Merck Announces Fourth-Quarter and Full-Year 2013 Financial Results

Merck Announces Fourth-Quarter and Full-Year 2013 Financial Results

Fourth-Quarter 2013 Non-GAAP EPS Increased by 6 Percent Over Prior Year to $0.88, Excluding Certain Items; GAAP EPS Decreased by 13 Percent to $0.26. Full-Year 2013 Non-GAAP EPS of $3.49, Excluding Certain Items; GAAP EPS of $1.47.
Fourth-Quarter 2013 Worldwide Sales Were $11.3 Billion, a Decrease of 4 Percent Reflecting Unfavorable Impact of Patent Expiries and a 3 Percent Negative Impact from Foreign Exchange.
Full-Year 2013 Worldwide Sales Were $44.0 Billion, a Decrease of 7 Percent Reflecting Unfavorable Impact of Patent Expiries and a 2 Percent Negative Impact from Foreign Exchange.
Strong Full-Year Sales Growth for GARDASIL, REMICADE, SIMPONI, ISENTRESS, ZOSTAVAX and the Diabetes Franchise.
Returned $11 Billion to Shareholders in 2013 Through Dividends and Share Repurchases.
Accelerated Development Program for MK-3475, Including Announcement of Four Collaborations to Evaluate Novel Combination Regimens, Initiation of a Phase I Study in 20 New Cancer Types and Rolling Submission of a BLA to the FDA.
2014 Full-Year Non-GAAP EPS Target of $3.35 to $3.53, Excluding Certain Items; GAAP EPS Range of $2.15 to $2.47.

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 2013.

                      
Fourth    Fourth    Year Ended    Year Ended
Quarter  Quarter  Dec. 31,  Dec. 31,
$ in millions, except EPS amounts    2013    2012    2013    2012
Sales     $11,319     $11,738     $44,033     $47,267
GAAP EPS     0.26     0.30     1.47     2.00
Non-GAAP EPS that excludes items listed below1
   0.88     0.83     3.49     3.82
GAAP Net Income2
   781     908     4,404     6,168
Non-GAAP Net Income that excludes items listed below1,2
   2,599     2,540     10,443     11,743
Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the fourth quarter of $0.88 and $3.49 for the full year of 2013 exclude acquisition-related costs, restructuring costs and certain other items.

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

          
$ in millions, except EPS amounts  Fourth Quarter    Year Ended
      Dec. 31,    Dec. 31,
2013    2012    2013    2012
EPS                        
GAAP EPS     $0.26     $0.30     $1.47     $2.00
Difference3
   0.62     0.53     2.02     1.82
Non-GAAP EPS that excludes items listed below1
   $0.88     $0.83     $3.49     $3.82

Net Income                        
GAAP net income2     $781     $908     $4,404     $6,168
Difference     1,818     1,632     6,039     5,575
Non-GAAP net income that excludes items listed below1,2     $2,599     $2,540     $10,443     $11,743

Decrease (Increase) in Net Income Due to Excluded Items:                        
Acquisition-related costs4.
   $1,348     $1,298     $5,549     $5,344
Restructuring costs     962     254     2,401     999
Other5
   –     493     (13)     493
Net decrease (increase) in income before taxes     2,310     2,045     7,937     6,836
Income tax (benefit) expense6
   (492)     (413)     (1,898)     (1,261)
Decrease (increase) in net income     $1,818     $1,632     $6,039     $5,575
"In 2013 we took decisive action to sharpen our focus, reduce our cost structure and advance our innovative research and development," said Kenneth C. Frazier, chairman and chief executive officer, Merck. "This year we are excited about the potential of our near- and long-term pipeline, poised for long-term growth and committed to providing continued value to patients, customers and our shareholders."

Select Revenue Highlights

Worldwide sales were $11.3 billion for the fourth quarter of 2013, a decrease of 4 percent, which includes a 3 percent negative impact from foreign exchange compared with the fourth quarter of 2012. Full-year 2013 worldwide sales were $44.0 billion, a decrease of 7 percent, which includes a 2 percent negative impact from foreign exchange, compared to full-year 2012.

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

                                              
              Year    Year        
Fourth  Fourth    Change  Ended  Ended    Change
$ in millions  Quarter  Quarter    Ex-  Dec. 31,  Dec. 31,    Ex-
     2013    2012    Change    Exchange    2013    2012    Change    Exchange
Total Sales     $11,319     $11,738     -4%     -1%     $44,033     $47,267     -7%     -5%
Pharmaceutical     9,760     10,085     -3%     0%     37,437     40,601     -8%     -5%
JANUVIA     1,121     1,134     -1%     4%     4,004     4,086     -2%     3%
ZETIA     716     676     6%     9%     2,658     2,567     4%     6%
REMICADE     620     549     13%     9%     2,271     2,076     9%     7%
GARDASIL     394     442     -11%     -9%     1,831     1,631     12%     14%
JANUMET     503     452     11%     11%     1,829     1,659     10%     10%
ISENTRESS     442     381     16%     16%     1,643     1,515     8%     9%
VYTORIN     436     435     0%     -1%     1,643     1,747     -6%     -6%
NASONEX     327     308     6%     10%     1,335     1,268     5%     8%
PROQUAD, M-M-R II and VARIVAX     273     306     -11%     -10%     1,306     1,273     3%     3%
SINGULAIR     298     480     -38%     -31%     1,196     3,853     -69%     -66%
Animal Health     871     898     -3%     -1%     3,362     3,399     -1%     1%
Consumer Care     390     395     -1%     1%     1,894     1,952     -3%     -2%
Other Revenues     298     360     -17%     -19%     1,340     1,315     2%     -1%
Pharmaceutical Revenue Performance

Fourth-quarter pharmaceutical sales declined 3 percent to $9.8 billion, including a 3 percent negative impact due to foreign exchange. Strong sales growth for REMICADE (infliximab), ISENTRESS (raltegravir), SIMPONI (golimumab), JANUMET (sitagliptin and metformin HCI) and ZOSTAVAX (zoster vaccine live) offset the expected declines in sales of SINGULAIR (montelukast sodium), MAXALT (rizatriptan benzoate) and TEMODAR (temozolomide) following loss of market exclusivity. Full-year pharmaceutical sales declined 8 percent to $37.4 billion, including a 3 percent negative impact due to foreign exchange.

Sales from emerging markets grew 2 percent, including a 6 percent negative impact due to foreign exchange, and accounted for approximately 21 percent of pharmaceutical sales in the fourth quarter. Sales growth in the emerging markets was driven by vaccines, acute care and diabetes products. Full-year sales from emerging markets grew 3 percent, including a 4 percent negative impact due to foreign exchange.

Worldwide sales of the combined diabetes franchise of JANUVIA (sitagliptin)/JANUMET, medicines that help lower blood sugar levels in adults with type 2 diabetes, were $1.6 billion in the fourth quarter of 2013, growing 2 percent compared to the prior year quarter, including a negative 4 percent impact from foreign exchange, primarily driven by growth in Europe and the emerging markets. The combined franchise had sales of $5.8 billion for the full year of 2013, an increase of 2 percent compared with the prior year, including a negative 3 percent impact from foreign exchange.

Sales of ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), medicines for lowering LDL cholesterol, were $1.2 billion in the fourth quarter, growing 4 percent compared to the prior year quarter, including a 1 percent negative impact from foreign exchange. The combined ZETIA/VYTORIN franchise had sales of $4.3 billion for the full year of 2013, comparable to the prior year.

Combined sales of REMICADE and SIMPONI, treatments for inflammatory diseases, increased 19 percent to $766 million for the fourth quarter of 2013, including a 4 percent benefit from foreign exchange. Global combined sales for the full year increased to $2.8 billion, 15 percent over the prior year, including a 2 percent benefit from foreign exchange. These increases were driven by market growth trends and continued launch activities for SIMPONI. SIMPONI sales were $500 million for the full year of 2013.

Sales recorded by Merck for GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16, and 18) Vaccine, Recombinant], a vaccine to help prevent certain diseases caused by four types of human papillomavirus (HPV), decreased 11 percent to $394 million for the fourth quarter, including a 2 percent negative impact from foreign exchange. This decrease was driven by lower sales in the United States as a result of the timing of public sector purchases and in Japan reflecting the government's decision to suspend active promotion of HPV vaccines. These declines were partially offset by growth in the emerging markets. Worldwide sales of GARDASIL recorded by Merck for the full year were $1.8 billion, a 12 percent increase compared to the prior year, including a 2 percent unfavorable impact from foreign exchange.

Sales of ISENTRESS, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, increased 16 percent to $442 million in the fourth quarter driven by growth in most markets. Global sales of ISENTRESS for the full year of 2013 were $1.6 billion, an 8 percent increase compared to 2012.

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 38 percent to $298 million in the fourth quarter. Full-year 2013 worldwide sales for SINGULAIR were $1.2 billion, a 69 percent decrease compared to the prior year. The patent for SINGULAIR expired in the United States in August 2012 and in major European markets in February 2013.

Sales recorded by Merck for ZOSTAVAX, a vaccine for the prevention of herpes zoster, grew 18 percent to $264 million in the fourth quarter compared to the prior year quarter, driven by new launches, primarily in Asia. Global sales of ZOSTAVAX recorded by Merck for the full year of 2013 grew 16 percent to $758 million.

Animal Health Revenue Performance

Global sales of Animal Health products totaled $871 million for the fourth quarter of 2013, a 3 percent decline compared with the same period last year, including a 2 percent negative impact due to foreign exchange. Revenue performance in the quarter reflects lower sales of ruminant products, which were partially offset by growth in poultry and aqua products. Global sales for the full year of 2013 were $3.4 billion, a decline of 1 percent, including a 2 percent negative impact from foreign exchange, when compared with 2012. Lower sales of ruminant products were partially offset by growth in companion animal and poultry products. During the third quarter of 2013, Merck Animal Health voluntarily suspended the sale of ZILMAX (zilpaterol hydrochloride), a feed supplement for beef cattle, in the United States and Canada.

Consumer Care Revenue Performance

Fourth-quarter global sales of Consumer Care were $390 million, a decrease of 1 percent, including a 2 percent negative impact from foreign exchange, compared to the fourth quarter of 2012. Full-year 2013 global sales were $1.9 billion, a 3 percent decrease compared to full-year 2012, including a 1 percent negative impact due to foreign exchange.

Other Revenue Performance

Other revenues – primarily comprised of alliance revenue, miscellaneous corporate revenues and third-party manufacturing sales – decreased 17 percent to $298 million in the fourth quarter driven by lower revenue from AstraZeneca (AZ) recorded by Merck as well as by lower third-party manufacturing sales. Other revenues increased 2 percent to $1.3 billion for the full year of 2013. Merck anticipates that AZ will exercise its option to buy Merck's interest in a subsidiary and, through it, Merck's interest in Nexium and Prilosec. If AZ does so, as of July 1, 2014, Merck will no longer record equity income from AZ and supply sales to AZ are expected to terminate. The company recorded $920 million of revenue and $352 million of equity income from AZ for the full year of 2013.

Fourth-Quarter and Full-Year Expense and Other Information

The costs detailed below totaled $10.0 billion on a GAAP basis for the fourth quarter of 2013 and include $2.3 billion of acquisition-related costs and restructuring costs.


$ in millions
                      
  Acquisition-        
Related  Restructuring  
Fourth Quarter 2013    GAAP    Costs(4)    Costs    Non-GAAP(1)
Materials and production     $4,607     $1,301     $253     $3,053
Marketing and administrative     2,982     32     81     2,869
Research and development     1,836     15     63     1,758
Restructuring costs     565     –     565     –
Fourth Quarter 2012
                      
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     –
The costs detailed below totaled $38.1 billion on a GAAP basis for full-year 2013 and include $8.0 billion of acquisition-related costs and restructuring costs.


$ in millions
                      
  Acquisition-        
Year Ended    Related  Restructuring  
Dec. 31, 2013    GAAP    Costs(4)    Costs    Non-GAAP(1)
Materials and production     $16,954     $5,176     $446     $11,332
Marketing and administrative     11,911     94     145     11,672
Research and development     7,503     279     101     7,123
Restructuring costs     1,709     –     1,709     –
Year Ended
Dec. 31, 2012
                      
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     –
The gross margin was 59.3 percent for the fourth quarter of 2013 compared to 64.6 percent for last year's fourth quarter, reflecting unfavorable impacts of 13.7 and 10.4 percentage points, respectively, from the acquisition-related and restructuring costs noted above. The gross margin was 61.5 percent for the full year of 2013 compared to 65.2 percent for the full year of 2012, reflecting unfavorable impacts of 12.8 and 10.7 percentage points, respectively, from the acquisition-related and restructuring costs noted above. The non-GAAP gross margin declines in the fourth quarter and full year of 2013 reflect the unfavorable impacts of recent patent expiries, product mix and continued pricing pressure in mature markets.

Marketing and administrative expenses, on a non-GAAP basis, were $2.9 billion in the fourth quarter of 2013, a decrease from $3.3 billion in last year's fourth quarter. Full-year marketing and administrative expenses in 2013, on a non-GAAP basis, were $11.7 billion, a decrease from $12.4 billion in 2012. The declines were primarily due to productivity measures and the beneficial impact of foreign exchange.

Research and development (R&D) expenses, on a non-GAAP basis, were $1.8 billion in the fourth quarter of 2013, a decrease from $2.2 billion in the fourth quarter of 2012. For full-year 2013, these expenses, on a non-GAAP basis, were $7.1 billion, a decrease from $7.9 billion in 2012. The declines reflect targeted reductions and lower clinical development spend as a result of portfolio prioritization and increased focus on the company's key therapeutic opportunities, as well as lower payments for licensing activity.

Equity income from affiliates was $53 million for the fourth quarter and $404 million for the full year, which primarily reflects partnerships with AZ and Sanofi Pasteur.

Other (income) expense, net, was $157 million of expense in the fourth quarter of 2013 compared with $669 million of expense in last year's fourth quarter, and for the full-year 2013 was $815 million of expense compared with $1.1 billion of expense in 2012. The fourth quarter of 2012 includes a $493 million net charge related to the settlement of certain shareholder litigation.

Key Developments

Clinical

Accelerated development program for MK-3475, the company's anti-PD-1 immunotherapy, including announcement of four collaborations to evaluate novel combination regimens and initiation of a Phase I study in 20 new cancer types;
Interim data for MK-5172/MK-8742, the company's investigational oral combination regimen for treatment of chronic hepatitis C virus (HCV), presented at the 2013 American Association for the Study of Liver Diseases Annual Meeting showed sustained virologic response in 100 percent of patients reaching post-treatment follow-up week 12 in two of the three combination arms studied;
MK-5172/MK-8742 advanced into Phase IIB in a diverse range of chronic HCV patients;
Interim data for MK-3475, presented at the 10th International Congress of the Society for Melanoma Research, showed an estimated survival rate of 81 percent at one year in patients with advanced melanoma;
Phase III data on V503, the company's 9-valent HPV vaccine candidate, showed prevention of 97 percent of cervical, vaginal and vulvar pre-cancers caused by five additional HPV types;
Phase III trials for MK-8931, the company's investigational BACE inhibitor for Alzheimer's disease, were initiated; and
BACE inhibitor dosing in Phase III study of prodromal disease patients is planned.
Regulatory

Breakthrough Therapy designation was granted by U.S. Food and Drug Administration (FDA) for MK-5172/MK-8742;
FDA advisory committee recommended approval of vorapaxar, Merck's investigational antiplatelet medicine; and
FDA advisory committee discussed GRASTEK (Timothy Grass Pollen Allergen Extract) and RAGWITEK (Short Ragweed Pollen Allergen Extract), Merck's investigational sublingual allergy immunotherapy tablets.
Business

$11 billion returned to shareholders in 2013 through dividends and share repurchases;
Divested a portion of the company's U.S. ophthalmics business; and
In January 2014, sold the U.S. marketing rights for SAPHRIS; announced plans to divest Sirna Therapeutics, Inc. to Alnylam Pharmaceuticals, Inc.
Looking Ahead

Rolling submission for MK-3475 in patients with advanced melanoma who have previously been treated with ipilimumab to be completed in first half of 2014; and
New Drug Applications anticipated to the FDA for odanacatib for osteoporosis, suvorexant for insomnia and sugammadex sodium injection for reversal of neuromuscular blockade induced by rocuronium or vecuronium.
Anticipate regulatory actions for:
V503 (submitted Biologics License Application to the FDA in 2013);
Vintafolide in the European Union for use in platinum-resistant ovarian cancer;
Vorapaxar for the reduction of atherothrombotic events when added to standard of care in patients with a history of heart attack and no history of stroke or transient ischemic attack;
NOXAFIL IV for fungal infections;
Vaniprevir in Japan for the treatment of chronic HCV;
Allergy immunotherapies GRASTEK and RAGWITEK;
Exploring strategic options for the company's Animal Health and Consumer Care businesses to determine the most value-creating option for each and could reach different decisions about the two businesses. The company expects to complete the process and take action, if any, in 2014; and
Merck will hold an R&D event for investors and media scheduled for May 6, 2014.6
Fnancial Targets

Merck expects full-year 2014 non-GAAP EPS to be between $3.35 and $3.53, and 2014 GAAP EPS to be between $2.15 and $2.47. The 2014 non-GAAP range excludes acquisition-related costs and costs related to restructuring programs, as well as potential gains associated with the expected termination of the AZ joint venture. The 2014 EPS targets (both non-GAAP and GAAP) include a potential devaluation of the Venezuelan Bolivar.

Merck expects full-year 2014 revenues to be between $42.4 billion and $43.2 billion at today's currency rates. This includes the expectation that AZ will elect to end the partnership between the companies at mid-year, as well as lost revenue from patent expirations across multiple markets and recently announced product divestitures.

In addition, the company expects full-year 2014 non-GAAP marketing and administrative as well as R&D expenses to be below 2013 levels due to continuing prioritization and focused spending on core product lines and upcoming launches.

The company expects its full-year 2014 non-GAAP tax rate to be in the range of 24 to 26 percent; the rate does not include a 2014 benefit of an R&D tax credit.

A reconciliation of anticipated 2014 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 2014
GAAP EPS     $2.15 to $2.47
Difference3     1.20 to 1.06
Non-GAAP EPS that excludes items listed below     $3.35 to $3.53

Acquisition-related costs4     $4,600 to $4,350
Restructuring costs     1,300 to 1,000
Gain on AZ option exercise     (700) to (725)
Net decrease (increase) in income before taxes     5,200 to 4,625
Estimated income tax (benefit) expense     (1,675) to (1,535)
Decrease (increase) in net income     $3,525 to $3,090
Total Employees

As of Dec. 31, 2013, Merck had approximately 76,000 employees worldwide. In addition, the company's joint ventures in China and Brazil, which are included in the consolidated results of Merck, had about 1,300 employees.

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 and using ID code number 26402847. Journalists are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 26402847. 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

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.

Merck 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. There can be no guarantees with respect to pipeline products that the products will receive the necessary regulatory approvals or that they will prove to be commercially successful. If underlying assumptions prove inaccurate or risks or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements.

Risks and uncertainties include but are not limited to, general industry conditions and competition; general economic factors, including interest rate and currency exchange rate fluctuations; the impact of pharmaceutical industry regulation and health care legislation in the United States and internationally; global trends toward health care cost containment; technological advances, new products and patents attained by competitors; challenges inherent in new product development, including obtaining regulatory approval; 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 2012 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 2013 and 2012 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 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 2012 represents a net charge related to the settlement of certain shareholder litigation.

6 Includes an estimated income tax (benefit) expense on the reconciling items. In addition, the full year amount for 2013 includes net benefits of approximately $325 million related to the settlements of certain federal income tax issues.


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

GAAP

   
% Change
Full Year    Full Year 
% Change
4Q13    4Q12      2013    2012   
            

       
Sales   $  11,319    $  11,738    -4  %   $  44,033    $  47,267    -7  %

Costs, Expenses and Other           
Materials and production (1)    4,607     4,160    11  %    16,954     16,446    3  %
Marketing and administrative (1)    2,982     3,390    -12  %    11,911     12,776    -7  %
Research and development (1)    1,836     2,224    -17  %    7,503     8,168    -8  %
Restructuring costs (2)    565     191    *    1,709     664    *
Equity income from affiliates (3)    (53  )    (231  )   -77  %    (404  )    (642  )   -37  %
Other (income) expense, net (1) (4)    157     669    -77  %    815     1,116    -27  %
Income Before Taxes    1,225     1,335    -8  %    5,545     8,739    -37  %
Income Tax Provision    410     385       1,028     2,440  
Net Income    815     950    -14  %    4,517     6,299    -28  %
Less: Net Income Attributable to Noncontrolling Interests    34     42       113     131  
Net Income Attributable to Merck & Co., Inc.   $  781    $  908    -14  %   $  4,404    $  6,168    -29  %
Earnings per Common Share Assuming Dilution   $  0.26        $  0.30      -13  %   $  1.47        $  2.00      -27  %
                    
Average Shares Outstanding Assuming Dilution    2,959     3,074       2,996     3,076  
Tax Rate (5)      33.5  %        28.8  %        18.5  %        27.9  % 

* 100% or greater

(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 fourth quarter and full year of 2012 reflect a $493 million net charge related to the settlement of certain shareholder litigation.

(5) The effective tax rate for the full year of 2013 reflects net benefits from the settlements of certain federal income tax issues, reductions in tax reserves upon expiration of applicable statute of limitations and the favorable impact of tax legislation enacted in the first quarter of 2013. The effective tax rates for the fourth quarter and full year of 2012 reflect a favorable ruling on a state tax matter. In addition, the effective tax rate for the full year of 2012 reflects the favorable impacts of a settlement with a foreign tax authority and the realization of foreign tax credits.

MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
FOURTH QUARTER 2013
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2a
                           
Acquisition-  Restructuring  Adjustment 
GAAP 
Related Costs(1)
Costs(2)
Subtotal  Non-GAAP
          
Sales  $ 11,319          $  11,319

Costs, Expenses and Other         
Materials and production   4,607    1,301    253     1,554     3,053
Marketing and administrative   2,982    32    81     113     2,869
Research and development   1,836    15    63     78     1,758
Restructuring costs   565      565     565     -
Equity income from affiliates   (53 )        -     (53  )
Other (income) expense, net   157         -     157
Income Before Taxes   1,225    (1,348  )   (962  )    (2,310  )    3,535
Taxes on Income   410       
(492
)(3)
902
Net Income   815         (1,818  )    2,633
Less: Net Income Attributable to Noncontrolling Interests   34         -     34
Net Income Attributable to Merck & Co., Inc.  $ 781        $  (1,818  )   $  2,599
Earnings per Common Share Assuming Dilution  $ 0.26            $  0.88  
          
Average Shares Outstanding Assuming Dilution   2,959           2,959
Tax Rate     33.5 %            25.5  %

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.


MERCK & CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GAAP TO NON-GAAP RECONCILIATION
FULL YEAR 2013
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)
(UNAUDITED)
Table 2b
                                 
Acquisition-  Restructuring  Certain Other  Adjustment 
GAAP 
Related Costs(1)
Costs(2)
Items  Subtotal  Non-GAAP
            
Sales  $ 44,033            $  44,033

Costs, Expenses and Other           
Materials and production   16,954    5,176    446       5,622     11,332
Marketing and administrative   11,911    94    145       239     11,672
Research and development   7,503    279    101       380     7,123
Restructuring costs   1,709      1,709       1,709     -
Equity income from affiliates   (404 )          -     (404  )
Other (income) expense, net   815        (13  )    (13  )    828
Income Before Taxes   5,545    (5,549  )   (2,401  )   13     (7,937  )    13,482
Taxes on Income   1,028         
(1,898
)(3)
2,926
Net Income   4,517           (6,039  )    10,556
Less: Net Income Attributable to Noncontrolling Interests   113           -     113
Net Income Attributable to Merck & Co., Inc.  $ 4,404          $  (6,039  )   $  10,443
Earnings per Common Share Assuming Dilution  $ 1.47              $  3.49  
            
Average Shares Outstanding Assuming Dilution   2,996             2,996
Tax Rate     18.5 %              21.7  %

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 of $4.7 billion for the amortization of intangible assets recognized as a result of mergers and acquisitions, as well as $486 million of impairment charges on product intangibles. 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, as well as net benefits of approximately $325 million related to the settlements of certain federal income tax issues.


MERCK & CO., INC.
FRANCHISE / KEY PRODUCT SALES
(AMOUNTS IN MILLIONS)
Table 3
                
2013  2012  % Change    % Change
1Q    2Q    3Q    4Q    Full Year  1Q    2Q    3Q    4Q    Full Year 
4Q
 
Full Year
TOTAL SALES (1)  $10,671    $11,010    $11,032    $11,319    $44,033  $11,731    $12,311    $11,488    $11,738    $47,267  -4    -7
PHARMACEUTICAL  8,891    9,310    9,475    9,760    37,437  10,082    10,560    9,875    10,085    40,601  -3    -8

Primary Care and Women's Health                      
Cardiovascular                        
Zetia   629   650   662   716   2,658   614   632   645   676   2,567   6   4
Vytorin   394   417   396   436   1,643   444   445   423   435   1,747     -6

Diabetes & Obesity                        
Januvia   884   1,072   927   1,121   4,004   919   1,058   975   1,134   4,086   -1   -2
Janumet   409   474   442   503   1,829   392   411   405   452   1,659   11   10

Respiratory                        
Nasonex   385   325   297   327   1,335   375   293   292   308   1,268   6   5
Singulair   337   281   280   298   1,196   1,340   1,431   602   480   3,853   -38   -69
Dulera   68   79   82   95   324   39   50   52   67   207   42   56
Asmanex   40   49   43   51   184   48   51   42   44   185   17   -1

Women's Health & Endocrine                        
NuvaRing   151   171   170   193   686   146   157   156   164   623   17   10
Fosamax   137   144   140   139   560   184   186   152   154   676   -10   -17
Follistim AQ   122   134   124   101   481   116   125   111   116   468   -13   3
Implanon   84   102   96   120   403   76   85   93   94   348   28   16
Cerazette   61   48   51   50   208   67   72   64   68   271   -28   -23

Other                        
Arcoxia   121   121   112   131   484   112   117   109   115   453   13   7
Avelox   36   29   38   37   140   73   44   30   55   201   -32   -31

Hospital and Specialty                        

Immunology                        
Remicade   549   527   574   620   2,271   519   518   490   549   2,076   13   9
Simponi   108   120   126   146   500   74   76   86   95   331   53   51

Infectious Disease                        
Isentress   362   412   427   442   1,643   337   398   399   381   1,515   16   8
Cancidas   162   163   151   183   660   145   166   163   145   619   26   7
PegIntron   126   142   104   124   496   162   183   165   143   653   -13   -24
Invanz   110   120   130   128   488   101   110   118   116   445   10   10
Victrelis   110   116   121   81   428   111   126   149   115   502   -29   -15
Noxafil   65   71   75   98   309   59   66   66   68   258   44   20

Oncology                        
Temodar   216   219   162   111   708   237   225   227   229   917   -51   -23
Emend   116   135   123   134   507   102   145   111   131   489   2   4

Other                        
Cosopt / Trusopt   105   103   104   103   416   124   105   102   113   444   -9   -6
Bridion   63   69   75   82   288   58   60   68   75   261   10   10
Integrilin   47   48   45   46   186   53   60   48   51   211   -9   -12

Diversified Brands                        
Cozaar / Hyzaar   267   255   238   246   1,006   336   337   295   315   1,284   -22   -22
Primaxin   84   85   88   79   335   88   104   109   83   384   -5   -13
Zocor   82   74   65   79   301   103   96   86   98   383   -19   -21
Propecia   68   67   71   77   283   108   100   104   112   424   -31   -33
Clarinex   61   64   54   55   235   134   140   64   56   393   -1   -40
Remeron   52   53   44   56   206   57   66   52   57   232   -1   -11
Claritin Rx   76   40   36   52   204   87   48   47   63   244   -16   -16
Proscar   39   58   38   48   183   51   55   55   56   217   -15   -15
Maxalt   40   43   40   25   149   156   154   166   162   638   -85   -77

Vaccines                        
Gardasil   390   383   665   394   1,831   284   324   581   442   1,631   -11   12
ProQuad, M-M-R II and Varivax   272   339   421   273   1,306   255   316   396   306   1,273   -11   3
Zostavax   168   141   185   264   758   76   148   202   225   651   18   16
Pneumovax 23   111   108   193   241   653   112   101   160   208   580   16   13
RotaTeq   162   144   201   129   636   142   142   150   168   601   -23   6

Other Pharmaceutical (2)   1,022   1,115   1,059   1,126   4,316   1,066   1,034   1,065   1,161   4,333   -3  


ANIMAL HEALTH  840  851  800  871  3,362  821  865  815  898  3,399  -3  -1

CONSUMER CARE (3)  571  490  443  390  1,894  554  552  451  395  1,952  -1  -3
Claritin OTC   177   78   123   92   471   169   145   118   100   532   -8   -12

Other Revenues (4)  369  359  314  298  1,340  274  333  347  360  1,315  -17  2
Astra
262     245     220     193     920   186     223     255     251     915   -23     1

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 $53 million, $86 million, $127 million, and $101 million for the first, second, third, and fourth quarters of 2013. 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.

(3) The decrease in Consumer Care sales in the second quarter and full year of 2013 resulted from the ongoing termination in China of distribution arrangements and a reversal of sales previously made to those distributors, together with associated termination costs.

(4) Other revenues are comprised primarily of alliance revenue, third-party manufacturing sales and miscellaneous corporate revenues, including revenue hedging activities. On October 1, 2013, the Company divested a substantial portion of its third-party manufacturing sales. In addition, Other revenues in the fourth quarter and full year of 2013 reflect $50 million of revenue for the out-license of a pipeline compound.

 

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Contact:
Merck
Media:
Kelley Dougherty, 908- 423-4291
Steve Cragle, 908-423-3461
or
Investors:
Carol Ferguson, 908-423-4465
Joe Romanelli, 908-423-5185

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