UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORTPursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 2, 2018
Merck & Co., Inc.(Exact Name of Registrant as Specified in Its Charter)
New Jersey
(State or Other Jurisdiction of Incorporation)
1-6571
22-1918501(Commission File Number)
(I.R.S. Employer Identification No.)
2000 Galloping Hill Road, Kenilworth, NJ
07033(Address of Principal Executive Offices)
(Zip Code)
Registrant’s Telephone Number, Including Area Code (908) 740-4000
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the followingprovisions: o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) orRule 12b-2 of the Securities Exchange Act of 1934 (§204.12b-2 of this chapter) o Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02. Results of Operations and Financial Condition . The following information, including the exhibits hereto, is being furnished pursuant to this Item 2.02. Incorporated by reference is a press release issued by the Registrant on February 2, 2018, regarding earnings for the fourth quarter and full year of 2017, attached asExhibit 99.1. Also incorporated by reference is certain supplemental information not included in the press release, attached as Exhibit 99.2. This information shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), orotherwise subject to the liabilities of that Section, and is not incorporated by reference in any filing under the Securities Act of 1933, as amended, or the ExchangeAct, except as expressly set forth by specific reference in such filing. Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit 99.1 Press release issued February 2, 2018, regarding earnings for the fourth quarter and full year of 2017
Exhibit 99.2 Certain supplemental information not included in the press release
2
EXHIBIT INDEX
Exhibit
Number
Description 99.1
Press release issued February 2, 2018, regarding earnings for the fourth quarter and full year of 2017 99.2
Certain supplemental information not included in the press release
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized. Merck & Co., Inc.
Date: February 2, 2018 By: /s/ Karen L. Mealey
KAREN L. MEALEY
Assistant Secretary
4
Exhibit 99.1
News Release FOR IMMEDIATE RELEASE Media Contacts: Tracy Ogden Investor Contacts: Teri Loxam
(908) 740-1747
(908) 740-1986
Claire Gillespie
Amy Klug(267) 305-0932
(908) 740-1898
Merck Announces Fourth-Quarter and Full-Year 2017 Financial Results · Fourth-Quarter 2017 Worldwide Sales Were $10.4 Billion, an Increase of 3 Percent, Including a 1 Percent Positive Impact from Foreign Exchange; Full-Year
2017 Worldwide Sales Were $40.1 Billion, an Increase of 1 Percent · Fourth-Quarter 2017 GAAP EPS Was $(0.32), Reflecting a $2.6 Billion Provisional Charge Related to U.S. Tax Legislation; Fourth-Quarter Non-GAAP EPS
Was $0.98 · Full-Year 2017 GAAP EPS Was $0.93, Reflecting a $2.6 Billion Provisional Charge Related to U.S. Tax Legislation and a $2.35 Billion Charge Related to
the Formation of a Strategic Oncology Collaboration With AstraZeneca; Full-Year Non-GAAP EPS Was $3.98 · 2018 Financial Outlook
· Anticipates Full-Year 2018 Worldwide Sales to Be Between $41.2 Billion and $42.7 Billion, Including an Approximately 1 Percent Positive Impact fromForeign Exchange
· Expects Full-Year 2018 GAAP EPS to Be Between $2.97 and $3.12; Expects Non-GAAP EPS to Be Between $4.08 and $4.23, Including an
Approximately 1 Percent Negative Impact from Foreign Exchange · KEYTRUDA Significantly Improved Overall Survival and Progression-Free Survival as First-Line Treatment in Combination with Pemetrexed and Platinum
Chemotherapy for Patients With Metastatic Non-squamous Non-Small Cell Lung Cancer in KEYNOTE-189 Study KENILWORTH, N.J., Feb. 2, 2018 — Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for thefourth quarter and full year of 2017.
“Our 2017 results reflect the underlying strength of our business and our ability to grow, despite significant headwinds,” said Kenneth C. Frazier,chairman and chief executive officer, Merck. “We enter 2018 with strong operating momentum, based on our key pillars of growth that will enable us to deliver onour mission of improving patients’ lives.”
Financial Summary
Fourth Quarter
Year Ended
$ in millions, except EPS amounts
2017
2016
Dec. 31, 2017
Dec. 31, 2016
Sales
$ 10,433
$ 10,115
$ 40,122
$ 39,807
GAAP net (loss) income
(872) (594) 2,568
3,920
Non-GAAP net income that excludes certain items *
2,665
2,470
10,933
10,538
GAAP EPS
(0.32) (0.22) 0.93
1.41
Non-GAAP EPS that excludes certain items *
0.98
0.89
3.98
3.78
*Refer to table on page 10.
Worldwide sales were $10.4 billion for the fourth quarter of 2017, an increase of 3 percent compared with the fourth quarter of 2016, including a 1 percent
positive impact from foreign exchange. Full-year 2017 worldwide sales were $40.1 billion, an increase of 1 percent compared with the full year of 2016.
Sales in the fourth quarter and full year of 2017 reflect incremental sales of approximately $140 million and $400 million, respectively, due to therecording of vaccine sales from 19 European countries that were part of the Sanofi Pasteur MSD (SPMSD) vaccines joint venture, which was terminated onDec. 31, 2016.
In addition, sales in the fourth quarter of 2017 include approximately $115 million for the partial replenishment of doses of GARDASIL 9 (HumanPapillomavirus 9-valent Vaccine, Recombinant), a vaccine to prevent certain cancers and other diseases caused by HPV, that were borrowed from the U.S. Centersfor Disease Control and Prevention (CDC) Pediatric Vaccine Stockpile in the third quarter. The effect of the borrowing and subsequent partial replenishmentresulted in a net reduction in sales of $125 million for the full year of 2017.
Sales in the fourth quarter of 2017 compared with the fourth quarter of 2016 also reflect a favorable impact of approximately $150 million due to thetiming of shipments in Japan in the prior year.
As expected, revenue in the fourth quarter and full year of 2017 was unfavorably affected by approximately $125 million and $260 million, respectively,from lost sales in certain markets related to the cyber-attack that occurred in June.
GAAP (generally accepted accounting principles) earnings (loss) per share assuming dilution (EPS) were $(0.32) for the fourth quarter and $0.93 for thefull year of 2017, which reflect the impact of recently enacted U.S. tax legislation and for the full year also reflect a
Net (loss) income attributable to Merck & Co., Inc. 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 onthe analysis of underlying business performance and trends. Management believes that providing this information enhances investors’ understanding of thecompany’s results and permits investors to understand how management assesses performance. Management uses these measures internally for planning andforecasting purposes and to measure the performance of the company along with other metrics. Senior management’s annual compensation is derived in partusing non-GAAP income and non-GAAP EPS. This information should be considered in addition to, but not as a substitute for or superior to, informationprepared in accordance with GAAP. For a description of the items, see Tables 2a and 2b attached to this release.
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1
1,2
2
1
2
charge related to the formation of a strategic oncology collaboration with AstraZeneca. Non-GAAP EPS of $0.98 for the fourth quarter and $3.98 for the full yearof 2017 excludes acquisition- and divestiture-related costs, restructuring costs, a $2.6 billion provisional charge related to the U.S. tax legislation and certain otheritems. Non-GAAP EPS for the full year of 2017 also excludes a $2.35 billion aggregate charge related to the formation of the collaboration with AstraZeneca. Pipeline Highlights
Merck expanded its focus in oncology by further advancing the development program for KEYTRUDA (pembrolizumab), an anti-PD-1 therapy, andLynparza (olaparib), a PARP inhibitor co-developed and co-commercialized with AstraZeneca, and receiving key regulatory approvals.
· Merck announced the pivotal Phase 3 KEYNOTE-189 trial investigating KEYTRUDA in combination with pemetrexed (Alimta) and cisplatin orcarboplatin, for the first-line treatment of patients with metastatic non-squamous non-small cell lung cancer (NSCLC), met its dual primary endpoints ofoverall survival (OS) and progression-free survival (PFS). Based on an interim analysis conducted by the independent Data Monitoring Committee,treatment with KEYTRUDA in combination with pemetrexed plus platinum chemotherapy resulted in significantly longer OS and PFS than pemetrexedplus platinum chemotherapy alone. Results from the trial will be presented at an upcoming medical meeting and submitted to regulatory authorities.KEYTRUDA, in combination with pemetrexed and platinum chemotherapy, is the first immuno-oncology combination to show improved OS for the first-line treatment of patients with metastatic non-squamous NSCLC.
· The Japanese Ministry of Health, Labour and Welfare approved KEYTRUDA for the treatment of patients with radically unresectable urothelial
carcinoma who progressed after cancer chemotherapy.
· The company announced the pivotal Phase 3 KEYNOTE-061 trial investigating KEYTRUDA as a second-line treatment for patients with advancedgastric or gastroesophageal junction adenocarcinoma did not meet its primary endpoint of overall survival in patients whose tumors expressed PD-L1.
· The company and The European Organisation for Research and Treatment of Cancer (EORTC) announced the Phase 3 EORTC1325/KEYNOTE-054
trial investigating KEYTRUDA as monotherapy for surgically resected high-risk melanoma met the primary endpoint of recurrence-free survival and,based on an interim analysis and following review by the Independent Data Monitoring Committee, resulted in significantly longer recurrence-freesurvival than placebo.
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· The U.S. Food and Drug Administration (FDA) accepted for review the supplemental Biologics License Application (sBLA) for KEYTRUDA for the
treatment of adult and pediatric patients with refractory primary mediastinal B-cell lymphoma, or who have relapsed after two or more prior lines oftherapy. The FDA granted Priority Review status with a PDUFA date of April 3, 2018, and previously granted Breakthrough Therapy Designation toKEYTRUDA in January 2017 for this indication.
· The FDA granted Breakthrough Therapy Designation for KEYTRUDA in combination with Eisai’s multiple receptor tyrosine kinase inhibitor Lenvima
(lenvatinib) for the potential treatment of patients with advanced and/or metastatic renal cell carcinoma, which is being jointly developed as part of acollaboration between Merck and Esai. This marks the 12 Breakthrough Therapy Designation granted to KEYTRUDA.
· The FDA approved Lynparza for use in patients with germline BRCA-mutated, HER2-negative metastatic breast cancer who have been previously treated
with chemotherapy either in the neoadjuvant, adjuvant or metastatic settings. Lynparza is the first PARP inhibitor approved for breast cancer. Asupplemental New Drug Application (NDA) was submitted to Japan’s Pharmaceuticals and Medical Devices Agency for the same use.
· The Japanese Ministry of Health, Labour and Welfare approved Lynparza for use as a maintenance therapy for patients with platinum-sensitive relapsed
ovarian cancer, regardless of their BRCA mutation status, who responded to their last platinum-based chemotherapy. Lynparza is the first PARP inhibitorapproved in Japan.
Merck and Pfizer announced that the FDA approved STEGLATRO (ertugliflozin) tablets, an oral sodium-glucose cotransporter 2 (SGLT2) inhibitor, the
fixed-dose combination STEGLUJAN (ertugliflozin and sitagliptin) and the fixed-dose combination SEGLUROMET (ertugliflozin and metformin hydrochloride)to help improve glycemic control in adults with type 2 diabetes. Additionally, the Committee for Medicinal Products for Human Use of the European MedicinesAgency adopted a positive opinion for these medicines.
The FDA and European Commission approved PREVYMIS (letermovir), once-daily tablets for oral use and injection for intravenous infusion, indicatedfor prevention of cytomegalovirus (CMV) infection and disease in adult CMV-seropositive recipients of an allogeneic hematopoietic stem cell transplant.
The FDA accepted for review two NDAs for doravirine, the company’s investigational non-nucleoside reverse transcriptase inhibitor, for the treatment ofHIV-1 infection in adults. The NDAs include data for doravirine as a once-daily tablet for use in combination with other antiretroviral agents and for use ofdoravirine with lamivudine and tenofovir disoproxil fumarate
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in a once-daily fixed-dose combination single tablet as a complete regimen. The PDUFA date for both applications is Oct. 23, 2018.
The FDA approved ISENTRESS (raltegravir), the company’s integrase inhibitor, for use in combination with other antiretroviral agents for the treatmentof HIV-1 in newborn patients from birth to four weeks of age weighing at least 2 kg. Fourth-Quarter and Full-Year Revenue Performance
The following table reflects sales of the company’s top pharmaceutical products, as well as total sales of animal health products.
Fourth Quarter
Year Ended
$ in millions
2017
2016
Change
Change Ex-Exchange
Dec. 31, 2017
Dec. 31, 2016
Change
Change Ex-Exchange
Total Sales
$ 10,433
$ 10,115
3% 2% $ 40,122
$ 39,807
1% 1%Pharmaceutical
9,290
8,904
4% 3% 35,390
35,151
1% 1%JANUVIA / JANUMET
1,524
1,509
1% 0% 5,896
6,109
-3% -4%KEYTRUDA
1,297
483
169% 166% 3,809
1,402
172% 171%GARDASIL / GARDASIL 9
633
542
17% 15% 2,308
2,173
6% 6%ZETIA / VYTORIN
509
873
-42% -44% 2,095
3,701
-43% -44%PROQUAD, M-M-R II andVARIVAX
403
405
0% -1% 1,676
1,640
2% 2%ISENTRESS / ISENTRESS HD
308
337
-9% -11% 1,204
1,387
-13% -14%ZEPATIER
296
229
29% 27% 1,660
555
199% 199%PNEUMOVAX 23
263
238
11% 11% 821
641
28% 29%SIMPONI
217
186
17% 10% 819
766
7% 6%BRIDION
209
139
50% 49% 704
482
46% 46%Animal Health
981
884
11% 8% 3,875
3,478
11% 11%Other Revenues
162
327
-51% -27% 857
1,178
-27% -13% Pharmaceutical Revenue
Fourth-quarter pharmaceutical sales increased 4 percent to $9.3 billion, including a 1 percent positive impact from foreign exchange. The increase wasdriven primarily by significant growth of KEYTRUDA, reflecting the company’s continued launches with new indications globally. Strong momentum for thetreatment of patients with NSCLC contributed significantly to KEYTRUDA’s overall growth, as it is the only anti-PD-1 approved in the first-line setting.
Sales of GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant] and GARDASIL 9, vaccines to preventcertain cancers and other diseases caused by HPV, increased in the fourth quarter driven primarily by the commercial launch in China and growth in Europe due tothe termination of the SPMSD joint venture noted above, partially offset by lower sales in the United States. The decline in U.S. sales reflects the timing of publicsector purchasing that was largely offset by the partial replenishment of borrowed doses into the CDC stockpile noted above.
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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, also contributed to growth in the quarter driven by strong global demand.
Pharmaceutical sales also reflect higher sales of ZEPATIER (elbasvir and grazoprevir), a medicine for the treatment of chronic hepatitis C virus genotypes1 or 4 infection, due to ongoing launches across Europe and Asia Pacific. The company anticipates that future sales of ZEPATIER will be unfavorably affected byincreasing competition and declining patient volumes.
Performance of JANUVIA (sitagliptin) and JANUMET (sitagliptin and metformin HCI), medicines that help lower blood sugar in adults with type 2diabetes, reflects pricing pressure offset by continued volume growth globally.
Sales growth for the quarter was partially offset by impacts from 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; biosimilar competition for REMICADE (infliximab), a treatment for inflammatorydiseases, in the company’s marketing territories in Europe; and the 2017 loss of exclusivity for CANCIDAS (caspofungin acetate for injection), an antifungal, inEurope. In the aggregate, sales of these products declined approximately $500 million during the fourth quarter of 2017 compared to the fourth quarter of 2016.
Sales of ZOSTAVAX (zoster vaccine live), a vaccine for the prevention of herpes zoster, declined significantly in the quarter, primarily due to theapproval of a competitor product that received a preferential recommendation from the U.S. Advisory Committee on Immunization Practices on Oct. 25, 2017. Thecompany anticipates that future sales of ZOSTAVAX will be unfavorably affected by this competition.
Full-year 2017 pharmaceutical sales increased 1 percent to $35.4 billion. Growth was driven by the ongoing global launches of KEYTRUDA, ZEPATIERand BRIDION. In the aggregate, sales of these products increased $3.7 billion in 2017 compared to 2016. These increases were mostly offset by sales declines ofthe products affected by loss of exclusivity as described above for the quarter, as well as CUBICIN (daptomycin for injection), an I.V. antibiotic, SINGULAIR(montelukast sodium), a once-a-day oral medicine for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis, NASONEX (mometasonefuroate monohydrate), an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms, and other products which together totaled $3.3 billion.Additionally, sales growth was offset by declines in the diabetes franchise due to pricing pressure partially offset by continued volume growth globally.
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Animal Health Revenue
Animal Health sales totaled $981 million for the fourth quarter of 2017, an increase of 11 percent compared with the fourth quarter of 2016, including a 3percent positive impact from foreign exchange. Worldwide sales for the full year of 2017 were $3.9 billion, also an increase of 11 percent. Growth in both periodswas driven by sales increases in companion animal products, primarily the BRAVECTO (fluralaner) line of products that kill fleas and ticks in dogs and cats for upto 12 weeks, and companion animal vaccines. Additionally, higher sales of ruminants products, swine products and poultry products all contributed to growth. Fourth-Quarter and Full-Year Expense, EPS and Related Information
The tables below present selected expense information.
$ in millions
GAAP
Acquisition- and Divestiture-
Related Costs
Restructuring Costs
Certain Other Items
Non-GAAP
Fourth-Quarter 2017
Materials and production
$ 3,406
$ 737
$ 17
$ —
$ 2,652
Marketing and administrative
2,580
4
(1) —
2,577
Research and development
2,055
(5) —
—
2,060
Restructuring costs
306
—
306
—
—
Other (income) expense, net
(19) 1
—
(7) (13) Fourth-Quarter 2016
Materials and production
$ 3,332
$ 756
$ 32
$ —
$ 2,544
Marketing and administrative
2,593
22
4
—
2,567
Research and development
4,650
2,897
9
—
1,744
Restructuring costs
265
—
265
—
—
Other (income) expense, net
631
35
—
564
32
$ in millions
GAAP
Acquisition- and Divestiture-
Related Costs
Restructuring Costs
Certain Other Items
Non-GAAP
Year Ended Dec. 31, 2017
Materials and production
$ 12,775
$ 3,187
$ 138
$ —
$ 9,450
Marketing and administrative
9,830
44
2
—
9,784
Research and development
9,982
284
11
2,350
7,337
Restructuring costs
776
—
776
—
—
Other (income) expense, net
12
19
—
(16) 9
Year Ended Dec. 31, 2016
Materials and production
$ 13,891
$ 4,035
$ 181
$ —
$ 9,675
Marketing and administrative
9,762
78
95
—
9,589
Research and development
10,124
3,152
142
—
6,830
Restructuring costs
651
—
651
—
—
Other (income) expense, net
720
47
—
558
115
Includes expenses for the amortization of intangible assets and purchase accounting adjustments to inventories recognized as a result of acquisitions, intangibleasset impairment charges and expense or income related to changes in the estimated fair value measurement of contingent consideration. Also includesintegration, transaction and certain other costs related to business acquisitions and divestitures.
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3 2
3 2
3
GAAP Expense, EPS and Related Information
Gross margin was 67.4 percent for the fourth quarter of 2017 compared to 67.1 percent for the fourth quarter of 2016. The gross margin was 68.2 percentfor the full year of 2017 compared to 65.1 percent for the full year of 2016. The increase in gross margin for the full year of 2017 was primarily driven by loweracquisition- and divestiture-related costs and restructuring costs which negatively affected gross margin by 8.2 percentage points in the full year of 2017 comparedwith 10.6 percentage points for the full year of 2016. In addition, gross margin was impacted by the favorable effects of product mix partially offset by costs relatedto the cyber-attack.
Marketing and administrative expenses were $2.6 billion in the fourth quarter of 2017, a 1 percent decrease compared to the fourth quarter of 2016. Thedecrease primarily reflects lower acquisition- and divestiture-related costs. Full-year 2017 marketing and administrative expenses were $9.8 billion, a 1 percentincrease compared to the full year of 2016. The increase reflects higher administrative costs, including costs associated with the company now operating itsEuropean vaccines business in the countries that were previously part of the SPMSD vaccines joint venture, remediation costs related to the cyber-attack and higherpromotion expenses related to product launches, partially offset by lower restructuring costs and acquisition- and divestiture-related costs.
Research and development (R&D) expenses were $2.1 billion in the fourth quarter of 2017 compared with $4.7 billion in the fourth quarter of 2016. Thedecline was driven primarily by lower in-process research and development (IPR&D) impairment charges, partially offset by higher expenses related to businessdevelopment transactions, clinical development spending and investment in early drug development. R&D expenses were $10.0 billion for the full year of 2017, a 1percent decrease compared to the full year of 2016. The decline reflects lower IPR&D impairment charges and restructuring costs. These were offset by a $2.35billion aggregate charge recorded in 2017 related to the formation of the collaboration with AstraZeneca, as well as a reduction in prior year expenses related to adecrease in the estimated fair value measurement of liabilities for contingent consideration and higher clinical development spending.
Other (income) expense, net, was $19 million of income in the fourth quarter of 2017 compared to $631 million of expense in the fourth quarter of 2016and was $12 million of expense for the full year of 2017 compared to $720 million of expense for the full year of 2016. Other (income) expense, net, in 2017reflects the favorable impacts of foreign exchange and gains on sales of securities, partially offset by a loss on the extinguishment of debt. Other (income) expense,net, for the fourth quarter and full year of 2016 includes a $625 million charge to settle worldwide KEYTRUDA patent litigation.
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The effective income tax rates of 141.0 percent for the fourth quarter and 61.6 percent for full year of 2017 include the unfavorable impact of a $2.6
billion provisional charge related to U.S. tax legislation. The provisional tax charge includes a one-time repatriation transition tax of approximately $5.0 billion,which will be paid over eight years. The transition tax was partially offset by adjustments to deferred tax liabilities, including taxes previously provided on foreignearnings and remeasurement of net U.S. deferred tax liabilities. The provisional tax charge may change in 2018 based on further analysis and regulatoryguidance. In addition, the effective income tax rate for the full year of 2017 reflects the unfavorable impact of a $2.35 billion aggregate charge related to theformation of the collaboration with AstraZeneca for which no tax benefit has been recognized, partially offset by the favorable impact of a net tax benefit of $234million related to the settlement of certain federal income tax issues.
GAAP EPS was $(0.32) for the fourth quarter of 2017 compared with $(0.22) for the fourth quarter of 2016. GAAP EPS was $0.93 for the full year of2017 compared with $1.41 for the full year of 2016. Non-GAAP Expense, EPS and Related Information
The non-GAAP gross margin was 74.6 percent for the fourth quarter of 2017, compared to 74.8 percent for the fourth quarter of 2016. The non-GAAPgross margin was 76.4 percent for the full year of 2017 compared to 75.7 percent for the full year of 2016. The increase in non-GAAP gross margin for the full yearof 2017 reflects the favorable effects of product mix partially offset by costs related to the cyber-attack.
Non-GAAP marketing and administrative expenses were $2.6 billion in the fourth quarter of 2017, comparable to the fourth quarter of 2016. Non-GAAPmarketing and administrative expenses were $9.8 billion for the full year of 2017, a 2 percent increase compared to the full year of 2016. The increase reflectshigher administrative costs, including costs associated with the company now operating its European vaccines business in the countries that were previously part ofthe SPMSD vaccines joint venture, higher promotion costs related to product launches and remediation costs related to the cyber-attack.
Non-GAAP R&D expenses were $2.1 billion in the fourth quarter of 2017, an 18 percent increase compared to the fourth quarter of 2016. The increasereflects higher expenses related to business development transactions, clinical development spending and investment in early drug development. Non-GAAP R&Dexpenses were $7.3 billion for the full year of 2017, a 7 percent increase compared to the full year of 2016, reflecting increased clinical development spending.
Non-GAAP other (income) expense, net, was $13 million of income in the fourth quarter of 2017 compared to $32 million of expense in the fourth quarterof 2016. Non-GAAP other
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(income) expense, net, for the full year of 2017 was $9 million of expense compared to $115 million of expense for the full year of 2016. Non-GAAP other(income) expense, net, in 2017 reflects the favorable impact of foreign exchange and realized gains on sales of equity securities, partially offset by a loss onextinguishment of debt.
The non-GAAP effective income tax rate for the fourth quarter of 2017 was 15.3 percent compared with 23.3 percent for the fourth quarter of 2016 andwas 19.1 percent for the full year of 2017 compared with 22.3 percent for the full year of 2016.
Non-GAAP EPS was $0.98 for the fourth quarter of 2017 compared with $0.89 for the fourth quarter of 2016. Non-GAAP EPS was $3.98 for the full yearof 2017 compared with $3.78 for the full year of 2016.
A reconciliation of GAAP to non-GAAP net income and EPS is provided in the table that follows.
Fourth Quarter
Year Ended
$ in millions, except EPS amounts
2017
2016
Dec. 31, 2017
Dec. 31, 2016
EPS
GAAP EPS
$ (0.32) $ (0.22) $ 0.93
$ 1.41
Difference
1.30
1.11
3.05
2.37
Non-GAAP EPS that excludes items listed below
$ 0.98
$ 0.89
$ 3.98
$ 3.78
Net Income
GAAP net (loss) income
$ (872) $ (594) $ 2,568
$ 3,920
Difference
3,537
3,064
8,365
6,618
Non-GAAP net income that excludes items listed below
$ 2,665
$ 2,470
$ 10,933
$ 10,538
Decrease (Increase) in Net Income Due to Excluded Items:
Acquisition- and divestiture-related costs
$ 737
$ 3,710
$ 3,534
$ 7,312
Restructuring costs
322
310
927
1,069
Aggregate charge related to the formation of a collaborationwith AstraZeneca
—
—
2,350
—
Charge to settle worldwide KEYTRUDA patent litigation
—
625
—
625
Other
(7) (61) (16) (67)Net decrease (increase) in income before taxes
1,052
4,584
6,795
8,939
Income tax (benefit) expense
2,485
(1,520) 1,570
(2,321)Decrease (increase) in net income
$ 3,537
$ 3,064
$ 8,365
$ 6,618
Financial Outlook
At mid-January 2018 exchange rates, Merck anticipates full-year 2018 revenue to be between $41.2 billion and $42.7 billion , including an approximately1 percent positive impact from foreign exchange.
Represents the difference between calculated GAAP EPS and calculated non-GAAP EPS, which may be different than the amount calculated by dividing theimpact of the excluded items by the weighted-average shares for the period.
Includes the estimated tax impact on the reconciling items. In addition, amounts for fourth-quarter and full-year 2017 include a $2.6 billion provisional chargerelated to U.S. tax legislation. Amount for full year 2017 also includes a $234 million net benefit related to the settlement of certain federal income tax issues,as well as a benefit of $88 million related to the settlement of a state income tax issue.
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4
2
1
1,2
3
5
4
5
Merck expects its full-year 2018 GAAP EPS to be between $2.97 and $3.12. Merck expects its full-year 2018 non-GAAP EPS to be between $4.08 and
$4.23, including an approximately 1 percent negative impact from foreign exchange. The non-GAAP range excludes acquisition- and divestiture-related costs andcosts related to restructuring programs.
The following table summarizes the company’s full year 2018 financial guidance.
GAAP
Non-GAAP
Revenue
$41.2 to $42.7 billion
$41.2 to $42.7 billion**
Operating expenses
Lower than 2017 by a high-single digit rate
Higher than 2017 by a low- to mid-single digit rate
Effective tax rate
19.0% to 20.0%
19.0% to 20.0%
EPS
$2.97 to $3.12
$4.08 to $4.23
**The company does not have any non-GAAP adjustments to revenue.
The guidance for both GAAP and non-GAAP operating expenses reflects the adoption of new accounting guidance on Jan. 1, 2018, related to defined
benefit plans that requires a retroactive reclassification of certain components of net benefit cost/credit within the consolidated statement of income. There is noimpact to net income as a result of adopting the new guidance. See supplemental information on the Investors section of Merck’s website(http://investors.merck.com) for additional details on the 2017 reclassification.
A reconciliation of anticipated 2018 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 2018
GAAP EPS
$ 2.97 to $3.12
Difference
1 .11
Non-GAAP EPS that excludes items listed below
$4 .08 to $4.23
Acquisition- and divestiture-related costs
$3,200
Restructuring costs
500
Net decrease (increase) in income before taxes
3,700
Estimated income tax (benefit) expense
(715)Decrease (increase) in net income
$2,985
Capital Allocation
The recently enacted U.S. tax legislation improves Merck’s financial flexibility to invest in sustainable long-term value creating opportunities. In additionto the company’s ongoing investment in R&D, business development and continued support of the dividend, as well as share repurchases, the company also:
· Plans to invest approximately $12 billion over 5 years in capital projects including approximately $8 billion in the United States· Made a contribution to the Merck Foundation in the fourth quarter of 2017· Plans to provide a one-time, long-term incentive award for its eligible non-executive employees in the second quarter of 2018
Page 11
2
4
2
Total Employees
As of Dec. 31, 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. EST on Merck’s website athttp://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 9899537. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using IDcode number 9899537. 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 inventingfor life, bringing forward medicines and vaccines for many of the world’s most challenging diseases. Through our prescription medicines, vaccines, biologictherapies and animal health products, we work with customers and operate in more than 140 countries to deliver innovative health solutions. We also demonstrateour commitment to increasing access to health care through far-reaching policies, programs and partnerships. Today, Merck continues to be at the forefront ofresearch 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 uson Twitter, Facebook, YouTube and LinkedIn. Forward-Looking Statement of Merck & Co., Inc., Kenilworth, N.J., USA
This news release of Merck & Co., Inc., Kenilworth, N.J., USA (the “company”) includes “forward-looking statements” within the meaning of the safeharbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based upon the current beliefs and expectations of thecompany’s management and are subject to significant risks and uncertainties. There can be no guarantees with respect to pipeline products that the products willreceive the necessary regulatory approvals or that they will prove to be commercially successful. If underlying assumptions prove inaccurate or risks oruncertainties 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 andcurrency exchange rate
Page 12
fluctuations; the impact of pharmaceutical industry regulation and health care legislation in the United States and internationally; global trends toward health carecost containment; technological advances, new products and patents attained by competitors; challenges inherent in new product development, including obtainingregulatory approval; the company’s ability to accurately predict future market conditions; manufacturing difficulties or delays; financial instability of internationaleconomies and sovereign risk; dependence on the effectiveness of the company’s patents and other protections for innovative products; and the exposure tolitigation, 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 orotherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the company’s2016 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).
###
Page 13
MERCK & CO., INC.
CONSOLIDATED STATEMENT OF INCOME - GAAP(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)Table 1
GAAP
GAAP
4Q17
4Q16
% Change
Full Year 2017
Full Year 2016
% Change
Sales
$ 10,433
$ 10,115
3% $ 40,122
$ 39,807
1% Costs, Expenses and Other
Materials and production
3,406
3,332
2% 12,775
13,891
-8%Marketing and administrative
2,580
2,593
-1% 9,830
9,762
1%Research and development
2,055
4,650
-56% 9,982
10,124
-1%Restructuring costs
306
265
15% 776
651
19%Other (income) expense, net
(19) 631
*
12
720
-98%Income (Loss) Before Taxes
2,105
(1,356) *
6,747
4,659
45%Income Tax Provision (Benefit)
2,969
(769)
4,155
718
Net (Loss) Income
(864) (587) 47% 2,592
3,941
-34%Less: Net Income Attributable toNoncontrolling Interests
8
7
24
21
Net (Loss) Income Attributable to Merck &Co., Inc.
$ (872) $ (594) 47% $ 2,568
$ 3,920
-34%(Loss) Earnings per Common Share AssumingDilution
$ (0.32) $ (0.22) 45% $ 0.93
$ 1.41
-34% Average Shares Outstanding AssumingDilution
2,715
2,755
2,748
2,787
Tax Rate
141.0% 56.7%
61.6% 15.4%
* 100% or greater Amounts include the impact of acquisition and divestiture-related costs, restructuring costs and certain other items. See accompanying tables for details.
Research and development expenses for full year 2017 include a $2.35 billion aggregate charge recorded in conjunction with the formation of a collaboration
with AstraZeneca. Represents separation and other related costs associated with restructuring activities under the company’s formal restructuring programs.
Other (income) expense, net in the fourth quarter and full year of 2016 includes a $625 million charge to settle worldwide patent litigation related to
KEYTRUDA. Because the company recorded a net loss in the fourth quarter of 2017 and 2016, no potential dilutive common shares were used in the computation of loss per
common share assuming dilution as the effect would have been anti-dilutive. The effective income tax rates for the fourth quarter and full year of 2017 reflect the net unfavorable impact of a $2.6 billion provisional charge related to the
enactment of U.S. tax legislation. The effective income tax rate for the full year of 2017 also reflects the unfavorable impact of a $2.35 billion aggregate pretaxcharge recorded in conjunction with the formation of a collaboration with AstraZeneca for which no tax benefit has been recognized. Additionally, the effectiveincome tax rate for the full year of 2017 reflects the favorable impact of a net tax benefit of $234 million related to the settlement of certain federal income taxissues.
(1)
(1)
(1) (2)
(3)
(1) (4)
(1)
(5)
(5)
(6)
(1)
(2)
(3)
(4)
(5)
(6)
MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATIONFOURTH QUARTER 2017
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)(UNAUDITED)
Table 2a
GAAP
Acquisition and Divestiture-Related
Costs
Restructuring Costs
Certain Other Items
Adjustment Subtotal
Non-GAAP
Materials and production
$ 3,406
737
17
754
$ 2,652
Marketing and administrative
2,580
4
(1)
3
2,577
Research and development
2,055
(5) —
(5) 2,060
Restructuring costs
306
306
306
—
Other (income) expense, net
(19) 1
(7) (6) (13)Income Before Taxes
2,105
(737) (322) 7
(1,052) 3,157
Income Tax Provision (Benefit)
2,969
(88) (50) 2,623 2,485
484
Net (Loss) Income
(864) (649) (272) (2,616) (3,537) 2,673
Net (Loss) Income Attributable toMerck & Co., Inc.
(872) (649) (272) (2,616) (3,537) 2,665
(Loss) Earnings per Common ShareAssuming Dilution
$ (0.32) (0.24) (0.10) (0.96) (1.30) $ 0.98
Tax Rate
141.0%
15.3% 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 ofunderlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s results as itpermits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and tomeasure 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. Amounts included in materials and production costs primarily reflect expenses for the amortization of intangible assets recognized as a result of business
acquisitions. Amounts included in marketing and administrative expenses reflect integration, transaction and certain other costs related to business acquisitions anddivestitures. Amounts included in research and development expenses primarily reflect a reduction of expenses related to a decrease in the estimated fair valuemeasurement of liabilities for contingent consideration. Amounts included in other (income) expense, net reflect goodwill and intangible asset impairment chargesrelated to a business in the Healthcare Services segment, largely offset by royalty income in connection with the termination of the Sanofi-Pasteur MSD jointventure. 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. Represents the estimated tax impact on the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments.
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 $2.6 billion provisional charge related to the enactment of U.S. tax legislation.
(1) (2)
(3) (3) (4)
(1)
(2)
(3)
(4)
MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATIONFULL YEAR 2017
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)(UNAUDITED)
Table 2b
GAAP
Acquisition and Divestiture-Related
Costs
Restructuring Costs
Certain Other Items
Adjustment Subtotal
Non-GAAP
Materials and production
$ 12,775
3,187
138
3,325
$ 9,450
Marketing and administrative
9,830
44
2
46
9,784
Research and development
9,982
284
11
2,350
2,645
7,337
Restructuring costs
776
776
776
—
Other (income) expense, net
12
19
(16) 3
9
Income Before Taxes
6,747
(3,534) (927) (2,334) (6,795) 13,542
Income Tax Provision (Benefit)
4,155
(552) (182) 2,304 1,570
2,585
Net Income
2,592
(2,982) (745) (4,638) (8,365) 10,957
Net Income Attributable to Merck &Co., Inc.
2,568
(2,982) (745) (4,638) (8,365) 10,933
Earnings per Common ShareAssuming Dilution
$ 0.93
(1.09) (0.27) (1.69) (3.05) $ 3.98
Tax Rate
61.6%
19.1% 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 ofunderlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s results as itpermits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and tomeasure 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. Amounts included in materials and production costs primarily reflect $3.1 billion of expenses for the amortization of intangible assets recognized as a result of
business acquisitions, as well as $134 million of intangible asset impairment charges. Amounts included in marketing and administrative expenses reflectintegration, transaction and certain other costs related to business acquisitions and divestitures. Amounts included in research and development expenses reflect$257 million of in-process research and development (IPR&D) impairment charges and $27 million of expenses related to an increase in the estimated fair valuemeasurement of liabilities for contingent consideration. Amounts included in other (income) expense, net reflect goodwill and intangible asset impairment chargesrelated to a business in the Healthcare Services segment, as well as expenses related to changes in the estimated fair value measurement of liabilities for contingentconsideration, partially offset by royalty income in connection with the termination of the Sanofi-Pasteur MSD joint venture. 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. Amount included in research and development expenses represents an aggregate charge recorded in conjunction with the formation of a collaboration with
AstraZeneca. Represents the estimated tax impact on the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments.
Includes the estimated tax impact on the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments. Also
includes a $2.6 billion provisional charge related to the enactment of U.S. tax legislation, as well as a $234 million net tax benefit related to the settlement ofcertain federal income tax issues and an $88 million tax benefit related to the settlement of a state income tax issue.
(1) (2) (3)
(4) (4) (5)
(1)
(2)
(3)
(4)
(5)
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES(AMOUNTS IN MILLIONS)
Table 3
2017
2016
4Q
Full Year
1Q
2Q
3Q
4Q
Full Year
1Q
2Q
3Q
4Q
Full Year
Nom %
Ex-Exch %
Nom %
Ex-Exch %
TOTAL SALES
$ 9,434
$ 9,930
$ 10,325
$ 10,433
$ 40,122
$ 9,312
$ 9,844
$ 10,536
$ 10,115
$ 39,807
3
2
1
1
PHARMACEUTICAL
8,185
8,759
9,156
9,290
35,390
8,104
8,700
9,443
8,904
35,151
4
3
1
1
Primary Care and Women’sHealth
Cardiovascular
Zetia
334
367
320
323
1,344
612
702
671
575
2,560
-44
-45
-48
-47
Vytorin
241
182
142
186
751
277
293
273
299
1,141
-38
-41
-34
-35
Atozet
49
63
59
54
225
23
33
39
50
146
7
2
54
51
Adempas
84
67
70
79
300
33
40
48
49
169
63
60
78
77
Diabetes
Januvia
839
948
1,012
938
3,737
906
1,064
1,006
932
3,908
1
1
-4
-4
Janumet
496
563
513
586
2,158
506
569
548
577
2,201
2
-1
-2
-3
General Medicine & Women’sHealth
NuvaRing
160
199
214
188
761
175
200
195
207
777
-9
-10
-2
-3
Implanon / Nexplanon
170
178
155
183
686
134
164
148
160
606
14
13
13
13
Follistim AQ
81
79
72
66
298
94
73
101
87
355
-25
-27
-16
-16
Hospital and Specialty
Hepatitis
Zepatier
378
517
468
296
1,660
50
112
164
229
555
29
27
199
199
HIV
Isentress / Isentress HD
305
282
310
308
1,204
340
338
372
337
1,387
-9
-11
-13
-14
Hospital Acute Care
Bridion
148
163
185
209
704
90
113
139
139
482
50
49
46
46
Noxafil
141
155
162
179
636
145
143
147
161
595
11
8
7
7
Invanz
136
150
159
157
602
114
143
152
152
561
3
2
7
7
Cancidas
121
112
94
95
422
133
131
142
152
558
-37
-39
-24
-24
Cubicin
96
103
91
92
382
292
357
320
119
1,087
-22
-23
-65
-65
Primaxin
62
71
73
74
280
73
81
77
66
297
12
10
-6
-4
Immunology
Remicade
229
208
214
186
837
349
339
311
269
1,268
-31
-35
-34
-34
Simponi
184
199
219
217
819
188
199
193
186
766
17
10
7
6
Oncology
Keytruda
584
881
1,047
1,297
3,809
249
314
356
483
1,402
169
166
172
171
Emend
133
143
137
143
556
126
143
137
144
549
-1
-2
1
1
Temodar
66
65
68
73
271
66
73
78
67
283
10
11
-4
-4
Diversified Brands
Respiratory
Singulair
186
203
161
182
732
237
229
239
210
915
-13
-14
-20
-19
Nasonex
139
85
42
120
387
229
101
94
112
537
8
7
-28
-29
Dulera
82
69
59
77
287
113
121
97
105
436
-26
-27
-34
-34
Other
Cozaar / Hyzaar
112
119
128
125
484
126
132
131
121
511
3
2
-5
-4
Arcoxia
103
89
80
91
363
111
117
114
108
450
-16
-19
-19
-20
Fosamax
61
66
53
62
241
75
73
68
68
284
-9
-10
-15
-15
Vaccines
Gardasil / Gardasil 9
532
469
675
633
2,308
378
393
860
542
2,173
17
15
6
6
ProQuad / M-M-R II /Varivax
355
399
519
403
1,676
357
383
496
405
1,640
0
-1
2
2
Pneumovax 23
163
166
229
263
821
107
120
175
238
641
11
11
28
29
RotaTeq
224
123
179
160
686
188
130
171
162
652
-1
-2
5
5
Zostavax
154
160
234
121
668
125
149
190
221
685
-45
-46
-2
-3
Other Pharmaceutical
1,037
1,116
1,013
1,124
4,295
1,083
1,128
1,191
1,172
4,574
-4
-5
-6
-6
ANIMAL HEALTH
939
955
1,000
981
3,875
829
900
865
884
3,478
11
8
11
11
Other Revenues
310
216
169
162
857
379
244
228
327
1,178
-51
-27
-27
-13
* 200% or greater Sum of quarterly amounts may not equal year-to-date amounts due to rounding.
Only select products are shown.
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.
Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $88 million in the first quarter, $87 million in the second quarter, $89 million in the third quarter, and $123 million in the fourthquarter of 2017 and $103 million, $91 million, $135 million and $126 million for the first, second, third and fourth quarters of 2016, respectively.
Other Revenues are comprised primarily of alliance revenue, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities.
(1)
(2)
(3)
(4)
(1)
(2)
(3)
(4)
Exhibit 99.2
MERCK & CO., INC.CONSOLIDATED STATEMENT OF INCOME - GAAP
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)(UNAUDITED)
Table 1a
2017
2016
% Change
1Q
2Q
3Q
4Q
Full Year
1Q
2Q
3Q
4Q
Full Year
4Q
Full Year
Sales
$ 9,434
$ 9,930
$ 10,325
$ 10,433
$ 40,122
$ 9,312
$ 9,844
$ 10,536
$ 10,115
$ 39,807
3% 1% Costs, Expenses and Other
Materials and production
3,015
3,080
3,274
3,406
12,775
3,572
3,578
3,409
3,332
13,891
2% -8%Marketing and administrative
2,411
2,438
2,401
2,580
9,830
2,318
2,458
2,393
2,593
9,762
-1% 1%Research and development
1,796
1,749
4,383
2,055
9,982
1,659
2,151
1,664
4,650
10,124
-56% -1%Restructuring costs
151
166
153
306
776
91
134
161
265
651
15% 19%Other (income) expense, net
58
58
(86) (19) 12
48
19
22
631
720
*
-98%Income (Loss) Before Taxes
2,003
2,439
200
2,105
6,747
1,624
1,504
2,887
(1,356) 4,659
*
45%Income Tax Provision (Benefit)
447
488
251
2,969
4,155
494
295
699
(769) 718
Net Income (Loss)
1,556
1,951
(51) (864) 2,592
1,130
1,209
2,188
(587) 3,941
47% -34%Less: Net Income Attributable to Noncontrolling
Interests
5
5
5
8
24
5
4
4
7
21
Net Income (Loss) Attributable to Merck & Co., Inc.
$ 1,551
$ 1,946
$ (56) $ (872) $ 2,568
$ 1,125
$ 1,205
$ 2,184
$ (594) $ 3,920
47% -34%Earnings (Loss) per Common Share Assuming
Dilution
$ 0.56
$ 0.71
$ (0.02) $ (0.32) $ 0.93
$ 0.40
$ 0.43
$ 0.78
$ (0.22) $ 1.41
45% -34% Average Shares Outstanding Assuming Dilution
2,766
2,752
2,727
2,715
2,748
2,795
2,789
2,786
2,755
2,787
Tax Rate
22.3% 20.0% 125.5% 141.0% 61.6% 30.4% 19.6% 24.2% 56.7% 15.4%
* 100% or greater Sum of quarterly amounts may not equal year-to-date amounts due to rounding. Because the company recorded a net loss in the third and fourth quarter of 2017 and fourth quarter of 2016, no potential dilutive common shares were used in the computations of loss per common share assuming dilution as the effects
would have been anti-dilutive.
(1)
(1)
(1)
MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION FOURTH QUARTER 2016
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES) (UNAUDITED)
Table 2c
Acquisition and
Divestiture-Related
Restructuring
Certain Other
Adjustment
GAAP
Costs
Costs
Items
Subtotal
Non-GAAP
Materials and production
$ 3,332
756
32
788
$ 2,544
Marketing and administrative
2,593
22
4
26
2,567
Research and development
4,650
2,897
9
2,906
1,744
Restructuring costs
265
265
265
—
Other (income) expense, net
631
35
564
599
32
(Loss) Income Before Taxes
(1,356) (3,710) (310) (564) (4,584) 3,228
Income Tax (Benefit) Provision
(769) (1,303) (60) (157) (1,520) 751
Net (Loss) Income
(587) (2,407) (250) (407) (3,064) 2,477
Net (Loss) Income Attributable toMerck & Co., Inc.
(594) (2,407) (250) (407) (3,064) 2,470
(Loss) Earnings per Common ShareAssuming Dilution
$ (0.22) (0.87) (0.09) (0.15) (1.11) $ 0.89
Tax Rate
56.7%
23.3% 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 ofunderlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s results andpermits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and tomeasure 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.
Amounts included in materials and production costs reflect expenses for the amortization of intangible assets recognized as a result of business acquisitions.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 $3.3 billion of in-process research and development (IPR&D) impairment charges, partially offsetby a reduction of expenses of $432 million related to a decrease in the estimated fair value measurement of liabilities for contingent consideration. Amountincluded in other (income) expense, net represents a goodwill impairment charge related to a business within the Healthcare Services segment.
Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to activities underthe company’s formal restructuring programs.
Primarily reflects a $625 million charge to settle worldwide patent litigation related to KEYTRUDA.
Represents the estimated tax impact on the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments.
(1) (2) (3)
(4) (4) (4)
(1)
(2)
(3)
(4)
MERCK & CO., INC.
GAAP TO NON-GAAP RECONCILIATION FULL YEAR 2016
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES) (UNAUDITED)
Table 2d
Acquisition and
Divestiture-Related
Restructuring
Certain Other
Adjustment
GAAP
Costs
Costs
Items
Subtotal
Non-GAAP
Materials and production
$ 13,891
4,035
181
4,216
$ 9,675
Marketing and administrative
9,762
78
95
173
9,589
Research and development
10,124
3,152
142
3,294
6,830
Restructuring costs
651
651
651
—
Other (income) expense, net
720
47
558
605
115
Income Before Taxes
4,659
(7,312) (1,069) (558) (8,939) 13,598
Income Tax Provision (Benefit)
718
(1,936) (229) (156) (2,321) 3,039
Net Income
3,941
(5,376) (840) (402) (6,618) 10,559
Net Income Attributable to Merck &Co., Inc.
3,920
(5,376) (840) (402) (6,618) 10,538
Earnings per Common ShareAssuming Dilution
$ 1.41
(1.93) (0.30) (0.14) (2.37) $ 3.78
Tax Rate
15.4%
22.3% 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 ofunderlying business performance and trends. Management believes that providing this information enhances investors’ understanding of the company’s results andpermits investors to understand how management assesses performance. Management uses these measures internally for planning and forecasting purposes and tomeasure 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.
Amounts included in materials and production costs primarily reflect $3.7 billion of expenses for the amortization of intangible assets recognized as a result ofbusiness acquisitions, as well as $347 million of intangible asset impairment charges. Amounts included in marketing and administrative expenses reflectintegration, transaction and certain other costs related to business acquisitions and divestitures. Amounts included in research and development expenses reflect$3.6 billion of in-process research and development (IPR&D) impairment charges, partially offset by a reduction of expenses of $402 million related to a decreasein the estimated fair value measurement of liabilities for contingent consideration. Amounts included in other (income) expense, net represent goodwill impairmentcharges related to businesses within the Healthcare Services segment.
Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to activities underthe company’s formal restructuring programs.
Primarily reflects a $625 million charge to settle worldwide patent litigation related to KEYTRUDA.
Represents the estimated tax impact on the reconciling items based on applying the statutory rate of the originating territory of the non-GAAP adjustments.
(1) (2) (3)
(4) (4) (4)
(1)
(2)
(3)
(4)
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES FOURTH QUARTER 2017
(AMOUNTS IN MILLIONS) Table 3a
Global
U.S.
International
4Q 2017
4Q 2016
% Change
4Q 2017
4Q 2016
% Change
4Q 2017
4Q 2016
% Change
TOTAL SALES
$ 10,433
$ 10,115
3
$ 4,328
$ 4,686
-8
$ 6,105
$ 5,429
12
PHARMACEUTICAL
9,290
8,904
4
3,967
4,282
-7
5,323
4,622
15
Primary Care and Women’sHealth
Cardiovascular
Zetia
323
575
-44
54
335
-84
269
240
12
Vytorin
186
299
-38
11
132
-92
176
167
5
Atozet
54
50
7
1
-97
54
49
9
Adempas
79
49
63
79
49
63
Diabetes
Januvia
938
932
1
508
538
-6
430
394
9
Janumet
586
577
2
223
259
-14
363
318
14
General Medicine & Women’sHealth
NuvaRing
188
207
-9
139
155
-10
49
52
-6
Implanon / Nexplanon
183
160
14
129
112
15
54
48
12
Follistim AQ
66
87
-25
19
36
-48
47
51
-9
Hospital and Specialty
Hepatitis
Zepatier
296
229
29
88
180
-51
208
49
*
HIV
Isentress / Isentress HD
308
337
-9
143
175
-19
165
162
2
Hospital Acute Care
Bridion
209
139
50
76
36
114
132
104
28
Noxafil
179
161
11
89
81
10
90
80
13
Invanz
157
152
3
93
90
4
64
63
2
Cancidas
95
152
-37
3
6
-48
92
146
-37
Cubicin
92
119
-22
40
82
-51
52
36
43
Primaxin
74
66
12
3
1
*
71
65
9
Immunology
Simponi
217
186
17
217
186
17
Remicade
186
269
-31
186
269
-31
Oncology
Keytruda
1,297
483
169
787
311
153
510
172
196
Emend
143
144
-1
85
90
-6
58
53
8
Temodar
73
67
10
12
6
101
62
61
1
Diversified Brands
Respiratory
Singulair
182
210
-13
12
11
15
170
199
-15
Nasonex
120
112
8
37
23
60
83
88
-6
Dulera
77
105
-26
70
99
-29
7
6
14
Other
Cozaar / Hyzaar
125
121
3
3
3
18
121
118
3
Arcoxia
91
108
-16
91
108
-16
Fosamax
62
68
-9
(1) 2
-138
62
65
-4
Vaccines
Gardasil / Gardasil 9
633
542
17
370
409
-9
262
134
96
ProQuad / M-M-R II /Varivax
403
405
316
308
2
88
97
-9
Pneumovax 23
263
238
11
189
180
5
74
57
28
RotaTeq
160
162
-1
104
126
-17
56
36
55
Zostavax
121
221
-45
66
155
-57
55
66
-17
Other Pharmaceutical
1,124
1,172
-4
299
340
-12
826
834
-1
ANIMAL HEALTH
981
884
11
248
263
-6
733
620
18
Other Revenues
162
327
-51
113
141
-19
49
187
-74
* 200% or greater
Only select products are shown.
(1)
(2)
(3)
(4)
(1)
Vaccine sales in 2017 include sales in the European markets that were previously part of the Sanofi Pasteur MSD (SPMSD) joint venture that was terminatedon December 31, 2016. Amounts for 2016 reflect supply sales to SPMSD.
Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $123 million and $126 millionon a global basis for fourth quarter 2017 and 2016, respectively.
Other Revenues are comprised primarily of alliance revenue, third-party manufacturing sales and miscellaneous corporate revenues, including revenuehedging activities.
(2)
(3)
(4)
MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES FULL YEAR 2017
(AMOUNTS IN MILLIONS) Table 3b
Global
U.S.
International
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
2017
2016
% Change
2017
2016
% Change
2017
2016
% Change
TOTAL SALES
$ 40,122
$ 39,807
1
$ 17,424
$ 18,478
-6
$ 22,698
$ 21,329
6
PHARMACEUTICAL
35,390
35,151
1
15,854
17,073
-7
19,536
18,077
8
Primary Care and Women’s Health
Cardiovascular
Zetia
1,344
2,560
-48
352
1,588
-78
992
972
2
Vytorin
751
1,141
-34
124
473
-74
627
668
-6
Atozet
225
146
54
1
-98
225
146
55
Adempas
300
169
78
300
169
78
Diabetes
Januvia
3,737
3,908
-4
2,153
2,286
-6
1,584
1,622
-2
Janumet
2,158
2,201
-2
863
984
-12
1,296
1,217
6
General Medicine & Women’s Health
NuvaRing
761
777
-2
564
576
-2
197
202
-2
Implanon / Nexplanon
686
606
13
496
420
18
191
186
2
Follistim AQ
298
355
-16
123
157
-22
174
197
-12
Hospital and Specialty
Hepatitis
Zepatier
1,660
555
199
771
488
58
888
67
*
HIV
Isentress / Isentress HD
1,204
1,387
-13
565
721
-22
639
666
-4
Hospital Acute Care
Bridion
704
482
46
239
77
*
465
405
15
Noxafil
636
595
7
309
284
9
327
312
5
Invanz
602
561
7
361
329
10
241
233
4
Cancidas
422
558
-24
20
25
-16
402
533
-25
Cubicin
382
1,087
-65
189
906
-79
193
181
7
Primaxin
280
297
-6
10
4
151
270
293
-8
Immunology
Remicade
837
1,268
-34
837
1,268
-34
Simponi
819
766
7
819
766
7
Oncology
Keytruda
3,809
1,402
172
2,309
792
192
1,500
610
146
Emend
556
549
1
342
356
-4
213
193
11
Temodar
271
283
-4
16
15
2
256
268
-4
Diversified Brands
Respiratory
Singulair
732
915
-20
40
40
692
874
-21
Nasonex
387
537
-28
54
184
-71
333
352
-5
Dulera
287
436
-34
261
412
-37
26
24
9
Other
Cozaar / Hyzaar
484
511
-5
18
16
10
466
494
-6
Arcoxia
363
450
-19
363
450
-19
Fosamax
241
284
-15
6
5
21
235
279
-16
Vaccines
Gardasil / Gardasil 9
2,308
2,173
6
1,565
1,780
-12
743
393
89
ProQuad / M-M-R II / Varivax
1,676
1,640
2
1,374
1,362
1
303
279
9
Pneumovax 23
821
641
28
581
447
30
240
193
24
RotaTeq
686
652
5
481
482
204
169
21
Zostavax
668
685
-2
422
518
-18
246
168
47
Other Pharmaceutical
4,295
4,574
-6
1,246
1,345
-7
3,049
3,228
-6
ANIMAL HEALTH
3,875
3,478
11
1,090
989
10
2,785
2,489
12
Other Revenues
857
1,178
-27
480
416
15
377
763
-51
* 200% or greater
Only select products are shown.
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.
Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $388 million and $455 million on a global basis forDecember Full Year 2017 and 2016, respectively.
Other Revenues are comprised primarily of alliance revenue, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities.
(1)
(2)
(3)
(4)
(1)
(2)
(3)
(4)
MERCK & CO., INC.
PHARMACEUTICAL GEOGRAPHIC SALES (AMOUNTS IN MILLIONS)
(UNAUDITED) Table 3c
2017
2016
% Change
% Change
1Q
2Q
3Q
4Q
Full Year
1Q
2Q
3Q
4Q
Full Year
4Q
Full Year
TOTAL PHARMACEUTICAL
$ 8,185
$ 8,759
$ 9,156
$ 9,290
$ 35,390
$ 8,104
$ 8,700
$ 9,443
$ 8,904
$ 35,151
4
1
United States
3,761
3,929
4,197
3,967
15,854
3,913
4,169
4,710
4,282
17,073
-7
-7
% Pharmaceutical Sales
45.9% 44.9% 45.8% 42.7% 44.8% 48.3% 47.9% 49.9% 48.1% 48.6%
Europe
1,977
2,082
2,174
2,290
8,522
1,914
1,997
1,935
1,843
7,689
24
11
% Pharmaceutical Sales
24.2% 23.8% 23.7% 24.7% 24.1% 23.6% 23.0% 20.5% 20.7% 21.9%
Japan
688
818
756
780
3,043
620
673
812
659
2,764
18
10
% Pharmaceutical Sales
8.4% 9.3% 8.3% 8.4% 8.6% 7.7% 7.7% 8.6% 7.4% 7.9%
Asia Pacific
889
946
994
1,054
3,883
806
890
914
912
3,522
16
10
% Pharmaceutical Sales
10.9% 10.8% 10.9% 11.3% 11.0% 9.9% 10.2% 9.7% 10.2% 10.0%
China
328
353
377
439
1,497
337
353
350
333
1,374
32
9
Latin America
375
462
451
547
1,836
359
430
448
538
1,776
2
3
% Pharmaceutical Sales
4.6% 5.3% 4.9% 5.9% 5.2% 4.4% 4.9% 4.7% 6.0% 5.1%
Eastern Europe/Middle East
Africa
255
314
349
397
1,314
272
314
364
429
1,379
-8
-5
% Pharmaceutical Sales
3.1% 3.6% 3.8% 4.3% 3.7% 3.4% 3.6% 3.9% 4.8% 3.9%
Canada
182
171
193
193
739
147
170
184
180
682
7
8
% Pharmaceutical Sales
2.2% 2.0% 2.1% 2.1% 2.1% 1.8% 2.0% 1.9% 2.0% 1.9%
Other
58
37
42
62
199
73
57
76
61
266
2
-25
% Pharmaceutical Sales
0.7% 0.4% 0.5% 0.7% 0.6% 0.9% 0.7% 0.8% 0.7% 0.8%
Europe primarily represents all European Union countries and the European Union accession markets.
(1)
(1)
MERCK & CO., INC.
OTHER (INCOME) EXPENSE, NET - GAAP(AMOUNTS IN MILLIONS)
(UNAUDITED) Table 4
OTHER (INCOME) EXPENSE, NET
Full Year
Full Year
4Q17
4Q16
2017
2016
INTEREST INCOME
$ (101) $ (83) $ (385) $ (328)INTEREST EXPENSE
191
180
754
693
EXCHANGE (GAINS) LOSSES
(17) 95
(11) 174
EQUITY INCOME FROM AFFILIATES
(32) (27) (42) (86)Other, net
(60) 466
(304) 267
TOTAL
$ (19) $ 631
$ 12
$ 720
Other, net in the fourth quarter and full year of 2016 includes a $625 million charge to settle worldwide patent litigation related to KEYTRUDA.
(1)
(1)
MERCK & CO., INC.
EFFECTS OF ADOPTION OF NEW PENSION ACCOUNTING STANDARD(AMOUNTS IN MILLIONS)
(UNAUDITED)Table 5
The 2017 financial guidance for both GAAP and non-GAAP operating expenses reflects the adoption on January 1, 2018, of a new accounting standard related todefined benefit plans that requires the components of net benefit cost/credit (other than service costs) be presented in the statement of income outside of operatingexpenses. The new accounting standard requires that previously reported amounts be reclassified to conform to the new presentation. There is no impact to netincome as a result of adopting the new standard. The tables below provide details of the effects of adopting the standard for the full year of 2017 and by quarter aswill be presented in 2018 reporting.
GAAP
Non-GAAP
As Reported 2017
Reclass
As Recast 2017
As Reported 2017
Reclass
As Recast 2017
Full Year 2017
Materials and production
$ 12,775
$ 137
$ 12,912
$ 9,450
$ 137
$ 9,587
Marketing and administrative
9,830
244
10,074
9,784
244
10,028
Research and development
9,982
131
10,113
7,337
131
7,468
Restructuring costs
776
—
776
—
—
—
Other (income) expense, net
12
(512) (500) 9
(512) (503)
$ 33,375
$ —
$ 33,375
$ 26,580
$ —
$ 26,580
First Quarter 2017
Materials and production
$ 3,015
$ 34
$ 3,049
$ 2,097
$ 34
$ 2,131
Marketing and administrative
2,411
61
2,472
2,390
61
2,451
Research and development
1,796
34
1,830
1,785
34
1,819
Restructuring costs
151
—
151
—
—
—
Other (income) expense, net
58
(129) (71) 70
(129) (59)
$ 7,431
$ —
$ 7,431
$ 6,342
$ —
$ 6,342
Second Quarter 2017
Materials and production
$ 3,080
$ 36
$ 3,116
$ 2,220
$ 36
$ 2,256
Marketing and administrative
2,438
62
2,500
2,427
62
2,489
Research and development
1,749
33
1,782
1,733
33
1,766
Restructuring costs
166
—
166
—
—
—
Other (income) expense, net
58
(131) (73) 19
(131) (112)
$ 7,491
$ —
$ 7,491
$ 6,399
$ —
$ 6,399
Third Quarter 2017
Materials and production
$ 3,274
$ 33
$ 3,307
$ 2,481
$ 33
$ 2,514
Marketing and administrative
2,401
58
2,459
2,390
58
2,448
Research and development
4,383
30
4,413
1,760
30
1,790
Restructuring costs
153
—
153
—
—
—
Other (income) expense, net
(86) (121) (207) (68) (121) (189)
$ 10,125
$ —
$ 10,125
$ 6,563
$ —
$ 6,563
Fourth Quarter 2017
Materials and production
$ 3,406
$ 34
$ 3,440
$ 2,652
$ 34
$ 2,686
Marketing and administrative
2,580
63
2,643
2,577
63
2,640
Research and development
2,055
33
2,088
2,060
33
2,093
Restructuring costs
306
—
306
—
—
—
Other (income) expense, net
(19) (130) (149) (13) (130) (143)
$ 8,328
$ —
$ 8,328
$ 7,276
$ —
$ 7,276