By Ransdell Pierson
Oct 28 Merck & Co Inc reported lower
sales of its Januvia diabetes treatment, fresh evidence its
biggest product is losing ground to newer drugs, and also
spooked investors with falling quarterly sales of its animal
The company's shares dropped 2.6 percent, or $1.19, to
$45.33 in afternoon trading.
Merck's animal health brands, which typically prop up
results, suffered a 2 percent sales decline in third quarter,
hurt by the recent decision to suspend marketing of its Zilmax
weight-gain feed supplement amid concerns it was causing
lameness in cattle.
"The fundamentals of the business remain solid despite what
we saw in the quarter," Chief Executive Ken Frazier told
analysts on a conference call, referring to the animal health
Global sales of Januvia fell 5 percent in the quarter to
$927 million. Combined sales of the pill and a related drug
called Janumet fell 1 percent to $1.4 billion, versus 5 percent
growth in the prior quarter, and marked a return to declines in
the first quarter.
"It looks like Januvia might be plateauing," said
Morningstar analyst Damien Conover, adding the trend could
continue to put pressure on Merck's profits as it strives to
develop new medicines.
ISI Group analyst Mark Schoenebaum said combined U.S. sales
of Januvia and Janumet were $91 million short of Wall Street
estimates, and may force Merck to back off its earlier
prediction that the Januvia franchise will grow by the
"mid-single-digit" percentage range this year in the United
Januvia sales have grown by leaps and bounds since the drug
was approved in 2006 - the first member of a new class of oral
diabetes treatment called DPP4 inhibitors.
But three similar drugs have been introduced since then and
are taking market share from Januvia, including Bristol-Myers
Co's Onglyza, and Tradjenta from privately held
Boehringer Ingelheim and Eli Lilly and Co.
Merck said the falling number of Januvia prescriptions in
the quarter was a surprise and cause for concern.
"If the volumes continue to decline, definitely it will be a
problem for us," Adam Schechter, head of global human health at
Merck, said on the conference call.
Merck shares have risen 11 percent this year, only half the
gains seen for the ARCA Pharmaceutical Index of large
U.S. and European drugmakers, on worries about Januvia and
failures or regulatory setbacks for a handful of its most
important experimental drugs. Its shares have also been held
back by plunging sales of its former top product, Singulair for
asthma, which began facing cheaper generics last year.
In the meantime, rivals like Pfizer Inc and Johnson
& Johnson have launched a crop of new medicines and have
high hopes for others in clinical trials.
Faced with Januvia's stall and setbacks for its drug
pipeline, Merck said early this month it will cut annual
operating costs by $2.5 billion and eliminate 8,500 jobs, or
more than 10 percent of its global workforce.
Like other drugmakers that have slashed costs in the past
three years, most notably Pfizer, Merck said it will narrow its
focus to products with the best chance of winning regulatory
approval and achieving substantial sales. That means it will
scrap some drugs already in late-stage trials, while licensing
products from other drugmakers.
The company earned $1.12 billion, or 38 cents per share, in
the third quarter, compared with $1.73 billion, or 56 cents per
share, in the year-earlier period.
Excluding special items, Merck earned 92 cents per share.
Analysts, on average, expected 88 cents per share, according to
Thomson Reuters I/B/E/S.
Merck said the better-than-expected earnings was largely due
to efforts to manage costs across the board. Research and
development spending was lower in part because costly late-stage
trials of some medicines had been delayed until the fourth
Company sales fell 4 percent to $11.03 billion, below Wall
Street estimates of $11.12 billion. They would have fallen 2
percent if not for the stronger dollar, which lowers the value
of sales in overseas markets.
Merck's Gardasil vaccine to prevent cervical cancer was a
bright spot in the quarter, with sales rising 15 percent to $665
million, helped by additional sales to government healthcare
providers. And sales of Remicade, used to treat rheumatoid
arthritis, rose 12 percent to $574 million.
Merck expects full-year earnings of $3.48 to $3.52 per
share, excluding special items. Early this month, it forecast
$3.45 to $3.55 per share.