Merck Announces Third Quarter 2011 Financial Results

  • Double-Digit Non-GAAP EPS Growth in Third Quarter 2011; Non-GAAP EPS of $0.94; GAAP EPS of $0.55
  • Worldwide Sales Growth of 8 Percent, Including 5 Percent From Foreign Exchange; Increase Driven by Pharmaceutical and Animal Health Sales
  • Double-Digit Global Growth for JANUVIA, GARDASIL, SINGULAIR, JANUMET and ISENTRESS
  • JUVISYNC and VICTRELIS and Other Product Launches Underway
  • Company Raises Lower End of 2011 Non-GAAP EPS Range; Provides New Range of $3.72 to $3.76; Also Updates GAAP EPS Range to $2.03 to $2.20; Expects Full Year 2011 Revenue Growth in the Mid-Single Digit Range

WHITEHOUSE STATION, N.J.--(BUSINESS WIRE)--Oct 28, 2011 - Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the third quarter of 2011.

         
$ in millions, except EPS amounts   Third
Quarter
2011

 

  Third
Quarter
2010

 

Sales   $

 

12,022

 

 

 

  $

 

11,125

 

 

 

GAAP EPS     0.55       0.11  
Non-GAAP EPS that excludes items listed below 1

 

    0.94       0.85  
GAAP Net Income 2

 

    1,692       342  
Non-GAAP Net Income that excludes items listed below 1, 2

 

    2,908       2,645  
Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the third quarter of $0.94 excludes acquisition-related costs, restructuring costs and certain other items.

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

         
    Third
Quarter
2011

 

  Third
Quarter
2010

 

$ in millions, except EPS amounts   Net

Income 2

 

  EPS   Net Income 2

 

  EPS
GAAP   $ 1,692     $ 0.55     $ 342   $ 0.11  
Difference     1,216       0.39

 

 3

 

    2,303     0.74

 

 3

 

Non-GAAP that excludes items listed below   $ 2,908     $ 0.94     $ 2,645   $ 0.85  
             
             
$ in millions   Third
Quarter
2011

 

  Third
Quarter
2010

 

   
Acquisition-related costs 4

 

  $ 1,363     $ 1,604      
Costs related to restructuring programs     277       387      
Other 5

 

    (137 )     -      
Legal reserve     -       950      
Net decrease (increase) in income before taxes     1,503       2,941      
Income tax (benefit) expense 6

 

    (287 )     (638 )    
Decrease (increase) in net income   $ 1,216     $ 2,303      
Year-to-date results can be found in the attached financial tables.

"Merck once again delivered a strong quarter," said Kenneth C. Frazier, president and chief executive officer, "coupling top line growth and strong expense management to report an 11 percent increase to the bottom line.

"Going forward, Merck will continue to implement our growth strategy, while transforming the way we operate our business," he said. "Three consecutive quarters of top and bottom line growth demonstrate our ability to consistently perform while at the same time make the strategic investments necessary for the future. We remain focused on driving innovation and value for our customers and shareholders over the long term."

Select Revenue Highlights

Worldwide sales were $12.0 billion for the third quarter of 2011, an increase of 8 percent compared with the third quarter of 2010. Foreign exchange for the quarter favorably affected global sales performance by approximately 5 percent. The revenue increase largely reflects strong sales of JANUVIA (sitagliptin), GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant], SINGULAIR (montelukast sodium), JANUMET (sitagliptin/metformin hydrochloride), ISENTRESS (raltegravir) and ZOSTAVAX (zoster vaccine live). Sales from emerging markets accounted for approximately 17 percent of pharmaceutical sales in the quarter.

The table below reflects sales of the company's top Pharmaceutical products, as well as total sales of Animal Health and Consumer Care products.

             
$ in millions

 

  Third Quarter

2011

 

  Third Quarter

2010

 

  Change

 

Total Sales   $

 

12,022

 

 

 

  $

 

11,125

 

 

 

  8

 

%

 

Pharmaceutical 7

 

    10,354       9,523     9 %
SINGULAIR     1,336       1,215     10 %
JANUVIA     846       600     41 %
ZETIA     614       571     8 %
REMICADE     561       661     -15 %
VYTORIN     469       485     -3 %
GARDASIL     445       316     41 %
COZAAR/HYZAAR     404       423     -4 %
PROQUAD, M-M-R II and VARIVAX     391       434     -10 %
JANUMET     350       247     42 %
ISENTRESS     343       278     23 %
NASONEX     266       259     3 %
Animal Health     826       687     20 %
Consumer Care 7     421       409     3 %
Other Revenues 8

 

    421       506     -17 %
Worldwide sales of the combined diabetes franchise of JANUVIA/JANUMET grew 41 percent to $1.2 billion in the third quarter of 2011 driven by growth in all regions.

Worldwide sales of SINGULAIR, a once-a-day oral medicine indicated for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis, grew 10 percent from the third quarter of 2010 to $1.3 billion.

Global sales declined 8 percent in the quarter for REMICADE (infliximab) and SIMPONI (golimumab), treatments for inflammatory diseases, as the company transferred exclusive marketing rights for REMICADE and SIMPONI to Johnson & Johnson in territories including Canada, Central and South America, the Middle East, Africa and Asia Pacific, effective July 1, 2011. Merck retained exclusive marketing rights to these products throughout Europe, Russia and Turkey. In territories retained by Merck, the combined sales of REMICADE and SIMPONI grew 35 percent.

Sales of GARDASIL, a vaccine to help prevent certain diseases caused by human papillomavirus, were $445 million in the quarter driven by increased vaccination of both females and males and wholesaler purchases in conjunction with the launch in Japan.

As expected, global sales of Merck's antihypertensive medicines COZAAR (losartan potassium) and HYZAAR (losartan potassium and hydrochlorothiazide) continue to decline following loss of marketing exclusivity in the United States and in major European markets in 2010. Sales of TEMODAR (temozolomide), a treatment for certain types of brain tumors, declined due to generic competition in Europe.

ISENTRESS, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, grew 23 percent in the third quarter driven by demand in the United States and Europe.

Sales of ZOSTAVAX were $108 million in the quarter. Supply availability has improved and current wait time for delivery is now under one month. The company anticipates that backorders will continue until inventory levels are sufficient to meet market demand.

Product Performance – Animal Health

Merck Animal Health sales totaled $826 million for the third quarter of 2011, a 20 percent increase over the same period last year, including a 6 percent contribution from foreign exchange. Animal Health had strong third-quarter performance across all regions, with growth primarily led by increased sales of cattle, swine and poultry products. This growth was driven equally by new products and existing products. The division's products include pharmaceutical and vaccine products for the prevention, treatment and control of disease in all major farm and companion animal species.

Product Performance – Consumer Care

Merck Consumer Care third-quarter global sales were $421 million, an increase of 3 percent compared to the third quarter of 2010, including a 2 percent contribution from foreign exchange. The sales growth was primarily led by increased sales of MIRALAX and ZEGERID OTC. Consumer Care includes a variety of over-the-counter medicines, as well as footcare and suncare products.

Third Quarter Expense and Other Information

The costs detailed below on a GAAP basis during the third quarter of 2011 totaled $9.8 billion and include $1.6 billion of acquisition-related costs and restructuring costs.

     
$ in millions   Included in the expense for the period
Third Quarter 2011   GAAP   Acquisition-
Related Costs 4

 

  Restructuring
Costs

 

  Non-GAAP 1
Materials and production   $

 

4,352

 

 

 

  $

 

1,284

 

 

 

  $

 

99

 

 

 

  $

 

2,969

 

 

 

Marketing and administrative     3,340       57       31       3,252  
Research and development     1,954       22       28       1,904  
Restructuring costs     119       -       119       -  
                 
                 
Third Quarter 2010                
Materials and production   $ 4,191     $ 1,351     $ 44     $ 2,796  
Marketing and administrative     3,192       64       130       2,998  
Research and development     2,322       189       163       1,970  
Restructuring costs     50       -       50       -  
The gross margin was 63.8 percent for the third quarter of 2011 and 62.3 percent for the third quarter of 2010, reflecting 11.5 and 12.6 percentage point unfavorable impacts, respectively, from the acquisition-related costs and restructuring costs noted above.

Marketing and administrative expenses, on a non-GAAP basis, were $3.3 billion in the third quarter of 2011, an increase from $3.0 billion in the third quarter of 2010. The increase was due to the impact of foreign exchange, investments in emerging markets and product launches, and U.S. health care reform fees.

Research and development expenses, on a non-GAAP basis, were $1.9 billion in the third quarter of 2011, a decrease from $2.0 billion in the third quarter of 2010. The decrease was primarily due to efficiency savings and lower clinical trial grant expenses.

Equity income from affiliates was $161 million in the third quarter, which primarily includes partnerships with AstraZeneca LP, Sanofi Pasteur MSD and the recently divested Johnson & Johnson°Merck Consumer Pharmaceuticals Company joint venture.

Other (income) expense, net was $66 million of expense in the third quarter of 2011, which reflects a $136 million gain on the divestiture of the company's interest in the Johnson & Johnson°Merck Consumer Pharmaceuticals Company joint venture, compared with $1.1 billion of expense in the third quarter of 2010, which includes the unfavorable impact of a $950 million legal reserve.

Key Developments

 

  • The U.S. Food and Drug Administration (FDA) approved JUVISYNC (sitagliptin and simvastatin), a new treatment for type 2 diabetes that combines the glucose-lowering medication sitagliptin, the active component of JANUVIA, with the cholesterol-lowering medication ZOCOR (simvastatin).
  • The European Commission approved ZOELY (nomegestrol acetate 2.5 mg /17-beta estradiol 1.5 mg), formerly known as NOMAC-E2, a monophasic combined oral contraceptive tablet for use by women to prevent pregnancy.
  • The FDA and the European Medicines Agency have accepted the company's applications for the approval of ridaforolimus, an investigational oral mTOR inhibitor developed for the treatment of metastatic soft-tissue or bone sarcomas in patients who had a favorable response to chemotherapy.
  • VICTRELIS (boceprevir), the company's oral hepatitis C virus NS3/4A protease inhibitor, has launched in 10 markets in the third quarter: Brazil, Canada and eight markets in the European Union including France, Germany, the UK and Spain.
  • Merck is collaborating with Beijing-based BGI, the world's largest genomics center, to focus on the discovery and development of biomarkers and genomics technologies. Scientists will work together to identify and characterize biomarkers with an emphasis on drug discovery, drug development and diagnostics applications across a wide range of therapeutic areas.
  • Richard R. DeLuca Jr. joined Merck as president of Animal Health and Cuong Viet Do joined as the company's chief strategy officer.
  • The company is hosting its 2011 R&D and Business Briefing on Nov. 10.

Financial Targets

The company raised the lower end of its 2011 non-GAAP EPS range and is now targeting a range of $3.72 to $3.76. The company updated the 2011 GAAP EPS range to $2.03 to $2.20. The 2011 non-GAAP range excludes acquisition-related costs, costs related to restructuring programs, the benefit of certain tax items and certain other items.

Merck now expects full year 2011 revenue to grow in the mid-single digit percent range from a base of $46.0 billion in 2010.

In addition, the company lowered its non-GAAP R&D expense target range to $7.8 billion to $8.0 billion for the full year of 2011.

The company expects its non-GAAP 2011 tax rate to be at the upper end of its target range of 23 to 24 percent.

A reconciliation of anticipated 2011 EPS as reported in accordance with GAAP to non-GAAP EPS that excludes certain items is provided in the table below.

     
$ in millions, except EPS amounts

 

  Full Year 2011
GAAP EPS   $2.03 to $2.20
Difference 3   1.69 to 1.56
Non-GAAP EPS that excludes items listed below   $3.72 to $3.76
     
     
Acquisition-related costs 4   $5,700 to $5,400
Costs related to restructuring programs   1,500 to 1,300
Arbitration settlement charge   500
Other 9

 

  (263)
Net decrease (increase) in income before taxes   7,437 to 6,937
Income tax (benefit) expense 10

 

  (2,210) to (2,110)
Decrease (increase) in net income   $5,227 to $4,827
Total Employees

As of September 30, 2011, Merck had approximately 90,000 employees worldwide.

Earnings Conference Call

Investors are invited to a live audio webcast of Merck's third quarter earnings conference call today at 8:00 a.m. EDT by visiting Merck's Web site, www.merck.com/investors/events-and-presentations/home.html. Institutional investors and analysts can participate in the call by dialing (706) 758-9927 or (877) 381-5782. Journalists are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917. A replay of the call will be available starting at 11 a.m. EDT today for approximately one week. To listen to the replay, dial (706) 645-9291 or (800) 642-1687 and enter ID No. 11773565.

About Merck

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

Forward-Looking Statement

This news release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, statements about the benefits of the merger between Merck and Schering-Plough, including future financial and operating results, the combined company's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Merck's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the possibility that the expected synergies from the merger of Merck and Schering-Plough will not be realized, or will not be realized within the expected time period; the impact of pharmaceutical industry regulation and health care legislation; the risk that the businesses will not be integrated successfully; disruption from the merger making it more difficult to maintain business and operational relationships; Merck's ability to accurately predict future market conditions; dependence on the effectiveness of Merck's patents and other protections for innovative products; the risk of new and changing regulation and health policies in the U.S. and internationally and the exposure to litigation and/or regulatory actions.

Merck undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can b

Posted: October 2011


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