10-QPeriod: Q3 FY2016

Merck & Co., Inc. Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 7, 2016For Securities:MRK

Summary

Merck & Co., Inc. (MRK) reported strong financial results for the third quarter and first nine months of 2016, demonstrating significant growth and improved profitability. Total sales for the third quarter of 2016 increased by 5% to $10.5 billion compared to the prior year, driven by key products like Gardasil 9, Keytruda, and Zepatier. For the first nine months of 2016, sales grew 1% to $29.7 billion, despite unfavorable foreign exchange impacts. Net income attributable to Merck & Co., Inc. saw a substantial increase, reaching $2.2 billion ($0.78 per share) for the quarter and $4.5 billion ($1.62 per share) for the nine-month period. This improvement was supported by solid sales performance, effective cost management, and strategic acquisitions that are beginning to contribute to growth. Investors should note the continued strength in the Pharmaceutical segment, particularly driven by oncology and vaccine sales, alongside ongoing efforts to expand the product pipeline through research and development and strategic collaborations.

Financial Highlights

52 data points
Beta

Revenue

$10.54B

67.6% Gross Margin

Net Income

$2.18B

20.7% Net Margin

EPS (Diluted)

$0.78

Total Assets

$98.33B

Cash & Equivalents

$7.91B

Free Cash Flow

$2.97B

Financial Statements
Beta
Revenue$10.54B
Cost of Revenue$3.41B
Gross Profit$7.13B
R&D Expenses$1.66B
SG&A Expenses$2.39B
Interest Expense$170.00M
Net Income$2.18B
EPS (Basic)$0.79
EPS (Diluted)$0.78
Shares Outstanding (Basic)2.77B
Shares Outstanding (Diluted)2.79B

Key Highlights

  • 1Third-quarter 2016 sales reached $10.5 billion, a 5% increase year-over-year, driven by strong performance in key products.
  • 2Net income attributable to Merck & Co., Inc. for the third quarter was $2.2 billion ($0.78 per share), up from $1.8 billion ($0.65 per share) in the prior year.
  • 3Keytruda sales showed significant growth, reaching $356 million in Q3 2016, more than doubling from $159 million in Q3 2015.
  • 4Gardasil/Gardasil 9 vaccine sales increased by 38% to $860 million in the third quarter.
  • 5The company completed several strategic acquisitions in 2016, including Afferent Pharmaceuticals and The StayWell Company, to bolster its pipeline and expand into new areas.
  • 6Operating cash flow remained robust, providing ample liquidity for operations, investments, and shareholder returns.
  • 7The company continued its share repurchase program, buying back $2.4 billion of stock in the first nine months of 2016.

Frequently Asked Questions

Revenue growth in the third quarter of 2016 was primarily driven by higher sales of key products such as Gardasil 9/Gardasil (vaccines), Keytruda (oncology), Zepatier (hepatitis), ProQuad (vaccines), Bridion (hospital acute care), and Zetia (cardiovascular). Growth was also supported by strong performance in Animal Health products.

The oncology portfolio showed exceptional performance, with Keytruda sales increasing significantly to $356 million in the third quarter of 2016, a 124% increase compared to the same period in 2015. This growth reflects continued market penetration and new indications for Keytruda.

Merck completed several strategic acquisitions in 2016, including IOmet Pharma, Afferent Pharmaceuticals, and The StayWell Company. These acquisitions are intended to expand Merck's pipeline in areas like oncology and neurogenic conditions, and healthcare engagement. While the full financial impact of these recent acquisitions is still developing, they are part of Merck's strategy to drive long-term growth.

Merck has demonstrated effective cost management. Materials and production costs decreased by 9% in the third quarter of 2016 compared to the prior year, partly due to lower amortization of intangible assets and restructuring charges. Marketing and administrative expenses also saw a decrease. These efficiencies contributed to the improved net income and operating margins.