fourth quarter of 2018. GAAP EPS was $3.81 for the full year of 2019 compared with $2.32 for the full year of 2018.

 

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Non-GAAP Expense, EPS and Related Information

 

Non-GAAP gross margin was 72.6% for the fourth quarter of 2019 compared to 75.0% for the fourth quarter of 2018. Non-GAAP gross margin was 74.9% for the full year of 2019 compared to 75.4% for the full year of 2018. The decrease in both periods reflects unfavorable manufacturing variances, inventory write-offs, the unfavorable effects of pricing pressure and higher amortization of intangible assets related to collaborations, partially offset by favorable product mix.

 

Non-GAAP selling, general and administrative expenses were $2.8 billion in the fourth quarter of 2019, an increase of 8% compared to the fourth quarter of 2018. Full-year 2019 non-GAAP selling, general and administrative expenses were $10.5 billion, an increase of 4% compared to the full year of 2018. The increase in both periods primarily reflects higher administrative costs and higher promotion costs primarily in support of strategic brands, partially offset by the favorable effects of foreign exchange.

 

Non-GAAP R&D expenses were $2.4 billion in the fourth quarter of 2019, a 12% increase compared to the fourth quarter of 2018. Non-GAAP R&D expenses were $8.7 billion for the full year of 2019, a 10% increase compared to the full year of 2018. The increases in both periods primarily reflect higher expenses related to clinical development and increased investment in discovery research and early drug development.

 

Non-GAAP other (income) expense, net, was $193 million of income in the fourth quarter of 2019 compared to $66 million of income in the fourth quarter of 2018, primarily reflecting income from investments in equity securities in 2019 compared with losses in 2018, partially offset by higher net interest expense. Non-GAAP other (income) expense, net, for the full year of 2019 was $200 million of income compared to $609 million of income for the full year of 2018, primarily driven by lower income from investments in equity securities and higher net interest expense.

 

The non-GAAP effective income tax rates were 16.9% for the fourth quarter of 2019 and 16.8% for the full year of 2019.

 

Non-GAAP EPS was $1.16 for the fourth quarter of 2019 compared with $1.04 for the fourth quarter of 2018. Non-GAAP EPS was $5.19 for the full year of 2019 compared with $4.34 for the full year of 2018.

 

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

 

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   Fourth Quarter   Year Ended 
$ in millions, except EPS amounts  2019   2018   Dec. 31, 2019   Dec. 31, 2018 
EPS                
GAAP EPS  $     0.92   $       0.69   $          3.81   $             2.32 
Difference5   0.24    0.35    1.38    2.02 
Non-GAAP EPS that excludes items listed below2  $1.16   $1.04   $5.19   $4.34 
                     
Net Income                    
GAAP net income1  $2,357   $1,827   $9,843   $6,220 
Difference   621    918    3,539    5,401 
Non-GAAP net income that excludes items listed below1,2  $2,978   $2,745   $13,382   $11,621 
                     
Decrease (Increase) in Net Income Due to Excluded Items:                    
Acquisition- and divestiture-related costs4  $498   $801   $2,681   $3,066 
Restructuring costs   285    150    927    658 
Charge for the acquisition of Peloton   11    -    993    - 
Charge related to termination of a collaboration agreement with Samsung   -    3    -    423 
Charge related to formation of a collaboration with Eisai   -    -    -    1,400 
Charge for the acquisition of Viralytics   -    -    -    344 
Other   7    (3)   55    (57)
Net decrease (increase) in income before taxes   801    951    4,656    5,834 
Income tax (benefit) expense6   (180)   25    (1,028)   (375)
Acquisition- and divestiture-related costs attributable to non-controlling interests   -    (58)   (89)   (58)
Decrease (increase) in net income  $621   $918   $3,539   $5,401 

 

Financial Outlook

 

At mid-January 2020 exchange rates, Merck anticipates full-year 2020 revenue to be between $48.8 billion and $50.3 billion, including a negative impact from foreign exchange of less than 1%.

 

Merck expects full-year 2020 GAAP EPS to be between $4.57 and $4.72. Merck expects full-year 2020 non-GAAP EPS to be between $5.62 and $5.77, including an approximately 1.5% negative impact from foreign exchange. The non-GAAP range excludes acquisition- and divestiture-related costs and costs related to restructuring programs.

 

The following table summarizes the company’s full-year 2020 financial guidance.

 

    GAAP    Non-GAAP2 
Revenue   $48.8 to $50.3 billion    $48.8 to $50.3 billion* 
Operating expenses   Slightly lower than 2019     Higher than 2019 by a low-single-digit rate 
Effective tax rate   17% to 18%    17.5% to 18.5% 
EPS**   $4.57 to $4.72    $5.62 to $5.77 

*The company does not have any non-GAAP adjustments to revenue.

**EPS guidance for 2020 assumes a share count (assuming dilution) of approximately 2.54 billion shares.

 

 

 

5 Represents the difference between calculated GAAP EPS and calculated non-GAAP EPS, which may be different than the amount calculated by dividing the impact of the excluded items by the weighted-average shares for the period.

6 Includes the estimated tax impact on the reconciling items. Amounts for full-year 2019 include a $364 million net tax benefit related to the settlement of certain federal income tax matters, an $86 million tax benefit related to the reversal of tax reserves established in conjunction with the divestiture of Merck’s Consumer Care business in 2014 as a result of the lapse in the statute of limitations, and a $117 million tax charge related to the finalization of treasury regulations associated with the 2017 enactment of U.S. tax legislation. Amounts for fourth-quarter and full-year 2018 include adjustments to the provisional amounts recorded in 2017 related to the enactment of the U.S. tax legislation.

 

Page 10

 

 

A reconciliation of anticipated 2020 GAAP EPS to non-GAAP EPS and the items excluded from non-GAAP EPS are provided in the table below.

 

$ in millions, except EPS amounts  Full-Year 2020 
GAAP EPS   $4.57 to $4.72 
Difference5   1.05 
Non-GAAP EPS that excludes items listed below2   $5.62 to $5.77 
      
Acquisition- and divestiture-related costs  $2,500 
Restructuring costs   800 
Net decrease (increase) in income before taxes   3,300 
Estimated income tax (benefit) expense   (640)
Decrease (increase) in net income  $2,660 

 

Earnings Conference Call

 

Investors, journalists and the general public may access a live audio webcast of the call today at 8:00 a.m. EST on Merck’s website at https://investors.merck.com/events-and-presentations/default.aspx. Institutional investors and analysts can participate in the call by dialing (706) 758-9927 or (877) 381-5782 and using ID code number 8583879. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 8583879. Journalists who wish to ask questions are requested to contact a member of Merck’s Media Relations team at the conclusion of the call.

 

About Merck

 

For more than 125 years, Merck, known as MSD outside of the United States and Canada, has been inventing for life, bringing forward medicines and vaccines for many of the world’s most challenging diseases in pursuit of our mission to save and improve lives. We demonstrate our commitment to patients and population health by increasing access to health care through far-reaching policies, programs and partnerships. Today, Merck continues to be at the forefront of research to prevent and treat diseases that threaten people and animals – including cancer, infectious diseases such as HIV and Ebola, and emerging animal diseases – as we aspire to be the premier research-intensive biopharmaceutical company in the world. For more information, visit www.merck.com and connect with us on Twitter, Facebook, Instagram, YouTube and LinkedIn.

 

Page 11

 

 

Forward-Looking Statement of Merck & Co., Inc., Kenilworth, N.J., USA

 

This news release of Merck & Co., Inc., Kenilworth, N.J., USA (the “company”) includes “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include statements with respect to the company’s plans to spin-off certain of its businesses into an independent company, the timing and structure of such spin-off, the characteristics of the business to be separated, the expected benefits of the spin-off to the company and the expected effect on the company’s dividends. These statements are based upon the current beliefs and expectations of the company’s management and are subject to significant risks and uncertainties. There can be no guarantees with respect to whether the proposed spin-off will be completed on the proposed timetable or at all. If underlying assumptions prove inaccurate or risks or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements.

 

Risks and uncertainties include but are not limited to, uncertainties as to the timing of the proposed spin-off; uncertainties as to the status of any required regulatory approvals; the possibility that various conditions to the consummation of the spin-off may not be satisfied; the effects of disruption from the transactions contemplated in connection with the spin-off; general industry conditions and competition; general economic factors, including interest rate and currency exchange rate fluctuations; the impact of pharmaceutical industry regulation and health care legislation in the United States and internationally; global trends toward health care cost containment; technological advances, new products and patents attained by competitors; challenges inherent in new product development, including obtaining regulatory approval; the company’s ability to accurately predict future market conditions; manufacturing difficulties or delays; financial instability of international economies and sovereign risk; dependence on the effectiveness of the company’s patents and other protections for innovative products; and the exposure to litigation, including patent litigation, and/or regulatory actions.

 

The company 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 the company’s 2018 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).

# # #

 

Page 12

 

 

 

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF INCOME - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1

 

   GAAP      GAAP    
   4Q19   4Q18   % Change   Full Year
2019
   Full Year
2018
   % Change 
Sales  $11,868   $10,998    8%  $46,840   $42,294    11%
                               
Costs, Expenses and Other                              
Cost of sales (1)   3,669    3,289    12%   14,112    13,509    4%
Selling, general and administrative (1)    2,888    2,643    9%   10,615    10,102    5%
Research and development (1)(2)   2,548    2,214    15%   9,872    9,752    1%
Restructuring costs (3)    194    138    41%   638    632    1%
Other (income) expense, net (1)   (223)   110    *    139    (402)   * 
Income Before Taxes   2,792    2,604    7%   11,464    8,701    32%
Taxes on Income (1)   428    826         1,687    2,508      
Net Income   2,364    1,778    33%   9,777    6,193    58%
Less: Net Income (Loss) Attributable to Noncontrolling Interests (1)   7    (49)        (66)   (27)     
Net Income Attributable to Merck & Co., Inc.  $2,357   $1,827    29%  $9,843   $6,220    58%
Earnings per Common Share Assuming Dilution  $0.92   $0.69    33%  $3.81   $2.32    64%
                               
Average Shares Outstanding Assuming Dilution   2,559    2,634         2,580    2,679      
Tax Rate (4)   15.3%   31.7%        14.7%   28.8%     

 

* 100% or greater

 

(1) Amounts include the impact of acquisition and divestiture-related costs, restructuring costs and certain other items. See accompanying tables for details.

 

(2) Research and development expenses for the full year of 2019 include a $993 million charge for the acquisition of Peloton Therapeutics (Peloton). Research and development expenses for the full year of 2018 include a $1.4 billion charge related to the formation of a collaboration with Eisai Co., Ltd. (Eisai), as well as a $344 million charge for the acquisition of Viralytics Limited. 

 

(3) Represents separation and other related costs associated with restructuring activities under the company's formal restructuring programs. 

 

(4) The effective income tax rates for the fourth quarter and the full year of 2019 include the unfavorable impact of a charge for the acquisition of Peloton for which no tax benefit was recognized and the favorable impact of product mix. The effective income tax rate for the full year of 2019 also reflects a net tax benefit of $364 million related to the settlement of certain federal income tax matters.

 

The effective income tax rates for the fourth quarter and full year of 2018 include the unfavorable impact of adjustments to the provisional amounts recorded in the prior year associated with the enactment of U.S. tax legislation, including $124 million related to the transition tax.  The effective income tax rate for the full year of 2018 also includes the unfavorable impacts of a charge related to the formation of a collaboration with Eisai and a charge related to the termination of a collaboration agreement with Samsung for which no tax benefits were recognized.  

 

 

 

 

MERCK & CO., INC.

GAAP TO NON-GAAP RECONCILIATION

FOURTH QUARTER 2019

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2a

 

   GAAP   Acquisition and
Divestiture-Related
Costs (1)
   Restructuring
Costs (2)
   Certain Other
Items
   Adjustment
Subtotal
   Non-GAAP 
Cost of sales  $3,669    325    90         415   $3,254 
Selling, general and administrative   2,888    44    1         45    2,843 
Research and development   2,548    166         11    177    2,371 
Restructuring costs   194         194         194    - 
Other (income) expense, net   (223)   (37)        7    (30)   (193)
Income Before Taxes   2,792    (498)   (285)   (18)   (801)   3,593 
Income Tax Provision (Benefit)   428    (55)(3)   (49)(3)   (76)(4)   (180)   608 
Net Income   2,364    (443)   (236)   58    (621)   2,985 
Net Income Attributable to Merck & Co., Inc.   2,357    (443)   (236)   58    (621)   2,978 
Earnings per Common Share Assuming Dilution  $0.92    (0.17)   (0.09)   0.02    (0.24)  $1.16 
                               
Tax Rate   15.3%                       16.9%

 

Only the line items that are affected by non-GAAP adjustments are shown.

 

Merck is providing certain 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 results as it permits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the company along with other metrics. Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS. This information should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP.

 

(1) Amount included in cost of sales primarily reflects $306 million of expenses for the amortization of intangible assets recognized as a result of business acquisitions, as well as $12 million of intangible asset impairment charges. Amount included in selling, general and administrative expenses primarily reflects integration, transaction and certain other costs related to business acquisitions and divestitures. Amount included in research and development expenses primarily reflects $164 million of 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 activities under the company's formal restructuring programs.

 

(3) Represents the estimated tax impact on the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments.

 

(4) Primarily reflects an $86 million tax benefit related to the reversal of tax reserves established in conjunction with the divestiture of Merck's Consumer Care business in 2014 as a result of the lapse in the statute of limitations.

 

 

 

 

MERCK & CO., INC.

GAAP TO NON-GAAP RECONCILIATION

FULL YEAR 2019

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2b

 

   GAAP   Acquisition and
Divestiture-Related
Costs (1)
   Restructuring
Costs (2)
   Certain Other
Items (4)
   Adjustment
Subtotal
   Non-GAAP 
Cost of sales  $14,112    2,126    251         2,377   $11,735 
Selling, general and administrative   10,615    126    34         160    10,455 
Research and development   9,872    145    4    993    1,142    8,730 
Restructuring costs   638         638         638    - 
Other (income) expense, net   139    284         55    339    (200)
Income Before Taxes   11,464    (2,681)   (927)   (1,048)   (4,656)   16,120 
Income Tax Provision (Benefit)   1,687    (493)(3)   (155)(3)   (380)(5)   (1,028)   2,715 
Net Income   9,777    (2,188)   (772)   (668)   (3,628)   13,405 
Less: Net (Loss) Income Attributable to Noncontrolling Interests   (66)   (89)             (89)   23 
Net Income Attributable to Merck & Co., Inc.   9,843    (2,099)   (772)   (668)   (3,539)   13,382 
Earnings per Common Share Assuming Dilution  $3.81    (0.82)   (0.30)   (0.26)   (1.38)  $5.19 
                               
Tax Rate   14.7%                       16.8%

 

Only the line items that are affected by non-GAAP adjustments are shown.

 

Merck is providing certain 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 results as it permits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the company along with other metrics. Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS. This information should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP.

 

(1) Amount included in cost of sales primarily reflects $1.4 billion of expenses for the amortization of intangible assets recognized as a result of business acquisitions, as well as $705 million of intangible asset impairment charges, including $612 million related to SIVEXTRO.  Amount included in selling, general and administrative expenses primarily reflects integration, transaction and certain other costs related to business acquisitions and divestitures, including costs related to the acquisition of Antelliq Corporation.  Amounts included in research and development expenses primarily reflect $172 million of in-process research and development (IPR&D) impairment charges, partially offset by a reduction in expenses related to a decrease in the estimated fair value measurement of liabilities for contingent consideration.  Amount included in other (income) expense, net primarily reflects goodwill and intangible asset impairment charges related to certain businesses in the Healthcare Services segment and expenses related to an increase in the estimated fair value measurement of liabilities for contingent consideration, partially offset by royalty income related to the termination of the Sanofi-Pasteur MSD joint venture.

 

(2) Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to activities under the company's formal restructuring programs.

 

(3) Represents the estimated tax impact on the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments.

 

(4) Amount included in research and development represents the charge related to the acquisition of Peloton.

 

(5) Primarily reflects a $364 million net tax benefit related to the settlement of certain federal income tax matters, an $86 million tax benefit related to the reversal of tax reserves established in conjunction with the divestiture of Merck's Consumer Care business in 2014 as a result of the lapse in the statute of limitations, and a $117 million tax charge related to the finalization of treasury regulations associated with the 2017 enactment of U.S. tax legislation.

 

 

 

 

MERCK & CO., INC. 

FRANCHISE / KEY PRODUCT SALES

(AMOUNTS IN MILLIONS)

(UNAUDITED)

Table 3

 

    2019    2018   4Q    Full Year 
    1Q   2Q   3Q   4Q   Full Year    1Q   2Q   3Q   4Q   Full Year    Nom %    Ex-Exch %    Nom %    Ex-Exch % 
TOTAL SALES (1)   $10,816   $11,760   $12,397   $11,868   $46,840   $10,037   $10,465   $10,794   $10,998   $42,294    8    9    11    13 
PHARMACEUTICAL   9,663    10,460    11,095    10,533    41,751    8,919    9,282    9,658    9,830    37,689    7    8    11    14 
Oncology                                                                      
Keytruda   2,269    2,634    3,070    3,111    11,084    1,464    1,667    1,889    2,151    7,171    45    46    55    58 
Alliance Revenue – Lynparza (2)   79    111    123    132    444    33    44    49    62    187    111    112    137    141 
Alliance Revenue – Lenvima (2)   74    97    109    124    404    0    35    43    71    149    74    73    171    173 
Emend   117    121    98    53    388    125    148    123    126    522    -58    -58    -26    -24 
Vaccines (3)                                                                      
Gardasil / Gardasil 9   838    886    1,320    693    3,737    660    608    1,048    835    3,151    -17    -16    19    21 
ProQuad / M-M-R II / Varivax   496    675    623    481    2,275    392    426    525    455    1,798    6    7    27    28 
Pneumovax 23   185    170    237    334    926    179    193    214    322    907    4    4    2    3 
RotaTeq   211    172    180    227    791    193    156    191    188    728    21    21    9    10 
Vaqta   47    58    62    71    238    37    65    66    72    239    -2    -1    0    2 
Hospital Acute Care                                                                      
Bridion   255    278    284    313    1,131    204    240    217    256    917    22    24    23    26 
Noxafil   190    193    177    103    662    176    188    188    191    742    -46    -44    -11    -7 
Primaxin   59    71    77    67    273    72    68    72    53    265    25    27    3    7 
Invanz   72    78    57    57    263    151    149    137    59    496    -5    -2    -47    -44 
Cubicin   88    67    52    50    257    98    94    95    80    367    -38    -37    -30    -28 
Cancidas   61    67    62    58    249    91    87    79    69    326    -17    -15    -24    -20 
Immunology                                                                      
Simponi   208    214    203    205    830    231    233    210    220    893    -7    -3    -7    -2 
Remicade   123    98    101    89    411    167    157    135    123    582    -27    -25    -29    -25 
Neuroscience                                                                      
Belsomra   67    76    80    83    306    54    71    66    69    260    19    16    18    17 
Virology                                                                      
Isentress / Isentress HD   255    247    250    223    975    281    305    275    280    1,140    -20    -18    -15    -10 
Zepatier   114    108    83    66    370    131    113    104    108    455    -38    -38    -19    -16 
Cardiovascular                                                                      
Zetia   140    156    147    146    590    305    226    165    162    857    -9    -11    -31    -30 
Vytorin   97    76    57    54    285    167    155    92    83    497    -35    -33    -43    -40 
Atozet   94    92    97    108    391    73    101    84    89    347    22    26    13    18 
Adempas   90    104    107    117    419    68    75    94    91    329    28    29    27    30 
Diabetes (4)                                                                      
Januvia   824    908    807    943    3,482    880    949    927    930    3,686    1    2    -6    -4 
Janumet   530    533    503    475    2,041    544    585    563    535    2,228    -11    -9    -8    -5 
Women's Health                                                                      
NuvaRing   219    240    241    179    879    216    236    234    216    902    -17    -17    -3    -2 
Implanon / Nexplanon   199    183    199    206    787    174    174    186    169    703    22    23    12    14 
Diversified Brands                                                                      
Singulair   191    160    152    195    698    175    185    161    187    708    4    5    -1    1 
Cozaar / Hyzaar   103    109    116    113    442    120    125    103    105    453    8    9    -3    2 
Nasonex   96    72    58    67    293    122    81    71    102    376    -34    -34    -22    -19 
Arcoxia   75    75    72    67    288    83    84    83    86    335    -23    -22    -14    -10 
Follistim AQ   57    63    62    58    241    67    70    60    70    268    -16    -15    -10    -7 
Other Pharmaceutical (5)   1,140    1,268    1,229    1,265    4,901    1,186    1,189    1,109    1,215    4,705    4    6    4    7 
                                                                       
ANIMAL HEALTH   1,025    1,124    1,122    1,122    4,393    1,065    1,090    1,021    1,036    4,212    8    10    4    9 
Livestock   611    671    726    777    2,784    652    633    660    684    2,630    14    16    6    11 
Companion Animals   414    453    396    345    1,609    413    457    361    352    1,582    -2    0    2    5 
                                                                       
Other Revenues (6)   128    176    180    213    696    53    93    115    132    393    61    30    77    -26 

 

Sum of quarterly amounts may not equal year-to-date amounts due to rounding.    

 

(1) Only select products are shown.

 

(2) Alliance Revenue represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs. 

 

(3) Total Vaccines sales were $1,887 million, $2,037 million, $2,517 million and $1,928 million in the first, second, third and fourth quarters of 2019, respectively, and $1,561 million, $1,533 million, $2,159 million and $2,008 million for the first, second, third and fourth quarters of 2018, respectively.

 

(4) Total Diabetes sales were $1,402 million, $1,480 million, $1,360 million and $1,472 million in the first, second, third and fourth quarters of 2019, respectively, and $1,433 million, $1,571 million, $1,506 million and $1,485 million for the first, second, third and fourth quarters of 2018, respectively.  

 

(5) Includes Pharmaceutical products not individually shown above.   

 

(6) Other Revenues are comprised primarily of Healthcare Services segment revenues, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities.