MRK Merck and Co Inc

• Third-Quarter 2014 Non-GAAP EPS of $0.90, Excluding Certain Items, and GAAP EPS of $0.31
• Narrows 2014 Full-Year Non-GAAP EPS Target to $3.46 to $3.50, Excluding Certain Items; Updates 2014 Full-Year GAAP EPS Target to $4.06 to $4.29; Now Expects 2014 Full-Year Revenues to be Between $42.4 Billion and $42.8 Billion
• Generated Worldwide Sales of $10.6 Billion, a Decrease of 4 Percent, Reflecting Unfavorable Impact of Divested Products, Patent Expiries and Decline in Sales of Hepatitis C Products
• Increased Sales of Acute Care, Immunology, Diabetes and Animal Health Products
• FDA Approved KEYTRUDA for the Treatment of Advanced Melanoma in Patients Who Have Progressed after Other Therapies and BELSOMRA for the Treatment of Insomnia
• KEYTRUDA Received Breakthrough Therapy Designation from the FDA for Patients with Advanced Non-Small Cell Lung Cancer Who Have Progressed Following Platinum-Containing Chemotherapy

Merck (NYSE:MRK), known as MSD outside the United States and Canada, today announced financial results for the third quarter of 2014.

  Third Quarter   Third Quarter $ in millions, except EPS amounts   2014   2013 Sales   $10,557   $11,032 GAAP EPS   0.31   0.38

Non-GAAP EPS that excludes items listed below1

  0.90   0.92

GAAP Net Income2

 

  895   1,124 Non-GAAP Net Income that excludes items listed below1,2   2,617   2,729

Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the third quarter of $0.90 exclude acquisition- and divestiture-related costs, restructuring costs and certain other items.

A reconciliation of GAAP to non-GAAP net income and EPS is provided in the tables that follow. Year-to-date results can be found in the attached tables.

$ in millions, except EPS amounts   Third Quarter 2014   Third Quarter 2013 EPS         GAAP EPS   $0.31   $0.38

Difference3

  0.59   0.54 Non-GAAP EPS that excludes items listed below1   $0.90   $0.92   Net Income         GAAP net income2   $895   $1,124 Difference   1,722   1,605 Non-GAAP net income that excludes items listed below1,2   $2,617   $2,729   Decrease (Increase) in Net Income Due to Excluded Items:        

Acquisition- and divestiture-related costs4

  $1,659   $1,196 Restructuring costs   612   967 Additional year of health care reform fee   193   -- Gain on divestiture of certain ophthalmic products   (396)   -- Other   5   -- Net decrease (increase) in income before taxes   2,073   2,163

Income tax (benefit) expense5

  (295)   (558) Acquisition- and divestiture-related costs attributable to non-controlling interests   (56)   -- Decrease (increase) in net income2   $1,722   $1,605

“Last October, we launched a multi-year initiative to transform Merck and build a platform for sustained, future growth,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “One year later, we delivered solid third-quarter results and are making steady progress in our transformation, including divesting non-core assets, reducing our expense base and investing in our promising new product launches and pipeline.”

Select Revenue Highlights

Worldwide sales were $10.6 billion for the third quarter of 2014, a decrease of 4 percent compared with the third quarter of 2013, including a 1 percent positive impact from foreign exchange. The decline includes $425 million of lower sales due to divestitures and the termination of the joint venture with AstraZeneca (AZ).

The following table reflects sales of the company’s top pharmaceutical products, as well as total sales of Animal Health and Consumer Care products.

  Third Quarter   Third Quarter   Change       Change $ in millions   2014   2013     Ex-exchange Total Sales   $10,557   $11,032   -4% -5% Pharmaceutical   9,134   9,475   -4% -4% JANUVIA/JANUMET   1,439   1,369   5% 5% ZETIA/VYTORIN   1,028   1,059   -3% -3% REMICADE   604   574   5% 3% GARDASIL   590   665   -11% -11% PROQUAD, M-M-R II and VARIVAX   421   421   0% 0% ISENTRESS   412   427   -3% -3% NASONEX   261   297   -12% -12% SINGULAIR   218   280   -22% -20% Animal Health   885   800   11% 10% Consumer Care   401   443   -9% -9% Other Revenues   137   314   -56% -71%

Pharmaceutical Revenue Performance

Third-quarter pharmaceutical sales declined 4 percent to $9.1 billion. Expected declines occurred due to the ongoing impact of product divestitures, as well as the loss of market exclusivity for certain products, including TEMODAR (temozolomide) and SINGULAIR (montelukast sodium). Also contributing to the decline were lower sales from the hepatitis franchise of VICTRELIS (boceprevir) and PEGINTRON (peginterferon alfa-2b) as a result of increased competition, as well as of GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16, and 18) Vaccine, Recombinant]. These declines were partially offset by growth in the global acute care franchise, including NOXAFIL (posaconazole) and BRIDION (sugammadex); the diabetes franchise of JANUVIA (sitagliptin)/JANUMET (sitagliptin and metformin HCI); REMICADE (infliximab); SIMPONI (golimumab); and DULERA (mometasone furoate and formoterol fumarate dihydrate).

Combined sales of JANUVIA and JANUMET, medicines that help lower blood sugar levels in adults with type 2 diabetes, grew 5 percent to $1.4 billion in the third quarter. The growth reflects higher sales in the United States and Europe, which were partially offset by price reductions in Japan.

Combined sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), medicines for lowering LDL cholesterol, declined 3 percent to $1.0 billion in the third quarter, driven by lower sales in the United States.

Combined sales of REMICADE and SIMPONI, treatments for inflammatory diseases, grew 11 percent to $774 million in the third quarter, including a 2 percent positive impact from foreign exchange. Over the last 12 months, SIMPONI has been the fastest growing anti-TNF agent in all countries where marketed by Merck.

Merck’s sales of GARDASIL, a vaccine to help prevent certain diseases caused by four types of human papillomavirus, were $590 million, a decrease of 11 percent for the third quarter. The results reflect lower purchases in the U.S. public sector.

Worldwide sales of ISENTRESS, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, decreased 3 percent to $412 million in the third quarter. The decline reflects lower sales in the United States, partially offset by growth in Europe.

On Sept. 4, 2014, the U.S. Food and Drug Administration (FDA) granted accelerated approval of KEYTRUDA (pembrolizumab), the first approved anti-PD-1 therapy in the United States. KEYTRUDA has been approved for the treatment of patients with unresectable or metastatic melanoma and disease progression following ipilimumab and, if BRAF V600 mutation positive, a BRAF inhibitor. Within a few days of approval, initial orders shipped, and the Merck team has already reached more than 75 percent of key physicians. Merck believes there are currently approximately 1,200 patients who may be eligible for KEYTRUDA, based on the product’s label, and to date, approximately 900 patients are being treated with KEYTRUDA.

Animal Health Revenue Performance

Animal Health sales totaled $885 million for the third quarter of 2014, an increase of 11 percent compared with the third quarter of 2013, including a 1 percent positive impact due to foreign exchange. Growth was driven by increases across all species. In companion animals, growth was supported by ongoing launches in Europe and the United States of BRAVECTO (fluralaner), a chewable tablet that kills fleas and ticks in dogs for up to 12 weeks. Growth was partially offset by the loss of sales of ZILMAX (zilpaterol hydrochloride), a feed supplement for beef cattle. The company decided last year to voluntarily suspend sales of ZILMAX in the United States and Canada. Excluding the impact of the ZILMAX sales suspension, Animal Health sales increased 14 percent in the third quarter.

Consumer Care Revenue Performance

Third-quarter global sales of Consumer Care products were $401 million, a decline of 9 percent compared to the third quarter of 2013. As previously announced, Merck completed the sale of its Consumer Care business to Bayer AG on Oct. 1, 2014.

Other Revenue Performance

Other revenues – primarily comprising alliance revenue, miscellaneous corporate revenues and third-party manufacturing sales – decreased 56 percent to $137 million compared to the third quarter of 2013. The decrease was driven primarily by the loss of revenue from AZ recorded by Merck, which was $220 million in the third quarter of 2013. On June 30, 2014, AZ exercised its option to buy the company’s interest in a subsidiary and, through it, the company’s interest in Nexium and Prilosec. As of July 1, 2014, Merck no longer records equity income from AZ and supply sales to AZ have ended. The decline in other revenues also reflects $50 million of lower third-party manufacturing sales, primarily driven by the divestiture of a substantial portion of this business in 2013.

Third-Quarter Expense and Other Information

The costs detailed below totaled $9.2 billion on a GAAP basis during the third quarter of 2014 and include $2.4 billion of acquisition- and divestiture-related costs, restructuring costs and certain other items.

$ in millions   Included in expenses for the period   Acquisition-       and Restructuring GAAP Divestiture- Costs Certain Non-GAAP(1) Third Quarter Related Other Items 2014       Costs(4)             Materials and production   $4,223   $1,420   $87   $--   $2,716 Marketing and administrative   2,975   110   68   193   2,604 Research and development   1,659   36   81   --   1,542 Restructuring costs   376   --   376   --   --   Third Quarter 2013                     Materials and production   $4,104   $1,176   $57   $--   $2,871 Marketing and administrative   2,803   20   31   --   2,752 Research and development   1,660   --   9   --   1,651 Restructuring costs   870   --   870   --   --

The gross margin was 60.0 percent for the third quarter of 2014 compared to 62.8 percent for the third quarter of 2013, reflecting 14.3 and 11.2 unfavorable percentage point impacts, respectively, from the acquisition- and divestiture-related costs, and restructuring costs noted above.

Marketing and administrative expenses, on a non-GAAP basis, were $2.6 billion in the third quarter of 2014, a decrease primarily due to productivity measures from $2.8 billion in the same period of 2013.

Research and development (R&D) expenses, on a non-GAAP basis, were $1.5 billion in the third quarter of 2014, a decrease from $1.7 billion in the third quarter of 2013. The decline reflects targeted cost reductions and lower clinical development spending resulting from portfolio prioritization.

Other (income) expense, net, was $142 million of income in the third quarter of 2014 compared to $172 million of expense in the third quarter of 2013. The third quarter of 2014 includes a gain of $396 million on the divestiture of certain ophthalmic products in several international markets, partially offset by a $93 million goodwill impairment charge related to the company’s joint venture with Supera Farma Laboratorios S.A. in Brazil.

The GAAP effective tax rate of 43.5 percent for the third quarter of 2014 reflects the impacts of acquisition- and divestiture-related costs, restructuring costs and certain other items, including an additional year of expense related to the non-tax deductible health care reform fee. The non-GAAP effective tax rate, which excludes these items, was 26.5 percent for the quarter.

Key Developments

• The FDA granted accelerated approval of KEYTRUDA on Sept. 4, 2014, for the treatment of advanced melanoma in patients who have progressed after other therapies.
• As announced earlier today, KEYTRUDA received Breakthrough Therapy Designation from the FDA for patients with advanced non-small cell lung cancer who have progressed following platinum-containing chemotherapy.
• Interim data in five tumor types exploring investigational uses of KEYTRUDA was presented at the 2014 European Society for Medical Oncology 2014 Congress.
• On Aug. 13, 2014, the FDA approved BELSOMRA (suvorexant) for the treatment of adults with insomnia who have difficulty falling asleep and/or staying asleep.
• Merck completed the sale of its Consumer Care business to Bayer AG on Oct. 1, 2014. As previously announced, the companies have entered into a worldwide collaboration to develop and commercialize soluble guanylate cyclase modulators. The collaboration includes Bayer’s Adempas (riociguat), which is approved to treat pulmonary arterial hypertension and chronic thromboembolic pulmonary hypertension.
• On Aug. 5, 2014, Merck completed its acquisition of Idenix Pharmaceuticals, Inc. to expand its portfolio of investigational therapies for hepatitis C.
• On Oct. 15, 2014, the company announced that it accepted for purchase $1.8 billion in principal amount of eight series of notes as part of a previously announced tender offer. In addition, the company intends to redeem its $1.0 billion 4% Notes due 2015 and its $1.0 billion 6% Senior Notes due 2017. As a result of these transactions, Merck expects to record a pre-tax charge of approximately $650 million in the fourth quarter of 2014, which will be excluded from non-GAAP results.

For a full listing of company developments that occurred in the third quarter of 2014, visit the newsroom at www.merck.com.

Financial Outlook

Merck has narrowed its full-year 2014 non-GAAP EPS range to be between $3.46 and $3.50. The range excludes acquisition- and divestiture-related costs and costs related to restructuring programs, as well as certain other items. Merck now expects the company’s full-year 2014 GAAP EPS range to be between $4.06 and $4.29.

At current exchange rates, Merck now anticipates full-year 2014 revenues to be between $42.4 billion and $42.8 billion.

In addition, the company continues to expect full-year 2014 non-GAAP marketing and administrative and R&D expenses will be below 2013 levels. In the fourth quarter of 2014, the company anticipates R&D expenses will be higher than the fourth quarter of 2013 due to timing of certain programs. The company continues to anticipate its full-year 2014 non-GAAP tax rate will be in the range of 24 to 26 percent, not including a 2014 R&D tax credit.

A reconciliation of anticipated 2014 EPS, as reported in accordance with GAAP to non-GAAP EPS that excludes certain items, is provided in the table below.

  Full Year $ in millions, except EPS amounts   2014 GAAP EPS   $4.06 to $4.29 Difference3   (0.60) to (0.79) Non-GAAP EPS that excludes items listed below   $3.46 to $3.50     Acquisition- and divestiture-related costs   $5,700 to $5,500 Restructuring costs   1,700 to 1,500 Loss on extinguishment of debt   675 to 625 Additional year of health care reform fee   193 Gain on AZ option exercise   (741) Gain on divestiture of certain ophthalmic products   (490) to (510) Gain on sale of Merck Consumer Care   (11,000) to (11,300) Net decrease (increase) in income before taxes   (3,963) to (4,733) Estimated income tax (benefit) expense   2,250 to 2,475 Decrease (increase) in net income   (1,713) to (2,258) Acquisition- and divestiture-related costs attributable to non-controlling interests   (56) Decrease (increase) in net income2   ($1,769) to ($2,314)

Total Employees

As of Sept. 30, 2014, Merck had approximately 71,000 employees worldwide. In addition, the company’s joint ventures in China and Brazil, which are included in the consolidated results of Merck, had about 1,200 employees.

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 http://www.merck.com/investors/events-and-presentations/home.html. Institutional investors and analysts can participate in the call by dialing (706) 758-9927 or (877) 381-5782 and using ID code number 5243903. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 5243903. 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

Today’s Merck is a global healthcare leader working to help the world be well. Merck is known as MSD outside the United States and Canada. Through our prescription medicines, vaccines, biologic therapies and animal health products, we work with customers and operate in more than 140 countries to deliver innovative health solutions. We also demonstrate our commitment to increasing access to healthcare through far-reaching policies, programs and partnerships. For more information, visit www.merck.com and connect with us on Twitter, Facebook and YouTube. You can also follow our Twitter conversation at $MRK.

Forward-Looking Statement

This news release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. These statements are based upon the current beliefs and expectations of Merck’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 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; Merck’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 Merck’s patents and other protections for innovative products; and the exposure to litigation, including patent litigation, and/or regulatory actions.

Merck undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in Merck’s 2013 Annual Report on Form 10-K and the company’s other filings with the Securities and Exchange Commission (SEC) available at the SEC’s Internet site (www.sec.gov).

###

1 Merck is providing certain 2014 and 2013 non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP. For description of the items, see Table 2a, including the related footnotes, attached to this release.

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

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

4 Includes expenses of $1.0 billion and $1.2 billion in the third quarter of 2014 and 2013, respectively, for the amortization of intangible assets recognized as a result of mergers and acquisitions, as well as intangible asset impairment charges of $541 million in the third quarter of 2014. Also includes merger integration costs, as well as transaction and certain other costs related to business acquisitions and divestitures.

5 Includes the estimated tax impact on the reconciling items.

  MERCK & CO., INC. CONSOLIDATED STATEMENT OF INCOME - GAAP (AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES) (UNAUDITED) Table 1                     GAAP % Change GAAP % Change         3Q14   3Q13 Sep YTD 2014   Sep YTD 2013                                 Sales $ 10,557 $ 11,032 -4% $ 31,755 $ 32,713 -3%   Costs, Expenses and Other Materials and production (1) 4,223 4,104 3% 13,019 12,347 5% Marketing and administrative (1) 2,975 2,803 6% 8,681 8,929 -3% Research and development (1) 1,659 1,660 -- 4,897 5,668 -14% Restructuring costs (2) 376 870 -57% 664 1,144 -42% Equity income from affiliates (3) (24 ) (102 ) -76% (241 ) (351 ) -31% Other (income) expense, net (1) (4) (142 ) 172 * (737 ) 656 * Income Before Taxes 1,490 1,525 -2% 5,472 4,320 27% Income Tax Provision 648 375 865 618 Net Income 842 1,150 -27% 4,607 3,702 24% Less: Net (Loss) Income Attributable to Noncontrolling Interests (53 ) 26 3 79 Net Income Attributable to Merck & Co., Inc. $ 895 $ 1,124 -20% $ 4,604 $ 3,623 27% Earnings per Common Share Assuming Dilution $ 0.31     $ 0.38   -18% $ 1.57     $ 1.20   31%             Average Shares Outstanding Assuming Dilution 2,911 2,960 2,942 3,007 Tax Rate (5)   43.5 %     24.6 %   15.8 %     14.3 %  

* 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) Reflects the performance of the company’s joint ventures and other equity method affiliates, including the Sanofi Pasteur MSD partnership, as well as the AstraZeneca LP partnership until its termination on June 30, 2014.

(4) Other (income) expense, net in the third quarter and first nine months of 2014 includes a gain of $396 million on the divestiture of certain ophthalmic products in several international markets, partially offset by a $93 million goodwill impairment charge related to the company's joint venture with Supera Farma Laboratorios S.A. Other (income) expense, net in the first nine months of 2014 also includes a gain of $741 million related to AstraZeneca's option exercise and net gains of $168 million related to the divestiture of the company's Sirna Therapeutics, Inc. subsidiary. Other (income) expense, net in the first nine months of 2013 reflects approximately $140 million of exchange losses as a result of a Venezuelan currency devaluation.

(5) The effective income tax rate for the first nine months of 2014 reflects a net benefit of $517 million recorded in connection with AstraZeneca's option exercise, as well as a benefit of approximately $300 million associated with a capital loss generated in the first quarter of 2014.

The effective income tax rate for the first nine months of 2013 reflects net benefits from the settlements of certain federal income tax issues, reductions in tax reserves upon expiration of applicable statute of limitations and the favorable impact of tax legislation enacted in the first quarter of 2013.

  MERCK & CO., INC. CONSOLIDATED STATEMENT OF INCOME GAAP TO NON-GAAP RECONCILIATION THIRD QUARTER 2014 (AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES) (UNAUDITED) Table 2a                         Acquisition and Restructuring Certain Other Adjustment GAAP Divestiture-

Costs (2)

Items (3)

Subtotal Non-GAAP  

Related Costs (1)

            Sales $ 10,557 $ 10,557   Costs, Expenses and Other Materials and production 4,223 1,420 87 1,507 2,716 Marketing and administrative 2,975 110 68 193 371 2,604 Research and development 1,659 36 81 117 1,542 Restructuring costs 376 376 376 - Equity income from affiliates (24 ) (24 ) Other (income) expense, net (142 ) 93 (391 ) (298 ) 156 Income Before Taxes 1,490 (1,659 ) (612 ) 198 (2,073 ) 3,563 Taxes on Income 648 (295 )

(4)

943 Net Income 842 (1,778 ) 2,620 Less: Net (Loss) Income Attributable to Noncontrolling Interests (53 ) (56 ) (56 ) 3 Net Income Attributable to Merck & Co., Inc. $ 895 $ (1,722 ) $ 2,617 Earnings per Common Share Assuming Dilution $ 0.31   $ 0.90       Average Shares Outstanding Assuming Dilution 2,911 2,911 Tax Rate   43.5 %   26.5 %

Merck is providing non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.

(1) Amounts included in materials and production costs reflect expenses of $1.0 billion for the amortization of intangible assets recognized as a result of mergers and acquisitions, as well as $412 million of impairment charges on product intangibles. Amounts included in marketing and administrative expenses reflect merger integration costs, as well as transaction and certain other costs related to business acquisitions and divestitures. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges primarily related to the company's joint venture with Supera. Amount included in other (income) expense, net represents a goodwill impairment charge related to the joint venture with Supera. Amount included in net (loss) income attributable to non-controlling interests represents the portion of intangible asset and goodwill impairment charges related to the joint venture with Supera that are attributable to non-controlling interests.

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

(3) Amount included in marketing and administrative expenses represents an additional year of expense related to the healthcare reform fee in accordance with final regulations issued in the third quarter by the Internal Revenue Service. Included in other (income) expenese, net is a $396 million gain on the divestiture of certain ophthalmic products in several international markets.

(4) Represents the estimated tax impact on the reconciling items.

  MERCK & CO., INC. CONSOLIDATED STATEMENT OF INCOME GAAP TO NON-GAAP RECONCILIATION NINE MONTHS ENDED SEPTEMBER 30, 2014 (AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES) (UNAUDITED) Table 2b                           Acquisition and Restructuring Certain Other Adjustment GAAP Divestiture-

Costs (2)

Items (3)

Subtotal Non-GAAP  

Related Costs (1)

            Sales $ 31,755 $ 31,755   Costs, Expenses and Other Materials and production 13,019 4,270 377 4,647 8,372 Marketing and administrative 8,681 153 143 193 489 8,192 Research and development 4,897 36 175 211 4,686 Restructuring costs 664 664 664 - Equity income from affiliates (241 ) (241 ) Other (income) expense, net (737 ) 93 (1,132 ) (1,039 ) 302 Income Before Taxes 5,472 (4,552 ) (1,359 ) 939 (4,972 ) 10,444 Taxes on Income 865 (1,809 )

(4)

2,674 Net Income 4,607 (3,163 ) 7,770 Less: Net Income (Loss) Attributable to Noncontrolling Interests 3 (56 ) (56 ) 59 Net Income Attributable to Merck & Co., Inc. $ 4,604 $ (3,107 ) $ 7,711 Earnings per Common Share Assuming Dilution $ 1.57   $ 2.62       Average Shares Outstanding Assuming Dilution 2,942 2,942 Tax Rate   15.8 %   25.6 %

Merck is providing non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.

(1) Amounts included in materials and production costs reflect expenses of $3.2 billion for the amortization of intangible assets recognized as a result of mergers and acquisitions, as well as $1.1 billion of impairment charges on product intangibles. Amounts included in marketing and administrative expenses reflect merger integration costs, as well as transaction and certain other costs related to business acquisitions and divestitures. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges primarily related to the company's joint venture with Supera. Amount included in other (income) expense, net is a goodwill impairment charge related to the joint venture with Supera. Amount included in net income (loss) attributable to non-controlling interests represents the portion of intangible asset and goodwill impairment charges related to the joint venture with Supera that are attributable to non-controlling interests.

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

(3) Amount included in marketing and administrative expenses represents an additional year of expense related to the healthcare reform fee in accordance with final regulations issued in the third quarter by the Internal Revenue Service. Included in other (income) expense, net is a $396 million gain on the divestiture of certain ophthalmic products in several international markets and a $741 million net gain related to AstraZeneca's option exercise.

(4) Represents the estimated tax impact on the reconciling items, including a net benefit of approximately $517 million recorded in connection with AstraZeneca's option exercise, as well as a benefit of approximately $300 million associated with a capital loss generated in the first quarter.

  MERCK & CO., INC. FRANCHISE / KEY PRODUCT SALES (AMOUNTS IN MILLIONS) Table 3                   2014 2013 % Change % Change 1Q   2Q   3Q   Sep YTD 1Q   2Q   3Q   Sep YTD   4Q   Full Year

3Q

 

Sep YTD

                TOTAL SALES (1) $10,264   $10,934   $10,557   $31,755 $10,671   $11,010   $11,032   $32,713   $11,319   $44,033 -4   -3 PHARMACEUTICAL 8,451 9,087 9,134 26,672 8,891 9,310 9,475 27,677 9,760 37,437 -4 -4   Primary Care and Women's Health Cardiovascular Zetia 611 717 660 1,988 629 650 662 1,941 716 2,658 2 Vytorin 361 417 369 1,146 394 417 396 1,207 436 1,643 -7 -5   Diabetes Januvia / Janumet 1,334 1,577 1,439 4,350 1,293 1,547 1,369 4,208 1,624 5,833 5 3   General Medicine & Women's Health NuvaRing 168 178 186 531 151 171 170 492 193 686 9 8 Implanon / Nexplanon 102 119 158 379 84 102 96 282 120 403 65 34 Dulera 102 103 124 328 68 79 82 229 95 324 51 43 Follistim AQ 110 102 97 309 122 134 124 380 101 481 -22 -19   Hospital and Specialty   Hepatitis PegIntron 112 103 84 300 126 142 104 372 124 496 -19 -19 Victrelis 59 46 27 132 110 116 121 347 81 428 -78 -62   HIV Isentress 390 453 412 1,255 362 412 427 1,201 442 1,643 -3 4   Acute Care Cancidas 166 156 183 505 162 163 151 477 183 660 21 6 Invanz 114 134 141 390 110 120 130 360 128 488 9 8 Noxafil 74 98 107 280 65 71 75 212 98 309 42 32 Bridion 73 82 90 245 63 69 75 206 82 288 20 19 Primaxin 71 81 91 243 84 85 88 256 79 335 4 -5   Immunology Remicade 604 607 604 1,815 549 527 574 1,651 620 2,271 5 10 Simponi 157 174 170 500 108 120 126 354 146 500 35 41   Other Cosopt / Trusopt 99 100 34 232 105 103 104 313 103 416 -68 -26   Oncology   Emend 122 144 136 402 116 135 123 373 134 507 11 8 Temodar 83 93 88 264 216 219 162 596 111 708 -46 -56   Diversified Brands   Respiratory Nasonex 312 258 261 830 385 325 297 1,008 327 1,335 -12 -18 Singulair 271 284 218 773 337 281 280 898 298 1,196 -22 -14 Clarinex 62 69 49 180 61 64 54 180 55 235 -10   Other Cozaar / Hyzaar 205 214 195 614 267 255 238 760 246 1,006 -18 -19 Arcoxia 128 141 132 400 121 121 112 354 131 484 18 13 Fosamax 123 121 114 358 137 144 140 421 139 560 -19 -15 Propecia 74 58 66 197 68 67 71 206 77 283 -7 -4 Zocor 64 69 61 194 82 74 65 221 79 301 -6 -12 Remeron 50 40 47 137 52 53 44 150 56 206 7 -8   Vaccines   Gardasil 383 409 590 1,382 390 383 665 1,438 394 1,831 -11 -4 ProQuad, M-M-R II and Varivax 280 326 421 1,027 272 339 421 1,032 273 1,306 -1 RotaTeq 169 147 174 490 162 144 201 507 129 636 -14 -3 Zostavax 142 156 181 479 168 141 185 494 264 758 -2 -3 Pneumovax 23 101 102 197 400 111 108 193 412 241 653 2 -3   Other Pharmaceutical (2) 1,175 1,209 1,228 3,617 1,361 1,430 1,350 4,139 1,435 5,570 -9 -13   ANIMAL HEALTH 813 872 885 2,569 840 851 800 2,491 871 3,362 11 3   CONSUMER CARE (3) 546 583 401 1,531 571 490 443 1,504 390 1,894 -9 2 Claritin OTC 170 153 110 433 177 78 123 379 92 471 -11 14   Other Revenues (4) 454 392 137 983 369 359 314 1,041 298 1,340 -56 -5 Astra 147 316 1 465 262 245 220 727 193 920 -99 -36

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

(1) Only select products are shown.

(2) Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $98 million, $76 million and $116 million for the first, second and third quarters of 2014, respectively. Other Vaccines sales included in Other Pharmaceutical were $53 million, $86 million, $127 million, and $101 million for the first, second, third, and fourth quarters of 2013, respectively.

(3) The decrease in Consumer Care sales in the second quarter and full year of 2013 resulted from the termination in China of distribution arrangements and a reversal of sales previously made to those distributors, together with associated termination costs.

(4) Other revenues are comprised primarily of alliance revenue, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities. On October 1, 2013, the company divested a substantial portion of its third-party manufacturing sales. On June 30, 2014, AstraZeneca exercised its option to buy Merck's interest in a subsidiary and through it, Merck's interest in Nexium and Prilosec. As a result, the company no longer records supply sales for these products. Other revenues in the first quarter and September YTD 2014 include $232 million of revenue recognized in connection with the sale of U.S. Saphris rights. In addition, Other revenues in the fourth quarter and full year of 2013 reflect $50 million of revenue for the out-license of a pipeline compound.

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MerckMedia:Steve Cragle, 908-423-3461Lainie Keller, 908-236-5036orInvestors:Joe Romanelli, 908-423-5185Justin Holko, 908-423-5088