Merck & Company, Inc. · NYSE:MRK
Merck & — Q4 2019 Earnings Presentation
29 slides from Merck &'s earnings presentation, February 2020
Slide 1: 4Q & 2019 Full-Year Earnings; Spinoff of NewCo
MERCK 4Q & 2019 FULL-YEAR EARNINGS SPINOFF OF NEWCO
Slide 2: Forward-Looking Statement
FORWARD-LOOKING STATEMENT OF MERCK & Co., Inc., Kenilworth, N.J., USA This presentation of Merck & Co., Inc., Kenilworth, N.J., USA (the “company”) includes “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Exa
Slide 3: We Are Making Progress on Our Strategic Priorities Outlined at Investor Day
WE ARE MAKING PROGRESS ON OUR STRATEGIC PRIORITIES OUTLINED AT INVESTOR DAY Advancing the Unlocking full Driving Delivering 4Q 2019 Earnings pipeline for commercial simplification sustainable, ongoing scientific potential of and culture profitable breakthroughs portfolio change growth 3
Slide 4: Advanced the Pipeline in 2019 for Ongoing Scientific Breakthroughs
ADVANCED THE PIPELINE IN 2019 FOR ONGOING SCIENTIFIC BREAKTHROUGHS Oncology: ▪ 8 new KEYTRUDA indications in the U.S.: adjuvant melanoma, 1L RCC in combination with axitinib, 1L PD-L1+ NSCLC, 1L HNSCC (2), 3L SCLC, 1L esophageal, and 2L+ endometrial in combination with Lenvima ▪ 5 new KEYTRUDA appro
Slide 5: Continued to Focus on Strategic Business Development to Fuel Innovation
CONTINUED TO FOCUS ON STRATEGIC BUSINESS DEVELOPMENT TO FUEL INNOVATION Strong Track Record of Bolt-on Acquisitions & Strategic Collaborations ▪ Developing portfolio through value-creating acquisitions and investments in innovative mechanisms ▪ Meaningful partnerships with academia, biotech and phar
Slide 6: Progressing Our Plans to Fortify Our Future Ahead of the Changing Landscape
PROGRESSING OUR PLANS TO FORTIFY OUR FUTURE AHEAD OF THE CHANGING LANDSCAPE Becoming a leaner, more efficient, science-driven company to accelerate growth ▪ Focusing organization and resources on greatest opportunities for growth ▪ Evolving operating model and culture to be more agile and efficient
Slide 7: Delivered Sustainable, Profitable Growth in 4Q19
DELIVERED SUSTAINABLE, PROFITABLE GROWTH IN 4Q19: DELIVERED +9%3 REVENUE GROWTH AND +12%3 NON-GAAP EPS GROWTH $ in billions, except EPS amounts Change Q4 2019 Q4 2018 Change Ex-FX Sales $11.9 $11.0 8% 9% GAAP net income1 $2.4 $1.8 29% 29% Non-GAAP net income that excludes certain items 1,2 $3.0 $2.7
Slide 8: Key Growth Pillar Performance - 4Q 2019
KEY GROWTH PILLAR PERFORMANCE - 4Q 20191 KEYTRUDA GARDASIL $1,000 46% 34% $3,000 $750 -16%2 69% 15% 9% $2,000 $500 166% $3,111 $835 $633 $693 $1,000 128% $2,151 $250 $542 $1,297 $483 $0 $0 4Q16 4Q17 4Q18 4Q19 4Q16 4Q17 4Q18 4Q19 BRIDION ANIMAL HEALTH 4Q 2019 Earnings $1,250 10% 24% 11% $300 8% 26% $
Slide 9: Delivered Sustainable, Profitable Growth in 2019
DELIVERED SUSTAINABLE, PROFITABLE GROWTH IN 2019: DELIVERED +13%3 REVENUE GROWTH AND +21%3 NON-GAAP EPS GROWTH $ in billions, except EPS amounts Change 2019 2018 Change Ex-FX Sales $46.8 $42.3 11% 13% GAAP net income1 $9.8 $6.2 58% 61% Non-GAAP net income that excludes certain items 1,2 $13.4 $11.6
Slide 10: Key Growth Pillar Performance - 2019
KEY GROWTH PILLAR PERFORMANCE - 20191 KEYTRUDA GARDASIL 58% $4,000 21% $10,000 36% 88% 14% 6% $5,000 $11,084 $2,000 171% $3,737 $3,151 $7,171 $2,308 $2,173 151% $3,809 $1,402 $0 $0 2016 2017 2018 2019 2016 2017 2018 2019 BRIDION ANIMAL HEALTH 4Q 2019 Earnings $1,250 26% $4,500 9% 9% $1,000 30% 11% 8
Slide 11: Investing in the Business While Driving Top and Bottom Line Growth
INVESTING IN THE BUSINESS WHILE DRIVING TOP AND BOTTOM LINE GROWTH SG&A REVENUE Non-GAAP SG&A as % of Sales Billions GUIDANCE RANGE 27% $51 $48.8B - $50.3B $49 26% $47 $46.8B 25% $45 $43 24% $41 23% $39 22% $37 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 R&D Non-GAAP EPS Non-GAAP R&D as %
Slide 12: Strong Global Human Health Performance in 2019
STRONG GLOBAL HUMAN HEALTH PERFORMANCE IN 20191 +4% +8% Canada +58% +10% Europe2 +13% China Japan United +19% States +3% Eastern Europe / 4Q 2019 Earnings Middle East Asia Pacific3 Africa +13% Latin America EX-U.S. GLOBAL PHARMACEUTICAL SALES +14% 1 All growth rates exclude the impact of foreign exc
Slide 13: Balanced Approach to Capital Allocation
BALANCED APPROACH TO CAPITAL ALLOCATION INVESTING IN THE BUSINESS AND CREATING VALUE FOR SHAREHOLDERS Commitment to the Dividend Capital Investments 2019 to 2023 ~$19.0B $2.60 +11% Dollars per share $2.30 +15% $2.00 +2% +2% +2% $2.44 Over 5 years, including expanding manufacturing +2% +2% +11% $2.20
Slide 14: Full-Year 2020 Guidance
FULL-YEAR 2020 GUIDANCE 2020 GUIDANCE 2020 KEY ASSUMPTIONS $48.8B to $50.3B Revenue • Assumes <1% negative FX impact5 +4% to +7% (+5% to +8% ex-FX) • Improved product mix and manufacturing Non-GAAP ~75.5% productivity offset by price, royalty payments and Gross Margin Rate 1 collaboration milestones
Slide 15: Corporate Responsibility That Creates Sustainable Value
CORPORATE RESPONSIBILITY THAT CREATES SUSTAINABLE VALUE Access to Increasing access to health advances Merck’s efforts to serve more patients ▪ Health Long history of making medicines and vaccines accessible and affordable through responsible pricing practices and industry-leading patient support pr
Slide 16: Spinoff of Women's Health, Trusted Legacy Brands and Biosimilars
MERCK Creation of two independent growth companies TO FOCUS ON KEY GROWTH PILLARS THROUGH SPINOFF OF WOMEN’S HEALTH, TRUSTED LEGACY BRANDS AND BIOSIMILARS Subject to consultation as required by employment law practices, which may differ by country. 16
Slide 17: Merck to Create Two Independent Growth Companies
MERCK TO CREATE TWO INDEPENDENT GROWTH COMPANIES NewCo Creation of two independent growth companies Premier research-intensive biopharmaceutical Global pharmaceutical business pursuing leadership STRATEGIC company focused on innovations that prevent and and sustainable growth in Women’s Health and w
Slide 18: Spinoff Establishes Two Compelling Independent Companies
SPINOFF ESTABLISHES TWO COMPELLING INDEPENDENT COMPANIES NewCo Creation of two independent growth companies ▪ Better positioned to fully focus on key growth ▪ Full management focus to realize NewCo’s pillars, breakthrough science and innovation untapped revenue growth potential with a fit-for- purpo
Slide 19: Transaction Summary
TRANSACTION SUMMARY ▪ Merck to spin-off products from Women’s Health, trusted Legacy Brands and Biosimilars businesses into a Creation of two independent growth companies new independent, publicly traded company (“NewCo”) TRANSACTION ▪ Intended to take the form of a tax-free distribution of newly is
Slide 20: Evolving Operating Model Allows Merck to Increase Focus on Science & Innovation
EVOLVING OPERATING MODEL ALLOWS MERCK TO INCREASE FOCUS ON SCIENCE & INNOVATION Creation of two independent growth companies Rich heritage of inventing ▪ Our competitive advantage is our focus on innovation to save & improve lives Focus on growth pillars & ▪ We are in a position of operational and f
Slide 21: Spinoff Provides Significant Strategic and Financial Benefits to Merck
SPINOFF PROVIDES SIGNIFICANT STRATEGIC AND FINANCIAL BENEFITS TO MERCK Creation of two independent growth companies Long-Term Revenue Growth Commercial Focus Efficiencies / Operating Margin2 2021 Dividend3 FINANCIAL up to +100bps ~90% $1.5B >40% $2.44+ BENEFITS Revenue Growth Revenue from key Pre-Ta
Slide 22: Merck to Enhance Focus to Accelerate Momentum Across Key Growth Pillars
MERCK TO ENHANCE FOCUS TO ACCELERATE MOMENTUM ACROSS KEY GROWTH PILLARS Creation of two independent growth companies ONCOLOGY VACCINES HOSPITAL / ANIMAL SPECIALTY1 HEALTH Leading oncology Durable growth Broad portfolio Global leader portfolio with with significant delivering demand- delivering signi
Slide 23: Spinoff of NewCo Will Significantly Streamline Our Human Health Operations
SPINOFF OF NEWCO WILL SIGNIFICANTLY STREAMLINE OUR HUMAN HEALTH OPERATIONS Creation of two independent growth companies ~15% ~25% ~50% ~60% REVENUE1 MANUFACTURING PRODUCTS1 SKUs1 SITES1 Merck NewCo Strategically optimizing Merck’s operating model and resource allocation 1. NewCo as a percentage of H
Slide 24: NewCo Will Be a Leader in Women's Health Supported by Legacy Brands & Biosimilars
NEWCO WILL BE A LEADER IN WOMEN’S HEALTH SUPPORTED BY LEGACY BRANDS & HIGH-GROWTH BIOSIMILARS BUSINESS Creation of two independent growth companies Product Mix Geographic Mix Key Metrics Biosimilars USA Low-to-mid $6.0 – 6.5B NEWCO 2021 40% Range PROFILE Women’s Revenue EBITDA3 Margin Health ~2/3 ~6
Slide 25: NewCo to Drive Sustainable Growth Through Diverse Portfolio with Scale and Global Reach
NEWCO TO DRIVE SUSTAINABLE GROWTH THROUGH DIVERSE PORTFOLIO WITH SCALE AND GLOBAL REACH Creation of two independent growth companies WOMEN’S LEGACY COMMERCIAL BIOSIMILARS HEALTH BRANDS PARTNER Innovative portfolio with Broad portfolio with Portfolio in early World-class leading contraceptives focuse
Slide 26: NewCo Will Be Led by Talented Executives with Deep Global Pharma Experience
NEWCO WILL BE LED BY TALENTED EXECUTIVES WITH DEEP GLOBAL PHARMA EXPERIENCE Kevin Ali, Creation of two independent growth companies Chief Executive Officer ▪ Currently serves as Senior Vice President, leading Merck’s enterprise portfolio strategy including responsibility for strategic review of Merc
Slide 27: Merck and NewCo Financial Outlook in 2021 and Beyond
MERCK AND NEWCO FINANCIAL OUTLOOK IN 2021 AND BEYOND NewCo Creation of two independent growth companies • Accelerated revenue growth through 2024 • Expects 2021 revenue to be approximately $6.0B to $6.5B REVENUE • Underappreciated revenue in 2024 • Expects to achieve low-single digit revenue growth
Slide 28: Two Stronger Companies Deliver Incremental Shareholder Value
TWO STRONGER COMPANIES DELIVER INCREMENTAL SHAREHOLDER VALUE NewCo Creation of two independent growth companies ▪ Leader in Women’s Health with strong growth ▪ Merck Research Labs at the forefront of ▪ Broad portfolio of trusted legacy brands with strong cash STRATEGY breakthrough science and innova
Slide 29: Creating Long-Term Value for Patients and Shareholders of Merck
CREATING LONG-TERM VALUE FOR PATIENTS AND SHAREHOLDERS OF MERCK Creation of two independent growth companies 10+ Years 5-10 Years Revitalized discovery efforts and increased Next 5 Years Rich pipeline addressing expertise in biology to deliver ongoing scientific areas of high unmet need Strong execu