Merck makes medicines for a number of maladies, from stuffy noses and asthma to hypertension and arthritis. The pharmaceutical giant's top prescription drugs include diabetes drugs Januvia and Janumet, anti-inflammatory Remicade, cholesterol combatants Vytorin and Zetia, and hypertension fighters Cozaar and Hyzaar. In addition, Merck makes childhood and adult vaccines for such diseases as measles, mumps, pneumonia, and shingles, as well as veterinary pharmaceuticals through Merck Animal Health. The company sold its OTC drug and personal care offerings, including Claritin allergy pills and Dr. Scholl's foot care products, to Bayer AG in 2014.
Merck has a broad portfolio of marketed and development-stage pharmaceuticals in areas including respiratory health, metabolism, infectious disease, cardiovascular, vaccines, immunology, women's health, endocrinology, and oncology. In addition to the pharmaceutical unit, which accounts for the majority (about 85%) of revenues, the company's structure includes additional operating segment animal health; closed segments as of 2014 include the company's consumer care and alliances ventures.
Best-selling drugs in the pharma segment include type 2 diabetes drug Januvia, which brought in more than $4 billion in revenues in 2013. Additional bestsellers earning more than $2 billion include Remicade and Zetia, while $1 billion top sellers include Vytorin, allergy treatment Nasonex, HIV therapy Isentress, diabetes drug Janumet, and HPV vaccine Gardasil.
Despite its blockbuster successes, Merck is subject to the same threat to its bottom line as all pharmaceutical companies large and small: patent expiration. To offset the financial impact of patent losses, the company works to release new drugs to replace the aging products. Successful launches in 2013 include selective relaxant binding agent Bridion, which, due to a denial of approval by the FDA, is being marketed outside of the US.
The company's product pipeline includes Ketruda, which is under review for the treatment of advanced melanoma; Bridion, which is under investigation for the reversal of neuromuscular blockade induced by rocuronium or vecuronium; an investigational pediatric hexavelent vaccine; omarigliptin for the treatment of type 2 diabetes; and Zerbaxa, a treatment for certain serious bacterial infections in adults.
Merck markets its products in over 140 countries, with its largest market -- the US -- accounting for 40% of revenues. Some international products are marketed under the MSD (short for Merck Sharp & Dohme) brand. The EMEA (Europe, Middle East, and Africa) segment accounts for 30% of sales, and Japan accounts for about 10%.
The company operates principal research facilities in California, New Jersey, Pennsylvania, Massachusetts, and Nebraska. Outside of the US, it has research facilities in China, the Netherlands, and Switzerland.
Merck also has production facilities at 10 locations in the US and Puerto Rico. Outside of the US, it owns or has interests in manufacturing sites and other properties in Australia, Canada, Japan, Singapore, South Africa, and other countries in Asia, the Americas, and Europe.
Sales and Marketing
Merck markets its products through direct sales forces and international distributors. Customers include drug wholesalers, retailers, pharmacies, government agencies, and health care providers. Animal health products are sold to veterinarians, animal producers, as well as distributors. Some of Merck's products are sold through partnerships or joint ventures with other drugmakers. For instance, Johnson & Johnson markets anti-inflammatory drugs Remicade and Simponi in the US, while Merck has marketing rights in Europe, Russia, and Turkey. Vaccine sales are made directly and through the Sanofi Pasteur MSD partnership.
The company spent $2.3 billion on advertising and promotion in 2014, as compared to $2.5 billion in 2013 and $2.8 billion in 2012.
After revenues nearly doubled to $46 billion in 2010 due to the previous year's acquisition of Schering-Plough, the patent expiration on Singulair took its toll on Merck's finances in 2012 and 2013. The downward trend continued in 2014, when the company reported a 4% revenue decline to $42 billion. In addition to the patent expiration of Singulair, the company has been dealing with the loss of market exclusivity for other products including Temodar, Cozaar, and Hyzaar. Additionally, divestitures made in 2013 and 2014, as well as the termination of a marketing partnership with AstraZeneca, lower sales of such products as Victrelis, PegIntron, Nasonex, and Vytorin were contributing factors to the decline. However, sales of Remicade, Simponi, Januvia/Janumet, Dulera, Implanon/Nexplanon, and animal health products rose that year.
Net income has fluctuated over the past five years. It more than doubled in 2014, rising to $11.9 billion (versus $4.4 billion in 2013) as a result of the higher revenue and gains related to the divestitures of Merck Consumer Care (MCC) and Sirna and the sale of certain ophthalmic products in international markets.
Cash flow from operations fell 33% to $7.8 billion in 2014, largely due to a gain on the MCC divestiture.
In the midst of massive big pharma consolidation, Merck in 2014 sold its consumer business to German conglomerate Bayer for $14.2 billion. Merck got to shed a line where it didn't dominate and use the funds to support its oncology R&D. As part of the deal, the two companies are collaborating on Bayer's hypertension candidates; Merck paid Bayer $1 billion to participate. Profits will be split 50/50.
The increasing threats of generic competition on top blockbusters require Merck to push new products through its development pipeline, with a focus on bringing its most promising late-stage development candidates to market to replace its aging blockbusters. Focus areas of growth include biologics, vaccines, and emerging markets; it also conducts research for new animal health medicines. Biotech R&D includes programs in areas such as monoclonal antibodies (single-source proteins) and RNA interference (RNAi), a gene silencing process, as well as the development of follow-on (generic) biologics. Research and development expenses were $7.2 billion in 2014, down from $7.5 billion in 2013 and $8.2 billion in 2012.
In addition to creating new medicines, Merck also works to gain approval for new indications on existing drugs. It is also increasingly seeking out collaboration, licensing, and outsourcing agreements in the R&D arena to cut costs. In 2013 Merck announced that it would rearrange the structure of its R&D organization to further reduce expenses; the reorganization includes workforce reduction efforts.
In 2015 the company signed an agreement with the privately held NGM Biopharmaceuticals to research, discover, develop, and commercialize novel biologic therapies across a wide variety of areas. It also teamed with Medicines Patent Pool to license its pediatric formulations of raltegravir for treating HIV-1 infection in infants and children in developing countries.
Research isn't the only area where partnerships are benefiting Merck: In 2011 Merck moved to expand in emerging markets by forming a joint venture with Sun Pharma to develop and sell branded generic medicines in high-growth markets, and in 2012 it teamed up with Supera Farma to sell prescription drugs in Brazil. Other target markets include China -- where Merck opened a new R&D center and a new manufacturing plant in 2011 and 2013, respectively -- and Japan, as well as Latin America, the Middle East, Africa, and Eastern Europe.
In 2014 the company received FDA approval for its Bravecto chewable tablets for dogs to treat fleas and ticks. It also gained approval for Belsomra for insomnia, HPV vaccine Gardasil 9, allergy treatments Grastek and Ragwitek, and Zontivity for the reduction of thrombotic cardiovascular events in susceptible patients. The following year, Zontivity was approved for the European market.
While Merck's leadership team remains committed to growth efforts, it is also focused on reducing operating expenses to offset losses from patent expirations. Since its 2009 merger with Schering-Plough, Merck has been conducting integration efforts (including asset sales and facility consolidations) to combine the two massive organizations, which resulted in an estimated 17% reduction in the combined workforce during 2009-2012. In 2011 Merck announced that merger restructuring and other cost-cutting measures would result in an additional 12% to 13% workforce reduction between 2012 and 2015. After shaving off about 2,000 more positions, in 2013 Merck bumped that number up, announcing it would reduce its workforce by 20% by 2015 to save $2.5 billion in annual costs. The reduction will make Merck's total headcount just 17% higher than it was prior to the Schering-Plough merger.
As part of an ongoing assessment of Merck's portfolio, the company sold the US marketing rights for antipsychotic drug Saphris in 2014. It also sold its Sirna Therapeutics subsidiary and related assets to Alnylam Pharmaceuticals for some $25 million.
The company in 2014 sold to Santen Pharmaceutical certain opthalmic products (including Cosopt, Trusopt, and Saflutan) in Japan and key markets in Europe and the Asia/Pacific.
Mergers and Acquisitions
Merck is increasing its M&A activities to further protect itself against competitive market challenges. Expansion measures taken in 2014 include the $3.9 billion acquisition of biopharmaceutical company Idenix, which develops treatments for viral diseases. It plans to combine the two companies' existing drugs to develop an improved therapy for hepatitis C. In early 2015, the company bought antibiotic maker Cubist for $9.5 billion. Merck gained a stronger foothold in the hospital acute care and antibiotic resistance market though the acquisition.
In 2015, the company bought OncoEthix, a privately held biotechnology firm specializing in oncology treatments, for $153 million.