- Fourth-Quarter 2017 Worldwide Sales
Were $10.4 Billion, an Increase of 3 Percent, Including a 1 Percent
Positive Impact from Foreign Exchange; Full-Year 2017 Worldwide
Sales Were $40.1 Billion, an Increase of 1 Percent
- Fourth-Quarter 2017 GAAP EPS Was
$(0.32), Reflecting a $2.6 Billion Provisional Charge Related to
U.S. Tax Legislation; Fourth-Quarter Non-GAAP EPS Was $0.98
- Full-Year 2017 GAAP EPS Was $0.93,
Reflecting a $2.6 Billion Provisional Charge Related to U.S. Tax
Legislation and a $2.35 Billion Charge Related to the Formation of
a Strategic Oncology Collaboration With AstraZeneca; Full-Year
Non-GAAP EPS Was $3.98
- 2018 Financial Outlook
- Anticipates Full-Year 2018 Worldwide
Sales to Be Between $41.2 Billion and $42.7 Billion, Including an
Approximately 1 Percent Positive Impact from Foreign Exchange
- Expects Full-Year 2018 GAAP EPS to Be
Between $2.97 and $3.12; Expects Non-GAAP EPS to Be Between $4.08
and $4.23, Including an Approximately 1 Percent Negative Impact
from Foreign Exchange
- KEYTRUDA Significantly Improved Overall
Survival and Progression-Free Survival as First-Line Treatment in
Combination with Pemetrexed and Platinum Chemotherapy for Patients
With Metastatic Non-squamous Non-Small Cell Lung Cancer in
KEYNOTE-189 Study
Merck (NYSE: MRK), known as MSD outside the United States and
Canada, today announced financial results for the fourth quarter
and full year of 2017.
This press release features multimedia. View
the full release here:
http://www.businesswire.com/news/home/20180202005146/en/
“Our 2017 results reflect the underlying strength of our
business and our ability to grow, despite significant headwinds,”
said Kenneth C. Frazier, chairman and chief executive officer,
Merck. “We enter 2018 with strong operating momentum, based on our
key pillars of growth that will enable us to deliver on our mission
of improving patients’ lives.”
Financial Summary
$ in millions, except EPS amounts
Fourth Quarter
Year Ended 2017
2016
Dec. 31, 2017
Dec. 31, 2016
Sales
$10,433
$10,115
$40,122
$39,807
GAAP net (loss) income1
(872 ) (594 ) 2,568 3,920 Non-GAAP net
income that excludes certain items1,2* 2,665
2,470 10,933 10,538 GAAP EPS (0.32 )
(0.22 ) 0.93 1.41
Non-GAAP EPS that excludes certain
items2
0.98 0.89 3.98 3.78
*Refer to table on page 10.
Worldwide sales were $10.4 billion for the fourth quarter of
2017, an increase of 3 percent compared with the fourth quarter of
2016, including a 1 percent positive impact from foreign exchange.
Full-year 2017 worldwide sales were $40.1 billion, an increase of 1
percent compared with the full year of 2016.
Sales in the fourth quarter and full year of 2017 reflect
incremental sales of approximately $140 million and $400 million,
respectively, due to the recording of vaccine sales from 19
European countries that were part of the Sanofi Pasteur MSD (SPMSD)
vaccines joint venture, which was terminated on Dec. 31, 2016.
In addition, sales in the fourth quarter of 2017 include
approximately $115 million for the partial replenishment of doses
of GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant),
a vaccine to prevent certain cancers and other diseases caused by
HPV, that were borrowed from the U.S. Centers for Disease Control
and Prevention (CDC) Pediatric Vaccine Stockpile in the third
quarter. The effect of the borrowing and subsequent partial
replenishment resulted in a net reduction in sales of $125 million
for the full year of 2017.
Sales in the fourth quarter of 2017 compared with the fourth
quarter of 2016 also reflect a favorable impact of approximately
$150 million due to the timing of shipments in Japan in the prior
year.
As expected, revenue in the fourth quarter and full year of 2017
was unfavorably affected by approximately $125 million and $260
million, respectively, from lost sales in certain markets related
to the cyber-attack that occurred in June.
GAAP (generally accepted accounting principles) earnings (loss)
per share assuming dilution (EPS) were $(0.32) for the fourth
quarter and $0.93 for the full year of 2017, which reflect the
impact of recently enacted U.S. tax legislation and for the full
year also reflect a charge related to the formation of a strategic
oncology collaboration with AstraZeneca. Non-GAAP EPS of $0.98 for
the fourth quarter and $3.98 for the full year of 2017 excludes
acquisition- and divestiture-related costs, restructuring costs, a
$2.6 billion provisional charge related to the U.S. tax legislation
and certain other items. Non-GAAP EPS for the full year of 2017
also excludes a $2.35 billion aggregate charge related to the
formation of the collaboration with AstraZeneca.
Pipeline Highlights
Merck expanded its focus in oncology by further advancing the
development program for KEYTRUDA (pembrolizumab), an anti-PD-1
therapy, and Lynparza (olaparib), a PARP inhibitor co-developed and
co-commercialized with AstraZeneca, and receiving key regulatory
approvals.
- Merck announced the pivotal Phase 3
KEYNOTE-189 trial investigating KEYTRUDA in combination with
pemetrexed (Alimta) and cisplatin or carboplatin, for the
first-line treatment of patients with metastatic non-squamous
non-small cell lung cancer (NSCLC), met its dual primary endpoints
of overall survival (OS) and progression-free survival (PFS). Based
on an interim analysis conducted by the independent Data Monitoring
Committee, treatment with KEYTRUDA in combination with pemetrexed
plus platinum chemotherapy resulted in significantly longer OS and
PFS than pemetrexed plus platinum chemotherapy alone. Results from
the trial will be presented at an upcoming medical meeting and
submitted to regulatory authorities. KEYTRUDA, in combination with
pemetrexed and platinum chemotherapy, is the first immuno-oncology
combination to show improved OS for the first-line treatment of
patients with metastatic non-squamous NSCLC.
- The Japanese Ministry of Health, Labour
and Welfare approved KEYTRUDA for the treatment of patients with
radically unresectable urothelial carcinoma who progressed after
cancer chemotherapy.
- The company announced the pivotal Phase
3 KEYNOTE-061 trial investigating KEYTRUDA as a second-line
treatment for patients with advanced gastric or gastroesophageal
junction adenocarcinoma did not meet its primary endpoint of
overall survival in patients whose tumors expressed PD-L1.
- The company and The European
Organisation for Research and Treatment of Cancer (EORTC) announced
the Phase 3 EORTC1325/KEYNOTE-054 trial investigating KEYTRUDA as
monotherapy for surgically resected high-risk melanoma met the
primary endpoint of recurrence-free survival and, based on an
interim analysis and following review by the Independent Data
Monitoring Committee, resulted in significantly longer
recurrence-free survival than placebo.
- The U.S. Food and Drug Administration
(FDA) accepted for review the supplemental Biologics License
Application (sBLA) for KEYTRUDA for the treatment of adult and
pediatric patients with refractory primary mediastinal B-cell
lymphoma, or who have relapsed after two or more prior lines of
therapy. The FDA granted Priority Review status with a PDUFA date
of April 3, 2018, and previously granted Breakthrough Therapy
Designation to KEYTRUDA in January 2017 for this indication.
- The FDA granted Breakthrough Therapy
Designation for KEYTRUDA in combination with Eisai's multiple
receptor tyrosine kinase inhibitor Lenvima (lenvatinib) for the
potential treatment of patients with advanced and/or metastatic
renal cell carcinoma, which is being jointly developed as part of a
collaboration between Merck and Esai. This marks the 12th
Breakthrough Therapy Designation granted to KEYTRUDA.
- The FDA approved Lynparza for use in
patients with germline BRCA-mutated, HER2-negative metastatic
breast cancer who have been previously treated with chemotherapy
either in the neoadjuvant, adjuvant or metastatic settings.
Lynparza is the first PARP inhibitor approved for breast cancer. A
supplemental New Drug Application (NDA) was submitted to Japan’s
Pharmaceuticals and Medical Devices Agency for the same use.
- The Japanese Ministry of Health, Labour
and Welfare approved Lynparza for use as a maintenance therapy for
patients with platinum-sensitive relapsed ovarian cancer,
regardless of their BRCA mutation status, who responded
to their last platinum-based chemotherapy. Lynparza is the first
PARP inhibitor approved in Japan.
Merck and Pfizer announced that the FDA approved STEGLATRO
(ertugliflozin) tablets, an oral sodium-glucose cotransporter 2
(SGLT2) inhibitor, the fixed-dose combination STEGLUJAN
(ertugliflozin and sitagliptin) and the fixed-dose combination
SEGLUROMET (ertugliflozin and metformin hydrochloride) to help
improve glycemic control in adults with type 2 diabetes.
Additionally, the Committee for Medicinal Products for Human Use of
the European Medicines Agency adopted a positive opinion for
these medicines.
The FDA and European Commission approved PREVYMIS (letermovir),
once-daily tablets for oral use and injection for intravenous
infusion, indicated for prevention of cytomegalovirus (CMV)
infection and disease in adult CMV-seropositive recipients of an
allogeneic hematopoietic stem cell transplant.
The FDA accepted for review two NDAs for doravirine, the
company’s investigational non-nucleoside reverse transcriptase
inhibitor, for the treatment of HIV-1 infection in adults. The NDAs
include data for doravirine as a once-daily tablet for use in
combination with other antiretroviral agents and for use of
doravirine with lamivudine and tenofovir disoproxil fumarate in a
once-daily fixed-dose combination single tablet as a complete
regimen. The PDUFA date for both applications is Oct. 23, 2018.
The FDA approved ISENTRESS (raltegravir), the company’s
integrase inhibitor, for use in combination with other
antiretroviral agents for the treatment of HIV-1 in newborn
patients from birth to four weeks of age weighing at least 2
kg.
Fourth-Quarter and Full-Year Revenue Performance
The following table reflects sales of the company’s top
pharmaceutical products, as well as total sales of animal health
products.
$ in millions
Fourth Quarter Year Ended
2017 2016
Change
Change Ex-Exchange
Dec. 31,2017
Dec. 31,2016
Change
Change Ex-Exchange
Total Sales
$10,433
$10,115
3 % 2 %
$40,122
$39,807
1 % 1 % Pharmaceutical 9,290 8,904 4 % 3 % 35,390 35,151 1 % 1 %
JANUVIA / JANUMET 1,524 1,509 1 % 0 % 5,896 6,109 -3 % -4 %
KEYTRUDA 1,297 483 169 % 166 % 3,809 1,402 172 % 171 %
GARDASIL / GARDASIL 9
633 542 17 % 15 % 2,308 2,173 6 % 6 % ZETIA / VYTORIN 509 873 -42 %
-44 % 2,095 3,701 -43 % -44 % PROQUAD, M-M-R II and VARIVAX 403 405
0
%
-1
%
1,676 1,640
2
%
2
%
ISENTRESS / ISENTRESS HD 308 337 -9 % -11 % 1,204 1,387 -13 % -14 %
ZEPATIER 296 229 29 % 27 % 1,660 555 199 % 199 % PNEUMOVAX 23 263
238 11 % 11 % 821 641 28 % 29 %
SIMPONI
217 186 17 % 10 % 819 766 7 % 6 % BRIDION 209 139 50 % 49 % 704 482
46 % 46 % Animal Health 981 884 11 % 8 % 3,875 3,478 11 % 11 %
Other Revenues 162 327 -51 % -27 % 857
1,178 -27 % -13 %
Pharmaceutical Revenue
Fourth-quarter pharmaceutical sales increased 4 percent to $9.3
billion, including a 1 percent positive impact from foreign
exchange. The increase was driven primarily by significant growth
of KEYTRUDA, reflecting the company’s continued launches with new
indications globally. Strong momentum for the treatment of patients
with NSCLC contributed significantly to KEYTRUDA’s overall growth,
as it is the only anti-PD-1 approved in the first-line setting.
Sales of GARDASIL [Human Papillomavirus Quadrivalent (Types 6,
11, 16 and 18) Vaccine, Recombinant] and GARDASIL 9, vaccines to
prevent certain cancers and other diseases caused by HPV, increased
in the fourth quarter driven primarily by the commercial launch in
China and growth in Europe due to the termination of the SPMSD
joint venture noted above, partially offset by lower sales in the
United States. The decline in U.S. sales reflects the timing of
public sector purchasing that was largely offset by the partial
replenishment of borrowed doses into the CDC stockpile noted
above.
The ongoing launch of BRIDION (sugammadex) Injection 100 mg/mL,
a medicine for the reversal of neuromuscular blockade induced by
rocuronium bromide or vecuronium bromide in adults undergoing
surgery, also contributed to growth in the quarter driven by strong
global demand.
Pharmaceutical sales also reflect higher sales of ZEPATIER
(elbasvir and grazoprevir), a medicine for the treatment of chronic
hepatitis C virus genotypes 1 or 4 infection, due to ongoing
launches across Europe and Asia Pacific. The company anticipates
that future sales of ZEPATIER will be unfavorably affected by
increasing competition and declining patient volumes.
Performance of JANUVIA (sitagliptin) and JANUMET (sitagliptin
and metformin HCI), medicines that help lower blood sugar in adults
with type 2 diabetes, reflects pricing pressure offset by continued
volume growth globally.
Sales growth for the quarter was partially offset by impacts
from the loss of U.S. market exclusivity for ZETIA (ezetimibe) in
late 2016 and VYTORIN (ezetimibe/simvastatin) in April 2017,
medicines for lowering LDL cholesterol; biosimilar competition for
REMICADE (infliximab), a treatment for inflammatory diseases, in
the company’s marketing territories in Europe; and the 2017 loss of
exclusivity for CANCIDAS (caspofungin acetate for injection), an
antifungal, in Europe. In the aggregate, sales of these products
declined approximately $500 million during the fourth quarter of
2017 compared to the fourth quarter of 2016.
Sales of ZOSTAVAX (zoster vaccine live), a vaccine for the
prevention of herpes zoster, declined significantly in the quarter,
primarily due to the approval of a competitor product that received
a preferential recommendation from the U.S. Advisory Committee on
Immunization Practices on Oct. 25, 2017. The company anticipates
that future sales of ZOSTAVAX will be unfavorably affected by this
competition.
Full-year 2017 pharmaceutical sales increased 1 percent to $35.4
billion. Growth was driven by the ongoing global launches of
KEYTRUDA, ZEPATIER and BRIDION. In the aggregate, sales of these
products increased $3.7 billion in 2017 compared to 2016. These
increases were mostly offset by sales declines of the products
affected by loss of exclusivity as described above for the quarter,
as well as CUBICIN (daptomycin for injection), an I.V. antibiotic,
SINGULAIR (montelukast sodium), a once-a-day oral medicine for the
chronic treatment of asthma and the relief of symptoms of allergic
rhinitis, NASONEX (mometasone furoate monohydrate), an inhaled
nasal corticosteroid for the treatment of nasal allergy symptoms,
and other products which together totaled $3.3 billion.
Additionally, sales growth was offset by declines in the diabetes
franchise due to pricing pressure partially offset by continued
volume growth globally.
Animal Health Revenue
Animal Health sales totaled $981 million for the fourth quarter
of 2017, an increase of 11 percent compared with the fourth quarter
of 2016, including a 3 percent positive impact from foreign
exchange. Worldwide sales for the full year of 2017 were $3.9
billion, also an increase of 11 percent. Growth in both periods was
driven by sales increases in companion animal products, primarily
the BRAVECTO (fluralaner) line of products that kill fleas and
ticks in dogs and cats for up to 12 weeks, and companion animal
vaccines. Additionally, higher sales of ruminants products, swine
products and poultry products all contributed to growth.
Fourth-Quarter and Full-Year Expense, EPS and Related
Information
The tables below present selected expense information.
$ in millions
Fourth-Quarter 2017
GAAP
Acquisition- and
Divestiture-Related Costs3
Restructuring Costs
Certain Other Items
Non-GAAP2
Materials and production
$3,406
$737
$17
$–
$2,652
Marketing and administrative 2,580 4 (1 ) – 2,577 Research and
development 2,055 (5 ) – – 2,060 Restructuring costs 306 – 306 – –
Other (income) expense, net (19 ) 1 – (7 ) (13 )
Fourth-Quarter 2016 Materials and production
$3,332
$756
$32
$–
$2,544
Marketing and administrative 2,593 22 4 – 2,567 Research and
development 4,650 2,897 9 – 1,744 Restructuring costs 265 – 265 – –
Other (income) expense, net 631 35
– 564 32 $ in millions
Year Ended Dec. 31, 2017
GAAP
Acquisition- and
Divestiture-Related Costs3
Restructuring Costs
Certain Other Items
Non-GAAP2
Materials and production
$12,775
$3,187
$138
$–
$9,450
Marketing and administrative 9,830 44 2 – 9,784 Research and
development 9,982 284 11 2,350 7,337 Restructuring costs 776 – 776
– – Other (income) expense, net 12 19 – (16 ) 9
Year
Ended Dec. 31, 2016 Materials and production
$13,891
$4,035
$181
$–
$9,675
Marketing and administrative 9,762 78 95 – 9,589 Research and
development 10,124 3,152 142 – 6,830 Restructuring costs 651 – 651
– – Other (income) expense, net 720 47 –
558 115
GAAP Expense, EPS and Related Information
Gross margin was 67.4 percent for the fourth quarter of 2017
compared to 67.1 percent for the fourth quarter of 2016. The gross
margin was 68.2 percent for the full year of 2017 compared to 65.1
percent for the full year of 2016. The increase in gross margin for
the full year of 2017 was primarily driven by lower acquisition-
and divestiture-related costs and restructuring costs which
negatively affected gross margin by 8.2 percentage points in the
full year of 2017 compared with 10.6 percentage points for the full
year of 2016. In addition, gross margin was impacted by the
favorable effects of product mix partially offset by costs related
to the cyber-attack.
Marketing and administrative expenses were $2.6 billion in the
fourth quarter of 2017, a 1 percent decrease compared to the fourth
quarter of 2016. The decrease primarily reflects lower acquisition-
and divestiture-related costs. Full-year 2017 marketing and
administrative expenses were $9.8 billion, a 1 percent increase
compared to the full year of 2016. The increase reflects higher
administrative costs, including costs associated with the company
now operating its European vaccines business in the countries that
were previously part of the SPMSD vaccines joint venture,
remediation costs related to the cyber-attack and higher promotion
expenses related to product launches, partially offset by lower
restructuring costs and acquisition- and divestiture-related
costs.
Research and development (R&D) expenses were $2.1 billion in
the fourth quarter of 2017 compared with $4.7 billion in the fourth
quarter of 2016. The decline was driven primarily by lower
in-process research and development (IPR&D) impairment charges,
partially offset by higher expenses related to business development
transactions, clinical development spending and investment in early
drug development. R&D expenses were $10.0 billion for the full
year of 2017, a 1 percent decrease compared to the full year of
2016. The decline reflects lower IPR&D impairment charges and
restructuring costs. These were offset by a $2.35 billion aggregate
charge recorded in 2017 related to the formation of the
collaboration with AstraZeneca, as well as a reduction in prior
year expenses related to a decrease in the estimated fair value
measurement of liabilities for contingent consideration and higher
clinical development spending.
Other (income) expense, net, was $19 million of income in the
fourth quarter of 2017 compared to $631 million of expense in the
fourth quarter of 2016 and was $12 million of expense for the full
year of 2017 compared to $720 million of expense for the full year
of 2016. Other (income) expense, net, in 2017 reflects the
favorable impacts of foreign exchange and gains on sales of
securities, partially offset by a loss on the extinguishment of
debt. Other (income) expense, net, for the fourth quarter and full
year of 2016 includes a $625 million charge to settle worldwide
KEYTRUDA patent litigation.
The effective income tax rates of 141.0 percent for the fourth
quarter and 61.6 percent for full year of 2017 include the
unfavorable impact of a $2.6 billion provisional charge related to
U.S. tax legislation. The provisional tax charge includes a
one-time repatriation transition tax of approximately $5.0 billion,
which will be paid over eight years. The transition tax was
partially offset by adjustments to deferred tax liabilities,
including taxes previously provided on foreign earnings and
remeasurement of net U.S. deferred tax liabilities. The
provisional tax charge may change in 2018 based on further analysis
and regulatory guidance. In addition, the effective income tax
rate for the full year of 2017 reflects the unfavorable impact of a
$2.35 billion aggregate charge related to the formation of the
collaboration with AstraZeneca for which no tax benefit has been
recognized, partially offset by the favorable impact of a net tax
benefit of $234 million related to the settlement of certain
federal income tax issues.
GAAP EPS was $(0.32) for the fourth quarter of 2017 compared
with $(0.22) for the fourth quarter of 2016. GAAP EPS was $0.93 for
the full year of 2017 compared with $1.41 for the full year of
2016.
Non-GAAP Expense, EPS and Related Information
The non-GAAP gross margin was 74.6 percent for the fourth
quarter of 2017, compared to 74.8 percent for the fourth quarter of
2016. The non-GAAP gross margin was 76.4 percent for the full year
of 2017 compared to 75.7 percent for the full year of 2016. The
increase in non-GAAP gross margin for the full year of 2017
reflects the favorable effects of product mix partially offset by
costs related to the cyber-attack.
Non-GAAP marketing and administrative expenses were $2.6 billion
in the fourth quarter of 2017, comparable to the fourth quarter of
2016. Non-GAAP marketing and administrative expenses were $9.8
billion for the full year of 2017, a 2 percent increase compared to
the full year of 2016. The increase reflects higher administrative
costs, including costs associated with the company now operating
its European vaccines business in the countries that were
previously part of the SPMSD vaccines joint venture, higher
promotion costs related to product launches and remediation costs
related to the cyber-attack.
Non-GAAP R&D expenses were $2.1 billion in the fourth
quarter of 2017, an 18 percent increase compared to the fourth
quarter of 2016. The increase reflects higher expenses related to
business development transactions, clinical development spending
and investment in early drug development. Non-GAAP R&D expenses
were $7.3 billion for the full year of 2017, a 7 percent increase
compared to the full year of 2016, reflecting increased clinical
development spending.
Non-GAAP other (income) expense, net, was $13 million of income
in the fourth quarter of 2017 compared to $32 million of expense in
the fourth quarter of 2016. Non-GAAP other (income) expense, net,
for the full year of 2017 was $9 million of expense compared to
$115 million of expense for the full year of 2016. Non-GAAP other
(income) expense, net, in 2017 reflects the favorable impact of
foreign exchange and realized gains on sales of equity securities,
partially offset by a loss on extinguishment of debt.
The non-GAAP effective income tax rate for the fourth quarter of
2017 was 15.3 percent compared with 23.3 percent for the fourth
quarter of 2016 and was 19.1 percent for the full year of 2017
compared with 22.3 percent for the full year of 2016.
Non-GAAP EPS was $0.98 for the fourth quarter of 2017 compared
with $0.89 for the fourth quarter of 2016. Non-GAAP EPS was $3.98
for the full year of 2017 compared with $3.78 for the full year of
2016.
A reconciliation of GAAP to non-GAAP net income and EPS is
provided in the table that follows.
$ in millions, except EPS amounts
Fourth Quarter
Year Ended 2017
2016
Dec. 31, 2017
Dec. 31, 2016
EPS GAAP EPS
$(0.32
)
$(0.22
)
$0.93
$1.41
Difference4
1.30 1.11 3.05 2.37 Non-GAAP EPS that excludes items listed below2
$0.98
$0.89
$3.98
$3.78
Net Income GAAP net (loss) income1
$(872
)
$(594
)
$2,568
$3,920
Difference 3,537 3,064 8,365 6,618 Non-GAAP net income that
excludes items listed below1,2
$2,665
$2,470
$10,933
$10,538
Decrease (Increase) in Net Income Due to Excluded
Items: Acquisition- and divestiture-related costs3
$737
$3,710
$3,534
$7,312
Restructuring costs 322 310 927 1,069 Aggregate charge related to
the formation of a collaboration with AstraZeneca -- -- 2,350 --
Charge to settle worldwide KEYTRUDA patent litigation -- 625 -- 625
Other (7 ) (61 ) (16 ) (67 ) Net decrease (increase) in income
before taxes 1,052 4,584 6,795 8,939
Income tax (benefit) expense5
2,485 (1,520 ) 1,570 (2,321 ) Decrease (increase) in net income
$3,537
$3,064
$8,365
$6,618
Financial Outlook
At mid-January 2018 exchange rates, Merck anticipates full-year
2018 revenue to be between $41.2 billion and $42.7 billion,
including an approximately 1 percent positive impact from foreign
exchange.
Merck expects its full-year 2018 GAAP EPS to be between $2.97
and $3.12. Merck expects its full-year 2018 non-GAAP EPS to be
between $4.08 and $4.23, including an approximately 1 percent
negative impact from foreign exchange. The non-GAAP range excludes
acquisition- and divestiture-related costs and costs related to
restructuring programs.
The following table summarizes the company’s full year 2018
financial guidance.
GAAP
Non-GAAP2 Revenue $41.2 to $42.7 billion $41.2 to
$42.7 billion** Operating expenses Lower than 2017 by a high-single
digit rate Higher than 2017 by a low- to mid-single digit rate
Effective tax rate 19.0% to 20.0% 19.0% to 20.0% EPS $2.97 to $3.12
$4.08 to $4.23
**The company does not have any non-GAAP
adjustments to revenue.
The guidance for both GAAP and non-GAAP operating expenses
reflects the adoption of new accounting guidance on Jan. 1, 2018,
related to defined benefit plans that requires a retroactive
reclassification of certain components of net benefit cost/credit
within the consolidated statement of income. There is no impact to
net income as a result of adopting the new guidance. See
supplemental information on the Investors section of Merck’s
website (http://investors.merck.com) for additional details on the
2017 reclassification.
A reconciliation of anticipated 2018 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 2018 GAAP EPS $2.97 to
$3.12 Difference4 1.11 Non-GAAP EPS that excludes items
listed below2 $4.08 to $4.23 Acquisition- and
divestiture-related costs
$3,200
Restructuring costs 500 Net decrease (increase) in income before
taxes 3,700 Estimated income tax (benefit) expense (715 ) Decrease
(increase) in net income
$2,985
Capital Allocation
The recently enacted U.S. tax legislation improves Merck’s
financial flexibility to invest in sustainable long-term value
creating opportunities. In addition to the company’s ongoing
investment in R&D, business development and continued support
of the dividend, as well as share repurchases, the company
also:
- Plans to invest approximately $12
billion over 5 years in capital projects including approximately $8
billion in the United States
- Made a contribution to the Merck
Foundation in the fourth quarter of 2017
- Plans to provide a one-time, long-term
incentive award for its eligible non-executive employees in the
second quarter of 2018
Total Employees
As of Dec. 31, 2017, Merck had approximately 69,000 employees
worldwide.
Earnings Conference Call
Investors, journalists and the general public may access a live
audio webcast of the call today at 8:00 a.m. EST on Merck’s website
at
http://investors.merck.com/events-and-presentations/default.aspx.
Institutional investors and analysts can participate in the call by
dialing (706) 758-9927 or (877) 381-5782 and using ID code number
9899537. Members of the media are invited to monitor the call by
dialing (706) 758-9928 or (800) 399-7917 and using ID code number
9899537. Journalists who wish to ask questions are requested to
contact a member of Merck’s Media Relations team at the conclusion
of the call.
About Merck
For more than a century, Merck, a leading global
biopharmaceutical company 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.
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 health care
through far-reaching policies, programs and partnerships. Today,
Merck continues to be at the forefront of research to advance the
prevention and treatment of diseases that threaten people and
communities around the world - including cancer, cardio-metabolic
diseases, emerging animal diseases, Alzheimer’s disease and
infectious diseases including HIV and Ebola. For more information,
visit www.merck.com and connect with us on Twitter, Facebook,
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 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 2016
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 Net (loss) income attributable to Merck & Co., Inc.
2 Merck is providing certain 2017 and 2016 non-GAAP information
that excludes certain items because of the nature of these items
and the impact they have on the analysis of underlying business
performance and trends. Management believes that providing this
information enhances investors’ understanding of the company’s
results and permits investors to understand how management assesses
performance. Management uses these measures internally for planning
and forecasting purposes and to measure the performance of the
company along with other metrics. Senior management’s annual
compensation is derived in part using non-GAAP income and non-GAAP
EPS. This information should be considered in addition to, but not
as a substitute for or superior to, information prepared in
accordance with GAAP. For a description of the items, see Tables 2a
and 2b attached to this release.
3 Includes expenses for the amortization of intangible assets
and purchase accounting adjustments to inventories recognized as a
result of acquisitions, intangible asset impairment charges and
expense or income related to changes in the estimated fair value
measurement of contingent consideration. Also includes integration,
transaction and certain other costs related to business
acquisitions and divestitures.
4 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.
5 Includes the estimated tax impact on the reconciling items. In
addition, amounts for fourth-quarter and full-year 2017 include a
$2.6 billion provisional charge related to U.S. tax legislation.
Amount for full year 2017 also includes a $234 million net benefit
related to the settlement of certain federal income tax issues, as
well as a benefit of $88 million related to the settlement of a
state income tax issue.
MERCK & CO., INC. CONSOLIDATED STATEMENT OF INCOME -
GAAP (AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED) Table 1
GAAP
% Change GAAP % Change
4Q17 4Q16
Full Year 2017
Full Year 2016
Sales $ 10,433 $ 10,115 3% $ 40,122 $ 39,807 1% Costs,
Expenses and Other Materials and production (1) 3,406 3,332 2%
12,775 13,891 -8% Marketing and administrative (1) 2,580 2,593 -1%
9,830 9,762 1% Research and development (1) (2) 2,055 4,650 -56%
9,982 10,124 -1% Restructuring costs (3) 306 265 15% 776 651 19%
Other (income) expense, net (1) (4) (19 ) 631 * 12 720 -98% Income
(Loss) Before Taxes 2,105 (1,356 ) * 6,747 4,659 45% Income Tax
Provision (Benefit) (1) 2,969 (769 ) 4,155 718 Net (Loss) Income
(864 ) (587 ) 47% 2,592 3,941 -34% Less: Net Income Attributable to
Noncontrolling Interests 8 7 24 21 Net (Loss) Income Attributable
to Merck & Co., Inc. $ (872 ) $ (594 ) 47% $ 2,568 $ 3,920 -34%
(Loss) Earnings per Common Share Assuming Dilution (5) $ (0.32 ) $
(0.22 ) 45% $ 0.93 $ 1.41 -34%
Average Shares Outstanding Assuming Dilution (5) 2,715 2,755
2,748 2,787 Tax Rate (6) 141.0 % 56.7 % 61.6 %
15.4 % * 100% or greater
(1)
Amounts include the impact of acquisition
and divestiture-related costs, restructuring costs and certain
other items. See accompanying tables for details.
(2)
Research and development expenses for full
year 2017 include a $2.35 billion aggregate charge recorded in
conjunction with the formation of a collaboration with
AstraZeneca.
(3)
Represents separation and other related
costs associated with restructuring activities under the company's
formal restructuring programs.
(4)
Other (income) expense, net in the fourth
quarter and full year of 2016 includes a $625 million charge to
settle worldwide patent litigation related to KEYTRUDA.
(5)
Because the company recorded a net loss in
the fourth quarter of 2017 and 2016, no potential dilutive common
shares were used in the computation of loss per common share
assuming dilution as the effect would have been anti-dilutive.
(6)
The effective income tax rates for the
fourth quarter and full year of 2017 reflect the net unfavorable
impact of a $2.6 billion provisional charge related to the
enactment of U.S. tax legislation. The effective income tax rate
for the full year of 2017 also reflects the unfavorable impact of a
$2.35 billion aggregate pretax charge recorded in conjunction with
the formation of a collaboration with AstraZeneca for which no tax
benefit has been recognized. Additionally, the effective income tax
rate for the full year of 2017 reflects the favorable impact of a
net tax benefit of $234 million related to the settlement of
certain federal income tax issues.
MERCK & CO., INC. GAAP TO NON-GAAP RECONCILIATION
FOURTH QUARTER 2017 (AMOUNTS IN MILLIONS, EXCEPT PER
SHARE FIGURES) (UNAUDITED)
Table 2a
GAAP
Acquisition and
Divestiture-Related Costs (1)
Restructuring Costs
(2)
Certain Other Items
Adjustment Subtotal
Non-GAAP Materials and production
$ 3,406 737
17 754 $ 2,652 Marketing and administrative
2,580 4 (1 ) 3
2,577 Research and development
2,055 (5 ) - (5 ) 2,060
Restructuring costs
306 306 306 - Other (income) expense,
net
(19 ) 1 (7 ) (6 ) (13 ) Income Before Taxes
2,105 (737 ) (322 ) 7 (1,052 ) 3,157 Income Tax Provision
(Benefit)
2,969 (88 )
(3)
(50 )
(3)
2,623
(4)
2,485 484 Net (Loss) Income
(864 ) (649 ) (272 )
(2,616 ) (3,537 ) 2,673 Net (Loss) Income Attributable to Merck
& Co., Inc.
(872 ) (649 ) (272 ) (2,616 ) (3,537
) 2,665 (Loss) Earnings per Common Share Assuming Dilution
$
(0.32 ) (0.24 ) (0.10 ) (0.96 ) (1.30 ) $ 0.98
Tax Rate
141.0 % 15.3 %
Only the line items that are affected by non-GAAP adjustments are
shown. Merck is providing certain non-GAAP information that
excludes certain items because of the nature of these items and the
impact they have on the analysis of underlying business performance
and trends. Management believes that providing this information
enhances investors’ understanding of the company’s results as it
permits investors to understand how management assesses
performance. Management uses these measures internally for planning
and forecasting purposes and to measure the performance of the
company along with other metrics. Senior management’s annual
compensation is derived in part using non-GAAP income and non-GAAP
EPS. This information should be considered in addition to, but not
as a substitute for or superior to, information prepared in
accordance with GAAP. (1) Amounts included in materials and
production costs primarily reflect expenses for the amortization of
intangible assets recognized as a result of business acquisitions.
Amounts included in marketing and administrative expenses reflect
integration, transaction and certain other costs related to
business acquisitions and divestitures. Amounts included in
research and development expenses primarily reflect a reduction of
expenses related to a decrease in the estimated fair value
measurement of liabilities for contingent consideration. Amounts
included in other (income) expense, net reflect goodwill and
intangible asset impairment charges related to a business in the
Healthcare Services segment, largely offset by royalty income in
connection with 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) Includes the estimated tax impact on the reconciling
items based on applying the statutory rate of the originating
territory of the non-GAAP adjustments, as well as a $2.6 billion
provisional charge related to the enactment of U.S. tax
legislation.
MERCK & CO., INC. GAAP TO NON-GAAP
RECONCILIATION FULL YEAR 2017 (AMOUNTS IN MILLIONS,
EXCEPT PER SHARE FIGURES) (UNAUDITED) Table 2b
GAAP
Acquisition and
Divestiture-Related Costs (1)
Restructuring Costs
(2)
Certain Other Items
(3)
Adjustment Subtotal
Non-GAAP Materials and production
$ 12,775
3,187 138 3,325 $ 9,450 Marketing and administrative
9,830
44 2 46 9,784 Research and development
9,982 284 11 2,350
2,645 7,337 Restructuring costs
776 776 776 - Other (income)
expense, net
12 19 (16 ) 3 9 Income Before Taxes
6,747 (3,534 ) (927 ) (2,334 ) (6,795 ) 13,542 Income Tax
Provision (Benefit)
4,155 (552 )
(4)
(182 )
(4)
2,304
(5)
1,570 2,585 Net Income
2,592 (2,982 ) (745 ) (4,638 ) (8,365
) 10,957 Net Income Attributable to Merck & Co., Inc.
2,568 (2,982 ) (745 ) (4,638 ) (8,365 ) 10,933 Earnings per
Common Share Assuming Dilution
$ 0.93 (1.09 )
(0.27 ) (1.69 ) (3.05 ) $ 3.98 Tax Rate
61.6 % 19.1 % Only the line items that are
affected by non-GAAP adjustments are shown. Merck is
providing certain non-GAAP information that excludes certain items
because of the nature of these items and the impact they have on
the analysis of underlying business performance and trends.
Management believes that providing this information enhances
investors’ understanding of the company’s results as it permits
investors to understand how management assesses performance.
Management uses these measures internally for planning and
forecasting purposes and to measure the performance of the company
along with other metrics. Senior management’s annual compensation
is derived in part using non-GAAP income and non-GAAP EPS. This
information should be considered in addition to, but not as a
substitute for or superior to, information prepared in accordance
with GAAP. (1) Amounts included in materials and production
costs primarily reflect $3.1 billion of expenses for the
amortization of intangible assets recognized as a result of
business acquisitions, as well as $134 million of intangible asset
impairment charges. Amounts included in marketing and
administrative expenses reflect integration, transaction and
certain other costs related to business acquisitions and
divestitures. Amounts included in research and development expenses
reflect $257 million of in-process research and development
(IPR&D) impairment charges and $27 million of expenses related
to an increase in the estimated fair value measurement of
liabilities for contingent consideration. Amounts included in other
(income) expense, net reflect goodwill and intangible asset
impairment charges related to a business in the Healthcare Services
segment, as well as expenses related to changes in the estimated
fair value measurement of liabilities for contingent consideration,
partially offset by royalty income in connection with 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) Amount included in research and development
expenses represents an aggregate charge recorded in conjunction
with the formation of a collaboration with AstraZeneca. (4)
Represents the estimated tax impact on the reconciling items based
on applying the statutory rate of the originating territory of the
non-GAAP adjustments. (5) Includes the estimated tax impact
on the reconciling items based on applying the statutory rate of
the originating territory of the non-GAAP adjustments. Also
includes a $2.6 billion provisional charge related to the enactment
of U.S. tax legislation, as well as a $234 million net tax benefit
related to the settlement of certain federal income tax issues and
an $88 million tax benefit related to the settlement of a state
income tax issue.
MERCK & CO., INC. FRANCHISE / KEY
PRODUCT SALES (AMOUNTS IN MILLIONS) Table 3
2017 2016
4Q Full Year 1Q 2Q 3Q 4Q
Full Year 1Q 2Q 3Q 4Q Full
Year Nom % Ex-Exch % Nom % Ex-Exch
% TOTAL SALES (1) $ 9,434 $
9,930 $ 10,325 $ 10,433 $
40,122 $ 9,312 $ 9,844 $
10,536 $ 10,115 $ 39,807
3 2 1 1 PHARMACEUTICAL
8,185 8,759 9,156 9,290 35,390
8,104 8,700 9,443 8,904 35,151
4 3 1 1 Primary Care and Women's
Health Cardiovascular Zetia 334 367 320 323 1,344 612 702 671
575 2,560 -44 -45 -48 -47 Vytorin 241 182 142 186 751 277 293 273
299 1,141 -38 -41 -34 -35 Atozet 49 63 59 54 225 23 33 39 50 146 7
2 54 51 Adempas 84 67 70 79 300 33 40 48 49 169 63 60 78 77
Diabetes Januvia 839 948 1,012 938 3,737 906 1,064 1,006 932 3,908
1 1 -4 -4 Janumet 496 563 513 586 2,158 506 569 548 577 2,201 2 -1
-2 -3 General Medicine & Women's Health NuvaRing 160 199 214
188 761 175 200 195 207 777 -9 -10 -2 -3 Implanon / Nexplanon 170
178 155 183 686 134 164 148 160 606 14 13 13 13 Follistim AQ 81 79
72 66 298 94 73 101 87 355 -25 -27 -16 -16
Hospital and
Specialty Hepatitis Zepatier 378 517 468 296 1,660 50 112 164
229 555 29 27 199 199 HIV Isentress / Isentress HD 305 282 310 308
1,204 340 338 372 337 1,387 -9 -11 -13 -14 Hospital Acute Care
Bridion 148 163 185 209 704 90 113 139 139 482 50 49 46 46 Noxafil
141 155 162 179 636 145 143 147 161 595 11 8 7 7 Invanz 136 150 159
157 602 114 143 152 152 561 3 2 7 7 Cancidas 121 112 94 95 422 133
131 142 152 558 -37 -39 -24 -24 Cubicin 96 103 91 92 382 292 357
320 119 1,087 -22 -23 -65 -65 Primaxin 62 71 73 74 280 73 81 77 66
297 12 10 -6 -4 Immunology Remicade 229 208 214 186 837 349 339 311
269 1,268 -31 -35 -34 -34 Simponi 184 199 219 217 819 188 199 193
186 766 17 10 7 6
Oncology Keytruda 584 881 1,047 1,297
3,809 249 314 356 483 1,402 169 166 172 171 Emend 133 143 137 143
556 126 143 137 144 549 -1 -2 1 1 Temodar 66 65 68 73 271 66 73 78
67 283 10 11 -4 -4
Diversified Brands Respiratory Singulair
186 203 161 182 732 237 229 239 210 915 -13 -14 -20 -19 Nasonex 139
85 42 120 387 229 101 94 112 537 8 7 -28 -29 Dulera 82 69 59 77 287
113 121 97 105 436 -26 -27 -34 -34 Other Cozaar / Hyzaar 112 119
128 125 484 126 132 131 121 511 3 2 -5 -4 Arcoxia 103 89 80 91 363
111 117 114 108 450 -16 -19 -19 -20 Fosamax 61 66 53 62 241 75 73
68 68 284 -9 -10 -15 -15
Vaccines (2) Gardasil /
Gardasil 9 532 469 675 633 2,308 378 393 860 542 2,173 17 15 6 6
ProQuad / M-M-R II / Varivax 355 399 519 403 1,676 357 383 496 405
1,640 0 -1 2 2 Pneumovax 23 163 166 229 263 821 107 120 175 238 641
11 11 28 29 RotaTeq 224 123 179 160 686 188 130 171 162 652 -1 -2 5
5 Zostavax 154 160 234 121 668 125 149 190 221 685 -45 -46 -2 -3
Other Pharmaceutical (3) 1,037 1,116 1,013 1,124
4,295 1,083 1,128 1,191 1,172 4,574 -4 -5 -6 -6
ANIMAL
HEALTH 939 955 1,000 981
3,875 829 900 865 884
3,478 11 8 11 11 Other
Revenues (4) 310 216
169 162 857 379
244 228 327
1,178 -51 -27 -27 -13
* 200% or greater
Sum of quarterly amounts may not equal
year-to-date amounts due to rounding.
(1) Only select products are shown. (2) Vaccine sales
in 2017 include sales in the European markets that were previously
part of the Sanofi Pasteur MSD (SPMSD) joint venture that was
terminated on December 31, 2016. Amounts for 2016 reflect supply
sales to SPMSD. (3) Includes Pharmaceutical products not
individually shown above. Other Vaccines sales included in Other
Pharmaceutical were $88 million in the first quarter, $87 million
in the second quarter, $89 million in the third quarter, and $123
million in the fourth quarter of 2017 and $103 million, $91
million, $135 million and $126 million for the first, second, third
and fourth quarters of 2016, respectively. (4) Other
Revenues are comprised primarily of alliance revenue, third-party
manufacturing sales and miscellaneous corporate revenues, including
revenue hedging activities.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180202005146/en/
MerckMedia:Tracy Ogden, (908) 740-1747Claire Gillespie, (267)
305-0932orInvestor:Teri Loxam, (908) 740-1986Amy Klug, (908)
740-1898
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