Exhibit 99.1

 

		News Release

 

 

Media Contacts:		Steven Campanini		Investor Contacts:		Carol Ferguson
		(908) 423-4291				(908) 423-4465
		David Caouette				Alex Kelly
		(908) 423-3461				(908) 423-5185

Merck Announces Second Quarter 2011 Financial Results

 

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Double-Digit Non-GAAP EPS Growth in Second Quarter 2011: Non-GAAP EPS of $0.95; GAAP EPS of $0.65

 

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Total Company and Pharmaceutical Sales Grow by 7 Percent, Including Foreign Exchange

 

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Double-Digit Global Growth Continues for JANUVIA, JANUMET, REMICADE, and ISENTRESS

 

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VICTRELIS and Other Product Launches Underway

 

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Company Raises Lower End of its 2011 Non-GAAP EPS Range; Provides New Range of $3.68 to $3.76; Also Updates GAAP EPS Range to $1.95 to $2.17

 

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Company Announces New Phase of Merger Restructuring Program

WHITEHOUSE STATION, N.J., July 29, 2011 – Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the second quarter of 2011.

 

$ in millions, except EPS amounts		Second Quarter 2011				Second Quarter 2010
Sales		$	12,151			$	11,346
GAAP EPS			0.65				0.24
Non-GAAP EPS that excludes items listed below 1			0.95				0.86
GAAP Net Income 2			2,024				752
Non-GAAP Net Income that excludes items listed below 1, 2			2,950				2,708

 

1

Merck is providing certain 2011 and 2010 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 company's 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.

2	Net income attributable to Merck & Co., Inc.

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Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the second quarter of $0.95 excludes acquisition-related costs, restructuring costs and the benefit of certain tax items.

A reconciliation of GAAP to non-GAAP net income and EPS is provided in the tables that follow.

 

		Second Quarter 2011								Second Quarter 2010
$ in millions, except EPS amounts		Net Income 2				EPS				Net Income 2				EPS
GAAP		$	2,024			$	0.65			$	752			$	0.24
Difference			926				0.30	3			1,956				0.62	3
Non-GAAP that excludes items listed below		$	2,950			$	0.95			$	2,708			$	0.86

 

$ in millions		Second Quarter 2011				Second Quarter 2010
Acquisition-related costs 4		$	1,440			$	1,747
Costs related to restructuring programs			816				894
Gain on AstraZeneca’s asset option exercise			—				(443	)
Other			7				—
Net decrease (increase) in income before taxes			2,263				2,198
Income tax (benefit) expense 5			(1,337	)			(242	)
Decrease (increase) in net income		$	926			$	1,956

Year-to-date results can be found in the attached financial tables.

“Double-digit growth from key products, and successful new product launches in markets worldwide led to Merck’s strong second quarter results,” said Kenneth C. Frazier, president and chief executive officer. “We’re delivering on our promise to grow both the top and bottom lines while continuing our efforts to streamline and transform Merck.

“By improving the effectiveness and efficiency of our operations and focusing on scientific innovation, we are well-positioned for sustained and profitable growth in the future.”

 

3	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.

4	Includes expenses for the amortization of intangible assets and amortization of purchase accounting adjustments to inventories recognized as a result of the merger, as well as intangible asset impairment charges. Also includes integration and other costs associated with mergers and acquisitions.

5

Includes an estimated income tax (benefit) expense on the reconciling items. In addition, amount for 2011 includes the net favorable impact of approximately $700 million relating to the settlement of a federal income tax audit, as well as the favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting.

 

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Update to Merger Restructuring Program

Merck said today that it remains on track to achieve its goal of $3.5 billion in annual cost synergies by the end of 2012.

The company said it will more aggressively reduce its cost structure so Merck can continue to invest in long term profitable growth opportunities while driving a more efficient operating model. As a result, Merck announced the next phase of its Merger Restructuring Program today. As part of this next phase, the company expects to reduce its workforce, as measured at December 31, 2009, by an additional 12 to 13 percent by the end of 2015. At the same time, Merck said it will continue to hire new employees in strategic growth areas of the business such as emerging markets.

“Merck is taking these difficult actions so that we can grow profitably and continue to deliver on our mission well into the future,” said Frazier. “The environment we operate in is changing rapidly and dramatically, and these steps will help us more efficiently serve customers and patients around the world.”

By the end of 2015, Merck now expects the overall Merger Restructuring Program to yield annual ongoing savings of $4.0 billion to $4.6 billion from the original estimate of $2.7 billion to $3.1 billion. Total cumulative pretax costs for the Program are estimated to range between $5.8 billion to $6.6 billion.

Select Revenue Highlights

Worldwide sales were $12.2 billion for the second quarter of 2011, the highest quarterly sales total for the combined company and an increase of 7 percent compared with the second quarter of 2010. Foreign exchange for the quarter favorably affected global sales performance by 4 percent. The revenue increase largely reflects strong sales of JANUVIA (sitagliptin), JANUMET (sitagliptin/metformin hydrochloride), REMICADE (infliximab), SINGULAIR (montelukast sodium), ISENTRESS (raltegravir), GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant], and ZOSTAVAX (zoster vaccine live). Pharmaceutical sales from emerging markets accounted for 18 percent of sales in the quarter.

The table below reflects sales of the company’s top Pharmaceutical products, as well as total sales of Animal Health and Consumer Care products.

 

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$ in millions		Second Quarter 2011				Second Quarter 2010				Change
Total Sales		$	12,151			$	11,346				7	%
Pharmaceutical 6			10,360				9,638				7	%
SINGULAIR			1,354				1,258				8	%
REMICADE			842				669				26	%
JANUVIA			779				600				30	%
ZETIA			592				564				5	%
VYTORIN			459				490				–6	%
COZAAR/HYZAAR			406				485				–16	%
ISENTRESS			337				267				26	%
NASONEX			323				338				–4	%
JANUMET			321				218				47	%
GARDASIL			277				219				27	%
Animal Health			802				731				10	%
Consumer Care 6			541				544				–1	%
Other Revenues 7			448				433				3	%

The combined diabetes franchise of JANUVIA/JANUMET grew 35 percent to $1.1 billion in the second quarter of 2011.

Worldwide sales of SINGULAIR, a once-a-day oral medicine indicated for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis, grew 8 percent from the second quarter of 2010 to $1.4 billion, driven by Japan and the United States.

Global sales grew 26 percent in the quarter for REMICADE, a treatment for inflammatory diseases, due to growth in Europe, Canada and the emerging markets, as well as increases in gastrointestinal indications for the treatment of ulcerative colitis and Crohn’s disease. Under an agreement reached in the second quarter, Merck has transferred exclusive marketing rights for REMICADE and SIMPONI (golimumab) to Johnson & Johnson in territories including Canada, Central and South America, the Middle East, Africa and Asia Pacific, effective July 1, 2011. Merck retains exclusive marketing rights to these products throughout Europe, Russia and Turkey.

ISENTRESS, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, grew 26 percent in the second quarter driven by demand in the United States and Europe.

 

6

In the first quarter of 2011, Merck changed the reporting for certain over-the-counter products. Sales of these products outside the United States were previously recorded in the Pharmaceutical business, and are now reported in the Consumer Care business. Prior period amounts have been recast on a comparative basis.

7	Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales. Revenue from AstraZeneca LP recorded by Merck was $306 million in the second quarter of 2011.

 

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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 were $122 million in the quarter as a significant number of backorders were filled. The company anticipates that backorders will continue until inventory levels are sufficient to meet market demand.

Product Performance – Animal Health

Merck Animal Health sales totaled $802 million for the second quarter of 2011, a 10 percent increase over the same period last year, including an 8 percent contribution from foreign exchange. Animal Health had strong second-quarter performance across all regions. The growth was primarily led by increased sales of new products in cattle, companion animal and poultry. 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.

Product Performance – Consumer Care

Merck Consumer Care second-quarter global sales were comparable to the second quarter of 2010, reflecting declines in CLARITIN due to a weak allergy season that were partially offset by increases in suncare. Consumer Care includes a variety of over-the-counter medicines, as well as footcare and suncare products.

Second Quarter Expense and Other Information

The costs detailed below on a GAAP basis during the second quarter of 2011 totaled $10.4 billion and include $2.3 billion of acquisition-related costs and restructuring costs.

 

$ in millions		Included in the expense for the period
Second Quarter 2011		GAAP				Acquisition- Related Costs  4				Restructuring Costs				Non-GAAP  1
Materials and production		$	4,284			$	1,344			$	109			$	2,831
Marketing and administrative			3,525				77				23				3,425
Research and development			1,936				19				16				1,901
Restructuring costs			668				—				668				—
Second Quarter 2010
Materials and production		$	4,549			$	1,662			$	224			$	2,663
Marketing and administrative			3,175				75				—				3,100
Research and development			2,179				—				144				2,035
Restructuring costs			526				—				526				—

 

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The gross margin was 64.7 percent for the second quarter of 2011 and 59.9 percent for the second quarter of 2010, reflecting 12.0 and 16.6 percentage point unfavorable impacts, respectively, from the acquisition-related costs and restructuring costs noted above.

Equity income from affiliates was $55 million in the second 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 $121 million of expense in the second quarter of 2011 compared with $281 million of income in the second quarter of 2010. The second quarter of 2010 reflects $443 million of income recognized upon AstraZeneca’s asset option exercise.

The GAAP tax benefit for the second quarter of 2011 primarily reflects a net favorable impact of approximately $700 million relating to the settlement of the company’s 2002 to 2005 federal income tax audit, as well as a favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting. The non-GAAP effective tax rate, which excludes the impact of these items as well as acquisition-related costs, restructuring costs, and certain other items, was 24.3 percent for the quarter.

Key Developments

New Drug Approvals

 

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VICTRELIS (boceprevir), the company’s oral hepatitis C protease inhibitor, was approved by the U.S. Food and Drug Administration (FDA) and in Europe by the European Medicines Agency. The U.S. launch of VICTRELIS is underway. Separately, the company entered into strategic agreements with Roche to market VICTRELIS globally to physicians as part of a triple combination therapy regimen.

 

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The Japanese Ministry of Health, Labour and Welfare approved three products – GARDASIL, ZOLINZA (vorinostat), and CUBICIN (daptomycin for injection).

Other Pipeline Updates

 

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Supplemental New Drug Applications (sNDAs) for the cholesterol-lowering medicines VYTORIN (ezetimibe/simvastatin) and ZETIA (ezetimibe) have been accepted for standard review by the FDA. The sNDAs seek indications for VYTORIN, and for ZETIA when used in combination with simvastatin, for the prevention of major cardiovascular events in patients with chronic kidney disease.

 

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An sNDA for DULERA (mometasone furoate and formoterol fumarate dihydrate) for the treatment of chronic obstructive pulmonary disease (COPD) has been accepted for review by the FDA. DULERA is currently indicated in the United States for the treatment of asthma.

 

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Merck is discontinuing the clinical development program for telcagepant, the company’s investigational calcitonin gene-related peptide receptor antagonist for the treatment of acute migraine. The decision is based on an assessment of data across the clinical program, including findings from a recently completed six-month Phase III study.

 

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The company received a Complete Response letter from the FDA for the extended release formulation of JANUMET related to the resolution of pre-approval inspection issues. Merck is responding to the questions raised by the FDA.

Business Development

 

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The company and China’s Simcere Pharmaceutical Group announced last week the establishment of a joint venture that will serve China’s rapidly expanding healthcare needs by providing significantly improved access to quality medicines in major therapeutic areas.

 

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Merck and Hanwha Chemical Corporation entered into an exclusive global agreement to develop and commercialize a candidate biosimilar form of Enbrel® (etanercept).

 

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Earlier this week Merck announced the acquisition of exclusive rights to develop and commercialize the investigational intravenous formulation of vernakalant (vernakalant i.v.) in Canada, Mexico and the United States. The company now has secured worldwide rights to vernakalant i.v., which is currently approved in the EU for rapid conversion of recent onset atrial fibrillation to sinus rhythm and has launched in more than 10 European countries.

Financial Targets

The company raised the lower end of its 2011 non-GAAP EPS range and is now targeting a range of $3.68 to $3.76 and a 2011 GAAP EPS target range of $1.95 to $2.17. The 2011 non-GAAP range excludes acquisition-related costs, costs related to restructuring programs, the benefit of certain tax items, a charge related to the resolution of the arbitration proceeding with Johnson & Johnson, and certain other items.

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.

In addition, the company lowered the top end of its non-GAAP R&D expense target to a range of $8.0 billion to $8.3 billion for the full year of 2011.

 

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The company updated its anticipated consolidated non-GAAP 2011 tax rate to a range of 23 to 24 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.

 

$ in millions, except EPS amounts		Full Year 2011
GAAP EPS		$1.95 to $2.17
Difference 3		1.73 to 1.59
Non-GAAP EPS that excludes items listed below		$3.68 to $3.76
Acquisition-related costs 4		$5,600 to $5,250
Costs related to restructuring programs		1,500 to 1,300
Arbitration settlement charge		500
Other 8		(127)
Net decrease (increase) in income before taxes		7,473 to 6,923
Income tax (benefit) expense 5		(2,109) to (1,993)
Decrease (increase) in net income		$5,364 to $4,930

Total Employees

As of June 30, 2011, Merck had approximately 91,000 employees worldwide.

Earnings Conference Call

Investors are invited to a live audio webcast of Merck’s second quarter earnings conference call today at 8:00 a.m. EDT by visiting Merck’s Web site, www.merck.com/investors/events-and-presentations/home.html. Institutional investors and analysts can participate in the call by dialing (706) 758-9927 or (877) 381-5782. Journalists are invited to monitor the call by dialing (706) 758-9928 or (800) 399-7917. A replay of the call will be available starting at 11 a.m. EDT today for approximately one week. To listen to the replay, dial (706) 645-9291 or (800) 642-1687 and enter ID No. 76798557.

About Merck

Today’s Merck is a global healthcare leader working to help the world be well. Merck is known as MSD outside the United States and Canada. Through our prescription medicines, vaccines, biologic therapies, and consumer care and animal health products, we work with customers and operate in more than 140 countries to deliver innovative health solutions. We also demonstrate our commitment to increasing access to healthcare through far-reaching policies, programs and partnerships. For more information, visit www.merck.com.

 

 

8	Represents a gain on the sale of certain manufacturing facilities and related assets reflected in other (income) expense, net.

 

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Forward-Looking Statement

This news release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, statements about the benefits of the merger between Merck and Schering-Plough, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Merck’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the possibility that the expected synergies from the merger of Merck and Schering-Plough will not be realized, or will not be realized within the expected time period; the impact of pharmaceutical industry regulation and health care legislation; the risk that the businesses will not be integrated successfully; disruption from the merger making it more difficult to maintain business and operational relationships; Merck’s ability to accurately predict future market conditions; dependence on the effectiveness of Merck’s patents and other protections for innovative products; the risk of new and changing regulation and health policies in the U.S. and internationally and the exposure to litigation and/or regulatory actions.

Merck undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in Merck’s 2010 Annual Report on Form 10-K and the company’s other filings with the Securities and Exchange Commission (SEC) available at the SEC’s Internet site (www.sec.gov).

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MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1

 

		GAAP												GAAP
		2Q11				2Q10				% Change				YTD 2011				YTD 2010				% Change
Sales		$	12,151			$	11,346				7	%		$	23,732			$	22,768				4	%
Costs, Expenses and Other
Materials and production (1)			4,284				4,549				–6	%			8,343				9,764				–15	%
Marketing and administrative (1) / (2)			3,525				3,175				11	%			6,689				6,397				5	%
Research and development (1) / (2)			1,936				2,179				–11	%			4,094				4,230				–3	%
Restructuring costs (3)			668				526				27	%			654				814				–20	%
Equity income from affiliates (4)			(55	)			(43	)			28	%			(193	)			(180	)			7	%
Other (income) expense, net (1) / (5)			121				(281	)			*				744				(113	)			*
Income Before Taxes			1,672				1,241				35	%			3,401				1,856				83	%
Income Tax (Benefit) Provision			(382	)			461								276				746
Net Income			2,054				780				*				3,125				1,110				*
Less: Net Income Attributable to Noncontrolling Interests			30				28								58				59
Net Income Attributable to Merck & Co., Inc.		$	2,024			$	752				*			$	3,067			$	1,051				*
Earnings per Common Share Assuming Dilution (6)		$	0.65			$	0.24				*			$	0.98			$	0.33				*
Average Shares Outstanding Assuming Dilution			3,110				3,125								3,106				3,132
Tax Rate (7)			–22.8	%			37.1	%							8.1	%			40.2	%

 

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100%

(1)	Amounts include the impact of acquisition-related costs and restructuring costs. See accompanying tables for details.

(2)	The second quarter and first six months of 2010 include a reclassification of certain expenses from marketing and administrative to research and development of $28 million and $52 million, respectively.

(3)	Represents separation and other related costs associated with restructuring activities.

(4)	Primarily reflects equity income from the AstraZeneca LP, Johnson & JohnsonºMerck Consumer Pharmaceuticals Company, and Sanofi Pasteur MSD partnerships.

(5)

Other (income) expense, net in the first six months of 2011 includes a charge of $500 million related to the resolution of the arbitration proceeding with Johnson & Johnson and a $127 million gain on the sale of certain manufacturing facilities and related assets. Other (income) expense, net in the second quarter and first six months of 2010 includes $443 million of income recognized upon AstraZeneca’s asset option exercise. In addition, other (income) expense, net in the first six months of 2010 reflects $102 million of income on the settlement of certain disputed royalties.

(6)

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate earnings per common share assuming dilution was $2,020 million and $749 million for the second quarter of 2011 and 2010, respectively, and was $3,059 million and $1,047 million for the first six months of 2011 and 2010, respectively.

(7)

The GAAP effective tax rates for the second quarter and first six months of 2011 were (22.8)% and 8.1%, respectively, which reflect the net favorable impact of approximately $700 million related to the settlement of the company’s 2002-2005 federal income tax audit and the favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting. Excluding these items and the other non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 24.3% and 24.9% for the second quarter and first six months of 2011, respectively. The GAAP effective tax rates for the second quarter and first six months of 2010 were 37.1% and 40.2%, respectively. Excluding the impact of the non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 20.5% and 21.7% for the second quarter and first six months of 2010, respectively.

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MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1a

 

		2011												2010																								% Change
		1Q				2Q				YTD				1Q				2Q				YTD				3Q				4Q				Full Year				2Q				YTD
Sales		$	11,580			$	12,151			$	23,732			$	11,422			$	11,346			$	22,768			$	11,125			$	12,094			$	45,987				7	%			4	%
Costs, Expenses and Other
Materials and production			4,059				4,284				8,343				5,216				4,549				9,764				4,191				4,440				18,396				–6	%			–15	%
Marketing and administrative (1)			3,164				3,525				6,689				3,222				3,175				6,397				3,192				3,537				13,125				11	%			5	%
Research and development (1)			2,158				1,936				4,094				2,051				2,179				4,230				2,322				4,559				11,111				–11	%			–3	%
Restructuring costs			(14	)			668				654				288				526				814				50				121				985				27	%			–20	%
Equity income from affiliates			(138	)			(55	)			(193	)			(138	)			(43	)			(180	)			(236	)			(171	)			(587	)			28	%			7	%
Other (income) expense, net			622				121				744				167				(281	)			(113	)			1,108				309				1,304				*				*
Income (Loss) Before Taxes			1,729				1,672				3,401				616				1,241				1,856				498				(701	)			1,653				35	%			83	%
Income Tax Provision (Benefit)			658				(382	)			276				286				461				746				126				(201	)			671
Net Income (Loss)			1,071				2,054				3,125				330				780				1,110				372				(500	)			982				*				*
Less: Net Income Attributable to Noncontrolling Interests			28				30				58				31				28				59				30				31				121
Net Income (Loss) Attributable to Merck & Co., Inc.		$	1,043			$	2,024			$	3,067			$	299			$	752			$	1,051			$	342			$	(531	)		$	861				*				*
Earnings (Loss) per Common Share Assuming Dilution		$	0.34			$	0.65			$	0.98			$	0.09			$	0.24			$	0.33			$	0.11			$	(0.17	)		$	0.28				*				*
Average Shares Outstanding Assuming Dilution			3,104				3,110				3,106				3,141				3,125				3,132				3,102				3,081				3,120
Tax Rate			38.1	%			–22.8	%			8.1	%			46.4	%			37.1	%			40.2	%			25.3	%			28.7	%			40.6	%

Sum of quarterly amounts may not equal year-to-date amounts due to rounding.

 

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100%

(1)	Amounts in 2010 include a reclassification of certain expenses from marketing and administrative to research and development of $24 million, $28 million, $26 million, $42 million and $120 million in 1Q, 2Q, 3Q, 4Q and full year, respectively.

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MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

SECOND QUARTER 2011

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2a

 

		GAAP				Acquisition- Related  Costs(1)				Restructuring Costs (2)				Certain Other Items				Adjustment Subtotal				Non-GAAP
Sales		$	12,151															$	—			$	12,151
Materials and production			4,284				1,344				109								1,453				2,831
Marketing and administrative			3,525				77				23								100				3,425
Research and development			1,936				19				16								35				1,901
Restructuring costs			668								668								668				—
Equity income from affiliates			(55	)															—				(55	)
Other (income) expense, net			121												7				7				114
Income Before Taxes			1,672				(1,440	)			(816	)			(7	)			(2,263	)			3,935
Taxes on Income			(382	)															(1,337	)(3)			955
Net Income			2,054																(926	)			2,980
Less: Net Income Attributable to Noncontrolling Interests			30																—				30
Net Income Attributable to Merck & Co., Inc.		$	2,024															$	(926	)		$	2,950
Earnings per Common Share Assuming Dilution		$	0.65																			$	0.95	(4)
Average Shares Outstanding Assuming Dilution			3,110																				3,110
Tax Rate			–22.8	%																			24.3	%

Merck is providing 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 company’s performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.

 

(1)

Amounts included in materials and production costs reflect expenses of $1.2 billion for the amortization of intangible assets and the amortization of purchase accounting adjustments to inventories recognized as a result of the merger, as well as $118 million of impairment charges on product intangibles. Amounts included in marketing and administrative expenses reflect integration costs, as well as other costs associated with mergers and acquisitions, such as severance costs which are not part of the company’s formal restructuring programs. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges.

(2)	Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to actions under the company’s formal restructuring programs.

(3)

Includes a net benefit of approximately $700 million relating to the settlement of the company’s 2002-2005 federal income tax audit, the favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting, as well as the estimated tax impact on the reconciling items.

(4)

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $2,942 million for the second quarter of 2011.

---

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

SIX MONTHS ENDED JUNE 30, 2011

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2b

 

		GAAP				Acquisition- Related  Costs(1)				Restructuring Costs (2)				Certain Other Items (3)				Adjustment Subtotal				Non-GAAP
Sales		$	23,732															$	—			$	23,732
Materials and production			8,343				2,641				181								2,822				5,521
Marketing and administrative			6,689				135				46								181				6,508
Research and development			4,094				321				61								382				3,712
Restructuring costs			654								654								654				—
Equity income from affiliates			(193	)															—				(193	)
Other (income) expense, net			744												373				373				371
Income Before Taxes			3,401				(3,097	)			(942	)			(373	)			(4,412	)			7,813
Taxes on Income			276																(1,668	)(4)			1,944
Net Income			3,125																(2,744	)			5,869
Less: Net Income Attributable to Noncontrolling Interests			58																—				58
Net Income Attributable to Merck & Co., Inc.		$	3,067															$	(2,744	)		$	5,811
Earnings per Common Share Assuming Dilution		$	0.98																			$	1.87	(5)
Average Shares Outstanding Assuming Dilution			3,106																				3,106
Tax Rate			8.1	%																			24.9	%

Merck is providing 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 company’s performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.

 

(1)

Amounts included in materials and production costs reflect expenses of $2.5 billion for the amortization of intangible assets and the amortization of purchase accounting adjustments to inventories recognized as a result of the merger, as well as $118 million of impairment charges on product intangibles. Amounts included in marketing and administrative expenses reflect integration costs, as well as other costs associated with mergers and acquisitions, such as severance costs which are not part of the company’s formal restructuring programs. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges.

(2)	Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to actions under the company’s formal restructuring programs.

(3)	Included in other (income) expense, net is a $500 million charge related to the resolution of the arbitration proceeding with Johnson & Johnson and a $127 million gain on the sale of certain manufacturing facilities and related assets.

(4)

Includes a net benefit of approximately $700 million relating to the settlement of the company’s 2002-2005 federal income tax audit, the favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting, as well as the estimated tax impact on the reconciling items.

(5)

The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $5,795 million for the first six months of 2011.

---

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

(AMOUNTS IN MILLIONS)

Table 3

 

		2011												2010																								% Change				% Change
		1Q				2Q				Jun YTD				1Q				2Q				Jun YTD				3Q				4Q				Full Year				2Q				Jun YTD
TOTAL SALES (1)		$	11,580			$	12,151			$	23,732			$	11,422			$	11,346			$	22,768			$	11,125			$	12,094			$	45,987				7				4
PHARMACEUTICAL (2)			9,820				10,360				20,179				9,665				9,638				19,303				9,523				10,441				39,267				7				5
Cardiovascular
Zetia			582				592				1,174				534				564				1,098				571				629				2,297				5				7
Vytorin			480				459				939				477				490				967				485				562				2,014				-6				-3
Integrilin			64				56				120				70				70				140				63				63				266				-20				-14
Diabetes & Obesity
Januvia			739				779				1,518				511				600				1,111				600				675				2,385				30				37
Janumet			305				321				626				201				218				419				247				288				954				47				50
Diversified Brands
Cozaar / Hyzaar			426				406				832				782				485				1,267				423				415				2,104				-16				-34
Zocor			127				107				234				116				117				233				114				121				468				-9				—
Propecia			106				112				218				100				113				213				109				124				447				-1				3
Claritin Rx			120				65				186				98				58				157				53				86				296				12				19
Remeron			60				57				117				51				59				110				50				62				223				-4				6
Vasotec / Vaseretic			57				59				116				59				63				122				69				64				255				-6				-5
Proscar			60				53				113				58				56				114				58				44				216				-5				-1
Infectious Disease
Isentress			292				337				629				232				267				499				278				313				1,090				26				26
Cancidas			158				168				326				153				150				303				135				174				611				12				8
PegIntron			166				154				319				186				185				371				168				198				737				-17				-14
Primaxin			136				136				272				159				158				317				135				158				610				-13				-14
Invanz			87				103				189				75				83				158				91				113				362				24				20
Avelox			106				61				167				106				59				165				59				92				316				3				1
Noxafil			55				56				110				49				50				99				52				48				198				12				12
Rebetol			53				48				100				56				55				111				55				54				221				-13				-10
Crixivan / Stocrin			45				50				95				52				48				100				49				58				206				4				-5
Neurosciences & Ophthalmology
Maxalt			173				131				304				135				133				268				133				149				550				-1				14
Cosopt / Trusopt			114				122				236				115				123				238				114				131				484				-1				-1
Oncology
Temodar			248				234				481				274				271				545				254				266				1,065				-14				-12
Emend			87				120				207				84				93				177				91				110				378				29				17
Intron A			49				47				96				54				51				105				50				54				209				-7				-9
Respiratory & Immunology
Singulair			1,328				1,354				2,682				1,165				1,258				2,423				1,215				1,349				4,987				8				11
Remicade			753				842				1,595				674				669				1,343				661				710				2,714				26				19
Nasonex			373				323				696				320				338				658				259				303				1,219				-4				6
Clarinex			155				209				364				164				191				355				131				138				623				9				3
Arcoxia			114				100				214				95				95				190				94				115				398				5				12
Simponi			54				75				129				10				18				28				27				42				97				*				*
Asmanex			60				47				107				51				56				107				48				53				208				-16				-1
Proventil			42				37				80				57				55				112				43				55				210				-32				-29
Dulera			13				25				37				0				0				0				2				6				8				*				*
Vaccines
ProQuad, M-M-R II and Varivax			244				291				535				319				340				659				434				285				1,378				-14				-19
Gardasil			214				277				490				233				219				451				316				221				988				27				9
RotaTeq			125				148				272				93				139				231				119				169				519				7				18
Zostavax			24				122				146				95				18				114				23				107				243				*				28
Pneumovax			79				64				143				51				59				110				110				156				376				8				29
Women’s Health & Endocrine
Fosamax			208				221				429				230				241				472				220				234				926				-9				-9
NuvaRing			142				154				297				135				145				280				134				145				559				6				6
Follistim AQ			133				143				276				134				137				270				119				138				528				4				2
Implanon			60				81				141				51				51				101				64				71				236				60				39
Cerazette			59				66				125				55				49				104				56				49				209				34				20
Other Pharmaceutical (3)			745				948				1,697				946				941				1,888				942				1,044				3,879				1				-10
ANIMAL HEALTH			758				802				1,560				709				731				1,440				687				815				2,941				10				8
CONSUMER CARE (2)			517				541				1,058				489				544				1,032				409				381				1,823				-1				2
Claritin OTC			167				134				301				136				167				303				120				103				526				-19				-1
Other Revenues (4)			486				448				935				559				433				993				506				457				1,956				3				-6
Astra			322				306				628				364				241				605				345				302				1,252				27				4

 

*	100% or greater

Sum of quarterly amounts may not equal year-to-date amounts due to rounding.

 

(1)	Only select products are shown.

(2)

Beginning in 2011, Merck changed the reporting for certain over-the-counter products. Sales of these products outside the United States were previously recorded in the Pharmaceutical business, and are now reported in the Consumer Care business. Prior period amounts have been recast on a comparative basis.

(3)

Includes pharmaceutical products not individually shown above. Other vaccines sales included in Other Pharmaceutical were $54 million and $67 million for the first and second quarters of 2011, respectively. Other vaccines sales included in Other Pharmaceutical were $55 million, $57 million, $94 million and $75 million for the first, second, third and fourth quarters of 2010, respectively.

(4)	Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales.