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| MRK > SEC Filings for MRK > Form 10-Q on 9-Nov-2012 | All Recent SEC Filings |
9-Nov-2012
Quarterly Report
Singulair Patent Expiries
The patent that provided U.S. market exclusivity for Singulair (montelukast sodium) expired in August 2012 and the Company is experiencing a significant and rapid decline in U.S. Singulair sales and the Company expects the decline to continue. In addition, the patent that provides market exclusivity for Singulair will expire in a number of major European markets in February 2013. The Company expects a significant and rapid reduction in sales thereafter in those markets. The patent that provides market exclusivity for Singulair in Japan will expire in 2016. For the full year of 2011, sales of Singulair were $3.5 billion in the United States, $724 million in Europe and $641 million in Japan.
U.S. Health Care Reform Legislation
In 2010, the United States enacted major health care reform legislation. Various market reforms advanced in 2011 and will continue through full implementation in 2014.
Effective in 2011, the law requires pharmaceutical manufacturers to pay a 50% discount to Medicare Part D beneficiaries when they are in the Medicare Part D coverage gap (i.e., the so-called "donut hole"). Approximately $37 million and $39 million was recorded as a reduction to revenue in the third quarter of 2012 and 2011, respectively, and $113 million and $109 million for the first nine months of 2012 and 2011, respectively, related to the estimated impact of this provision of health care reform.
Also, beginning in 2011, pharmaceutical manufacturers are required to pay an annual health care reform fee. The total annual industry fee, which was $2.5 billion in 2011 and will be $2.8 billion in 2012, is assessed on each company in proportion to its share of sales to certain government programs, such as Medicare and Medicaid. The Company's portion of the annual fee is payable no later than September 30 of the applicable calendar year and is not tax deductible. Each year, the liability related to the annual fee is estimated by the Company and recorded in full during the first quarter with a corresponding offset to a deferred asset. The deferred asset is amortized to Marketing and administrative expenses on a straight-line basis (net of any revisions) during the year. The liability related to the annual fee recognized in 2012 was $190 million and for 2011 was $162 million. The Company recognized expenses of $48 million and $37 million for the third quarter of 2012 and 2011, respectively, and $143 million and $122 million for the first nine months of 2012 and 2011, respectively, related to this fee.
Arbitration Settlement
In April 2011, Merck and Johnson & Johnson ("J&J") reached an agreement to amend the agreement governing the distribution rights to Remicade (infliximab) and Simponi (golimumab). This agreement concluded the arbitration proceeding J&J initiated in May 2009. Under the terms of the amended distribution agreement, Merck relinquished marketing rights for Remicade and Simponi to J&J in territories including Canada, Central and South America, the Middle East, Africa and Asia Pacific effective July 1, 2011. Merck retained exclusive marketing rights throughout Europe, Russia and Turkey (the "Retained Territories"). In addition, beginning July 1, 2011, all profits derived from Merck's exclusive distribution of the two products in the Retained Territories are being equally divided between Merck and J&J. J&J also received a one-time payment from Merck of $500 million in April 2011.
Operating Results
Sales
Worldwide sales were $11.5 billion for the third quarter of 2012, a decline of 4% compared with the third quarter of 2011. The revenue decline in the third quarter was driven primarily by lower sales of Singulair. As noted above, the patent that provided U.S. market exclusivity for Singulair expired in August 2012 and the Company is experiencing a significant and rapid decline in U.S. Singulair sales. Foreign exchange unfavorably affected global sales performance by 4% for the third quarter of 2012. The revenue decline in the third quarter also reflects lower sales of Cozaar (losartan potassium), Hyzaar (losartan potassium hydrochlorothiazide), Remicade, Clarinex (desloratadine), Fosamax (alendronate sodium) and Vytorin (ezetimibe/simvastatin). These declines were partially offset by growth in Gardasil [human papillomavirus quadrivalent (types 6, 11, 16 and 18) vaccine, recombinant], Januvia (sitagliptin), Victrelis (boceprevir), Zostavax [Zoster Vaccine Live], Isentress (raltegravir) and Janumet (sitagliptin/metformin HCI).
While several of the Company's brands experienced positive volume growth trends in the European Union (the "EU") in the first nine months of 2012, the environment in the EU continues to be challenging. Many countries have announced austerity measures, which include the implementation of pricing actions to reduce prices of generic and patented drugs and mandatory switches to generic drugs. While the Company is taking steps to mitigate the impact in the EU, the austerity measures continued to negatively affect the Company's revenue performance in the first nine months of 2012 and the Company anticipates mid-single digit pricing pressures for the full year of 2012 across Europe as well as from the biennial price reductions in Japan.
Three Months Ended Nine Months Ended
September 30, September 30,
($ in millions) 2012 2011 2012 2011
Primary Care and Women's Health
Cardiovascular
Zetia $ 645 $ 614 $ 1,891 $ 1,788
Vytorin 423 469 1,312 1,407
Diabetes and Obesity
Januvia 975 846 2,952 2,364
Janumet 405 350 1,207 977
Respiratory
Singulair 602 1,336 3,373 4,018
Nasonex 292 266 960 962
Clarinex 64 128 337 492
Asmanex 42 42 141 149
Dulera 52 22 140 59
Women's Health and Endocrine
Fosamax 152 215 522 644
NuvaRing 156 159 459 455
Follistim AQ 111 129 352 404
Implanon 93 80 254 220
Cerazette 64 74 202 199
Other
Maxalt 166 156 476 460
Arcoxia 109 108 338 321
Avelox 30 59 146 227
Hospital and Specialty
Immunology
Remicade 490 561 1,527 2,156
Simponi 86 74 236 203
Infectious Disease
Isentress 399 343 1,133 972
PegIntron 165 163 510 482
Cancidas 163 150 474 476
Victrelis 149 31 387 53
Invanz 118 107 329 296
Primaxin 109 124 301 397
Noxafil 66 61 191 171
Oncology
Temodar 227 223 688 704
Emend 111 98 358 305
Other
Cosopt/Trusopt 102 124 331 360
Bridion 68 52 186 141
Integrilin 48 53 160 172
Diversified Brands
Cozaar/Hyzaar 295 404 969 1,236
Propecia 104 112 312 330
Zocor 86 110 285 345
Claritin Rx 47 55 181 240
Remeron 52 65 175 181
Proscar 55 58 160 171
Vasotec/Vaseretic 42 57 144 173
Vaccines (1)
Gardasil 581 445 1,189 935
ProQuad/M-M-R II/Varivax 396 391 967 927
RotaTeq 150 184 433 457
Zostavax 202 108 426 254
Pneumovax 160 133 372 276
Other pharmaceutical (2) 1,023 1,015 3,031 2,975
Total Pharmaceutical segment sales 9,875 10,354 30,517 30,534
Other segment sales (3) 1,556 1,586 4,830 4,908
Total segment sales 11,431 11,940 35,347 35,442
Other (4) 57 82 183 311
$ 11,488 $ 12,022 $ 35,530 $ 35,753
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(1) These amounts do not reflect sales of vaccines sold in most major European markets through the Company's joint venture, Sanofi Pasteur MSD, the results of which are reflected in Equity income from affiliates. These amounts do, however, reflect supply sales to Sanofi Pasteur MSD.
(2) Other pharmaceutical primarily includes sales of other human health pharmaceutical products not listed separately.
(3) Reflects other non-reportable segments, including Animal Health and Consumer Care, and revenue from the Company's relationship with AZLP primarily relating to sales of Nexium. Revenue from AZLP was $255 million and $299 million for the third quarter of 2012 and 2011, respectively, and $664 million and $928 million for the first nine months of 2012 and 2011, respectively.
(4) Other revenues are primarily comprised of miscellaneous corporate revenues, third-party manufacturing sales, sales related to divested products or businesses and supply sales not included in segment results. The declines in other revenues in the third quarter and first nine months of 2012 as compared with the same periods of 2011 reflect lower third-party manufacturing sales, which for the year-to-date period were attributable in part to the divestiture of certain manufacturing facilities in the first quarter of 2011.
Pharmaceutical Segment
Primary Care and Women's Health
Cardiovascular
Sales of Zetia (also marketed as Ezetrol outside the United States), a cholesterol-absorption inhibitor, were $645 million in the third quarter of 2012, an increase of 5% compared with the third quarter of 2011, and were $1.9 billion for the first nine months of 2012, an increase of 6% compared with the same period in 2011. Foreign exchange unfavorably affected global sales performance by 4% and 2% in the third quarter and first nine months of 2012, respectively. The sales increases reflect positive performance in the United States due to pricing, as well as volume growth in Japan, partially offset by volume declines in the United States and Europe. Sales of Vytorin (marketed outside the United States as Inegy), a combination product containing the active ingredients of both Zetia and Zocor (simvastatin), were $423 million and $1.3 billion in the third quarter and first nine months of 2012, respectively, representing declines of 10% and 7%, respectively, compared with the same periods in 2011. Foreign exchange unfavorably affected global sales performance by 6% and 4% in the third quarter and first nine months of 2012, respectively. The sales declines reflect volume declines in the United States, partially offset by pricing in the United States and volume growth in certain international markets.
In March 2012, the Data Safety Monitoring Board (the "DSMB") of the IMPROVE-IT trial, a large cardiovascular outcomes study evaluating ezetimibe/simvastatin against simvastatin alone in patients presenting with acute coronary syndrome, completed the second pre-specified interim efficacy analysis of the study. The DSMB conducted the planned interim efficacy analysis after the trial had reached approximately 75% of the targeted 5,250 clinical endpoints called for in the study design. The DSMB recommended that the study continue without change in design and stated it planned to review the data again in approximately nine months. That review has been scheduled for March 2013, at which point nine months of additional data will have been adjudicated. Merck remains blinded to IMPROVE-IT safety and efficacy data. IMPROVE-IT is an 18,000 patient event-driven trial and, based on the current rate at which events are being reported, the Company now anticipates the targeted 5,250 clinical endpoints for study completion will be reached in 2014.
Diabetes and Obesity
Global sales of Januvia, Merck's dipeptidyl peptidase-4 ("DPP-4") inhibitor for the treatment of type 2 diabetes, were $975 million in the third quarter of 2012, an increase of 15% compared with the third quarter of 2011, due primarily to volume growth in the United States and Japan. Worldwide sales of Januvia were $3.0 billion for the first nine months of 2012, representing an increase of 25% compared with the same period of 2011, reflecting volume growth both in international markets, as well as in the United States.
Worldwide sales of Janumet, Merck's oral antihyperglycemic agent that combines sitagliptin (Januvia) with metformin in a single tablet to target all three key defects of type 2 diabetes, were $405 million for the third quarter of 2012 and $1.2 billion for the first nine months of 2012, representing increases of 16% and 24%, respectively, compared with the same periods of 2011, reflecting volume growth in the United States, the emerging markets and Europe.
In February 2012, the U.S. Food and Drug Administration (the "FDA") approved Janumet XR, a treatment for type 2 diabetes that combines sitagliptin with extended-release metformin. Janumet XR provides a convenient once-daily treatment option for health care providers and patients who need help to control their blood sugar.
As previously disclosed, on February 17, 2012, the FDA sent a Warning Letter to the Company relating to Januvia and Janumet stating that the Company did not fulfill a post-marketing requirement for a 3-month pancreatic safety study in a diabetic rodent model treated with sitagliptin. Merck has been in communication with the FDA
Respiratory
Worldwide sales for Singulair, a once-a-day oral medicine for the chronic treatment of asthma and for the relief of symptoms of allergic rhinitis, were $602 million for the third quarter of 2012 and $3.4 billion for the first nine months of 2012, declines of 55% and 16%, respectively, compared with the same periods of 2011, driven primarily by lower sales in United States. Revenue declines in Europe, Canada and the emerging markets also contributed to Singulair sales declines during the quarter and year-to-date period. The patent that provided U.S. market exclusivity for Singulair expired on August 3, 2012. Accordingly, the Company is experiencing a significant and rapid decline in U.S. Singulair sales and the Company expects the decline to continue. U.S. sales of Singulair declined 72% to $249 million in the third quarter of 2012 compared with the third quarter of 2011. In addition, the patent that provides market exclusivity for Singulair will expire in a number of major European markets in February 2013. The Company expects a significant and rapid reduction in sales thereafter in those markets. The patent that provides market exclusivity for Singulair in Japan will expire in 2016. For the full year of 2011, sales of Singulair were $3.5 billion in the United States, $724 million in Europe and $641 million in Japan.
Global sales of Nasonex (mometasone furoate monohydrate), an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms, were $292 million for the third quarter of 2012, an increase of 10% compared with the third quarter of 2011, reflecting increases in the United States and volume growth in Japan. Worldwide sales of Nasonex were $960 million for the first nine months of 2012, comparable to the same period of 2011, driven largely by price in the United States, offset by price declines in Europe and lower volumes in Japan. Foreign exchange unfavorably affected global sales performance by 4% and 2% for the third quarter and first nine months of 2012, respectively. In June 2012, the U.S. District Court for the District of New Jersey ruled against the Company in a patent infringement suit against Apotex Inc. and Apotex Corp. (collectively "Apotex") holding that Apotex's generic version of Nasonex does not infringe on the Company's patent (see Note 10 to the interim consolidated financial statements). Apotex is seeking FDA approval to sell its generic version of Nasonex. If generic versions become available, significant losses of Nasonex sales in the U.S. market are anticipated and could result in a material non-cash impairment charge related to the Nasonex intangible asset. U.S. sales of Nasonex were $604 million for the full year of 2011. As a result of the unfavorable U.S. District Court decision, the Company evaluated the Nasonex intangible asset for impairment and concluded that it was not impaired. The Company has appealed the U.S. District Court decision.
Global sales of Clarinex (marketed as Aerius in many countries outside the United States), a non-sedating antihistamine, were $64 million for the third quarter of 2012 and $337 million for the first nine months of 2012, declines of 50% and 32%, respectively, compared with the same periods of 2011, reflecting lower volumes in Europe and the United States as a result of generic competition. As previously disclosed, by virtue of litigation settlements, certain generic manufacturers were given the right to enter the U.S. market in 2012. The U.S. patent and exclusivity periods otherwise expire in 2020. In July 2012, a generic manufacturer launched a generic version of Clarinex in the United States. The Company anticipates that U.S. sales of Clarinex will continue to be negatively impacted in the fourth quarter of 2012 and beyond. U.S. sales of Clarinex were $197 million for the full year of 2011.
Women's Health and Endocrine
Worldwide sales for Fosamax and Fosamax Plus D (alendronate sodium/cholecalciferol) (marketed as Fosavance throughout the EU and as Fosamac in Japan) for the treatment and, in the case of Fosamax, prevention of osteoporosis were $152 million for the third quarter of 2012 and $522 million for the first nine months of 2012, representing declines of 29% and 19%, respectively, over the comparable periods of 2011. These medicines have lost market exclusivity in the United States and have also lost market exclusivity in most major European markets. Accordingly, the Company is experiencing sales declines within the Fosamax product franchise and the Company expects the declines to continue.
Worldwide sales of NuvaRing (etonogestrel/ethinyl estradiol vaginal ring), a vaginal contraceptive product, were $156 million for the third quarter of 2012, a decline of 2% compared with the third quarter of 2011, and $459 million for the first nine months of 2012, an increase of 1% compared with the same period of 2011. Foreign
Global sales of Follistim AQ (follitropin beta injection) (marketed in most countries outside the United States as Puregon), a biological fertility treatment, were $111 million for the third quarter of 2012 and $352 million for the first nine months of 2012, declines of 14% and 13%, respectively, compared with the same periods of 2011, driven largely by volume declines in Europe. Puregon lost market exclusivity in the EU in August 2009. Foreign exchange unfavorably affected global sales performance by 6% and 3% for the third quarter and first nine months of 2012, respectively.
The Company is currently experiencing difficulty manufacturing certain women's health products. The Company is working to resolve these issues.
In August 2011, Zoely(nomegestrol acetate 2.5 mg/17ß-estradiol 1.5 mg), an oral
contraceptive, was granted marketing authorization by the European Commission
(the "EC") for use by women to prevent pregnancy. Zoely is a combined oral
contraceptive tablet containing a unique monophasic combination of two hormones:
nomegestrol acetate, a highly selective progesterone-derived progestin, and
17-beta estradiol, an estrogen that is similar to the one naturally present in a
woman's body. In November 2011, Merck received a Complete Response Letter from
the FDA for NOMAC/E2 (MK-8175A), which is being marketed as Zoely in the EU. The
Company is conducting an additional clinical study requested by the FDA and
plans to update the application in the future.
Other
Global sales of Maxalt (rizatriptan benzoate), a product for the acute treatment of migraine, were $166 million for the third quarter of 2012, an increase of 7% compared with the third quarter of 2011, and were $476 million for the first nine months of 2012, an increase of 3% compared with the first nine months of 2011, reflecting favorable pricing in the United States, partially offset by volume declines in the United States and declines in Europe and Canada. The patent that provides U.S. market exclusivity for Maxalt will expire in December 2012. U.S. sales of Maxalt were $451 million for the full year of 2011. In addition, the patent that provides market exclusivity for Maxalt is scheduled to expire in a number of major European markets in February 2013. However, the Company has applied for a six-month pediatric extension in the EU, which has been granted by most major countries and the Company expects to obtain the extension in the remaining countries by February 2013. The Company anticipates that sales in the United States and in these European markets will decline significantly after these patent expiries.
Other products included in the Primary Care and Women's Health customer business line include among others, Asmanex (mometasone furoate inhalation powder), an inhaled corticosteroid for asthma; Dulera (mometasone furoate/formoterol fumarate dihydrate) Inhalation Aerosol, a fixed-dose combination asthma treatment; Implanon(etonogestrel implant), a single-rod subdermal contraceptive . . .
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