Merck(MRK) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2024, including income, balance sheet, cash flows, and detailed notes Condensed Consolidated Statement of Income Merck's Q1 2024 sales increased 9% to $15.8 billion, with net income surging 69% to $4.8 billion, resulting in a diluted EPS of $1.87 Q1 2024 vs Q1 2023 Income Statement Highlights | Metric | Q1 2024 ($M) | Q1 2023 ($M) | YoY Change | | :--- | :--- | :--- | :--- | | Sales | 15,775 | 14,487 | +8.9% | | Income Before Taxes | 5,670 | 3,650 | +55.3% | | Net Income Attributable to Merck & Co., Inc. | 4,762 | 2,821 | +68.8% | | Diluted EPS | $1.87 | $1.11 | +68.5% | Condensed Consolidated Balance Sheet As of March 31, 2024, total assets were $105.8 billion, total equity increased to $40.4 billion, and total debt decreased to $34.2 billion Balance Sheet Summary | Metric | March 31, 2024 ($M) | Dec 31, 2023 ($M) | | :--- | :--- | :--- | | Cash and cash equivalents | 5,579 | 6,841 | | Total current assets | 31,445 | 32,168 | | Total Assets | 105,849 | 106,675 | | Total current liabilities | 25,099 | 25,694 | | Total Debt (Current & Long-Term) | 34,219 | 35,055 | | Total Merck & Co., Inc. stockholders' equity | 40,364 | 37,581 | Condensed Consolidated Statement of Cash Flows Operating cash flow more than doubled to $3.1 billion in Q1 2024, while investing cash outflow decreased and financing cash outflow increased Q1 2024 vs Q1 2023 Cash Flow Highlights | Cash Flow Activity | Q1 2024 ($M) | Q1 2023 ($M) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 3,090 | 1,339 | | Net Cash Used in Investing Activities | (1,376) | (2,359) | | Net Cash Used in Financing Activities | (2,814) | (2,054) | | Net Decrease in Cash | (1,238) | (2,987) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, business development, collaborations, restructuring, financial instruments, contingencies, and segment performance - In March 2024, Merck acquired Harpoon Therapeutics for $765 million, resulting in a $656 million charge to R&D expenses[18] - In February 2024, Merck agreed to acquire the aqua business of Elanco Animal Health for $1.3 billion in cash, with the deal expected to close by mid-2024[18][19] - A new restructuring program was approved in January 2024, with estimated cumulative pretax costs of approximately $4.0 billion, expected to be substantially completed by the end of 2031[38] Q1 2024 Alliance Revenue from Key Collaborations | Collaboration Partner | Product(s) | Q1 2024 Alliance Revenue ($M) | | :--- | :--- | :--- | | AstraZeneca | Lynparza / Koselugo | 330 | | Eisai Co., Ltd. | Lenvima | 255 | | Bayer AG | Adempas / Verquvo | 98 | | Bristol-Myers Squibb | Reblozyl | 71 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial results, including 9% sales growth to $15.8 billion, driven by Oncology and Vaccines, and impacts of pricing pressures Q1 2024 Sales Performance | Metric | Q1 2024 ($B) | YoY Change | YoY Change (ex-FX) | | :--- | :--- | :--- | :--- | | Total Sales | 15.8 | +9% | +12% | - Global sales growth was primarily driven by higher sales in the oncology franchise, particularly Keytruda, and the vaccines franchise, led by Gardasil/Gardasil 9[93][94] - Pricing pressure continues due to global healthcare cost containment efforts, including the Inflation Reduction Act (IRA) in the U.S., which selected Januvia for its Drug Price Negotiation Program effective in 2026[92] GAAP vs. Non-GAAP EPS Reconciliation (Q1 2024) | Metric | Amount per Share | | :--- | :--- | | EPS as reported under GAAP | $1.87 | | EPS difference | $0.20 | | Non-GAAP EPS assuming dilution | $2.07 | Operating Results Total sales reached $15.8 billion (+9%), with Pharmaceutical segment growth driven by Oncology and Vaccines, offsetting Diabetes declines Q1 2024 Sales by Segment | Segment | Q1 2024 Sales ($M) | Q1 2023 Sales ($M) | YoY Change | | :--- | :--- | :--- | :--- | | Pharmaceutical | 14,006 | 12,721 | +10.1% | | Animal Health | 1,511 | 1,491 | +1.3% | Key Product Sales Performance (Q1 2024) | Product | Q1 2024 Sales ($M) | YoY Change | | :--- | :--- | :--- | | Keytruda | 6,947 | +20% | | Gardasil/Gardasil 9 | 2,249 | +14% | | Januvia/Janumet | 670 | -24% | | Bridion | 440 | -10% | | Lagevrio | 350 | -11% | - Keytruda sales growth was driven by increased uptake in earlier-stage cancer indications globally. Gardasil growth was strong due to demand in China and U.S. public sector buying[95][98] - Januvia/Janumet sales declined significantly due to lower pricing and demand in the U.S. from competitive pressures and the impact of the American Rescue Plan Act, as well as loss of exclusivity in Europe and other regions[105] Costs, Expenses and Other Total costs and expenses decreased 7% to $10.1 billion, improving gross margin to 77.6%, with R&D expenses down due to lower acquisition charges - Gross margin improved to 77.6% from 72.9% in Q1 2023, mainly due to favorable product mix, including lower royalty rates for Keytruda and Gardasil, and favorable foreign exchange[108] - R&D expenses declined 7%, primarily because the Q1 2024 charge for the Harpoon Therapeutics acquisition ($656M) was significantly lower than the Q1 2023 charges for the Imago acquisition ($1.2B) and a Kelun-Biotech agreement ($175M)[110] - A new restructuring program was initiated in January 2024 to optimize the manufacturing network, with an estimated total cost of $4.0 billion through 2031. The company recorded $123 million in restructuring costs in Q1 2024[111][112] Research and Development Update Merck has key candidates under regulatory review, including MK-1022 for NSCLC and V116 vaccine, with Keytruda also under review for new indications - MK-1022 (patritumab deruxtecan), a HER3-directed ADC for EGFR-mutated NSCLC, is under priority review by the FDA with a target action date of June 26, 2024[121] - V116, an investigational 21-valent pneumococcal conjugate vaccine for adults, is under priority review by the FDA with a PDUFA date of June 17, 2024[121] - Keytruda is under priority review for primary advanced or recurrent endometrial carcinoma, with a PDUFA date of June 21, 2024, and is also under review in the EU and Japan for several other indications[121] Analysis of Liquidity and Capital Resources As of March 31, 2024, Merck held $5.9 billion in cash, with strong operating cash flow of $3.1 billion, and continued share repurchases - Cash provided by operating activities was $3.1 billion in Q1 2024, a significant increase from $1.3 billion in Q1 2023, reflecting stronger operating performance[124] - In Q1 2024, the company paid $2.0 billion in dividends and repurchased $122 million of its common stock. The remaining share repurchase authorization is $3.6 billion[125] - The company maintains a $6.0 billion credit facility maturing in May 2028 for backup liquidity, which has not been drawn upon[125] Quantitative and Qualitative Disclosures about Market Risk No material changes in market risk exposures have occurred since the 2023 Form 10-K filing - There have been no material changes in market risk exposures affecting the disclosures presented in the Company's 2023 Form 10-K[128] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control - The CEO and CFO certifications concluded that as of March 31, 2024, the Company's disclosure controls and procedures are effective[129] - No changes in internal control over financial reporting occurred in Q1 2024 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[129] PART II - OTHER INFORMATION Legal Proceedings This section refers to Note 7 for legal proceedings, including product liability and ongoing patent litigation for key products - The company is a defendant in product liability lawsuits related to alleged asbestos in Dr. Scholl's foot powder and alleged injuries from Gardasil/Gardasil 9 vaccines[64] - Merck is actively defending its patents for key products, including Bridion, Januvia, Keytruda, and Lynparza, against challenges from generic manufacturers[68][69][70][71] - Legal defense reserves were approximately $220 million as of March 31, 2024[73] Unregistered Sales of Equity Securities and Use of Proceeds Merck repurchased 990,671 shares for $122 million in Q1 2024, with $3.6 billion remaining in share repurchase authorization Issuer Purchases of Equity Securities (Q1 2024) | Period | Total Shares Purchased | Average Price Paid | Total Value ($M) | | :--- | :--- | :--- | :--- | | Jan 2024 | 147,500 | $112.29 | ~$16.6 | | Feb 2024 | 209,200 | $127.83 | ~$26.7 | | Mar 2024 | 633,971 | $123.45 | ~$78.2 | | Total Q1 | 990,671 | $122.71 | ~$121.5 | - As of March 31, 2024, the approximate dollar value of shares that may yet be purchased under the plans or programs is $3.6 billion[125][134] Other Information No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q1 2024 - No directors or executive officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2024[135] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents, CEO/CFO certifications, and XBRL data - The exhibits include CEO and CFO certifications pursuant to Rule 13a-14(a)/15d-14(a) and Section 1350[137] - Interactive data files (XBRL) are included as part of the filing[137]