Merck Announces Second-Quarter 2010 Financial Results
- Second-Quarter 2010 Non-GAAP EPS of $0.86, Excluding Certain Items; Second-Quarter GAAP EPS of $0.24
- Key Pharmaceutical Products, Consumer Care and Animal Health Deliver Strong Performance
- Merger Integration Achieving Strategic Intent; Synergy Target of $3.5 Billion of Annual Savings in 2012 Reaffirmed
- Full-Year 2010 Non-GAAP EPS Range of $3.29 to $3.39, Excluding Certain Items; 2010 GAAP EPS Range of $0.82 to $1.16
- Target of High Single-Digit Non-GAAP EPS Compound Annual Growth Rate from 2009 to 2013 Reaffirmed
WHITEHOUSE STATION, N.J.--(BUSINESS WIRE)--Jul 30, 2010 - Merck & Co., Inc. (NYSE: MRK) today announced financial results for the second quarter of 2010. The company reported non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the second quarter of $0.86, which excludes purchase accounting adjustments, merger-related expenses, restructuring costs and the gain on AstraZeneca's asset option exercise. Second-quarter GAAP EPS was $0.24.
Worldwide sales for the second quarter of 2010 were $11.3 billion. Net income1 for the second quarter was $752 million.
For the first six months of 2010, worldwide sales were $22.8 billion and net income was $1,051 million.
A reconciliation of EPS as reported in accordance with GAAP to EPS, excluding certain items, is provided in the table that follows. The second quarter of 2009 GAAP results below reflect legacy Merck on a stand-alone basis.
___________________________________
1 Net income attributable to Merck & Co., Inc.
| Quarter Ended June 30 | Six Months Ended June 30 | ||||||||||||||
| 2010
|
2009 | 2010 | 2009 | ||||||||||||
| GAAP EPS
|
$ | 0.24 | $ | 0.74 | $ | 0.33 | $ | 1.41 | |||||||
| EPS impact of items*
|
0.62 | 0.09 | 1.36 | 0.16 | |||||||||||
| Non-GAAP EPS that excludes certain
items
listed below2
|
$
|
0.86
|
$
|
0.83
|
$
|
1.69
|
$
|
1.57
|
|||||||
| * Amount calculated as
follows (in millions
except per share amounts)
|
Second-
|
Second-
|
Six Months
|
Six Months
|
||||||||||||||||||||
| Quarter
|
Quarter
|
Ended
|
Ended
|
|||||||||||||||||||||
| 2010
|
2009
|
June 30, 2010
|
June 30, 2009
|
|||||||||||||||||||||
| Purchase accounting adjustments | $ | 1,662 | $ | -- | $
|
4,036
|
$
|
--
|
||||||||||||||||
| Merger restructuring program | 830 | -- | 1,113
|
--
|
||||||||||||||||||||
| Costs related to other restructuring programs | 64 | 192 | 132
|
367
|
||||||||||||||||||||
| Merger-related costs | 85 | 94 | 171
|
113
|
||||||||||||||||||||
| Gain on AstraZeneca's asset option exercise | (443 | ) | -- | (443
|
)
|
--
|
||||||||||||||||||
| Net decrease (increase) in income before taxes | 2,198
|
286
|
5,009
|
480
|
||||||||||||||||||||
| Income tax (benefit) expense3
|
(243
|
)
|
(80
|
)
|
(892
|
)
|
(137
|
)
|
||||||||||||||||
| Tax charge related to U.S. health care reform | -- | -- | 147
|
--
|
||||||||||||||||||||
| Decrease (increase) in net income | $ | 1,955 | $ | 206 | $
|
4,264
|
$
|
343
|
||||||||||||||||
| EPS impact of items | $ | 0.62 | $ | 0.09 | $
|
1.36
|
$
|
0.16
|
||||||||||||||||
"Key brands, including JANUVIA, JANUMET, REMICADE, ISENTRESS, and TEMODAR were again standouts this quarter. In addition, Animal Health and Merck Consumer Care, produced strong global sales," he added. "With our strong performance for the first half of the year, we continue to have confidence in delivering on our long-term financial targets."
___________________________________
2 Merck is providing information on 2010 and 2009 non-GAAP earnings per share 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, earnings per share prepared in accordance with GAAP. For a description of the items, see Tables 2a and 2b, including the related footnotes, attached to this release.
3 Represents an estimated income tax (benefit) expense on the reconciling items. impact on above items
Select Business Highlights
- In June, Merck's newest asthma medication, DULERA (mometasone furoate and formoterol fumarate dehydrate) Inhalation Aerosol, a new fixed-dose combination, was approved by the U.S. Food and Drug Administration (FDA) for patients 12 years of age and older.
- Also, in June, the Committee for Medicinal Products for Human Use (CHMP) recommended marketing approval for BRINAVESS (vernakalant) in the European Union (EU) for the conversion of recent onset atrial fibrillation to sinus rhythm and issued a positive opinion to extend the indication for GARDASIL to include women up to the age of 45 years. The group also recommended the marketing of SYCREST (asenapine) for the treatment of moderate to severe manic episodes associated with bipolar I disorder in adults, but did not recommend marketing for the treatment of schizophrenia.
- The company has been moving rapidly to complete integration actions and achieve its synergy target of $3.5 billion of annual savings in 2012. The recently restructured research network will be comprised of 16 major R&D facilities worldwide, and planned actions announced since the merger will reduce Merck's manufacturing network from 91 to 77 facilities, including 29 Animal Health locations. The company will continue to pursue productivity efficiencies and evaluate its manufacturing supply chain capabilities on an ongoing basis.
- Merck broke ground on a new manufacturing site in Hangzhou, China on July 12 as part of its expansion plans for China. The 37,000 square meter site is expected to start production in 2012. It will package solid dosage pharmaceuticals and sterile products for the Chinese market and manufacture clinical/commercial supplies to support future new product introductions.
- The company and Sinopharm (China National Pharmaceutical Group Corporation) recently announced the signing of a statement of mutual intent toward establishing a joint venture to register, manufacture, and commercialize adult and pediatric vaccines in China. The proposed joint venture would involve Merck vaccines, including human papillomavirus (HPV) vaccine as well as utilize technology from Sinopharm for a rotavirus vaccine, a Hib (Haemophilus influenza type B) vaccine and a varicella vaccine.
- Patient enrollment in the main component of the second pivotal trial for vorapaxar is complete. More than 12,500 patients with acute coronary syndrome have fully enrolled in the TRA-CER trial and will be followed for a minimum of one year.
- Additionally, IMPROVE-IT, a large cardiovascular outcomes study evaluating ZETIA/VYTORIN in patients with acute coronary syndrome, is now fully enrolled with 18,000 patients.
Second-Quarter Financial Results
The following supplemental combined second-quarter 2009 non-GAAP sales are adjusted to reflect a full quarter of legacy Merck and legacy Schering-Plough combined results. This supplemental information is provided to enhance investors' understanding of the company's products and overall business performance and should be considered in addition to, but not in lieu of, sales recorded in accordance with GAAP.
|
|
GAAP 2Q10
|
GAAP 2Q09
|
Adj. 2Q09
|
Supp. Comb.
Non-GAAP 2Q09
|
||||||||||
| Total Sales
|
$11,346
|
$5,900
|
$5,634
|
$11,534
|
||||||||||
| Human Health4
|
9,776
|
5,470
|
4,488
|
9,956
|
||||||||||
| Animal Health
|
731
|
---
|
672
|
672
|
||||||||||
| Consumer Care4
|
422
|
---
|
381
|
381
|
||||||||||
| Other revenues5
|
417
|
430
|
94
|
524
|
||||||||||
4 Human Health includes worldwide prescription pharmaceutical sales and consumer product sales excluding the U.S. and Canada. Consumer Care includes U.S. and Canada consumer product sales.
5 Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales. Revenue from AstraZeneca LP recorded by Merck was $241 million in the second quarter of 2010.
The company's financial performance for the second quarter of 2010 discussed below reflects the combined company results. The increases noted are largely due to the inclusion of legacy Schering-Plough operations which are not included in the 2009 results.
Materials and production costs were $4.5 billion for the second quarter of 2010, compared to $1.4 billion for the second quarter of 2009. The second quarter of 2010 includes $1.7 billion of additional costs related to the amortization of purchase accounting adjustments to inventories and to intangible assets recognized as a result of the merger. The second quarters of 2010 and 2009 include $224 million and $47 million, respectively, for costs associated with restructuring programs. The gross margin was 59.9 percent for the second quarter of 2010, reflecting a 16.6 percentage point unfavorable impact from the purchase accounting adjustments and restructuring costs noted above. In 2009, gross margin was 77.1 percent for the second quarter, reflecting a 0.8 percentage point unfavorable impact due to restructuring costs.
Marketing and administrative expenses were $3.2 billion for the second quarter of 2010. Costs for the second quarter include $75 million of merger-related costs. Marketing and administrative costs were $1.7 billion for the second quarter of 2009. Costs for the second quarter of 2009 include $44 million of merger-related expenses.
Research and development expenses were $2.2 billion for the second quarter of 2010, which included $144 million of costs for restructuring activities. Expenses for 2009 were $1.4 billion for the quarter which included $108 million of costs for restructuring activities.
Restructuring costs, primarily related to employee separations, were $526 million for the second quarter of 2010, compared with $37 million for the second quarter of 2009. The increase for the second quarter of 2010 is associated with the merger restructuring program.
Total overall costs associated with the company's global restructuring programs included in materials and production, research and development, and restructuring costs were $894 million and $192 million for the second quarters of 2010 and 2009, respectively, primarily comprised of employee separation costs and accelerated depreciation.
Equity income from affiliates was $43 million in the second quarter of 2010. Equity income from affiliates no longer reflects any contribution from the Merck/Schering-Plough partnership or from Merial Limited.
Other (income) expense, net was $280 million of income in the second quarter of 2010 compared with $4 million of expense in the second quarter of 2009 largely reflecting $443 million of income recognized in the second quarter of 2010 upon AstraZeneca's asset option exercise, partially offset by higher interest expense and lower interest income as a result of the merger.
The effective tax rate of 37.1 percent for the second quarter of 2010 reflects the impact of purchase accounting adjustments, the gain on AstraZeneca's asset option exercise and restructuring charges. The non-GAAP effective tax rate, which excludes these items, was 20.5 percent for the quarter.
Financial Targets
For 2010, Merck is now targeting a non-GAAP EPS range of $3.29 to $3.39, excluding certain items, and a 2010 GAAP EPS range of $0.82 to $1.16. The 2010 non-GAAP guidance excludes purchase accounting adjustments, restructuring and merger-related costs, the gain on AstraZeneca's asset option exercise, and the first-quarter tax charge related to the recently enacted U.S. health care reform legislation. EPS and other financial targets for 2010 assume that Merck will retain full rights to REMICADE and SIMPONI in the applicable markets.
A reconciliation of anticipated 2010 EPS as reported in accordance with GAAP to non-GAAP EPS that excludes certain items is provided in the table that follows:
| Full-Year 2010 | ||||||
| GAAP EPS
|
$0.82 to $1.16
|
|||||
| EPS impact of items*
|
$2.47 to $2.23
|
|||||
| Non-GAAP EPS that excludes certain items listed below | $3.29 to $3.39
|
|||||
Posted: July 2010
