The FINANCIAL — Merck , known as MSD outside the United States and Canada, on April 28 announced financial results for the first quarter of 2015.
Non-GAAP (generally accepted accounting principles) earnings per share (EPS) of $0.85 for the first quarter exclude acquisition- and divestiture-related costs and restructuring costs, according to Merck.
Commentary from Chairman and Chief Executive Officer Kenneth C. Frazier
“Our strong performance this quarter demonstrates that our scientific and business strategies, together with our focused investments, are paying off.”
“We remain focused on bringing forward the best scientific and medical innovations.”
“By capitalizing on the exciting scientific and clinical opportunities that lie ahead, Merck is poised to play a major role in transforming health care for patients, as well as payers and shareholders.”
Select Business Highlights
Worldwide sales were $9.4 billion for the first quarter of 2015, a decrease of 8 percent compared with the first quarter of 2014, including a 5 percent negative impact from foreign exchange and a 9 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).
Commercial and Pipeline Highlights
The company focused on important launches in the first quarter of 2015, including KEYTRUDA (pembrolizumab) for the treatment of advanced melanoma in patients whose disease has progressed after other therapies, BELSOMRA (suvorexant) for the treatment of insomnia and ZERBAXA (ceftolozane/tazobactam), a combination product for the treatment of certain serious bacterial infections in adults. ZERBAXA was acquired through the acquisition of Cubist, which was completed in late January.
Merck continued to accelerate its KEYTRUDA clinical development program.
The company has submitted a supplemental Biologics License Application (sBLA) to the U.S. Food and Drug Administration (FDA) for KEYTRUDA for the treatment of patients with advanced non-small cell lung cancer (NSCLC) whose disease has progressed on or after platinum-containing chemotherapy and an FDA-approved therapy for EGFR or ALK genomic tumor aberrations, if present. Under PDUFA, the FDA has 60 days from submission of the sBLA to determine if the application will be accepted for review. Data used to form the basis for the sBLA submission, presented last week at the American Association for Cancer Research (AACR) Annual Meeting and simultaneously published in the New England Journal of Medicine, demonstrated robust response rates and durable clinical benefit in naïve and previously treated patients with NSCLC.
Additionally, the company expects to file a sBLA in mid-2015 for KEYTRUDA for the first-line treatment of advanced melanoma based on data from the Phase 3 KEYNOTE-006 study, presented last week at AACR and simultaneously published in the New England Journal of Medicine. These data demonstrated KEYTRUDA was statistically superior to ipilimumab, the current standard of care, for overall survival, progression-free survival and overall response rate in patients with advanced melanoma. In March, the company announced the study would be stopped early based on the recommendation of the study’s independent Data Monitoring Committee.
The company also recently submitted data from the KEYNOTE-002 study in ipilimumab-refractory melanoma as part of a supplemental application to the FDA.
Early findings with KEYTRUDA in patients with malignant pleural mesothelioma presented last week at AACR demonstrated encouraging overall response and disease control rates in the difficult-to-treat cancer of the lining of the lungs, abdomen and other organs.
Merck announced collaborations with Eli Lilly and Company, Eisai Co., Ltd., Syndax Pharmaceuticals, Inc. and TetraLogic Pharmaceuticals Corporation to evaluate KEYTRUDA in combination settings. Merck is advancing a broad and fast-growing clinical development program for KEYTRUDA with more than 85 clinical trials – across more than 30 tumor types and more than 14,000 patients – both as a monotherapy and in combination with other therapies.
In March, KEYTRUDA became the first treatment to be accepted under the U.K.’s new Early Access to Medicines Scheme for the treatment of advanced melanoma.
The company also advanced its clinical development program for the treatment of chronic hepatitis C virus (HCV) infection.
The first data presentations of the pivotal Phase 3 C-EDGE program evaluating grazoprevir/elbasvir, an investigational oral once-daily regimen for the treatment of chronic HCV infection, presented last week at The International Liver Congress 2015 – the 50th annual congress of the European Association for the Study of the Liver (EASL), showed high rates of sustained virologic response 12 weeks after completion of treatment (SVR12) across a broad range of patients with genotypes 1, 4 and 6 infection in a number of trials.
Additional Phase 2/3 data for grazoprevir/elbasvir presented last week at EASL showed a high rate of SVR12 in treatment-naïve and treatment-experienced patients with advanced chronic kidney disease infected with chronic HCV genotype.
The company reiterated its plans to submit a New Drug Application (NDA) to the FDA for grazoprevir/elbasvir in the first half of 2015.
The company received two Breakthrough Therapy Designations from the FDA for grazoprevir/elbasvir for the treatment of patients with chronic HCV genotype 4 infection, and for the treatment of chronic HCV genotype 1 infection in patients with end stage renal disease on hemodialysis.
At this week’s European Congress of Clinical Microbiology and Infectious Diseases, more than 30 abstracts are being presented on the company’s portfolio of marketed and investigational anti-infective medicines.
The company announced the Trial Evaluating Cardiovascular Outcomes with Sitagliptin (TECOS) of JANUVIA (sitagliptin), a medicine that helps lower blood sugar levels in adults with type 2 diabetes, achieved its primary endpoint of non-inferiority for the composite cardiovascular endpoint. Among secondary endpoints, there was no increase in hospitalization for heart failure in the sitagliptin group versus placebo.
The company received a Complete Response Letter (CRL) from the FDA for sugammadex injection, an investigational medicine for the reversal of neuromuscular blockade induced by rocuronium or vecuronium. Merck is evaluating the information provided in the CRL. Sugammadex injection is marketed as BRIDION in more than 60 countries.
The company submitted data from the IMPROVE-IT study to the FDA to support a new indication for reduction of cardiovascular events for ZETIA (ezetimibe) and VYTORIN (ezetimibe/simvastatin), medicines for lowering LDL cholesterol.
Pharmaceutical Revenue Performance
First-quarter pharmaceutical sales declined 2 percent to $8.3 billion, including a 7 percent negative impact from foreign exchange. Excluding the impact of exchange, growth was driven by the four core therapeutic areas – diabetes, vaccines, hospital acute care and oncology. The increase in hospital acute care was driven by strong sales growth of inline brands, as well as the addition of $208 million of Cubist product sales following Merck’s acquisition of Cubist in late January, including $182 million in sales of CUBICIN (daptomycin for injection), an I.V. antibiotic. Sales of CUBICIN in 2015 prior to Merck’s acquisition of Cubist were $74 million. Oncology growth was due to $83 million in sales from the continued launch of KEYTRUDA. Pharmaceutical sales also reflect the continued decline in the HCV portfolio of VICTRELIS (boceprevir) and PEGINTRON (peginterferon alfa-2b).
Animal Health Revenue Performance
Animal Health sales totaled $829 million for the first quarter of 2015, an increase of 2 percent compared with the first quarter of 2014, including an 11 percent negative impact from foreign exchange. Growth was primarily driven by an increase in sales of companion animal products mainly from the continued launch of BRAVECTO (fluralaner), a chewable tablet that kills fleas and ticks in dogs for up to 12 weeks.
Other Revenue Performance
Other revenues – primarily comprising alliance revenue, miscellaneous corporate revenues and third-party manufacturing sales – decreased 28 percent to $328 million compared to the first quarter of 2014. The decrease was driven primarily by $232 million in proceeds from the sale of marketing rights for SAPHRIS (asenapine) in the United States recognized in the first quarter of 2014, as well as the loss of revenue from AstraZeneca recorded by Merck, which was $147 million in the first quarter of 2014.
First-Quarter 2015 Expense and Other Information
The costs detailed below totaled $8.0 billion on a GAAP basis during the first quarter of 2015 and include $1.8 billion of acquisition- and divestiture-related costs and restructuring costs.
The gross margin was 62.1 percent for the first quarter of 2015 compared to 62.0 percent for the first quarter of 2014, reflecting 14.4 and 12.1 unfavorable percentage point impacts, respectively, from the acquisition- and divestiture-related costs and restructuring costs noted above. The increase in non-GAAP gross margin was driven by product mix, including the impact of acquisitions and divestitures, and foreign exchange.
Marketing and administrative expenses, on a non-GAAP basis, were $2.3 billion in the first quarter of 2015, a decrease from $2.7 billion in the same period of 2014, which was primarily driven by the sale of the Consumer Care business and declines in direct selling costs.
R&D expenses, on a non-GAAP basis, were $1.7 billion in the first quarter of 2015, a 10 percent increase compared to the first quarter of 2014, largely driven by an increase in licensing expenses.
Other (income) expense, net, was $55 million of expense in the first quarter of 2015 compared to $163 million of income in the first quarter of 2014. The first quarter of 2014 included a $182 million gain on the divestiture of the company’s Sirna Therapeutics, Inc. subsidiary.
The GAAP effective tax rate of 30.6 percent for the first quarter of 2015 reflects the impacts of acquisition- and divestiture-related costs and restructuring costs. The non-GAAP effective tax rate, which excludes these items, was 22.4 percent for the first quarter of 2015.
Financial Outlook
Merck has narrowed and raised its full-year 2015 non-GAAP EPS range to be between $3.35 and $3.48, including a $0.27 negative impact from foreign exchange. The range excludes acquisition- and divestiture-related costs and costs related to restructuring programs. The company has lowered its full-year 2015 GAAP EPS range to be between $1.58 and $1.85. The change in the GAAP EPS range primarily reflects the incorporation of updated estimated Cubist intangible amortization expense.
At current exchange rates, the company continues to anticipate full-year 2015 revenues to be between $38.3 billion and $39.8 billion, including a $2.8 billion negative impact from foreign exchange and approximately $1 billion of net lost sales from acquisitions and divestitures.
In addition, the company continues to expect full-year 2015 non-GAAP marketing and administrative expenses to be below 2014 levels and R&D expenses to be modestly above 2014 levels.
The company continues to anticipate its full-year 2015 non-GAAP tax rate will be in the range of 22 to 23 percent, not including a 2015 R&D tax credit.
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