10-QPeriod: Q1 FY2009

Merck & Co., Inc. Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 1, 2009For Securities:MRK

Summary

Schering-Plough Corporation reported its first quarter 2009 financial results, showing a decrease in net sales to $4.4 billion from $4.7 billion in the prior year, primarily due to foreign exchange impacts. Despite the sales dip, net income available to common shareholders significantly increased to $767 million ($0.46 per diluted share) from $276 million ($0.17 per diluted share) in the first quarter of 2008. This improvement was largely driven by a substantial reduction in Cost of Sales, Selling, General and Administrative expenses, and Research and Development costs, alongside a lower income tax expense. The company also highlighted a strong operational cash flow of $556 million. Of significant note is the ongoing merger agreement with Merck & Co., Inc., announced in March 2009, which will combine the two companies. This transaction is expected to close in the fourth quarter of 2009, subject to regulatory and shareholder approvals. Investors should monitor the progress of this merger and its impact on future financial reporting, as well as the ongoing performance of key products, particularly the cholesterol franchise (VYTORIN and ZETIA), which experienced a 21% decline in sales.

Financial Highlights

24 data points
Beta

Revenue

$5.39B

75.2% Gross Margin

Net Income

$1.43B

26.5% Net Margin

EPS (Diluted)

$0.67

Cash & Equivalents

$6.02B

Free Cash Flow

$712.60M

Financial Statements
Beta
Revenue$5.39B
Cost of Revenue$1.33B
Gross Profit$4.05B
R&D Expenses$1.22B
SG&A Expenses$1.63B
Net Income$1.43B
EPS (Basic)$0.67
EPS (Diluted)$0.67

Key Highlights

  • 1Net sales decreased by 6% year-over-year to $4.4 billion, primarily impacted by foreign exchange fluctuations.
  • 2Net income available to common shareholders surged to $767 million, or $0.46 per diluted share, compared to $276 million, or $0.17 per diluted share, in the prior year's quarter.
  • 3Operating cash flow remained strong at $556 million for the quarter.
  • 4The company announced a definitive merger agreement with Merck & Co., Inc. in March 2009, with an expected closing in Q4 2009.
  • 5Sales for the cholesterol franchise (VYTORIN and ZETIA) declined 21% globally due to operational decreases and foreign exchange impacts.
  • 6Selling, General, and Administrative (SG&A) expenses decreased by 11% and R&D expenses decreased by 9%, partly due to cost-saving initiatives.
  • 7Equity income from the Merck/Schering-Plough cholesterol joint venture decreased to $400 million from $517 million, reflecting lower joint venture sales.

Frequently Asked Questions

The significant increase in net income was primarily driven by substantial reductions in Cost of Sales, Selling, General and Administrative (SG&A) expenses, and Research and Development (R&D) expenses. Additionally, a lower income tax expense contributed to the improved net income.

Merck and Schering-Plough announced a definitive merger agreement on March 9, 2009. The transaction is subject to shareholder and regulatory approvals, with an expected completion in the fourth quarter of 2009.

The cholesterol franchise experienced a 21% decline in global sales during the first quarter of 2009 compared to the prior year, impacted by both operational decreases and unfavorable foreign exchange rates. US sales declined by 30%.

The company generated strong operating cash flow of $556 million in the first quarter of 2009. At March 31, 2009, Schering-Plough had net debt of approximately $4.3 billion. The company believes its operating cash flow and available cash and short-term investments will fund its needs in the intermediate term.