10-QPeriod: Q2 FY2020

Merck & Co., Inc. Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 5, 2020For Securities:MRK

Summary

Merck & Co., Inc. reported a decrease in sales for the second quarter of 2020, down 8% year-over-year to $10.9 billion, primarily impacted by the COVID-19 pandemic. The pandemic is estimated to have reduced sales by $1.6 billion in the quarter, affecting physician-administered products like vaccines and Keytruda, as well as animal health products. Despite the sales decline, net income attributable to Merck & Co., Inc. increased to $3.0 billion, or $1.18 per diluted share, compared to $2.7 billion, or $1.03 per diluted share, in the prior year's second quarter. This improvement was driven by a significant increase in "Other (income) expense, net," largely due to favorable investment income and foreign currency exchange impacts, as well as lower operating expenses resulting from pandemic-related spending reductions. The company also maintained a strong cash flow from operations, providing financial flexibility.

Financial Highlights

53 data points
Beta

Revenue

$9.35B

70.6% Gross Margin

Net Income

$3.00B

32.1% Net Margin

EPS (Diluted)

$1.18

Total Assets

$90.61B

Cash & Equivalents

$11.15B

Free Cash Flow

$3.37B

Financial Statements
Beta
Revenue$9.35B
Cost of Revenue$2.75B
Gross Profit$6.61B
R&D Expenses$2.08B
SG&A Expenses$2.08B
Operating Income$4.81B
Interest Expense$209.00M
Net Income$3.00B
EPS (Basic)$1.19
EPS (Diluted)$1.18
Shares Outstanding (Basic)2.53B
Shares Outstanding (Diluted)2.54B

Key Highlights

  • 1Total sales for Q2 2020 were $10.9 billion, an 8% decrease compared to Q2 2019, largely attributed to the COVID-19 pandemic's impact on physician-administered products and vaccines.
  • 2Net income attributable to Merck & Co., Inc. increased to $3.0 billion in Q2 2020 from $2.7 billion in Q2 2019, representing a 12% increase.
  • 3Diluted Earnings Per Share (EPS) grew to $1.18 in Q2 2020 from $1.03 in Q2 2019, an increase of approximately 15%.
  • 4The company acquired U.S. rights to Sentinel Flavor Tabs and Spectrum Chews for $400 million and entered into a collaboration with Ridgeback Biotherapeutics for an oral antiviral candidate for COVID-19.
  • 5Keytruda sales showed strong growth, increasing by 29% to $3.4 billion in Q2 2020, driven by new indications and global uptake.
  • 6Operating expenses were positively impacted by COVID-19 related reductions in promotional and R&D spending, contributing to the net income increase.
  • 7Merck expects the full-year 2020 sales impact from COVID-19 to be approximately $1.95 billion, with a gradual recovery anticipated in the second half of the year.

Frequently Asked Questions

The COVID-19 pandemic had a significant negative impact on Merck's sales in the second quarter of 2020, resulting in an estimated reduction of $1.6 billion. This was primarily due to reduced administration of physician-administered products, including vaccines and Keytruda, fewer medical visits, and delays in elective surgeries. Animal health sales were also affected by reduced veterinary visits and lower demand for certain products.

The increase in net income was driven by a combination of factors. "Other (income) expense, net" significantly improved due to favorable investment income, particularly from equity securities like Moderna and NGM Biopharmaceuticals, and positive foreign currency exchange impacts. Additionally, operating expenses, including promotional, selling, and R&D costs, decreased due to pandemic-related spending reductions. The company also benefited from strong growth in its oncology franchise, particularly Keytruda.

In July 2020, Merck acquired the U.S. rights to Sentinel Flavor Tabs and Spectrum Chews for approximately $400 million. They also entered into a collaboration with Ridgeback Biotherapeutics to develop an oral antiviral candidate for COVID-19. In June 2020, Merck acquired Themis Bioscience for $366 million to advance vaccine candidates, and in January 2020, acquired ArQule for $2.7 billion to bolster its oncology pipeline, particularly with the investigational candidate MK-1026.

Merck anticipates a full-year 2020 sales impact of approximately $1.95 billion due to the COVID-19 pandemic, with the majority of the negative impact occurring in the second quarter. A gradual recovery is expected to commence in the third quarter, with a return to normal operating levels anticipated in the fourth quarter. While sales are expected to remain impacted, operating expenses are projected to see a net favorable impact of approximately $400 million due to reduced spending, partially offset by investments in COVID-19 research.