Merck & Co.
) reported second quarter 2012 earnings per share (excluding
special items) of $1.05, 4 cents above the Zacks Consensus Estimate
and 10.5% above the year-ago earnings.
Revenues for the quarter increased 1.3% to $12,311 million, just
above the Zacks Consensus Estimate of $12,129 million. Revenues
were negatively impacted by both currency fluctuations and the
arbitration settlement agreement with
Johnson & Johnson
Including one-time items, earnings declined 10.8% to 58 cents
The Quarter in Details
Merck's Pharmaceutical segment posted sales of $10.6 billion, up
2%. Negative currency movement impacted Pharmaceutical segment
sales by 3%. Products like Januvia, Janumet, Isentress, Singulair,
Victrelis and Gardasil contributed to sales.
However, the strong performance of these products was partially
offset by lower sales of Vytorin and Cozaar/Hyzaar and austerity
measures in Europe. Remicade sales continued to decline during the
quarter, most likely being impacted by austerity measures.
Singulair, indicated for the chronic treatment of asthma and
relief of symptoms of allergic rhinitis, recorded $1.4 billion in
sales, up 6% from the year-ago period. However, Singulair sales
will experience a severe decline following its US patent expiry in
August 2012. We note that Singulair will retain exclusivity in the
EU until February 2013 and in Japan until 2016.
Meanwhile, with Merck transferring exclusive marketing rights
for Remicade and Simponi to Johnson & Johnson, Remicade and
Simponi combined sales fell 35% to $594 million. We expect Merck to
focus on improving penetration rates and drive growth in Europe,
Russia and Turkey.
Isentress, the company's product for HIV infection, recorded an
increase of 18% to $398 million during the reported quarter.
Performance was driven by strong growth in the US and emerging
The diabetes franchise, consisting of Januvia and Janumet,
continued to perform well, and witnessed growth across all regions.
Combined sales increased 33% to $1.5 billion. While Januvia sales
increased 36% to $1,058 million, Janumet sales increased 28% to
Merck is working on increasing sales of its diabetes franchise
by gaining approval for additional indications. The diabetes
franchise should benefit from the approval of Juvisync, which is a
combination of Januvia and Zocor.
Gardasil, Merck's cervical cancer vaccine, recorded sales of
$324 million, up 17% year over year. Sales were driven by increased
vaccination of males in the US and the launch in Japan.
Zostavax sales came in at $148 million, up 22%. Merck has
initiated a TV advertising campaign in April to increase awareness
about the risk of shingles. The company will launch a new branded
print and online campaign later this year.
Meanwhile, Merck's ProQuad, MMR II and Varivax vaccines recorded
combined sales of $316 million, up 9%. Vytorin sales declined 3% to
$445 million during the quarter.
Merck's hepatitis C treatment, Victrelis (boceprevir) posted
sales of $126 million, up from $111 million, $87 million, and $31
million reported in the last three quarters. We were encouraged to
see the sequential improvement in Victrelis sales.
Victrelis was added to the VA formulary, which is the largest
single provider of services to hepatitis C patients in the US. This
represents a significant commercial opportunity for Victrelis.
Merck has an agreement with
) for the global marketing of Victrelis as part of a triple
Emerging markets accounted for 18% of pharmaceutical sales in
the second quarter of 2012 with China continuing to put in a strong
Merck's animal health segment posted sales of $865 million, up
8%. Increased sales of swine and cattle products helped drive
Consumer Care sales increased 2% to $552 million in the second
quarter of 2012, mainly due to Claritin, Coppertone and
Total costs declined 2.4% to $7.9 billion. Marketing and
administrative expenses declined 5.9% to $3.2 billion in the second
quarter of 2012 due to productivity measures undertaken by the
company. R&D spend increased 5.3% to $2.0 billion in the second
quarter of 2012.
2012 Guidance Maintained
Merck reaffirmed its outlook for 2012 despite the negative
impact of currency fluctuation. The company expects adjusted
earnings in the range of $3.75 - $3.85 per share. Revenues are
expected to remain flat or close to 2011 levels. The company
expects full year revenues to be negatively impacted by 3% at
current exchange rates.
Currency could cut third quarter sales by 6% at current rates.
The Zacks Consensus Estimate currently stands at $3.83 per share on
revenues of $47.1 billion.
Merck expects R&D spend to increase slightly from 2011. The
company spent $7.7 billion on R&D in 2011. The company's
late-stage pipeline is advancing with six regulatory filings
expected in the coming 18 months. These include odanacatib
(once-weekly oral treatment of osteoporosis). Merck intends to file
for US approval of suvorexant in 2012.
Merck is entering a challenging period with blockbuster drug,
Singulair, slated to lose exclusivity in the US in August 2012. We
expect Singulair revenues, which accounted for approximately 11.4%
of total revenues in 2011, to decline significantly post August
We currently have a Neutral recommendation on Merck, which
carries a Zacks #2 Rank (short-term Buy rating). Merck is currently
facing issues such as the patent expiration of key drug, Singulair,
EU pricing pressure, US health care reform, the Remicade/Simponi
transition and pipeline setbacks.
We believe the company will continue resorting to cost-cutting
initiatives to drive the bottom-line. Meanwhile, some of the
company's recent launches should start contributing significantly
to the top line in the forthcoming quarters.
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