10-QPeriod: Q3 FY2013

Merck & Co., Inc. Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 7, 2013For Securities:MRK

Summary

Merck & Co., Inc. reported a decline in sales and net income for the third quarter and first nine months of 2013 compared to the prior year. This performance was significantly impacted by the loss of market exclusivity for key products, most notably Singulair, which experienced a substantial sales decrease following patent expiries. Revenue was also affected by unfavorable foreign exchange rates and continued pricing pressures in international markets. Despite the sales challenges, Merck announced a new global restructuring program aimed at sharpening its commercial and R&D focus, which involves workforce reductions and facility consolidations. The company also continued its robust share repurchase program, demonstrating a commitment to returning capital to shareholders. The company's pipeline shows ongoing development in key therapeutic areas, including advancements in allergy immunotherapy, oncology, and infectious diseases.

Financial Highlights

51 data points
Beta

Revenue

$11.03B

62.8% Gross Margin

Net Income

$1.12B

10.2% Net Margin

EPS (Diluted)

$0.38

Total Assets

$106.42B

Cash & Equivalents

$14.09B

Free Cash Flow

$3.95B

Financial Statements
Beta
Revenue$11.03B
Cost of Revenue$4.10B
Gross Profit$6.93B
R&D Expenses$1.66B
SG&A Expenses$2.80B
Interest Expense$215.00M
Net Income$1.12B
EPS (Basic)$0.38
EPS (Diluted)$0.38
Shares Outstanding (Basic)2.93B
Shares Outstanding (Diluted)2.96B

Key Highlights

  • 1Sales decreased by 4% year-over-year for the third quarter of 2013, reaching $11.0 billion, primarily due to the loss of market exclusivity for Singulair.
  • 2Net income attributable to Merck & Co., Inc. declined to $1.124 billion for the third quarter of 2013, down from $1.729 billion in the same period of 2012.
  • 3A new global restructuring program was announced in October 2013, targeting approximately 8,500 job reductions to sharpen focus and improve efficiency, with an estimated cumulative pretax cost of $2.5 billion to $3.0 billion.
  • 4The company repurchased approximately $5 billion of its common stock under an accelerated share repurchase (ASR) agreement in May 2013 as part of a larger $15 billion share repurchase program.
  • 5Key growth drivers included Remicade, Gardasil, and Simponi, which partially offset declines in other product sales.
  • 6Research and Development expenses decreased by 13% in the third quarter, reflecting productivity improvements and timing of clinical development programs.
  • 7The company's long-term debt increased due to a $6.5 billion senior unsecured notes offering in May 2013.

Frequently Asked Questions

The primary reason for the decline in sales and net income is the loss of market exclusivity for key products, most notably Singulair, following patent expiries in the US and major European markets. This led to a significant drop in sales for these products.

The 2013 Restructuring Program is a new global initiative announced in October 2013 to sharpen Merck's commercial and R&D focus. It involves reducing the workforce by approximately 8,500 positions, optimizing real estate, and improving manufacturing efficiency. The company expects this program to result in annual net cost savings of approximately $2.0 billion by the end of 2015.

Merck has a strong share repurchase program. In May 2013, it initiated an accelerated share repurchase (ASR) agreement worth $5 billion and announced a broader $15 billion authorization. The company also continued to pay dividends to shareholders.

Yes, Merck is involved in several significant legal proceedings, including those related to Vioxx, Fosamax, Januvia/Janumet, and NuvaRing. The company has established reserves for some of these matters, such as settlements for Vioxx consumer economic loss claims and a Canadian settlement. While the company believes it has defenses for remaining Vioxx litigation, unfavorable outcomes could materially affect its financial position.