10-QPeriod: Q1 FY2023

Merck & Co., Inc. Quarterly Report for Q1 Ended Mar 31, 2023

Filed May 5, 2023For Securities:MRK

Summary

Merck & Co., Inc. reported sales of $14.49 billion for the first quarter of 2023, a decrease of 9% year-over-year, or 5% excluding foreign exchange impacts. This decline was primarily driven by significantly lower sales of Lagevrio (COVID-19 antiviral), which generated $392 million compared to $3.2 billion in the prior year period. Other contributing factors to the sales decrease included lower sales in the diabetes franchise (Januvia/Janumet) and the pneumococcal vaccine (Pneumovax 23). Despite the revenue decline, the company's R&D expenses increased significantly by 66% to $4.3 billion, largely due to the $1.2 billion charge for the acquisition of Imago BioSciences and upfront payments for collaborations. The company also announced a significant agreement to acquire Prometheus Biosciences for approximately $10.8 billion, expected to close in the third quarter of 2023. This strategic move aims to bolster its pipeline in immune-mediated diseases. Net income attributable to Merck & Co., Inc. decreased to $2.82 billion, or $1.11 per share, from $4.31 billion, or $1.70 per share, in the first quarter of 2022. This decrease reflects the lower sales and increased R&D expenses, partially offset by a significant improvement in gross margin due to lower Lagevrio sales and lower amortization expenses. The company's strategic acquisitions and R&D investments signal a focus on future growth areas, though current financial results are impacted by the wind-down of certain pandemic-related products.

Financial Highlights

53 data points
Beta

Revenue

$14.49B

72.9% Gross Margin

Net Income

$2.82B

19.5% Net Margin

EPS (Diluted)

$1.11

Total Assets

$107.80B

Cash & Equivalents

$9.79B

Free Cash Flow

$332.00M

Financial Statements
Beta
Revenue$14.49B
Cost of Revenue$3.93B
Gross Profit$10.56B
R&D Expenses$4.28B
SG&A Expenses$2.48B
Interest Expense$242.00M
Net Income$2.82B
EPS (Basic)$1.11
EPS (Diluted)$1.11
Shares Outstanding (Basic)2.54B
Shares Outstanding (Diluted)2.55B

Key Highlights

  • 1Total sales decreased by 9% to $14.49 billion, primarily due to a significant drop in Lagevrio sales ($392M vs $3.2B YoY).
  • 2Research and Development (R&D) expenses surged by 66% to $4.3 billion, heavily influenced by the $1.2 billion acquisition cost of Imago BioSciences and other collaboration upfront payments.
  • 3The company announced a definitive agreement to acquire Prometheus Biosciences for approximately $10.8 billion, signaling a strategic expansion into immune-mediated diseases.
  • 4Net income attributable to Merck & Co., Inc. fell to $2.82 billion ($1.11 EPS) from $4.31 billion ($1.70 EPS) in the prior year quarter.
  • 5Gross margin improved significantly to 72.9% from 66.2% due to lower sales of low-margin Lagevrio and reduced amortization expenses.
  • 6Keytruda demonstrated strong growth, with sales up 20% to $5.8 billion, driven by new indications and increased demand across various cancer types.
  • 7The company settled Zetia antitrust litigation for $572.5 million, recorded in the first quarter of 2023.

Frequently Asked Questions

The primary driver for the year-over-year decrease in sales is the significant decline in sales of Lagevrio (molnupiravir), Merck's COVID-19 antiviral. Sales dropped to $392 million in Q1 2023 from $3.2 billion in Q1 2022, as demand for COVID-19 treatments has decreased and certain large sales in the U.S. and UK from the prior year period did not recur.

Merck is making substantial investments in future growth through research and development, with R&D expenses increasing by 66% to $4.3 billion in the quarter. This includes the acquisition of Imago BioSciences for $1.35 billion and a significant strategic agreement to acquire Prometheus Biosciences for approximately $10.8 billion, focusing on immune-mediated diseases. The company also continues to see strong growth from its flagship oncology drug, Keytruda.

The acquisition of Prometheus Biosciences is expected to cost approximately $10.8 billion. If closed, Merck anticipates it will be accounted for as an asset acquisition, resulting in a charge of approximately $10.3 billion to Research and Development expenses. Additionally, Merck anticipates a negative impact of approximately $0.25 per share on earnings in the first 12 months following the close due to investments in pipeline assets and financing costs.

Keytruda continues to be a strong performer, with sales growing 20% to $5.8 billion, driven by new indications and increased demand. However, sales of Januvia and Janumet (diabetes franchise) declined 29% due to loss of exclusivity in several markets and competitive pressures. Lagevrio sales saw an 88% decline. The company expects full-year 2023 Lagevrio sales to be approximately $1.0 billion.