MRK
$61.49
Merck &
($.35)
(.57%)
Earnings Details
2nd Quarter June 2017
Friday, July 28, 2017 6:45:00 AM
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Summary

Merck & Beats

Merck & (MRK) reported 2nd Quarter June 2017 earnings of $1.01 per share on revenue of $9.9 billion. The consensus earnings estimate was $0.87 per share on revenue of $9.8 billion. The Earnings Whisper number was $0.89 per share. Revenue grew 0.9% on a year-over-year basis.

The company said it continues to expect 2017 earnings of $3.76 to $3.88 per share and now expects revenue of $39.40 billion to $40.40 billion. The company's previous guidance was revenue of $39.10 billion to $40.30 billion and the current consensus earnings estimate is $3.85 per share on revenue of $40.15 billion for the year ending December 31, 2017.

Merck & Co Inc is a health care company that delivers health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products.

Results
Reported Earnings
$1.01
Earnings Whisper
$0.89
Consensus Estimate
$0.87
Reported Revenue
$9.93 Bil
Revenue Estimate
$9.77 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Merck Announces Second-Quarter 2017 Financial Results

Second-Quarter 2017 GAAP EPS Was $0.71; Second-Quarter Non-GAAP EPS Was $1.01

Company Narrows and Raises 2017 Full-Year Revenue Range to be Between $39.4 Billion and $40.4 Billion, Including an Approximately 1 Percent Negative Impact from Foreign Exchange

Company Reduces 2017 Full-Year GAAP EPS Range to be Between $1.60 and $1.72; Continues to Expect 2017 Full-Year Non-GAAP EPS Range to be Between $3.76 and $3.88, Including an Approximately 1 Percent Negative Impact from Foreign Exchange

--KEYTRUDA Development Program Significantly Advances with Several Key Regulatory Approvals

--Merck Enters Global Strategic Oncology Collaboration with AstraZeneca

Merck (MRK), known as MSD outside the United States and Canada, today announced financial results for the second quarter of 2017.

This Smart News Release features multimedia. View the full release here: http://www.businesswire.com/news/home/20170728005136/en/

"We continued to deliver strong results in the second quarter, driven by robust momentum for KEYTRUDA and good progress with other products in our portfolio," said Kenneth C. Frazier, chairman and chief executive officer, Merck. "The company continues to invest in innovative science that addresses the critical needs of population health, which benefits patients while creating long-term value for shareholders."

Financial Summary

Second Quarter
$ in millions, except EPS amounts
2017
2016
Sales
$9,930
$9,844
GAAP net income(1)
1,946
1,205
Non-GAAP net income that excludes items listed below(1,2)
2,778
2,587
GAAP EPS
0.71
0.43
Non-GAAP EPS that excludes items listed below(2)
1.01
0.93

Worldwide sales were $9.9 billion for the second quarter of 2017, an increase of 1 percent compared with the second quarter of 2016, including a 1 percent negative impact from foreign exchange.

GAAP (generally accepted accounting principles) earnings per share assuming dilution (EPS) were $0.71 for the second quarter of 2017. Non-GAAP EPS of $1.01 for the second quarter of 2017 excludes acquisition- and divestiture-related costs, restructuring costs and certain other items. Year-to-date results can be found in the attached tables.

Pipeline Highlights

Merck made significant advances in the development program for KEYTRUDA (pembrolizumab), an anti-PD-1 therapy, receiving key regulatory approvals and a supplemental Biologics License Application (sBLA) acceptance.

The U.S. Food and Drug Administration (FDA) approved KEYTRUDAunder its Accelerated Approval program: -- In combination with pemetrexed and carboplatin for the treatment of patients with metastatic nonsquamous non-small cell lung cancer (NSCLC) regardless of PD-L1 expression. This is the first regulatory approval of KEYTRUDA in combination with another treatment. The National Cancer Care Network (NCCN) also recommended the combination for the treatment of patients with metastatic nonsquamous NSCLC.

For the treatment of previously treated patients with advanced microsatellite instability-high cancers.

For the treatment of certain patients with locally advanced or metastatic urothelial carcinoma, a type of bladder cancer, for first-line use in patients who are ineligible for cisplatin-containing therapy.

The FDA approved KEYTRUDA for the treatment of certain patients with locally advanced or metastatic urothelial carcinoma in the second-line setting for patients who have disease progression during or following platinum-containing chemotherapy.

The European Commission approved KEYTRUDA for the treatment of adult patients with relapsed or refractory classical Hodgkin lymphoma who have failed autologous stem cell transplant and brentuximab vedotin (BV), or who are transplant-ineligible and have failed BV.

The Committee for Medicinal Products for Human Use of the European Medicines Agency (EMA) adopted a positive opinion recommending approval of KEYTRUDAfor the treatment of certain patients with locally advanced or metastatic urothelial carcinoma, with a final decision expected in the third quarter of 2017.

The FDA accepted for review the sBLA for KEYTRUDA for the treatment of patients with recurrent or advanced gastric or gastroesophageal junction adenocarcinoma who have already received two or more lines of chemotherapy. The FDA granted Priority Review with a PDUFA action date of Sept. 22, 2017.

The FDA granted Breakthrough Therapy Designation for KEYTRUDA in combination with axitnib as a first-line treatment for patients with advanced or metastatic renal cell carcinoma.

The company previously announced that the pivotal Phase 3 KEYNOTE-040 trial investigating KEYTRUDA in previously treated patients with recurrent or metastatic head and neck squamous cell carcinoma did not meet its primary endpoint of overall survival (HR, 0.82 [95% CI, 0.67-1.01]; one-sided p = 0.03). The safety profile observed in KEYNOTE-040 was consistent with that observed in previously reported studies of KEYTRUDA without new safety signals identified. The final data from KEYNOTE-040 will be presented at an upcoming medical meeting.

At the 77th Scientific Sessions of the American Diabetes Association, Merck in partnership with Pfizer presented data from two Phase 3 studies of ertugliflozin, an investigational oral SGLT-2 inhibitor in development to help improve glycemic control in adults with type 2 diabetes, which met their primary endpoints. Three New Drug Applications for medicines containing ertugliflozin are currently under review with the FDA and EMA.

Phase 3 results from the REVEAL (Randomized EValuation of the Effects of Anacetrapib through Lipid modification) outcomes study of anacetrapib met its primary endpoint, significantly reducing major coronary events (defined as the composite of coronary death, myocardial infarction, and coronary revascularization) compared to placebo in patients at risk for cardiac events who are already receiving an effective LDL-C lowering regimen. The safety profile of anacetrapib in the early analysis was generally consistent with that demonstrated in previous studies of the drug, including accumulation of anacetrapib in adipose tissue, as has been previously reported. Merck plans to review the results of the trial with external experts, and will consider whether to file new drug applications with the FDA and other regulatory agencies.

New data from the company’s HIV portfolio and pipeline were presented at the 9th IAS Conference on HIV Science.

Week 96 results from the pivotal Phase 3 ONCEMRK study evaluating the efficacy and safety of ISENTRESS HD, a 1200 mg once-daily dose of the company’s integrase inhibitor, ISENTRESS (raltegravir), met its primary efficacy endpoint of non-inferiority to twice-daily ISENTRESS, with a similar safety and tolerability profile, reaffirming the comparable efficacy and safety of ISENTRESS HD. ISENTRESS HD is now approved in the United States and European Union.

48 week data from DRIVE-AHEAD, the second of two pivotal Phase 3 studies evaluating doravirine (MK-1439), an investigational non-nucleoside reverse transcriptase inhibitor, for the treatment of HIV-1 infection showed that a once-daily single tablet, fixed-dose combination of doravirine, lamivudine and tenofovir disoproxil fumarate met its primary endpoint. Based on these findings the company plans to file regulatory applications in the fourth quarter of 2017.

Results from a Phase 1 study of MK-8591, Merck’s investigational nucleoside reverse transcriptase translocation inhibitor in adult patients with HIV-1 infection.

Merck entered into an exclusive worldwide license agreement with Teijin Pharma for the development, manufacture and commercialization of an investigational preclinical antibody candidate targeting the protein tau. Changes in tau are associated with a number of diseases affecting the nervous system, including Alzheimer’s disease.

Recent Developments

Merck entered a global strategic oncology collaboration with AstraZeneca to co-develop and co-commercialize AstraZeneca’s Lynparza (olaparib), a PARP inhibitor, and investigational medicine selemetinib, a MEK inhibitor, as monotherapy and in combination treatments for multiple cancer types. Merck and AstraZeneca will independently develop and commercialize Lynparza and selumetinib in combinations with the companies’ respective PD-1 and PD-L1 immuno-oncology medicines KEYTRUDA and Imfinzi (durvalumab). The companies will share development and marketing costs equally, as well as gross profits from Lynparza and selumetinib.

Second-Quarter Revenue Performance

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

$ in millions
Second Quarter
2017
2016
Change
Change
Ex-Exchange
Total Sales
$9,930
$9,844
1%
2%
Pharmaceutical
8,759
8,700
1%
2%
JANUVIA / JANUMET
1,511
1,634
-8%
-7%
KEYTRUDA
881
314
180%
183%
ZETIA / VYTORIN
549
994
-45%
-44%
ZEPATIER
517
112
*
*
GARDASIL / GARDASIL 9
469
393
19%
20%
PROQUAD,
M-M-R II and VARIVAX
399
383
4%
5%
ISENTRESS / ISENTRESS HD
282
338
-17%
-15%
REMICADE
208
339
-39%
-36%
SINGULAIR
203
229
-11%
-10%
Animal Health
955
900
6%
7%
Other Revenues
216
244
-11%
-5%
*Growth comparison not meaningful due to ongoing product launch.

Pharmaceutical Revenue

Second-quarter pharmaceutical sales increased 1 percent to $8.8 billion, including a 1 percent negative impact from foreign exchange. The growth was primarily driven by product launches and vaccines, largely offset by the loss of market exclusivity for several products, as well as lower sales in the diabetes franchise.

Growth in oncology was due to higher sales of KEYTRUDA as the company continues to launch the product with new indications globally. Strong momentum from NSCLC, as KEYTRUDA is the only anti-PD-1 approved in the first-line setting, contributed significantly to KEYTRUDA’s overall growth.

Growth in hepatitis C was driven by ZEPATIER (elbasvir and grazoprevir), a medicine for the treatment of chronic hepatitis C virus genotypes 1 or 4 infection, due to ongoing launches globally.

Additionally, the ongoing launch of BRIDION (sugammadex) Injection 100 mg/mL, a medicine for the reversal of neuromuscular blockade induced by rocuronium bromide or vecuronium bromide in adults undergoing surgery, generated sales of $163 million and also contributed to growth during the second quarter of 2017.

Growth in vaccines was primarily driven by higher sales of GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant] and GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant), vaccines to prevent certain cancers and other diseases caused by HPV, reflecting strong demand in Asia Pacific and the timing of sales in Brazil. Growth in vaccines also reflects higher sales of PNEUMOVAX 23 (pneumococcal vaccine polyvalent), a vaccine to help prevent pneumococcal disease, largely driven by volume growth and pricing in the United States. Additionally, vaccines sales growth reflects incremental sales of approximately $70 million, of which approximately $40 million relates to GARDASIL and GARDASIL 9, due to the recording of vaccine sales from 19 European countries that were part of the Sanofi Pasteur MSD (SPMSD) vaccines joint venture, which was terminated on Dec. 31, 2016.

Pharmaceutical sales reflect a decrease in the diabetes franchise of JANUVIA and JANUMET (sitagliptin and metformin HCl), medicines that help lower blood sugar in adults with type 2 diabetes, primarily due to lower sales in the United States, reflecting continued pricing pressure and lower customer inventory levels that were partially offset by continued volume growth. Pharmaceutical sales growth also was offset by the loss of U.S. market exclusivity for ZETIA (ezetimibe) in late 2016 and VYTORIN (ezetimibe/simvastatin) in April 2017, medicines for lowering LDL cholesterol, and the ongoing impacts of generic competition for CUBICIN (daptomycin for injection), an I.V. antibiotic, and biosimilar competition for REMICADE (infliximab), a treatment for inflammatory diseases, in the company’s marketing territories in Europe. In the aggregate, sales of these products declined $830 million during the second quarter of 2017 compared to the second quarter of 2016.

Animal Health Revenue

Animal Health sales totaled $955 million for the second quarter of 2017, an increase of 6 percent compared with the second quarter of 2016, including a 1 percent negative impact from foreign exchange. Growth was primarily due to sales increases in companion animal products, driven by the BRAVECTO (fluralaner) line of products that kill fleas and ticks in dogs and cats for up to 12 weeks, and the NOBIVAC Canine Flu Bivalent vaccine, as well as sales increases in ruminants products, reflecting the positive impact of the Vallee S.A. acquisition.

Second-Quarter Expense, EPS and Related Information

The table below presents selected expense information.

Second-Quarter 2017
Acquisition- and
Restructuring
GAAP
Divestiture-
Costs
Non-GAAP(2)
Related
Costs(3)
Materials and production
$3,080
$827
$33
$2,220
Marketing and administrative
2,438
9
2
2,427
Research and development
1,749
7
9
1,733
Restructuring costs
166
--
166
--
Other (income) expense, net
58
39
--
19
Second-Quarter 2016
Materials and production
$3,578
$1,120
$66
$2,392
Marketing and administrative
2,458
18
87
2,353
Research and development
2,151
207
64
1,880
Restructuring costs
134
--
134
--
Other (income) expense, net
19
--
--
19

GAAP Expense, EPS and Related Information

On a GAAP basis, the gross margin was 69.0 percent for the second quarter of 2017 compared to 63.7 percent for the second quarter of 2016. The increase in gross margin for the second quarter of 2017 was primarily driven by lower acquisition- and divestiture-related costs and restructuring costs, which reduced gross margin by 8.6 percentage points in the second quarter of 2017 compared with 12.0 percentage points in the second quarter of 2016. The increase also reflects the favorable effects of product mix and lower inventory write-offs.

Marketing and administrative expenses were $2.4 billion in the second quarter of 2017, a 1 percent decrease compared to the second quarter of 2016. The decrease primarily reflects lower restructuring costs partially offset by higher administrative costs including costs associated with the company now operating its European vaccines business in the countries that were part of the SPMSD vaccines joint venture, which was terminated on Dec. 31, 2016, and higher promotion expenses related to product launches.

Research and development (R&D) expenses were $1.7 billion in the second quarter of 2017, a 19 percent decrease compared to the second quarter of 2016. The decrease primarily reflects lower intangible asset impairment charges and licensing costs.

GAAP EPS was $0.71 for the second quarter of 2017 compared with $0.43 for the second quarter of 2016.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 77.6 percent for the second quarter of 2017 compared to 75.7 percent for the second quarter of 2016. The increase in non-GAAP gross margin was largely driven by the favorable effects of product mix and lower inventory write-offs.

Non-GAAP marketing and administrative expenses were $2.4 billion in the second quarter of 2017, an increase of 3 percent compared to the second quarter of 2016. The increase was driven primarily by higher administrative costs, including costs associated with the company now operating its European vaccines business in the countries that were previously part of the SPMSD vaccines joint venture, and higher promotion expenses related to product launches.

Non-GAAP R&D expenses were $1.7 billion in the second quarter of 2017, an 8 percent decrease compared to the second quarter of 2016. The decrease primarily reflects lower licensing costs.

Non-GAAP EPS was $1.01 for the second quarter of 2017 compared with $0.93 for the second quarter of 2016.

A reconciliation of GAAP to non-GAAP net income and EPS is provided in the table that follows.

$ in millions, except EPS amounts
Second Quarter
2017
2016
EPS
GAAP EPS
$0.71
$0.43
Difference(4)
0.30
0.50
Non-GAAP EPS that excludes items listed below(2)
$1.01
$0.93
Net Income
GAAP net income(1)
$1,946
$1,205
Difference
832
1,382
Non-GAAP net income that excludes items listed below(1,2)
$2,778
$2,587
Decrease (Increase) in Net Income Due to Excluded Items:
Acquisition- and divestiture-related costs(3)
$882
$1,345
Restructuring costs
210
351
Net decrease (increase) in income before taxes
1,092
1,696
Income tax (benefit) expense(5)
(260)
(314)
Decrease (increase) in net income
$832
$1,382

Financial Outlook

On June 27, 2017, the company experienced a network cyber-attack that led to a disruption of its worldwide operations, including manufacturing, research and sales operations. While the company does not yet know the magnitude of the impact of the disruption, which remains ongoing in certain operations, it continues to work to minimize the effects.

The company is in the process of restoring its manufacturing operations. To date, Merck has largely restored its packaging operations and has partially restored its formulation operations. The company is in the process of restoring its Active Pharmaceutical Ingredient operations but is not yet producing bulk product. The company’s external manufacturing was not impacted. Throughout this time, Merck has continued to fulfill orders and ship product.

The company is confident in the continuous supply of key products such as KEYTRUDA, JANUVIA and ZEPATIER. In addition, Merck does not currently expect a significant impact to sales of its other top products; however, the company anticipates that it will have temporary delays in fulfilling orders for certain other products in certain markets.

The financial outlook below reflects the current state of the company’s manufacturing operations as well as its plans to restore those operations and potential costs associated with the remediation efforts.

Merck has reduced its full-year 2017 GAAP EPS range to be between $1.60 and $1.72. The change in the GAAP EPS range reflects the inclusion of licensing expenses related to the collaboration with AstraZeneca. Merck has maintained its full-year 2017 non-GAAP EPS range to be between $3.76 and $3.88, including an approximately 1 percent negative impact from foreign exchange at mid-July 2017 exchange rates. The non-GAAP range excludes acquisition- and divestiture-related costs, costs related to restructuring programs and certain other items, including licensing expenses related to the collaboration with AstraZeneca as shown in the table below.

Merck has narrowed and raised its full-year 2017 revenue range to be between $39.4 billion and $40.4 billion, including an approximately 1 percent negative impact from foreign exchange at mid-July 2017 exchange rates.

The following table summarizes the company’s 2017 financial guidance.

GAAP
Non-GAAP(2)
Revenue
$39.4 to $40.4 billion
$39.4 to $40.4 billion**
Operating expenses
Lower than 2016
Higher than 2016 by a mid-single digit rate
Effective tax rate
32.0% to 33.0%
21.0% to 22.0%
EPS
$1.60 to $1.72
$3.76 to $3.88
**The company does not have any non-GAAP adjustments to revenue.

A reconciliation of anticipated 2017 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 2017
GAAP EPS
$1.60 to $1.72
Difference(4)
2.16
Non-GAAP EPS that excludes items listed below(1)
$3.76 to $3.88
Acquisition- and divestiture-related costs
$3,600
Restructuring costs
600
Licensing expense relating to AstraZeneca collaboration
2,350
Net decrease (increase) in income before taxes
6,550
Estimated income tax (benefit) expense
(610)
Decrease (increase) in net income
$5,940

The expected full-year 2017 GAAP effective tax rate of 32.0 to 33.0 percent reflects an unfavorable impact of approximately 11 percentage points from the above items.

Total Employees

As of June 30, 2017, Merck had approximately 69,000 employees worldwide.

Earnings Conference Call

Investors, journalists and the general public may access a live audio webcast of the call today at 8:00 a.m. EDT on Merck’s website at http://investors.merck.com/events-and-presentations/default.aspx. Institutional investors and analysts can participate in the call by dialing (706) 758-9927 or (877) 381-5782 and using ID code number 36593115. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 36593115. Journalists who wish to ask questions are requested to contact a member of Merck’s Media Relations team at the conclusion of the call.

About Merck

For more than a century, Merck, a leading global biopharmaceutical company known as MSD outside of the United States and Canada, has been inventing for life, bringing forward medicines and vaccines for many of the world’s most challenging diseases. Through our prescription medicines, vaccines, biologic therapies and animal health products, we work with customers and operate in more than 140 countries to deliver innovative health solutions. We also demonstrate our commitment to increasing access to health care through far-reaching policies, programs and partnerships. Today, Merck continues to be at the forefront of research to advance the prevention and treatment of diseases that threaten people and communities around the world - including cancer, cardio-metabolic diseases, emerging animal diseases, Alzheimer’s disease and infectious diseases including HIV and Ebola. For more information, visit www.merck.com and connect with us on Twitter, Facebook, YouTube and LinkedIn. You can also follow our Twitter conversation at $MRK.

Forward-Looking Statement of Merck & Co., Inc., Kenilworth, N.J., USA

This news release of Merck & Co., Inc., Kenilworth, N.J., USA (the "company") includes "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based upon the current beliefs and expectations of the company’s management and are subject to significant risks and uncertainties. There can be no guarantees with respect to pipeline products that the products will receive the necessary regulatory approvals or that they will prove to be commercially successful. If underlying assumptions prove inaccurate or risks or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements.

Risks and uncertainties include but are not limited to, general industry conditions and competition; general economic factors, including interest rate and currency exchange rate fluctuations; the impact of pharmaceutical industry regulation and health care legislation in the United States and internationally; global trends toward health care cost containment; technological advances, new products and patents attained by competitors; challenges inherent in new product development, including obtaining regulatory approval; the company’s ability to accurately predict future market conditions; manufacturing difficulties or delays; financial instability of international economies and sovereign risk; dependence on the effectiveness of the company’s patents and other protections for innovative products; and the exposure to litigation, including patent litigation, and/or regulatory actions.

The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the company’s 2016 Annual Report on Form 10-K and the company’s other filings with the Securities and Exchange Commission (SEC) available at the SEC’s Internet site (www.sec.gov).

(1)Net income attributable to Merck & Co., Inc.

(2) Merck is providing certain 2017 and 2016 non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s results as it permits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the company along with other metrics. Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS. This information should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP. 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 contingent consideration. Also includes integration, transaction and certain other costs related to business acquisitions and divestitures.

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

(5) Includes the estimated tax impact on the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments, as well as a benefit of $88 million related to the settlement of a state income tax issue.

MERCK & CO., INC.
CONSOLIDATED STATEMENT OF INCOME - GAAP
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 1
GAAP
% Change
GAAP
% Change
2Q17
2Q16
June YTD
June YTD
2017
2016
Sales
$
9,930
$
9,844
1%
$
19,365
$
19,156
1%
Costs, Expenses and Other
Materials and production (1)
3,080
3,578
-14%
6,095
7,150
-15%
Marketing and administrative (1)
2,438
2,458
-1%
4,849
4,776
2%
Research and development (1)
1,749
2,151
-19%
3,545
3,810
-7%
Restructuring costs (2)
166
134
24%
317
225
41%
Other (income) expense, net (1)
58
19
*
117
67
75%
Income Before Taxes
2,439
1,504
62%
4,442
3,128
42%
Taxes on Income
488
295
935
789
Net Income
1,951
1,209
61%
3,507
2,339
50%
Less: Net Income Attributable to Noncontrolling Interests
5
4
11
9
Net Income Attributable to Merck & Co., Inc.
$
1,946
$
1,205
61%
$
3,496
$
2,330
50%
Earnings per Common Share Assuming Dilution
$
0.71
$
0.43
65%
$
1.27
$
0.83
53%
Average Shares Outstanding Assuming Dilution
2,752
2,789
2,759
2,792
Tax Rate
20.0%
19.6%
21.0%
25.2%

* 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.

MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
SECOND QUARTER 2017
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2a
GAAP
Acquisition and
Restructuring
Certain Other
Adjustment
Non-GAAP
Divestiture-Related
Costs (2)
Items
Subtotal
Costs
(1)
Materials and production
$
3,080
827
33
860
$
2,220
Marketing and administrative
2,438
9
2
11
2,427
Research and development
1,749
7
9
16
1,733
Restructuring costs
166
166
166
-
Other (income) expense, net
58
39
39
19
Income Before Taxes
2,439
(882 )
(210 )
(1,092 )
3,531
Income Tax Provision (Benefit)
488
(127 )(3)
(45 ) (3)
(88 )(4)
(260 )
748
Net Income
1,951
(755 )
(165 )
88
(832 )
2,783
Net Income Attributable to Merck & Co., Inc.
1,946
(755 )
(165 )
88
(832 )
2,778
Earnings per Common Share Assuming Dilution
$
0.71
(0.27 )
(0.06 )
0.03
(0.30 )
$
1.01
Tax Rate
20.0 %
21.2 %

Only the line items that are affected by non-GAAP adjustments are shown.

Merck is providing certain non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s results as it permits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the company along with other metrics. Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS. This information should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP.

(1) Amounts included in materials and production costs primarily reflect $779 million of expenses for the amortization of intangible assets recognized as a result of acquisitions, as well as intangible asset impairment charges of $47 million. Amounts included in marketing and administrative expenses reflect integration, transaction and certain other costs related to business acquisitions and divestitures. Amounts included in research and development expenses reflect changes in the estimated fair value measurement of liabilities for contingent consideration. Amounts included in other (income) expense, net primarily reflect changes 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.

(4) Represents a benefit related to the settlement of a state income tax issue.

MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION
SIX MONTHS ENDED JUNE 30, 2017
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2b
GAAP
Acquisition and
Restructuring
Certain Other
Adjustment
Non-GAAP
Divestiture-Related
Costs (2)
Items
Subtotal
Costs
(1)
Materials and production
$
6,095
1,682
96
1,778
$
4,317
Marketing and administrative
4,849
29
3
32
4,817
Research and development
3,545
18
9
27
3,518
Restructuring costs
317
317
317
-
Other (income) expense, net
117
36
(9 )
27
90
Income Before Taxes
4,442
(1,765 )
(425 )
9
(2,181 )
6,623
Income Tax Provision (Benefit)
935
(285 )(3)
(93 )(3)
(85 )(3)
(463 )
1,398
Net Income
3,507
(1,480 )
(332 )
94
(1,718 )
5,225
Net Income Attributable to Merck & Co., Inc.
3,496
(1,480 )
(332 )
94
(1,718 )
5,214
Earnings per Common Share Assuming Dilution
$
1.27
(0.53 )
(0.12 )
0.03
(0.62 )
$
1.89
Tax Rate
21.0 %
21.1 %

Only the line items that are affected by non-GAAP adjustments are shown.

Merck is providing certain non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s results as it permits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and to measure the performance of the company along with other metrics. Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS. This information should be considered in addition to, but not as a substitute for or superior to, information prepared in accordance with GAAP.

(1) Amounts included in materials and production costs primarily reflect $1.6 billion of expenses for the amortization of intangible assets recognized as a result of acquisitions, as well as intangible asset impairment charges of $123 million. Amounts included in marketing and administrative expenses reflect integration, transaction and certain other costs related to business acquisitions and divestitures. Amounts included in research and development expenses primarily reflect changes in the estimated fair value measurement of liabilities for contingent consideration. Amounts included in other (income) expense, net primarily reflect changes 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, as well as a benefit of $88 million related to the settlement of a state income tax issue.

MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
Table 3
2017
2016
2Q
June YTD
1Q
2Q
June YTD
1Q
2Q
June YTD
3Q
4Q
Full Year
Nom %
Ex-Exch
Nom %
Ex-Exch
%
%
TOTAL SALES (1)
$9,434
$9,930
$19,365
$9,312
$9,844
$19,156
$10,536
$10,115
$39,807
1
2
1
2
PHARMACEUTICAL
8,185
8,759
16,944
8,104
8,700
16,804
9,443
8,904
35,151
1
2
1
2
Primary Care and Women’s Health
Cardiovascular
Zetia
334
367
701
612
702
1,314
671
575
2,560
-48
-47
-47
-46
Vytorin
241
182
423
277
293
570
273
299
1,141
-38
-37
-26
-25
Liptruzet
49
63
112
23
33
56
39
50
146
88
90
99
102
Adempas
84
67
151
33
40
72
48
49
169
68
69
109
110
Diabetes
Januvia
839
948
1,787
906
1,064
1,970
1,006
932
3,908
-11
-10
-9
-9
Janumet
496
563
1,059
506
569
1,075
548
577
2,201
-1
0
-2
-1
General Medicine & Women’s Health
NuvaRing
160
199
359
175
200
376
195
207
777
0
0
-4
-4
Implanon / Nexplanon
170
178
349
134
164
298
148
160
606
9
9
17
18
Follistim AQ
81
79
160
94
73
167
101
87
355
9
10
-4
-3
Hospital and Specialty
Hepatitis
Zepatier
378
517
895
50
112
161
164
229
555
*
*
*
*
HIV
Isentress / Isentress HD
305
282
587
340
338
678
372
337
1,387
-17
-15
-13
-13
Hospital Acute Care
Bridion
148
163
310
90
113
204
139
139
482
44
44
52
53
Noxafil
141
155
296
145
143
288
147
161
595
8
11
3
5
Invanz
136
150
286
114
143
257
152
152
561
5
5
11
11
Cancidas
121
112
233
133
131
263
142
152
558
-14
-13
-12
-9
Cubicin
96
103
198
292
357
649
320
119
1,087
-71
-71
-69
-69
Primaxin
62
71
133
73
81
154
77
66
297
-13
-9
-14
-10
Immunology
Remicade
229
208
437
349
339
688
311
269
1,268
-39
-36
-37
-34
Simponi
184
199
383
188
199
387
193
186
766
0
3
-1
3
Oncology
Keytruda
584
881
1,465
249
314
563
356
483
1,402
180
183
160
162
Emend
133
143
276
126
143
268
137
144
549
0
1
3
3
Temodar
66
65
130
66
73
139
78
67
283
-12
-11
-6
-6
Diversified Brands
Respiratory
Singulair
186
203
389
237
229
465
239
210
915
-11
-10
-16
-16
Nasonex
139
85
224
229
101
331
94
112
537
-16
-16
-32
-33
Dulera
82
69
151
113
121
234
97
105
436
-43
-43
-35
-36
Other
Cozaar / Hyzaar
112
119
231
126
132
258
131
121
511
-10
-7
-10
-8
Arcoxia
103
89
192
111
117
228
114
108
450
-24
-24
-16
-15
Fosamax
61
66
127
75
73
148
68
68
284
-10
-9
-14
-13
Vaccines (2)
Gardasil / Gardasil 9
532
469
1,001
378
393
770
860
542
2,173
19
20
30
30
ProQuad / M-M-R II / Varivax
355
399
754
357
383
739
496
405
1,640
4
5
2
3
RotaTeq
224
123
347
188
130
318
171
162
652
-5
-5
9
9
Pneumovax 23
163
166
329
107
120
228
175
238
641
38
38
44
45
Zostavax
154
160
313
125
149
274
190
221
685
7
7
14
14
Other Pharmaceutical (3)
1,037
1,116
2,156
1,083
1,128
2,214
1,191
1,172
4,574
-1
0
-3
-2
ANIMAL HEALTH
939
955
1,894
829
900
1,729
865
884
3,478
6
7
10
10
Other Revenues (4)
310
216
527
379
244
623
228
327
1,178
-11
-5
-15
-5

* 200% or greater

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

(1) Only select products are shown.

(2) Vaccine sales in 2017 include sales in the European markets that were previously part of the Sanofi Pasteur MSD (SPMSD) joint venture that was terminated on December 31, 2016. Amounts for 2016 reflect supply sales to SPMSD.

(3) Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $88 million in the first quarter and $87 million in the second quarter of 2017 and $103 million, $91 million, $135 million and $126 million for the first, second, third and fourth quarters of 2016, respectively.

(4) Other Revenues are comprised primarily of alliance revenue, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities.

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Merck
Media:
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or
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or
Investors:
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