Merck & Co. finished 2014 with better-than-expected earnings despite a 7.4% year-over-year decrease in quarterly sales.

The pharma giant reported net income of $7.316 billion on sales of $10.482 billion. Sales fell from $11.319 billion in Q4 2013—a decline Merck blamed on patent-cliff expiration of exclusivity for some drugs, and foreign currency fluctuations.

Q4 2014 results look markedly better on the surface than the year-ago quarter, when Merck took charges to reflect a restructuring of R&D and commercial operations that included the elimination of 8,500 jobs by 2016. Merck ended the fourth quarter of 2013 with just $781 million in net income on sales of $11.319 billion—resulting in a rebound in earnings per share to $2.54 from just 26 cents in Q4 2013.

Excluding restructuring costs and other one-time factors—including acquisition expenses and an $11.2 billion gain from selling its Consumer Care business—Merck finished the final three months of 2014 with “non-GAAP” earnings per share of 87 cents—2 cents above the 85-cent estimates made by analysts surveyed separately by Zacks Investment Research and Thomson Reuters.

For all of 2014, Merck saw its net income also rebound, to $11.920 billion from $4.404 billion the previous year. However, full-year sales ended last year at $42.237 billion, down 4% from 2013.

Merck said that despite the mixed numbers, the company took major strides last year toward greater competitiveness by sharpening its commercial and R&D focus, redesigning its operating model and reducing its costs.

“Our stronger focus has led to better, consistent execution, and our results in 2014 demonstrate the significant progress we’ve made in evolving the company to better serve health care markets around the world,” Kenneth C. Frazier, Merck’s chairman and CEO, said in a statement. “As we look forward to 2015 and beyond, we will continue to focus our resources on those internal and external opportunities that can generate the most value for patients, customers and shareholders.”

Merck trumpeted its 2014 successes in winning FDA approvals for six new products, including the insomnia treatment Belsomra (suvorexant) and the advanced melanoma treatment Keytruda (pembrolizumab). Keytruda generated $50 million in Q4 sales and was in use by an estimated 2,000 patients as of December, three months after receiving the agency's green light.

Last month, Merck said it expects to submit a supplemental Biologics License Application “in mid-year 2015” to the FDA for Keytruda for two new indications, epidermal growth factor receptor (EGFR) mutation-negative; and anaplastic lymphoma kinase (ALK) rearrangement-negative NSCLC whose disease has progressed on or following platinum-containing chemotherapy.

However, tucked within the company’s Q4 results announcement was a potential pipeline setback: FDA plans to rescind its Breakthrough Therapy designation for a once-daily oral combination regimen for chronic hepatitis C virus infection, grazoprevir/elbasvir (MK-5172/MK-8742). The agency is citing the availability of other recently approved treatments for Genotype 1 HCV patients, said Merck, which added that it still plans to submit an NDA for the combo “in the first half of 2015.”

“The company expects to discuss this matter with the FDA and does not expect that it will impact its ability to file an NDA for this combination regimen or the timing of that filing,” Merck stated in its results announcement.

Merck also said a trio of acquisitions in 2014 enabled it to strengthen its portfolio in three therapeutics areas. The pharma giant bought Idenix Pharmaceuticals for about $3.85 billion (hepatitis), OncoEthix for up to $375 million (oncology), and Cubist Pharmaceuticals for $9.5 billion (antibiotics).

In snapping up Cubist, Merck acquired Zerbaxa (ceftolozane/tazobactam), an antibiotic approved by the FDA in December 2014 to treat Gram-negative bacteria. The company said it is preparing to launch Zerbaxa immediately in the U.S.

Another treatment Merck hopes to launch in 2015 is Bridion (sugammadex) for reversal of neuromuscular blockade induced by rocuronium or vecuronium. Bridion is expected to be the subject of an FDA advisory committee meeting this year. Should the compound be approved by the agency, Merck plans a launch “later in 2015.”

Merck recorded 10% year-over-year decreases in fourth-quarter sales for three products: The cholesterol-reducing treatment Vytorin (ezetimibe and simvastatin), arthritis drug Remicade (infliximab), and Gardasil (Human Papillomavirus Quadrivalent [Types 6,11, 16, and 18] Vaccine, Recombinant).

However, the pharma took comfort in rising sales of drugs within its core therapeutics areas of vaccines, diabetes, hospital acute care and oncology. The largest Q4 sales gain, 34%, was recorded by its ProQuad, combination vaccine (M-M-R II [measles, mumps, and rubella virus vaccine live] and Varivax [varicella virus vaccine live], which generated $366 million.

Other Q4 highlights:

  • Animal health—$885 million, up 2% from Q4 2013, driven positively by the global launch of Bravecto (fluralaner), a chewable tablet that kills fleas and ticks in dogs for up to 12 weeks; and negatively by currency fluctuations.
  • Other revenues–$211 million, down 29% from the final three months of 2013, largely due to the loss of revenue from AstraZeneca ($193 million in Q4 2013) as AstraZeneca exercised its option to buy Merck’s interest in a subsidiary, and thus its interest in proton pump inhibitors Nexium and Prilosec.
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