Merck & Co.'s (MRK) second-quarter profit fell 12% on merger
costs and lower vaccine sales, while cost cuts helped merger
partner Schering-Plough Corp. (SGP) report higher quarterly
earnings.
Both companies faced headwinds from a weak economy and
unfavorable currency-exchange rates, as well as continued sales
declines for their jointly marketed cholesterol drugs, which have
been hurt by lingering concerns about their efficacy and
safety.
Merck, Whitehouse Station, N.J., is in the process of acquiring
Schering-Plough in a cash-and-stock deal valued at about $41
billion when it was announced in March. The deal is subject to
government antitrust clearance and approval by both drug makers'
shareholders, and is seen closing by the end of the year.
Merck, which has been hurt by drug patent expirations and
research setbacks, went after Schering to gain access to some
fast-growing products and a relatively strong late-stage research
pipeline. Also, Merck expects the deal to generate significant cost
savings, including a planned 15% reduction in the combined entity's
work force.
Although Merck's numbers were down, they exceeded Wall Street
expectations. Some of the upside appeared to come from a rebound in
Merck's top-selling drug, Singulair, an allergy and asthma
medication. Sales rose 16% to $1.3 billion, following declines in
recent quarters that stemmed from reports of the drug's possible
association with suicidal behavior. Deutsche Bank this week said
Singulair demand was helped by a "strong" allergy season.
Merck shares rose $1.31, or 4.7%, to $29.27, while Schering
shares rose 83 cents, or 2.9%, to $26.30.
"We believe that sentiment coming into the quarter was negative
and that these results will mollify investor's fears of further
deterioration," said Les Funtleyder, analyst with Miller Tabak.
Merck said net income for the three months ended June 30 fell to
$1.56 billion, or 74 cents a share, from $1.8 billion, or 82 cents
a share, a year earlier. The latest quarter included restructuring
and merger costs; excluding these earnings were 83 cents a share,
well ahead of the 77-cents-per-share mean estimate of analysts
surveyed by Thomson Reuters.
Merck's second-quarter sales fell 3% to $5.9 billion but
exceeded the Thomson estimate of $5.84 billion. Sales were weighed
down by currency rates; excluding this effect, sales would have
risen 3% from a year earlier.
Combined sales of cholesterol drugs Vytorin and Zetia declined
10% to about $1 billion. Studies released during 2008 raised
questions about the drugs, though Merck and Schering-Plough have
defended them.
More recently, in June, a study comparing Zetia with Abbott
Laboratories' (ABT) Niaspan was terminated early for unclear
reasons, leading to market speculation that Zetia didn't perform
well. Merck and Schering executives said Tuesday news of the
study's halt has had no commercial impact on the drugs so far.
Results of the study, which was funded by Abbott but conducted by
independent investigators, may be released later this year.
Neither Merck nor Schering records sales from the
cholesterol-drug joint venture, but they split profits which are
recorded as equity income from affiliates.
Combined sales of Merck's blood-pressure drugs Cozaar and Hyzaar
declined, while diabetes drugs Januvia and Janumet increased.
Merck's vaccines unit, which previously had strong growth in
2006 and 2007, continued to have problems related to supply
constraints and weakened market demand. Sales of cervical-cancer
vaccine Gardasil dropped 18% to $268 million, while sales of
vaccines for rotavirus and shingles also dropped.
Merck reiterated its full-year 2009 financial forecast,
including earnings of $2.84 to $3.09 per share.
Schering-Plough, Kenilworth, N.J., saw second-quarter net income
rise 45% to $671 million, or 38 cents a share, from $462 million,
or 26 cents, a year earlier. Excluding one-time items, earnings
would have been 46 cents a share, ahead of the Thomson estimate of
45 cents a share.
Schering-Plough sales dropped nearly 6% to $4.6 billion, with
unfavorable currency rates reducing growth by 10 percentage points.
Sales of arthritis drug Remicade rose 2% to $565 million, while
gains also were posted for allergy drug Nasonex and cancer drug
Temodar.
Schering's animal-health unit saw sales drop 17% to $677
million, which Chief Financial Officer Robert Bertolini attributed
to "tough global economic conditions," difficult comparisons to a
year-earlier period that included the launch of a bluetongue
vaccine, and the impact of 2008 product divestitures.
Merck and Schering are considering selling animal-health assets
in order to appease antitrust regulators reviewing the merger.
Merck Chief Executive Richard Clark said he was exploring "all of
our options" for animal-health divestitures. Merck has an
animal-health joint venture, Merial, with Sanofi-Aventis SA
(SNY).
Schering's consumer-product sales dropped 5% to $381 million.
Clark said Merck was considering an outside partner to help invest
in the Schering consumer operations, which include Dr. Scholl's
foot-care products, after the merger closes.
-Peter Loftus; Dow Jones Newswires; 215-656-8289;
peter.loftus@dowjones.com