Market Overview

Merck Announces Full-Year and Fourth-Quarter 2012 Financial Results

WHITEHOUSE STATION, N.J.--(BUSINESS WIRE)--

Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the fourth quarter and full year of 2012.

   
$ in millions, except EPS amounts  

Fourth
Quarter
2012

 

Fourth
Quarter
2011

 

Year Ended
Dec. 31,
2012

 

Year Ended
Dec. 31,
2011

Sales   $11,738   $12,294   $47,267   $48,047
GAAP EPS   0.46   0.49   2.16   2.02

Non-GAAP EPS that excludes items listed below1

  0.83   0.97   3.82   3.77

GAAP Net Income2

  1,401   1,512   6,661   6,272

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

  2,540   2,978   11,743   11,697

Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the fourth quarter of $0.83 and $3.82 for the full year of 2012 exclude acquisition-related costs and restructuring costs.

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

   
$ in millions, except EPS amounts Fourth Quarter   Year Ended
2012   2011  

Dec. 31,
2012

 

Dec. 31,
2011

EPS                
GAAP EPS   $0.46   $0.49   $2.16   $2.02

Difference3

  0.37   0.48   1.66   1.75

Non-GAAP EPS that excludes items listed below1

  $0.83   $0.97   $3.82   $3.77
     
Net Income                
GAAP net income2   $1,401   $1,512   $6,661   $6,272
Difference   1,139   1,466   5,082   5,425
Non-GAAP net income that excludes items listed below1,2   $2,540   $2,978   $11,743   $11,697
 
Decrease (Increase) in Net Income Due to Excluded Items:

Acquisition-related costs4

  $1,298   $1,479   $5,344   $5,939
Restructuring costs   254   692   999   1,911
Arbitration settlement charge         500

Other5

    6     (258)
Net decrease (increase) in income before taxes   1,552   2,177   6,343   8,092

Income tax (benefit) expense6

  (413)   (711)   (1,261)   (2,667)
Decrease (increase) in net income   $1,139   $1,466   $5,082   $5,425

"Merck overcame significant challenges last year and delivered strong results in 2012 by successfully growing our businesses, expanding geographically and reducing our expenses. As we begin 2013, we are well-positioned to further execute on our business strategy,” said Kenneth C. Frazier, chairman and chief executive officer of Merck. “We remain committed to investing for future growth and innovation to deliver value over the long term. Merck is rapidly advancing many compounds that are potentially first-in-class or best-in-class. Additionally, we will continue to pursue external opportunities that have the potential to deliver value to the company and its shareholders.”

Select Revenue Highlights

Full-year 2012 worldwide sales were $47.3 billion, a decrease of 2 percent, which includes a 3 percent negative impact from foreign exchange, compared to full-year 2011. Worldwide sales were $11.7 billion for the fourth quarter of 2012, a decrease of 5 percent, which includes a 2 percent negative impact from foreign exchange compared with the fourth quarter of 2011. Strong sales growth of key products helped offset the impact of the August 2012 loss of market exclusivity for SINGULAIR (montelukast sodium) in the United States.

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

   

 

$ in millions

 

Fourth
Quarter
2012

 

Fourth
Quarter
2011

 

Change

 

Year
Ended
Dec. 31,
2012

 

Year
Ended
Dec. 31,
2011

 

 

 

Change

Total Sales   $11,738   $12,294   -5%   $47,267   $48,047   -2%
Pharmaceutical   10,085   10,755   -6%   40,601   41,289   -2%
JANUVIA   1,134   960   18%   4,086   3,324   23%
SINGULAIR   480   1,461   -67%   3,853   5,479   -30%
ZETIA   676   640   6%   2,567   2,428   6%
REMICADE   549   511   8%   2,076   2,667   -22%
VYTORIN   435   475   -8%   1,747   1,882   -7%
JANUMET   452   386   17%   1,659   1,363   22%
GARDASIL   442   274   61%   1,631   1,209   35%
ISENTRESS   381   387   -2%   1,515   1,359   11%
COZAAR/HYZAAR   315   427   -26%   1,284   1,663   -23%
PROQUAD, M-M-R II and VARIVAX   306   276   11%   1,273   1,202   6%
Animal Health   898   868   3%   3,399   3,253   4%
Consumer Care   395   361   9%   1,952   1,840   6%
Other Revenues   360   310   16%   1,315   1,666   -21%

Pharmaceutical Revenue Performance

Fourth-quarter pharmaceutical sales declined 6 percent to $10.1 billion, including a 1 percent negative impact due to foreign exchange. Strong sales growth for JANUVIA (sitagliptin), GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant], ZOSTAVAX (zoster vaccine live) and JANUMET (sitagliptin/metformin hydrochloride) partially offset the expected declines in sales of SINGULAIR, COZAAR (losartan potassium) and HYZAAR (losartan potassium and hydrochlorothiazide).

Full-year pharmaceutical sales declined 2 percent to $40.6 billion, including a 3 percent negative impact due to foreign exchange.

Sales from emerging markets grew 9 percent and accounted for approximately 20 percent of pharmaceutical sales in the fourth quarter. Sales growth in the emerging markets is being driven by vaccines, primary care, women's health and diversified brands. China continues to be a key driver with 35 percent growth for the fourth quarter, including a 3 percent benefit from foreign exchange.

Worldwide sales of the combined diabetes franchise of JANUVIA/JANUMET, medicines that help lower blood sugar levels in adults with type 2 diabetes, grew 18 percent to $1.6 billion in the fourth quarter of 2012 primarily driven by growth in the United States and Japan. The combined franchise had sales of $5.7 billion for the full year of 2012, an increase of 23 percent.

Worldwide sales of SINGULAIR, a once-a-day oral medicine for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis, declined 67 percent to $480 million in the fourth quarter. SINGULAIR sales declined $932 million, or 97 percent, in the United States in the fourth quarter. Full-year 2012 worldwide sales for SINGULAIR were $3.9 billion, a 30 percent decrease compared to the prior year. The patent for SINGULAIR expired in the United States on Aug. 3, 2012, and will expire in major European markets later this month. The company continues to experience a significant and rapid reduction in sales in the United States and expects a similar decline in Europe following patent expiry there. SINGULAIR will retain marketing exclusivity in Japan until 2016.

Sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), medicines for lowering LDL cholesterol, were $1.1 billion in the fourth quarter, comparable to the prior year, driven by global growth of ZETIA that was offset by lower sales of VYTORIN. The combined ZETIA/VYTORIN franchise had sales of $4.3 billion for the full year of 2012, comparable to the prior year.

Combined sales of REMICADE (infliximab) and SIMPONI (golimumab), treatments for inflammatory diseases, increased 13 percent to $645 million for the fourth quarter of 2012. The combined sales grew 18 percent excluding foreign exchange. Global combined sales for the full year decreased 18 percent over the prior year. In Europe, Russia and Turkey, where Merck retained exclusive marketing rights, the combined sales of REMICADE and SIMPONI increased 2 percent for the full year of 2012 or 10 percent excluding foreign exchange. In July 2011, the company transferred exclusive marketing rights for REMICADE and SIMPONI to Johnson & Johnson in Canada, Central and South America, the Middle East, Africa and Asia Pacific.

Sales recorded by Merck for GARDASIL, a vaccine to help prevent certain diseases caused by four types of human papillomavirus (HPV), increased 61 percent to $442 million for the fourth quarter driven by higher sales in the United States, reflecting continued strong uptake in males and higher public sector purchases, as well as favorable performance in Japan and the emerging markets. Worldwide sales of GARDASIL recorded by Merck for the year were $1.6 billion, a 35 percent increase compared to the prior year.

ISENTRESS (raltegravir), an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, decreased 2 percent to $381 million in the fourth quarter. ISENTRESS sales in the United States grew 11 percent in the fourth quarter. Global sales of ISENTRESS for the full year of 2012 were $1.5 billion, an 11 percent increase compared to 2011.

Global sales of Merck's antihypertensive medicines COZAAR and HYZAAR declined 26 percent to $315 million in the fourth quarter and 23 percent to $1.3 billion for the full year of 2012 due to the loss of market exclusivity in major markets in prior years.

Sales of ZOSTAVAX, a vaccine for the prevention of herpes zoster, grew to $225 million in the fourth quarter compared to $78 million in the prior year, driven by a positive response to supply availability and increased promotional efforts in the United States. Global sales for the full year of 2012 were $651 million.

Sales of VICTRELIS (boceprevir), the company's oral hepatitis C virus protease inhibitor, grew to $115 million in the quarter versus $87 million last year as the product continues to launch. Global sales for the full year of 2012 were $502 million. VICTRELIS is approved in 69 countries and has launched in 34 of those markets.

Animal Health Revenue Performance

Merck Animal Health sales totaled $898 million for the fourth quarter of 2012, a 3 percent increase compared with the same period last year, including a 3 percent negative impact due to foreign exchange. Growth was seen across major species, particularly cattle and poultry.

Animal Health global sales for the full year of 2012 were $3.4 billion, a 4 percent increase compared with the prior year, including a 5 percent negative impact due to foreign exchange.

Consumer Care Revenue Performance

Fourth-quarter global sales of Consumer Care were $395 million, an increase of 9 percent compared to the fourth quarter of 2011. This increase was primarily driven by CLARITIN, COPPERTONE and the DR. SCHOLL'S footcare line. Full-year 2012 global sales were $2.0 billion, a 6 percent increase compared to full-year 2011, including a 1 percent negative impact due to foreign exchange.

Last week, the U.S. Food and Drug Administration (FDA) approved OXYTROL FOR WOMEN (oxybutynin transdermal system), the first and only over-the-counter treatment for overactive bladder in women. Merck anticipates that OXYTROL FOR WOMEN will be available to customers in fall 2013.

Other Revenue Performance

Other revenues – primarily comprised of alliance revenue, miscellaneous corporate revenues and third-party manufacturing sales – increased 16 percent to $360 million in the fourth quarter and decreased 21 percent to $1.3 billion for the full year of 2012. The full-year decline was driven largely by lower revenue from AstraZeneca LP (AZLP) recorded by Merck, which declined 23 percent to $915 million, as well as by lower third-party manufacturing sales.

Fourth-Quarter and Full-Year Expense and Other Information

The costs detailed below totaled $10.0 billion on a GAAP basis during the fourth quarter of 2012 and include $1.6 billion of acquisition-related costs and restructuring costs.

   
$ in millions Included in expenses for the period
Fourth Quarter 2012  

 

GAAP

 

Acquisition-
Related
Costs4

 

Restructuring
Costs

 

Certain Other
Items

 

 

Non-GAAP1

Materials and production   $4,160   $1,185   $40     $2,935
Marketing and administrative   3,390   89   20     3,281
Research and development   2,224   24   3     2,197
Restructuring costs   191     191    
 
Fourth Quarter 2011                    
Materials and production   $4,176   $1,212   $68   $7   $2,889
Marketing and administrative   3,704   86   42     3,576
Research and development   2,419   244   49     2,126
Restructuring costs   533     533    

The costs detailed below totaled $38.1 billion on a GAAP basis for full-year 2012 and include $6.3 billion of acquisition-related costs and restructuring costs.

   
$ in millions Included in expenses for the period

Year Ended
Dec. 31, 2012

 

 

GAAP

 

Acquisition-
Related
Costs4

 

Restructuring
Costs

 

Certain Other
Items

 

 

Non-GAAP1

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

Year Ended
Dec. 31, 2011

                   
Materials and production   $16,871   $5,137   $348   $7   $11,379
Marketing and administrative   13,733   278   119     13,336
Research and development   8,467   587   138     7,742
Restructuring costs   1,306     1,306    

The gross margin was 64.6 percent for the fourth quarter of 2012 and 66.0 percent for the fourth quarter of 2011, reflecting 10.4 and 10.5 percentage point unfavorable impacts, respectively, from the acquisition-related costs and restructuring costs noted above. The non-GAAP gross margin decline primarily reflects the impact of the SINGULAIR patent expiry in the United States.

Marketing and administrative expenses, on a non-GAAP basis, were $3.3 billion in the fourth quarter of 2012, a decrease from $3.6 billion in the fourth quarter of 2011. The decrease was primarily due to productivity measures and the beneficial impact of foreign exchange.

Research and development (R&D) expenses, on a non-GAAP basis, were $2.2 billion in the fourth quarter of 2012, an increase from $2.1 billion in the fourth quarter of 2011. The increase reflects an upfront payment related to a worldwide licensing agreement for AiCuris' novel portfolio of investigational medicines targeting human cytomegalovirus.

Equity income from affiliates was $231 million for the fourth quarter and $642 million for the full year, which primarily includes partnerships with AZLP and Sanofi Pasteur MSD.

The GAAP effective tax rate of 21.1 percent for the fourth quarter of 2012 reflects the impact of acquisition-related costs and restructuring costs. The non-GAAP effective tax rate, which excludes these items, was 23.6 percent for the quarter. Both the GAAP and non-GAAP effective tax rates reflect a favorable ruling on a state tax matter in the fourth quarter.

Additionally, the company has achieved the previously announced $3.5 billion in synergy targets related to the merger with Schering-Plough Corporation.

Recent Key Developments

  • Merck recently received and is reviewing safety and efficacy data from the pivotal Phase III trial of odanacatib, the company's investigational medicine for osteoporosis. As previously indicated, the company has been conducting a blinded extension of the trial in approximately 8,200 women, which will provide additional safety and efficacy data. Merck now anticipates that it will file applications for approval of odanacatib in 2014 with additional data from the extension trial, rather than filing in the first half of 2013. The company continues to believe that odanacatib will have the potential to address unmet medical needs in patients with osteoporosis;
  • The New Drug Application (NDA) for suvorexant, the company's investigational insomnia medicine, was accepted for review by the FDA, during which the medicine also will be evaluated by the FDA's Controlled Substance Staff. If approved by the FDA, suvorexant will become available after a schedule assessment and determination has been completed by the U.S. Drug Enforcement Administration. Also, the company submitted an NDA for suvorexant to the health authorities in Japan;
  • The marketing authorization application for vintafolide, an investigational treatment for folate-receptor positive platinum-resistant ovarian cancer in combination with pegylated liposomal doxorubicin, was accepted for review by the European Medicines Agency;
  • The NDA resubmissions for sugammadex, a neuromuscular blockade reversal agent, and ezetimibe/atorvastatin tablets, an investigational combination medicine for hyperlipidemia, separately were accepted for review by the FDA. Merck expects the FDA's review of both candidates to be completed in the first half of 2013; and
  • In January, the company submitted a Biologics License Application to the FDA for MK-7243, an investigational allergy immunotherapy tablet for grass pollen.

Merck is on track to file five products for regulatory approval in 2013. The company also recently started several key clinical trials including: Phase III trials of MK-3102, an investigational once-weekly DPP-4 inhibitor in development for treatment of type 2 diabetes; a Phase III study of MK-3222, an investigational biologic therapy for treatment of psoriasis; a Phase II/III trial of MK-8931, an investigational β-amyloid precursor protein site-cleaving enzyme (BACE) inhibitor, to evaluate safety and efficacy in patients with mild-to-moderate Alzheimer's disease; and a Phase II study of MK-3475, an investigational therapy for the treatment of patients with advanced melanoma.

Financial Targets

Merck expects full-year 2013 non-GAAP EPS to be between $3.60 and $3.70, and the 2013 GAAP EPS range to be $2.03 to $2.26. The 2013 non-GAAP range excludes acquisition-related costs and costs related to restructuring programs.

Merck expects full-year 2013 revenues to be near 2012 levels on a constant currency basis. At current exchange rates, sales would be affected unfavorably by approximately 1 to 2 percent for the full year.

In addition, the company expects full-year 2013 non-GAAP R&D expense to be about the same level as in 2012. The company expects its full-year 2013 non-GAAP tax rate to be in the range of 21 to 23 percent, including the impact of the recently re-enacted tax law related to the R&D tax credits.

A reconciliation of anticipated 2013 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 2013
GAAP EPS   $2.03 to $2.26
Difference3   1.57 to 1.44
Non-GAAP EPS that excludes items listed below   $3.60 to $3.70
 
 
Acquisition-related costs4   $5,125 to $4,800
Restructuring costs   700 to 500
Net decrease (increase) in income before taxes   5,825 to 5,300
Estimated income tax (benefit) expense   (1,020) to (910)
Decrease (increase) in net income   $4,805 to $4,390

Total Employees

As of Dec. 31, 2012, Merck had approximately 83,000 employees worldwide.

Earnings Conference Call

Investors are invited to a live audio webcast of Merck's fourth-quarter earnings conference call today at 8:00 a.m. EST by visiting Merck's website, www.merck.com/investors/events-and-presentations/home.html. Institutional investors and analysts can participate in the call by dialing (706) 758-9927 or (877) 381-5782. Journalists are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917. A replay of the call will be available for approximately one week starting at 11:00 a.m. EST today. To listen to the replay, dial (404) 537-3406 or (855) 859-2056 and enter ID No. 81283478.

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. These statements are based upon the current beliefs and expectations of Merck's management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or risks or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements.

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

Merck undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in Merck's 2011 Annual Report on Form 10-K and the company's other filings with the Securities and Exchange Commission (SEC) available at the SEC's Internet site (www.sec.gov).

1 Merck is providing certain 2012 and 2011 non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP. For a description of the items, see Tables 2a and 2b, including the related footnotes, attached to this release.

2 Net income attributable to Merck & Co., Inc.

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

4 Includes expenses for the amortization of intangible assets and amortization of purchase accounting adjustments to inventories recognized as a result of mergers and acquisitions, as well as intangible asset impairment charges. Also includes integration and other costs associated with mergers and acquisitions.

5 Amount for full-year 2011 includes a gain on the divestiture of the company's interest in the Johnson & Johnson°Merck Consumer Pharmaceuticals Company joint venture and a gain on the sale of certain manufacturing facilities and related assets.

6 Includes an estimated income tax (benefit) expense on the reconciling items. In addition, the full year amount for 2011 includes the net favorable impact of approximately $700 million relating to the settlement of a federal income tax audit, as well as $270 million of net tax benefits from changes in tax rates that resulted in a reduction of deferred tax liabilities on intangibles established in purchase accounting.

           
 

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

 
       
GAAP % Change GAAP % Change
4Q12   4Q11

Full Year
2012

 

Full Year
2011

 
Sales $ 11,738 $ 12,294 -5% $ 47,267 $ 48,047 -2%
 
Costs, Expenses and Other
Materials and production (1) 4,160 4,176 - 16,446 16,871 -3%
Marketing and administrative (1) 3,390 3,704 -8% 12,776 13,733 -7%
Research and development (1) 2,224 2,419 -8% 8,168 8,467 -4%
Restructuring costs (2) 191 533 -64% 664 1,306 -49%
Equity income from affiliates (3) (231 ) (257 ) -10% (642 ) (610 ) 5%
Other (income) expense, net (1)(4) 176 139 27% 623 946 -34%
 
Income Before Taxes 1,828 1,580 16% 9,232 7,334 26%
Income Tax Provision 385 37 2,440 942
Net Income 1,443 1,543 -6% 6,792 6,392 6%
Less: Net Income Attributable to Noncontrolling Interests 42 31 131 120
Net Income Attributable to Merck & Co., Inc. $ 1,401 $ 1,512 -7% $ 6,661 $ 6,272 6%
Earnings per Common Share Assuming Dilution (5) $ 0.46 $ 0.49 -6% $ 2.16 $ 2.02 7%
               
           
Average Shares Outstanding Assuming Dilution 3,074 3,069 3,076 3,094
Tax Rate (6)   21.1 %     2.3 %   26.4 %     12.8 %
(1) Amounts include the impact of acquisition-related costs, restructuring costs and certain other items. See accompanying tables for details.
(2) Represents separation and other related costs associated with restructuring activities under the company's formal restructuring programs.
(3) Primarily reflects equity income from the AstraZeneca LP and Sanofi Pasteur MSD partnerships.
(4) Other (income) expense, net in the full year of 2011 includes a charge of $500 million related to the resolution of the arbitration proceeding with Johnson & Johnson, a $136 million gain on the divestiture of the company's interest in the Johnson & JohnsonºMerck Consumer Pharmaceuticals Company joint venture and a $127 million gain on the sale of certain manufacturing facilities and related assets.
(5) The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate earnings per common share assuming dilution was $1,401 million and $1,510 million for the fourth quarter of 2012 and 2011, respectively, and was $6,658 million and $6,257 million for the full year of 2012 and 2011, respectively.
(6) The GAAP effective tax rates for the fourth quarter and full year of 2012 were 21.1% and 26.4%, respectively. Excluding the impact of the non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 23.6% and 23.8% for the fourth quarter and full year of 2012, respectively. Both the GAAP and non-GAAP effective tax rates for the fourth quarter and full year of 2012 reflect a favorable ruling on a state tax matter. In addition, both the GAAP and non-GAAP effective tax rates for the full year of 2012 reflect the favorable impacts of a settlement with a foreign tax authority and the realization of foreign tax credits. The GAAP effective tax rates for the fourth quarter and full year of 2011 were 2.3% and 12.8%, respectively. Excluding the impact of the non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 19.9% and 23.4% for the fourth quarter and full year of 2011, respectively.
                       
 

MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
FOURTH QUARTER 2012
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2a

         
GAAP

Acquisition-
Related Costs (1)

Restructuring
Costs(2)

Adjustment
Subtotal

Non-GAAP
   
Sales $ 11,738 $ - $ 11,738
 
Costs, Expenses and Other
Materials and production 4,160 1,185 40 1,225 2,935
 
Marketing and administrative 3,390 89 20 109 3,281
 
Research and development 2,224 24 3 27 2,197
 
Restructuring costs 191 191 191 -
 
Equity income from affiliates (231 ) - (231 )
 
Other (income) expense, net 176 - 176
 
Income Before Taxes 1,828 (1,298 ) (254 ) (1,552 ) 3,380
 
Taxes on Income 385 (413 )

(3)

798
 
Net Income 1,443 (1,139 ) 2,582
 
Less: Net Income Attributable to Noncontrolling Interests 42 - 42
 
Net Income Attributable to Merck & Co., Inc. $ 1,401 $ (1,139 ) $ 2,540
 
Earnings per Common Share Assuming Dilution $ 0.46   $ 0.83  

(4)

   
Average Shares Outstanding Assuming Dilution 3,074 3,074
Tax Rate   21.1 %   23.6 %
Merck is providing non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.
 
(1) Amounts included in materials and production costs reflect expenses for the amortization of intangible assets recognized as a result of mergers and acquisitions. Amounts included in marketing and administrative expenses reflect merger integration costs. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges.
 
(2) Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to actions under the company's formal restructuring programs.
 
(3) Represents the estimated tax impact on the reconciling items.
 
(4) The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $2,540 million for the fourth quarter of 2012.
                   
 
 

MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
FULL YEAR 2012
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2b

         
GAAP

Acquisition-
Related Costs (1)

Restructuring
Costs (2)

Adjustment
Subtotal

Non-GAAP
   
Sales $ 47,267 $ - $ 47,267
 
Costs, Expenses and Other
Materials and production 16,446 4,872 188 5,060 11,386
 
Marketing and administrative 12,776 272 90 362 12,414
 
Research and development 8,168 200 57 257 7,911
 
Restructuring costs 664 664 664 -
 
Equity income from affiliates (642 ) - (642 )
 
Other (income) expense, net 623 - 623
 
Income Before Taxes 9,232 (5,344 ) (999 ) (6,343 ) 15,575
 
Taxes on Income 2,440 (1,261 )

(3)

3,701
 
Net Income 6,792 (5,082 ) 11,874
 
Less: Net Income Attributable to Noncontrolling Interests 131 - 131
 
Net Income Attributable to Merck & Co., Inc. $ 6,661 $ (5,082 ) $ 11,743
 
Earnings per Common Share Assuming Dilution $ 2.16   $ 3.82  

(4)

   
Average Shares Outstanding Assuming Dilution 3,076 3,076
Tax Rate   26.4 %   23.8 %
Merck is providing non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.
 
(1) Amounts included in materials and production costs reflect expenses for the amortization of intangible assets recognized as a result of mergers and acquisitions. Amounts included in marketing and administrative expenses reflect merger integration costs. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges.
 
(2) Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to actions under the company's formal restructuring programs.
 
(3) Represents the estimated tax impact on the reconciling items.
 
(4) The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $11,738 million for the full year of 2012.
                       
 
 

MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
(UNAUDITED)
Table 3

     

2012

2011

% Change % Change
1Q   2Q   3Q   4Q   Full Year 1Q   2Q   3Q   4Q   Full Year 4Q   Full Year
 
TOTAL SALES (1) $11,731   $12,311   $11,488   $11,738   $47,267 $11,580   $12,151   $12,022   $12,294   $48,047 -5   -2
PHARMACEUTICAL 10,082 10,560 9,875 10,085 40,601 9,820 10,360 10,354 10,755 41,289 -6 -2
 
Primary Care and Women's Health
Cardiovascular
Zetia 614 632 645 676 2,567 582 592 614 640 2,428 6 6
Vytorin 444 445 423 435 1,747 480 459 469 475 1,882 -8 -7
 
Diabetes & Obesity
Januvia 919 1,058 975 1,134 4,086 739 779 846 960 3,324 18 23
Janumet 392 411 405 452 1,659 305 321 350 386 1,363 17 22
 
Respiratory
Singulair 1,340 1,431 602 480 3,853 1,328 1,354 1,336 1,461 5,479 -67 -30
Nasonex 375 293 292 308 1,268 373 323 266 325 1,286 -5 -1
Clarinex 134 140 64 56 393 155 209 128 129 621 -57 -37
Dulera 39 50 52 67 207 13 25 22 37 96 83 *
Asmanex 48 51 42 44 185 60 47 42 57 206 -23 -10
 
Women's Health & Endocrine
Fosamax 184 186 152 154 676 208 221 215 211 855 -27 -21
NuvaRing 146 157 156 164 623 142 154 159 168 623 -2 --
Follistim AQ 116 125 111 116 468 133 143 129 126 530 -8 -12
Implanon 76 85 93 94 348 60 81 80 74 294 27 18
Cerazette 67 72 64 68 271 59 66 74 69 268 -1 1
 
Other
Maxalt 156 154 166 162 638 173 131 156 178 639 -9 --
Arcoxia 112 117 109 115 453 114 100 108 110 431 5 5
Avelox 73 44 30 55 201 106 61 59 95 322 -42 -37
 
Hospital and Specialty
 
Immunology
Remicade 519 518 490 549 2,076 753 842 561 511 2,667 8 -22
Simponi 74 76 86 95 331 54 75 74 61 264 56 25
 
Infectious Disease
Isentress 337 398 399 381 1,515 292 337 343 387 1,359 -2 11
PegIntron 162 183 165 143 653 166 154 163 175 657 -18 -1
Cancidas 145 166 163 145 619 158 168 150 164 640 -11 -3
Victrelis 111 126 149 115 502 1 21 31 87 140 32 *
Invanz 101 110 118 116 445 87 103 107 110 406 6 10
Primaxin 88 104 109 83 384 136 136 124 119 515 -30 -25
Noxafil 59 66 66 68 258 55 56 61 59 230 15 13
 
Oncology
Temodar 237 225 227 229 917 248 234 223 230 935 -1 -2
Emend 102 145 111 131 489 87 120 98 114 419 16 17
 
Other
Cosopt / Trusopt 124 105 102 113 444 114 122 124 117 477 -3 -7
Bridion 58 60 68 75 261 41 47 52 60 201 26 30
Integrilin 53 60 48 51 211 64 56 53 57 230 -11 -8
 
Diversified Brands
Cozaar / Hyzaar 336 337 295 315 1,284 426 406 404 427 1,663 -26 -23
Propecia 108 100 104 112 424 106 112 112 117 447 -4 -5
Zocor 103 96 86 98 383 127 107 110 111 456 -12 -16
Claritin Rx 87 48 47 63 244 120 65 55 74 314 -15 -22
Remeron 57 66 52 57 232 60 57 65 59 241 -4 -4
Proscar 51 55 55 56 217 60 53 58 52 223 7 -3
Vasotec / Vaseretic 53 49 42 48 192 57 59 57 58 231 -17 -17
 
Vaccines
Gardasil 284 324 581 442 1,631 214 277 445 274 1,209 61 35
ProQuad, M-M-R II and Varivax 255 316 396 306 1,273 244 291 391 276 1,202 11 6
Zostavax 76 148 202 225 651 24 122 108 78 332 * 96
RotaTeq 142 142 150 168 601 125 148 184 195 651 -14 -8
Pneumovax 112 101 160 208 580 79 64 133 222 498 -7 17
 
Other Pharmaceutical (2) 1,013 985 1,023 1,113 4,141 892 1,064 1,015 1,064 4,035 5 3
 
 
ANIMAL HEALTH 821 865 815 898 3,399 758 802 826 868 3,253 3 4
 
CONSUMER CARE 554 552 451 395 1,952 517 541 421 361 1,840 9 6
Claritin OTC 169 145 118 100 532 167 134 118 92 511 9 4
 
Other Revenues (3) 274 333 347 360 1,315 486 448 421 310 1,666 16 -21
Astra 186   223   255   251   915 322   306   299   256   1,184 -2   -23
 
* 100% or greater
Sum of quarterly amounts may not equal year-to-date amounts due to rounding.
(1) Only select products are shown.
(2) Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $60 million, $75 million, $116 million, and $69 million for the first, second, third, and fourth quarters of 2012, respectively. Other Vaccines sales included in Other Pharmaceutical were $54 million, $67 million, $100 million and $62 million for the first, second, third and fourth quarters of 2011, respectively.
(3) Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales.

Merck
Media Contacts:
Ron Rogers, 908-423-6449
Steve Cragle, 908-423-3461
or
Investor Contacts:
Carol Ferguson, 908-423-4465
Justin Holko, 908-423-5088

 

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