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 the animal health operating segment.
Best-selling drugs in the pharma segment include type 2 diabetes drug Januvia, which brought in about $4 billion in revenues in 2015. Additional bestsellers earning more than $2 billion include diabetes drug Janumet and cholesterol medication Zetia, while $1 billion top sellers include cholesterol medication Vytorin, skin antibiotic treatment Cubicin, HIV therapy Isentress, inflammatory treatment Remicade, 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.
The company's product pipeline includes MK-3475 Ketruda, which is under review for the treatment of cancer; MK-8237 for the treatment of allergies; and letermovir for the treatment of CMV infection in transplant patients.
Merck markets its products in over 140 countries, with its largest market -- the US -- accounting for 45% 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 about 30% of sales, and Japan accounts for nearly 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 and Switzerland.
Merck also has production facilities at some 10 locations in the US and Puerto Rico. Outside of the US, it owns or has interests in manufacturing sites and other properties in 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 $2.1 billion on advertising and promotion in 2015, down from $2.3 billion in 2014 and $2.5 billion in 2013.
Merck's revenues have been falling for the past few years, largely due to the patent expiration of Singulair and other products as well as divestitures made. In 2015, revenue fell 6% to $39 billion (it was $46 billion in 2010) as sales of such products as PegIntron, RemicadePneumovax 23, Vytorin, and Victrelis declined. The 2014 sales of Merck Consumer Care (MCC) and certain ophthalmic products also took their toll on earnings. On the other hand, sales of Keytruda grew in 2015, as did sales of Januvia, Janumet, Gardasil, and others. Animal health products also rose, and that year's acquisition of antibiotics maker Cubist contributed some $1.3 billion in sales.
Net income has fluctuated over the past five years. In 2015, dropped 63% to $4.4 billion; this was due both to lower sales of some products as well as an absence of gains related to the MCC, Sirna, and opthalmic products divestitures. Cash flow from operations rose 58% to $12 billion, partly due to an increase in inventory.
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) as well as the development of follow-on (generic) biologics. Research and development expenses were $6.7 billion, down from $7.2 billion in 2014 and $7.5 billion in 2013.
In addition to creating new medicines, Merck also works to gain approval for new indications on existing drugs. In 2015 it received several product approvals such as expanded indications for Keytruda. It is increasingly seeking out collaboration, licensing, and outsourcing agreements in the R&D arena to cut costs. Also 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. Merck teamed with Medicines Patent Pool to license its pediatric formulations of raltegravir for treating HIV-1 infection in infants and children in developing countries.
The company is also targeting international markets, including emerging and developed nations, by partnering with others. Brazil, China, and Japan are target markets, as are nations in 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. Other recent product approvals include Bridion to reverse the effects of adult anesthetics and Zepatier for the treatment of chronic hepatitis C.
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. The following year, it divested its 51% stake in its Simcere MSD (Shanghai) joint venture with Simcere.
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.
Later in 2015, the company bought OncoEthix, a privately held biotechnology firm specializing in oncology treatments, for $153 million. It acquired private biopharmaceutical cCAM, which specializes in developing novel cancer immunotherapies, for $201 million. And it bought IOmet, a UK drug discovery firm with a focus on cancer immunotherapy and cancer metabolism, for $150 million.
Merck acquired Afferent Pharmaceuticals in mid-2016 for $500 million in cash plus milestone payments of up to another $750 million. Afferent is developing a couple of treatments for chronic cough.