By Ransdell Pierson
May 1 Merck & Co Inc reported a
surprising drop in quarterly sales of diabetes medicine Januvia,
its biggest product and a frequent driver of quarterly earnings,
and the drugmaker cut its full-year profit forecast on
Shares of Merck fell 1.6 percent to $46.23. Although
its profit beat forecasts for the quarter, this was due largely
to a favorable tax rate, and investors were concerned about
slower growth for Januvia and whether Merck could bring
promising new drugs to market soon.
"This was an inflection point for Januvia," said Morningstar
analyst Damien Conover. "The drug is maturing and will see
significant but slower growth over the next few years as the
market gets more competitive."
In lowering its profit outlook, Merck cited "pressures on
sales that are greater than previously anticipated," including
the stronger dollar, new research programs and higher taxes.
"The weakness of Merck's quarter can only be regarded as a
clarion call for management and investors," Citibank analyst
Andrew Baum said in a research note. He said Merck must manage
costs, its drug portfolio and investors' expectations more
Merck reported first-quarter net income of $1.59 billion, or
52 cents per share, compared with $1.74 billion, or 56 cents per
share, in the year-earlier period, when it took $1.6 billion in
acquisition and restructuring charges.
Excluding these and other special items in the latest
quarter, Merck earned 85 cents per share. Analysts on average
were expecting 79 cents, according to Thomson Reuters I/B/E/S.
Sales fell 9 percent to $10.7 billion, below the $11.09
billion Wall Street was expecting.
Sales of Januvia, the company's fastest-growing medicine
since it was approved in 2006, fell 4 percent to $884 million.
Sales of Janumet, a pill which combines Januvia with the
diabetes treatment metformin, rose 4 percent to $409 million.
Combined sales of the medicines fell 1 percent to $1.3 billion.
By contrast, both drugs had sales gains of more than 15 percent
in the prior quarter.
Merck said their combined sales fell 5 percent in the United
States, where about $70 million worth of wholesaler inventories
of Januvia were drawn down to a two-year low, thereby lessening
the need for purchases.
The company said Januvia's U.S. sales this year would grow
at a mid-single-digit percentage range and increase in the low
double digits in the rest of the world.
STOCK BUYBACK 'BAND-AID'
Merck said its board had authorized additional purchases of
up to $15 billion of its common stock and that it would buy back
about $7.5 billion over the next 12 months.
"The $15 billion share repurchase program announcement is a
positive for investors, but doesn't address poor recent research
and development productivity and may be viewed as a temporary
Band-Aid to cover a worrying decline in the growth of Januvia,"
Jefferies & Co analyst Jeffrey Holford said.
The company said it expected full-year earnings of $3.45 to
$3.55 per share, excluding special items. That is below the
$3.60 to $3.70 it had forecast in February.
Despite the challenges, Chief Executive Officer Kenneth
Frazier said Merck's fundamentals remained strong.
"We think the second half of this year will be a better
indicator of the strength of our business," he said on a
conference call with analysts.
Sales of asthma drug Singulair plunged 75 percent to $337
million in the quarter. The pill was Merck's biggest product,
with annual sales of $6 billion, before cheaper generics flooded
the U.S. market last August.
More pain from generics is in store. Merck's Maxalt migraine
drug recently lost patent protection and its Temodar brain
cancer medicine will soon face cheaper copycats.
Merck aims to seek marketing approval this year for a
handful of new drugs, including a sleep aid called suvorexant
now before U.S. regulators. It is counting on these products to
help offset plunging sales of Singulair, Maxalt and Temodar.
But success of the drugs is far from assured, and Merck has
had several disappointments in recent months. In January, a
cholesterol fighter called Tredaptive failed to prevent heart
problems in clinical trials and raised safety concerns. It was
recalled in Europe following those findings.
The following month, Merck said it would delay until next
year a U.S. marketing application for osteoporosis treatment
Merck's animal health business posted sales of $840 million,
a 2 percent gain, while sales of the company's array of consumer
care products rose 3 percent to $571 million.