Merck 3Q profit soars, beats analysts' views
Friday, October 28, 2011
Drugmaker Merck & Co. said Friday that its third-quarter profit soared from a year ago — a weak quarter weighed down by huge acquisition and legal charges. But compared to the second quarter, prescription drug sales were flat and total revenue was down 1 percent.
The latest results beat Wall Street estimates. Merck shares rose 80 cents, or 2.3 percent, to $35.11.
"Three consecutive quarters of top and bottom line growth demonstrate our ability to consistently perform while at the same time making the strategic investments necessary for the future," CEO Kenneth Frazier told analysts on a conference call.
Total revenue of $12.02 billion was up 8 percent from a year ago, largely due to a 5 percent boost from favorable currency exchange rates, but was down from $12.15 billion in the second quarter.
Meanwhile, research spending was reduced 16 percent from a year ago, and Merck, based in Whitehouse Station, N.J., said it plans to cut total 2011 research spending to about $7.9 billion, down $400 million from its February forecast.
"That's not a cut that I want to see," said analyst Steve Brozak of WBB Securities. He said Merck's latest results appeared strong only in comparison to 2010's third quarter, "the worst quarter in the last two years."
The maker of diabetes drug Januvia and Singulair for asthma and allergies said third-quarter net income climbed to $1.69 billion, or 55 cents per share, up from $342 million, or 11 cents per share, a year earlier.
The year-ago results included continued restructuring charges from its $49 billion purchase of Schering-Plough in November 2009 and a $950 million reserve for settling a federal probe of its marketing of former painkiller Vioxx. Merck pulled Vioxx from the market in 2004 because it doubled heart attack and stroke risk.
Excluding more Schering-Plough acquisition and restructuring charges in the latest quarter, adjusted income was 94 cents per share, 3 cents per share higher than expected by analysts surveyed by FactSet. They typically exclude one-time items.
Like other drugmakers, Merck continues to suffer from U.S. and European government health programs reining in spending, generic competition to former blockbusters and other problems.
The company raised the lower end of its 2011 forecast, to a new range of $3.72 to $3.76 per share, excluding one-time items. Analysts expect $3.73 per share.
Analyst Erik Gordon of University of Michigan's Ross School of Business was upbeat about the results.
"Merck could become the only recent megamerger in pharma that is actually working," he said. "Usually, the claims that a merger will create a stronger new product pipeline and reduced costs pan out as firing lots of people and overpaying for a pipeline that disappoints."
Merck said it expects revenue for all of 2011 to grow by mid-single digits from $46 billion last year. That would indicate most growth is coming from beneficial exchange rates and probably some price increases, Brozak said.
Prescription drug sales totaled $10.35 billion, driven by strong sales of Singulair, Januvia and combination diabetes drug Janumet, HIV drug Isentress and the Gardasil and Zostavax vaccines. Merck boosted sales in emerging markets such as China and India to $1.8 billion in the quarter.
Top seller Singulair saw sales rise 10 percent to $1.34 billion. It faces U.S. generic competition next August — the key reason for Merck's latest round of job cuts. It's already cut 4,000 jobs since December, to a total of 90,000 workers.
Januvia and Janumet sales both jumped more than 40 percent, to a total of $1.2 billion. They are among the most popular and fastest-growing diabetes pills. Merck recently got U.S. approval for Juvisync, the first combination pill targeting the millions of diabetics who also have high cholesterol.
Merck also got approval in Europe for a new birth control pill, Zoely, and has launched its new hepatitis C treatment, Victrelis, in 10 countries in addition to the U.S. Victrelis had $31 million in sales in the quarter, far below the $420 million Vertex Pharmaceuticals Inc. just reported for rival drug Incivek.
Gardasil, a vaccine against cancer-causing human papilloma virus, got a boost from back-to-school doctor visits and a launch in Japan, pushing sales up 41 percent to $445 million. It just won a U.S. recommendation as a routine shot for 11- and 12-year-old boys.
Sales of biologic immune disorder drug Remicade fell 15 percent to $561 million, because Merck's revised revenue-sharing deal with Johnson & Johnson for Remicade and successor drug Simponi reduced the number of countries where Merck sells them. It took effect July 1, following an arbitration settlement.
Merck is currently launching 15 products in various countries.
Sales of animal health products jumped 20 percent to $826 million. Consumer health sales edged up 3 percent to $421 million.
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