10-QPeriod: Q1 FY2015

Merck & Co., Inc. Quarterly Report for Q1 Ended Mar 31, 2015

Filed May 7, 2015For Securities:MRK

Summary

Merck & Co., Inc. reported financial results for the first quarter of 2015, showing a year-over-year decline in both sales and net income. Worldwide sales decreased by 8% to $9.4 billion, impacted by foreign exchange headwinds, divestitures of non-core businesses (Consumer Care and certain ophthalmic products), and the sale of U.S. marketing rights for Saphris. Net income attributable to Merck & Co., Inc. fell significantly to $953 million from $1.7 billion in the prior year period, resulting in a substantial decrease in diluted earnings per share to $0.33 from $0.57. The company completed the significant acquisition of Cubist Pharmaceuticals for $8.3 billion in January 2015, which added $208 million in sales in the quarter and bolstered its hospital acute care business. This acquisition, along with ongoing restructuring efforts, contributed to increased expenses, impacting profitability. Despite the revenue and earnings decline, Merck highlighted continued investment in research and development, with a notable focus on its promising oncology drug Keytruda, which generated $83 million in sales during the quarter. Key financial updates include a decrease in cash and investments and an increase in total debt, reflecting the Cubist acquisition and related financing. The company also provided an update on its ongoing legal proceedings, most notably the Vioxx and Fosamax litigation, indicating no material impact expected from these matters, though reserves are maintained. Merck's balance sheet shows a notable increase in goodwill and other intangible assets due to the Cubist acquisition.

Financial Highlights

52 data points
Beta

Revenue

$9.43B

62.1% Gross Margin

Net Income

$953.00M

10.1% Net Margin

EPS (Diluted)

$0.33

Total Assets

$108.34B

Cash & Equivalents

$7.98B

Free Cash Flow

$2.28B

Financial Statements
Beta
Revenue$9.43B
Cost of Revenue$3.57B
Gross Profit$5.86B
R&D Expenses$1.74B
SG&A Expenses$2.60B
Interest Expense$164.00M
Net Income$953.00M
EPS (Basic)$0.34
EPS (Diluted)$0.33
Shares Outstanding (Basic)2.83B
Shares Outstanding (Diluted)2.87B

Key Highlights

  • 1Total sales for Q1 2015 were $9.4 billion, an 8% decrease year-over-year, primarily due to divestitures and foreign exchange impacts.
  • 2Net income attributable to Merck & Co., Inc. was $953 million, a significant decrease from $1.7 billion in Q1 2014.
  • 3Diluted Earnings Per Share (EPS) declined to $0.33 from $0.57 year-over-year.
  • 4The acquisition of Cubist Pharmaceuticals for $8.3 billion was completed in January 2015, contributing $208 million in sales in the quarter.
  • 5Research and Development expenses increased by 10% to $1.7 billion, reflecting ongoing investment in drug development, particularly for Keytruda.
  • 6Keytruda, an oncology drug, generated $83 million in sales in its first quarter of significant reporting.
  • 7Total debt increased significantly, largely due to the financing of the Cubist acquisition, while cash and investments saw a slight decrease.

Frequently Asked Questions

The acquisition of Cubist Pharmaceuticals for $8.3 billion was completed in January 2015. Cubist contributed $208 million in sales during the first quarter of 2015, enhancing Merck's hospital acute care portfolio. However, the acquisition also contributed to increased expenses and transaction costs, impacting profitability.

The decrease in sales was primarily driven by the divestiture of the Consumer Care business and other ophthalmic products in 2014, the sale of U.S. marketing rights for Saphris, and unfavorable foreign exchange rates. The significant drop in net income was also influenced by a large gain recorded in Q1 2014 from the divestiture of Sirna Therapeutics and related tax benefits, as well as higher licensing and R&D costs in the current quarter.

Keytruda generated $83 million in sales in Q1 2015. The company is actively pursuing regulatory approvals in new indications, including non-small cell lung cancer and advanced melanoma, and has received Breakthrough Therapy designations for certain indications. Clinical development is progressing across numerous cancer types, indicating a strong focus and investment in this promising therapy.

Merck's total debt increased significantly due to the issuance of $8.0 billion in senior unsecured notes to finance the Cubist acquisition and the redemption of legacy Cubist debt. Consequently, the debt-to-equity ratio rose to 27.9%. Worldwide cash and investments decreased slightly to $28.7 billion, with a substantial portion held by foreign subsidiaries.