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[DewDiligence]

Cost Controls Help Merck Beat Forecast

[1Q08 saw the initial impact—but not the full impact—of the ENHANCE study on Zetia and Vytorin sales. Today, MRK lowered 2008 guidance for its 50% share of the income from the Zetia/Vytorin JV with SGP by a whopping $700M.]

http://www.reuters.com/article/marketsNews/idINN2141452620080421

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Mon Apr 21, 2008 12:40pm EDT
By Ransdell Pierson

NEW YORK, April 21 (Reuters) - Merck & Co (MRK) on Monday reported better-than-expected quarterly earnings as tight cost controls offset plunging sales of an osteoporosis drug now facing generic competition and slowing sales growth of its Vytorin and Zetia cholesterol fighters.

"Merck's revenue came up a little below expectations, but their cost control was good," said Edward Jones analyst Linda Bannister.

An unexpectedly low tax rate in the quarter also boosted Merck's results, and helped the company reaffirm its 2008 earnings forecast of modest growth, Bear Stearns analyst John Boris said.

The company said it earned $3.3 billion, or $1.52 per share, compared with $1.7 billion, or 78 cents per share, in the year-earlier period.

Excluding special items, Merck earned 89 cents per share. Analysts on average expected 86 cents per share, according to Reuters Estimates.

The items included $2.2 billion received from AstraZeneca as a result of a complex arrangement reached in February between the two partners, under which Merck will keep its rights to certain AstraZeneca medicines.

Merck said global sales rose 1 percent to $5.82 billion, but would have fallen 3 percent if not for the weak dollar, which raises the value of overseas sales when converted back to U.S. currency.

Combined sales of cholesterol drugs Vytorin and Zetia rose 6 percent in the quarter to $1.2 billion, their growth held back by the failure of Vytorin to cut artery plaque in a closely watched study whose results were announced in January.

Vytorin combines Merck's older Zocor treatment with a medicine called Zetia that prevents the intestines from absorbing cholesterol. The combination drug and Zetia are sold through a 50/50 joint venture of Merck and Schering-Plough Corp (SGP).

Merck said it now expects income from joint ventures and affiliates this year of $2.3 billion to $2.6 billion, or $700 million less than its earlier forecast, as publicity from the failed Vytorin study continues to dampen demand for it and Zetia.

Merck and Schering-Plough have come under fire for their handling of the Vytorin study, with critics alleging they improperly tried to change the main goal of the trial while it was under way, and delayed results of the failed study.

The companies recently received subpoenas from New Jersey's attorney general seeking documents related to the clinical trial and the sales and marketing of Vytorin, Merck said on Monday.

Global sales of asthma treatment Singulair jumped 10 percent to $1.1 billion.

Even so, Morningstar analyst Damien Conover expressed concern that Singulair garnered only 1 percent growth in the United States from previous double-digit gains, amid reports of a possible link between the drug and mood and behavioral changes, including suicidal behavior.

Januvia, a new diabetes pill, had quarterly sales of $272 million -- putting it on track to become a blockbuster product -- compared with $87 million in the year-ago period.

But sales of osteoporosis treatment Fosamax, plunged 37 percent to $470 million, as most formulations of the medicine began facing generic competition in the lucrative U.S. market.

Sales of company vaccines rose 9 percent to $986 million, reflecting a slowdown in earlier sizzling growth for Gardasil, Merck's product to prevent infection by forms of the virus that cause cervical cancer.

Merck said it continues to expect 2008 earnings, excluding items, of $3.28 to $3.38 per share. That reflects tepid growth of no more than 6 percent, as Fosamax generics take their toll.
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