10-QPeriod: Q3 FY2023

Merck & Co., Inc. Quarterly Report for Q3 Ended Sep 30, 2023

Filed November 3, 2023For Securities:MRK

Summary

Merck & Co., Inc. (MRK) reported solid third-quarter 2023 financial results, with total sales increasing by 7% year-over-year to $16.0 billion. This growth was primarily driven by strong performance in the oncology franchise, led by Keytruda, and robust sales from the vaccines franchise, particularly Gardasil 9. The company also saw positive contributions from the hospital acute care and cardiovascular segments. Despite overall sales growth, the company experienced a decline in the diabetes franchise due to increased competition and the impact of the Inflation Reduction Act on key products like Januvia. Operationally, the company recorded significant charges related to its strategic acquisitions of Prometheus Biosciences, Inc. ($10.2 billion) and Imago BioSciences, Inc. ($1.2 billion) in Research and Development expenses for the nine months ended September 29, 2023. This led to a substantial increase in R&D expenses for the period. The company also announced a significant global development and commercialization agreement with Daiichi Sankyo for three ADC candidates, which will result in a $5.5 billion pretax charge to R&D expenses in the fourth quarter of 2023. Despite these investments and charges, Merck maintained a strong cash flow from operations.

Financial Highlights

56 data points
Beta

Revenue

$15.96B

73.3% Gross Margin

Net Income

$4.75B

29.7% Net Margin

EPS (Diluted)

$1.86

Total Assets

$106.73B

Cash & Equivalents

$8.67B

Free Cash Flow

$6.82B

Financial Statements
Beta
Revenue$15.96B
Cost of Revenue$4.26B
Gross Profit$11.70B
R&D Expenses$3.31B
SG&A Expenses$2.52B
Interest Expense$317.00M
Net Income$4.75B
EPS (Basic)$1.87
EPS (Diluted)$1.86
Shares Outstanding (Basic)2.54B
Shares Outstanding (Diluted)2.55B

Key Highlights

  • 1Total sales for the third quarter of 2023 increased by 7% to $16.0 billion, driven by oncology (Keytruda) and vaccines (Gardasil 9).
  • 2Acquisitions of Prometheus Biosciences ($11.0 billion) and Imago BioSciences ($1.35 billion) significantly impacted R&D expenses in the nine-month period.
  • 3A new global agreement with Daiichi Sankyo for three ADC candidates was announced, resulting in a $5.5 billion R&D charge in Q4 2023.
  • 4Sales in the diabetes franchise (Januvia, Janumet) declined significantly due to loss of exclusivity and competitive pressures, with ongoing concerns regarding the Inflation Reduction Act.
  • 5Cash flow from operating activities remained strong at $12.8 billion for the first nine months of 2023.
  • 6The company is actively managing its capital structure, including issuing $6.0 billion in senior unsecured notes.
  • 7The company continues to defend its intellectual property, with ongoing litigation related to key products like Januvia and Bridion.

Frequently Asked Questions

Revenue growth in Q3 2023 was primarily driven by strong sales in the oncology franchise, led by Keytruda, and the vaccines franchise, notably Gardasil 9. The hospital acute care and cardiovascular segments also contributed positively.

The acquisitions of Prometheus Biosciences and Imago BioSciences resulted in significant charges recorded within Research and Development expenses. For the nine months ended September 29, 2023, Merck recorded $10.2 billion for Prometheus and $1.2 billion for Imago, impacting profitability for the period.

Sales in the diabetes franchise, specifically for Januvia and Janumet, declined substantially due to the loss of market exclusivity in several regions and increased competition. The company also faces ongoing concerns related to the Inflation Reduction Act's potential impact on pricing for Januvia, with price negotiations scheduled to begin in 2023-2024 and price setting effective in 2026. Market exclusivity in the U.S. for Januvia and Janumet is expected to extend until May 2026.

Merck issued $6.0 billion in senior unsecured notes in May 2023 to fund a portion of the Prometheus acquisition and for general corporate purposes. The company also has a $6.0 billion credit facility for liquidity backup. Dividend payments and modest share repurchases continue.