Profits Rise at Merck, Lilly
By PETER LOFTUS and MIKE BARRIS
April 21, 2008 12:49 p.m.
Merck & Co.'s first-quarter profit nearly doubled on a hefty payment from marketing partner AstraZeneca PLC, while Merck's revenue was roughly flat due to new generic competition for its osteoporosis drug Fosamax.
Eli Lilly & Co.'s quarterly net income also surged, reflecting in part a tax gain and strong sales of its popular Cymbalta antidepressant and Cialis erectile dysfunction drugs. The company also raised its 2008 earnings outlook.
Merck's earnings, excluding the large payment, exceeded Wall Street expectations, and the company reiterated its earnings forecast for 2008. But the Whitehouse Station, N.J., drug maker's quarterly revenue fell short of expectations, hurt by generic competition and a slowdown in sales growth for asthma and allergy medication Singulair, which was recently linked to reports of suicidal behavior and mood changes.
Merck's profits also were hurt by a sharp slowdown in sales growth for cholesterol drugs Vytorin and Zetia. Results of a patient study released in January raised questions about the effectiveness of the drugs, which Merck co-markets in a joint venture with Schering-Plough Corp. Neither company records sales from the venture, but financial results are reflected in each company's equity income.
Before this year, Merck had pulled off an impressive turnaround from a series of challenges such as the 2004 withdrawal of pain drug Vioxx from the market, through cost cuts and launches of several new drugs and vaccines. But the Vytorin and Zetia sales slowdown has put a dent in its outlook, and Merck shares have plunged more than 30% year-to-date.
Merck indicated Monday it planned to accelerate the cost-cutting program launched in 2005. The initial plan called for an 11% reduction in Merck's work force and closure of several U.S. plants. Merck has cut more jobs than expected, and now it is moving up plans to close, sell or reduce operations at four plants outside the U.S.
"We are not content," Merck Chief Executive Richard Clark told analysts during a conference call. "We are accelerating the pace of change in every area of Merck's business."
Merck on Monday reported its first-quarter net income rose to $3.3 billion, or $1.52 a share, from $1.7 billion, or 78 cents a share, a year earlier. The latest quarter included a $1.4 billion gain from a distribution received from Merck's partnership with AstraZeneca, plus restructuring charges. Excluding these, earnings were 89 cents a share, ahead of the mean estimate of analysts surveyed by Thomson Financial of 86 cents a share.
Under their longstanding partnership, Merck shares in the proceeds of certain products marketed by AstraZeneca, including the blockbuster heartburn drug Nexium.
Merck's first-quarter sales rose 1% to $5.82 billion from $5.77 billion a year earlier. Sales of Fosamax declined 37% to $470 million, hurt by its loss of U.S. patent protection in February, which cleared the way for generic copycats.
Singulair sales rose 10% to $1.1 billion, a slower growth rate than the 19% posted for 2007. In late March, the Food and Drug Administration said it was investigating a possible association between Singulair and suicidal behavior and mood changes. Merck had previously made changes in the product's label to reflect the reports of such events.
-----
MERCK'S 1ST-QUARTER DRUG SALES
Dollars, in millions; change, year over year
Drug Treatment Sales Change
Vytorin/Zetia* Anticholesterol $1,200 6%
Singulair Respiratory $1,100 10%
Cozaar/Hyzaar Hypertension $847 6%
Fosamax Osteoporosis $470 -37%
Gardasil Cancer vaccine $390 7%
-----
*Co-marketed with Schering-PloughThe safety concerns alone don't appear to have substantially hurt prescription trends, said Kenneth Frazier, executive vice president and head of Merck's global human health unit. But a compounding factor has been the late start to the allergy season this year, he said.
Combined sales of Vytorin and Zetia rose 6% to $1.2 billion for the first quarter. This represents a sharp slowdown from 2007, when sales were up 34%. Prescriptions have declined amid publicity over the negative study, titled "Enhance." Merck and Schering-Plough have tried to counter the trend by stepping up marketing to doctors and health insurers. "We're doing as much as we can to remedy the situation," Mr. Frazier said.
But the company has indicated that prescriptions aren't likely to recover substantially in 2008. Merck lowered its forecast of equity income from affiliates by $700 million to account for the reduced outlook for the cholesterol drugs. Merck and Schering-Plough have defended the effectiveness of the drugs at lowering levels of bad cholesterol. The Enhance study showed that Vytorin -- which is a combination of Zetia and simvastatin -- was no better than simvastatin alone at slowing thickening of the neck artery.
Merck's cervical-cancer vaccine Gardasil appeared to bounce back slightly from weakness in the fourth quarter. Sales rose 7% to $390 million from a year earlier, and were also up from the disappointing $339 million posted for the fourth quarter. For full-year 2008, Merck sees Gardasil sales of $1.9 billion to $2.1 billion, versus $1.5 billion for 2007.
Sales of anti-hypertension drugs Cozaar and Hyzaar rose 6% to $847 million.
Merck hopes to get regulatory approval this year for new products and new uses for existing products. Mr. Clark said the company continues to expect FDA action this month on Merck's proposed new cholesterol drug Cordaptive. Some analysts believe the FDA will approve the drug, but it's possible the agency will ask for more data or extend its review.
For 2008, Merck expects earnings of $3.84 to $4 a share. Excluding certain items, Merck sees earnings of $3.28 to $3.38 a share, compared with the Thomson Financial estimate of $3.28 a share.
Cymbalta, Cialis Boost Lilly
Lilly reported net income of $1.06 billion, or 97 cents a share, compared with $508.7 million, or 47 cents a share, a year earlier. Excluding restructuring and acquisition-related costs, as well as a tax gain in the latest quarter, earnings rose to 92 cents a share from 83 cents.
Revenue for the Indianapolis-based company rose 14% to $4.81 billion from $4.23 billion, with volume making up eight percentage points of the increase and the weaker dollar adding five points. Analysts polled by Thomson Financial had expected earnings, excluding items, of 96 cents a share on revenue of $4.83 billion.
Gross margin fell to 76.9% from 78.2% amid foreign-exchange impacts.
Sales of Lilly's best-selling drug, schizophrenia treatment Zyprexa, rose a smaller-than-expected 1% to $1.12 billion, with U.S. sales falling 5% due to decreased demand. In February, the Food and Drug Administration declined to approve a long-acting, injectable form of Zyprexa, saying it needed additional information on excessive sedation that occurred in certain patients.
Antidepressant Cymbalta sales rose 37%, up 32% in the U.S. and 69% internationally. Sales of Cialis, the company's erectile-dysfunction drug, rose 27%, with similar growth both in the U.S. and internationally.
New Chief Executive John Lechleiter, who succeeded Sidney Taurel this month, called the sales growth of Cymbalta, Cialis, Alimta, Forteo and Humalog "especially encouraging."
Looking ahead, Lilly said it now expects 2008 earnings of $3.90 to $4.05 a share, up from its prior outlook of $3.85 to $4. Wall Street was looking for $3.95 a share.
Lilly has been struggling to produce enough new drugs to replace a wave of older blockbuster drugs set to lose patent protection over the next few years. The company in December said it expects to launch six new drugs through 2011, the same year its patent on its best-selling schizophrenia treatment, Zyprexa, is set to expire. Shortly thereafter, the company will face generic threats to several drugs that currently account for at least a third of sales.
A spotlight has been placed on prasugrel, an anticlotting drug that would compete with Bristol-Myers Squibb Co. and Sanofi-Aventis's Plavix. Eli Lilly, which partnered with Daiichi-Sankyo Co. on the drug, hopes to begin selling it in late 2008 or early 2009 if it is approved by U.S. regulators.
online.wsj.com |
