Merck & Co.
) reported first quarter 2014 earnings of 88 cents per share,
well above the Zacks Consensus Estimate of 79 cents. Earnings
grew 3.5% from the year-ago period.
Revenues for the quarter declined 3.8% to $10,264 million,
missing the Zacks Consensus Estimate of $10,448 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 2014 earnings grew
9.6% to 57 cents per share.
The Quarter in Detail
Merck's Pharmaceutical segment posted revenues of $8.5
billion, down 5%. Negative currency movement impacted
Pharmaceutical segment revenues by 2%.
Products like Janumet, Simponi, Isentress and Remicade
performed well. However, the strong performance of these products
was offset by lower revenues of Singulair, Nasonex,
Cozaar/Hyzaar, Temodar, Januvia and Zostavax.
Singulair revenues continued to experience a severe decline
following its U.S. patent expiry in Aug 2012 and loss of
exclusivity in the EU in Feb 2013. Revenues fell 20% from the
year-ago period to $271 million. The drug retains exclusivity in
Japan until 2016.
Meanwhile, Remicade and Simponi combined revenues increased
16% to $760 million with some help from currency (3%).
Performance was boosted by Simponi's launch in additional
countries and continued growth in existing markets. Approval for
an additional indication in ulcerative colitis could drive sales
Isentress, the company's product for HIV infection, recorded
revenues of $390 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 3% growth in revenues which came in at $1.3 billion.
Higher sales in the U.S., Europe and emerging markets were
partially offset by weakness in Japan and a negative currency
impact of 2%.
While Januvia revenues decreased 3% to $858 million, Janumet
revenues grew 16% to $476 million. Merck is working on
penetrating the sulfonylurea class. One of the factors adversely
impacting revenues could be increased rebate and pricing pressure
as competitors are working on improving their formulary positions
by increasing discounts.
Gardasil, Merck's cervical cancer vaccine, recorded revenues
of $383 million, down 2% year over year. Revenues were affected
by negative currency movement (4%) and lower sales in Japan,
where the government suspended the proactive recommendation of
HPV vaccines. This decision could continue to have a significant
negative impact on Gardasil sales in Japan.
Meanwhile, Gardasil recorded higher sales in the U.S. and
benefited from a national immunization program in Brazil.
Merck's ProQuad, MMR II and Varivax vaccines recorded combined
revenues of $280 million, up 4%. Vytorin revenues declined 8% to
$361 million during the quarter.
Merck's hepatitis C treatment, Victrelis posted revenues of
$59 million, down 46% from the year-ago period. Revenues were
affected by the entry of
) Sovaldi as well as contraction in several markets due to
warehousing and a large number of clinical trials.
Merck's animal health segment posted revenues of $813 million,
down 3%. Although poultry, swine and aqua products recorded
growth, this was offset by the voluntary suspension of Zilmax
(feed supplement for cattle) in the U.S. and Canada.
Consumer Care revenues declined 4% to $546 million in the
first quarter of 2014. Revenues were affected by negative
currency movement (1%), product divestitures and a shortened
allergy season in North America.
Marketing and administrative expenses declined 9.6% to $2.7
billion in the first quarter of 2014 due to productivity measures
undertaken by the company. R&D spend decreased 18.2% to $1.5
billion in the first quarter of 2014.
Merck is working on cutting down annual operating costs by
about $2.5 billion by the end of 2015.
2014 Guidance Maintained
Merck expects to earn $3.35 - $3.53 per share on revenues of
$42.4 billion - $43.2 billion. The Zacks Consensus Estimate of
earnings of $3.47 per share and revenues of $42.9 billion is
within the guidance range.
Merck expects R&D as well as marketing and administrative
spend to decline from 2013 levels. The company spent $7.1 billion
and $11.7 billion on R&D and marketing and administrative
matters, respectively, in 2013.
Merck's first quarter results were mixed with the company
beating on earnings but missing on revenues. Although revenues
declined, cost control efforts helped the company beat on the
We remain concerned about the performance of Januvia, which
declined from the year-ago period. With Singulair and a few other
products facing generic competition, we expect the top-line to
remain under pressure.
Other headwinds remain in the form of unfavorable currency
movement and pipeline setbacks. The company will continue to look
towards cost-cutting initiatives and share buybacks to drive the
Merck is a Zacks Rank #3 (Hold) stock. Some better-ranked
stocks in the health care sector include Gilead,
Johnson & Johnson
). While Gilead is a Zacks Rank #1 (Strong Buy) stock, Johnson
& Johnson and Allergan are Zacks Rank #2 (Buy) stocks.
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