10-QPeriod: Q2 FY2014

Merck & Co., Inc. Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 7, 2014For Securities:MRK

Summary

Merck & Co., Inc. reported solid financial results for the second quarter and first six months of 2014, despite a slight dip in overall sales. The company saw a 1% decrease in sales for Q2 2014 to $10.9 billion and a 2% decrease for the first six months to $21.2 billion, primarily due to lower sales of established products like Temodar and Nasonex, and the impact of divestitures. However, growth was observed in key products such as Remicade, Zetia, Simponi, and Janumet. Net income attributable to Merck & Co., Inc. significantly increased, reaching $2.0 billion in Q2 and $3.7 billion year-to-date, driven by strong operational performance and a substantial one-time gain from the exercise of an option related to AstraZeneca LP. Strategic divestitures and acquisitions were also prominent during the period. Merck announced the sale of its Consumer Care business to Bayer for $14.2 billion and completed the acquisition of Idenix Pharmaceuticals for $3.85 billion, strengthening its focus on viral diseases, particularly Hepatitis C. These activities, along with ongoing restructuring efforts aimed at improving efficiency and sharpening focus, indicate Merck's proactive approach to portfolio management and long-term growth. The company also provided an update on its robust R&D pipeline, highlighting progress with its investigational anti-PD-1 antibody, pembrolizumab, for melanoma, and other promising drug candidates.

Financial Highlights

52 data points
Beta

Revenue

$10.93B

55.2% Gross Margin

Net Income

$2.00B

18.3% Net Margin

EPS (Diluted)

$0.68

Total Assets

$97.86B

Cash & Equivalents

$9.74B

Free Cash Flow

$2.31B

Financial Statements
Beta
Revenue$10.93B
Cost of Revenue$4.89B
Gross Profit$6.04B
R&D Expenses$1.66B
SG&A Expenses$2.97B
Interest Expense$188.00M
Net Income$2.00B
EPS (Basic)$0.69
EPS (Diluted)$0.68
Shares Outstanding (Basic)2.92B
Shares Outstanding (Diluted)2.95B

Key Highlights

  • 1Sales for Q2 2014 were $10.9 billion, down 1% year-over-year, and $21.2 billion for the first six months, down 2% year-over-year, impacted by divestitures and competition for certain products.
  • 2Net income attributable to Merck & Co., Inc. surged significantly, reaching $2.0 billion in Q2 and $3.7 billion year-to-date, boosted by a substantial gain from the AstraZeneca option exercise.
  • 3Strategic divestitures are underway, including the announced sale of the Consumer Care business to Bayer for $14.2 billion, expected to close in the second half of 2014.
  • 4Acquisition of Idenix Pharmaceuticals for $3.85 billion was completed in August 2014, enhancing the company's pipeline in viral diseases, notably Hepatitis C.
  • 5Key products like Remicade, Zetia, Simponi, and Janumet demonstrated sales growth, indicating continued strength in core therapeutic areas.
  • 6Research and Development expenses decreased year-over-year due to cost savings from restructuring and portfolio prioritization, while the pipeline, especially pembrolizumab, showed positive development.
  • 7Merck continues to manage its capital effectively, with significant share repurchases and dividend payments, and entered into a new $6.0 billion credit facility.

Frequently Asked Questions

Sales for the second quarter of 2014 were $10.9 billion, a 1% decrease compared to the prior year. The primary drivers for this decline were lower sales of established products such as Temodar, Victrelis, Nasonex, Cozaar/Hyzaar, and PegIntron, as well as the impact of product divestitures. Partially offsetting these declines were growth from key products like Remicade, Zetia, Simponi, and Janumet, and higher revenue from the company's relationship with AstraZeneca LP.

The significant increase in net income for the first six months of 2014, reaching $3.7 billion, was substantially influenced by a substantial one-time gain of approximately $650 million recognized from the exercise of AstraZeneca's option to purchase Merck's interest in AZLP and related entities. This event, along with lower operating expenses and favorable tax items, contributed to the strong net income performance.

Merck announced two major strategic initiatives: the definitive agreement to sell its Consumer Care business to Bayer for $14.2 billion, expected to close in late 2014, and the completion of the acquisition of Idenix Pharmaceuticals for approximately $3.85 billion. The Idenix acquisition significantly bolsters Merck's position in the development of treatments for viral diseases, particularly Hepatitis C.

Merck's R&D expenses decreased year-over-year due to restructuring cost savings and portfolio prioritization. Key developments include the FDA granting Priority Review for its investigational anti-PD-1 antibody, pembrolizumab (MK-3475), for advanced melanoma, with a Prescription Drug User Fee Act (PDUFA) date of October 28, 2014. Other pipeline advancements are noted in areas such as diabetes, hepatitis C, and osteoporosis. The acquisition of Idenix also brings additional promising HCV drug candidates into the pipeline.