continuing a turnaround, said Monday its third-quarter profit soared 62% on higher sales of vaccines and drugs for asthma and diabetes, and a lower reserve for product-liability litigation.
But Merck's joint venture with Schering-Plough Corp. (SGP), which markets cholesterol drugs, saw a third-quarter slowdown in sales growth. The slowdown appeared to contribute to lower-than-expected sales and earnings growth for Schering-Plough , sending its shares tumbling $4.11 , or 13%, to $28.56 . Merck shares, however, were up 14 cents at $53.25 .
Merck relies less on the cholesterol joint venture than Schering-Plough does. The Whitehouse Station, N.J., drug maker also raised its 2007 earnings outlook for the fourth time this year. Merck has rebounded nicely from a series of setbacks including the 2004 withdrawal of its Vioxx pain drug over safety concerns and the 2006 loss of U.S. market exclusivity for cholesterol drug Zocor.
"The momentum Merck began to build last year continues, as proven by the strong performance this last quarter," Merck Chief Executive Richard Clark told analysts during a conference call Monday. "In an increasingly difficult health- care environment, our company has been resilient...."
Merck's operating performance "appears to be underestimated" by analysts and investors, Bear Stearns analyst John Boris wrote in a research note Monday. He said Merck's continued success will depend upon its ability to successfully launch new products while facing the loss of market exclusivity in coming years for drugs such as Fosamax, a treatment for osteoporosis, he said.
For the three months ended Sept. 30 , Merck posted net income of $1.53 billion , or 70 cents a share, compared with $940.6 million , or 43 cents a share, a year earlier.
The latest results include a charge of $325 million , or 15 cents a share, for writing off the cost of in-process research and development in connection with the acquisition of biotech firm NovaCardia Inc. and a net gain of about $100 million from the settlement of patent disputes.
The latest quarter also included restructuring costs of $128.8 million , as well as a $70 million reserve for Vioxx litigation costs. A year earlier, Merck took $199.6 million in restructuring charges and $598 million for Vioxx defense costs. The restructuring costs stem from Merck's 2005 announcement it would cut about 11% of its work foce and close plants in an effort to save costs - an important factor in the company's subsequent earnings growth.
Excluding items, Merck said it would have reported third-quarter earnings of 75 cents a share, compared with 51 cents a share a year earlier.
Revenue climbed to $6.07 billion from $5.41 billion a year ago. Analysts, on average, expected 69 cents a share on revenue of $6.06 billion , according to Thomson Financial.
Merck's allergy and asthma treatment Singulair had third-quarter sales of $1 billion , up 17%. Merck reaffirmed that it expects 2007 sales of Singular to reach $4 billion to $4.3 billion .
Vaccines showed strong growth. Gardasil, a vaccine to prevent cervical cancer introduced last year, had third-quarter sales of $418 million , compared with $70 million a year earlier. Year-to-date Gardasil sales exceeded $1.1 billion .
"It is already a blockbuster after only nine months" this year, said Merck's new chief financial officer, Peter Kellogg .
The sales of these products helped offset the continuing sales decline for Zocor, which had been Merck's best-selling product before it lost market exclusivity last year and cheaper, generic drugs cut into sales. Zocor's generic name is simvastatin.
Merck said it now expects 2007 earnings per share in a range of $3.08 to $ 3.14 , excluding charges related to site closures and job cuts, from a previous range of $3 to $3.10 a share, excluding restructuring charges.
It's true that both Merck and Schering-Plough did benefit from their joint venture, which markets the cholesterol drugs Vytorin and Zetia. But sales growth for the drugs slowed to 26%, to $1.3 billion , from a second-quarter growth rate of 30% and a 2006 full-year growth rate of more than 60%. Neither company records revenue from the venture on its income statement, but both record profits from the venture.
The drugs continue to grab market share in the cholesterol-drug market, Schering executive said Monday. But growth is slowing.
"Vytorin's share of this growing market has clearly flattened out," Deutsche Bank analyst Barbara Ryan said in a research note.
Schering-Plough reported net income of $750 million , or 45 cents a share, compared with $309 million , or 19 cents a share, a year earlier. The latest quarter included a $294 million acquisition-related gain, mostly related to currencies, and a $20 million licensing fee. Excluding items, the company posted earnings of 28 cents a share.
Schering-Plough's net sales rose 9.2% to $2.81 billion from $2.57 billion a year earlier.
Both earnings and sales fell short of the average of analyst expectations of 30 cents a share on revenue of $2.87 billion . |
