Merck & Co., Inc. today announced financial results for the second
quarter of 2008.
Merck reported non-GAAP (generally accepted accounting principles)
earnings per share (EPS) of $0.86 for the second quarter of 2008,
excluding restructuring charges. GAAP EPS for the second quarter were
$0.82. Worldwide sales were $6.1 billion for the quarter, a decrease
of 1 percent from the second quarter of 2007. Foreign exchange
favorably affected global sales performance by 5 percent for the
quarter. Net income for the second quarter of 2008 was $1,768.3
million compared with $1,676.4 million in the second quarter of 2007.
For the first six months of 2008, worldwide sales were $11.9 billion
and net income was $5,070.8 million. A reconciliation of EPS as
reported in accordance with GAAP to EPS that excludes certain items is
provided in the table that follows.
Quarter Ended June 30 Six Months Ended June 30
————————————————
2008 2007 2008 2007
———————————————————————-
GAAP EPS $0.82 $0.77 $ 2.34 $1.55
———————————————————————-
EPS impact of items* 0.04 0.05 (0.59) 0.11
———————————————————————-
Non-GAAP EPS that
excludes certain
items listed
below(1) $0.86 $0.82 $ 1.75 $1.66
———————————————————————-
* Amount calculated as Second- Second- Six Months Six Months
follows (in millions Quarter Quarter Ended Ended
except per share amounts) 2008 2007 June 30, 2008 June 30, 2007
———————————————————————-
Gain on distribution from
AstraZeneca $ - $ - $ (2,223) $ -
———————————————————————-
Costs related to global
restructuring program 118 172 203 358
———————————————————————-
Net (increase) decrease
before income taxes 118 172 (2,020) 358
———————————————————————-
Income tax expense
(benefit) on above items (41) (62) 737 (124)
———————————————————————-
(Increase) decrease in net
income $ 77 $ 110 $ (1,283) $ 234
———————————————————————-
EPS impact of items $ 0.04 $ 0.05 $ (0.59) $ 0.11
———————————————————————-
“For the second quarter, Merck made good progress launching
innovative new pharmaceutical and vaccine products around the world
and driving efficiencies in many parts of the business,” said Richard
T. Clark, chairman, president and chief executive officer. “Although
some results didn’t meet our expectations, we are taking action to
address our challenges, and remain committed to regaining leadership
in the pharmaceutical industry.
“Earlier today, data for the SEAS study was presented by the
primary investigator,” he said. “We are moving quickly to fully assess
the potential implications of the data for our cholesterol joint
venture.”
Materials and production costs were $1.4 billion for the quarter,
a decrease of 10 percent from the second quarter of 2007. The
second-quarter 2008 and second-quarter 2007 costs include $16 million
and $119 million, respectively, for costs associated with the global
restructuring program. The gross margin was 76.9 percent for the
second quarter of 2008 and 74.6 percent for the second quarter of
2007, reflecting 0.3 and 1.9 percentage point unfavorable impacts,
respectively, relating to the restructuring costs noted above.
Marketing and administrative expenses were $1.9 billion for the
second quarter of 2008, a decrease of 7 percent from the second
quarter of 2007. Included in marketing and administrative expenses in
the second quarter of 2007 was a $210 million reserve solely for
future legal defense costs for VIOXX litigation.
Research and development expenses were $1.2 billion for the
quarter, an increase of 13 percent from the second quarter of 2007.
Restructuring costs, primarily representing employee separation
costs associated with the Company’s global restructuring program, were
$102 million for the second quarter of 2008. Total overall costs
associated with the Company’s global restructuring program included in
materials and production and restructuring costs were $118 million and
$172 million for the second quarter of 2008 and 2007, respectively,
primarily related to separations and accelerated depreciation.
Equity income from affiliates was $523 million in the second
quarter 2008, a decrease of 31 percent from the second quarter of 2007
as a result of lower contributions from AstraZeneca LP and the
Merck/Schering-Plough joint venture.
The second-quarter 2008 effective tax rate was 14.1 percent. The
effective tax rate excluding the impact of restructuring charges was
15.2 percent. Both rates reflect a second-quarter net benefit of
approximately nine percentage points primarily relating to the
favorable impact of tax settlements.
Financial Guidance
The results of the Simvastatin plus Ezetimibe in Aortic Stenosis
(SEAS) study were released earlier today. Merck is currently assessing
the impact of the results on the contribution from the
Merck/Schering-Plough joint venture and therefore at this time is not
providing 2008 equity income guidance; 2008 GAAP and non-GAAP EPS
guidance; and any long-term financial performance guidance. Merck
anticipates providing additional financial guidance at a later date.
Details on certain elements of financial guidance can be found on
page 8 of this news release.
Product Performance Highlights
Worldwide sales of SINGULAIR (montelukast sodium), a once-a-day
oral medicine indicated for the chronic treatment of asthma and the
relief of symptoms of allergic rhinitis, were $1.1 billion for the
second quarter of 2008, a decrease of 1 percent compared with the
second quarter of 2007. SINGULAIR continues to be the No. 1 prescribed
branded product in the U.S. respiratory market(2).
Combined worldwide sales of ZETIA (ezetimibe) and VYTORIN
(ezetimibe/simvastatin), as reported by the Merck/Schering-Plough
joint venture, were $1.2 billion for the second quarter of 2008,
representing a 9 percent decrease compared with the second quarter of
2007. Worldwide sales of ZETIA, marketed as EZETROL outside the United
States, were $560 million in the second quarter of 2008, a decrease of
3 percent compared with the previous year’s second quarter.
Second-quarter 2008 worldwide sales of VYTORIN, marketed outside the
United States as INEGY, were $592 million, a decrease of 14 percent
compared with the second quarter of 2007. The Company records the
results from its interest in the Merck/Schering-Plough joint venture
in equity income from affiliates.
Worldwide sales of Merck’s antihypertensive medicines COZAAR
(losartan potassium) and HYZAAR(3) (losartan potassium and
hydrochlorothiazide) were $941 million for the second quarter of 2008,
an 11 percent increase compared with the second quarter of 2007.
COZAAR and HYZAAR are among the leading medicines in the angiotensin
receptor blocker class.
Worldwide sales of FOSAMAX and FOSAMAX PLUS D (alendronate
sodium/cholecalciferol), which is marketed as FOSAVANCE throughout the
European Union, were $411 million for the second quarter of 2008,
representing a decrease of 48 percent compared with the second quarter
of 2007. Since most formulations of these medicines have lost U.S.
marketing exclusivity, the Company is experiencing a significant
decline in sales in the United States within the FOSAMAX franchise.
Total worldwide sales of Merck’s other promoted medicines, which
include JANUVIA (sitagliptin), JANUMET (sitagliptin/metformin
hydrochloride) and ISENTRESS (raltegravir), were $2.0 billion for the
second quarter, representing a 24 percent increase compared with the
second quarter of 2007. Merck’s portfolio of medicines are approved to
treat a broad range of medical conditions, including glaucoma,
migraine, pain, diabetes, HIV/AIDS and other infectious diseases.
JANUVIA, Merck’s treatment for type 2 diabetes, recorded worldwide
sales of $334 million in the second quarter of 2008 compared with $144
million in the same quarter in 2007. JANUMET, a single tablet that
addresses all three key defects of type 2 diabetes, recorded sales of
$72 million during the quarter compared with $24 million in the same
quarter in 2007. On July 18, JANUMET was approved for marketing in the
European Union, Iceland and Norway.
Worldwide sales of ISENTRESS, Merck’s first-in-class HIV integrase
inhibitor for use in combination with other antiretroviral agents for
the treatment of HIV-1 infection in treatment-experienced adult
patients, were $77 million in second-quarter 2008. Merck launched
ISENTRESS in the United States in October 2007.
Worldwide sales of vaccines, as recorded by Merck, were $995
million for the second quarter, representing a 5 percent decrease
compared with the second quarter of 2007. Vaccines in most major
European markets are sold through the Company’s joint venture, Sanofi
Pasteur-MSD, and the results from its interest in the joint venture
are recorded in equity income from affiliates.
Worldwide sales of the Company’s cervical cancer vaccine GARDASIL
(human papillomavirus (HPV) quadrivalent (types 6, 11, 16, 18)
vaccine, recombinant) as recorded by Merck, were $326 million for the
second quarter of 2008, a decrease of 9 percent from the second
quarter of 2007. In addition, during the second quarter our vaccine
joint venture Sanofi Pasteur-MSD recorded end-market sales of GARDASIL
of $234 million. Global end-market sales for GARDASIL in the second
quarter of 2008 increased 28 percent versus the prior year driven by
the continued roll-out of GARDASIL in Europe. GARDASIL, the world’s
top-selling HPV vaccine and only HPV vaccine available for use in the
United States, currently is indicated for girls and women nine through
26 years of age for the prevention of cervical cancer, precancerous or
dysplastic lesions, and genital warts caused by HPV types 6, 11, 16
and 18.
Worldwide sales of ROTATEQ (rotavirus vaccine, live, oral,
pentavalent), Merck’s vaccine to help protect children against
rotavirus gastroenteritis and one of the world’s leading rotavirus
vaccines, as recorded by Merck, were $178 million in the second
quarter of 2008, an increase of 49 percent from the second quarter of
2007.
Worldwide sales of Merck’s other viral vaccines, which include
VARIVAX (varicella virus vaccine live {Oka/Merck}), M-M-R II (measles,
mumps and rubella virus vaccine live) and PROQUAD (measles, mumps,
rubella and varicella {Oka/Merck} virus vaccine live), as recorded by
Merck, were $318 million for the second quarter of 2008, a decrease of
7 percent compared with the same period a year earlier.
Merck records ongoing revenue based on sales of products that are
associated with alliances, the most significant of which is
AstraZeneca LP. Revenue from AstraZeneca LP recorded by Merck was $456
million in the second quarter of 2008.
Manufacturing Update
On July 10, Merck received a letter from the FDA closing out its
recent inspection of the West Point, Pa. manufacturing facility. As a
result, any filed vaccine supplements are now able to move through the
agency’s normal review and approval process.
Research and Development Update
On July 11, the Company announced that TREDAPTIVE, new
lipid-modifying therapy, was approved in the 27 countries of the EU,
Norway and Iceland to treat LDL-cholesterol and HDL-cholesterol and
triglycerides.
Earnings Conference Call
Investors are invited to a live audio webcast of Merck’s
second-quarter sales and earnings conference call today at 5:30 p.m.
EDT by visiting the Newsroom section of Merck’s Web site,
www.merck. . com/newsroom/webcast/. Institutional investors and analysts
can participate in the call by dialing (706) 758-9927 or (877)
381-5782. Journalists are invited to listen in on the call by dialing
(706) 758-9928 or (800) 399-7917. A replay of the webcast will be
available starting at 11 p.m. EDT today through 5 p.m. EDT on July 28.
To listen to the replay, dial (706) 645-9291 or (800) 642-1687 and
enter ID No. 52725425.
About Merck
Merck & Co., Inc. is a global research-driven pharmaceutical
company dedicated to putting patients first. Established in 1891,
Merck discovers, develops, manufactures and markets vaccines and
medicines to address unmet medical needs. The Company devotes
extensive efforts to increase access to medicines through far-reaching
programs that not only donate Merck medicines but help deliver them to
the people who need them. Merck also publishes unbiased health
information as a not-for-profit service. For more information, visit
www.merck.com.
Forward-Looking Statement
This news release, including the financial guidance that follows,
contains “forward-looking statements” as that term is defined in the
Private Securities Litigation Reform Act of 1995. These statements are
based on management’s current expectations and involve risks and
uncertainties, which may cause results to differ materially from those
set forth in the statements. The forward-looking statements may
include statements regarding product development, product potential or
financial performance. No forward-looking statement can be guaranteed,
and actual results may differ materially from those projected. Merck
undertakes no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or
otherwise. Forward-looking statements in this press release should be
evaluated together with the many uncertainties that affect Merck’s
business, particularly those mentioned in the risk factors and
cautionary statements in Item 1A of Merck’s Form 10-K for the year
ended Dec. 31, 2007 and in any risk factors or cautionary statements
contained in the Company’s periodic reports on Form 10-Q or current
reports on Form 8-K, which the Company incorporates by reference.
Merck Financial Guidance for 2008
Worldwide sales will be driven by the Company’s major products,
including the impact of new studies and indications. Sales forecasts
for those products for 2008 are as follows:
WORLDWIDE
PRODUCT 2008 SALES
————————————————- ——————–
SINGULAIR (Respiratory) $4.4 to $4.6 billion
COZAAR/HYZAAR (Hypertension) $3.5 to $3.7 billion
GARDASIL (as recorded by Merck & Co., Inc.) $1.4 to $1.6 billion
Other Vaccines (as recorded by Merck & Co., Inc.) $2.7 to $2.9 billion
FOSAMAX (Osteoporosis) $1.4 to $1.7 billion
Other reported products* $7.8 to $8.2 billion
* Other reported products comprise: ARCOXIA, CANCIDAS, COSOPT,
CRIXIVAN, EMEND, INVANZ, ISENTRESS, JANUVIA, JANUMET, MAXALT,
PRIMAXIN, PROPECIA, PROSCAR, STOCRIN, TIMOPTIC/TIMOPTIC XE, TRUSOPT,
VASOTEC/VASERETIC, ZOCOR and ZOLINZA.
— Under an agreement with AstraZeneca (AZN), Merck receives
revenue at predetermined percentages of the U.S. sales of
certain products by AZN, most notably NEXIUM. In 2008, Merck
anticipates that these revenues will be approximately $1.3
billion to $1.5 billion.
— Product gross margin (PGM) percentage is estimated to be
approximately 77.5 percent to 78.5 percent for the full-year
2008. This guidance excludes the portion of the restructuring
costs that will be included in product costs and will affect
reported PGM in 2008.
— Marketing and administrative expense is anticipated to be
approximately $7.5 billion to $7.7 billion.
— Research and development expense (which excludes joint
ventures) is anticipated to be approximately $4.7 billion to
$4.9 billion.
— As part of the Company’s restructuring of its operations,
additional costs related to site closings, position
eliminations and related costs will be incurred in 2008. The
aggregate 2008 pretax expense related to these activities is
estimated to be in the range of $200 million to $300 million.
— The consolidated 2008 tax rate is estimated to be
approximately 18 percent to 21 percent. This guidance does not
reflect the tax rate impact of the gain on distribution from
AstraZeneca or restructuring costs. The effective tax rate to
be applied to the AstraZeneca gain and the Company’s
restructuring costs is at a higher level than the underlying
effective tax rate guidance.
— Merck plans to continue its stock buyback program in 2008. As
of June 30, 2008, $3.5 billion remains under the current
buyback authorizations approved by Merck’s Board of Directors.
The following table shows the financial results for Merck & Co., Inc.
and subsidiaries for the quarter ended June 30, 2008, compared with
the corresponding period of the prior year.
Merck & Co., Inc.
Consolidated Results
(In Millions Except Earnings per Common Share)
Quarter Ended June 30
(Unaudited)
%
2008 2007 Change
——————- ——————- ——
Sales $6,051.8 $6,111.4 (1)%
Costs, Expenses and
Other
Materials and
production (1) 1,396.5 1,552.3 (10)
Marketing and
administrative (2) 1,930.2 2,083.7 (7)
Research and
development 1,169.3 1,030.5 13
Restructuring costs
(3) 102.2 55.8 83
Equity income from
affiliates (523.0) (759.1) (31)
Other (income)
expense, net (81.9) (84.0) (2)
Income Before Taxes 2,058.5 2,232.2 (8)
Taxes on Income (4) 290.2 555.8
Net Income $1,768.3 $1,676.4 5
Average Shares
Outstanding Assuming
Dilution 2,154.3 2,189.2
Earnings per Common
Share Assuming
Dilution $ 0.82 $ 0.77 6
(1) Includes restructuring costs of $16.1 million in the second
quarter of 2008 and $118.7 million in the second quarter of 2007
primarily related to accelerated depreciation associated with Merck’s
global restructuring program announced in November 2005.
(2) Includes the impact of reserving an additional $210 million in
the second quarter of 2007 solely for future legal defense costs for
VIOXX litigation.
(3) Restructuring costs represent separation and other related
costs associated with the global restructuring program.
(4) The second quarter 2008 effective tax rate was 14.1%. The
effective tax rate excluding the impact of restructuring charges was
15.2%. Both rates reflect a second quarter net benefit of
approximately nine percentage points primarily relating to the
favorable impact of tax settlements.
The following table shows the financial results for Merck & Co., Inc.
and subsidiaries for the six months ended June 30, 2008, compared
with the corresponding period of the prior year.
Merck & Co., Inc.
Consolidated Results
(In Millions Except Earnings per Common Share)
Six Months Ended June 30
(Unaudited)
%
2008 2007 Change
——————– —————— ——
Sales $ 11,873.9 $ 11,880.7 –%
Costs, Expenses and
Other
Materials and
production (1) 2,634.6 3,078.1 (14)
Marketing and
administrative (2) 3,784.7 3,885.7 (3)
Research and
development 2,247.6 2,060.6 9
Restructuring costs
(3) 171.9 121.6 41
Equity income from
affiliates (1,175.1) (1,411.7) (17)
Other (income)
expense, net (4) (2,259.2) (340.2) *
Income Before Taxes 6,469.4 4,486.6 44
Taxes on Income (5) 1,398.6 1,105.9
Net Income $ 5,070.8 $ 3,380.7 50
Average Shares
Outstanding Assuming
Dilution 2,165.8 2,183.4
Earnings per Common
Share Assuming
Dilution $ 2.34 $ 1.55 51
* > 100%
(1) Includes restructuring costs of $31.0 million in the first six
months of 2008 and $236.8 million in the first six months of 2007
primarily related to accelerated depreciation associated with Merck’s
global restructuring program announced in November 2005.
(2) Includes the impact of reserving an additional $40 million in
2008 solely for future legal defense costs for FOSAMAX litigation and
$210 million in 2007 solely for future legal defense costs for VIOXX.
(3) Restructuring costs represent separation and other related
costs, as well as gains on sales of facilities and related assets in
2008, associated with the global restructuring program.
(4) Other (income) expense, net in the first six months of 2008
reflects a $2.2 billion gain related to a distribution from
AstraZeneca LP, a $300 million expense for a contribution to The Merck
Company Foundation, a $249 million gain on the Company’s remaining
worldwide rights to AGGRASTAT and a $58 million charge in connection
with the resolution of an investigation into whether the Company
violated state consumer protection laws with respect to the sales and
marketing of VIOXX. Other (income) expense, net in the first six
months of 2007 primarily reflects the favorable impact of gains on
sales of assets and product divestitures.
(5) The effective tax rate was 21.6% for the first six months of
2008. The effective tax rate excluding the impacts of the gain on
distribution from AstraZeneca LP and restructuring charges was 14.9%
reflecting a net benefit of approximately eight percentage points
primarily relating to the favorable impact of tax settlements and the
realization of foreign tax credits.
(1) Merck is providing information on 2008 and 2007 non-GAAP
earnings per share 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 Company’s
performance. This information should be considered in addition to, but
not in lieu of, earnings per share prepared in accordance with GAAP.
(2) Source: IMS NPA
(3) COZAAR and HYZAAR are registered trademarks of E.I. duPont de
Nemours and Company, Wilmington, Del.