Exhibit 99.1

 

			News Release

 

Media Contact:		Ron Rogers		Investor Contacts:		Carol Ferguson
		(908) 423-6449				(908) 423-4465
						Alex Kelly
						(908) 423-5185

Merck Announces Full-Year and Fourth-Quarter 2011 Financial Results

 

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2011 Full-Year Non-GAAP EPS of $3.77, Excluding Certain Items; GAAP EPS of $2.02; Fourth-Quarter Non-GAAP EPS of $0.97, Excluding Certain Items; GAAP EPS of $0.49

 

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2011 Full-Year Worldwide Sales Grew Four Percent to $48.0 Billion, Including Two Percent from Foreign Exchange; Fourth-Quarter Worldwide Sales Grew Two Percent to $12.3 Billion

 

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Full-Year and Fourth-Quarter Double-Digit Global Growth for JANUVIA, JANUMET, ISENTRESS and GARDASIL

 

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Company plans to file five major products for approval between 2012 and 2013

 

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2012 Full-Year Non-GAAP EPS Target of $3.75 to $3.85, Excluding Certain Items; GAAP EPS Range of $2.04 to $2.30

WHITEHOUSE STATION, N.J., Feb. 2, 2012 – Merck (NYSE: MRK), known as MSD outside the United States and Canada, today announced financial results for the fourth quarter and full year of 2011.

 

$ in millions, except EPS amounts		Fourth Quarter 2011				Fourth Quarter 2010				Year Ended Dec. 31, 2011				Year Ended Dec. 31, 2010
Sales		$	12,294			$	12,094			$	48,047			$	45,987
GAAP EPS			0.49				(0.17	)			2.02				0.28
Non-GAAP EPS that excludes items listed below1			0.97				0.88				3.77				3.42
GAAP Net Income (Loss)2			1,512				(531	)			6,272				861
Non-GAAP Net Income that excludes items listed below1,2			2,978				2,756				11,697				10,715

Non-GAAP (generally accepted accounting principles) earnings per share (EPS) for the fourth quarter of $0.97 and $3.77 for the full year of 2011 exclude acquisition-related costs, restructuring costs and certain other items.

 

 

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 Tables 2a and 2b, including the related footnotes, attached to this release.

2	Net income (loss) attributable to Merck & Co., Inc.

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

 

		Fourth Quarter 2011								Fourth Quarter 2010
$ in millions, except EPS amounts		Net Income2				EPS				Net (Loss) Income2				EPS
GAAP		$	1,512			$	0.49			$	(531	)		$	(0.17	)
Difference			1,466				0.48	3			3,287				1.05	3
Non-GAAP that excludes items listed below		$	2,978			$	0.97			$	2,756			$	0.88

 

		Year Ended Dec. 31, 2011								Year Ended Dec. 31, 2010
$ in millions, except EPS amounts		Net Income2				EPS				Net Income2				EPS
GAAP		$	6,272			$	2.02			$	861			$	0.28
Difference			5,425				1.75	3			9,854				3.14	3
Non-GAAP that excludes items listed below		$	11,697			$	3.77			$	10,715			$	3.42

 

$ in millions		Fourth Quarter 2011				Fourth Quarter 2010				Year Ended Dec. 31, 2011				Year Ended Dec. 31, 2010
Acquisition-related costs4		$	1,479			$	3,591			$	5,939			$	9,403
Restructuring costs			692				354				1,911				1,986
Arbitration settlement charge			—				—				500				—
Legal reserve			—				—				—				950
Gain on AstraZeneca’s asset option exercise			—				—				—				(443	)
Other5			6				—				(258	)			—
Net decrease (increase) in income before taxes			2,177				3,945				8,092				11,896
Income tax (benefit) expense6			(711	)			(658	)			(2,667	)			(2,042	)
Decrease (increase) in net income		$	1,466			$	3,287			$	5,425			$	9,854

“We are positioning Merck to perform well by advancing and growing our innovative pipeline, meeting the evolving needs of customers around the world and achieving a more efficient operating model,” said Kenneth C. Frazier, chairman and chief executive officer of Merck. “We closed out 2011 with a high-quality fourth quarter by growing the top and bottom lines. Our overall performance for the year confirms our ability to achieve strong operating results while investing for the longer term. As we begin 2012 and look ahead, we are optimistic about our underlying business, our current momentum and the early success of our strategy.”

 

 

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 mergers and acquisitions, as well as intangible asset impairment charges. Also includes integration and other costs associated with mergers and acquisitions.

5	Amount for full year of 2011 includes a gain on the divestiture of the company’s interest in the Johnson & Johnson°Merck Consumer Pharmaceuticals Company joint venture and a gain on the sale of certain manufacturing facilities and related assets.

6

Includes an estimated income tax (benefit) expense on the reconciling items. The full year amount for 2011 includes the net favorable impact of approximately $700 million relating to the settlement of a federal income tax audit. The full year amount for 2010 includes a $147 million tax charge related to U.S. health care reform legislation. In addition, the full year amounts for 2011 and 2010 include $270 million and $391 million, respectively, of net tax benefits from changes in tax rates, which resulted in a reduction of deferred tax liabilities on intangibles established in purchase accounting.

 

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Select Revenue Highlights

Full-year 2011 worldwide sales were $48.0 billion, an increase of 4 percent, which includes a 2 percent benefit from foreign exchange, compared to full-year 2010. Worldwide sales were $12.3 billion for the fourth quarter of 2011, an increase of 2 percent compared with the fourth quarter of 2010. The revenue increases largely reflect strong sales of JANUVIA (sitagliptin), SINGULAIR (montelukast sodium), JANUMET (sitagliptin/metformin hydrochloride), ISENTRESS (raltegravir) and GARDASIL [Human Papillomavirus Quadrivalent (Types 6, 11, 16 and 18) Vaccine, Recombinant].

Sales from emerging markets accounted for approximately 18 percent of pharmaceutical sales for the full year and 17 percent in the fourth quarter. China grew 37 percent for the full year and continues to be a key driver of growth in the 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.

 

$ in millions		Fourth Quarter 2011				Fourth Quarter 2010				Change				Year Ended Dec. 31, 2011				Year Ended Dec. 31, 2010				Change
Total Sales		$	12,294			$	12,094				2	%		$	48,047			$	45,987				4	%
Pharmaceutical7			10,755				10,441				3	%			41,289				39,267				5	%
SINGULAIR			1,461				1,349				8	%			5,479				4,987				10	%
JANUVIA			960				675				42	%			3,324				2,385				39	%
REMICADE			511				710				-28	%			2,667				2,714				-2	%
ZETIA			640				629				2	%			2,428				2,297				6	%
VYTORIN			475				562				-16	%			1,882				2,014				-7	%
COZAAR/HYZAAR			427				415				3	%			1,663				2,104				-21	%
JANUMET			386				288				34	%			1,363				954				43	%
ISENTRESS			387				313				24	%			1,359				1,090				25	%
NASONEX			325				303				7	%			1,286				1,219				5	%
GARDASIL			274				221				24	%			1,209				988				22	%
PROQUAD, M-M-R II and VARIVAX			276				285				-3	%			1,202				1,378				-13	%
Animal Health			868				815				6	%			3,253				2,941				11	%
Consumer Care7			361				381				-5	%			1,840				1,823				1	%
Other Revenues8			310				457				-32	%			1,666				1,956				-15	%

Worldwide sales of the combined diabetes franchise of JANUVIA/JANUMET grew 40 percent to $1.3 billion in the fourth quarter of 2011 driven by growth in all regions. The combined JANUVIA/JANUMET franchise had sales of $4.7 billion for the full year of 2011, an increase of 40 percent.

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 fourth quarter of 2010 to $1.5 billion. Full-year worldwide sales for SINGULAIR were $5.5 billion, a 10 percent increase compared with the prior year. The U.S. patent for SINGULAIR will expire in Aug. 2012, and the company expects a significant decline in sales following expiry.

 

 

7

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.

8	Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third-party manufacturing sales. Revenue from AstraZeneca LP recorded by Merck was $256 million in the fourth quarter and $1.2 billion for the full year of 2011.

 

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Global sales of REMICADE (infliximab) and SIMPONI (golimumab), treatments for inflammatory diseases, for the full year of 2011 increased 4 percent and declined 24 percent for the fourth quarter. In territories retained, the combined sales of REMICADE and SIMPONI grew 21 percent for the full year and 8 percent for the fourth quarter of 2011. In July 2011, the company transferred exclusive marketing rights for REMICADE and SIMPONI to Johnson & Johnson in Canada, Central and South America, the Middle East, Africa and Asia Pacific. Merck retained exclusive marketing rights in Europe, Russia and Turkey.

ISENTRESS, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection in adults, children and adolescents 2 years of age and older and weighing at least 10 kg, grew 24 percent in the fourth quarter. Global sales of ISENTRESS for the full year of 2011 were $1.4 billion, a 25 percent increase compared with the prior year.

Sales of GARDASIL, a vaccine to help prevent certain diseases caused by four types of human papillomavirus (HPV), were $274 million, an increase of 24 percent for the quarter driven by increased vaccination of males ages 9 through 26. Worldwide sales of GARDASIL for the year were $1.2 billion, a 22 percent increase compared with the prior year.

Sales of VICTRELIS (boceprevir), the company’s oral hepatitis C virus NS3/4A protease inhibitor, were $87 million in the quarter and $140 million for the full year of 2011. In addition to the United States, the company has recently launched VICTRELIS in 19 markets including France, Germany, Canada and Brazil.

Sales of ZOSTAVAX (Zoster Vaccine Live) were $78 million in the quarter. Global sales of ZOSTAVAX for the full year of 2011 were $332 million, a 37 percent increase compared with the prior year due to an improved supply status. The company recently filled all back orders and resumed a normal supply schedule in the United States.

As expected, global sales of Merck’s antihypertensive medicines COZAAR (losartan potassium) and HYZAAR (losartan potassium and hydrochlorothiazide) declined for the full year of 2011 following loss of marketing exclusivity in the United States and in major European markets in 2010.

Product Performance – Animal Health

Merck Animal Health sales totaled $868 million for the fourth quarter of 2011, a 6 percent increase over the same period last year. Animal Health had strong fourth-quarter performance across most regions, with growth primarily led by increased sales of swine, poultry and companion animal 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. Animal Health global sales for 2011 full year were $3.3 billion, an 11 percent increase, which includes a 3 percent benefit from foreign exchange, compared with the prior year.

 

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Product Performance – Consumer Care

2011 full-year global sales of Consumer Care were $1.8 billion, a 1 percent increase compared to full-year 2010. Fourth-quarter global sales were $361 million, a decrease of 5 percent compared to the fourth quarter of 2010. The sales decrease was primarily due to declines in CLARITIN and COPPERTONE. Despite competition, CLARITIN continues to maintain a leadership position in the over-the-counter allergy market.

Fourth-Quarter and Full-Year Expense and Other Information

The costs detailed below totaled $10.8 billion on a GAAP basis during the fourth quarter of 2011 and include $2.2 billion of acquisition-related costs and restructuring costs.

 

$ in millions		Included in the expense for the period
		GAAP				Acquisition- Related Costs4				Restructuring Costs				Certain Other Items				Non-GAAP1
Fourth Quarter 2011
Materials and production		$	4,176			$	1,212			$	68			$	7			$	2,889
Marketing and administrative			3,704				86				42				—				3,576
Research and development			2,419				244				49				—				2,126
Restructuring costs			533				—				533				—				—
Fourth Quarter 2010
Materials and production		$	4,440			$	1,206			$	105			$	—			$	3,129
Marketing and administrative			3,537				160				13				—				3,364
Research and development			4,559				2,225				115				—				2,219
Restructuring costs			121				—				121				—				—

The costs detailed below totaled $40.4 billion on a GAAP basis for full-year 2011 and include $7.9 billion of acquisition-related costs and restructuring costs.

 

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$ in millions		Included in the expense for the period
		GAAP				Acquisition- Related Costs4				Restructuring Costs				Certain Other Items				Non-GAAP1
Full Year 2011
Materials and production		$	16,871			$	5,137			$	348			$	7			$	11,379
Marketing and administrative			13,733				278				119				—				13,336
Research and development			8,467				587				138				—				7,742
Restructuring costs			1,306				—				1,306				—				—
Full Year 2010
Materials and production		$	18,396			$	6,566			$	430			$	—			$	11,400
Marketing and administrative			13,125				379				143				—				12,603
Research and development			11,111				2,441				428				—				8,242
Restructuring costs			985				—				985				—				—

The gross margin was 66.0 percent for the fourth quarter of 2011 and 63.3 percent for the fourth quarter of 2010, reflecting 10.5 and 10.8 percentage point unfavorable impacts, respectively, from the acquisition-related costs and restructuring costs noted above.

Marketing and administrative expenses, on a non-GAAP basis, were $3.6 billion in the fourth quarter of 2011, an increase from $3.4 billion in the fourth quarter of 2010. The increase was primarily due to the impact of product launches, U.S. health care reform fees and corporate charges.

Research and development expenses, on a non-GAAP basis, were $2.1 billion in the fourth quarter of 2011, a decrease from $2.2 billion in the fourth quarter of 2010. The decrease was primarily due to efficiency savings.

Equity income from affiliates was $257 million for the fourth quarter and $610 million for the full year, which primarily includes partnerships with AstraZeneca LP and Sanofi Pasteur MSD.

Key Developments

The company noted the following recent developments:

 

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Received a Complete Response Letter from the U.S. Food and Drug Administration (FDA) regarding the company’s supplemental new drug application for DULERA (mometasone furoate and formoterol fumarate dihydrate) for the treatment of chronic obstructive pulmonary disease. The company is discussing the letter with the FDA to determine next steps.

 

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Obtained FDA approval to update the label for VYTORIN (ezetimibe/simvastatin) with results from the Study of Heart and Renal Protection in patients with moderate-to-severe chronic kidney disease

 

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Received FDA approval for a new use of ISENTRESS in combination with other antiretroviral medicines for the treatment of HIV-1 infection in pediatric patients 2 years of age and older and weighing at least 10 kg

 

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Announced the establishment of an Asia Research & Development (R&D) headquarters for innovative drug discovery and development located in Beijing, China

 

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Increased the quarterly dividend 11 percent to $0.42 per share

 

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The Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices recommended the routine use of GARDASIL in boys ages 11 to 12 and catch-up vaccination for males ages 13 to 21 who have not been vaccinated previously

 

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Launched JUVISYNC (sitagliptin and simvastatin) in the U.S. market. JUVISYNC is the first drug to be approved that combines the blood-sugar lowering of a DPP-4 inhibitor with the cholesterol-lowering benefits of simvastatin.

In November, the company held its R&D and Business Briefing for investors, highlighting nearly 20 candidates in Phase III clinical trials targeting a broad range of diseases. Merck plans to advance its pipeline and file five major products for approval between 2012 and 2013, including:

 

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BRIDION (sugammadex), a potential first-in-class neuromuscular reversal agent in the United States

 

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V503, an investigational vaccine to help protect against certain HPV associated cancers

 

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Odanacatib, an investigational once-weekly oral compound with a unique mechanism of action for the treatment of osteoporosis

 

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TREDAPTIVE (ER niacin/laropiprant), an investigational extended release niacin plus laropiprant for the treatment of atherosclerosis in the United States

 

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Suvorexant, an investigational, first-in-class treatment for patients with insomnia.

Financial Targets

Merck expects full-year 2012 non-GAAP EPS to be between $3.75 and $3.85, and the 2012 GAAP EPS range to be $2.04 to $2.30. The 2012 non-GAAP range excludes acquisition-related costs and costs related to restructuring programs.

Merck expects full-year 2012 revenues to be at or near 2011 levels on a constant currency basis. At current exchange rates, sales would be unfavorably affected by about 2 to 3 percent.

In addition, the company expects full-year 2012 non-GAAP R&D expense to be at approximately the same level as in 2011 and expects its full-year 2012 non-GAAP tax rate to be in the range of 23 to 25 percent.

 

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A reconciliation of anticipated 2012 EPS as reported in accordance with GAAP to non-GAAP EPS that excludes certain items is provided in the table below.⁹

 

$ in millions, except EPS amounts		Full Year 2012
GAAP EPS		$2.04 to $2.30
Difference3		1.71 to 1.55
Non-GAAP EPS that excludes items listed below		$3.75 to $3.85
Acquisition-related costs4		$5,200 to $4,900
Restructuring costs		1,100 to 800
Net decrease (increase) in income before taxes		6,300 to 5,700
Estimated income tax (benefit) expense		(1,110) to (985)
Decrease (increase) in net income		$5,190 to $4,715

Total Employees

As of Dec. 31, 2011, Merck had approximately 86,000 employees worldwide.

Earnings Conference Call

Investors are invited to a live audio webcast of Merck’s fourth-quarter earnings conference call today at 8:00 a.m. EST 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. EST today for approximately one week. To listen to the replay, dial (404) 537-3406 or (855) 859-2056 and enter ID No. 23636062.

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 and connect with us on Twitter, Facebook and YouTube.

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

 

 

9

Both non-GAAP and GAAP EPS guidance for 2012 assume the potential exercise by AstraZeneca of the Shares Option in mid-2012 and include the estimated associated impact on revenue and equity income from affiliates. They do not reflect any gain on the potential transaction, which would be reflected only in the company’s GAAP results.

 

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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
		4Q11				4Q10				% Change				Full Year 2011				Full Year 2010				% Change
Sales		$	12,294			$	12,094				2	%		$	48,047			$	45,987				4	%
Costs, Expenses and Other
Materials and production (1)			4,176				4,440				-6	%			16,871				18,396				-8	%
Marketing and administrative (1) / (2)			3,704				3,537				5	%			13,733				13,125				5	%
Research and development (1) / (2)			2,419				4,559				-47	%			8,467				11,111				-24	%
Restructuring costs (3)			533				121				*				1,306				985				33	%
Equity income from affiliates (4)			(257	)			(171	)			50	%			(610	)			(587	)			4	%
Other (income) expense, net (1) / (5)			139				309				-55	%			946				1,304				-27	%
Income (Loss) Before Taxes			1,580				(701	)			*				7,334				1,653				*
Income Tax Provision (Benefit)			37				(201	)							942				671
Net Income (Loss)			1,543				(500	)			*				6,392				982				*
Less: Net Income Attributable to Noncontrolling Interests			31				31								120				121
Net Income (Loss) Attributable to Merck & Co., Inc.		$	1,512			$	(531	)			*			$	6,272			$	861				*
Earnings (Loss) per Common Share Assuming Dilution (6)		$	0.49			$	(0.17	)			*			$	2.02			$	0.28				*
Average Shares Outstanding Assuming Dilution (7)			3,069				3,081								3,094				3,120
Tax Rate (8)			2.3	%			28.7	%							12.8	%			40.6	%

* 100% or greater

 

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

(2)	The fourth quarter and full year of 2010 include a reclassification of certain expenses from marketing and administrative to research and development of $42 million and $120 million, respectively.

(3)	Represents separation and other related costs associated with restructuring activities under the company’s formal restructuring programs.

(4)	Primarily reflects equity income from the AstraZeneca LP and Sanofi Pasteur MSD partnerships.

(5)

Other (income) expense, net in the full year of 2011 includes a charge of $500 million related to the resolution of the arbitration proceeding with Johnson & Johnson, a $136 million gain on the sale of the company’s interest in the Johnson & JohnsonºMerck Consumer Pharmaceuticals Company joint venture and a $127 million gain on the sale of certain manufacturing facilities and related assets. Other (income) expense, net in the full year of 2010 reflects a $950 million legal reserve, $200 million of exchange losses due to Venezuelan currency devaluations and $443 million of income recognized upon AstraZeneca’s asset option exercise.

(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 (losses are not allocated). Net income attributable to Merck & Co., Inc. common shareholders used to calculate earnings per common share assuming dilution was $1,510 million for the fourth quarter of 2011 and was $6,257 million and $859 million for the full year of 2011 and 2010, respectively.

(7)	Because the company recorded a loss in the fourth quarter of 2010, no potential dilutive common shares were used in the computation of loss per share assuming dilution as the effect would have been anti-dilutive.

(8)

The GAAP effective tax rate for the fourth quarter of 2011 was 2.3%. The GAAP effective tax rate for the full year of 2011 was 12.8%, which reflects the net favorable impact of approximately $700 million related to the settlement of the company’s 2002-2005 federal income tax audit. Excluding this item and the other non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 19.9% and 23.4% for the fourth quarter and full year of 2011, respectively. The GAAP effective tax rates for the fourth quarter and full year of 2010 were 28.7% and 40.6%, respectively. Excluding the impact of the non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 14.1% and 20.0% for the fourth quarter and full year of 2010, respectively.

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MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

FOURTH 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		$	12,294															$	—			$	12,294
Materials and production			4,176				1,212				68				7				1,287				2,889
Marketing and administrative			3,704				86				42								128				3,576
Research and development			2,419				244				49								293				2,126
Restructuring costs			533								533								533				—
Equity income from affiliates			(257	)															—				(257	)
Other (income) expense, net			139				(63	)							(1	)			(64	)			203
Income Before Taxes			1,580				(1,479	)			(692	)			(6	)			(2,177	)			3,757
Taxes on Income			37																(711	) (3)			748
Net Income			1,543																(1,466	)			3,009
Less: Net Income Attributable to Noncontrolling Interests			31																—				31
Net Income Attributable to Merck & Co., Inc.		$	1,512															$	(1,466	)		$	2,978
Earnings per Common Share Assuming Dilution		$	0.49																			$	0.97	(4)
Average Shares Outstanding Assuming Dilution			3,069																				3,069
Tax Rate			2.3	%																			19.9	%

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 for the amortization of intangible assets and the amortization of purchase accounting adjustments to inventories recognized as a result of mergers and acquisitions. 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. Amounts included in other (income) expense, net reflect the favorable resolution of certain reserves assumed in conjunction with the merger.

(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 the favorable impact of certain state tax rate changes that resulted in a net $40 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 $2,973 million for the fourth quarter of 2011.

---

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

FULL YEAR 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		$	48,047															$	—			$	48,047
Materials and production			16,871				5,137				348				7				5,492				11,379
Marketing and administrative			13,733				278				119								397				13,336
Research and development			8,467				587				138								725				7,742
Restructuring costs			1,306								1,306								1,306				—
Equity income from affiliates			(610	)															—				(610	)
Other (income) expense, net			946				(63	)							235				172				774
Income Before Taxes			7,334				(5,939	)			(1,911	)			(242	)			(8,092	)			15,426
Taxes on Income			942																(2,667	) (4)			3,609
Net Income			6,392																(5,425	)			11,817
Less: Net Income Attributable to Noncontrolling Interests			120																—				120
Net Income Attributable to Merck & Co., Inc.		$	6,272															$	(5,425	)		$	11,697
Earnings per Common Share Assuming Dilution		$	2.02																			$	3.77	(5)
Average Shares Outstanding Assuming Dilution			3,094																				3,094
Tax Rate			12.8	%																			23.4	%

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 $5.0 billion for the amortization of intangible assets and the amortization of purchase accounting adjustments to inventories recognized as a result of mergers and acquisitions, 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. Amounts included in other (income) expense, net reflect the favorable resolution of certain reserves assumed in conjunction with the merger.

(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, a $136 million gain on the divestiture of the company’s interest in the Johnson & JohnsonºMerck Consumer Pharmaceuticals Company joint venture, as well as 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 $270 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 $11,670 million for 2011.

---

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

(AMOUNTS IN MILLIONS)

Table 3

 

		2011																				2010																				% Change				% Change
		1Q				2Q				3Q				4Q				Full Year				1Q				2Q				3Q				4Q				Full Year				4Q				Full Year
TOTAL SALES (1)		$	11,580			$	12,151			$	12,022			$	12,294			$	48,047			$	11,422			$	11,346			$	11,125			$	12,094			$	45,987				2				4
PHARMACEUTICAL (2)			9,820				10,360				10,354				10,755				41,289				9,665				9,638				9,523				10,441				39,267				3				5
Cardiovascular
Zetia			582				592				614				640				2,428				534				564				571				629				2,297				2				6
Vytorin			480				459				469				475				1,882				477				490				485				562				2,014				-16				-7
Integrilin			64				56				53				57				230				70				70				63				63				266				-9				-14
Diabetes & Obesity
Januvia			739				779				846				960				3,324				511				600				600				675				2,385				42				39
Janumet			305				321				350				386				1,363				201				218				247				288				954				34				43
Diversified Brands
Cozaar /Hyzaar			426				406				404				427				1,663				782				485				423				415				2,104				3				-21
Zocor			127				107				110				111				456				116				117				114				121				468				-8				-3
Propecia			106				112				112				117				447				100				113				109				124				447				-6				0
Claritin Rx			120				65				55				74				314				98				58				53				86				296				-14				6
Remeron			60				57				65				59				241				51				59				50				62				223				-5				8
Vasotec /Vaseretic			57				59				57				58				231				59				63				69				64				255				-9				-10
Proscar			60				53				58				52				223				58				56				58				44				216				18				3
Infectious Disease
Isentress			292				337				343				387				1,359				232				267				278				313				1,090				24				25
PegIntron			166				154				163				175				657				186				185				168				198				737				-12				-11
Cancidas			158				168				150				164				640				153				150				135				174				611				-6				5
Primaxin			136				136				124				119				515				159				158				135				158				610				-25				-16
Invanz			87				103				107				110				406				75				83				91				113				362				-3				12
Avelox			106				61				59				95				322				106				59				59				92				316				3				2
Noxafil			55				56				61				59				230				49				50				52				48				198				24				16
Crixivan /Stocrin			45				50				56				42				192				52				48				49				58				206				-28				-7
Rebetol			53				48				38				36				174				56				55				55				54				221				-34				-21
Victrelis			1				21				31				87				140				0				0				0				0				0				*				*
Neurosciences & Ophthalmology
Maxalt			173				131				156				178				639				135				133				133				149				550				20				16
Cosopt /Trusopt			114				122				124				117				477				115				123				114				131				484				-11				-1
Oncology
Temodar			248				234				223				230				935				274				271				254				266				1,065				-13				-12
Emend			87				120				98				114				419				84				93				91				110				378				4				11
Intron A			49				47				47				51				194				54				51				50				54				209				-5				-7
Respiratory & Immunology
Singulair			1,328				1,354				1,336				1,461				5,479				1,165				1,258				1,215				1,349				4,987				8				10
Remicade			753				842				561				511				2,667				674				669				661				710				2,714				-28				-2
Nasonex			373				323				266				325				1,286				320				338				259				303				1,219				7				5
Clarinex			155				209				128				129				621				164				191				131				138				623				-6				0
Arcoxia			114				100				108				110				431				95				95				94				115				398				-4				8
Simponi			54				75				74				61				264				10				18				27				42				97				45				*
Asmanex			60				47				42				57				206				51				56				48				53				208				7				-1
Proventil			42				37				38				38				155				57				55				43				55				210				-31				-26
Dulera			13				25				22				37				96				0				0				2				6				8				*				*
Vaccines
Gardasil			214				277				445				274				1,209				233				219				316				221				988				24				22
ProQuad, M-M-R II and Varivax			244				291				391				276				1,202				319				340				434				285				1,378				-3				-13
RotaTeq			125				148				184				195				651				93				139				119				169				519				15				25
Pneumovax			79				64				133				222				498				51				59				110				156				376				43				33
Zostavax			24				122				108				78				332				95				18				23				107				243				-27				37
Women’s Health & Endocrine
Fosamax			208				221				215				211				855				230				241				220				234				926				-10				-8
NuvaRing			142				154				159				168				623				135				145				134				145				559				16				12
Follistim AQ			133				143				129				126				530				134				137				119				138				528				-9				0
Implanon			60				81				80				74				294				51				51				64				71				236				3				25
Cerazette			59				66				74				69				268				55				49				56				49				209				42				28
Other Pharmaceutical (3)			744				927				888				953				3,521				946				941				942				1,044				3,879				-9				-9
ANIMAL HEALTH			758				802				826				868				3,253				709				731				687				815				2,941				6				11
CONSUMER CARE (2)			517				541				421				361				1,840				489				544				409				381				1,823				-5				1
Claritin OTC			167				134				118				92				511				136				167				120				103				526				-11				-3
Other Revenues (4)			486				448				421				310				1,666				559				433				506				457				1,956				-32				-15
Astra			322				306				299				256				1,184				364				241				345				302				1,252				-15				-5

 

*	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 Vaccine sales included in Other Pharmaceutical were $54 million, $67 million, $100 million and $62 million for the first, second, third and fourth quarters of 2011, respectively. Other Vaccine 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.