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Merck &: Merck Announces Third-Quarter 2015 Financial Results

The following excerpt is from the company's SEC filing.

Increased Non-GAAP EPS by 7 Percent to $0.96; GAAP EPS of $0.64

Raised 2015 Full-Year Non-GAAP EPS Target to a Range of $3.55 $3.60 and GAAP EPS Target to a Range of $1.64 $1.74

Worldwide Sales Were $10.1 Billion, a Decrease of 5 Percent; Excluding the Impact of Foreign Exchange, Acquisitions and Divestitures, Worldwide Sales Grew 4 Percent

Advanced KEYTRUDA Program

FDA Approved sBLA for the Treatment of Previously Treated Patients with Metastatic Non-Small Cell Lung Cancer (NSCLC) Whose Tumors Express PD-L1

In KEYNOTE-010 Study KEYTRUDA Showed Superior Overall Survival Compar ed to Chemotherapy in Patients with Previously Treated Advanced NSCLC Whose Tumors Express PD-L1

Third-Quarter Sales Were Approximately $160 million

KENILWORTH, N.J., Oct. 27, 2015 Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the third quarter of 2015.

Our solid results this quarter demonstrate that our focused strategy, which aims to drive future growth, as well as value for patients, society and shareholders, is working. The evolving market, economic and political dynamics of global health care increasingly underscore that the ability to provide high-value innovation is what will distinguish successful companies going forward, said Kenneth C. Frazier, chairman and chief executive officer, Merck.

Financial Summary

Third Quarter

$ in millions, except EPS amounts

$10,073

$10,557

Non-GAAP EPS that excludes items listed below

GAAP Net Income

Non-GAAP Net Income that excludes items listed below

Merck is providing certain 2015 and 2014 non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors understanding of the companys performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP. For a description of the items, see Table 2a, including the related footnotes, attached to this release.

Net income attributable to Merck & Co., Inc.

Non-GAAP (generally accepted accounting principles) earnings per share (EPS) of $0.96 for the third quarter

exclude acquisition- and divestiture-related costs, restructuring costs and certain other items.

A reconciliation of GAAP to non-GAAP net income and EPS is provided in the tables that follow. Year-to-date results can be found in the attached tables.

Difference

$1,826

Non-GAAP net income that excludes items listed below

$2,720

$2,617

Decrease (Increase) in Net Income Due to Excluded Items:

Acquisition- and divestiture-related costs

$1,146

$1,659

Restructuring costs

Gain on divestiture of certain migraine clinical development programs

Additional year of health care reform fee

Gain on divestiture of certain ophthalmic products

Net decrease (increase) in income before taxes

Income tax (benefit) expense

Acquisition- and divestiture-related costs attributable to non-controlling interests

Decrease (increase) in net income

$1,722

Additional Executive Commentary

Our late-stage pipeline and ongoing launches create both near- and longer-term opportunities to generate value through innovation aimed at addressing some of the worlds biggest medical needs cancer, antibiotic resistance, cardiometabolic disease, hepatitis C and Alzheimers disease, said Frazier.

Our broad, global and balanced portfolio of medicines and vaccines allows us to weather periodic volatility within a particular therapeutic area or region while consistently focusing on the best scientific and medical opportunities, continued Frazier.

Represents the difference between calculated GAAP EPS and calculated non-GAAP EPS, which may be different than the amount calculated by dividing the impact of the excluded items by the weighted-average shares for the period.

Includes expenses for the amortization of intangible assets and purchase accounting adjustments to inventories recognized as a result of acquisitions, intangible asset impairment charges and expense or income related to changes in the fair value measurement of contingent consideration. Also includes integration, transaction and certain other costs related to business acquisitions and divestitures.

Includes the estimated tax impact on the reconciling items.

The Global Human Health business performed well in the third quarter with continued growth in our diabetes, hospital acute care and oncology franchises. We continue to be pleased with the progress of KEYTRUDA, which is a priority launch for the company, said Adam Schechter, president, Global Human Health, Merck.

In the third quarter, Merck Research Laboratories achieved multiple milestones in our oncology and infectious disease clinical development programs, priority areas where we believe we can have the most beneficial impact on the lives of patients around the world, said Dr. Roger M. Perlmutter, president, Merck Research Laboratories. In particular, the results from KEYNOTE-010, which we announced yesterday, provide unambiguous evidence of the favorable impact that our R&D efforts can have in the treatment of grievous illnesses.

The third quarter was another demonstration of our strong execution. We remain committed to delivering a leveraged P&L. We have met and will exceed our annual target of $2.5 billion in net savings versus 2012 by the end of this year, said Robert Davis, chief financial officer, Merck.

Select Business Highlights

Worldwide sales were $10.1 billion for the third quarter of 2015, a decrease of 5 percent compared with the third quarter of 2014, including a 7 percent negative impact from foreign exchange and a 2 percent net unfavorable impact resulting from the divestiture of the Consumer Care business and select products, partially offset by the acquisition of Cubist Pharmaceuticals, Inc. (Cubist).

The following table reflects sales of the companys top pharmaceutical products, as well as total sales of Animal Health and Consumer Care products.

Change

Ex-Exchange

Total Sales

JANUVIA / JANUMET

ZETIA / VYTORIN

GARDASIL / GARDASIL 9

REMICADE

PROQUAD, M-M-R II and VARIVAX

ISENTRESS

CUBICIN

Consumer Care***

Other Revenues

*Reflects licensing agreement with Cubist in Japan prior to acquisition by Merck on Jan. 21, 2015

100%

***divested on Oct. 1, 2014

Commercial and Pipeline Highlights

During the third quarter of 2015, the company continued to focus on advancing its pipeline and key therapeutic areas of diabetes, hospital acute care, oncology and vaccines and executing on key launches, including KEYTRUDA (pembrolizumab), an anti-PD-1 therapy, for the treatment of advanced melanoma and metastatic NSCLC in patients whose disease has progressed after other therapies, and BELSOMRA (suvorexant) for the treatment of insomnia.

Merck significantly advanced the clinical development program for KEYTRUDA.

The U.S. Food and Drug Administration (FDA) approved KEYTRUDA for the treatment of patients with metastatic NSCLC whose tumors express PD-L1 as determined by an FDA-approved test and who have disease progression on or after platinum-containing chemotherapy across both squamous and non-squamous metastatic NSCLC.

The National Institute for Health and Care Excellence (NICE) of the U.K. issued a draft recommendation for KEYTRUDA as a first-line treatment option for adults with advanced melanoma. Additionally, NICE issued its final guidance recommending KEYTRUDA for the treatment of advanced melanoma in patients whose disease has progressed after treatment with ipilimumab.

The FDA accepted for review a supplemental Biologics License Application (sBLA) for KEYTRUDA for the first-line treatment of unresectable or metastatic melanoma. The FDA granted Priority Review with a PDUFA action date of Dec. 19, 2015.

Additionally, the FDA extended the PDUFA action date for a separate sBLA for KEYTRUDA for the treatment of patients with ipilimumab-refractory advanced melanoma to Dec. 24, 2015. The company submitted additional data that constitutes a major amendment, which will require additional time for review.

Topline results from KEYNOTE-010 indicated the pivotal study met its primary objective. KEYTRUDA showed superior overall survival compared to chemotherapy in patients with previously treated advanced NSCLC whose tumors express PD-L1. The company plans regulatory submissions based on these data to the FDA by the end of 2015 and the European Medicines Agency (EMA) in early 2016.

Data were presented at the European Cancer Congress from the KEYNOTE-028 study, which included first-time presentations of findings investigating the use of KEYTRUDA in multiple tumor types.

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