DJ - Merck Shares Slide As Company Trims Earnings Outlook For '99
December 09, 1998 5:22 PM
NEW YORK -(Dow Jones)- Shares of Merck & Co. sank late Wednesday
after the company's chairman indicated earnings next year are likely to
fall slightly short of Wall Street estimates.
Chairman and Chief Executive Raymond Gilmartin said he is comfortable
with 1998 net income estimates of $4.27 to $4.34 a diluted share, which
would be in line with estimates. However, he also said 1999 earnings
estimates of $4.85 to $4.95 a share are "reasonable." That range is
below the First Call mean analysts' estimate of $4.97 a share.
Merck shares (MRK) ended down $6.75, or 4.3%, at $151.938, with most
of the decline coming in the last minutes of trading after the earnings
estimate was reported.
Gilmartin and other Merck executives addressed the investment
community Wednesday at the company's annual business briefing in
Whitehouse Station, N.J.
In other comments, Gilmartin said Merck plans to invest $2.1 billion on
research and development in 1999, a 14% increase from 1998. He
assured Wall Street analysts that the pharmaceutical giant can keep
growing in the face of several upcoming key patent expirations and an
increasingly competitive environment, and announced a huge expansion
of its sales force.
"We're well-prepared to overcome these patent expirations," Gilmartin
said at the company's annual business briefing at the Whitehouse
Station, N.J., corporate headquarters.
The major drugs going off patent in 2000 and 2001 represent a significant
percentage of Merck's sales. The products include the blood pressure
drugs Vasotec and Prinivil, the cholesterol drug Mevacor, the antacid
Pepcid and the company's share of Prilosec, an ulcer drug sold through a
joint venture with Astra AB.
Merck's (MRK) president of Human Health for the Americas, David
Anstice, said the company has started a 700-person sales-force
expansion, in part to support the expected upcoming launch of Vioxx, the
company's treatment for arthritis currently in review by the Food and Drug
Administration. Analysts expect Vioxx, a member of a new class of
drugs called COX-2 inhibitors, to reach blockbuster status. COX-2
inhibitors don't cause the same gastrointestinal side effects as other pain
killers, because they spare an enzyme that protects the stomach. The
FDA recently cleared the first drug in that class, Monsanto Co.'s
Celebrex.
The company said Vioxx caused a lower rate of ulcers in osteoarthritis
patients than ibuprofen. The company also cited two acute pain studies
in which Vioxx relieved dental pain and post-orthopedic surgery pain
comparable with widely used prescription nonsteroidal anti-inflammatory
drugs and was superior to a placebo.
Of the added sales staff, 100 will work in the cardiovascular area, with a
particular focus on Zocor, Merck's cholesterol-lowering drug which has
been losing market share to Lipitor, a product co-marketed by
Warner-Lambert Co. (WLA) and Pfizer Inc. (PFE). But Anstice assured
analysts that the company is pushing Zocor hard and added, "at the
moment, our new (Zocor) prescription share is leveling."
"This (cholesterol-lowering) market really can turn into a two-horse race,"
Anstice said.
The drugs belong to a class of medicines known as statins, which can
dramatically reduce cholesterol and reduce the risks of heart attacks.
Since 1995, Merck has launched 14 medicines and vaccines that now
account for 21% of top-line sales. Five of the 14 were launched this year,
including Singulair for asthma, Maxalt for migraines, Aggrastat for
cardiovascular disorders, Propecia for baldness and Cosopt for
glaucoma.
While Wall Street has looked to the new drugs to make up for an
expected drop-off in more established products as patents expire, results
have been mixed. Sales of Singulair, a once-a-day tablet to treat chronic
asthma in adults and children, have done better than Propecia and
Maxalt. Singulair sold $55 million in the third quarter, with $41 million of
that coming from the U.S. But Propecia sales during the third quarter
were $24 million and Maxalt was $15 million.
Some analysts have voiced concern about the product launches that
have been slower than expected, but Merck said it's pleased with the
launches and argued Wednesday that it's still early in the game.
"I stress that these five new products are all at the very early stages of
their life cycles, and are not yet fully launched worldwide," Gilmartin said.
He added that Merck will continue next year to roll out these products in
the rest of the world, including key countries in Europe.
Merck's long-term goal is to achieve earnings-per-share growth within the
top quartile of its peer group, which Gilmartin defined as 12 large-cap
multinational pharmaceutical companies including the likes of Pfizer, Eli
Lilly & Co. (LLY) and Glaxo Wellcome PLC (GLX).
"The key to achieving this growth goal is to drive revenue growth," he
said.
In the short term, Gilmartin said, Merck is driving revenue growth by
increasing the promotional support of its major in-line products and
investing in the launch of its new products world-wide. The company is
funding the investment behind these two growth drivers of its business, in
part, by reallocating productivity savings in manufacturing and in its
administrative structure.
Still, Merck faces added competition amid a fast-changing competitive
landscape in the drug industry.
"Today, it is often only a few months before a competitor enters the
market with a product in the same therapeutic category, with others
quickly behind," Gilmartin said.
To fight that, Merck has in place two-part plan. The plan includes
discovering new medicines through what Gilmartin called "breakthrough
research" and demonstrating the value of the company's medicines to
physicians, payers and patients.
Meanwhile, Chief Financial Officer Judy Lewent said the $30 billion
merger between and Zeneca Group PLC (ZEN), confirmed Tuesday, will
generate a payment of $675 million to $1 billion to Merck from Astra upon
the closing of the transaction.
Merck earlier this year restructured its Astra Merck joint venture, a move
Gilmartin said "has the potential to enhance the already favorable
financial performance of that relationship."
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