Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the first quarter of 2011.
Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the first quarter of $0.92 excludes purchase accounting adjustments, restructuring costs, merger-related expenses, a $500 million charge related to the resolution of the arbitration proceeding with Johnson & Johnson, and certain other items.
A reconciliation of GAAP to non-GAAP net income and EPS is provided in the tables that follow.
“Merck’s first quarter performance underscores that we are successfully delivering on our intent to grow both the top line and the bottom line,” said Kenneth C. Frazier, president and chief executive officer. “Our strong results were largely driven by double-digit growth of key products combined with deliberate cost control measures across all areas of the company as we continue to create a more effective and efficient operating model.
“It is clear that Merck’s business momentum is building, and we continue to demonstrate the ongoing value of the merger. We’re making progress in our robust late-stage pipeline, and leveraging the benefits of our expanded pharmaceutical and vaccine, animal health and consumer portfolio.”
Select Revenue Highlights
Worldwide sales were $11.6 billion for the first quarter of 2011, an increase of 1 percent compared with the first quarter of 2010. The revenue increase largely reflects strong sales of JANUVIA, JANUMET, SINGULAIR, REMICADE, NASONEX and ISENTRESS, partially offset by lower sales of COZAAR and HYZAAR. In the first quarter of 2011, 18 percent of pharmaceutical sales were from emerging markets.
The table below reflects sales of the company’s top Pharmaceutical products, as well as total sales of Animal Health and Consumer Care products.
The combined diabetes franchise for JANUVIA (sitagliptin)/JANUMET (sitagliptin/metformin hydrochloride) continued its strong performance across all geographic regions during the first quarter of 2011, reaching quarterly combined sales of more than $1 billion for the first time – a 47 percent increase compared to the same period last year.
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, grew 14 percent from the first quarter of 2010 to $1.3 billion, driven by gains in the United States, emerging markets and Japan.
Global sales grew in the quarter for REMICADE (infliximab), a treatment for inflammatory diseases, led by increases in gastrointestinal indications for the treatment of ulcerative colitis and Crohn’s disease as well as emerging market gains.
ISENTRESS (raltegravir), an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, continued strong growth in the quarter driven by demand in the United States and Europe.
As expected, global sales of Merck’s antihypertensive medicines COZAAR (losartan potassium) and HYZAAR (losartan potassium and hydrochlorothiazide) continue to decline following loss of marketing exclusivity for these products in the United States and in major European markets. Sales of TEMODAR (temozolomide), a treatment for certain types of brain tumors, declined due to generic competition in Europe.
Sales of ZOSTAVAX (zoster vaccine live) declined due to continued intermittent supply issues.
Product Performance – Animal Health
The company drove solid first-quarter performance in the Animal Health business across all regions, with a 7 percent sales increase over the same period last year. The growth was led by increased sales of cattle, swine and aquaculture products. The division’s products include pharmaceutical and vaccine products for the prevention, treatment and control of disease in all major farm and companion animal species. In addition, in March of 2011, Merck and sanofi-aventis announced the termination of their agreement to form a new animal health joint venture.
Product Performance – Consumer Care
Merck Consumer Care delivered a first-quarter sales increase of 6 percent compared to the first quarter of 2010, with strong performance across several key brands including CLARITIN and COPPERTONE. Consumer Care includes footcare and suncare consumer products, and a variety of over-the-counter medicines.
First Quarter Expense and Other Information
The costs detailed below on a GAAP basis during the first quarter of 2011 totaled
$9.4 billion and include $1.8 billion of purchase accounting adjustments, restructuring costs and merger-related costs.
The gross margin was 64.9 percent for the first quarter of 2011 and 54.3 percent for the first quarter of 2010, reflecting 11.9 and 21.1 percentage point unfavorable impacts, respectively, from the purchase accounting adjustments, restructuring and merger-related costs noted above.
Equity income from affiliates was $138 million in the first quarter. Equity income from affiliates primarily includes the AstraZeneca LP, Johnson & Johnson Merck Consumer Pharmaceuticals Company and Sanofi Pasteur MSD partnerships.
Other (income) expense, net was $622 million of expense in the first quarter of 2011 which includes a $500 million charge related to the resolution of the arbitration proceeding with Johnson & Johnson. Other (income) expense, net for the first quarter of 2010 was $167 million of expense.
The GAAP effective tax rate was 38.1 percent for the first quarter of 2011. The non-GAAP effective tax rate, which excludes the impact of purchase accounting adjustments, restructuring costs, merger-related expenses, a $500 million charge related to the resolution of the arbitration proceeding, and certain other items, was 25.5 percent for the quarter.
- Merck reached an agreement with Johnson & Johnson that settles the arbitration proceeding about the distribution rights for REMICADE (infliximab) and SIMPONI (golimumab).
- Merck now has five investigational medicines under regulatory review in the United States and European Union (EU), including two that were accepted for review in the first quarter of 2011.
- VICTRELIS (boceprevir), the company’s investigational oral hepatitis C protease inhibitor currently under Priority Review status by the U.S. Food and Drug Administration (FDA) and accelerated assessment status by the EU, was recommended for approval by unanimous vote by the FDA’s Antiviral Drugs Advisory Committee on April 27, 2011.
- An investigational extended-release formulation of JANUMET (sitagliptin/metformin HCI) for Type 2 diabetes is under standard review by the FDA.
- The FDA accepted for standard review during the first quarter of 2011 a combination of JANUVIA (sitagliptin) and ZOCOR (simvastatin) for the investigational treatment of diabetes and dyslipidemia.
- Tafluprost, an investigational prostaglandin analogue ophthalmic solution, was accepted for standard review by the FDA in the first quarter of 2011.
- NOMAC-E2 (acetate 2.5 mg /17β-estradiol 1.5 mg), an investigational monophasic combined oral contraceptive tablet for the use by women to prevent pregnancy was recommended for approval by the Committee for Medicinal Products for Human Use of the European Medicines Agency.
- Two medicines received regulatory approval for expanded indications.
- In the United States, ZOSTAVAX (Zoster Vaccine Live) received an expanded age indication for the prevention of herpes zoster, commonly known as shingles, to include adults 50 to 59 years of age, and
- In the EU, SIMPONI (golimumab) received approval for use in combination with methotrexate in certain adults with severe, active and progressive rheumatoid arthritis for the reduction in the rate of progression of joint damage as measured by X-ray.
- In the United States, the FDA approved SYLATRON (peginterferon alfa-2b) for the adjuvant treatment of patients with melanoma with microscopic or gross nodal involvement within 84 days of definitive surgical resection including complete lymphadenectomy.
- The company formed a new joint venture with Sun Pharmaceutical Industries Ltd., a leading Indian multinational pharmaceutical company, to develop, manufacture and commercialize new combinations and formulations of innovative, branded generics for the emerging markets.
- Merck agreed to acquire Inspire Pharmaceuticals, Inc., a specialty pharmaceutical company, for approximately $430 million to expand and position its ophthalmology portfolio for future growth. The transaction is expected to close in the second quarter of 2011.
The company updated its 2011 non-GAAP EPS target range to $3.66 to $3.76 from the previous target range of $3.64 to $3.76. The target range excludes purchase accounting adjustments, restructuring costs, merger-related expenses, the $500 million charge related to the resolution of the arbitration proceeding with Johnson & Johnson, and certain other items. The 2011 GAAP EPS target range is $2.04 to $2.39.
In addition, the company lowered its non-GAAP R&D expense target to a range of $8.0 billion to $8.4 billion for the full year of 2011. This target excludes restructuring costs and in-process R&D impairment charges.
Merck continues to expect full year 2011 revenue to grow in the low- to mid-single digit percent range from a base of $46.0 billion in 2010.
Merck continues to estimate that its consolidated non-GAAP 2011 tax rate will be approximately 20 percent to 22 percent.
A reconciliation of anticipated 2011 EPS as reported in accordance with GAAP to non-GAAP EPS that excludes certain items is provided in the table below.