MERCK & CO., INC. Management's Discussion and Analysis of Financial Condition and Resultsof Operations (form 10-Q)

Published: 2022-08-05 06:03:12 ET MRK

Business Developments

Below is a summary of significant business development activity thus far in 2022. See Note 3 to the condensed consolidated financial statements for additional information.

Spin-Off of Organon & Co.

Other Developments

War in Ukraine

The combination of Russia's invasion of Ukraine, as well as the resultant economic sanctions imposed by the U.S., the European Union (EU) and other governments are having pervasive effects in markets worldwide. The Company is unable to determine at this time the future impacts of this conflict either directly or indirectly on the Company's business.

COVID-19

Supply Chain

U.S. plus international may not equal total due to rounding.

(1) Alliance revenue represents Merck's share of profits, which are product sales net of cost of sales and commercialization costs (see Note 4 to the condensed consolidated financial statements).

Keytruda received the following regulatory approvals thus far in 2022.

adjuvant treatment of

January 2022 adults with RCC at increased risk of recurrence following nephrectomy, or following

the KEYNOTE-564 trial.

the combination of

February 2022 Keytruda plus Lenvima for radically unresectable or metastatic RCC based on the

for the treatment of

February 2022 adult patients with advanced or recurrent TMB-H solid tumors that have progressed

with standard of care)

single agent for the

that is MSI-H or dMMR who

March 2022 have disease progression following prior systemic therapy in any setting and are

the KEYNOTE-158 trial

without bevacizumab, for the

April 2022 treatment of persistent, recurrent or metastatic cervical cancer in certain adults

adult patients with

April 2022 unresectable or metastatic MSI-H/dMMR colorectal, gastric, small intestine or

MSI-H/dMMR endometrial cancer

neoadjuvant treatment, and then

May 2022 continued as monotherapy as adjuvant treatment after surgery for adults with

recurrence based on the

adults and adolescents

who have undergone

June 2022 complete resection based on the KEYNOTE-716 trial. Additionally, EC approval

metastatic) melanoma and

adjuvant treatment following

years and older.

Worldwide sales of Pneumovax 23 (pneumococcal vaccine polyvalent), a vaccine to help prevent pneumococcal disease, grew 1% in the first six months of 2022 primarily reflecting higher demand in the U.S. and Latin America that was largely offset by lower demand in Europe.

(1) Alliance revenue represents Merck's share of profits from sales in Bayer's marketing territories, which are product sales net of cost of sales and commercialization costs (see Note 4 to the condensed consolidated financial statements).

Costs, Expenses and Other

Selling, General and Administrative

Research and Development

Other (Income) Expense, Net

For details on the components of Other (income) expense, net, see Note 11 to the condensed consolidated financial statements.

$ 1,717 $ 9,348 $ 4,704

Taxes on Income

Non-GAAP Income and Non-GAAP EPS from Continuing Operations

A reconciliation between GAAP financial measures and non-GAAP financial measures (from continuing operations) is as follows:

Income from continuing operations before taxes as reported under GAAP

Other items: Charges for the discontinuation of COVID-19 development programs

Taxes on income from continuing operations as reported under GAAP

Net tax (expense) benefit from the settlement of certain federal income tax matters

Less: Net income attributable to noncontrolling interests as reported under GAAP

Non-GAAP net income from continuing operations attributable to Merck & Co., Inc.

EPS assuming dilution from continuing operations as reported under GAAP

Non-GAAP EPS assuming dilution from continuing operations $ 1.87

(1) The estimated tax impact on the excluded items is determined by applying the statutory rate of the originating territory of the non-GAAP adjustments.

Acquisition and Divestiture-Related Costs

Restructuring Costs

Income and Losses from Investments in Equity Securities

Non-GAAP income and non-GAAP EPS exclude realized and unrealized gains and losses from investments in equity securities either owned directly or through ownership interests in investment funds.

Certain Other Items

Research and Development Update

The Company currently has several candidates under regulatory review in the U.S. and internationally.

Additionally, Keytruda is under review in Japan for the adjuvant treatment of patients with RCC at intermediate-high or high risk of recurrence following nephrectomy (surgical removal of a kidney) based on data from the Phase 3 KEYNOTE-564 trial.

MK-7339, Lynparza, is an oral PARP inhibitor currently approved for certain types of advanced ovarian, breast, pancreatic and prostate cancers being co-developed for multiple cancer types as part of a collaboration with AstraZeneca.

Entities/Vaccines Certain Supplemental Filings

MK-4482 Lagevrio (U.S.) (May 2021)(1)(5) Antiviral COVID-19

Cancer

• High-Risk Early-Stage Triple-Negative Gastric (May 2015) (EU)

Breast

• First-Line Metastatic Prostate Cancer Renal Cell (February 2020)

Carcinoma

collaboration.

combination with Keytruda.

MK-8591A (doravirine+islatravir) (February (3) Being developed as monotherapy and/or in combination with Keytruda. 2020)(4)

issued a CRL for Merck's and Eisai's applications. MK-7962 (sotatercept) (January 2021)

Liquidity and Capital Resources

31.3 %

Capital expenditures totaled $2.1 billion in both the first six months of 2022 and the first six months of 2021.

Critical Accounting Estimates

Recently Issued Accounting Standards

For a discussion of recently issued accounting standards, see Note 1 to the condensed consolidated financial statements.