Merck & Co . ( MRK ) reported first
quarter 2013 earnings of 85 cents per share, well above the Zacks
Consensus Estimate of 78 cents. Tax benefits boosted first quarter
2013 earnings by 6 cents. Earnings, however, declined 14.1% from
the year-ago period.
Revenues for the quarter fell 9.0% to $10,671 million and missed
the Zacks Consensus Estimate of $10,997 million. Revenues were hit
by the genericization of Singulair and a few other products and
negative currency fluctuation (2%).
Including one-time items, first quarter 2013 earnings declined
7.1% to 52 cents per share.
The Quarter in Details
Merck's Pharmaceutical segment posted sales of $8.9 billion,
down 12%. Negative currency movement impacted Pharmaceutical
segment sales by 2%. Products like Remicade, Simponi, Isentress,
Zostavax and Gardasil performed well.
However, the strong performance of these products was offset by
lower sales of Singulair, Maxalt, and Clarinex.
Singulair sales experienced a severe decline following its US
patent expiry in Aug 2012. Sales fell 75% from the year-ago period
to $337 million. We note that Singulair lost exclusivity in the EU
in Feb 2013 and is experiencing a sharp decline in sales. The drug
retains exclusivity in Japan until 2016.
Meanwhile, Remicade and Simponi combined sales increased 11% to
$657 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
sales of $362 million, up 8%, in the reported quarter mainly due to
strong growth in Europe and emerging markets.
The diabetes franchise, consisting of Januvia and Janumet,
witnessed a 1% decline in sales which came in at $1.3 billion. The
lower sales reflect a 2% negative impact of currency movement as
well as lower sales in the US (down 5%) due to lower customer
inventory levels. While Januvia sales declined 4% to $884
million, Janumet sales grew 4% to $409 million.
Gardasil, Merck's cervical cancer vaccine, recorded sales of
$390 million, up 37% year over year. Sales were driven by increased
vaccination of males in the US, higher public sector purchases and
strong performance in emerging markets.
Zostavax sales came in at $168 million, up 121.1%, in response
to the company's promotional efforts and the availability of
supply. The company reported strong demand in the US.
Zostavax should continue to be a strong growth driver
considering that a large part of the US population is yet to
receive the vaccine. Moreover, Merck intends to launch Zostavax
outside the US later this year.
Meanwhile, Merck's ProQuad, MMR II and Varivax vaccines recorded
combined sales of $272 million, up 7%. Vytorin sales declined 11%
to $394 million during the quarter.
Merck's hepatitis C treatment, Victrelis posted sales of $110
million, down 1% from the year-ago period.
Emerging markets accounted for 21% of pharmaceutical sales in
the first quarter of 2013 with China continuing to put in a strong
Merck's animal health segment posted sales of $840 million, up
2%. Results were driven by growth in companion animal products and
Consumer Care sales increased 3% to $571 million in the first
quarter of 2013, mainly due to Dr. Claritin and Coppertone suncare
Marketing and administrative expenses declined 1.7% to $2.9
billion in the first quarter of 2013 due to productivity measures
undertaken by the company. R&D spend increased 3% to $1.9
billion in the first quarter of 2013.
Cuts 2013 Guidance
Merck lowered its outlook for 2013 to reflect
higher-than-expected pressure on sales including the impact of
foreign exchange. Merck now expects adjusted earnings in the range
of $3.45 and $3.55, down from its earlier guidance of $3.60 - $3.70
per share. The Zacks Consensus Estimate currently stands at $3.64
per share, well above the new guidance range. The new guidance also
takes into account the revised tax rate of 22% - 23% (old guidance:
21% - 23%).
Revenues are now expected to decline 3% - 4% from 2012 levels
instead of remaining flat as expected earlier.
Merck expects R&D spend to increase slightly from 2012
levels instead of remaining flat. The company spent $7.9 billion on
R&D in 2012.
In addition to reporting first-quarter 2013 results, Merck
announced a new share buyback program under which the company will
use up to $15 billion to buy back shares. While half the authorized
amount will be used for repurchasing shares over the next 12
months, the remaining $7.5 billion will not have any time
Merck has entered a challenging period with erstwhile
blockbuster drug, Singulair, losing exclusivity in the US in early
Aug 2012 and in the EU in Feb 2013. Merck's first quarter results
were disappointing with generics eating into sales. The decline in
Januvia sales is also a matter of concern. Even though earnings
exceeded expectations, the company cut its outlook for 2013 based
on higher-than-expected pressure on sales.
With Singulair and a few other products facing generic
competition, we expect the top- and bottom-line to remain under
pressure. Other headwinds remain in the form of unfavorable
currency movement, and pipeline setbacks. We believe the company
will look towards cost-cutting initiatives and share buybacks to
drive the bottom-line.
Merck currently carries a Zacks Rank #3 (Hold). Shares were down
in pre-market trading. Merck's results come a day after pharma
major, Pfizer ( PFE ), reported first
quarter results. Pfizer's first quarter performance was also a
letdown with the company missing on both earnings and revenues.
Pfizer's results were also hit by genericization and unfavorable
currency movement and the company lowered its outlook for 2013.
Companies that currently look better-positioned include
AbbVie ( ABBV ) and
UCB ( UCBJF ). While UCB is
a Zacks Rank #1 (Strong Buy) stock, AbbVie holds a Zacks Rank #2
(Buy).ABBVIE INC (ABBV): Free Stock Analysis ReportMERCK & CO INC (MRK): Free Stock Analysis
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