-
Third-Quarter 2019 Worldwide Sales Were $12.4 Billion, an Increase of 15%; Sales Increased 16% Excluding Impact from Foreign Exchange; Growth Driven by Oncology and Human Health Vaccines
- KEYTRUDA Sales Grew 62% to $3.1 Billion; Excluding the Impact of Foreign Exchange, Sales Grew 64%
- Human Health Vaccines Sales Grew 17% to $2.5 Billion; Excluding the Impact of Foreign Exchange, Sales Grew 18%
- Third-Quarter 2019 GAAP EPS was $0.74, an Increase of 1%; Third-Quarter Non-GAAP EPS was $1.51, an Increase of 27%
- Company Narrows and Raises 2019 Full-Year Revenue Range to be Between $46.5 Billion and $47.0 Billion, Including a Negative Impact from Foreign Exchange of Approximately 2%
- Company Narrows and Reduces 2019 Full-Year GAAP EPS Range to be Between $3.75 and $3.80; Narrows and Raises 2019 Full-Year Non-GAAP EPS Range to be Between $5.12 and $5.17, Including a Negative Impact from Foreign Exchange of Approximately 1%
KENILWORTH, N.J.–(BUSINESS WIRE)–$MRK #MRK–Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the third quarter of 2019.
“We achieved another quarter of strong revenue and earnings growth as we continue to realize the benefits of our sustained investment in research and development and our focus on commercial execution,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “We are confident that the investments we are making now will allow us to convert cutting-edge science into medicines and vaccines of great benefit to patients and value to shareholders.”
Financial Summary
|
$ in millions, except EPS amounts |
Third Quarter |
||||||||
|
2019 |
|
2018 |
|
Change |
|
Change |
|||
|
Sales |
$12,397 |
$10,794 |
15% |
16% |
|||||
|
GAAP net income1 |
1,901 |
1,950 |
-3% |
-3% |
|||||
|
Non-GAAP net income that excludes certain items1,2* |
3,873 |
3,178 |
22% |
22% |
|||||
|
GAAP EPS |
0.74 |
0.73 |
1% |
1% |
|||||
|
Non-GAAP EPS that excludes certain items2* |
1.51 |
1.19 |
27% |
27% |
|||||
|
|
*Refer to table on page 9 |
||||||||
GAAP (generally accepted accounting principles) earnings per share assuming dilution (EPS) were $0.74 for the third quarter of 2019. Non-GAAP EPS of $1.51 for the third quarter of 2019 excludes a $982 million charge for the acquisition of Peloton Therapeutics, Inc. (Peloton), a $612 million pretax intangible asset impairment charge, other acquisition- and divestiture-related costs, restructuring costs and certain other items. Year-to-date results can be found in the attached tables.
Pipeline Highlights
Oncology
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
-
Merck announced the following regulatory milestones for KEYTRUDA:
- Approval in China as monotherapy for the first-line treatment of patients with locally advanced or metastatic non-small cell lung cancer (NSCLC) whose tumors express PD-L1 based on overall survival results from the KEYNOTE-042 trial. KEYTRUDA is now the first anti-PD-1 therapy approved in China as both monotherapy and in combination with chemotherapy for the first-line treatment of NSCLC;
- Approval in Europe in combination with axitinib for the first-line treatment of advanced renal cell carcinoma (RCC) across all International Metastatic RCC Database Consortium (IMDC) risk groups based on overall survival results from the KEYNOTE-426 trial;
- Approval in the United States by the Food and Drug Administration (FDA) as monotherapy for the treatment of patients with recurrent locally advanced or metastatic squamous cell carcinoma of the esophagus whose tumors express PD-L1 (Combined Positive Score [CPS] > 10) with disease progression after one or more prior lines of therapy based on the results from the KEYNOTE-181 and KEYNOTE-180 trials;
- Adoption of a positive opinion by the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) for two regimens of KEYTRUDA, as monotherapy or in combination with platinum and 5-fluorouracil (5-FU) chemotherapy, for the first-line treatment of metastatic or unresectable recurrent head and neck squamous cell carcinoma (HNSCC) in adults whose tumors express PD-L1 with a CPS ≥1 based on data from the KEYNOTE-048 trial; and
- Filing acceptance by the FDA for a supplemental Biologics License Application (sBLA) seeking use of KEYTRUDA for the treatment of patients with recurrent and/or metastatic cutaneous squamous cell carcinoma (cSCC) that is not curable by surgery or radiation. The FDA has set a PDUFA date of June 29, 2020.
- Merck presented results from the pivotal neoadjuvant/adjuvant Phase 3 KEYNOTE-522 trial in patients with early-stage triple-negative breast cancer (TNBC), the first randomized trial of an anti-PD-1 therapy in this setting, at the 2019 European Society for Medical Oncology (ESMO) Congress. Interim results from the neoadjuvant phase showed the combination of KEYTRUDA plus chemotherapy resulted in a statistically significant increase in pathological complete response versus chemotherapy in patients with early-stage TNBC.
- Merck presented first-time results of a pooled analysis of three randomized KEYNOTE studies (KEYNOTE-189, KEYNOTE-407 and KEYNOTE-021 [Cohort G]) evaluating KEYTRUDA in combination with chemotherapy in advanced NSCLC in which the combination regimen demonstrated an improvement in overall survival among newly diagnosed patients whose tumors do not express PD-L1. The data were presented at the IASLC 2019 World Conference on Lung Cancer.
Lynparza
- Merck and AstraZeneca presented results from the Phase 3 PROfound trial in patients with metastatic castration-resistant prostate cancer (mCRPC) who have a mutation in their homologous recombination repair (HRR) genes and whose disease has progressed on prior treatment with new hormonal agent treatments at the 2019 ESMO Congress. In this study, Lynparza improved radiographic progression-free survival versus standard of care in BRCA1/2 or ATM-mutated tumors as well as reduced the risk of disease progression or death in tumors with mutations in other genes associated with HRR.
- Merck and AstraZeneca also presented results from the Phase 3 PAOLA-1 trial at the 2019 ESMO Congress, in which Lynparza added to bevacizumab reduced the risk of disease progression or death (41%) in the first-line maintenance setting for patients with advanced ovarian cancer who had a complete or partial response to platinum-based chemotherapy and bevacizumab.
- Merck and AstraZeneca received filing submission acceptances from the FDA and EMA for the use of Lynparza in BRCAm pancreatic cancer based on results from the Phase 3 POLO trial. A decision by the FDA is expected in the fourth quarter of 2019 and from the EMA in the second half of 2020.
Lenvima
- Merck and Eisai announced accelerated FDA approval of the combination of KEYTRUDA and Lenvima for patients with certain types of endometrial carcinoma based on data from the KEYNOTE-146/Study 111, marking the first approval of the combination and the first time an anti-PD-1 therapy is approved in combination with a kinase inhibitor for advanced endometrial carcinoma in the United States. Approval was granted under the FDA’s Real-Time Oncology Review pilot program as well as under a new FDA-initiated program in which the FDA partnered with the Australian and Canadian regulatory bodies to review the application, allowing for simultaneous decisions in all three countries.
Other Pipeline Highlights
- Merck announced FDA approval expanding the use of both PIFELTRO (doravirine), in combination with other antiretroviral agents, and DELSTRIGO (doravirine/lamivudine/tenofovir disoproxil fumarate) for the treatment of adult patients with HIV-1 infection who are virologically suppressed (HIV-1 RNA less than 50 copies per mL) on a stable antiretroviral regimen with no history of treatment failure.
- Merck announced FDA acceptance of a New Drug Application (NDA) for DIFICID (fidaxomicin) for oral suspension and a supplemental NDA (sNDA) for use of DIFICID tablets and oral suspension for the treatment of Clostridium difficile infections in children aged six months or older. The FDA has set a PDUFA date of Jan. 24, 2020 for both applications.
- Merck announced the pivotal Phase 3 RESTORE-IMI 2 trial evaluating RECARBRIO (imipenem, cilastatin and relebactam) for use in adults with hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia (HABP/VABP) met its primary endpoint.
- Merck announced that the EMA’s CHMP adopted a positive opinion recommending a conditional marketing authorization for the company’s investigational V920 vaccine, brand name ERVEBO (rVSVΔG-ZEBOV-GP, live), for protection against Ebola Virus Disease caused by Zaire Ebola virus, as well as FDA acceptance and priority review for its Biologics License Application (BLA) for V920. The FDA has set a PDUFA date of March 14, 2020.
Third-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 |
Third Quarter |
||||||
|
|
2019 |
2018 |
Change |
Change Ex- |
|||
|
Total Sales |
$12,397 |
$10,794 |
15% |
16% |
|||
|
Pharmaceutical |
11,095 |
9,658 |
15% |
16% |
|||
|
KEYTRUDA |
3,070 |
1,889 |
62% |
64% |
|||
|
GARDASIL / GARDASIL 9 |
1,320 |
1,048 |
26% |
27% |
|||
|
JANUVIA / JANUMET |
1,311 |
1,490 |
-12% |
-11% |
|||
|
PROQUAD, M-M-R II and VARIVAX |
623 |
525 |
19% |
19% |
|||
|
BRIDION |
284 |
217 |
31% |
32% |
|||
|
ISENTRESS / ISENTRESS HD |
250 |
275 |
-9% |
-6% |
|||
|
NUVARING |
241 |
234 |
3% |
4% |
|||
|
PNEUMOVAX 23 |
237 |
214 |
11% |
11% |
|||
|
SIMPONI |
203 |
210 |
-3% |
1% |
|||
|
IMPLANON / NEXPLANON |
199 |
186 |
7% |
8% |
|||
|
Animal Health |
1,122 |
1,021 |
10% |
12% |
|||
|
Livestock |
726 |
660 |
10% |
12% |
|||
|
Companion Animals |
396 |
361 |
10% |
12% |
|||
|
Other Revenues |
180 |
115 |
59% |
-18% |
|||
Pharmaceutical Revenue
Third-quarter pharmaceutical sales were $11.1 billion, an increase of 15% compared with the third quarter of 2018; excluding the unfavorable effect of foreign exchange, sales grew 16% in the third 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 as well as lower sales of JANUVIA (sitagliptin) and JANUMET (sitagliptin and metformin HCI). International pharmaceutical sales represented 54% of total sales in the quarter. Performance in international markets was led by China, which had pharmaceutical sales of $898 million representing growth of 84% compared with the third quarter of 2018, driven by vaccines, primarily GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant] and GARDASIL 9 (Human Papillomavirus 9-valent Vaccine, Recombinant), and oncology. Excluding the unfavorable effect of foreign exchange, pharmaceutical sales in China grew by 90%.
Growth in oncology was largely driven by a $1.2 billion increase in sales for KEYTRUDA to $3.1 billion, reflecting strong momentum from the NSCLC indications as well as continued uptake in other indications, including the recently launched RCC and adjuvant melanoma indications, along with growth from Lynparza and Lenvima.
Growth in vaccines reflects higher sales of GARDASIL and GARDASIL 9, vaccines to prevent certain cancers and other diseases caused by HPV, primarily due to higher demand in Asia Pacific, particularly in China. Also contributing to sales growth was higher demand in Europe, driven primarily by increased vaccination rates for both boys and girls, as well as higher pricing and demand in the United States, partially offset by public sector buying patterns.
In October 2019, the company borrowed doses of GARDASIL 9 from the U.S. Centers for Disease and Control and Prevention’s (CDC) Pediatric Vaccine Stockpile, which will reduce GARDASIL 9 sales in the fourth quarter of 2019 by approximately $120 million. These doses will be allocated to support routine vaccination in the United States and will allow the company to manufacture doses for other parts of the world, including regions where some of the most vulnerable populations live.
Growth in pediatric vaccines was driven by VARIVAX (Varicella Virus Vaccine Live), a vaccine to help prevent chickenpox, and PROQUAD (Measles, Mumps, Rubella and Varicella Virus Vaccine Live), a combination vaccine to help protect against measles, mumps, rubella and varicella, reflecting higher demand and pricing in the United States and higher demand in Europe and Latin America.
Performance in hospital acute care reflects higher demand globally, particularly 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 prophylaxis (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 INVANZ (ertapenem sodium), ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), CUBICIN (daptomycin) and REMICADE (infliximab). In addition, the decline in sales of JANUVIA and JANUMET reflects continued pricing pressure in the United States, which more than offset higher demand globally.
Animal Health Revenue
Animal Health sales totaled $1.1 billion for the third quarter of 2019, an increase of 10% compared with the third quarter of 2018. Excluding the unfavorable effect from foreign exchange, Animal Health sales grew 12%. Growth in the third quarter was primarily driven by livestock, due to products acquired in the Antelliq acquisition, along with growth from companion animal products, driven largely by higher sales of the BRAVECTO (fluralaner) line of products for parasitic control.
Animal Health segment profits were $423 million in the third quarter of 2019, an increase of 4% compared with $409 million in the third quarter of 2018.3
Third-Quarter Expense, EPS and Related Information
The tables below present selected expense information.
|
$ in millions
|
GAAP |
Acquisition- and |
Restructuring |
Certain Other |
Non-GAAP2 |
|||||
|
Cost of sales |
$3,990 |
$941 |
$62 |
$− |
$2,987 |
|||||
|
Selling, general and administrative |
2,589 |
22 |
1 |
− |
2,566 |
|||||
|
Research and development |
3,204 |
6 |
1 |
982 |
2,215 |
|||||
|
Restructuring costs |
232 |
− |
232 |
− |
− |
|||||
|
Other (income) expense, net |
35 |
6 |
− |
− |
29 |
|||||
|
Third-Quarter 2018 |
|
|
|
|
|
|||||
|
Cost of sales |
$3,619 |
$680 |
$2 |
$420 |
$2,517 |
|||||
|
Selling, general and administrative |
2,443 |
2 |
− |
− |
2,441 |
|||||
|
Research and development |
2,068 |
5 |
(4) |
− |
2,067 |
|||||
|
Restructuring costs |
171 |
– |
171 |
− |
− |
|||||
|
Other (income) expense, net |
(172) |
(10) |
− |
− |
(162) |
GAAP Expense, EPS and Related Information
Gross margin was 67.8% for the third quarter of 2019 compared to 66.5% for the third quarter of 2018. The increase in gross margin for the third quarter of 2019 reflects the favorable impacts of a charge in 2018 related to the termination of a collaboration agreement with Samsung Bioepis Co., Ltd. and product mix, partially offset by higher acquisition- and divestiture-related costs, including the impact of a 2019 intangible asset impairment charge, higher amortization of unfavorable manufacturing variances, higher amortization of intangible assets related to collaborations, higher restructuring costs, as well as manufacturing facilities startup costs.
Selling, general and administrative expenses were $2.6 billion in the third quarter of 2019, a 6% increase compared to the third quarter of 2018. The increase primarily reflects higher promotion and administrative costs primarily in support of strategic brands, and higher acquisition- and divestiture-related costs, partially offset by the favorable effects of foreign exchange.
Research and development (R&D) expenses were $3.2 billion in the third quarter of 2019, an increase of 55% compared with the third quarter of 2018. The increase was driven primarily by a $982 million charge recorded in the third quarter of 2019 for the acquisition of Peloton coupled with higher expenses related to clinical development and increased investment in discovery research and early drug development.
Other (income) expense, net, was $35 million of expense in the third quarter of 2019 compared to $172 million of income in the third quarter of 2018 primarily reflecting lower income from investments in equity securities and higher net interest expense.
The effective income tax rate of 18.7% for the third quarter of 2019 includes the unfavorable impact of the charge for the acquisition of Peloton for which no tax benefit was recognized and the favorable impact of product mix.
GAAP EPS was $0.74 for the third quarter of 2019 compared with $0.73 for the third quarter of 2018.
Non-GAAP Expense, EPS and Related Information
The non-GAAP gross margin was 75.9% for the third quarter of 2019 compared to 76.7% for the third quarter of 2018. The decrease in non-GAAP gross margin primarily reflects higher amortization of unfavorable manufacturing variances, higher amortization of intangible assets related to collaborations, as well as manufacturing facilities startup costs.
Non-GAAP selling, general and administrative expenses were $2.6 billion in the third quarter of 2019, a 5% increase compared to the third quarter of 2018. The increase reflects higher promotion and administrative costs primarily in support of strategic brands, partially offset by the favorable effects of foreign exchange.
Non-GAAP R&D expenses were $2.2 billion in the third quarter of 2019, a 7% increase compared to the third quarter of 2018. The increase primarily reflects higher expenses related to clinical development and increased investment in discovery research and early drug development.
Non-GAAP other (income) expense, net, was $29 million of expense in the third quarter of 2019 compared to $162 million of income in the third quarter of 2018 primarily reflecting lower income from investments in equity securities and higher net interest expense.
The non-GAAP effective income tax rate of 15.7% for the third quarter of 2019 reflects the favorable impact of product mix.
Non-GAAP EPS was $1.51 for the third quarter of 2019 compared with $1.19 for the third 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 |
Third Quarter |
||
|
2019 |
2018 |
||
|
EPS |
|
|
|
|
GAAP EPS |
$0.74 |
$0.73 |
|
|
Difference5 |
0.77 |
0.46 |
|
|
Non-GAAP EPS that excludes items listed below2 |
$1.51 |
$1.19 |
|
|
|
|
|
|
|
Net Income |
|
|
|
|
GAAP net income1 |
$1,901 |
$1,950 |
|
|
Difference |
1,972 |
1,228 |
|
|
Non-GAAP net income that excludes items listed below1,2 |
$3,873 |
$3,178 |
|
|
|
|
|
|
|
Decrease (Increase) in Net Income Due to Excluded Items: |
|
|
|
|
Acquisition- and divestiture-related costs4 |
$975 |
$677 |
|
|
Restructuring costs |
296 |
169 |
|
|
Charge for the acquisition of Peloton |
982 |
− |
|
|
Charge related to the termination of a collaboration agreement with Samsung |
− |
420 |
|
|
Net decrease (increase) in income before taxes |
2,253 |
1,266 |
|
|
Estimated income tax (benefit) expense |
(281) |
(38) |
|
|
Decrease (increase) in net income |
$1,972 |
$1,228 |
|
Financial Outlook
Merck narrowed and raised its full-year 2019 revenue range to be between $46.5 billion and $47.0 billion, including both the impact of the GARDASIL 9 stockpile borrowing noted above and a negative impact from foreign exchange of approximately 2% at mid-October exchange rates.
Merck reduced its expected full-year GAAP effective tax rate to approximately 16.5% and its expected full-year non-GAAP effective tax rate to approximately 17.5%. These reductions are primarily attributable to favorable product mix.
Merck narrowed and reduced its full-year 2019 GAAP EPS range to be between $3.75 and $3.80. The change in the GAAP EPS range primarily reflects the impact of the intangible asset impairment charge noted above. Merck narrowed and raised its full-year 2019 non-GAAP EPS range to be between $5.12 and $5.17, including a negative impact from foreign exchange of approximately 1% at mid-October 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, the charge for the acquisition of Peloton and certain other items.
The following table summarizes the company’s full-year 2019 financial guidance.
|
GAAP |
Non-GAAP2 |
||||||||
|
|
|
|
|||||||
|
Revenue |
$46.5 to $47.0 billion |
$46.5 to $47.0 billion* |
|||||||
|
Operating expenses |
Higher than 2018 by a low-single digit rate |
Higher than 2018 by a mid-single digit rate |
|||||||
|
Effective tax rate |
Approximately 16.5% |
Approximately 17.5% |
|||||||
|
EPS** |
$3.75 to $3.80 |
$5.12 to $5.17 |
|||||||
|
*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 |
$3.75 to $3.80 |
||
|
Difference5 |
1.37 |
||
|
Non-GAAP EPS that excludes items listed below2 |
$5.12 to $5.17 |
||
|
|
|
||
|
Acquisition- and divestiture-related costs4 |
$2,700 |
||
|
Restructuring costs Charge for the acquisition of Peloton |
750 982 |
||
|
Net decrease (increase) in income before taxes |
4,432 |
||
|
Income tax (benefit) expense6 |
(900) |
||
|
Decrease (increase) in net income |
$3,532 |
The expected full-year GAAP effective tax rate of 16.5% reflects a net favorable impact of approximately one percentage point 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 5635157. Members of the media are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917 and using ID code number 5635157. 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, Instagram, 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.
Contacts
Media:
Jennifer Mauer
(908) 740-1801
Pamela Eisele
(267) 305-3558
Investors:
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(908) 740-1037
Michael DeCarbo
(908) 740-1807