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MERCK & CO., INC. : Regulation FD Disclosure, Financial Statements and Exhibits (form 8-K)

06/21/2021 | 04:36pm EDT

Item 7.01 Regulation FD Disclosure.

On June 2, 2021, Merck & Co., Inc. (Merck) completed the spinoff of products from its women's health, biosimilars and established brands businesses into a new, independent, publicly traded company named Organon & Co. (Organon) through a distribution of Organon's publicly traded stock to Merck shareholders. Attached as Exhibit 99.1 hereto are consolidated statements of income that recast the sales and expenses of the businesses that were contributed to Organon in the spinoff as discontinued operations for the first quarter of 2021, each quarter and full year of 2020, and full-year 2019. Also included in Exhibit 99.1 are reconciliations of certain financial information prepared in accordance with generally accepted accounting principles in the United States (GAAP) to non-GAAP financial information on a continuing operations basis for these same periods.

As previously disclosed, when Merck reported first quarter earnings on April 29, 2021, Merck stated that its operating margin on a continuing operations basis would be slightly lower in 2021 versus what it was prior to the spinoff due to the higher relative profitability of the Organon products within Merck's portfolio and the absorption of certain overhead costs that Merck would continue to incur after the spinoff. Merck indicated that the operating margin for the Organon products within Merck was approximately 45%. In addition, Merck also disclosed at that time that it would continue to incur overhead costs of approximately $400 million annually that were previously allocated to the Organon products, and that these costs were expected to be reduced over time. Finally, Merck disclosed that it expected to achieve operating efficiencies as a result of the spinoff of approximately $500 million in 2021, which were factored into Merck's full year financial outlook provided in February 2021 and reiterated by Merck in April.

The recast consolidated statements of income on a continuing operations, non-GAAP basis for the first quarter of 2021 reflect the following as compared with the originally reported figures which included both Merck and Organon:

o Sales of $10.6 billion, which exclude $1.5 billion of Organon product sales;

o Gross margin of 76.6%, an increase of 0.9% reflecting lower gross margins on

the revenue associated with the Organon products;

o Operating expenses are 42.9% of sales, an increase of 2.8% reflecting lower

operating expenses on the revenue associated with the Organon products;

o Operating margin of 33.7%, a decrease of 1.8% reflecting higher operating

margins on the revenue associated with the Organon products relative to the

overall Merck product portfolio, as well as overhead costs that Merck is

continuing to incur that were not allocated to discontinued operations;

o A de minimis impact to other income and expense; and

o A tax rate of 14.3%, an increase of 0.2%.

The recast consolidated statements of income on a continuing operations basis and the financial information contained herein are for informational purposes only. They do not necessarily reflect the results that would have been reported had the spinoff actually been completed prior to the periods presented and are not necessarily indicative of future results.

Merck intends to provide detailed financial guidance with its second quarter earnings release scheduled for July 29, 2021. Merck will reflect the impact of the spinoff on its consolidated statement of cash flows and consolidated balance sheet beginning with its second quarter Form 10-Q.

This information, including the information reflected in Exhibit 99.1, is not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that Section, and is not incorporated by reference into a filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d)    Exhibits

     Exhibit   Historical Financial Information Reflecting Spinoff of Organon & Co.

   Exhibit 104 Cover Page Interactive Data File (embedded within the Inline XBRL

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Financials (USD)
Sales 2021 46 551 M - -
Net income 2021 12 867 M - -
Net Debt 2021 11 752 M - -
P/E ratio 2021 16,3x
Yield 2021 3,42%
Capitalization 194 B 194 B -
EV / Sales 2021 4,42x
EV / Sales 2022 4,01x
Nbr of Employees 73 500
Free-Float 70,7%
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Technical analysis trends MERCK & CO., INC.
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Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 25
Last Close Price 76,53 $
Average target price 94,10 $
Spread / Average Target 23,0%
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Managers and Directors
Kenneth C. Frazier Chairman & Chief Executive Officer
Robert M. Davis President
Caroline A. Litchfield Chief Financial Officer & Executive Vice President
Sandy Tremps Vice President-R&D IT CIO
Dave Williams Chief Information & Digital Officer
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