UPDATE 2-Merck profit beats forecast, revenue lags

Fri Apr 27, 2012 12:39pm EDT

* Q1 EPS, excluding items, $0.99 vs forecast of $0.98

* Q1 sales rise 1 pct to $11.73 billion vs $11.82 bln view

* Reaffirms 2012 profit forecast

* Shares dip 0.1 pct

By Ransdell Pierson

April 27 (Reuters) - Merck & Co reported quarterly earnings slightly above Wall Street forecasts, helped by cost controls, but revenue trailed expectations on generic competition and reduced proceeds from a joint venture with British drugmaker AstraZeneca Plc.

The No. 2 U.S. drugmaker on Friday said global revenue rose 1 percent to $11.73 billion, compared with Wall Street expectations of $11.82 billion. Revenue would have risen 2 percent if not for the stronger dollar, which hurts the value of sales in overseas markets.

Sales of the asthma treatment Singulair, whose U.S. patent lapses in August, edged 1 percent higher to $1.34 billion in the quarter. That marks a slowdown for Merck's biggest product, whose sales jumped 8 percent in the prior quarter.

Singulair could lose half or more of its sales soon after cheaper generics arrive. But the company has a lineup of promising medicines in clinical trials that it hopes will be approved, and help fill the revenue gap.

They include a new type of insomnia treatment called suvorexant, osteoporosis treatment odanacatib and two drugs that have been delayed by regulators: Bridion, to reverse the effects of anesthesia, and Tredaptive, a form of niacin meant to raise "good" HDL cholesterol without causing facial flushing.

"Beyond earnings, we continue to believe Merck's late-stage pipeline updates in 2012 and 2013 represent key drivers for the stock," JP Morgan analyst Chris Schott said in a research note, referring to expected progress reports on the drugs.

Schott said Merck could generate compound annual earnings growth of 7 percent through 2017, the highest gains of any major drug company he covers. Even so, he said Merck shares are trading at only 10 times the company's expected 2012 per-share earnings, a discount to most rival large drugmakers.

Merck reported quarterly net income attributable to the company of $1.74 billion, or 56 cents per share. That compared with $1.04 billion, or 34 cents per share, a year earlier.

Excluding special items, the company earned 99 cents a share. Analysts, on average, had expected 98 cents, according to Thomson Reuters I/B/E/S.

Results were hurt by a 42 percent decline in revenue, to $186 million, from its longstanding alliance with AstraZeneca. Merck books some sales of AstraZeneca's Nexium heartburn treatment, and manufactures some of the drug for AstraZeneca.

But Merck's proceeds from the joint venture fell during the quarter due to sharply lower sales of Nexium, and the timing of orders from AstraZeneca for the medicine.

In a call with analysts, Merck officials said the company expects to remain in the venture at least through the first half of 2012. But they noted AstraZeneca has the right to buy out its stake and could exercise that option later this year.

Sales of Merck's Januvia diabetes medicine rose 24 percent to $919 million, while a related treatment called Janumet jumped 29 percent to $392 million.

The Januvia diabetes franchise has become Merck's biggest growth engine, and its biggest hope of offsetting looming declines of Singulair.

HIV treatment Isentress, whose sales rose 15 percent to $337 million, slightly lagged analyst estimates, as did sales of arthritis treatment Remicade. Its sales plunged 31 percent to $519 million, following arbitration that assigned rival drugmaker Johnson & Johnson a wider sales territory for the costly injectable drug.

Merck acquired Remicade in 2009 through its acquisition of Schering Plough, which had sold it for years under an arrangement with J&J.

Cozaar, a blood pressure drug now facing generics, also dampened results, with sales falling 21 percent to $336 million.

Sales of Gardasil, a vaccine to prevent cervical cancer, jumped 33 percent to $284 million, helped by its introduction in Japan and increased vaccination of males aged 9 through 26. With vaccinations, boys are less likely to become infected with the human papillomavirus and sexually transmit it to others.

Animal health products were a bright spot in the earnings report, growing 8 percent to $821 million. Consumer healthcare products also stood out, growing 7 percent to $554 million.

Merck reaffirmed it expects earnings for the full year, excluding special items, of $3.75 to $3.85 per share, comparable with last year's profit of $3.77 per share.

Company shares were down 0.1 percent at $38.42 in midday trading on the New York Stock Exchange.

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