Drugmaker Merck profit up
NEW JERSEY, USA
MAJOR cost cuts enabled drugmaker Merck & Co to offset continuing generic competition cutting sales of former blockbuster medicines. Merck’s first-quarter profit rose seven per cent, trouncing Wall Street expectations.
The maker of the type 2 diabetes pill Januvia yesterday said that net income was US$1.71 billion, or 57 cents per share, up from US$1.59 billion, or 52 cents per share, a year earlier.
Excluding US$896 million in restructuring and acquisition charges, net income would have been US$2.6 billion, or 88 cents per share — nine cents better than analysts expected.
In morning trading, Merck shares rose US$1.74, or 3.1 per cent, to US$58.42.
Revenue totalled US$10.26 billion, just below the US$10.44 billion analysts expected.
Pharmaceutical sales dropped five per cent, to US$8.45 billion, as cheaper generic copycat pills hammered several off-patent drugs that once brought in billions each year: asthma and allergy pill Singulair, allergy spray Nasonex and blood pressure drugs Cozaar and Hyzaar.
Merck’s top seller, Type 2 diabetes pills Januvia and Janumet, brought in a combined US$1.33 billion, up 3 per cent. Sales jumped 10 per cent to US$604 million for immune disorder drug Remicade, and also rose for HIV drug Isentress and several other products.
Lower sales of nonprescription Claritin allergy pills dragged down consumer health sales 4 per cent to US$454 million. Sales of veterinary medicines declined 3 per cent to US$813 million.
Analysts were surprised by the level of cost cuts: 8 per cent for administration and marketing expenses and 17 per cent for research spending as new research head Roger Perlmutter continues to cut Merck’s least-promising programmes. Merck, based in Whitehouse Station, New Jersey, reduced its global workforce by 2,000 in the quarter, to 74,000.
“It is a necessary but not sufficient part of their execution strategy,” Edward Jones analyst Judson Clark said of the cuts. He said Merck can’t keep cutting that much without risk of hurting future growth, and must get key drugs in its pipeline approved to do well.
CEO Kenneth Frazier told analysts during a conference call that Merck has promising experimental drugs in testing for hepatitis C, HIV and various cancers.
“We’re excited by our pipeline and what’s to come,” he said.
Meanwhile, Merck’s two tablets for gradually reducing seasonal allergies to grass and ragweed were recently approved. Because patients must start the daily immunotherapy tablets a few months before allergy season begins, Merck said it’s now promoting Ragwitek to doctors but it’s too late to promote Grasstek this year.
With the recent spurt of proposed acquisitions and asset swaps in the pharmaceutical industry, analysts asked if Merck would do such a deal. Frazier said small deals might be possible, but he’s focused on growth through new drugs for unmet medical needs.
“Our preferred (growth) route is through innovation rather than consolidation,” he said.
Merck reaffirmed its 2014 forecast for profit of US$2.15 to US$2.47 per share, prompting analysts to ask why it didn’t raise its forecast. Merck said that’s because Venezuela may devalue its currency, which would decrease the value of sales there.
“Anytime you see a nine-cent beat, you’d like to see guidance walk up,” so Merck may expect a slightly softer second quarter, Clark said.
— AP