Merck Announces Fourth-Quarter and Full-Year 2013 Financial Results

  • Fourth-Quarter 2013 Non-GAAP EPS Increased by 6 Percent Over Prior Year to $0.88, Excluding Certain Items; GAAP EPS Decreased by 13 Percent to $0.26. Full-Year 2013 Non-GAAP EPS of $3.49, Excluding Certain Items; GAAP EPS of $1.47.
  • Fourth-Quarter 2013 Worldwide Sales Were $11.3 Billion, a Decrease of 4 Percent Reflecting Unfavorable Impact of Patent Expiries and a 3 Percent Negative Impact from Foreign Exchange.
  • Full-Year 2013 Worldwide Sales Were $44.0 Billion, a Decrease of 7 Percent Reflecting Unfavorable Impact of Patent Expiries and a 2 Percent Negative Impact from Foreign Exchange.
  • Strong Full-Year Sales Growth for GARDASIL, REMICADE, SIMPONI, ISENTRESS, ZOSTAVAX and the Diabetes Franchise.
  • Returned $11 Billion to Shareholders in 2013 Through Dividends and Share Repurchases.
  • Accelerated Development Program for MK-3475, Including Announcement of Four Collaborations to Evaluate Novel Combination Regimens, Initiation of a Phase I Study in 20 New Cancer Types and Rolling Submission of a BLA to the FDA.
  • 2014 Full-Year Non-GAAP EPS Target of $3.35 to $3.53, Excluding Certain Items; GAAP EPS Range of $2.15 to $2.47.

WHITEHOUSE STATION, N.J.--()--Merck (NYSE:MRK), known as MSD outside the United States and Canada, today announced financial results for the fourth quarter and full year of 2013.

               
Fourth   Fourth   Year Ended   Year Ended
Quarter Quarter Dec. 31, Dec. 31,
$ in millions, except EPS amounts   2013   2012   2013   2012
Sales   $11,319   $11,738   $44,033   $47,267
GAAP EPS   0.26   0.30   1.47   2.00

Non-GAAP EPS that excludes items listed below1

  0.88   0.83   3.49   3.82

GAAP Net Income2

  781   908   4,404   6,168

Non-GAAP Net Income that excludes items listed below1,2

  2,599   2,540   10,443   11,743

Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the fourth quarter of $0.88 and $3.49 for the full year of 2013 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.

       
$ in millions, except EPS amounts Fourth Quarter   Year Ended
    Dec. 31,   Dec. 31,
2013   2012   2013   2012
EPS                
GAAP EPS   $0.26   $0.30   $1.47   $2.00

Difference3

  0.62   0.53   2.02   1.82

Non-GAAP EPS that excludes items listed below1

  $0.88   $0.83   $3.49   $3.82
 
Net Income                
GAAP net income2   $781   $908   $4,404   $6,168
Difference   1,818   1,632   6,039   5,575
Non-GAAP net income that excludes items listed below1,2   $2,599   $2,540   $10,443   $11,743
 
Decrease (Increase) in Net Income Due to Excluded Items:                

Acquisition-related costs4.

  $1,348   $1,298   $5,549   $5,344
Restructuring costs   962   254   2,401   999

Other5

    493   (13)   493
Net decrease (increase) in income before taxes   2,310   2,045   7,937   6,836

Income tax (benefit) expense6

  (492)   (413)   (1,898)   (1,261)
Decrease (increase) in net income   $1,818   $1,632   $6,039   $5,575

“In 2013 we took decisive action to sharpen our focus, reduce our cost structure and advance our innovative research and development,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “This year we are excited about the potential of our near- and long-term pipeline, poised for long-term growth and committed to providing continued value to patients, customers and our shareholders.”

Select Revenue Highlights

Worldwide sales were $11.3 billion for the fourth quarter of 2013, a decrease of 4 percent, which includes a 3 percent negative impact from foreign exchange compared with the fourth quarter of 2012. Full-year 2013 worldwide sales were $44.0 billion, a decrease of 7 percent, which includes a 2 percent negative impact from foreign exchange, compared to full-year 2012.

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

                               
        Year   Year    
Fourth Fourth Change Ended Ended Change
$ in millions Quarter Quarter Ex- Dec. 31, Dec. 31, Ex-
    2013   2012   Change   Exchange   2013   2012   Change   Exchange
Total Sales   $11,319   $11,738   -4%   -1%   $44,033   $47,267   -7%   -5%
Pharmaceutical   9,760   10,085   -3%   0%   37,437   40,601   -8%   -5%
JANUVIA   1,121   1,134   -1%   4%   4,004   4,086   -2%   3%
ZETIA   716   676   6%   9%   2,658   2,567   4%   6%
REMICADE   620   549   13%   9%   2,271   2,076   9%   7%
GARDASIL   394   442   -11%   -9%   1,831   1,631   12%   14%
JANUMET   503   452   11%   11%   1,829   1,659   10%   10%
ISENTRESS   442   381   16%   16%   1,643   1,515   8%   9%
VYTORIN   436   435   0%   -1%   1,643   1,747   -6%   -6%
NASONEX   327   308   6%   10%   1,335   1,268   5%   8%
PROQUAD, M-M-R II and VARIVAX   273   306   -11%   -10%   1,306   1,273   3%   3%
SINGULAIR   298   480   -38%   -31%   1,196   3,853   -69%   -66%
Animal Health   871   898   -3%   -1%   3,362   3,399   -1%   1%
Consumer Care   390   395   -1%   1%   1,894   1,952   -3%   -2%
Other Revenues   298   360   -17%   -19%   1,340   1,315   2%   -1%

Pharmaceutical Revenue Performance

Fourth-quarter pharmaceutical sales declined 3 percent to $9.8 billion, including a 3 percent negative impact due to foreign exchange. Strong sales growth for REMICADE (infliximab), ISENTRESS (raltegravir), SIMPONI (golimumab), JANUMET (sitagliptin and metformin HCI) and ZOSTAVAX (zoster vaccine live) offset the expected declines in sales of SINGULAIR (montelukast sodium), MAXALT (rizatriptan benzoate) and TEMODAR (temozolomide) following loss of market exclusivity. Full-year pharmaceutical sales declined 8 percent to $37.4 billion, including a 3 percent negative impact due to foreign exchange.

Sales from emerging markets grew 2 percent, including a 6 percent negative impact due to foreign exchange, and accounted for approximately 21 percent of pharmaceutical sales in the fourth quarter. Sales growth in the emerging markets was driven by vaccines, acute care and diabetes products. Full-year sales from emerging markets grew 3 percent, including a 4 percent negative impact due to foreign exchange.

Worldwide sales of the combined diabetes franchise of JANUVIA (sitagliptin)/JANUMET, medicines that help lower blood sugar levels in adults with type 2 diabetes, were $1.6 billion in the fourth quarter of 2013, growing 2 percent compared to the prior year quarter, including a negative 4 percent impact from foreign exchange, primarily driven by growth in Europe and the emerging markets. The combined franchise had sales of $5.8 billion for the full year of 2013, an increase of 2 percent compared with the prior year, including a negative 3 percent impact from foreign exchange.

Sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), medicines for lowering LDL cholesterol, were $1.2 billion in the fourth quarter, growing 4 percent compared to the prior year quarter, including a 1 percent negative impact from foreign exchange. The combined ZETIA/VYTORIN franchise had sales of $4.3 billion for the full year of 2013, comparable to the prior year.

Combined sales of REMICADE and SIMPONI, treatments for inflammatory diseases, increased 19 percent to $766 million for the fourth quarter of 2013, including a 4 percent benefit from foreign exchange. Global combined sales for the full year increased to $2.8 billion, 15 percent over the prior year, including a 2 percent benefit from foreign exchange. These increases were driven by market growth trends and continued launch activities for SIMPONI. SIMPONI sales were $500 million for the full year of 2013.

Sales recorded by Merck for GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16, and 18) Vaccine, Recombinant], a vaccine to help prevent certain diseases caused by four types of human papillomavirus (HPV), decreased 11 percent to $394 million for the fourth quarter, including a 2 percent negative impact from foreign exchange. This decrease was driven by lower sales in the United States as a result of the timing of public sector purchases and in Japan reflecting the government’s decision to suspend active promotion of HPV vaccines. These declines were partially offset by growth in the emerging markets. Worldwide sales of GARDASIL recorded by Merck for the full year were $1.8 billion, a 12 percent increase compared to the prior year, including a 2 percent unfavorable impact from foreign exchange.

Sales of ISENTRESS, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, increased 16 percent to $442 million in the fourth quarter driven by growth in most markets. Global sales of ISENTRESS for the full year of 2013 were $1.6 billion, an 8 percent increase compared to 2012.

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 38 percent to $298 million in the fourth quarter. Full-year 2013 worldwide sales for SINGULAIR were $1.2 billion, a 69 percent decrease compared to the prior year. The patent for SINGULAIR expired in the United States in August 2012 and in major European markets in February 2013.

Sales recorded by Merck for ZOSTAVAX, a vaccine for the prevention of herpes zoster, grew 18 percent to $264 million in the fourth quarter compared to the prior year quarter, driven by new launches, primarily in Asia. Global sales of ZOSTAVAX recorded by Merck for the full year of 2013 grew 16 percent to $758 million.

Animal Health Revenue Performance

Global sales of Animal Health products totaled $871 million for the fourth quarter of 2013, a 3 percent decline compared with the same period last year, including a 2 percent negative impact due to foreign exchange. Revenue performance in the quarter reflects lower sales of ruminant products, which were partially offset by growth in poultry and aqua products. Global sales for the full year of 2013 were $3.4 billion, a decline of 1 percent, including a 2 percent negative impact from foreign exchange, when compared with 2012. Lower sales of ruminant products were partially offset by growth in companion animal and poultry products. During the third quarter of 2013, Merck Animal Health voluntarily suspended the sale of ZILMAX (zilpaterol hydrochloride), a feed supplement for beef cattle, in the United States and Canada.

Consumer Care Revenue Performance

Fourth-quarter global sales of Consumer Care were $390 million, a decrease of 1 percent, including a 2 percent negative impact from foreign exchange, compared to the fourth quarter of 2012. Full-year 2013 global sales were $1.9 billion, a 3 percent decrease compared to full-year 2012, including a 1 percent negative impact due to foreign exchange.

Other Revenue Performance

Other revenues – primarily comprised of alliance revenue, miscellaneous corporate revenues and third-party manufacturing sales – decreased 17 percent to $298 million in the fourth quarter driven by lower revenue from AstraZeneca (AZ) recorded by Merck as well as by lower third-party manufacturing sales. Other revenues increased 2 percent to $1.3 billion for the full year of 2013. Merck anticipates that AZ will exercise its option to buy Merck’s interest in a subsidiary and, through it, Merck’s interest in Nexium and Prilosec. If AZ does so, as of July 1, 2014, Merck will no longer record equity income from AZ and supply sales to AZ are expected to terminate. The company recorded $920 million of revenue and $352 million of equity income from AZ for the full year of 2013.

Fourth-Quarter and Full-Year Expense and Other Information

The costs detailed below totaled $10.0 billion on a GAAP basis for the fourth quarter of 2013 and include $2.3 billion of acquisition-related costs and restructuring costs.

 

$ in millions

               
  Acquisition-    
Related Restructuring
Fourth Quarter 2013   GAAP   Costs(4)   Costs   Non-GAAP(1)
Materials and production   $4,607   $1,301   $253   $3,053
Marketing and administrative   2,982   32   81   2,869
Research and development   1,836   15   63   1,758
Restructuring costs   565     565  

Fourth Quarter 2012

               
Materials and production   $4,160   $1,185   $40   $2,935
Marketing and administrative   3,390   89   20   3,281
Research and development   2,224   24   3   2,197
Restructuring costs   191     191  

The costs detailed below totaled $38.1 billion on a GAAP basis for full-year 2013 and include $8.0 billion of acquisition-related costs and restructuring costs.

 

$ in millions

               
  Acquisition-    
Year Ended Related Restructuring
Dec. 31, 2013   GAAP   Costs(4)   Costs   Non-GAAP(1)
Materials and production   $16,954   $5,176   $446   $11,332
Marketing and administrative   11,911   94   145   11,672
Research and development   7,503   279   101   7,123
Restructuring costs   1,709     1,709  

Year Ended

Dec. 31, 2012

               
Materials and production   $16,446   $4,872   $188   $11,386
Marketing and administrative   12,776   272   90   12,414
Research and development   8,168   200   57   7,911
Restructuring costs   664     664  

The gross margin was 59.3 percent for the fourth quarter of 2013 compared to 64.6 percent for last year’s fourth quarter, reflecting unfavorable impacts of 13.7 and 10.4 percentage points, respectively, from the acquisition-related and restructuring costs noted above. The gross margin was 61.5 percent for the full year of 2013 compared to 65.2 percent for the full year of 2012, reflecting unfavorable impacts of 12.8 and 10.7 percentage points, respectively, from the acquisition-related and restructuring costs noted above. The non-GAAP gross margin declines in the fourth quarter and full year of 2013 reflect the unfavorable impacts of recent patent expiries, product mix and continued pricing pressure in mature markets.

Marketing and administrative expenses, on a non-GAAP basis, were $2.9 billion in the fourth quarter of 2013, a decrease from $3.3 billion in last year’s fourth quarter. Full-year marketing and administrative expenses in 2013, on a non-GAAP basis, were $11.7 billion, a decrease from $12.4 billion in 2012. The declines were primarily due to productivity measures and the beneficial impact of foreign exchange.

Research and development (R&D) expenses, on a non-GAAP basis, were $1.8 billion in the fourth quarter of 2013, a decrease from $2.2 billion in the fourth quarter of 2012. For full-year 2013, these expenses, on a non-GAAP basis, were $7.1 billion, a decrease from $7.9 billion in 2012. The declines reflect targeted reductions and lower clinical development spend as a result of portfolio prioritization and increased focus on the company’s key therapeutic opportunities, as well as lower payments for licensing activity.

Equity income from affiliates was $53 million for the fourth quarter and $404 million for the full year, which primarily reflects partnerships with AZ and Sanofi Pasteur.

Other (income) expense, net, was $157 million of expense in the fourth quarter of 2013 compared with $669 million of expense in last year’s fourth quarter, and for the full-year 2013 was $815 million of expense compared with $1.1 billion of expense in 2012. The fourth quarter of 2012 includes a $493 million net charge related to the settlement of certain shareholder litigation.

Key Developments

Clinical

  • Accelerated development program for MK-3475, the company’s anti-PD-1 immunotherapy, including announcement of four collaborations to evaluate novel combination regimens and initiation of a Phase I study in 20 new cancer types;
  • Interim data for MK-5172/MK-8742, the company’s investigational oral combination regimen for treatment of chronic hepatitis C virus (HCV), presented at the 2013 American Association for the Study of Liver Diseases Annual Meeting showed sustained virologic response in 100 percent of patients reaching post-treatment follow-up week 12 in two of the three combination arms studied;
  • MK-5172/MK-8742 advanced into Phase IIB in a diverse range of chronic HCV patients;
  • Interim data for MK-3475, presented at the 10th International Congress of the Society for Melanoma Research, showed an estimated survival rate of 81 percent at one year in patients with advanced melanoma;
  • Phase III data on V503, the company’s 9-valent HPV vaccine candidate, showed prevention of 97 percent of cervical, vaginal and vulvar pre-cancers caused by five additional HPV types;
  • Phase III trials for MK-8931, the company’s investigational BACE inhibitor for Alzheimer’s disease, were initiated; and
  • BACE inhibitor dosing in Phase III study of prodromal disease patients is planned.

Regulatory

  • Breakthrough Therapy designation was granted by U.S. Food and Drug Administration (FDA) for MK-5172/MK-8742;
  • FDA advisory committee recommended approval of vorapaxar, Merck’s investigational antiplatelet medicine; and
  • FDA advisory committee discussed GRASTEK (Timothy Grass Pollen Allergen Extract) and RAGWITEK (Short Ragweed Pollen Allergen Extract), Merck’s investigational sublingual allergy immunotherapy tablets.

Business

  • $11 billion returned to shareholders in 2013 through dividends and share repurchases;
  • Divested a portion of the company’s U.S. ophthalmics business; and
  • In January 2014, sold the U.S. marketing rights for SAPHRIS; announced plans to divest Sirna Therapeutics, Inc. to Alnylam Pharmaceuticals, Inc.

Looking Ahead

  • Rolling submission for MK-3475 in patients with advanced melanoma who have previously been treated with ipilimumab to be completed in first half of 2014; and
  • New Drug Applications anticipated to the FDA for odanacatib for osteoporosis, suvorexant for insomnia and sugammadex sodium injection for reversal of neuromuscular blockade induced by rocuronium or vecuronium.
  • Anticipate regulatory actions for:
    • V503 (submitted Biologics License Application to the FDA in 2013);
    • Vintafolide in the European Union for use in platinum-resistant ovarian cancer;
    • Vorapaxar for the reduction of atherothrombotic events when added to standard of care in patients with a history of heart attack and no history of stroke or transient ischemic attack;
    • NOXAFIL IV for fungal infections;
    • Vaniprevir in Japan for the treatment of chronic HCV;
    • Allergy immunotherapies GRASTEK and RAGWITEK;
  • Exploring strategic options for the company’s Animal Health and Consumer Care businesses to determine the most value-creating option for each and could reach different decisions about the two businesses. The company expects to complete the process and take action, if any, in 2014; and
  • Merck will hold an R&D event for investors and media scheduled for May 6, 2014.6

Fnancial Targets

Merck expects full-year 2014 non-GAAP EPS to be between $3.35 and $3.53, and 2014 GAAP EPS to be between $2.15 and $2.47. The 2014 non-GAAP range excludes acquisition-related costs and costs related to restructuring programs, as well as potential gains associated with the expected termination of the AZ joint venture. The 2014 EPS targets (both non-GAAP and GAAP) include a potential devaluation of the Venezuelan Bolivar.

Merck expects full-year 2014 revenues to be between $42.4 billion and $43.2 billion at today’s currency rates. This includes the expectation that AZ will elect to end the partnership between the companies at mid-year, as well as lost revenue from patent expirations across multiple markets and recently announced product divestitures.

In addition, the company expects full-year 2014 non-GAAP marketing and administrative as well as R&D expenses to be below 2013 levels due to continuing prioritization and focused spending on core product lines and upcoming launches.

The company expects its full-year 2014 non-GAAP tax rate to be in the range of 24 to 26 percent; the rate does not include a 2014 benefit of an 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.

   

$ in millions, except EPS amounts

  Full-Year 2014
GAAP EPS   $2.15 to $2.47
Difference3   1.20 to 1.06
Non-GAAP EPS that excludes items listed below   $3.35 to $3.53
 
Acquisition-related costs4   $4,600 to $4,350
Restructuring costs   1,300 to 1,000
Gain on AZ option exercise   (700) to (725)
Net decrease (increase) in income before taxes   5,200 to 4,625
Estimated income tax (benefit) expense   (1,675) to (1,535)
Decrease (increase) in net income   $3,525 to $3,090

Total Employees

As of Dec. 31, 2013, Merck had approximately 76,000 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.

Earnings Conference Call

Investors are invited to a live audio webcast of Merck's fourth-quarter earnings conference call today at 8:00 a.m. EST by visiting Merck's website, 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 26402847. Journalists are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 26402847. 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 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 www.merck.com and connect with us on Twitter, Facebook and YouTube.

Merck 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 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 (www.sec.gov).

1 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 a description of the items, see Tables 2a and 2b, 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 for the amortization of intangible assets recognized as a result of mergers and acquisitions, as well as intangible asset impairment charges. Also includes integration and other costs associated with mergers and acquisitions.

5 Amount for 2012 represents a net charge related to the settlement of certain shareholder litigation.

6 Includes an estimated income tax (benefit) expense on the reconciling items. In addition, the full year amount for 2013 includes net benefits of approximately $325 million related to the settlements of certain federal income tax issues.

 
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS - GAAP
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 1
   
           

GAAP

 

GAAP

 

 

% Change

Full Year   Full Year

% Change

4Q13   4Q12   2013   2012  
       

 

     
Sales $ 11,319 $ 11,738 -4 % $ 44,033 $ 47,267 -7 %
 
Costs, Expenses and Other
Materials and production (1) 4,607 4,160 11 % 16,954 16,446 3 %
Marketing and administrative (1) 2,982 3,390 -12 % 11,911 12,776 -7 %
Research and development (1) 1,836 2,224 -17 % 7,503 8,168 -8 %
Restructuring costs (2) 565 191 * 1,709 664 *
Equity income from affiliates (3) (53 ) (231 ) -77 % (404 ) (642 ) -37 %
Other (income) expense, net (1) (4) 157 669 -77 % 815 1,116 -27 %
Income Before Taxes 1,225 1,335 -8 % 5,545 8,739 -37 %
Income Tax Provision 410 385 1,028 2,440
Net Income 815 950 -14 % 4,517 6,299 -28 %
Less: Net Income Attributable to Noncontrolling Interests 34 42 113 131
Net Income Attributable to Merck & Co., Inc. $ 781 $ 908 -14 % $ 4,404 $ 6,168 -29 %
Earnings per Common Share Assuming Dilution $ 0.26     $ 0.30   -13 % $ 1.47     $ 2.00   -27 %
           
Average Shares Outstanding Assuming Dilution 2,959 3,074 2,996 3,076
Tax Rate (5)   33.5 %     28.8 %   18.5 %     27.9 %
 

* 100% or greater

(1) Amounts include the impact of acquisition-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) Primarily reflects equity income from the AstraZeneca LP and Sanofi Pasteur MSD partnerships.

(4) Other (income) expense, net in the fourth quarter and full year of 2012 reflect a $493 million net charge related to the settlement of certain shareholder litigation.

(5) The effective tax rate for the full year 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. The effective tax rates for the fourth quarter and full year of 2012 reflect a favorable ruling on a state tax matter. In addition, the effective tax rate for the full year of 2012 reflects the favorable impacts of a settlement with a foreign tax authority and the realization of foreign tax credits.

MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
FOURTH QUARTER 2013
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2a
                   
Acquisition- Restructuring Adjustment
GAAP

Related Costs(1)

Costs(2)

Subtotal Non-GAAP
   
Sales $ 11,319 $ 11,319
 
Costs, Expenses and Other
Materials and production 4,607 1,301 253 1,554 3,053
Marketing and administrative 2,982 32 81 113 2,869
Research and development 1,836 15 63 78 1,758
Restructuring costs 565 565 565 -
Equity income from affiliates (53 ) - (53 )
Other (income) expense, net 157 - 157
Income Before Taxes 1,225 (1,348 ) (962 ) (2,310 ) 3,535
Taxes on Income 410

(492

)(3)

902
Net Income 815 (1,818 ) 2,633
Less: Net Income Attributable to Noncontrolling Interests 34 - 34
Net Income Attributable to Merck & Co., Inc. $ 781 $ (1,818 ) $ 2,599
Earnings per Common Share Assuming Dilution $ 0.26   $ 0.88  
   
Average Shares Outstanding Assuming Dilution 2,959 2,959
Tax Rate   33.5 %   25.5 %
 

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.

 
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
FULL YEAR 2013
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2b
                       
Acquisition- Restructuring Certain Other Adjustment
GAAP

Related Costs(1)

Costs(2)

Items Subtotal Non-GAAP
   
Sales $ 44,033 $ 44,033
 
Costs, Expenses and Other
Materials and production 16,954 5,176 446 5,622 11,332
Marketing and administrative 11,911 94 145 239 11,672
Research and development 7,503 279 101 380 7,123
Restructuring costs 1,709 1,709 1,709 -
Equity income from affiliates (404 ) - (404 )
Other (income) expense, net 815 (13 ) (13 ) 828
Income Before Taxes 5,545 (5,549 ) (2,401 ) 13 (7,937 ) 13,482
Taxes on Income 1,028

(1,898

)(3)

2,926
Net Income 4,517 (6,039 ) 10,556
Less: Net Income Attributable to Noncontrolling Interests 113 - 113
Net Income Attributable to Merck & Co., Inc. $ 4,404 $ (6,039 ) $ 10,443
Earnings per Common Share Assuming Dilution $ 1.47   $ 3.49  
   
Average Shares Outstanding Assuming Dilution 2,996 2,996
Tax Rate   18.5 %   21.7 %
 

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 $4.7 billion for the amortization of intangible assets recognized as a result of mergers and acquisitions, as well as $486 million of impairment charges on product intangibles. Amounts included in marketing and administrative expenses reflect merger integration costs. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges.

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

(3) Represents the estimated tax impact on the reconciling items, as well as net benefits of approximately $325 million related to the settlements of certain federal income tax issues.

 
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
Table 3
           
2013 2012 % Change   % Change
1Q   2Q   3Q   4Q   Full Year 1Q   2Q   3Q   4Q   Full Year

4Q

 

Full Year

TOTAL SALES (1) $10,671   $11,010   $11,032   $11,319   $44,033 $11,731   $12,311   $11,488   $11,738   $47,267 -4   -7
PHARMACEUTICAL 8,891   9,310   9,475   9,760   37,437 10,082   10,560   9,875   10,085   40,601 -3   -8
 
Primary Care and Women's Health
Cardiovascular
Zetia 629 650 662 716 2,658 614 632 645 676 2,567 6 4
Vytorin 394 417 396 436 1,643 444 445 423 435 1,747 -6
 
Diabetes & Obesity
Januvia 884 1,072 927 1,121 4,004 919 1,058 975 1,134 4,086 -1 -2
Janumet 409 474 442 503 1,829 392 411 405 452 1,659 11 10
 
Respiratory
Nasonex 385 325 297 327 1,335 375 293 292 308 1,268 6 5
Singulair 337 281 280 298 1,196 1,340 1,431 602 480 3,853 -38 -69
Dulera 68 79 82 95 324 39 50 52 67 207 42 56
Asmanex 40 49 43 51 184 48 51 42 44 185 17 -1
 
Women's Health & Endocrine
NuvaRing 151 171 170 193 686 146 157 156 164 623 17 10
Fosamax 137 144 140 139 560 184 186 152 154 676 -10 -17
Follistim AQ 122 134 124 101 481 116 125 111 116 468 -13 3
Implanon 84 102 96 120 403 76 85 93 94 348 28 16
Cerazette 61 48 51 50 208 67 72 64 68 271 -28 -23
 
Other
Arcoxia 121 121 112 131 484 112 117 109 115 453 13 7
Avelox 36 29 38 37 140 73 44 30 55 201 -32 -31
 
Hospital and Specialty
 
Immunology
Remicade 549 527 574 620 2,271 519 518 490 549 2,076 13 9
Simponi 108 120 126 146 500 74 76 86 95 331 53 51
 
Infectious Disease
Isentress 362 412 427 442 1,643 337 398 399 381 1,515 16 8
Cancidas 162 163 151 183 660 145 166 163 145 619 26 7
PegIntron 126 142 104 124 496 162 183 165 143 653 -13 -24
Invanz 110 120 130 128 488 101 110 118 116 445 10 10
Victrelis 110 116 121 81 428 111 126 149 115 502 -29 -15
Noxafil 65 71 75 98 309 59 66 66 68 258 44 20
 
Oncology
Temodar 216 219 162 111 708 237 225 227 229 917 -51 -23
Emend 116 135 123 134 507 102 145 111 131 489 2 4
 
Other
Cosopt / Trusopt 105 103 104 103 416 124 105 102 113 444 -9 -6
Bridion 63 69 75 82 288 58 60 68 75 261 10 10
Integrilin 47 48 45 46 186 53 60 48 51 211 -9 -12
 
Diversified Brands
Cozaar / Hyzaar 267 255 238 246 1,006 336 337 295 315 1,284 -22 -22
Primaxin 84 85 88 79 335 88 104 109 83 384 -5 -13
Zocor 82 74 65 79 301 103 96 86 98 383 -19 -21
Propecia 68 67 71 77 283 108 100 104 112 424 -31 -33
Clarinex 61 64 54 55 235 134 140 64 56 393 -1 -40
Remeron 52 53 44 56 206 57 66 52 57 232 -1 -11
Claritin Rx 76 40 36 52 204 87 48 47 63 244 -16 -16
Proscar 39 58 38 48 183 51 55 55 56 217 -15 -15
Maxalt 40 43 40 25 149 156 154 166 162 638 -85 -77
 
Vaccines
Gardasil 390 383 665 394 1,831 284 324 581 442 1,631 -11 12
ProQuad, M-M-R II and Varivax 272 339 421 273 1,306 255 316 396 306 1,273 -11 3
Zostavax 168 141 185 264 758 76 148 202 225 651 18 16
Pneumovax 23 111 108 193 241 653 112 101 160 208 580 16 13
RotaTeq 162 144 201 129 636 142 142 150 168 601 -23 6
 
Other Pharmaceutical (2) 1,022 1,115 1,059 1,126 4,316 1,066 1,034 1,065 1,161 4,333 -3
 
 
ANIMAL HEALTH 840 851 800 871 3,362 821 865 815 898 3,399 -3 -1
 
CONSUMER CARE (3) 571 490 443 390 1,894 554 552 451 395 1,952 -1 -3
Claritin OTC 177 78 123 92 471 169 145 118 100 532 -8 -12
 
Other Revenues (4) 369 359 314 298 1,340 274 333 347 360 1,315 -17 2

Astra

262   245   220   193   920 186   223   255   251   915 -23   1
 

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 $53 million, $86 million, $127 million, and $101 million for the first, second, third, and fourth quarters of 2013. Other Vaccines sales included in Other Pharmaceutical were $60 million, $75 million, $116 million, and $69 million for the first, second, third, and fourth quarters of 2012, respectively.

(3) The decrease in Consumer Care sales in the second quarter and full year of 2013 resulted from the ongoing 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. 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.

Contacts

Merck
Media:
Kelley Dougherty, 908- 423-4291
Steve Cragle, 908-423-3461
or
Investors:
Carol Ferguson, 908-423-4465
Joe Romanelli, 908-423-5185

Release Summary

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

Contacts

Merck
Media:
Kelley Dougherty, 908- 423-4291
Steve Cragle, 908-423-3461
or
Investors:
Carol Ferguson, 908-423-4465
Joe Romanelli, 908-423-5185