Merck & Co., Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; filed February 24, 2023. This is an annual filing, not a standalone fourth-quarter report, and the supplied text does not provide clear Q4-only results. Merck operates Pharmaceutical and Animal Health segments. Comparisons below are primarily with 2021; the Organon spin-off affects comparability of some prior-period results.
Key financial results
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Sales | $59.3 billion | $48.7 billion | Up 22% reported; up 26% excluding foreign exchange |
| GAAP net income from continuing operations attributable to Merck | $14.5 billion | $12.3 billion | Up 18% |
| GAAP diluted EPS from continuing operations | $5.71 | $4.86 | Up 17% |
| Non-GAAP net income attributable to Merck | $19.0 billion | $13.6 billion | Up 40%; excludes specified items and is not a GAAP measure |
| Non-GAAP diluted EPS | $7.48 | $5.37 | Up 39% |
| Gross margin | 70.6% | 72.0% | Lower, reflecting product mix, Lagevrio and third-party manufacturing sales, and higher intangible amortization |
| Cash from continuing operating activities | $19.1 billion | $13.1 billion | Increase attributed primarily to stronger operating performance |
| Capital expenditures | $4.4 billion | $4.4 billion | Approximately $20 billion planned for capital projects over 2021–2025 |
| Cash and cash equivalents | $12.7 billion | $8.1 billion | Short-term investments were $0.5 billion at year-end 2022 |
| Total debt | $30.7 billion | $33.1 billion | Loans payable/current debt plus long-term debt; debt-to-total-liabilities-and-equity ratio fell to 28.1% from 31.3% |
| Working capital | $11.5 billion | $6.4 billion | Increase primarily reflected higher cash and investments |
Cash used in investing activities was $5.0 billion, versus $16.4 billion in 2021, mainly because acquisition spending was lower. Cash used in financing activities was $9.1 billion, compared with $3.1 billion provided in 2021; the prior year included a $9.0 billion Organon distribution to Merck. Merck paid $7.0 billion in dividends during 2022 and raised its quarterly dividend to $0.73 per share. No shares were repurchased under the authorized program in 2022; $5.0 billion remained available at year-end.
Business performance and changes from 2021
- Pharmaceutical sales were $52.0 billion, up from $42.8 billion. Segment profits rose 19% to $36.9 billion. Animal Health sales were essentially flat at $5.6 billion, and segment profits increased 1% to $2.0 billion.
- Keytruda sales rose 22% to $20.9 billion; Gardasil/Gardasil 9 sales rose 22% to $6.9 billion. Lagevrio sales increased to $5.7 billion from $952 million in 2021 and was a major contributor to growth.
- Januvia/Janumet sales fell 15% to $4.5 billion, reflecting loss of exclusivity in some markets and lower U.S. demand. Pneumovax 23 sales fell 33% to $602 million. Isentress/Isentress HD sales fell 18% to $633 million.
- Cost of sales increased 28% to $17.4 billion, including $3.0 billion related to the Ridgeback collaboration for Lagevrio. R&D expense increased 11% to $13.5 billion; this included $1.7 billion of intangible-asset impairment charges, largely related to nemtabrutinib.
- Other expense, net, was $1.5 billion, versus $1.3 billion of income in 2021, primarily because of net losses on equity investments rather than the prior-year net gains.
Outlook, commentary, risks and unusual items
- Management expects Lagevrio sales to decline significantly to approximately $1.0 billion in 2023 from $5.7 billion in 2022, in part as the impact of the COVID-19 pandemic wanes. No clear company-wide revenue or EPS guidance is provided in the supplied filing text.
- Management expects approximately $400 million of restructuring charges in 2023. The global restructuring program is expected to be substantially completed by year-end 2023, with cumulative annual net cost savings of approximately $900 million by then.
- Pipeline progress included positive Phase 3 top-line results for sotatercept in pulmonary arterial hypertension; Merck anticipated filing it with regulators in 2023. Conversely, the FDA issued a Complete Response Letter for gefapixant, and Merck planned additional analyses and submissions in the first half of 2023.
- On February 24, 2023, Merck and Ridgeback disclosed that the EMA committee recommended refusing marketing authorization for Lagevrio. They said they would appeal and request re-examination. Separately, a Phase 3 Keytruda prostate-cancer trial was discontinued after interim analysis did not show improvement in its dual primary endpoints.
- Patent protection, generic competition and pricing pressure are significant risks. Merck expects Januvia/Janumet sales to decline as exclusivity erodes; U.S. exclusivity was expected to continue until May 2026, subject to ongoing appeals, with an unfavorable decision potentially accelerating loss toward late 2023. Isentress exclusivity in the EU was expected to end in July 2023.
- The Inflation Reduction Act introduces Medicare drug-price negotiation and other changes, with certain price-setting provisions beginning in 2026 for Part D and 2028 for Part B. Merck also cites the elimination of the Medicaid rebate cap beginning in 2024 as a potential risk.
- In the Zetia antitrust litigation, plaintiffs seek up to $12.7 billion in damages after trebling; trial was scheduled for April 17, 2023. Merck stated it could not reasonably estimate a possible loss or range for the matter. The company also reports product-liability, patent, governmental and other proceedings and says it self-insures substantially all product-liability risk.
- Merck recorded $1.7 billion in 2022 intangible-asset impairment charges, including $1.6 billion related to nemtabrutinib following development delays and revised cash-flow expectations. Additional impairment charges could occur if pipeline assumptions or development prospects worsen.
- Management identified ongoing risks from global pricing actions, foreign exchange, supply-chain disruption, manufacturing quality and capacity, regulatory outcomes, cybersecurity, climate-related impacts and geopolitical events. The financial impact of the Russia-Ukraine war was immaterial in 2022, according to the filing.
Most important facts for investors to verify
- Whether Lagevrio sales approach the approximately $1.0 billion 2023 expectation, and the outcome and commercial implications of the EMA re-examination.
- Whether Keytruda, Gardasil and other growth products sustain demand sufficient to offset Lagevrio’s expected decline and erosion in Januvia/Janumet and other products.
- Progress, regulatory decisions and commercial prospects for sotatercept, gefapixant and other late-stage pipeline programs; reassess impairment exposure, particularly the remaining $418 million nemtabrutinib intangible asset.
- Developments in the Januvia/Janumet patent appeals, European Janumet patent disputes and upcoming generic competition for other products.
- Exposure and potential resolution of the Zetia litigation, along with pricing and rebate effects from U.S. health policy changes. The filing does not provide a clear estimate of potential Zetia loss.