10-KPeriod: FY2007

Merck & Co., Inc. Annual Report, Year Ended Dec 31, 2007

Filed February 29, 2008For Securities:MRK

Summary

Schering-Plough reported consolidated net sales of $12.7 billion for the fiscal year ending December 30, 2007, a 20% increase from the prior year, largely driven by the transformative acquisition of Organon BioSciences N.V. (OBS) in November 2007 and strong performance in its Human Prescription Pharmaceuticals segment. However, the company posted a net loss of $1.6 billion for the year, primarily due to significant purchase accounting charges related to the OBS acquisition, including a $3.8 billion charge for acquired in-process research and development. Despite the net loss, the company generated $2.6 billion in cash flow from operating activities. Key product sales, including REMICADE, NASONEX, and TEMODAR, demonstrated robust growth, contributing to the overall increase in revenue. The company also highlighted ongoing research and development investments, with spending increasing by 34% to $2.9 billion, signaling a commitment to pipeline development. Investors should note the significant impact of the OBS acquisition on the company's balance sheet and the ongoing integration process. Additionally, the company disclosed potential risks related to its Merck/Schering-Plough cholesterol joint venture products, VYTORIN and ZETIA, due to media scrutiny surrounding the ENHANCE clinical trial, which had begun impacting prescriptions in early 2008.

Financial Highlights

28 data points
Beta

Revenue

$24.20B

74.6% Gross Margin

Net Income

$3.28B

13.5% Net Margin

EPS (Diluted)

$1.49

Cash & Equivalents

$5.34B

Free Cash Flow

$7.00B

Financial Statements
Beta
Revenue$24.20B
Cost of Revenue$6.14B
Gross Profit$18.06B
R&D Expenses$4.88B
SG&A Expenses$7.56B
Net Income$3.28B
EPS (Basic)$1.51
EPS (Diluted)$1.49

Key Highlights

  • 1Consolidated net sales increased by 20% to $12.7 billion in 2007, primarily due to the acquisition of Organon BioSciences N.V. (OBS).
  • 2The company reported a net loss of $1.6 billion in 2007, significantly impacted by $3.8 billion in acquired in-process R&D charges related to the OBS acquisition.
  • 3Operating cash flow remained strong at $2.6 billion.
  • 4Research and Development expenses increased by 34% to $2.9 billion, indicating continued investment in future product pipelines.
  • 5Key pharmaceutical products like REMICADE, NASONEX, and TEMODAR showed significant sales growth.
  • 6Schering-Plough is facing scrutiny and litigation related to the ENHANCE clinical trial for its cholesterol joint venture products (VYTORIN and ZETIA), which began impacting sales in early 2008.

Frequently Asked Questions

The primary driver of Schering-Plough's 20% revenue growth in 2007 was the acquisition of Organon BioSciences N.V. (OBS) in November 2007, which significantly expanded its product portfolio and global reach.

Schering-Plough reported a net loss of $1.6 billion in 2007 mainly due to substantial non-cash purchase accounting charges associated with the OBS acquisition. The largest of these was a $3.8 billion charge for acquired in-process research and development, which is expensed immediately upon acquisition.

Key risks highlighted include the company's dependence on key products like VYTORIN and ZETIA, the high failure rate in drug development, potential impacts from intellectual property challenges (like patent expirations and Paragraph IV certifications), and increasing pricing pressures from managed care organizations and government agencies. Additionally, the company is facing significant scrutiny and litigation related to the ENHANCE trial for its cholesterol joint venture products.

The Merck/Schering-Plough cholesterol joint venture's products, VYTORIN and ZETIA, continued to grow in sales and market share in 2007. Schering-Plough's share of the joint venture's income, recognized as equity income, increased significantly to $2.0 billion in 2007, up from $1.5 billion in 2006. However, early in 2008, prescriptions for these products began to decline due to negative media attention surrounding the ENHANCE trial.