Earnings Preview: Merck reports on third quarter

AP News
Posted: Oct 26, 2011 4:48 PM

Merck & Co. Inc., which reports its third-quarter results before the stock markets open Friday, will discuss launch plans for some newly approved drugs _ two of which are likely blockbusters _ along with a joint venture sale and some executive changes.

WHAT TO WATCH FOR: Executives at Merck, the world's third-biggest drug maker by revenue, are sure to focus on two important new drugs, with sales for its top seller about to plunge next summer.

They'll discuss prospects for Juvisync, the first combination pill for the millions of people with the dangerous combination of diabetes and high cholesterol. Approved in the U.S. on Oct. 7, it combines Merck's $2.4 billion-a-year Type 2 diabetes drug Januvia with simvastatin, the generic version of its former blockbuster cholesterol pill, Zocor.

Another combo pill, Janumet, which includes Januvia and a widely used generic diabetes drug called metformin, brings Merck nearly $1 billion a year. Juvisync should easily top that, although it would cut into revenue for Januvia.

Merck will also talk about initial sales and its plans for more launches in various countries for hepatitis C treatment Victrellis. It was approved in the U.S. in May and in the European Union in July. It's one of two new hepatitis C treatments approved this year that significantly boost cure rates for the tough-to-treat virus.

In addition, Merck and partner Teva Pharmaceuticals Europe won approval in August to market a new birth control pill called Zoely in Europe.

Merck probably will mention a partnership begun in September with China's BGI, the world's largest center devoted to genomics, the study of people's genes and their functions. The two will work together to develop new drugs and diagnostic tests linked to disease treatments, with Merck aiming to benefit from the huge Chinese market and the institute's expertise.

The company may mention its sale a month ago, for $175 million, of its interest in the Johnson & Johnson-Merck Consumer Pharmaceuticals Co. joint venture. It sells nonprescription versions of former prescription drugs, including stomach medicines Pepcid and Mylanta.

Merck may also mention some recently announced personnel changes, with its chairman retiring and new people appointed as chief strategy officer and head of the animal health business.

Analysts may ask for an update on layoffs and other changes resulting from Merck's integration of Schering-Plough Corp., which it bought for $49 billion in November 2009.

They may ask about a subpoena Merck got this summer from federal prosecutors investigating the company's marketing of three drugs acquired with Schering Plough: brain cancer drug Temodar and hepatitis C drugs PegIntron and Intron A.

WHY IT MATTERS: Last month, Merck told employees it was speeding up layoffs in the U.S. because it couldn't hit its goal of cutting up to 13,000 jobs by 2015 just by eliminating vacant jobs.

In July, Merck announced its latest round of layoffs, saying it's cutting about 12.5 percent of its worldwide workforce, then about 91,000 people _ down from about 100,000 shortly after it bought Schering-Plough. At least 35 percent of the new cuts are coming in the U.S., in manufacturing and headquarters and other administrative jobs, but Merck is still hiring for positions in growth areas.

The latest cuts are needed because Merck's biggest seller, asthma and allergy drug Singulair, loses U.S. patent protection next August, when generic competition will start eroding its $5 billion a year in global revenue. Other blockbusters, including blood pressure drugs Cozaar and Hyzaar, have had generic competition slash their sales in recent years. Two smaller sellers, baldness treatment Propecia and HIV drug Crixivan, faced the same fate in the next couple years.

Deutsche Bank analyst Barbara Ryan writes that she expects prescription drug revenue to increase 4 percent. She thinks Merck will give updates on efforts to expand its capabilities and sales in emerging markets. And she's hoping to hear about the activities of Merck's low-profile unit to create both new biologic drugs and follow-on or "biosimilar" versions of older ones.

WHAT'S EXPECTED: Analysts surveyed by FactSet forecast earnings per share of 91 cents and revenue of $11.62 billion.

LAST YEAR'S QUARTER: Merck reported earnings of $341.6 million, or 11 cents per share, dragged down by $2.3 billion in charges, mostly related to its acquisition of Schering-Plough. Revenue was $11.12 billion.