Merck Announces Second-Quarter 2013 Financial Results

Merck Announces Second-Quarter 2013 Financial Results

<0> Merck & Co., Inc.Media Contacts:Kelley Dougherty, 908-423-4291Steven Cragle, 908-423-3461orInvestor Contacts:Carol Ferguson, 908-423-4465Joe Romanelli, 908-423-5185 </0>

Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the second quarter of 2013.

Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the second quarter of $0.84 exclude acquisition-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.

“With seven of our top 10 products growing in the second quarter and solid performance overall, we continue to navigate significant patent expiries and adapt to the evolving global healthcare environment,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “We remain committed to pursuing innovative, best-in-class science that translates into medically important products, such as our PD-1 inhibitor for oncology. To enable further investment in promising growth opportunities, we continue to manage costs effectively, as reflected in our results for the quarter.”

Worldwide sales were $11.0 billion for the second quarter of 2013, a decrease of 11 percent compared with the second quarter of 2012, including a 3 percent negative effect from foreign exchange.

The following table reflects sales of the company's top pharmaceutical products, as well as total sales of animal health and consumer care products.

Second-quarter pharmaceutical sales declined 12 percent to $9.3 billion, including a 3 percent negative impact due to foreign exchange. Declines of SINGULAIR (montelukast sodium), MAXALT (rizatriptan benzoate), COZAAR (losartan potassium)/HYZAAR (losartan potassium/hydrochlorothiazide) and CLARINEX (desloratadine) following loss of market exclusivity were partially offset by growth of JANUVIA (sitagliptin)/JANUMET (sitagliptin/metformin HCI), GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant] and SIMPONI (golimumab).

Sales from emerging markets increased 7 percent, including a 3 percent negative impact from foreign exchange. Emerging market sales accounted for approximately 22 percent of pharmaceutical sales in the second quarter of 2013. China continues to be a key driver of growth in the emerging markets with sales increasing 13 percent for the second quarter, including a 3 percent benefit from foreign exchange.

Worldwide sales of the combined diabetes franchise of JANUVIA/JANUMET increased 5 percent to $1.5 billion in the second quarter, including a 5 percent negative impact from foreign exchange. Sales growth in all regions was partially offset by a decline in Japan due to foreign exchange.

Sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), medicines for lowering LDL cholesterol, decreased 1 percent to $1.1 billion in the second quarter, including a 2 percent negative impact from foreign exchange. The decrease reflects lower sales of VYTORIN, partially offset by growth of ZETIA mainly in the United States.

Combined sales of REMICADE (infliximab) and SIMPONI, treatments for inflammatory diseases, increased 9 percent, including a 2 percent negative impact from foreign exchange, to $647 million in the second quarter of 2013 primarily reflecting growth of SIMPONI in Europe. Sales of SIMPONI grew 59 percent to $120 million in the quarter.

ISENTRESS (raltegravir), an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, grew 4 percent to $412 million in the second quarter driven by growth in the United States and Europe, partially offset by tenders in Brazil in 2012.

Merck’s sales of GARDASIL, a vaccine to help prevent certain diseases caused by four types of human papillomavirus (HPV), were $383 million, an increase of 18 percent for the quarter. The increase was driven by higher sales in the United States, which reflects continued strong uptake in males, as well as tenders in Latin America in 2013.

Worldwide sales of SINGULAIR, a once-a-day oral medicine for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis, declined 80 percent to $281 million in the second quarter. The patents for SINGULAIR expired in the United States in August 2012 and expired in major European markets in February 2013. The company experienced a significant and rapid reduction in sales in the United States and is now also experiencing a substantial decline in Europe.

Animal Health sales totaled $851 million for the second quarter of 2013, a 2 percent decline compared with the second quarter of 2012, including a 3 percent negative impact due to foreign exchange. Growth in poultry and companion animal products was partially offset by lower sales of swine products.

Second-quarter global sales of Consumer Care were $490 million, a decrease of 11 percent compared to the second quarter of 2012, including a 1 percent negative impact due to foreign exchange. The sales decrease resulted from the ongoing termination in China of certain Consumer Care distribution arrangements and a reversal of sales previously made to those distributors, together with associated termination costs. Excluding those actions, Consumer Care global sales would have increased by 2 percent, including the 1 percent negative impact due to foreign exchange.

Other revenues – primarily comprising alliance revenue, miscellaneous corporate revenues and third-party manufacturing sales – increased 8 percent to $359 million compared to the second quarter of 2012. The increase was primarily driven by higher revenue from AstraZeneca LP (AZLP) recorded by Merck, which increased 10 percent to $245 million as compared with atypically lower second quarter 2012 AZLP revenues.

The costs detailed below totaled $9.7 billion on a GAAP basis during the second quarter of 2013 and include $2.0 billion of acquisition-related costs and restructuring costs.

The gross margin was 61.1 percent for the second quarter of 2013 and 66.6 percent for the second quarter of 2012, reflecting 14.6 and 10.6 percentage point unfavorable impacts, respectively, from the acquisition-related costs and restructuring costs noted above. The gross margin decline, on a non-GAAP basis, primarily reflects the impact of the SINGULAIR patent expiries.

Marketing and administrative expenses, on a non-GAAP basis, were $3.1 billion in the second quarter of 2013, a decrease from $3.2 billion in the second quarter of 2012 due to targeted reductions in spending and productivity improvements.

Research and development (R&D) expenses, on a non-GAAP basis, were $1.9 billion in the second quarter of 2013, a decrease from $2.0 billion in the second quarter of 2012 reflecting lower upfront payments from external licensing activity.

Equity income from affiliates was $116 million for the second quarter, primarily reflecting the performance of partnerships with AZLP and Sanofi Pasteur MSD.

Other (income) expense, net was $201 million of expense in the second quarter of 2013, compared to $103 million of expense in the second quarter of 2012.

The company noted the following developments:

Merck reiterated that it expects full-year 2013 non-GAAP EPS to be between $3.45 and $3.55, and revised 2013 GAAP EPS to be between $1.84 and $2.05. The 2013 non-GAAP range excludes acquisition-related costs, costs related to restructuring programs and certain other items.

At current exchange rates, Merck now expects full-year 2013 sales to be approximately 5 to 6 percent below prior year levels with foreign exchange accounting for approximately 3 percentage points of the decline.

In addition, the company now expects full-year 2013 non-GAAP R&D expense to be below 2012 levels. The company continues to expect its full-year 2013 non-GAAP tax rate to be in the range of 22 to 23 percent.

A reconciliation of anticipated 2013 EPS, as reported in accordance with GAAP to non-GAAP EPS that excludes certain items, is provided in the table below.

As of June 30, 2013, Merck had approximately 81,000 employees worldwide. In addition, the company’s joint ventures in China and Brazil, which are included in the consolidated results of Merck, had about 1,300 employees.

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 . Institutional investors and analysts can participate in the call by dialing (706) 758-9927 or (877) 381-5782 and using ID code number 77194196. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 77194196. Journalists who wish to ask questions are requested to contact a member of Merck's Media Relations team at the conclusion of the call.

Today's Merck is a global healthcare leader working to help the world be well. Merck is known as MSD outside the United States and Canada. Through our prescription medicines, vaccines, biologic therapies, and consumer care and animal health products, we work with customers and operate in more than 140 countries to deliver innovative health solutions. We also demonstrate our commitment to increasing access to healthcare through far-reaching policies, programs and partnerships. For more information, visit and connect with us on , and .

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 2012 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 ().

Merck is providing certain 2013 and 2012 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.

Net income attributable to Merck & Co., Inc.

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.

Includes expenses for the amortization of intangible assets recognized as a result of mergers and acquisitions of $1.2 billion in both the second quarter of 2013 and the second quarter of 2012, as well as intangible asset impairment charges of $564 million and $127 million in the second quarter of 2013 and 2012, respectively. Also includes integration and other costs associated with mergers and acquisitions.