On April 25, 2024 Merck (NYSE: MRK), known as MSD outside the United States and Canada, reported financial results for the first quarter of 2024 (Press release, Merck & Co, APR 25, 2024, View Source [SID1234642347]).
Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:
Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing
Schedule Your 30 min Free Demo!
"Merck has begun 2024 with continuing momentum in our business. We are harnessing the power of innovation to advance our deep pipeline and are maximizing the impact of our broad commercial portfolio for the benefit of patients," said Robert M. Davis, chairman and chief executive officer, Merck. "We drove strong growth across key therapeutic areas, executed strategic business development, and in the U.S., we are now launching WINREVAIR, a significant new product in the cardiometabolic space for adults with pulmonary arterial hypertension, a progressive and debilitating disease. We have important opportunities ahead of us across all areas of our business, and we are highly focused on realizing them."
Financial Summary
$ in millions, except EPS amounts
First Quarter
2024
2023
Change
Change Ex-
Exchange
Sales
$15,775
$14,487
9%
12%
GAAP net income1
4,762
2,821
69%
76%
Non-GAAP net income that excludes certain items1,2*
5,279
3,564
48%
54%
GAAP EPS
1.87
1.11
68%
76%
Non-GAAP EPS that excludes certain items2*
2.07
1.40
48%
54%
*Refer to table on page 6.
Generally Accepted Accounting Principles (GAAP) earnings per share (EPS) assuming dilution was $1.87 for the first quarter of 2024. Non-GAAP EPS was $2.07 for the first quarter of 2024. GAAP and non-GAAP EPS in the first quarter of 2024 include a charge of $0.26 per share for the acquisition of Harpoon Therapeutics, Inc. (Harpoon). GAAP and non-GAAP EPS in the first quarter of 2023 include charges of $0.52 per share related to the acquisition of Imago BioSciences, Inc. (Imago) and a collaboration and licensing agreement with Kelun-Biotech.
Non-GAAP EPS excludes acquisition- and divestiture-related costs, costs related to restructuring programs, as well as income and losses from investments in equity securities. Non-GAAP EPS for the first quarter of 2023 also excludes a charge related to settlements with certain plaintiffs in the Zetia antitrust litigation.
First-Quarter Sales Performance
The following table reflects sales of the company’s top products and significant performance drivers.
First Quarter
$ in millions
2024
2023
Change
Change Ex-Exchange
Commentary
Total Sales
$15,775
$14,487
9%
12%
Approximately 2% of the negative impact of foreign exchange was due to devaluation of Argentine peso, which was largely offset by inflation-related price increases, consistent with practice in that market.
Pharmaceutical
14,006
12,721
10%
13%
Increase driven by growth in oncology and vaccines, partially offset by a decline in diabetes.
KEYTRUDA
6,947
5,795
20%
24%
Growth driven by increased global uptake in earlier-stage indications, including triple-negative breast cancer and renal cell carcinoma, as well as non-small cell lung cancer (NSCLC) in the U.S., and continued strong global demand from metastatic indications. Substantially all of the 4% negative impact of foreign exchange was due to devaluation of Argentine peso, which was largely offset by inflation-related price increases.
GARDASIL/GARDASIL 9
2,249
1,972
14%
17%
Growth due to strong demand, particularly in China, which also benefited from timing of shipments, as well as public-sector buying patterns in the U.S., and higher pricing.
JANUVIA/JANUMET
670
880
-24%
-21%
Decline primarily due to lower pricing and demand in the U.S., as well as ongoing generic competition in many international markets, particularly in Europe, Canada and the Asia Pacific region.
PROQUAD, M-M-R II and VARIVAX
570
528
8%
8%
Growth largely from higher pricing in the U.S., as well as higher sales in Latin America, due in part to timing of government tenders.
BRIDION
440
487
-10%
-8%
Decline primarily due to generic competition in certain ex-U.S. markets, particularly in Europe, partially offset by higher demand in the U.S.
LAGEVRIO
350
392
-11%
-5%
Decline due to lower demand in certain markets in the Asia Pacific region, partially offset by higher demand in Japan and the U.S.
Lynparza*
292
275
6%
7%
Growth driven primarily by higher demand in certain international markets, particularly in Latin America.
Lenvima*
255
232
10%
10%
Growth primarily from higher demand in the U.S.
VAXNEUVANCE
219
106
106%
106%
Growth largely driven by continued uptake for pediatric indication in the U.S. and launches in Europe. Sales growth in the U.S. also benefited from public-sector buying patterns.
ROTATEQ
216
297
-27%
-27%
Decline primarily due to timing of shipments in China and public-sector buying patterns in the U.S.
Animal Health
1,511
1,491
1%
4%
Growth primarily driven by higher pricing in both Livestock and Companion Animal product portfolios, partially offset by lower volumes. Approximately 2% of the negative impact of foreign exchange was due to devaluation of Argentine peso, which was largely offset by inflation-related price increases.
Livestock
850
849
0%
4%
Sales were flat reflecting higher pricing across product portfolio, as well as higher demand for swine and poultry products, partially offset by lower demand for ruminant products.
Companion Animal
661
642
3%
4%
Growth due to higher pricing across product portfolio. Sales of BRAVECTO were $332 million and $314 million in current and prior-year quarters, respectively, which represented growth of 6%, or 7% excluding impact of foreign exchange.
Other Revenues**
258
275
-6%
11%
Decline due to impact of revenue hedging activities.
*Alliance revenue for this product represents Merck’s share of profits, which are product sales net of cost of sales and commercialization costs.
**Other revenues are comprised primarily of revenues from third-party manufacturing arrangements and miscellaneous corporate revenues, including revenue hedging activities.
First-Quarter Expense, EPS and Related Information
The table below presents selected expense information.
$ in millions
GAAP
Acquisition-
and
Divestiture-
Related Costs3
Restructuring
Costs
(Income)
Loss From
Investments
in Equity
Securities
Certain Other Items
Non-
GAAP2
First Quarter 2024
Cost of sales
$3,540
$463
$116
$-
$-
$2,961
Selling, general and administrative
2,483
21
5
–
–
2,457
Research and development
3,992
16
2
–
–
3,974
Restructuring costs
123
–
123
–
–
–
Other (income) expense, net
(33)
(4)
–
(116)
–
87
First Quarter 2023
Cost of sales
$3,926
$545
$29
$-
$-
$3,352
Selling, general and administrative
2,479
20
1
–
–
2,458
Research and development
4,276
10
–
–
–
4,266
Restructuring costs
67
–
67
–
–
–
Other (income) expense, net
89
15
–
(429)
573
(70)
GAAP Expense, EPS and Related Information
Gross margin was 77.6% for the first quarter of 2024 compared with 72.9% for the first quarter of 2023. The increase was primarily due to the favorable impacts of product mix (including lower royalty rates related to KEYTRUDA and GARDASIL/GARDASIL 9), foreign exchange and lower amortization of intangible assets, partially offset by higher restructuring costs and inventory write-offs.
Selling, general and administrative (SG&A) expenses were $2.5 billion in both the first quarters of 2024 and 2023, primarily due to higher administrative costs, offset by lower promotional costs, reflecting the prioritization of spending on key growth products, and the favorable impact of foreign exchange.
Research and development (R&D) expenses were $4.0 billion in the first quarter of 2024 compared with $4.3 billion in the first quarter of 2023. The decrease was primarily due to lower charges for business development activity, which included a $656 million charge for the acquisition of Harpoon in the first quarter of 2024, compared with charges of $1.2 billion for the acquisition of Imago and $175 million for a license and collaboration agreement with Kelun-Biotech in the first quarter of 2023. The decline was partially offset by increased compensation and benefit costs, higher clinical development spending, as well as higher investments in discovery research and early drug development in the first quarter of 2024.
Other (income) expense, net, was $33 million of income in the first quarter of 2024 compared with $89 million of expense in the first quarter of 2023. The favorability primarily reflects a $572.5 million charge in 2023 related to settlements with certain plaintiffs in the Zetia antitrust litigation, largely offset by lower income from investments in equity securities and higher net interest expense in 2024.
The effective tax rate was 15.9% for the first quarter of 2024 (which includes a 1.6 percentage point unfavorable impact for the acquisition of Harpoon), compared with 22.6% in the first quarter of 2023 (which includes a 5.5 percentage point unfavorable impact for the acquisition of Imago).
GAAP EPS was $1.87 for the first quarter of 2024 compared with $1.11 for the first quarter of 2023.
Non-GAAP Expense, EPS and Related Information
Non-GAAP gross margin was 81.2% for the first quarter of 2024 compared with 76.9% for the first quarter of 2023. The increase was primarily due to the favorable impacts of product mix (including lower royalty rates related to KEYTRUDA and GARDASIL/GARDASIL 9) and foreign exchange, partially offset by higher inventory write-offs.
Non-GAAP SG&A expenses were $2.5 billion for both the first quarters of 2024 and 2023, primarily due to higher administrative costs, offset by lower promotional costs, reflecting the prioritization of spending on key growth products, and the favorable impact of foreign exchange.
Non-GAAP R&D expenses were $4.0 billion in the first quarter of 2024 compared with $4.3 billion in the first quarter of 2023. The decrease was primarily due to lower charges for business development activity, which included a $656 million charge for the acquisition of Harpoon in the first quarter of 2024, compared with charges of $1.2 billion for the acquisition of Imago and $175 million for a license and collaboration agreement with Kelun-Biotech in the first quarter of 2023. The decline was partially offset by increased compensation and benefit costs, higher clinical development spending, as well as higher investments in discovery research and early drug development in the first quarter of 2024.
Non-GAAP other (income) expense, net, was $87 million of expense in the first quarter of 2024 compared with $70 million of income in the first quarter of 2023, primarily due to higher net interest expense.
The non-GAAP effective tax rate was 16.1% for the first quarter of 2024 (which includes a 1.5 percentage point unfavorable impact for the acquisition of Harpoon), compared with 20.4% in the first quarter of 2023 (which includes a 4.3 percentage point unfavorable impact for the acquisition of Imago).
Non-GAAP EPS was $2.07 for the first quarter of 2024 compared with $1.40 for the first quarter of 2023.
A reconciliation of GAAP to non-GAAP net income and EPS is provided in the table that follows.
First Quarter
$ in millions, except EPS amounts
2024
2023
EPS
GAAP EPS
$1.87
$1.11
Difference
0.20
0.29
Non-GAAP EPS that excludes items listed below2
$2.07
$1.40
Net Income
GAAP net income1
$4,762
$2,821
Difference
517
743
Non-GAAP net income that excludes items listed below1,2
$5,279
$3,564
Excluded Items:
Acquisition- and divestiture-related costs3
$496
$590
Restructuring costs
246
97
Income from investments in equity securities
(116)
(429)
Charge for Zetia antitrust litigation settlements
–
573
Net decrease in income before taxes
626
831
Estimated income tax (benefit) expense
(109)
(88)
Decrease in net income
$517
$743
Pipeline and Portfolio Highlights
Merck continued to achieve key regulatory and clinical milestones across therapeutic areas in the first quarter.
In cardiometabolic disease, Merck received approval from the U.S. Food and Drug Administration (FDA) for WINREVAIR (sotatercept-csrk) for the treatment of adults with pulmonary arterial hypertension (PAH, World Health Organization [WHO] Group 1) to increase exercise capacity, improve WHO functional class, and reduce the risk of clinical worsening events. WINREVAIR is a breakthrough biologic and the first FDA-approved activin signaling inhibitor therapy for PAH, a rare, progressive disease. WINREVAIR is currently under review in the European Union and is being evaluated in ongoing Phase 3 trials in additional PAH patient populations.
In oncology, KEYTRUDA continued to demonstrate its role as a foundational therapy for certain types of cancers, receiving the first approval in Europe for an anti-PD-1/L1 therapy as part of a treatment regimen for adult patients with resectable NSCLC at high risk of recurrence. In addition, the FDA granted Priority Review to a new supplemental Biologics License Application (sBLA) that would establish KEYTRUDA as the first immunotherapy indicated for the frontline treatment of advanced endometrial cancer regardless of DNA mismatch repair status. Merck also made meaningful progress in its clinical development programs, including initiating a Phase 3 trial for MK-1084, its investigational oral selective KRAS G12C inhibitor, in combination with KEYTRUDA for the first-line treatment of certain patients with metastatic NSCLC. And, in collaboration with Daiichi Sankyo, the company initiated the REJOICE-OVARIAN01 Phase 2/3 trial evaluating the efficacy and safety of investigational raludotatug deruxtecan (R-DXd) in patients with platinum-resistant ovarian cancer.
In vaccines, Merck shared positive data from multiple Phase 3 studies evaluating V116, the company’s investigational, 21-valent pneumococcal conjugate vaccine designed for adults. If approved, V116 would be the first pneumococcal conjugate vaccine designed to address the serotypes responsible for approximately 83% of invasive pneumococcal disease in adults 65 and older. Merck also announced plans to initiate clinical development of a new investigational, multi-valent HPV vaccine designed to provide broader protection against certain cancers and diseases caused by additional HPV types, as well as plans to conduct clinical trials in both females and males (16-26 years old) to evaluate the efficacy and safety of a single-dose regimen of GARDASIL 9.
In infectious diseases, Merck presented new data from its HIV development programs at the 31st Conference on Retroviruses and Opportunistic Infections in March, demonstrating significant momentum within the HIV pipeline. These data included the Phase 2 study evaluating a once-weekly oral combination regimen of islatravir, the company’s investigational nucleoside reverse transcriptase translocation inhibitor (NRTTI), and Gilead Sciences, Inc.’s lenacapavir, a first-in-class capsid inhibitor, for the treatment of adults living with HIV. And, for the first time, Merck presented data for MK-8527, the company’s novel NRTTI that is being developed as an oral once-monthly agent for HIV-1 pre-exposure prophylaxis (PrEP), which recently entered Phase 2 development.
Merck has the following three Prescription Drug User Fee Act (PDUFA), or target action, dates set by the FDA in the second quarter of 2024: V116 (June 17), KEYTRUDA plus chemotherapy as treatment for primary advanced or recurrent endometrial carcinoma (June 21) and, in collaboration with Daiichi Sankyo, patritumab deruxtecan (HER3-DXd) for the treatment of certain patients with previously treated locally advanced or metastatic EGFR-mutated NSCLC (June 26).
Merck continued to expand and complement its pipeline and product portfolio through business development. Merck completed the acquisition of Harpoon, expanding its oncology pipeline with novel T-cell engagers, including MK-6070, an investigational delta-like ligand 3 targeting T-cell engager. The company also entered into a definitive agreement to acquire the aqua business of Elanco Animal Health Incorporated (Elanco), which will broaden its aqua portfolio with new products.
Notable recent news releases on Merck’s pipeline and portfolio are provided in the table that follows.
Cardiometabolic
FDA Approved Merck’s WINREVAIR, a First-in-Class Treatment for Adults With PAH, Based on Results From Phase 3 STELLAR Trial
(Read Announcement)
Oncology
European Commission Approved Merck’s KEYTRUDA Plus Chemotherapy as Neoadjuvant Treatment, Then Continued as Monotherapy as Adjuvant Treatment, for Resectable NSCLC at High Risk of Recurrence in Adults, Based on Results From Phase 3 KEYNOTE-671 Trial
(Read Announcement)
FDA Granted Priority Review to Merck’s Application for KEYTRUDA Plus Chemotherapy as Treatment for Primary Advanced or Recurrent Endometrial Carcinoma, Based on Results From Phase 3 NRG-GY018 Trial
(Read Announcement)
KEYTRUDA Plus Chemoradiotherapy (CRT) Significantly Improved Overall Survival Versus CRT Alone in Patients With Newly Diagnosed High-Risk Locally Advanced Cervical Cancer, Based on Results From Phase 3 KEYNOTE-A18 Trial
(Read Announcement)
Merck and Daiichi Sankyo Initiated REJOICE-Ovarian01 Phase 2/3 Trial of Raludotatug Deruxtecan in Patients With Platinum-Resistant Ovarian Cancer
(Read Announcement)
Merck Initiated Phase 3 Clinical Trial of MK-1084, an Investigational Oral KRAS G12C Inhibitor, in Combination With KEYTRUDA for First-Line Treatment of Certain Patients With Metastatic NSCLC
(Read Announcement)
Vaccines
Merck Announced Positive Data on V116, an Investigational, 21-Valent Pneumococcal Conjugate Vaccine Specifically Designed for Adults, Demonstrated Immune Responses in Adults, Based on Results From Multiple Phase 3 Trials
(Read Announcement)
Merck Announced Plans to Conduct Clinical Trials of a Novel Investigational Multi-Valent HPV and Single-Dose Regimen for GARDASIL 9
(Read Announcement)
Infectious Diseases
Merck and Gilead Announced Phase 2 Data Showing an Investigational Oral Once-Weekly Combination Regimen of Islatravir and Lenacapavir Maintained Viral Suppression at Week 24
(Read Announcement)
Upcoming Investor Event
Merck will host an Oncology Investor Event to coincide with the American Society for Clinical Oncology Annual Meeting on Monday, June 3, 2024, 6 p.m. CT, at which senior management will provide an update on the company’s oncology strategy and program. The event will take place in Chicago, Ill., and will be accessible via live audio webcast at this weblink.
Full-Year 2024 Financial Outlook
The following table summarizes the company’s full-year financial outlook.
Full Year 2024
Updated
Prior
Sales*
$63.1 to $64.3 billion
$62.7 to $64.2 billion
Non-GAAP Gross margin2
Approximately 81%
Approximately 80.5%
Non-GAAP Operating expenses2**
$25.2 to $26.1 billion
$25.1 to $26.1 billion
Non-GAAP Other (income) expense, net2
Approximately $250 million expense
Approximately $200 million expense
Non-GAAP Effective tax rate2
14.5% to 15.5%
14.5% to 15.5%
Non-GAAP EPS2***
$8.53 to $8.65
$8.44 to $8.59
Share count (assuming dilution)
Approximately 2.55 billion
Approximately 2.54 billion
*The company does not have any non-GAAP adjustments to sales.
**Includes a one-time R&D charge of $656 million related to the Harpoon acquisition. Outlook does not assume any additional significant potential business development transactions.
***Includes a one-time charge of $0.26 per share related to the Harpoon acquisition.
Merck has not provided a reconciliation of forward-looking non-GAAP gross margin, non-GAAP operating expenses, non-GAAP other (income) expense, net, non-GAAP effective tax rate and non-GAAP EPS to the most directly comparable GAAP measures, given it cannot predict with reasonable certainty the amounts necessary for such a reconciliation, including intangible asset impairment charges, legal settlements, and gains and losses from investments in equity securities either owned directly or through ownership interests in investment funds, without unreasonable effort. These items are inherently difficult to forecast and could have a significant impact on the company’s future GAAP results.
Merck continues to experience strong global demand for key growth products in oncology and vaccines. Consequently, Merck is raising and narrowing its full-year outlook ranges for sales and non-GAAP EPS.
Merck now expects its full-year 2024 sales to be between $63.1 billion and $64.3 billion, including a negative impact of foreign exchange of approximately 3% at mid-April 2024 exchange rates. Approximately 2% of the negative impact of foreign exchange is due to the devaluation of the Argentine peso, which the company expects will largely be offset by inflation-related price increases, consistent with practice in that market.
Merck continues to expect its full-year non-GAAP effective income tax rate to be between 14.5% and 15.5%.
Merck now expects its full-year non-GAAP EPS to be between $8.53 and $8.65, including a charge of $0.26 per share for the acquisition of Harpoon that closed in the first quarter of 2024 and a negative impact of foreign exchange of approximately $0.30 per share. The negative impact of foreign exchange is primarily due to the devaluation of the Argentine peso, which the company expects will largely be offset by inflation-related price increases, consistent with practice in that market.
Consistent with past practice, the financial outlook does not assume additional significant potential business development transactions.
Full-year 2023 non-GAAP EPS of $1.51 was negatively impacted by charges of $6.21 per share related to certain acquisitions and collaboration agreements.
Non-GAAP EPS excludes acquisition- and divestiture-related costs, costs related to restructuring programs, income and losses from investments in equity securities, and a previously disclosed charge related to settlements with certain plaintiffs in the Zetia antitrust litigation.
Earnings Conference Call
Investors, journalists and the general public may access a live audio webcast of the earnings conference call on Thursday, April 25, at 9 a.m. ET via this weblink. A replay of the webcast, along with the sales and earnings news release, supplemental financial disclosures, and slides highlighting the results, will be available at www.merck.com.
All participants may join the call by dialing (888) 847-9708 (U.S. and Canada Toll-Free) or (630) 395-0358 and using the access code 4164932.