On May 2, 2017 6:45 Merck (NYSE:MRK), known as MSD outside the United States and Canada, reported financial results for the first quarter of 2017 (Press release, Merck & Co, MAY 2, 2017, View Source [SID1234518781]). Schedule your 30 min Free 1stOncology Demo! "Merck delivered solid performance across our broad range of products that address major disease categories and the needs of global health," said Kenneth C. Frazier, chairman and chief executive officer, Merck. "The continued momentum of KEYTRUDA in oncology, along with the strength of the vaccine and other franchises and animal health, helped to drive revenue growth in the quarter."
Discover why more than 1,500 members use 1stOncology™ to excel in:
Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing
Schedule Your 30 min Free Demo!
Financial Summary
$ in millions, except EPS amounts First Quarter
2017 2016
Sales $9,434 $9,312
GAAP EPS 0.56 0.40
Non-GAAP EPS that excludes certain items1*
0.88 0.89
GAAP net income2
1,551 1,125
Non-GAAP net income that excludes certain items1,2* 2,437 2,492
*Refer to table on page 7.
Worldwide sales were $9.4 billion for the first quarter of 2017, an increase of 1 percent compared with the first quarter of 2016, including a 2 percent negative impact from foreign exchange.
GAAP (generally accepted accounting principles) earnings per share assuming dilution (EPS) were $0.56 for the first quarter of 2017. Non-GAAP EPS of $0.88 for the first quarter of 2017 excludes acquisition- and divestiture-related costs, restructuring costs and certain other items.
Pipeline Highlights
Merck continued to deliver significant progress in the development program for KEYTRUDA (pembrolizumab), an anti-PD-1 therapy, receiving key regulatory approvals or opinions and supplemental Biologics License Application (sBLA) acceptances.
The U.S. Food and Drug Administration (FDA) approved under its Accelerated Approval program KEYTRUDA for the treatment of patients with refractory classical Hodgkin lymphoma (cHL) or for patients with cHL who have relapsed after three or more prior lines of therapy.
The European Commission approved KEYTRUDA for the first-line treatment of non-small cell lung cancer (NSCLC) in adults whose tumors have high PD-L1 expression (tumor proportion score of 50 percent or more) with no EGFR or ALK positive tumor mutations.
The Committee for Medicinal Products for Human Use of the European Medicines Agency (EMA) adopted a positive opinion recommending approval of KEYTRUDA for the treatment of adult patients with relapsed or refractory cHL who have failed autologous stem cell transplant and brentuximab vedotin (BV), or who are transplant-ineligible and have failed BV.
The FDA accepted for review under its Accelerated Approval program the sBLA for KEYTRUDA in combination with pemetrexed and carboplatin for the treatment of patients with metastatic or advanced NSCLC regardless of PD-L1 expression. This is the first application for regulatory approval of KEYTRUDA in combination with another treatment. The FDA granted Priority Review with a PDUFA action date of May 10, 2017.
The FDA accepted and granted Priority Review for the sBLA for the treatment of patients with locally advanced or metastatic urothelial cancer, a type of bladder cancer, for first-line use in patients who are ineligible for cisplatin-containing therapy. The application for second-line use was also accepted for Priority Review. The PDUFA action date for both applications is June 14, 2017.
The company recently submitted additional data and analyses to the FDA for the pending sBLA application for the treatment of previously treated patients with advanced microsatellite instability-high cancer. The PDUFA action date for this Priority Review has been extended to June 9, 2017.
The FDA and EMA accepted for review three New Drug Applications (NDAs) in the company’s diabetes franchise for medicines containing ertugliflozin, an investigational SGLT2 inhibitor in development to help improve glycemic control in adults with type 2 diabetes as part of Merck’s collaboration with Pfizer Inc. The PDUFA action date from the FDA is in December 2017 for the three NDAs.
Merck presented phase 3 data across our late-stage pipeline in studies that met their primary endpoints.
At the Conference on Retroviruses and Opportunistic Infections in February, data were presented from the ongoing "DRIVE-FORWARD" phase 3 clinical trial evaluating the safety and efficacy of doravirine (MK-1439), an investigational non-nucleoside reverse transcriptase inhibitor for previously untreated adults with HIV-1 infection. The study met its primary efficacy endpoint, demonstrating the non-inferiority of once-daily doravirine to once-daily ritonavir-boosted darunavir.
Positive results from a study of letermovir, an investigational antiviral medicine for the prevention of cytomegalovirus infection in high-risk bone marrow transplant patients, were presented at the BMT Tandem Meetings in February.
Merck presented data from a trial for V212, an investigational inactivated varicella zoster virus vaccine for the prevention of herpes zoster or HZ, also known as shingles. The data demonstrated a reduction in the incidence of confirmed HZ cases by an estimated 64 percent in immunocompromised patients and also were presented at the BMT Tandem Meetings.
First-Quarter Revenue Performance
The following table reflects sales of the company’s top pharmaceutical products, as well as total sales of Animal Health products.
$ in millions First Quarter
Change
2017 2016 Change Ex-Exchange
Total Sales $9,434 $9,312 1% 3%
Pharmaceutical 8,185 8,104 1% 2%
JANUVIA / JANUMET 1,335 1,412 -5% -5%
KEYTRUDA 584 249 134% 137%
ZETIA / VYTORIN 575 889 -35% -35%
GARDASIL / GARDASIL 9 532 378 41% 41%
ZEPATIER 378 50 * *
PROQUAD, M-M-R II and VARIVAX
355 357 0% 1%
ISENTRESS 305 340 -10% -10%
REMICADE 229 349 -34% -31%
ROTATEQ 224 188 19% 19%
Animal Health 939 829 13% 14%
Other Revenues 310 379 -18% -5%
*Growth comparison not meaningful due to ongoing product launch.
Pharmaceutical Revenue
First-quarter pharmaceutical sales increased 1 percent to $8.2 billion, including a 1 percent negative impact from foreign exchange. The growth was driven by oncology, hepatitis C and vaccines, largely offset by the loss of market exclusivity for several products, as well as lower sales in the diabetes franchise.
Growth in oncology was due to higher sales of KEYTRUDA as the company continues to launch the product with new indications globally.
Growth in hepatitis C was driven by ZEPATIER (elbasvir and grazoprevir), a medicine for the treatment of chronic hepatitis C virus genotypes 1 or 4 infection, due to ongoing launches globally. Sales in the United States also reflect an approximately $40 million favorable adjustment to rebate accruals due to mix of business.
Growth in vaccines was primarily driven 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 HPV, in the United States reflecting the timing of public sector purchases, underlying demand and increased price, as well as higher sales of PNEUMOVAX 23 (pneumococcal vaccine polyvalent) largely driven by demand in the United States. Growth in vaccines also reflects incremental sales of approximately $65 million, of which approximately $50 million relates to GARDASIL and GARDASIL 9, due to Merck now recording vaccine sales in the 19 European countries previously part of the Sanofi Pasteur MSD vaccines joint venture, which was terminated on Dec. 31, 2016.
Pharmaceutical sales reflect a decrease in the diabetes franchise of JANUVIA (sitagliptin) and JANUMET (sitagliptin and metformin HCl), medicines that help lower blood sugar in adults with type 2 diabetes, primarily due to the timing of customer purchases in the United States as anticipated for the quarter.
Sales growth also was offset by the loss of U.S. market exclusivity in 2016 for ZETIA (ezetimibe), a medicine for lowering LDL cholesterol; CUBICIN (daptomycin for injection), an I.V. antibiotic; and NASONEX (mometasone furoate monohydrate), an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms; as well as by the ongoing impact of biosimilar competition in the company’s marketing territories in Europe for REMICADE (infliximab), a treatment for inflammatory diseases. In the aggregate, sales of these products declined $686 million during the first quarter of 2017 compared to the first quarter of 2016.
Animal Health Revenue
Animal Health sales totaled $939 million for the first quarter of 2017, an increase of 13 percent compared with the first quarter of 2016, including a 1 percent negative impact from foreign exchange. Growth was primarily due to sales increases in companion animal products, driven by the BRAVECTO (fluralaner) line of products that kill fleas and ticks in dogs and cats for up to 12 weeks, as well as in ruminants, poultry and swine products. In March, Animal Health completed the acquisition of Vallée S.A., a leading privately held producer of animal health products in Brazil.
First-Quarter Expense, EPS and Related Information
The table below presents selected expense information.
$ in millions
Acquisition- and
Divestiture- Restructuring Certain Other
First-Quarter 2017 GAAP
Related Costs 3
Costs Items
Non-GAAP 1
Materials and production $3,015 $855 $63 $– $2,097
Marketing and administrative 2,411 20 1 – 2,390
Research and development 1,796 11 – – 1,785
Restructuring costs 151 – 151 – –
Other (income) expense, net 58 (3) – (9) 70
First-Quarter 2016
Materials and production $3,572 $1,386 $47 $– $2,139
Marketing and administrative 2,318 2 3 – 2,313
Research and development 1,659 35 55 – 1,569
Restructuring costs 91 – 91 – –
Other (income) expense, net 48 – – – 48
GAAP Expense, EPS and Related Information
On a GAAP basis, the gross margin was 68.0 percent for the first quarter of 2017 compared to 61.6 percent for the first quarter of 2016. The increase in gross margin for the first quarter of 2017 was primarily driven by a lower net impact from acquisition- and divestiture-related costs and restructuring costs which reduced gross margin by 9.8 percentage points in the first quarter of 2017 as compared with 15.4 percentage points in the first quarter of 2016. The increase in gross margin also reflects the favorable effects of foreign exchange and lower inventory write-offs.
Marketing and administrative expenses were $2.4 billion in the first quarter of 2017, a 4 percent increase compared to the first quarter of 2016. The increase primarily reflects higher health care reform fee expenses, administrative costs, and promotion and direct selling expenses.
Research and development (R&D) expenses were $1.8 billion in the first quarter of 2017, an 8 percent increase compared to the first quarter of 2016. The increase reflects higher clinical development spending, partially offset by lower restructuring costs.
GAAP EPS was $0.56 for the first quarter of 2017 compared with $0.40 for the first quarter of 2016.
Non-GAAP Expense, EPS and Related Information
The non-GAAP gross margin was 77.8 percent for the first quarter of 2017 compared to 77.0 percent for the first quarter of 2016. The increase in non-GAAP gross margin was largely driven by the favorable effects of foreign exchange and lower inventory write-offs.
Non-GAAP marketing and administrative expenses were $2.4 billion in the first quarter of 2017, an increase of 3 percent compared to the first quarter of 2016. The increase was driven primarily by higher health care reform fee expenses, administrative costs, and promotion and direct selling expenses.
Non-GAAP R&D expenses were $1.8 billion in the first quarter of 2017, a 14 percent increase compared to the first quarter of 2016. The increase primarily reflects higher clinical development spending.
Non-GAAP EPS was $0.88 for the first quarter of 2017 compared with $0.89 for the first quarter of 2016.
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
2017 2016
EPS
GAAP EPS $0.56 $0.40
Difference4
0.32 0.49
Non-GAAP EPS that excludes items listed below1 $0.88 $0.89
Net Income
GAAP net income2 $1,551 $1,125
Difference 886 1,367
Non-GAAP net income that excludes items listed below1,2 $2,437 $2,492
Decrease (Increase) in Net Income Due to Excluded Items:
Acquisition- and divestiture-related costs3 $883 $1,423
Restructuring costs 215 196
Other (9) –
Net decrease (increase) in income before taxes 1,089 1,619
Estimated income tax (benefit) expense (203) (252)
Decrease (increase) in net income $886 $1,367
Financial Outlook
Merck has narrowed and raised its full-year 2017 GAAP EPS range to be between $2.51 and $2.63. Merck has narrowed and raised its full-year 2017 non-GAAP EPS range to be between $3.76 and $3.88, including an approximately 1.5 percent negative impact from foreign exchange at mid-April 2017 exchange rates. The non-GAAP range excludes acquisition- and divestiture-related costs, costs related to restructuring programs and certain other items.
Merck has narrowed and raised its full-year 2017 revenue range to be between $39.1 billion and $40.3 billion, including an approximately 1.5 percent negative impact from foreign exchange at mid-April 2017 exchange rates.
The following table summarizes the company’s 2017 financial guidance.
GAAP Non-GAAP 1
Revenue $39.1 to $40.3 billion $39.1 to $40.3 billion**
Operating expenses Lower than 2016 Higher than 2016 by a low-single digit rate
Effective tax rate 22.0% to 23.0% 21.0% to 22.0%
EPS $2.51 to $2.63 $3.76 to $3.88
**The company does not have any non-GAAP adjustments to revenue.
A reconciliation of anticipated 2017 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 2017
GAAP EPS $2.51 to $2.63
Difference4 1.25
Non-GAAP EPS that excludes items listed below1 $3.76 to $3.88
Acquisition- and divestiture-related costs $3,600
Restructuring costs 600
Net decrease (increase) in income before taxes 4,200
Estimated income tax (benefit) expense (750)
Decrease (increase) in net income $3,450
The expected full-year 2017 GAAP effective tax rate of 22.0 to 23.0 percent reflects an unfavorable impact of approximately 1 percentage point from the above items.
Total Employees
As of March 31, 2017, Merck had approximately 69,000 employees worldwide.