10-QPeriod: Q2 FY2015

Merck & Co., Inc. Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 6, 2015For Securities:MRK

Summary

Merck & Co., Inc. (MRK) reported a decrease in net income for the second quarter and first six months of 2015 compared to the same periods in 2014. This decline was primarily driven by significant foreign exchange losses related to Venezuela and the absence of a substantial gain recognized in the prior year from AstraZeneca's option exercise. Revenue also saw a decrease, largely due to the divestitures of the Consumer Care business and certain ophthalmic products in 2014, as well as the termination of the AZLP relationship. Despite the overall decline in reported profits, the acquisition of Cubist Pharmaceuticals in January 2015 added $329 million in revenue for the quarter. The company's oncology franchise showed promise with Keytruda sales increasing and receiving regulatory approvals. However, several key products like Zetia, Vytorin, Remicade, and Singulair experienced sales declines due to factors such as loss of market exclusivity, generic competition, and unfavorable foreign exchange rates. Merck continues to manage its cost structure through ongoing restructuring programs and reported strong operational cash flow.

Financial Highlights

52 data points
Beta

Revenue

$9.79B

61.6% Gross Margin

Net Income

$687.00M

7.0% Net Margin

EPS (Diluted)

$0.24

Total Assets

$102.58B

Cash & Equivalents

$6.92B

Free Cash Flow

$2.70B

Financial Statements
Beta
Revenue$9.79B
Cost of Revenue$3.75B
Gross Profit$6.03B
R&D Expenses$1.67B
SG&A Expenses$2.62B
Interest Expense$174.00M
Net Income$687.00M
EPS (Basic)$0.24
EPS (Diluted)$0.24
Shares Outstanding (Basic)2.83B
Shares Outstanding (Diluted)2.85B

Key Highlights

  • 1Net income attributable to Merck & Co., Inc. decreased significantly in both the second quarter ($687M vs $2,004M) and the first six months ($1,639M vs $3,709M) of 2015 compared to 2014, primarily due to foreign exchange losses and the absence of prior year gains.
  • 2Worldwide sales decreased by 11% in Q2 2015 and 9% in the first six months of 2015 compared to the prior year, impacted by divestitures, foreign exchange, and the termination of the AZLP relationship.
  • 3The acquisition of Cubist Pharmaceuticals for $8.3 billion in January 2015 contributed $329 million in sales during Q2 2015 and $537 million year-to-date.
  • 4Keytruda, an oncology immunotherapy, showed strong growth with $110 million in sales for Q2 2015 and received regulatory approvals in the US and EU.
  • 5Sales for several key products declined, including Zetia/Vytorin (-16% Q2), Remicade (-25% Q2), Singulair (-25% Q2), and PegIntron (-50% Q2), due to factors like loss of exclusivity, generic competition, and pricing pressures.
  • 6The company continues to execute restructuring programs, incurring costs of $191M in Q2 2015 and $273M year-to-date, aimed at achieving significant annual cost savings.
  • 7Operating cash flow remained strong, providing $4.9 billion in the first six months of 2015, supporting dividends and share repurchases.

Frequently Asked Questions

The primary drivers for the decrease in net income for the second quarter of 2015 were significant foreign exchange losses related to Venezuela and the absence of a large gain recognized in the prior year from AstraZeneca's option exercise. These factors more than offset improvements in operational performance and the contribution from the Cubist acquisition.

The acquisition of Cubist Pharmaceuticals in January 2015 contributed $329 million in sales during the second quarter of 2015 and $537 million for the first six months of 2015. The integration of Cubist's operations also resulted in acquisition-related costs and amortization expenses, which were factored into the company's overall financial performance.

Several product lines experienced significant sales declines. Zetia/Vytorin sales decreased due to loss of market exclusivity for Ezetrol in Canada and pricing declines in Europe. Remicade sales were impacted by the loss of market exclusivity in major European markets and subsequent biosimilar competition. Singulair sales declined due to generic competition in most markets. PegIntron sales decreased due to the availability of newer therapeutic options for Hepatitis C. Unfavorable foreign exchange rates also negatively impacted sales across multiple product lines.

Merck is continuing its restructuring programs, including the 2013 Restructuring Program and the Merger Restructuring Program. In the second quarter of 2015, the company incurred $191 million in restructuring costs. These programs are aimed at sharpening commercial and R&D focus, improving efficiency, and are expected to yield significant annual cost savings. The company anticipates total restructuring costs for 2015 to be in the range of $850 million to $950 million.