Biotech Values

[DewDiligence]

MRK, SGP Beat Expectations on Cost Cuts

[Zetia/Vytorin sales fell 26% YoY, but both stocks are up about 3% today.]

http://www.reuters.com/article/marketsNews/idINN0349112620090203

›Tue Feb 3, 2009 9:12am EST
By Lewis Krauskopf and Ransdell Pierson

NEW YORK, Feb 3 (Reuters) - Cost cuts allowed drugmakers Merck & Co and Schering-Plough Corp to post fourth-quarter results ahead of Wall Street targets on Tuesday, sending shares higher despite waning sales for their shared cholesterol treatments.

The two New Jersey-based drugmakers, which announced significant job cuts last fall, have been striving to become more efficient amid setbacks to their cholesterol drugs Vytorin and Zetia, whose combined quarterly sales slumped 26 percent.

The better-than-expected results could revitalize investor hopes that larger pharmaceutical companies could become a safe harbor in the rocky economy.

For the quarter, Merck reported net income of $1.64 billion, or 78 cents per share. That compared with a loss of $1.63 billion, or 75 cents per share, in the year-earlier period, when Merck took a $4.85 billion charge related to a legal settlement for its withdrawn Vioxx arthritis drug.

Excluding special items, earnings were 87 cents per share, 13 cents ahead of analysts' average estimate, according to Reuters Estimates. Merck reported a tax rate of 14.7 percent, benefiting from a research and development tax credit. Its sales fell 3 percent to $6.03 billion, but were slightly ahead of the $5.98 billion expected by analysts.

Combined sales of Merck's new diabetes drugs Januvia and Janumet soared 80 percent to $533 million. However, sales of another key product, the cervical cancer vaccine Gardasil, fell 16 percent to $286 million.

Indeed, Merck cut its forecast for 2009 Gardasil sales to a range of $1.1 billion to $1.3 billion, from $1.4 billion to $1.6 billion previously. Gardasil, which is facing competition from a rival product from GlaxoSmithKline PLC was recently denied approval by U.S. regulators for use by women aged 27 to 45.

Merck said its 2009 sales would be at the lower end of its forecasted range of $23.7 billion to $24.2 billion.

For the quarter, Schering-Plough earned $442 million, or 27 cents per share. That compared with a loss of $3.4 billion, or $2.08 a share, a year earlier, when it took charges for its purchase of Organon BioSciences.

Excluding items, Schering earned 39 cents per share, 9 cents ahead of analysts' targets.

Quarterly sales, including new products from the Organon deal, rose 17 percent to $4.35 billion, a bit shy of the Reuters Estimate prediction of $4.51 billion.

Sales growth was crimped by 6 percentage points by the strengthening dollar, which lowers the value of overseas sales when converted back into U.S. currency.

"We were encouraged that stronger-than-expected EPS results were driven by expense control despite a weaker-than-expected top line," JP Morgan analyst Chris Schott said in a research note.

Some analysts believe Schering could be the next large pharmaceutical takeout target on the heels of Pfizer Inc's $68 billion deal to acquire Wyeth because of Schering's relatively digestible size and because none of its big products face generic competition in the next few years. [However, there’s a change-of-control provision in the Zetia/Vytorin JV with MRK.]‹