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Merck 2019 Full-Year Revenue Range to be Between$43.9 Billion and $45.1 Billion

BusinessWire

KENILWORTH, N.J.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/search?q=%24MRK&src=ctag” target=”_blank”gt;$MRKlt;/agt; lt;a href=”https://twitter.com/hashtag/MRK?src=hash” target=”_blank”gt;#MRKlt;/agt;–Merck (NYSE:MRK), known as MSD outside the United States and Canada,
today announced financial results for the first quarter of 2019.


“Our strong start to 2019, with double-digit sales and EPS growth in the
first quarter, demonstrates our execution across all aspects of our
business and the strength of our key growth pillars, including oncology
and vaccines,” said Kenneth C. Frazier, chairman and chief executive
officer, Merck. “Our investments in research and development are paying
off, and we are confident in our science-driven strategy, growth
prospects and ability to sustainably deliver value to patients and
shareholders.”

Financial Summary

$ in millions, except EPS amounts First Quarter
2019 2018 Change

Change
Ex-
Exchange
Sales $ 10,816 $ 10,037 8% 11%

GAAP net income1

 2,915 736 ** **
Non-GAAP net income that excludes certain items1,2* 3,175 2,844 12% 13%
GAAP EPS 1.12 0.27 ** **

Non-GAAP EPS that excludes certain items2

 1.22 1.05 16% 18%
*Refer to table on page 9
**Greater than 100%

Worldwide sales were $10.8 billion for the first quarter of 2019, an
increase of 8% compared with the first quarter of 2018; excluding the
negative impact from foreign exchange, worldwide sales grew 11%.
International sales represented 58% of total sales in the quarter.
Performance in international markets was led by China, which had sales
growth of 58% compared with the first quarter of 2018, driven by
vaccines and oncology. Excluding the unfavorable effect of foreign
exchange, sales in China grew by 67%.

GAAP (generally accepted accounting principles) earnings per share
assuming dilution (EPS) were $1.12 for the first quarter of 2019.
Non-GAAP EPS of $1.22 for the first quarter of 2019 excludes
acquisition- and divestiture-related costs, restructuring costs, a net
benefit from the settlement of certain federal income tax matters, and
certain other items.

Oncology Pipeline Highlights

Merck continued to advance the development programs for KEYTRUDA
(pembrolizumab), the company’s anti-PD-1 therapy; Lynparza (olaparib), a
PARP inhibitor being co-developed and co-commercialized with
AstraZeneca; and Lenvima (lenvatinib mesylate), an orally available
tyrosine kinase inhibitor being co-developed and co-commercialized with
Eisai Co., Ltd. (Eisai).

KEYTRUDA

Lynparza

Other Pipeline Highlights

First-Quarter Revenue Performance

The following table reflects sales of the company’s top pharmaceutical
products, as well as sales of animal health products.

$ in millions First Quarter

2019

2018

Change

Change
Ex-Exchange
Total Sales $ 10,816 $ 10,037 8% 11%
Pharmaceutical 9,663 8,919 8% 12%
KEYTRUDA 2,269 1,464 55% 60%
JANUVIA / JANUMET 1,354 1,424 -5% -1%
GARDASIL / GARDASIL 9 838 660 27% 31%
PROQUAD, M-M-R II and

VARIVAX

496

392

27%

30%
BRIDION 255 204 25% 30%
ISENTRESS / ISENTRESS HD 255 281 -9% -3%
ZETIA / VYTORIN 238 471 -50% -47%

NUVARING

 219 216 1% 3%
ROTATEQ 211 193 10% 11%
SIMPONI 208 231 -10% -3%
Animal Health 1,025 1,065 -4% 3%
Livestock 611 652 -6% 1%
Companion Animals 414 413 0% 6%
Other Revenues 128 53 139% -117%

Pharmaceutical Revenue

First-quarter pharmaceutical sales were $9.7 billion, an increase of 8%
compared with the first quarter of 2018; excluding the unfavorable
effect of foreign exchange, sales grew 12% in the first quarter. The
increase was driven primarily by growth in oncology and vaccines,
partially offset by the ongoing impacts of the loss of market
exclusivity for several products.

Growth in oncology was driven by a significant increase in sales of
KEYTRUDA, reflecting the strong momentum for the treatment of patients
with NSCLC and the company’s continued launches with new indications
globally. Additionally, oncology sales reflect alliance revenue of $79
million related to Lynparza and $74 million related to Lenvima,
representing Merck’s share of profits, which are product sales net of
cost of sales and commercialization costs.

Growth in vaccines was driven largely by higher sales of GARDASIL [Human
Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine,
Recombinant] and GARDASIL 9 (Human Papillomavirus 9-valent Vaccine,
Recombinant), vaccines to prevent certain cancers and other diseases
caused by Human Papillomavirus (HPV), primarily due to the ongoing
commercial launch in China. Higher demand in Europe, driven primarily by
increased vaccination rates for both boys and girls, as well as the
timing of customer purchases in Latin America, also contributed to sales
growth. Growth was partially offset by lower sales in the United States
reflecting public sector buying patterns.

Growth in pediatric vaccines was driven by VARIVAX (Varicella Virus
Vaccine Live), a vaccine to help prevent chickenpox; PROQUAD (Measles,
Mumps, Rubella and Varicella Virus Vaccine Live), a combination vaccine
to help protect against measles, mumps, rubella and varicella; and M-M-R
II (Measles, Mumps and Rubella Virus Vaccine Live), a vaccine to help
prevent measles, mumps and rubella, reflecting government tenders in
Latin America and higher demand in Europe and the United States.

Performance in hospital acute care reflects strong demand in the United
States for 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; and the ongoing launch
of PREVYMIS (letermovir), a medicine for the prevention of
cytomegalovirus (CMV) infection and disease in adult CMV-seropositive
recipients of an allogeneic hematopoietic stem cell transplant.

Pharmaceutical sales growth for the quarter was partially offset by the
ongoing impacts from the loss of market exclusivity for ZETIA
(ezetimibe) and VYTORIN (ezetimibe/simvastatin), medicines for lowering
LDL cholesterol; INVANZ (ertapenem sodium), an antibiotic; CANCIDAS
(caspofungin acetate for injection), an antifungal; as well as
biosimilar competition for REMICADE (infliximab), a treatment for
inflammatory diseases, in the company’s marketing territories in Europe.
In addition, sales of JANUVIA (sitagliptin) and JANUMET (sitagliptin and
metformin HCI), medicines that help lower blood sugar in adults with
type 2 diabetes, declined slightly due to continuing pricing pressure in
the United States, which more than offset strong demand from
international markets.

Animal Health Revenue

Animal Health sales totaled $1.0 billion for the first quarter of 2019,
a decrease of 4% compared with the first quarter of 2018. Excluding the
unfavorable effect from foreign exchange, Animal Health sales grew 3% in
the first quarter. Sales performance reflects higher demand for
companion animal products, primarily the BRAVECTO (fluralaner) line of
products for parasitic control; and volume growth in livestock products,
particularly from sales of new poultry and swine products, which was
partially offset by lower ruminant product sales driven by distributor
purchasing patterns and the delayed movement of cattle into the feedlots
in the United States.

Animal Health segment profits were $415 million in the first quarter of
2019, essentially flat compared with $413 million in the first quarter
of 20183. In April 2019, Merck acquired Antelliq Group, a
leader in digital animal identification, traceability and monitoring
solutions.

First-Quarter Expense, EPS and Related Information

The tables below present selected expense information.

$ in millions

First-Quarter 2019

GAAP

Acquisition- and
Divestiture-
Related
Costs4

Restructuring
Costs

Certain Other
Items

Non-GAAP2
Cost of sales $ 3,052 $ 413 $ 34 $ – $ 2,605
Selling, general and administrative 2,425 (1) – – 2,426
Research and development 1,931 (31) – – 1,962
Restructuring costs 153 – 153 – –
Other (income) expense, net 188 167 – – 21
First-Quarter 2018
Cost of sales $ 3,184 $ 734 $ 6 $ – $ 2,444
Selling, general and administrative 2,508 8 1 – 2,499
Research and development 3,196 1 2 1,400 1,793
Restructuring costs 95 – 95 – –
Other (income) expense, net (291) (10) – (22) (259)

GAAP Expense, EPS and Related Information

Gross margin was 71.8% for the first quarter of 2019 compared to 68.3%
for the first quarter of 2018. The increase in gross margin for the
first quarter of 2019 was primarily driven by lower acquisition- and
divestiture-related costs and restructuring costs, which reduced gross
margin by 4.1 percentage points in the first quarter of 2019 compared
with 7.4 percentage points in the first quarter of 2018. In addition,
gross margin was impacted by the favorable effects of foreign exchange
and product mix, partially offset by the increased amortization of
intangible assets related to collaborations and the unfavorable effects
of pricing pressure and royalties.

Selling, general and administrative expenses were $2.4 billion in the
first quarter of 2019, a 3% decrease compared to the first quarter of
2018. The decrease primarily reflects lower promotion and selling costs
and the favorable effects of foreign exchange, partially offset by
higher administrative costs.

Research and development (R&D) expenses were $1.9 billion in the first
quarter of 2019 compared with $3.2 billion in the first quarter of 2018.
The decline was driven primarily by a $1.4 billion charge recorded in
the first quarter of 2018 related to the formation of a collaboration
with Eisai, partially offset by higher expenses related to clinical
development, including collaborations, and investment in early drug
development.

Other (income) expense, net, was $188 million of expense in the first
quarter of 2019 compared to $291 million of income in the first quarter
of 2018. Other (income) expense, net, in the first quarter of 2019
reflects the unfavorable effects of foreign exchange losses and
impairment charges. Other (income) expense, net, in the first quarter of
2018 reflects a legal settlement gain.

The effective income tax rate of 6.7% for the first quarter of 2019
reflects a net tax benefit of $360 million related to the settlement of
certain federal income tax matters.

GAAP EPS was $1.12 for the first quarter of 2019 compared with $0.27 for
the first quarter of 2018.

Non-GAAP Expense, EPS and Related Information

The non-GAAP gross margin was 75.9% for the first quarter of 2019,
compared to 75.7% for the first quarter of 2018. The increase in
non-GAAP gross margin reflects the favorable effects of foreign exchange
and product mix, partially offset by the increased amortization of
intangible assets related to collaborations and the unfavorable effects
of pricing pressure and royalties.

Non-GAAP selling, general and administrative expenses were $2.4 billion
in the first quarter of 2019, a 3% decrease compared to the first
quarter of 2018. The decrease reflects lower promotion and selling costs
and the favorable effects of foreign exchange, partially offset by
higher administrative costs.

Non-GAAP R&D expenses were $2.0 billion in the first quarter of 2019, a
9% increase compared to the first quarter of 2018. The increase reflects
higher expenses related to clinical development, including
collaborations, and investment in early drug development.

Non-GAAP other (income) expense, net, was $21 million of expense in the
first quarter of 2019 compared to $259 million of income in the first
quarter of 2018. Non-GAAP other (income) expense, net, in the first
quarter of 2018 reflects a legal settlement gain.

The non-GAAP effective income tax rate was 16.5% for the first quarter
of 2019.

Non-GAAP EPS was $1.22 for the first quarter of 2019 compared with $1.05
for the first quarter of 2018.

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

$ in millions, except EPS amounts First Quarter
2019 2018
EPS
GAAP EPS $ 1.12 $ 0.27

Difference5

 0.10 0.78
Non-GAAP EPS that excludes items listed below2 $ 1.22 $ 1.05
Net Income
GAAP net income1 $ 2,915 $ 736
Difference 260 2,108
Non-GAAP net income that excludes items listed below1,2 $ 3,175 $ 2,844
Decrease (Increase) in Net Income Due to Excluded Items:
Acquisition- and divestiture-related costs4 $ 548 $ 733
Restructuring costs 187 104
Aggregate charge related to the formation of a collaboration with
Eisai		 – 1,400
Other – (22)
Net decrease (increase) in income before taxes 735 2,215

Income tax (benefit) expense6

 (422) (107)
Acquisition- and divestiture-related costs attributable to
noncontrolling interests		 (53) –
Decrease (increase) in net income $ 260 $ 2,108

Financial Outlook

Merck narrowed and raised its full-year 2019 revenue range to be between
$43.9 billion and $45.1 billion, including a negative impact from
foreign exchange of slightly more than 1% at mid-April exchange rates.

Merck narrowed and raised its full-year 2019 GAAP EPS range to be
between $4.02 and $4.14. Merck narrowed and raised its full-year 2019
non-GAAP EPS range to be between $4.67 and $4.79, including a slightly
positive impact from foreign exchange at mid-April exchange rates. The
non-GAAP range excludes acquisition- and divestiture-related costs,
costs related to restructuring programs, a net benefit from the
settlement of certain federal income tax matters, and certain other
items.

The following table summarizes the company’s full year 2019 financial
guidance.

GAAP Non-GAAP2
Revenue $43.9 to $45.1 billion $43.9 to $45.1 billion*
Operating expenses Lower than 2018 by a mid-single digit rate Higher than 2018 by a low- to mid-single digit rate
Effective tax rate 16.5% to 17.5% 18.5% to 19.5%
EPS** $4.02 to $4.14 $4.67 to $4.79
*The company does not have any non-GAAP adjustments to revenue.
**EPS guidance for 2019 assumes a share count (assuming dilution) of
approximately 2.6 billion shares.

A reconciliation of anticipated 2019 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 2019
GAAP EPS $4.02 to $4.14
Difference5 0.65
Non-GAAP EPS that excludes items listed below2 $4.67 to $4.79
Acquisition- and divestiture-related costs4 $1,900
Restructuring costs 500
Net decrease (increase) in income before taxes 2,400
Income tax (benefit) expense6 (725)
Decrease (increase) in net income $1,675

The expected full-year GAAP effective tax rate of 16.5% to 17.5%
reflects a net favorable impact of approximately 2.0 percentage points
from the above items.

Earnings Conference Call

Investors, journalists and the general public may access a live audio
webcast of the call today at 8:00 a.m. EDT on Merck’s website at http://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
8493044. Members of the media are invited to monitor the call by dialing
(706) 758-9928 or (800) 399-7917 and using ID code number 8493044.
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
inventing for life, bringing forward medicines and vaccines for many of
the world’s most challenging diseases. Through our prescription
medicines, vaccines, biologic therapies 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 health care through far-reaching policies, programs
and partnerships. Today, Merck continues to be at the forefront of
research 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 us on 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 safe harbor provisions of the U.S. Private Securities Litigation
Reform Act of 1995. These statements are based upon the current beliefs
and expectations of the company’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; the company’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 the company’s patents
and other protections for innovative products; and the exposure to
litigation, including patent litigation, and/or regulatory actions.

Contacts

Media:
Jennifer Mauer
(908) 740-1801

Pamela Eisele
(267) 305-3558

Investors:
Teri Loxam
(908) 740-1986

Michael DeCarbo
(908) 740-1807

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