- Second-Quarter 2020 Worldwide Sales Were $10.9 Billion, a
Decrease of 8%, Reflecting the Negative Impact of COVID-19;
Excluding the Impact from Foreign Exchange, Sales Declined 5%
- KEYTRUDA Sales Grew 29% to $3.4 Billion; Excluding the Impact
of Foreign Exchange, Sales Grew 31%
- Second-Quarter 2020 GAAP EPS Was $1.18; Second-Quarter Non-GAAP
EPS Was $1.37
- Secured Multiple Regulatory Approvals and Progressed Pipeline
- Revealed Initial Investigational Phase 3 Results for V114
- First Data Presentation with Investigational, Novel HIF-2α
Inhibitor MK-6482
- Company Accelerates Three COVID-19-Related Vaccine and
Antiviral Research Programs
- Company Narrows and Raises 2020 Full-Year Revenue Range to be
Between $47.2 Billion and $48.7 Billion, Including a Negative
Impact from Foreign Exchange of Approximately 2%
- Company Narrows and Raises 2020 Full-Year GAAP EPS Range to be
Between $4.58 and $4.73; Narrows and Raises 2020 Full-Year Non-GAAP
EPS Range to be Between $5.63 and $5.78, Including a Negative
Impact from Foreign Exchange of Approximately 3%
Merck (NYSE: MRK), known as MSD outside the United States and
Canada, today announced financial results for the second quarter of
2020.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20200731005100/en/
“Despite the impact COVID-19 had on patient access to health
care providers, Merck continued to execute well with business
momentum improving through the quarter. We remain confident that
Merck will drive strong long-term growth based on underlying demand
for our unique portfolio of innovative medicines, vaccines and
animal health products. Our financial strength underpins our
capital allocation priorities, including business development and
the breakthrough research and development that creates value for
society and our shareholders,” said Kenneth C. Frazier, chairman
and chief executive officer, Merck. “In response to the SARS-CoV-2
pandemic, Merck is moving with urgency on three critical
priorities: protecting the health and safety of our employees and
their families, sustaining the supply of our medicines and vaccines
to our patients and customers, and mobilizing our unique scientific
expertise and experience to develop vaccines and antivirals that we
believe may help save many lives.”
Financial Summary
$ in millions, except EPS amounts
Second Quarter
2020
2019
Change
Change Ex- Exchange
Sales
$10,872
$11,760
-8%
-5%
GAAP net income1
3,002
2,670
12%
17%
Non-GAAP net income that excludes certain
items1,2*
3,484
3,356
4%
7%
GAAP EPS
1.18
1.03
15%
19%
Non-GAAP EPS that excludes certain
items2*
1.37
1.30
6%
9%
*Refer to table on page 11.
GAAP (generally accepted accounting principles) earnings per
share assuming dilution (EPS) was $1.18 for the second quarter of
2020. Non-GAAP EPS of $1.37 for the second quarter of 2020 excludes
acquisition- and divestiture-related costs and restructuring costs.
Year-to-date results can be found in the attached tables.
COVID-19 Research Highlights
Building on the company’s experience with antivirals and
vaccines, Merck is accelerating two COVID-19 vaccine development
efforts and a novel antiviral candidate, specifically,
- Merck in collaboration with IAVI is developing V590, a
SARS-CoV-2 vaccine candidate that uses a recombinant vesicular
stomatitis virus (rVSV) platform, the same platform that was used
for Merck’s approved Ebola Zaire virus vaccine. V590 is currently
in preclinical development and clinical studies are planned to
start this year.
- Merck has acquired Themis to accelerate the development of
V591, a SARS-CoV-2 vaccine candidate that uses a measles virus
vector platform based on a vector originally developed by
scientists at the Institut Pasteur, a world-leading European
vaccine research institute, and licensed exclusively to Themis.
V591 is currently in preclinical development and clinical studies
are planned to start in the third quarter. The acquisition closed
in June.
- Merck in collaboration with Ridgeback Bio is developing MK-4482
(formerly known as EIDD-2801), an orally available antiviral
candidate for the treatment of COVID-19. In preclinical studies,
MK-4482 demonstrated antiviral properties against SARS-CoV-2, the
virus that causes COVID-19, as well as the coronaviruses
responsible for MERS and SARS. The candidate is currently being
evaluated in Phase 2 clinical trials.
- As previously announced, Merck also is collaborating with the
Institute for Systems Biology to investigate and define the
molecular mechanisms of SARS-CoV-2 infection and COVID-19 and to
identify targets for medicines and vaccines, as well as
participating in the National Institutes of Health (NIH)-led
Accelerating COVID-19 Therapeutic Interventions and Vaccines
(ACTIV) consortium.
“We are conscious of our abiding responsibility to help advance
vaccine and antiviral efforts as part of the global response to
SARS-CoV-2 and to ensure broad, equitable and affordable global
access to any medicines and vaccines we bring forward,” Frazier
said. “This pandemic underscores the essential role of Merck and
the biopharmaceutical industry in addressing the world’s greatest
health challenges and underscores the importance of a health care
ecosystem that incentivizes risk-taking and innovation. Ultimately,
scientific and medical knowledge will help overcome this ongoing
global pandemic – and that is why we must continue to trust and
invest in breakthrough science.”
Oncology Pipeline Highlights
Merck continued to advance the development programs for KEYTRUDA
(pembrolizumab), the company’s anti-PD-1 therapy; Lynparza
(olaparib), a PARP inhibitor being co-developed and
co-commercialized with AstraZeneca; and Lenvima (lenvatinib
mesylate), an orally available tyrosine kinase inhibitor being
co-developed and co-commercialized with Eisai Co., Ltd. (Eisai), in
addition to other notable developments as follows:
- Merck announced the following regulatory milestones for
KEYTRUDA:
- U.S. approval as monotherapy for the first-line treatment of
patients with unresectable or metastatic microsatellite
instability-high (MSI-H) or mismatch repair deficient (dMMR)
colorectal cancer based on the Phase 3 results of the KEYNOTE-177
trial. Approval granted less than one month following submission of
regulatory application;
- U.S. approval as monotherapy for the treatment of patients with
recurrent or metastatic cutaneous squamous cell carcinoma (cSCC)
that is not curable by surgery or radiation based on data from the
Phase 2 KEYNOTE-629 trial;
- U.S. approval as monotherapy for the treatment of adult and
pediatric patients with unresectable or metastatic tumor mutational
burden-high (TMB-H) [≥10 mutations/ megabase (mut/Mb)] solid
tumors, as determined by an FDA-approved test, that have progressed
following prior treatment and who have no satisfactory alternative
treatment options. The approval was based on the KEYNOTE 158
trial;
- U.S. approval for use at an additional recommended dose of 400
mg every six weeks (Q6W) across all adult indications, including
monotherapy and combination therapy. This dosing regimen was
approved under accelerated approval based on pharmacokinetic data,
the relationship of exposure to efficacy and the relationship of
exposure to safety;
- China approval as monotherapy for second-line treatment of
patients with locally advanced or metastatic esophageal squamous
cell carcinoma whose tumors express PD-L1 (Combined Positive Score
[CPS] ≥10) based on the KEYNOTE-181 trial;
- U.S. filing acceptance for priority review by the U.S. Food and
Drug Administration (FDA) as monotherapy for the treatment of adult
patients with relapsed or refractory classical Hodgkin lymphoma
(cHL) based on data from the Phase 3 KEYNOTE-204 trial that was
presented during the virtual scientific program of the 2020
American Society of Clinical Oncology (ASCO) Annual Meeting. A
Prescription Drug User Fee Act (PDUFA) date is set for Oct. 30,
2020;
- U.S. filing acceptance for priority review by the FDA seeking
accelerated approval in combination with chemotherapy for the
treatment of patients with locally recurrent unresectable or
metastatic triple-negative breast cancer (TNBC) whose tumors
express PD-L1 (CPS ≥10), based on the Phase 3 KEYNOTE-355 trial
that was presented at the 2020 ASCO Annual Meeting. A PDUFA date is
set for Nov. 28, 2020; and
- U.S. filing acceptance for standard review by the FDA for the
treatment of patients with high-risk early-stage TNBC, in
combination with chemotherapy as neoadjuvant treatment, and then as
a single agent as adjuvant treatment after surgery, based on the
Phase 3 KEYNOTE-522 trial. A PDUFA date is set for March 29,
2021.
- Merck presented new combination lung data for KEYTRUDA at the
2020 ASCO Annual Meeting that included initial results from the
Phase 2 KEYNOTE-799 trial evaluating KEYTRUDA plus concurrent
chemoradiation therapy (CCRT) in patients with unresectable,
locally advanced stage III non-small cell lung cancer (NSCLC) as
well as two-year, long-term survival data from the final analysis
of the pivotal Phase 3 KEYNOTE-189 trial in patients with
metastatic nonsquamous NSCLC; and
- Merck announced that the Phase 3 KEYNOTE-361 trial
investigating KEYTRUDA as monotherapy and in combination with
chemotherapy in patients with advanced or metastatic urothelial
carcinoma did not meet the dual primary endpoints of overall
survival (OS) or progression-free survival (PFS) compared with
standard of care chemotherapy.
- Merck and AstraZeneca announced the following regulatory
milestones for Lynparza:
- U.S. approval for the treatment of adult patients with
deleterious or suspected deleterious germline or somatic homologous
recombination repair (HRR) gene-mutated metastatic
castration-resistant prostate cancer (mCRPC) who have progressed
following prior treatment with enzalutamide or abiraterone based on
the findings from the Phase 3 PROfound trial;
- U.S. approval as a combination therapy with bevacizumab for the
first-line maintenance treatment of adult patients with advanced
epithelial ovarian, fallopian tube or primary peritoneal cancer who
are in complete or partial response to first-line platinum-based
chemotherapy and whose cancer is associated with homologous
recombination deficiency (HRD) positive status defined by either a
deleterious or suspected deleterious BRCA mutation, and/or genomic
instability based on results from the Phase 3 PAOLA-1 trial;
and
- European Union approval as a monotherapy for the maintenance
treatment of adult patients with germline BRCA1/2 mutations who
have metastatic adenocarcinoma of the pancreas and have not
progressed after a minimum of 16 weeks of platinum treatment within
a first-line chemotherapy regimen based on results from the Phase 3
POLO trial.
- Merck and Eisai presented results from two trials evaluating
KEYTRUDA plus Lenvima at the 2020 ASCO Annual Meeting: tumor
response data from the KEYNOTE-524/Study 116 trial in patients with
hepatocellular carcinoma (HCC) with no prior systemic therapy and
tumor response data from the KEYNOTE-146/Study 111 trial in
patients with metastatic clear cell renal cell carcinoma (ccRCC)
who progressed following immune checkpoint inhibitor therapy;
and
- Merck and Eisai announced receipt of a Complete Response Letter
(CRL) from the FDA for the applications seeking accelerated
approval of KEYTRUDA plus Lenvima for the first-line treatment of
patients with unresectable HCC based on data from the Phase 1b
KEYNOTE-524/Study 116 trial, as another combination therapy was
approved ahead of the PDUFA action dates, based on a randomized,
controlled trial that demonstrated OS. Consequently, the CRL stated
that Merck’s and Eisai’s applications do not provide evidence that
KEYTRUDA in combination with Lenvima represents a meaningful
advantage over available therapies for the treatment of
unresectable or metastatic HCC with no prior systemic therapy for
advanced disease.
- Merck also presented first-time results from a Phase 2 trial
evaluating the hypoxia-inducible factor-2 alpha (HIF-2α) inhibitor
MK-6482, a novel investigational candidate in Merck’s oncology
pipeline, for the treatment of von Hippel-Lindau (VHL)
disease-associated ccRCC at the 2020 ASCO Annual Meeting.
Vaccine Pipeline Highlights
- Merck announced results from two initial Phase 3 studies that
showed V114, the company’s investigational 15-valent pneumococcal
conjugate vaccine, met safety and immunogenicity objectives in the
PNEU-WAY (V114-018) and PNEU-FLU (V114-021) studies in adults;
and
- Merck announced FDA approval of an expanded indication for
GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant) for
the prevention of oropharyngeal and other head and neck cancers
caused by HPV Types 16, 18, 31, 33, 45, 52, and 58.
Other Pipeline Highlights
- Merck announced U.S. filing acceptance for priority review by
the FDA for a New Drug Application (NDA) seeking approval for
vericiguat, an orally administered soluble guanylate cyclase (sGC)
stimulator being jointly developed with Bayer AG, to reduce the
risk of cardiovascular death and heart failure hospitalization
following a worsening heart failure event in patients with
symptomatic chronic heart failure with reduced ejection fraction
(HFrEF), in combination with other heart failure therapies. A PDUFA
date is set for Jan. 20, 2021;
- Merck presented new supportive analyses from the Phase 2b trial
evaluating the safety and efficacy of islatravir, the company’s
investigational oral nucleoside reverse transcriptase translocation
inhibitor (NRTTI), in combination with PIFELTRO (doravirine), in
adults with HIV-1 infection who had not previously received
antiretroviral treatment at the 23rd International AIDS Conference;
and
- Merck announced FDA approval of RECARBRIO (imipenem,
cilastatin, and relebactam) for the treatment of adults with
hospital-acquired and ventilator-associated bacterial pneumonia
(HABP/VABP).
Business Developments
- Merck signed an agreement to acquire U.S. rights from Virbac to
the SENTINEL brand of combination parasiticides, used to protect
dogs against fleas and common intestinal parasites including
heartworm, broadening its companion animal business. The
acquisition closed in July; and
- Merck announced the completion of its acquisition of Quantified
Ag, a leading data and analytics company that monitors cattle body
temperature and movement in order to detect illness early.
Organon & Co.
- Merck announced the external appointments of Organon & Co.
Chief Financial Officer and Chief Information Officer as well as
the external appointment of Organon’s General Counsel. Merck
remains fully committed to its spinoff transaction and continues to
expect completion in the first half of 2021.
Second-Quarter Financial Impact of COVID-19
In the second quarter, the estimated overall negative impact of
the COVID-19 pandemic to Merck’s revenue was approximately $1.6
billion, consisting of approximately $1.5 billion for
pharmaceuticals and approximately $100 million for Animal Health.
As expected, within the company’s human health business, revenue
was negatively impacted by reduced access to health care providers
given social distancing measures and within Animal Health, by
reduced veterinary visits and decreased protein and milk
demand.
Operating expenses were positively impacted in the second
quarter by approximately $325 million, primarily driven by lower
promotional and selling costs as well as lower research and
development (R&D) expenses.
Second-Quarter Revenue Performance
The following table reflects sales of the company’s top
pharmaceutical products, as well as sales of animal health
products.
$ in millions
Second Quarter
2020
2019
Change
Change Ex- Exchange
Total Sales
$10,872
$11,760
-8%
-5%
Pharmaceutical
9,679
10,460
-7%
-6%
KEYTRUDA
3,388
2,634
29%
31%
JANUVIA / JANUMET
1,344
1,441
-7%
-5%
GARDASIL / GARDASIL 9
656
886
-26%
-24%
PROQUAD, M-M-R II and
VARIVAX
378
675
-44%
-43%
BRIDION
224
278
-19%
-18%
ISENTRESS / ISENTRESS HD
196
247
-21%
-17%
SIMPONI
191
214
-11%
-8%
Lynparza*
178
111
61%
62%
ZETIA / VYTORIN
175
232
-24%
-23%
ROTATEQ
168
172
-2%
-1%
Lenvima*
151
97
57%
57%
Animal Health
1,101
1,124
-2%
3%
Livestock
648
671
-3%
3%
Companion Animals
453
453
0%
3%
Other Revenues
92
176
-47%
-23%
*Alliance revenue for these products represents Merck’s share of
profits, which are product sales net of cost of sales and
commercialization costs.
Pharmaceutical Revenue
Second-quarter pharmaceutical sales decreased by $780 million,
or 7%, to $9.7 billion; excluding the unfavorable effect from
foreign exchange, sales declined by 6%. The decrease was driven
primarily by the negative impact of the COVID-19 pandemic on
vaccines and hospital acute care products and the ongoing impacts
of the loss of market exclusivity for several products, partially
offset by growth in oncology.
The decline in vaccine sales was primarily driven by GARDASIL
(Human Papillomavirus Quadrivalent [Types 6,11,16 and 18] Vaccine,
Recombinant)/GARDASIL 9, vaccines to prevent certain cancers and
other diseases caused by HPV, largely due to lower demand in the
U.S. and Hong Kong, SAR, PRC attributable to the COVID-19 pandemic,
partially offset by higher demand in China.
Also contributing to the decline in vaccine sales were pediatric
vaccines PROQUAD (Measles, Mumps, Rubella and Varicella Virus
Vaccine Live), a combination vaccine to help protect against
measles, mumps, rubella and varicella; M-M-R II (Measles, Mumps and
Rubella Virus Vaccine Live), a vaccine to help prevent measles,
mumps and rubella; and VARIVAX (Varicella Virus Vaccine Live), a
vaccine to help prevent chickenpox, primarily attributable to lower
demand in the U.S. related to the COVID-19 pandemic. Lower demand
for M-M-R II in the U.S. due to fewer measles outbreaks and the
timing of government tenders in Latin America for VARIVAX also
contributed to the sales declines.
Sales of PNEUMOVAX 23 (pneumococcal vaccine polyvalent), a
vaccine to help prevent pneumococcal disease, declined in the
second quarter, primarily reflecting lower demand in the U.S.
related to the COVID-19 pandemic, partially offset by higher
volumes in Europe attributable in part to increased demand for
pneumococcal vaccination during the COVID-19 pandemic.
Performance in hospital acute care reflects lower demand
globally for BRIDION (sugammadex), a medicine for the reversal of
neuromuscular blockade induced by rocuronium bromide or vecuronium
bromide in adults undergoing surgery, driven by reductions in
elective surgeries due to the COVID-19 pandemic, partially offset
by the ongoing launch of PREVYMIS (letermovir), a medicine for
prophylaxis (prevention) of cytomegalovirus (CMV) infection and
disease in adult CMV-seropositive recipients of an allogeneic
hematopoietic stem cell transplant.
Pharmaceutical sales performance for the quarter also was
negatively affected by the ongoing impacts from the loss of market
exclusivity, including for NUVARING (etonogestrel/ethinyl estradiol
vaginal ring), NOXAFIL (posaconazole), EMEND (aprepitant)/EMEND
(fosaprepitant dimeglumine) for Injection, VYTORIN
(ezetimibe/simvastatin), CUBICIN (daptomycin) and REMICADE
(infliximab). In addition, the decline in sales of JANUVIA
(sitagliptin) and JANUMET (sitagliptin and metformin HCI) reflects
continued pricing pressure in the U.S.
Growth in oncology partially offset the decline in
pharmaceutical revenue, largely driven by higher sales of KEYTRUDA,
which grew 29% to $3.4 billion for the quarter. Continued strong
momentum from the NSCLC indications as well as continued uptake in
other indications, including adjuvant melanoma, renal cell
carcinoma (RCC), bladder, head and neck squamous cell carcinoma
(HNSCC) and microsatellite instability-high (MSI-H) cancers, was
partially offset by the negative impacts of the COVID-19 pandemic
globally. Also contributing to growth in oncology was higher
alliance revenue related to Lynparza and Lenvima reflecting
continued uptake in approved indications in the U.S., Europe and
China.
Animal Health Revenue
Animal Health sales totaled $1.1 billion for the second quarter
of 2020, a decrease of 2% compared with the second quarter of 2019;
excluding the unfavorable effect from foreign exchange, Animal
Health sales grew 3%. Performance in livestock products reflects
lower demand driven by reduced protein and milk demand due to
restaurant and school closures resulting from the COVID-19
pandemic, partially offset by an additional month of sales included
in the current quarter related to the 2019 acquisition of Antelliq
Corporation. Performance in companion animal products was driven
largely by lower demand in companion animal vaccines due to reduced
veterinary access resulting from the COVID-19 pandemic, offset by
higher demand for the BRAVECTO (fluralaner) line of products for
parasitic control.
Second-Quarter Expense, EPS and Related Information
The tables below present selected expense information.
$ in millions
Second-Quarter 2020
GAAP
Acquisition- and Divestiture-
Related Costs3
Restructuring Costs
Certain Other Items
Non-GAAP2
Cost of sales
$3,159
$282
$25
$−
$2,852
Selling, general and administrative
2,378
163
11
−
2,204
Research and development
2,123
(65)
31
−
2,157
Restructuring costs
83
−
83
−
−
Other (income) expense, net
(390)
63
−
(16)
(437)
Second-Quarter 2019
Cost of sales
$3,401
$447
$65
$−
$2,889
Selling, general and administrative
2,712
61
32
−
2,619
Research and development
2,189
4
3
−
2,182
Restructuring costs
59
−
59
−
−
Other (income) expense, net
140
148
–
48
(56)
GAAP Expense, EPS and Related Information
Gross margin was 70.9% for the second quarter of 2020 compared
to 71.1% for the second quarter of 2019. The decrease reflects
higher amortization of intangible assets related to collaborations
and unfavorable manufacturing variances, partially offset by the
favorable effects of foreign exchange, product mix and lower
acquisition- and divestiture-related costs.
Selling, general and administrative expenses were $2.4 billion
in the second quarter of 2020, a decrease of 12% compared to the
second quarter of 2019. The decrease primarily reflects lower
promotion, selling and administrative costs, including less travel
and meeting expenses, due in part to the COVID-19 pandemic, and the
favorable effects of foreign exchange, partially offset by higher
acquisition- and divestiture-related costs, including costs related
to the company’s planned spinoff of Organon.
Research and development expenses were $2.1 billion in the
second quarter of 2020, a decrease of 3% compared with the second
quarter of 2019. The decrease was primarily driven by lower
acquisition- and divestiture-related costs and lower laboratory,
travel and meeting expenses due to the COVID-19 pandemic, partially
offset by higher expenses related to clinical development and
increased investment in discovery research and early drug
development.
Other (income) expense, net, was $390 million of income in the
second quarter of 2020 compared to $140 million of expense in the
second quarter of 2019, primarily due to higher income from
investments in equity securities, net, which was $551 million in
2020 compared with $58 million in 2019, largely from the
recognition of unrealized gains on securities.
The effective income tax rate was 14.5% for the second quarter
of 2020 compared to 18.9% in the second quarter of 2019, reflecting
the favorable impact of earnings mix.
GAAP EPS was $1.18 for the second quarter of 2020 compared with
$1.03 for the second quarter of 2019.
Non-GAAP Expense, EPS and Related Information
Non-GAAP gross margin was 73.8% for the second quarter of 2020
compared to 75.4% for the second quarter of 2019. The decrease in
non-GAAP gross margin reflects higher amortization of intangible
assets related to collaborations and unfavorable manufacturing
variances, partially offset by the favorable effects of foreign
exchange and product mix.
Non-GAAP selling, general and administrative expenses were $2.2
billion in the second quarter of 2020, a decrease of 16% compared
to the second quarter of 2019. The decrease primarily reflects
lower promotion, selling and administrative costs, including less
travel and meeting expenses, due in part to the COVID-19 pandemic
and the favorable effects of foreign exchange.
Non-GAAP R&D expenses were $2.2 billion in the second
quarter of 2020, a 1% decrease compared to the second quarter of
2019. The decrease was primarily driven by lower laboratory, travel
and meetings expenses due to the COVID-19 pandemic, partially
offset by higher expenses related to clinical development and
increased investment in discovery research and early drug
development.
Non-GAAP other (income) expense, net, was $437 million of income
in the second quarter of 2020 compared to $56 million of income in
the second quarter of 2019, primarily due to income from
investments in equity securities, net, which was $541 million in
2020 compared with $58 million in 2019, largely from the
recognition of unrealized gains on securities.
The non-GAAP effective income tax rate was 14.7% for the second
quarter of 2020 compared to 18.4% for the second quarter of 2019,
reflecting the favorable impact of earnings mix.
Non-GAAP EPS was $1.37 for the second quarter of 2020 compared
with $1.30 for the second quarter of 2019.
A reconciliation of GAAP to non-GAAP net income and EPS is
provided in the table that follows.
$ in millions, except EPS amounts
Second Quarter
2020
2019
EPS
GAAP EPS
$1.18
$1.03
Difference
0.19
0.27
Non-GAAP EPS that excludes items listed
below2
$1.37
$1.30
Net Income
GAAP net income1
$3,002
$2,670
Difference
482
686
Non-GAAP net income that excludes items
listed below1,2
$3,484
$3,356
Decrease (Increase) in Net Income Due
to Excluded Items:
Acquisition- and divestiture-related
costs3
$443
$660
Restructuring costs
150
159
Other
(16)
48
Net decrease (increase) in income before
taxes
577
867
Income tax (benefit) expense4
(95)
(145)
Acquisition- and divestiture-related costs
attributable to noncontrolling interests
−
(36)
Decrease (increase) in net income
$482
$686
Financial Outlook
The full-year updated guidance that Merck is providing below
includes its current assumption of the impact from the COVID-19
pandemic, which is expected to be partially offset by favorability
from continued underlying business strength. While the company
continues to expect to rely on governmental authorities to
determine when operations can return to normal and is cognizant
that the duration, spread and severity of the outbreak will be
critical determinants, for the purposes of the full-year 2020
guidance estimates, the company has assumed the majority of the
negative impact occurred during the second quarter, with a gradual
recovery having commenced late in the second quarter and extending
through the third quarter, with a return to normal operating levels
in the fourth quarter.
For the full-year 2020, Merck now expects an unfavorable impact
to revenue of approximately $1.95 billion (excluding the impact of
foreign exchange) due to the COVID-19 pandemic, comprised of
approximately $1.8 billion for pharmaceuticals and approximately
$150 million for Animal Health, including the impacts in the first
half of the year.
For the full-year 2020, Merck continues to expect a net
favorable impact to operating expenses of approximately $400
million, reflecting the favorable impact of lower spending due to
the COVID-19 pandemic, largely reflected in the first half of 2020,
partially offset by anticipated spending on recently-initiated
COVID-19-related vaccine and antiviral research programs.
Merck narrowed and raised its full-year 2020 revenue range to be
between $47.2 billion and $48.7 billion, including a negative
impact from foreign exchange of approximately 2% at mid-July
exchange rates.
Merck narrowed and raised its full-year 2020 GAAP EPS to be
between $4.58 and $4.73. Merck narrowed and raised its full-year
2020 non-GAAP EPS to be between $5.63 and $5.78, including a
negative impact from foreign exchange of approximately 3% at
mid-July exchange rates. 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 2020
financial guidance.
GAAP
Non-GAAP2
Revenue
$47.2 to $48.7 billion
$47.2 to $48.7 billion*
Operating expenses
Lower than 2019 by a
low-single-digit rate
Roughly in line with 2019
Effective tax rate
15.0% to 15.5%
16.0% to 16.5%
EPS**
$4.58 to $4.73
$5.63 to $5.78
*The company does not have any
non-GAAP adjustments to revenue.
**EPS guidance for 2020 assumes a
share count (assuming dilution) of approximately 2.54 billion
shares.
A reconciliation of anticipated 2020 GAAP EPS to non-GAAP EPS
and the items excluded from non-GAAP EPS are provided in the table
below.
$ in millions, except EPS amounts
Full-Year 2020
GAAP EPS
$4.58 to $4.73
Difference
1.05
Non-GAAP EPS that excludes items listed
below2
$5.63 to $5.78
Acquisition- and divestiture-related
costs
$2,500
Restructuring costs
800
Net decrease (increase) in income before
taxes
3,300
Estimated income tax (benefit) expense
(640)
Decrease (increase) in net income
$2,660
Earnings Conference Call
Investors, journalists and the general public may access a live
audio webcast of the call today at 8:00 a.m. EDT on Merck’s website
at
https://investors.merck.com/events-and-presentations/default.aspx.
Institutional investors and analysts can participate in the call
(833) 353-0277 or toll free (469) 886-1947 and using ID code number
2753878. Members of the media are invited to monitor the call by
dialing (833) 353-0277 or toll free (469) 886-1947 and using ID
code number 2753878. 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 125 years, Merck, known as MSD outside of the
United States and Canada, has been inventing for life, bringing
forward medicines and vaccines for many of the world’s most
challenging diseases in pursuit of our mission to save and improve
lives. We demonstrate our commitment to patients and population
health by increasing access to health care through far-reaching
policies, programs and partnerships. Today, Merck continues to be
at the forefront of research to prevent and treat diseases that
threaten people and animals – including cancer, infectious diseases
such as HIV and Ebola, and emerging animal diseases – as we aspire
to be the premier research-intensive biopharmaceutical company in
the world. For more information, visit www.merck.com and connect
with us on Twitter, Facebook, Instagram, YouTube and LinkedIn.
Forward-Looking Statement of Merck & Co., Inc.,
Kenilworth, N.J., USA
This news release of Merck & Co., Inc., Kenilworth, N.J.,
USA (the “company”) includes “forward-looking statements” within
the meaning of the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995. These statements are
based upon the current beliefs and expectations of the company’s
management and are subject to significant risks and uncertainties.
There can be no guarantees with respect to pipeline products that
the products will receive the necessary regulatory approvals or
that they will prove to be commercially successful. If underlying
assumptions prove inaccurate or risks or uncertainties materialize,
actual results may differ materially from those set forth in the
forward-looking statements.
Risks and uncertainties include but are not limited to, general
industry conditions and competition; general economic factors,
including interest rate and currency exchange rate fluctuations;
the impact of the recent global outbreak of novel coronavirus
disease (COVID-19); the impact of pharmaceutical industry
regulation and health care legislation in the United States and
internationally; global trends toward health care cost containment;
technological advances, new products and patents attained by
competitors; challenges inherent in new product development,
including obtaining regulatory approval; the company’s ability to
accurately predict future market conditions; manufacturing
difficulties or delays; financial instability of international
economies and sovereign risk; dependence on the effectiveness of
the company’s patents and other protections for innovative
products; and the exposure to litigation, including patent
litigation, and/or regulatory actions.
The company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future events or otherwise. Additional factors that could cause
results to differ materially from those described in the
forward-looking statements can be found in the company’s 2019
Annual Report on Form 10-K and the company’s other filings with the
Securities and Exchange Commission (SEC) available at the SEC’s
Internet site (www.sec.gov).
______________
1
Net income attributable to Merck &
Co., Inc.
2
Merck is providing certain 2020 and 2019
non-GAAP information that excludes certain items because of the
nature of these items and the impact they have on the analysis of
underlying business performance and trends. Management believes
that providing this information enhances investors’ understanding
of the company’s results and permits investors to understand how
management assesses performance. Management uses these measures
internally for planning and forecasting purposes and to measure the
performance of the company along with other metrics. In addition,
senior management’s annual compensation is derived in part using
non-GAAP pretax income. This information should be considered in
addition to, but not as a substitute for or superior to,
information prepared in accordance with GAAP. For a description of
the items, see Table 2a attached to this release.
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 liabilities for
contingent consideration. Also includes integration, transaction
and certain other costs related to business acquisitions and
divestitures.
4
Includes the estimated tax impact on the
reconciling items.
MERCK & CO., INC. CONSOLIDATED
STATEMENT OF INCOME - GAAP (AMOUNTS IN MILLIONS, EXCEPT PER
SHARE FIGURES) (UNAUDITED) Table 1
GAAP % Change GAAP % Change
2Q20
2Q19
June YTD2020 June YTD2019 Sales
$
10,872
$
11,760
-8
%
$
22,929
$
22,575
2
%
Costs, Expenses and Other Cost of sales (1)
3,159
3,401
-7
%
6,471
6,453
0
%
Selling, general and administrative (1)
2,378
2,712
-12
%
4,933
5,138
-4
%
Research and development (1)
2,123
2,189
-3
%
4,331
4,119
5
%
Restructuring costs (2)
83
59
41
%
155
212
-27
%
Other (income) expense, net (1)
(390
)
140
*
(318
)
327
* Income Before Taxes
3,519
3,259
8
%
7,357
6,326
16
%
Taxes on Income (1)
509
615
1,128
820
Net Income
3,010
2,644
14
%
6,229
5,506
13
%
Less: Net Income (Loss) Attributable to Noncontrolling Interests
(1)
8
(26
)
8
(79
)
Net Income Attributable to Merck & Co., Inc.
$
3,002
$
2,670
12
%
$
6,221
$
5,585
11
%
Earnings per Common Share Assuming Dilution
$
1.18
$
1.03
15
%
$
2.45
$
2.15
14
%
Average Shares Outstanding Assuming Dilution
2,536
2,588
2,542
2,596
Tax Rate (3)
14.5
%
18.9
%
15.3
%
13.0
%
* 100% or greater (1) Amounts include the impact of acquisition and
divestiture-related costs, restructuring costs and certain other
items. See accompanying tables for details. (2) Represents
separation and other related costs associated with restructuring
activities under the company's formal restructuring programs.
(3) The effective income tax rate for the first six months
of 2019 reflects a net tax benefit of $360 million related to the
settlement of certain federal income tax matters.
MERCK
& CO., INC. GAAP TO NON-GAAP RECONCILIATION
SECOND QUARTER 2020 (AMOUNTS IN MILLIONS, EXCEPT PER
SHARE FIGURES) (UNAUDITED) Table 2a
GAAP Acquisition andDivestiture-RelatedCosts (1)
RestructuringCosts (2) Certain OtherItems
AdjustmentSubtotal Non-GAAP Cost of
sales
$
3,159
282
25
307
$
2,852
Selling, general and administrative
2,378
163
11
174
2,204
Research and development
2,123
(65
)
31
(34
)
2,157
Restructuring costs
83
83
83
-
Other (income) expense, net
(390
)
63
(16
)
47
(437
)
Income Before Taxes
3,519
(443
)
(150
)
16
(577
)
4,096
Income Tax Provision (Benefit)
509
(73
)
(3)
(27
)
(3)
5
(3)
(95
)
604
Net Income
3,010
(370
)
(123
)
11
(482
)
3,492
Less: Net Income Attributable to Noncontrolling Interests
8
-
8
Net Income Attributable to Merck & Co., Inc.
3,002
(370
)
(123
)
11
(482
)
3,484
Earnings per Common Share Assuming Dilution
$
1.18
(0.14
)
(0.05
)
-
(0.19
)
$
1.37
Tax Rate
14.5
%
14.7
%
Only the line items that are affected by non-GAAP
adjustments are shown. Merck is providing certain non-GAAP
information that excludes certain items because of the nature of
these items and the impact they have on the analysis of underlying
business performance and trends. Management believes that providing
this information enhances investors’ understanding of the company’s
results as it permits investors to understand how management
assesses performance. Management uses these measures internally for
planning and forecasting purposes and to measure the performance of
the company along with other metrics. In addition, senior
management’s annual compensation is derived in part using non-GAAP
pretax income. This information should be considered in addition
to, but not as a substitute for or superior to, information
prepared in accordance with GAAP. (1) Amounts included in
cost of sales primarily reflect expenses for the amortization of
intangible assets recognized as a result of business acquisitions.
Amounts included in selling, general and administrative expenses
reflect $119 million of expenses related to the company's planned
spin-off of Organon & Co., and other acquisition and
divestiture-related costs. Amounts included in research and
development expenses primarily reflect a reduction in expenses
related to a decrease in the estimated fair value measurement of
liabilities for contingent consideration. Amounts included in other
(income) expense, net, primarily reflect an increase in the
estimated fair value measurement of liabilities for contingent
consideration related to the termination of the Sanofi-Pasteur MSD
joint venture. (2) Amounts primarily include employee
separation costs and accelerated depreciation associated with
facilities to be closed or divested related to activities under the
company's formal restructuring programs. (3) Represents the
estimated tax impact on the reconciling items based on applying the
statutory rate of the originating territory of the non-GAAP
adjustments.
MERCK & CO., INC. GAAP TO
NON-GAAP RECONCILIATION SIX MONTHS ENDED JUNE 30, 2020
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED) Table 2b GAAP
Acquisition andDivestiture-RelatedCosts (1)
RestructuringCosts (2) Certain OtherItems
AdjustmentSubtotal Non-GAAP Cost of
sales
$
6,471
578
93
671
$
5,800
Selling, general and administrative
4,933
441
22
463
4,470
Research and development
4,331
(28
)
48
20
4,311
Restructuring costs
155
155
155
-
Other (income) expense, net
(318
)
52
(16
)
36
(354
)
Income Before Taxes
7,357
(1,043
)
(318
)
16
(1,345
)
8,702
Income Tax Provision (Benefit)
1,128
(231
)
(3)
(34
)
(3)
5
(3)
(260
)
1,388
Net Income
6,229
(812
)
(284
)
11
(1,085
)
7,314
Less: Net Income Attributable to Noncontrolling Interests
8
-
8
Net Income Attributable to Merck & Co., Inc.
6,221
(812
)
(284
)
11
(1,085
)
7,306
Earnings per Common Share Assuming Dilution
$
2.45
(0.32
)
(0.10
)
-
(0.42
)
$
2.87
Tax Rate
15.3
%
16.0
%
Only the line items that are affected by non-GAAP
adjustments are shown. Merck is providing certain non-GAAP
information that excludes certain items because of the nature of
these items and the impact they have on the analysis of underlying
business performance and trends. Management believes that providing
this information enhances investors’ understanding of the company’s
results as it permits investors to understand how management
assesses performance. Management uses these measures internally for
planning and forecasting purposes and to measure the performance of
the company along with other metrics. In addition, senior
management’s annual compensation is derived in part using non-GAAP
pretax income. This information should be considered in addition
to, but not as a substitute for or superior to, information
prepared in accordance with GAAP. (1) Amounts included in
cost of sales primarily reflect expenses for the amortization of
intangible assets recognized as a result of business acquisitions.
Amounts included in selling, general and administrative expenses
reflect $284 million of expenses related to the company's planned
spin-off of Organon & Co., approximately $95 million of costs
related to the acquisition of ArQule, Inc., and other acquisition
and divestiture-related costs. Amounts included in research and
development expenses primarily reflect a reduction in expenses
related to a decrease in the estimated fair value measurement of
liabilities for contingent consideration. Amounts included in other
(income) expense, net, primarily reflect an increase in the
estimated fair value measurement of liabilities for contingent
consideration related to the termination of the Sanofi-Pasteur MSD
joint venture, partially offset by royalty income. (2)
Amounts primarily include employee separation costs and accelerated
depreciation associated with facilities to be closed or divested
related to activities under the company's formal restructuring
programs. (3) Represents the estimated tax impact on the
reconciling items based on applying the statutory rate of the
originating territory of the non-GAAP adjustments.
MERCK &
CO., INC. FRANCHISE / KEY PRODUCT SALES (AMOUNTS IN
MILLIONS) (UNAUDITED) Table 3
2020
2019
2Q June YTD 1Q 2Q June YTD
1Q 2Q June YTD 3Q 4Q Full
Year Nom % Ex-Exch % Nom % Ex-Exch
% TOTAL SALES (1)
$12,057
$10,872
$22,929
$10,816
$11,760
$22,575
$12,397
$11,868
$46,840
-8
-5
2
4
PHARMACEUTICAL
10,655
9,679
20,334
9,663
10,460
20,123
11,095
10,533
41,751
-7
-6
1
3
Oncology Keytruda
3,284
3,388
6,672
2,269
2,634
4,903
3,070
3,111
11,084
29
31
36
38
Alliance Revenue – Lynparza (2)
145
178
323
79
111
190
123
132
444
61
62
70
72
Alliance Revenue – Lenvima (2)
128
151
279
74
97
171
109
124
404
57
57
63
64
Emend
43
33
76
117
121
237
98
53
388
-72
-71
-68
-67
Vaccines (3) Gardasil / Gardasil 9
1,097
656
1,753
838
886
1,724
1,320
693
3,737
-26
-24
2
4
ProQuad / M-M-R II / Varivax
435
378
813
496
675
1,171
623
481
2,275
-44
-43
-31
-30
RotaTeq
222
168
391
211
172
383
180
227
791
-2
-1
2
3
Pneumovax 23
256
117
373
185
170
355
237
334
926
-31
-29
5
7
Vaqta
60
28
88
47
58
105
62
71
238
-52
-51
-17
-14
Hospital Acute Care Bridion
299
224
524
255
278
533
284
313
1,131
-19
-18
-2
Noxafil
94
73
168
190
193
383
177
103
662
-62
-60
-56
-55
Prevymis
60
63
123
32
38
70
45
50
165
66
67
76
78
Primaxin
51
64
115
59
71
130
77
67
273
-10
-6
-11
-8
Invanz
64
43
108
72
78
150
57
57
263
-45
-39
-28
-24
Cancidas
55
43
98
61
67
129
62
58
249
-36
-33
-23
-21
Cubicin
46
32
78
88
67
155
52
50
257
-53
-51
-50
-48
Zerbaxa
37
32
69
26
27
53
35
32
121
19
23
30
33
Immunology Simponi
215
191
406
208
214
422
203
205
830
-11
-8
-4
-1
Remicade
88
73
160
123
98
221
101
89
411
-26
-25
-28
-26
Neuroscience Belsomra
79
84
163
67
76
143
80
83
306
10
8
14
13
Virology Isentress / Isentress HD
245
196
441
255
247
502
250
223
975
-21
-17
-12
-9
Zepatier
55
39
94
114
108
221
83
66
370
-63
-62
-57
-56
Cardiovascular Zetia
145
137
282
140
156
296
147
146
590
-12
-12
-5
-4
Vytorin
53
39
92
97
76
174
57
54
285
-49
-46
-47
-45
Atozet
122
115
238
94
92
186
97
108
391
25
28
28
31
Alliance Revenue - Adempas (4)
53
79
133
42
51
94
50
60
204
54
54
41
41
Adempas (5)
56
57
113
48
53
100
57
57
215
8
9
12
14
Diabetes (6) Januvia
774
854
1,628
824
908
1,732
807
943
3,482
-6
-5
-6
-5
Janumet
503
490
993
530
533
1,063
503
475
2,041
-8
-5
-7
-4
Women's Health Implanon / Nexplanon
195
132
326
199
183
382
199
206
787
-28
-26
-15
-13
NuvaRing
63
63
126
219
240
459
241
179
879
-74
-73
-73
-72
Diversified Brands Singulair
155
100
255
191
160
352
152
195
698
-38
-37
-27
-26
Cozaar / Hyzaar
102
98
200
103
109
213
116
113
442
-10
-7
-6
-3
Arcoxia
70
65
135
75
75
149
72
67
288
-13
-9
-9
-7
Nasonex
71
49
120
96
72
168
58
67
293
-32
-28
-29
-26
Follistim AQ
41
44
85
57
63
121
62
58
241
-31
-30
-29
-28
Other Pharmaceutical (7)
1,194
1,103
2,293
1,082
1,203
2,283
1,149
1,183
4,615
-8
-6
2
ANIMAL HEALTH
1,214
1,101
2,314
1,025
1,124
2,149
1,122
1,122
4,393
-2
3
8
12
Livestock
739
648
1,386
611
671
1,282
726
777
2,784
-3
3
8
13
Companion Animals
475
453
928
414
453
867
396
345
1,609
3
7
9
Other Revenues (8)
188
92
281
128
176
303
180
213
696
-47
-23
-8
Sum of quarterly amounts may not equal year-to-date
amounts due to rounding. (1) Only select products are
shown. (2) Alliance Revenue represents Merck’s share of
profits, which are product sales net of cost of sales and
commercialization costs. (3) Total Vaccines sales were
$2,155 million and $1,418 million in the first and second quarters
of 2020 and $1,887 million, $2,037 million, $2,517 million and
$1,928 million for the first, second, third and fourth quarters of
2019, respectively. (4) Alliance Revenue represents Merck's
share of profits from sales in Bayer's marketing territories, which
are product sales net of cost of sales and commercialization costs.
(5) Net product sales in Merck's marketing territories.
(6) Total Diabetes sales were $1,353 million and $1,418
million in the first and second quarters of 2020 and $1,402
million, $1,480 million, $1,360 million and $1,472 million for the
first, second, third and fourth quarters of 2019, respectively.
(7) Includes Pharmaceutical products not individually shown
above. (8) Other Revenues are comprised primarily of
Healthcare Services segment revenues, third-party manufacturing
sales and miscellaneous corporate revenues, including revenue
hedging activities.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200731005100/en/
Media:
Pamela Eisele (267) 305-3558 Patrick Ryan (201) 452-2409
Investors:
Peter Dannenbaum (908) 740-1037 Michael DeCarbo (908)
740-1807
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