Form 8-K Merck & Co., Inc. For: Oct 27

October 27, 2020 6:51 AM

 

Exhibit 99.1

 

News Release

FOR IMMEDIATE RELEASE

 

Media Contacts: Pamela Eisele Investor Contacts: Peter Dannenbaum
  (267) 305-3558   (908) 740-1037
       
  Patrick Ryan   Michael DeCarbo
  (201) 452-2409   (908) 740-1807

 

Merck Announces Third-Quarter 2020 Financial Results

 

·Third-Quarter 2020 Worldwide Sales Were $12.6 Billion, an Increase of 1%; Excluding the Impact from Foreign Exchange, Sales Grew 2%

 

oKEYTRUDA Sales Grew 21% to $3.7 Billion

 

oAnimal Health Sales Grew 9% to $1.2 Billion; Excluding the Impact from Foreign Exchange, Sales Grew 12%

 

·Third-Quarter 2020 GAAP EPS Was $1.16; Third-Quarter Non-GAAP EPS Was $1.74

 

·Advanced and Expanded Broad Pipeline

 

oAnnounced Additional Positive Phase 3 Results for Investigational Pneumococcal Conjugate Vaccine (V114) in Adults

 

oPresented Phase 3 Data for Investigational Gefapixant in Development for Chronic Cough; Early Data for MK-4830 in Oncology and MK-8507 for HIV

 

oExpanded Pipeline with Seagen Collaborations in Oncology

 

·Company Advances Research Programs and Clinical Trials for COVID-19-Related Vaccine and Orally Available Antiviral Research Candidates

 

·Company Narrows and Raises 2020 Full-Year Revenue Range to be Between $47.6 Billion and $48.6 Billion, Including a Negative Impact from Foreign Exchange of Approximately 1.5%

 

·Company Narrows and Lowers 2020 Full-Year GAAP EPS Range to be Between $4.55 and $4.65; Narrows and Raises 2020 Full-Year Non-GAAP EPS Range to be Between $5.91 and $6.01, Including a Negative Impact from Foreign Exchange of Approximately 2.5%

 

KENILWORTH, N.J., Oct. 27, 2020 – Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the third quarter of 2020.

 

“We continue to execute on our strategic priorities and remain confident we will achieve solid full-year revenue growth despite the impact of the ongoing COVID-19 pandemic. Demand for our products remains robust, and production, supply and distribution of our medicines, vaccines and animal health products are moving forward with minimal disruption,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “I am confident in our ability to advance our promising pipeline and clinical trials despite the challenging environment, and I believe that our leadership and track record of solid commercial execution will continue to drive long-term growth.

 

 

 

 

Financial Summary

 

   Third Quarter 
$ in millions, except EPS amounts  2020   2019   Change   Change Ex-
Exchange
 
Sales  $12,551   $12,397    1%   2%
GAAP net income1   2,941    1,901    55%   59%
Non-GAAP net income that excludes certain items1,2*   4,427    3,873    14%   17%
GAAP EPS   1.16    0.74    57%   62%
Non-GAAP EPS that excludes certain items2*   1.74    1.51    16%   18%

*Refer to table on page 11.

 

GAAP (generally accepted accounting principles) earnings per share assuming dilution (EPS) was $1.16 for the third quarter of 2020. Non-GAAP EPS of $1.74 for the third quarter of 2020 excludes acquisition- and divestiture-related costs, restructuring costs, pretax charges of $1.1 billion related to certain license and collaboration agreements, and certain other items. Year-to-date results can be found in the attached tables.

 

COVID-19 Research Highlights

 

Building on the company’s experience with antivirals and vaccines, Merck advanced its multiple scientific programs in an effort to help combat SARS-CoV-2, specifically,

 

·Molnupiravir (formerly known as MK-4482) -- an orally available antiviral candidate in development for the treatment of COVID-19 in collaboration with Ridgeback Bio with the initiation of two large pivotal Phase 2/3 trials: a trial anticipated to enroll approximately 1,450 non-hospitalized adult COVID-19 patients (outpatient) and another planned to enroll approximately 1,300 hospitalized adult COVID-19 patients;

 

·V591 -- a SARS-CoV-2 vaccine candidate that uses a measles virus vector platform has entered Phase 1 development; and

 

·V590 -- a SARS-CoV-2 vaccine candidate in development in collaboration with the International AIDS Vaccine Initiative (IAVI) that uses a recombinant vesicular stomatitis virus (rVSV) platform, the same platform used for Merck’s approved Ebola Zaire virus vaccine, will enter Phase 1 development shortly.

 

 

1 Net income attributable to Merck & Co., Inc.
2 Merck is providing certain 2020 and 2019 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. In addition, senior management’s annual compensation is derived in part using non-GAAP pretax income. 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 Table 2a attached to this release.

 

 

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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), in addition to other notable developments as follows:

 

·Merck announced the following regulatory milestones for KEYTRUDA:

 

oApproval in the United States by the Food and Drug Administration (FDA) of an expanded indication as monotherapy for the treatment of adult patients with relapsed or refractory classical Hodgkin lymphoma (cHL) based on the Phase 3 KEYNOTE-204 trial and an updated pediatric indication for the treatment of pediatric patients with refractory cHL or cHL that has relapsed after two or more lines of therapy, both of which were previously approved under the FDA’s accelerated approval process; and

 

oTwo approvals in Japan: (1) as monotherapy for the treatment of patients whose tumors are PD-L1-positive and have radically unresectable, advanced or recurrent esophageal squamous cell carcinoma (ESCC) who have progressed after chemotherapy based on the KEYNOTE-181 trial; and (2) use at an additional recommended dosage of 400 mg every six weeks (Q6W) administered as an intravenous infusion over 30 minutes across all adult indications, including KEYTRUDA monotherapy and combination therapy.

 

·Merck presented results from the pivotal Phase 3 KEYNOTE-590 trial for the first-line treatment of patients with locally advanced or metastatic esophageal and gastroesophageal junction (GEJ) cancer at the European Society for Medical Oncology (ESMO) Virtual Congress 2020. In the study, KEYTRUDA in combination with platinum-based chemotherapy (cisplatin plus 5-fluorouracil [5-FU]) significantly improved overall survival (OS) and progression-free survival (PFS) versus chemotherapy regardless of histology or PD-L1 expression status.

 

·Merck presented five-year survival results from the pivotal Phase 3 KEYNOTE-024 trial at the ESMO Virtual Congress 2020, which demonstrated a sustained, long-term survival benefit and durable responses with KEYTRUDA versus chemotherapy as a first-line treatment in patients with metastatic non-small cell lung cancer (NSCLC) whose tumors express PD-L1 (tumor proportion score [TPS] ≥50%) with no EGFR or ALK genomic tumor aberrations. Results from KEYNOTE-024 represent the longest follow-up survival data for an immunotherapy in a randomized Phase 3 study for the first-line treatment of metastatic NSCLC.

 

·Merck presented long-term findings from the EORTC1325/KEYNOTE-054 trial evaluating KEYTRUDA as adjuvant therapy in resected, high-risk stage III melanoma at the ESMO Virtual Congress 2020.

 

·Merck presented three-year survival data from the KEYNOTE-021 (Cohort G) study that evaluated KEYTRUDA in combination with chemotherapy in patients with advanced nonsquamous NSCLC regardless of PD-L1 expression with no EGFR or ALK genomic tumor aberrations at the IASLC 2020 North America Conference on Lung Cancer (NACLC). Updated follow-up data from a Phase 1/2 study of quavonlimab (MK-1308), a novel investigational anti-CTLA-4 antibody, in combination with KEYTRUDA in patients with advanced NSCLC also was presented; a Phase 3 study of quavonlimab coformulated with KEYTRUDA in first-line advanced NSCLC is planned.

 

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·Merck and AstraZeneca announced the adoption of two positive opinions by the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) for Lynparza:

 

oAs a first-line maintenance treatment with bevacizumab for homologous recombination deficient (HRD)-positive advanced ovarian cancer who are in complete or partial response following completion of first-line platinum-based chemotherapy in combination with bevacizumab based on the Phase 3 PAOLA-1 trial, and

 

oAs monotherapy for the treatment of BRCA1/2 metastatic castration-resistant prostate cancer (mCRPC) patients who have progressed following a prior therapy that included a new hormonal agent based on the Phase 3 PROfound trial. Final results from this study were recently presented at the ESMO Virtual Congress 2020.

 

·Merck and AstraZeneca presented positive five-year follow-up data from the Phase 3 SOLO-1 trial, which demonstrated a long-term PFS benefit of Lynparza versus placebo as a first-line maintenance treatment in patients with newly diagnosed, advanced BRCA-mutated (BRCAm) ovarian cancer who were in complete or partial response to platinum-based chemotherapy.

 

·Merck and Eisai presented first-time data from two studies evaluating KEYTRUDA plus Lenvima at the ESMO Virtual Congress 2020: data from the Phase 2 LEAP-004 study for the second-line treatment of patients with unresectable or advanced melanoma who progressed on anti-PD-1/PD-L1 therapy and from the Phase 2 LEAP-005 study in previously-treated patients with six tumor types, including biliary tract cancer, colorectal cancer, gastric cancer, glioblastoma multiforme, ovarian cancer and triple-negative breast cancer.

 

·Merck also presented new data for three investigational medicines from its oncology pipeline at the ESMO Virtual Congress 2020:

 

oNew Phase 1 data for the company’s anti-TIGIT therapy vibostolimab (MK-7684) as monotherapy and in combination with KEYTRUDA in patients with metastatic NSCLC,

 

oFirst-time Phase 1 results for the novel anti-immunoglobulin-like transcript 4 (ILT4) therapy MK-4830 in patients with advanced solid tumors, and

 

oNew Phase 2 data evaluating the hypoxia-inducible factor-2 alpha (HIF-2α) inhibitor MK-6482 in von Hippel-Lindau (VHL) patients with non-renal cell carcinoma (RCC) tumors and updated data in VHL patients with clear cell RCC.

 

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Other Pipeline Highlights

 

·Merck announced that two Phase 3 adult studies [the pivotal PNEU-AGE trial (V114-019) as well as the PNEU-TRUE trial (V114-020)] and separately two other Phase 3 adult studies [the PNEU-PATH (V114-016) and PNEU-DAY (V114-017) trials], evaluating the safety, tolerability and immunogenicity of V114, the company’s investigational 15-valent pneumococcal conjugate vaccine, each met their primary immunogenicity objectives. These findings, and additional Phase 3 data from the clinical program, will form the basis of global regulatory licensure applications beginning with the FDA before the end of the year.

 

·Merck presented results from two pivotal Phase 3 trials (COUGH-1 and COUGH-2) evaluating gefapixant, an investigational, orally administered selective P2X3 receptor antagonist, in which gefapixant 45 mg twice daily demonstrated a statistically significant reduction in 24-hour cough frequency compared to placebo at Week 12 and 24 in adult patients with refractory or unexplained chronic cough. The gefapixant 15 mg twice daily treatment arms did not meet the primary efficacy endpoint in either Phase 3 study. The results were presented at the Virtual European Respiratory Society (ERS) International Congress 2020.

 

·Merck presented Week 96 data from the Phase 2b trial that showed islatravir, the company’s investigational oral nucleoside reverse transcriptase translocation inhibitor (NRTTI), in combination with doravirine (PIFELTRO), maintained viral suppression in treatment-naïve adults with HIV-1 infection. Also presented at the virtual 2020 International Congress on Drug Therapy in HIV Infection (HIV Glasgow 2020 Virtual) were results from Phase 1/1b studies for MK-8507, the company’s investigational once-weekly, oral non-nucleoside reverse transcriptase inhibitor (NNRTI), that support further investigation for once-weekly oral administration as part of combination antiretroviral therapy.

 

·The FDA has granted V181, the company’s investigational dengue vaccine in Phase 1 development, Fast Track designation.

 

Business Developments

 

·Merck and Seagen Inc. (formerly known as Seattle Genetics, Inc.) announced two strategic oncology collaborations, in which Merck will make $810 million of upfront payments in the aggregate as well as acquire a $1 billion equity stake in Seagen common stock:

 

oCompanies to co-develop and co-commercialize Seagen’s ladiratuzumab vedotin, an investigational antibody-drug conjugate targeting LIV-1, globally; and

 

oCompanies enter into exclusive license and co-development agreement to accelerate global reach of Tukysa (tucatinib), a small molecule tyrosine kinase inhibitor for the treatment of HER-2 positive cancers. Merck was granted an exclusive license to commercialize Tukysa in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe.

 

·Merck and Hanmi Pharmaceutical announced that the companies have entered into an exclusive licensing agreement for the development, manufacture and commercialization of efinopegdutide (formerly HM12525A), Hanmi’s investigational once-weekly glucagon-like peptide-1 (GLP-1)/glucagon receptor dual agonist, for the treatment of nonalcoholic steatohepatitis (NASH);

 

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·Merck announced the completion of its acquisition of IdentiGEN, a leader in DNA-based animal traceability solutions for livestock and aquaculture; and

 

·Merck announced the completion of its acquisition of the worldwide rights to VECOXAN (diclazuril), an oral suspension for the prevention of coccidiosis in calves and lambs.

 

Organon & Co.

 

·Merck continued to make progress on the Organon & Co. (Organon) spinoff, including additional leadership appointments, and expects the transaction to be completed in the second quarter of 2021.

 

Third-Quarter Financial Impact of COVID-19

 

In the third quarter, the estimated negative impact of the COVID-19 pandemic to Merck’s pharmaceutical revenue was approximately $475 million, bringing the company’s year-to-date negative impact on revenue to approximately $2.1 billion. Lower back-to-school demand negatively impacted vaccine sales, in particular GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant) in the U.S. In addition, access to health care providers remains reduced, although improved from the second quarter. The negative impact to Animal Health sales in the third quarter was immaterial.

 

Operating expenses were positively impacted in the third quarter by approximately $115 million, primarily driven by lower promotional and selling costs as well as lower research and development (R&D) expenses, net of investments in COVID-19-related antiviral and vaccine research programs.

 

Third-Quarter Revenue Performance

 

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

 

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    Third Quarter  
$ in millions    2020      2019      Change     Change Ex-
Exchange
 
Total Sales   $ 12,551     $ 12,397       1 %     2 %
Pharmaceutical     11,320       11,095       2 %     2 %
KEYTRUDA     3,715       3,070       21 %     21 %
JANUVIA / JANUMET     1,327       1,311       1 %     2 %
GARDASIL / GARDASIL 9     1,187       1,320       -10 %     -10 %
PROQUAD, M-M-R II and VARIVAX     576       623       -8 %     -7 %
PNEUMOVAX 23     375       237       58 %     58 %
BRIDION     320       284       13 %     13 %
ROTATEQ     210       180       16 %     17 %
SIMPONI     209       203       3 %     0 %
ISENTRESS / ISENTRESS HD     205       250       -18 %     -18 %
Lynparza*     196       123       59 %     58 %
IMPLANON / NEXPLANON     189       199       -5 %     -4 %
Lenvima*     142       109       30 %     29 %
Animal Health     1,220       1,122       9 %     12 %
Livestock     758       726       5 %     8 %
Companion Animals     462       396       17 %     18 %
Other Revenues**     11       180       -94 %     -33 %

*Alliance revenue for these products represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs.

**Other revenues are comprised primarily of third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities.

 

Pharmaceutical Revenue

 

Third-quarter pharmaceutical sales increased by $225 million, or 2%, to $11.3 billion. The increase was driven primarily by growth in oncology and certain hospital acute care products, partially offset by the negative impact of the COVID-19 pandemic and the ongoing impacts of the loss of market exclusivity for several products.

 

Growth in oncology was largely driven by higher sales of KEYTRUDA, which grew 21% to $3.7 billion in the quarter. In the U.S., sales of KEYTRUDA grew 24% to $2.2 billion. Global sales growth of KEYTRUDA reflects continued strong momentum from the NSCLC indications as well as continued uptake in other indications, including adjuvant melanoma, RCC, bladder, head and neck squamous cell carcinoma (HNSCC) and microsatellite instability-high (MSI-H) cancers as well as uptake following the recent launch of the Q6W dosing regimen in the U.S., partially offset by the negative impacts of the COVID-19 pandemic and pricing in Japan. Also contributing to growth in oncology was higher alliance revenue related to Lynparza and Lenvima reflecting continued uptake in approved indications in the U.S., Europe and China.

 

Performance in hospital acute care reflects higher demand globally for BRIDION (sugammadex), 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.

 

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In addition, sales of JANUVIA (sitagliptin) and JANUMET (sitagliptin and metformin HCI) increased slightly in the quarter reflecting strong demand from certain international markets, partially offset by continued pricing pressure in the U.S.

 

Vaccine sales performance reflects higher sales of PNEUMOVAX 23 (pneumococcal vaccine polyvalent), a vaccine to help prevent pneumococcal disease, primarily driven by higher volumes in the U.S., Europe and Japan attributable in part to increased demand for pneumococcal vaccination during the COVID-19 pandemic.

 

Vaccine sales were negatively affected by declines in sales of GARDASIL [Human Papillomavirus Quadrivalent (Types 6,11,16 and 18) Vaccine, Recombinant]/GARDASIL 9, vaccines to prevent certain cancers and other diseases caused by HPV, largely due to lower demand in the U.S. and Hong Kong, SAR, PRC attributable to the COVID-19 pandemic, partially offset by higher volumes in China and in Europe.

 

Combined sales of pediatric vaccines VARIVAX (Varicella Virus Vaccine Live), a vaccine to help prevent chickenpox; PROQUAD (Measles, Mumps, Rubella and Varicella Virus Vaccine Live), a combination vaccine to help protect against measles, mumps, rubella and varicella; and M-M-R II (Measles, Mumps and Rubella Virus Vaccine Live), a vaccine to help prevent measles, mumps and rubella, declined in the third quarter, primarily due to lower demand in the U.S. related to the COVID-19 pandemic.

 

Pharmaceutical sales in the quarter were negatively affected by the ongoing impacts from the loss of market exclusivity, including for NUVARING (etonogestrel/ethinyl estradiol vaginal ring), NOXAFIL (posaconazole) and EMEND (aprepitant)/EMEND (fosaprepitant dimeglumine) for Injection.

 

Animal Health Revenue

 

Animal Health sales totaled $1.2 billion in the third quarter of 2020, an increase of 9% compared with the third quarter of 2019; excluding the unfavorable effect from foreign exchange, Animal Health sales grew 12%. Growth in companion animal products was driven largely by higher demand in companion animal vaccines and higher demand for the BRAVECTO (fluralaner) line of products for parasitic control. Performance in livestock products reflects higher demand globally for ruminant, poultry and swine products.

 

Third-Quarter Expense, EPS and Related Information

 

The tables below present selected expense information.

 

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$ in millions

 

 

 

GAAP

   Acquisition- and Divestiture-Related Costs3  

 

Restructuring Costs

  

 

Certain Other Items

  

 

 

Non-GAAP2

 
Third-Quarter 2020                         
Cost of sales  $3,481   $                       285   $38   $   $3,158 
Selling, general and administrative   2,450    207    15        2,228 
Research and development   3,390    16    19    1,082    2,273 
Restructuring costs   114        114         
Other (income) expense, net   (312)           (1)   (311)
                          
Third-Quarter 2019                         
Cost of sales  $3,990   $941   $62   $   $2,987 
Selling, general and administrative   2,589    22    1        2,566 
Research and development   3,204    6    1    982    2,215 
Restructuring costs   232        232         
Other (income) expense, net   35    6            29 

 

GAAP Expense, EPS and Related Information

 

Gross margin was 72.3% for the third quarter of 2020 compared to 67.8% for the third quarter of 2019. The increase reflects lower acquisition- and divestiture-related costs and the favorable effect of product mix, partially offset by the unfavorable effects of pricing pressure, inventory write-offs, higher amortization of intangible assets related to collaborations and foreign exchange.

 

Selling, general and administrative expenses were $2.5 billion in the third quarter of 2020, a decrease of 5% compared to the third quarter of 2019. The decrease primarily reflects lower administrative and selling costs, including less travel and meeting expenses, due in part to the COVID-19 pandemic, partially offset by higher acquisition- and divestiture-related costs, primarily reflecting costs related to the company’s planned spinoff of Organon.

 

Research and development expenses were $3.4 billion in the third quarter of 2020, an increase of 6% compared with the third quarter of 2019. The increase was primarily driven by higher upfront payments related to collaborations and license agreements, higher expenses related to clinical development and increased investment in discovery research and early drug development, partially offset by lower charges for the acquisitions of businesses, as well as lower laboratory, travel and meeting expenses due to the COVID-19 pandemic.

 

Other (income) expense, net, was $312 million of income in the third quarter of 2020 compared to $35 million of expense in the third quarter of 2019, primarily due to higher income from investments in equity securities, net, which was $360 million in 2020 compared with $16 million in 2019, largely from the recognition of unrealized gains on securities.

 

 

3Includes 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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The effective income tax rate was 14.1% for the third quarter of 2020 compared to 18.7% in the third quarter of 2019. The effective income tax rate in 2019 reflects the unfavorable impact of a charge for the acquisition of Peloton Therapeutics, Inc. (Peloton) for which no tax benefit was recognized.

 

GAAP EPS was $1.16 for the third quarter of 2020 compared with $0.74 for the third quarter of 2019.

 

Non-GAAP Expense, EPS and Related Information

 

Non-GAAP gross margin was 74.8% for the third quarter of 2020 compared to 75.9% for the third quarter of 2019. The decrease in non-GAAP gross margin reflects the unfavorable effects of pricing pressure, inventory write-offs, higher amortization of intangible assets related to collaborations and foreign exchange, partially offset by the favorable effect of product mix.

 

Non-GAAP selling, general and administrative expenses were $2.2 billion in the third quarter of 2020, a decrease of 13% compared to the third quarter of 2019. The decrease primarily reflects lower administrative and selling costs, including less travel and meeting expenses, due in part to the COVID-19 pandemic.

 

Non-GAAP R&D expenses were $2.3 billion in the third quarter of 2020, a 3% increase compared to the third quarter of 2019. The increase was primarily driven by higher expenses related to clinical development and increased investment in discovery research and early drug development, partially offset by lower laboratory, travel and meeting expenses due to the COVID-19 pandemic.

 

Non-GAAP other (income) expense, net, was $311 million of income in the third quarter of 2020 compared to $29 million of expense in the third quarter of 2019, primarily due to higher income from investments in equity securities, net, which was $360 million in 2020 compared with $16 million in 2019, largely from the recognition of unrealized gains on securities.

 

The non-GAAP effective income tax rate was 14.8% for the third quarter of 2020 compared to 15.7% for the third quarter of 2019, reflecting the favorable impact of earnings mix.

 

Non-GAAP EPS was $1.74 for the third quarter of 2020 compared with $1.51 for the third quarter of 2019.

 

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

 

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   Third Quarter 
$ in millions, except EPS amounts  2020   2019 
EPS        
GAAP EPS  $1.16   $0.74 
Difference   0.58    0.77 
Non-GAAP EPS that excludes items listed below2  $1.74   $1.51 
           
Net Income          
GAAP net income1  $2,941   $1,901 
Difference   1,486    1,972 
Non-GAAP net income that excludes items listed below1,2  $4,427   $3,873 
           
Decrease (Increase) in Net Income Due to Excluded Items:          
Acquisition- and divestiture-related costs3  $508   $975 
Restructuring costs   186    296 
Charges for acquisitions and collaborations4   1,082    982 
Other   (1)    
Net decrease (increase) in income before taxes   1,775    2,253 
Income tax (benefit) expense5   (289)   (281)
Decrease (increase) in net income  $1,486   $1,972 

 

Financial Outlook

 

The updated full-year guidance that Merck is providing below includes its current assumption of the impact from the COVID-19 pandemic, which is expected to continue to be offset by favorability from underlying business strength. The company continues to assume that the majority of the negative impact occurred during the second quarter. However, it now expects some residual negative impacts in the fourth quarter, largely in Europe and certain emerging markets. In addition, the phasing of the recovery of GARDASIL 9 demand is slower than originally anticipated, in particular in the U.S.

 

For the full-year 2020, Merck now expects an unfavorable impact to revenue of approximately $2.35 billion (excluding the impact of foreign exchange) due to the COVID-19 pandemic, comprised of approximately $2.3 billion for pharmaceuticals and approximately $50 million for Animal Health, including the impacts in the first three quarters of the year.

 

For the full-year 2020, Merck now expects a net favorable impact to operating expenses of approximately $625 million, reflecting continued lower spending due to the COVID-19 pandemic, partially offset by spending on its COVID-19-related antiviral and vaccine research programs.

 

 

42020 includes $832 million related to the Seagen collaborations; 2019 represents a charge for the acquisition of Peloton.
5Includes the estimated tax impact on the reconciling items, as well as a tax cost of $67 million, representing an adjustment to the tax benefits recorded in conjunction with the 2015 acquisition of Cubist Pharmaceuticals, Inc.

 

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Merck narrowed and raised its full-year 2020 revenue range to be between $47.6 billion and $48.6 billion, including a negative impact from foreign exchange of approximately 1.5% at mid-October exchange rates. The company’s guidance assumes $120 million of revenue for the replenishment of doses of GARDASIL 9 that were borrowed from the U.S. Centers for Disease Control and Prevention (CDC) Pediatric Vaccine Stockpile in the fourth quarter of 2019.

 

Merck narrowed and lowered its full-year 2020 GAAP EPS range to be between $4.55 and $4.65. Merck narrowed and raised its full-year 2020 non-GAAP EPS range to be between $5.91 and $6.01, including a negative impact from foreign exchange of approximately 2.5% at mid-October exchange rates. The non-GAAP range excludes acquisition- and divestiture-related costs, costs related to restructuring programs and certain other items.

 

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

 

   GAAP  Non-GAAP2
Revenue  $47.6 to $48.6 billion  $47.6 to $48.6 billion*
Operating expenses  Higher than 2019 by a low-single-digit rate   Lower than 2019 by a low-single-digit rate
Effective tax rate  Approximately 15%  Approximately 15.5%
EPS**  $4.55 to $4.65  $5.91 to $6.01

*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.

 

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   $4.55 to $4.65 
Difference   1.36 
Non-GAAP EPS that excludes items listed below2   $5.91 to $6.01 
      
Acquisition- and divestiture-related costs   $2,300 
Restructuring costs   800 
Charges for collaborations   1,082 
Net decrease (increase) in income before taxes   4,182 
Income tax (benefit) expense5   (715)
Decrease (increase) in net income   $3,467 

 

Earnings Conference Call

 

Investors, journalists and the general public may access a live audio webcast of the call today at 8:00 a.m. EDT on Merck’s website at https://www.merck.com/investor-relations/events-and-presentations/. Institutional investors and analysts can participate in the call (833) 353-0277 or toll free (469) 886-1947 and using ID code number 4664137. Members of the media are invited to monitor the call by dialing (833) 353-0277 or toll free (469) 886-1947 and using ID code number 4664137. Journalists who wish to ask questions are requested to contact a member of Merck’s Media Relations team at the conclusion of the call.

 

Page 12

 

 

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.

 

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. 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 pipeline products that the products will receive the necessary regulatory approvals or that they will prove to be commercially successful. 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, general industry conditions and competition; general economic factors, including interest rate and currency exchange rate fluctuations; the impact of the global outbreak of novel coronavirus disease (COVID-19); 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 2019 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 13

 

 

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF INCOME - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1

 

    GAAP         GAAP      
    3Q20     3Q19     % Change     Sep YTD 2020     Sep YTD 2019     % Change  
Sales   $ 12,551     $ 12,397       1 %   $ 35,479     $ 34,972       1 %
                                                 
Costs, Expenses and Other                                                
Cost of sales (1)     3,481       3,990       -13 %     9,952       10,443       -5 %
Selling, general and administrative (1)     2,450       2,589       -5 %     7,383       7,726       -4 %
Research and development (1)     3,390       3,204       6 %     7,721       7,324       5 %
Restructuring costs (2)     114       232       -51 %     269       444       -39 %
Other (income) expense, net (1)     (312 )     35       *       (630 )     362       *  
Income Before Taxes     3,428       2,347       46 %     10,784       8,673       24 %
Taxes on Income (1)     483       440               1,611       1,259          
Net Income     2,945       1,907       54 %     9,173       7,414       24 %
Less: Net Income (Loss) Attributable to Noncontrolling Interests (1)     4       6               12       (73 )        
Net Income Attributable to Merck & Co., Inc.   $ 2,941     $ 1,901       55 %   $ 9,161     $ 7,487       22 %
Earnings per Common Share Assuming Dilution   $ 1.16     $ 0.74       57 %   $ 3.61     $ 2.89       25 %
                                                 
Average Shares Outstanding Assuming Dilution     2,538       2,572               2,541       2,587          
Tax Rate (3)     14.1 %     18.7 %             14.9 %     14.5 %        

                     
* 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) Represents separation and other related costs associated with restructuring activities under the company's formal restructuring programs.
 
(3) The effective income tax rates for the third quarter and the first nine months of 2019 include the unfavorable impact of a charge for the acquisition of Peloton Therapeutics, Inc. for which no tax benefit was recognized and the favorable impact of product mix.  The effective income tax rate for the first nine months of 2019 reflects a net tax benefit of $360 million related to the settlement of certain federal income tax matters.  

 

 

 

 

MERCK & CO., INC.

GAAP TO NON-GAAP RECONCILIATION

THIRD QUARTER 2020

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2a

 

   GAAP   Acquisition and
Divestiture-Related
Costs (1)
   Restructuring
Costs (2)
   Certain Other
Items (4)
   Adjustment
Subtotal
   Non-GAAP 
Cost of sales  $3,481    285    38         323   $3,158 
Selling, general and administrative   2,450    207    15         222    2,228 
Research and development   3,390    16    19    1,082    1,117    2,273 
Restructuring costs   114         114         114    - 
Other (income) expense, net   (312)             (1)   (1)   (311)
Income Before Taxes   3,428    (508)   (186)   (1,081)   (1,775)   5,203 
Income Tax Provision (Benefit)   483    (17)(3)   (25)(3)   (247)(3)   (289)   772 
Net Income   2,945    (491)   (161)   (834)   (1,486)   4,431 
Net Income Attributable to Merck & Co., Inc.   2,941    (491)   (161)   (834)   (1,486)   4,427 
Earnings per Common Share Assuming Dilution  $1.16    (0.19)   (0.06)   (0.33)   (0.58)  $1.74 
                               
Tax Rate   14.1%                       14.8%

                         
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. In addition, senior management’s annual compensation is derived in part using non-GAAP pretax income. 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 expenses for the amortization of intangible assets recognized as a result of business acquisitions.  Amount included in selling, general and administrative expenses reflects $182 million related to the company's planned spin-off of Organon & Co., and other acquisition and divestiture-related costs.  
 
(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.  Acquisition and divestiture-related costs also includes a tax cost of $67 million, representing an adjustment to the tax benefits recorded in conjunction with the 2015 Cubist Pharmaceuticals, Inc. acquisition.
 
(4) Amount included in research and development reflects expenses for upfront payments related to license and collaboration agreements.

 

 

 

 

MERCK & CO., INC.

GAAP TO NON-GAAP RECONCILIATION

NINE MONTHS ENDED SEPTEMBER 30, 2020

(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  $9,952    863    131         994   $8,958 
Selling, general and administrative   7,383    648    37         685    6,698 
Research and development   7,721    (12)   67    1,082    1,137    6,584 
Restructuring costs   269         269         269    - 
Other (income) expense, net   (630)   52         (17)   35    (665)
Income Before Taxes   10,784    (1,551)   (504)   (1,065)   (3,120)   13,904 
Income Tax Provision (Benefit)   1,611    (248)(3)   (59)(3)   (242)(3)   (549)   2,160 
Net Income   9,173    (1,303)   (445)   (823)   (2,571)   11,744 
Net Income Attributable to Merck & Co., Inc.   9,161    (1,303)   (445)   (823)   (2,571)   11,732 
Earnings per Common Share Assuming Dilution  $3.61    (0.51)   (0.18)   (0.32)   (1.01)  $4.62 
                               
Tax Rate   14.9%                       15.5%

 

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. In addition, senior management’s annual compensation is derived in part using non-GAAP pretax income. 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 expenses for the amortization of intangible assets recognized as a result of business acquisitions.  Amount included in selling, general and administrative expenses reflects $466 million related to the company's planned spin-off of Organon & Co., approximately $95 million of costs related to the acquisition of ArQule, Inc., and other acquisition and divestiture-related costs.  Amount included in research and development expenses primarily reflects 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 an increase in the estimated fair value measurement of liabilities for contingent consideration related to the termination of the Sanofi-Pasteur MSD joint venture, partially offset by royalty income.
 
(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.  Acquisition and divestiture-related costs also includes a tax cost of $67 million, representing an adjustment to the tax benefits recorded in conjunction with the 2015 Cubist Pharmaceuticals, Inc. acquisition.
 
(4) Amount included in research and development reflects expenses for upfront payments related to license and collaboration agreements.

 

 

 

 

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

(AMOUNTS IN MILLIONS)

(UNAUDITED)

Table 3

 

   2020   2019   3Q   Sep YTD  
   1Q  2Q  3Q  Sep YTD   1Q  2Q  3Q  Sep YTD  4Q  Full Year   Nom %  Ex-Exch %   Nom % Ex-Exch %  
TOTAL SALES (1)   $12,057  $10,872  $12,551  $35,479   $10,816  $11,760  $12,397  $34,972  $11,868  $46,840    1   2    1   3  
PHARMACEUTICAL   10,655   9,679   11,320   31,654    9,663   10,460   11,095   31,218   10,533   41,751    2   2    1   3  
Oncology                                                             
Keytruda   3,284   3,388   3,715   10,387    2,269   2,634   3,070   7,973   3,111   11,084    21   21    30   31  
Alliance Revenue – Lynparza (2)   145   178   196   519    79   111   123   313   132   444    59   58    66   67  
Alliance Revenue – Lenvima (2)   128   151   142   421    74   97   109   280   124   404    30   29    50   50  
Emend   43   33   39   115    117   121   98   336   53   388    -60   -59    -66   -65  
Vaccines (3)                                                             
Gardasil / Gardasil 9   1,097   656   1,187   2,941    838   886   1,320   3,044   693   3,737    -10   -10    -3   -2  
ProQuad / M-M-R II / Varivax   435   378   576   1,390    496   675   623   1,794   481   2,275    -8   -7    -23   -22  
Pneumovax 23   256   117   375   748    185   170   237   592   334   926    58   58    26   27  
RotaTeq   222   168   210   601    211   172   180   564   227   791    16   17    7   8  
Vaqta   60   28   51   139    47   58   62   167   71   238    -18   -17    -17   -15  
Hospital Acute Care                                                             
Bridion   299   224   320   843    255   278   284   817   313   1,131    13   13    3   4  
Noxafil   94   73   79   247    190   193   177   560   103   662    -55   -55    -56   -55  
Prevymis   60   63   77   200    32   38   45   115   50   165    72   69    74   74  
Primaxin   51   64   74   189    59   71   77   207   67   273    -4   -4    -9   -7  
Invanz   64   43   51   159    72   78   57   206   57   263    -10   -6    -23   -19  
Cancidas   55   43   50   148    61   67   62   191   58   249    -20   -19    -22   -20  
Cubicin   46   32   39   116    88   67   52   207   50   257    -26   -25    -44   -43  
Zerbaxa   37   32   43   112    26   27   35   88   32   121    22   24    27   29  
Immunology                                                             
Simponi   215   191   209   615    208   214   203   625   205   830    3        -2   -1  
Remicade   88   73   82   242    123   98   101   322   89   411    -19   -20    -25   -24  
Neuroscience                                                             
Belsomra   79   84   81   244    67   76   80   223   83   306    1        9   8  
Virology                                                             
Isentress / Isentress HD   245   196   205   646    255   247   250   752   223   975    -18   -18    -14   -12  
Zepatier   55   39   28   122    114   108   83   304   66   370    -67   -67    -60   -59  
Cardiovascular                                                             
Zetia   145   137   103   384    140   156   147   443   146   590    -30   -30    -13   -13  
Vytorin   53   39   47   139    97   76   57   231   54   285    -17   -16    -40   -38  
Atozet   122   115   111   348    94   92   97   283   108   391    14   12    23   25  
Alliance Revenue - Adempas (4)   53   79   83   216    42   51   50   144   60   204    67   67    50   50  
Adempas (5)   56   57   55   167    48   53   57   158   57   215    -5   -7    6   6  
Diabetes (6)                                                             
Januvia   774   854   821   2,449    824   908   807   2,539   943   3,482    2   2    -4   -3  
Janumet   503   490   506   1,499    530   533   503   1,567   475   2,041        2    -4   -2  
Women's Health                                                             
Implanon / Nexplanon   195   132   189   515    199   183   199   581   206   787    -5   -4    -11   -10  
NuvaRing   63   63   58   184    219   240   241   700   179   879    -76   -76    -74   -73  
Diversified Brands                                                             
Singulair   155   100   82   338    191   160   152   503   195   698    -46   -46    -33   -32  
Cozaar / Hyzaar   102   98   91   292    103   109   116   329   113   442    -21   -20    -11   -9  
Arcoxia   70   65   68   204    75   75   72   221   67   288    -5   -2    -8   -5  
Nasonex   71   49   41   161    96   72   58   226   67   293    -30   -29    -29   -27  
Follistim AQ   41   44   50   136    57   63   62   182   58   241    -18   -18    -26   -25  
Other Pharmaceutical (7)   1,194   1,103   1,186   3,478    1,082   1,203   1,149   3,431   1,183   4,615    3   4    1   3  
                                                              
ANIMAL HEALTH   1,214   1,101   1,220   3,535    1,025   1,124   1,122   3,271   1,122   4,393    9   12    8   12  
Livestock   739   648   758   2,145    611   671   726   2,007   777   2,784    5   8    7   11  
Companion Animals   475   453   462   1,390    414   453   396   1,264   345   1,609    17   18    10   12  
                                                              
Other Revenues (8)   188   92   11   290    128   176   180   483   213   696    -94   -33    -40   -12  

 

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 $2,155 million, $1,418 million and $2,521 million in the first, second and third quarters of 2020 and $1,887 million, $2,037 million, $2,517 million and $1,928 million in the first, second, third and fourth quarters of 2019, respectively.
 
(4) Alliance Revenue represents Merck's share of profits from sales in Bayer's marketing territories, which are product sales net of cost of sales and commercialization costs.
 
(5) Net product sales in Merck's marketing territories.         
 
(6) Total Diabetes sales were $1,353 million, $1,418 million and $1,405 million in the first, second and third quarters of 2020 and $1,402 million, $1,480 million, $1,360 million and $1,472 million in the first, second, third and fourth quarters of 2019, respectively.
 
(7) Includes Pharmaceutical products not individually shown above.
 
(8) Other Revenues are comprised primarily of Healthcare Services segment revenues, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities.

 

 

 

Exhibit 99.2

 

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF INCOME - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1a

 

   2020   2019   % Change 
    1Q   2Q   3Q   Sep YTD    1Q   2Q   3Q   Sep YTD    4Q   Full Year    3Q   Sep YTD 
Sales  $12,057   $10,872   $12,551   $35,479   $10,816   $11,760   $12,397   $34,972   $11,868   $46,840    1%   1%
Costs, Expenses and Other                                                            
Cost of sales   3,312    3,159    3,481    9,952    3,052    3,401    3,990    10,443    3,669    14,112    -13%   -5%
Selling, general and administrative   2,555    2,378    2,450    7,383    2,425    2,712    2,589    7,726    2,888    10,615    -5%   -4%
Research and development   2,209    2,123    3,390    7,721    1,931    2,189    3,204    7,324    2,548    9,872    6%   5%
Restructuring costs   72    83    114    269    153    59    232    444    194    638    -51%   -39%
Other (income) expense, net   71    (390)   (312)   (630)   188    140    35    362    (223)   139    *    * 
Income Before Taxes   3,838    3,519    3,428    10,784    3,067    3,259    2,347    8,673    2,792    11,464    46%   24%
Taxes on Income   619    509    483    1,611    205    615    440    1,259    428    1,687           
Net Income   3,219    3,010    2,945    9,173    2,862    2,644    1,907    7,414    2,364    9,777    54%   24%
Less: Net Income (Loss) Attributable to Noncontrolling Interests   -    8    4    12    (53)   (26)   6    (73)   7    (66)          
Net Income Attributable to Merck & Co., Inc.  $3,219   $3,002   $2,941   $9,161   $2,915   $2,670   $1,901   $7,487   $2,357   $9,843    55%   22%
Earnings per Common Share Assuming Dilution  $1.26   $1.18   $1.16   $3.61   $1.12   $1.03   $0.74   $2.89   $0.92   $3.81    57%   25%
                                                             
Average Shares Outstanding Assuming Dilution   2,547    2,536    2,538    2,541    2,603    2,588    2,572    2,587    2,559    2,580           
Tax Rate   16.1%   14.5%   14.1%   14.9%   6.7%   18.9%   18.7%   14.5%   15.3%   14.7%          

 

* 100% or greater

 

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

 

 

 

 

MERCK & CO., INC.

GAAP TO NON-GAAP RECONCILIATION

THIRD QUARTER 2019

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2c

 

   GAAP   Acquisition and
Divestiture-Related
Costs (1)
   Restructuring
Costs (2)
   Certain Other
Items (4)
   Adjustment
Subtotal
   Non-GAAP 
Cost of sales  $3,990    941    62         1,003   $2,987 
Selling, general and administrative   2,589    22    1         23    2,566 
Research and development   3,204    6    1    982    989    2,215 
Restructuring costs   232         232         232    - 
Other (income) expense, net   35    6              6    29 
Income Before Taxes   2,347    (975)   (296)   (982)   (2,253)   4,600 
Income Tax Provision (Benefit)   440    (231)(3)   (50)(3)   -    (281)   721 
Net Income   1,907    (744)   (246)   (982)   (1,972)   3,879 
Net Income Attributable to Merck & Co., Inc.   1,901    (744)   (246)   (982)   (1,972)   3,873 
Earnings per Common Share Assuming Dilution  $0.74    (0.29)   (0.10)   (0.38)   (0.77)  $1.51 
                               
Tax Rate   18.7%                       15.7%

 

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. In addition, senior management’s annual compensation is derived in part using non-GAAP pretax income. 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 $320 million of expenses for the amortization of intangible assets recognized as a result of business acquisitions, as well as $612 million of intangible asset impairment charges 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.  

 

(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 Therapeutics, Inc.

 

 

 

 

MERCK & CO., INC.

GAAP TO NON-GAAP RECONCILIATION

NINE MONTHS ENDED SEPTEMBER 30, 2019

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2d

 

   GAAP   Acquisition and
Divestiture-Related
Costs (1)
   Restructuring
Costs (2)
   Certain Other
Items (4)
   Adjustment
Subtotal
   Non-GAAP 
Cost of sales  $10,443    1,801    161         1,962   $8,481 
Selling, general and administrative   7,726    82    33         115    7,611 
Research and development   7,324    (21)   4    982    965    6,359 
Restructuring costs   444         444         444    - 
Other (income) expense, net   362    321         48    369    (7)
Income Before Taxes   8,673    (2,183)   (642)   (1,030)   (3,855)   12,528 
Income Tax Provision (Benefit)   1,259    (438)(3)   (106)(3)   (304)(5)   (848)   2,107 
Net Income   7,414    (1,745)   (536)   (726)   (3,007)   10,421 
Less: Net (Loss) Income Attributable to Noncontrolling Interests   (73)   (89)             (89)   16 
Net Income Attributable to Merck & Co., Inc.   7,487    (1,656)   (536)   (726)   (2,918)   10,405 
Earnings per Common Share Assuming Dilution  $2.89    (0.64)   (0.21)   (0.28)   (1.13)  $4.02 
                               
Tax Rate   14.5%                       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. In addition, senior management’s annual compensation is derived in part using non-GAAP pretax income. 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 $1.1 billion of expenses for the amortization of intangible assets recognized as a result of business acquisitions, as well as $693 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.  Amount included in research and development expenses primarily reflects 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 Therapeutics, Inc.

 

(5) Primarily reflects a $360 million net tax benefit related to the settlement of certain federal income tax matters and a $67 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

THIRD QUARTER 2020

(AMOUNTS IN MILLIONS)

(UNAUDITED)

Table 3a

 

   Global   U.S.   International 
   3Q 2020   3Q 2019   % Change   3Q 2020   3Q 2019   % Change   3Q 2020   3Q 2019   % Change 
TOTAL SALES (1)  $12,551   $12,397    1   $5,625   $5,573    1   $6,926   $6,824    1 
PHARMACEUTICAL   11,320    11,095    2    5,218    5,180    1    6,102    5,914    3 
Oncology                                             
Keytruda   3,715    3,070    21    2,157    1,743    24    1,559    1,327    17 
Alliance Revenue - Lynparza (2)   196    123    59    107    71    52    89    53    70 
Alliance Revenue - Lenvima (2)   142    109    30    82    65    26    60    44    36 
Emend   39    98    -60    8    42    -82    31    56    -44 
Vaccines (3)                                             
Gardasil / Gardasil 9   1,187    1,320    -10    579    761    -24    608    558    9 
ProQuad / M-M-R II / Varivax   576    623    -8    437    482    -9    139    141    -2 
Pneumovax 23   375    237    58    276    179    54    99    58    72 
RotaTeq   210    180    16    114    102    11    96    78    23 
Vaqta   51    62    -18    32    36    -11    19    26    -26 
Hospital Acute Care                                             
Bridion   320    284    13    162    133    22    157    151    4 
Noxafil   79    177    -55    13    77    -83    66    100    -34 
Prevymis   77    45    72    32    22    42    46    23    101 
Primaxin   74    77    -4    1    2    -34    73    75    -3 
Invanz   51    57    -10    1    (1)   *    50    58    -14 
Cancidas   50    62    -20    1    0    80    49    62    -21 
Zerbaxa   43    35    22    20    20    4    23    15    47 
Cubicin   39    52    -26    11    14    -22    28    38    -28 
Immunology                                             
Simponi   209    203    3                   209    203    3 
Remicade   82    101    -19                   82    101    -19 
Neuroscience                                             
Belsomra   81    80    1    18    23    -24    63    57    11 
Virology                                             
Isentress / Isentress HD   205    250    -18    92    102    -10    113    149    -24 
Zepatier   28    83    -67    6    24    -76    22    59    -63 
Cardiovascular                                             
Zetia   103    147    -30    (1)   5    -115    103    142    -27 
Vytorin   47    57    -17    3    5    -34    44    52    -16 
Atozet   111    97    14                   111    97    14 
Alliance Revenue - Adempas (4)   83    50    67    78    48    64    5    2    117 
Adempas (5)   55    57    -5                   55    57    -5 
Diabetes (6)                                             
Januvia   821    807    2    342    367    -7    479    440    9 
Janumet   506    503         105    129    -18    400    375    7 
Women's Health                                             
Implanon / Nexplanon   189    199    -5    137    136    1    52    62    -17 
NuvaRing   58    241    -76    24    202    -88    34    39    -13 
Diversified Brands                                             
Cozaar / Hyzaar   91    116    -21    5    6    -7    86    110    -22 
Singulair   82    152    -46    4    11    -61    78    140    -44 
Arcoxia   68    72    -5                   68    72    -5 
Follistim AQ   50    62    -18    20    27    -28    31    35    -11 
Nasonex   41    58    -30         4    -110    41    55    -24 
Other Pharmaceutical (7)   1,186    1,149    3    352    343    3    834    804    4 
                                              
ANIMAL HEALTH   1,220    1,122    9    398    337    18    822    785    5 
Livestock   758    726    5    164    144    14    594    582    2 
Companion Animals   462    396    17    234    193    22    228    203    12 
                                              
Other Revenues (8)   11    180    -94    9    56    -85    2    125    -99 

 

* 200% or greater

 

Sum of U.S. plus international may not equal global 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 $2,521 million and $2,517 million on a global basis in the third quarter of 2020 and 2019, respectively.

 

(4) Alliance Revenue represents Merck's share of profits from sales in Bayer's marketing territories, which are product sales net of cost of sales and commercialization costs.

 

(5) Net product sales in Merck's marketing territories.

 

(6) Total Diabetes sales were $1,405 million and $1,360 million on a global basis in the third quarter of 2020 and 2019, respectively.

 

(7) Includes Pharmaceutical products not individually shown above.

 

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

 

 

 

 

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

SEPTEMBER YEAR-TO-DATE 2020

(AMOUNTS IN MILLIONS)

(UNAUDITED)

Table 3b

 

   Global   U.S.   International 
   Sep YTD 2020   Sep YTD 2019   % Change   Sep YTD 2020   Sep YTD 2019   % Change   Sep YTD 2020   Sep YTD 2019   % Change 
TOTAL SALES (1)  $35,479   $34,972    1   $15,396   $15,320        $20,084   $19,652    2 
PHARMACEUTICAL   31,654    31,218    1    14,202    14,202         17,452    17,016    3 
Oncology                                             
Keytruda   10,387    7,973    30    6,106    4,525    35    4,281    3,448    24 
Alliance Revenue - Lynparza (2)   519    313    66    297    186    59    223    126    76 
Alliance Revenue - Lenvima (2)   421    280    50    270    169    60    152    112    36 
Emend   115    336    -66    18    173    -89    96    163    -41 
Vaccines (3)                                             
Gardasil / Gardasil 9   2,941    3,044    -3    1,209    1,579    -23    1,732    1,464    18 
ProQuad / M-M-R II / Varivax   1,390    1,794    -23    1,033    1,325    -22    356    469    -24 
Pneumovax 23   748    592    26    478    428    12    270    164    64 
RotaTeq   601    564    7    355    360    -2    246    203    21 
Vaqta   139    167    -17    79    103    -23    60    65    -7 
Hospital Acute Care                                             
Bridion   843    817    3    412    381    8    431    437    -1 
Noxafil   247    560    -56    27    268    -90    220    291    -25 
Prevymis   200    115    74    87    60    45    113    55    106 
Primaxin   189    207    -9    2    2         187    204    -9