10-QPeriod: Q2 FY2019

Merck & Co., Inc. Quarterly Report for Q2 Ended Jun 30, 2019

Filed August 6, 2019For Securities:MRK

Summary

Merck & Co., Inc. reported strong financial results for the second quarter and first six months of 2019, demonstrating significant year-over-year growth in both sales and net income. This growth was primarily driven by the exceptional performance of Keytruda in the oncology segment, as well as robust sales from key vaccines like Gardasil/Gardasil 9. The company also saw increased alliance revenue from strategic collaborations on Lynparza and Lenvima. Strategic acquisitions, including Antelliq and Immune Design, further bolster Merck's portfolio, particularly in the Animal Health and Pharmaceutical segments, respectively. Despite some headwinds from generic competition in cardiovascular and immunology products, the overall financial health appears robust, supported by continued R&D investment and disciplined cost management, including ongoing restructuring efforts aimed at optimizing operations. Investors can look forward to continued growth driven by Keytruda's expanding indications and the positive impact of recent strategic acquisitions.

Financial Highlights

52 data points
Beta

Revenue

$11.76B

71.1% Gross Margin

Net Income

$2.67B

22.7% Net Margin

EPS (Diluted)

$1.03

Total Assets

$83.97B

Cash & Equivalents

$6.66B

Free Cash Flow

$3.08B

Financial Statements
Beta
Revenue$11.76B
Cost of Revenue$3.40B
Gross Profit$8.36B
R&D Expenses$2.19B
SG&A Expenses$2.71B
Interest Expense$233.00M
Net Income$2.67B
EPS (Basic)$1.04
EPS (Diluted)$1.03
Shares Outstanding (Basic)2.57B
Shares Outstanding (Diluted)2.59B

Key Highlights

  • 1Total sales increased by 12% year-over-year to $11.8 billion in Q2 2019, and by 10% to $22.6 billion for the first six months of 2019.
  • 2Net income attributable to Merck & Co., Inc. rose significantly, to $2.67 billion in Q2 2019 (up 56% YoY) and $5.58 billion for the first six months of 2019 (up 127% YoY).
  • 3Keytruda sales experienced substantial growth, increasing by 58% in Q2 and 57% year-to-date, reaching $2.6 billion and $4.9 billion respectively.
  • 4Strategic acquisitions of Antelliq Corporation and Immune Design were completed in April 2019, strengthening the Animal Health and Pharmaceutical segments.
  • 5Gardasil/Gardasil 9 vaccine sales grew significantly by 46% in Q2 and 36% year-to-date, contributing to overall pharmaceutical segment strength.
  • 6Alliance revenue from Lynparza and Lenvima collaborations increased substantially, reflecting successful market penetration.
  • 7The company initiated a new global restructuring program expected to result in annual net cost savings of approximately $500 million by the end of 2023.

Frequently Asked Questions

Merck's revenue growth was primarily driven by strong sales of its oncology drug Keytruda, which saw significant year-over-year increases due to new indications and expanding global reach. Additionally, strong performance from vaccines like Gardasil/Gardasil 9, increased alliance revenue from collaborations on Lynparza and Lenvima, and contributions from the newly acquired Animal Health business (Antelliq) were significant growth drivers.

The acquisitions of Antelliq Corporation (in Animal Health) and Immune Design (in Pharmaceuticals) are contributing to revenue growth and portfolio diversification. Antelliq, acquired in April 2019, is already showing results in the Animal Health segment, while Immune Design strengthens Merck's position in immunotherapy and late-stage development. The acquisition of Peloton Therapeutics in July 2019 further underscores Merck's commitment to expanding its oncology pipeline.

Merck initiated a new global restructuring program to optimize its manufacturing and supply network and reduce its real estate footprint. This program is expected to incur pre-tax costs of $800 million to $1.2 billion, with approximately $500 million expected in 2019. The program is designed to generate annual net cost savings of around $500 million by the end of 2023, contributing to improved operational efficiency and profitability in the long term.

The report mentions ongoing pricing pressure in global healthcare markets, particularly in the U.S., due to health care reform and increased purchasing power of large entities. Generic and biosimilar competition continues to impact sales for certain products, such as cardiovascular drugs Zetia and Vytorin, and immunology drug Remicade. The company also faces potential legal and regulatory risks, as detailed in the 'Contingencies' section, including ongoing litigation related to Fosamax and Januvia/Janumet.