10-QPeriod: Q2 FY2024

Merck & Co., Inc. Quarterly Report for Q2 Ended Jun 30, 2024

Filed August 5, 2024For Securities:MRK

Summary

Merck & Co., Inc. reported strong financial results for the quarter and six months ended June 30, 2024. Sales increased by 7% to $16.1 billion in the second quarter and 8% to $31.9 billion year-to-date, driven primarily by growth in the oncology and vaccines segments, particularly from Keytruda and Gardasil/Gardasil 9. Net income attributable to Merck & Co., Inc. significantly improved to $5.5 billion ($2.15 per share) in the second quarter, compared to a net loss of $6.0 billion ($2.35 per share) in the prior year period. This turnaround is largely due to the absence of substantial acquisition-related charges that impacted the prior year. The company continued its strategic growth through significant business development, including the acquisition of Elanco's aqua business and EyeBio in July 2024, and Harpoon Therapeutics in March 2024. These investments, while impacting R&D expenses, are positioned to bolster the company's pipeline and future growth. Merck also announced a new $4.0 billion restructuring program aimed at optimizing its manufacturing network, expected to yield substantial annual cost savings by 2031. The company's liquidity remains strong, with robust operating cash flow supporting its strategic initiatives and shareholder returns, including dividends and share repurchases.

Financial Highlights

55 data points
Beta

Revenue

$16.11B

76.8% Gross Margin

Net Income

$5.46B

33.9% Net Margin

EPS (Diluted)

$2.14

Total Assets

$112.63B

Cash & Equivalents

$11.37B

Free Cash Flow

$4.85B

Financial Statements
Beta
Revenue$16.11B
Cost of Revenue$3.75B
Gross Profit$12.37B
R&D Expenses$3.50B
SG&A Expenses$2.74B
Net Income$5.46B
EPS (Basic)$2.15
EPS (Diluted)$2.14
Shares Outstanding (Basic)2.53B
Shares Outstanding (Diluted)2.54B

Key Highlights

  • 1Sales increased 7% to $16.1 billion in Q2 2024 and 8% to $31.9 billion year-to-date, driven by Keytruda and Gardasil/Gardasil 9.
  • 2Net income attributable to Merck & Co., Inc. was $5.5 billion ($2.15 per share) in Q2 2024, a significant improvement from a net loss of $6.0 billion ($2.35 per share) in Q2 2023, primarily due to the absence of large acquisition charges.
  • 3Research and Development (R&D) expenses decreased significantly to $3.5 billion in Q2 2024 from $13.3 billion in Q2 2023, mainly due to the absence of the $10.2 billion charge for the Prometheus acquisition in the prior year.
  • 4The company made substantial business development moves in Q3 2024 with the acquisition of Elanco's aqua business and EyeBio, and in Q1 2024 with the acquisition of Harpoon Therapeutics, indicating continued investment in pipeline expansion.
  • 5Merck initiated a new $4.0 billion restructuring program in January 2024 to optimize its manufacturing network, expected to generate approximately $750 million in annual net cost savings by 2031.
  • 6Operating cash flow remains strong, providing $8.7 billion in the first six months of 2024, supporting investments in business development, capital expenditures, and shareholder returns.
  • 7The company is facing ongoing pricing pressures and regulatory scrutiny, particularly related to the Inflation Reduction Act (IRA) and its impact on Januvia, with a lawsuit filed against the U.S. government.

Frequently Asked Questions

The substantial increase in net income for Q2 2024 (from a net loss in Q2 2023) is primarily attributable to the absence of significant acquisition-related charges that were recorded in the prior year. Specifically, the $10.2 billion charge for the acquisition of Prometheus Biosciences in Q2 2023 heavily impacted the previous year's results. The current quarter's results benefited from strong sales growth and a more favorable cost structure.

Merck has been actively pursuing strategic acquisitions. The acquisition of Harpoon Therapeutics in March 2024 resulted in a $656 million charge to R&D expenses in the first six months of 2024. While recent acquisitions like Elanco's aqua business and EyeBio (in July 2024) will impact future R&D and operational expenses, the reported R&D expenses for Q2 2024 and year-to-date 2024 show a significant decrease compared to the prior year, largely because the large Prometheus acquisition-related charge is no longer present.

The IRA is impacting Merck's business through several mechanisms. Januvia was selected for the first year of the IRA's 'Drug Price Negotiation Program,' leading to government price-setting effective January 1, 2026. Merck has filed a lawsuit challenging this program. Additionally, the IRA's redesign of Medicare Part D and potential penalties for price increases above inflation are ongoing concerns. These factors, combined with global healthcare cost containment efforts, are expected to negatively affect sales and profits.

Merck is involved in litigation with JHU concerning patents related to Keytruda. Merck alleges JHU breached a collaboration agreement by filing and licensing patents without Merck's involvement. JHU has counterclaimed for willful infringement. Merck has filed inter partes review (IPR) petitions challenging the validity of JHU's patents, and the District Court has stayed the case pending the outcome of the PTAB proceedings.