February 3, 2009 / 2:14 PM / 10 years ago

WRAPUP 3-Merck, Schering beat views, helped by cost cuts

* Merck Q4 EPS of 87 cents vs 74 cent Wall St view

* Schering Q4 EPS 39 cents vs 30-cent estimate

* Merck sees ‘09 sales at low end of range, Gardasil weak

* Sales of shared cholesterol drugs fall 26 pct

* Merck shares rise 5.4 pct, Schering up 5.3 pct (Adds comment from Barclays analyst, updates shares)

By Lewis Krauskopf and Ransdell Pierson

NEW YORK, Feb 3 (Reuters) - Cost cuts and favorable taxes allowed drugmakers Merck & Co (MRK.N) and Schering-Plough Corp SGP.N to post quarterly results ahead of Wall Street targets on Tuesday, sending shares higher despite waning sales for their shared cholesterol treatments.

The two New Jersey-based drugmakers, which announced significant job cuts last fall, have been striving to become more efficient amid setbacks to their cholesterol drugs Vytorin and Zetia, whose combined quarterly sales slumped 26 percent.

The reports close out a mixed reporting season for large U.S. drugmakers, many of which also relied on cost cuts to offset tepid sales. European rivals Roche Holding AG ROG.VX and GlaxoSmithKline PLC (GSK.L) report later this week.

“Schering-Plough and Merck are both holding up pretty well when you consider what’s happening in the economy,” said Edward Jones analyst Linda Bannister.

Merck and Schering-Plough shares were both up more than 5 percent in early afternoon trading.

Investor enthusiasm for the results was tempered by disappointing sales for key products.

Merck reported a 16 percent decline in sales of its Gardasil cervical cancer vaccine, and cut its expectation for the product’s sales this year, while sales of Schering-Plough’s Remicade arthritis drug missed analyst targets.

Some analysts believe Schering could be the next large pharmaceutical takeover target on the heels of Pfizer Inc’s (PFE.N) $68 billion deal to acquire Wyeth WYE.N because of its relatively digestible size and because none of its big products face generic competition any time soon.

“Given the attractiveness that Pfizer thinks they can get out of the synergies with Wyeth, it would seem that Pharma-on-Pharma-type acquisitions still make sense from a cost standpoint,” said Chris Armbruster, a research analyst at Al Frank Asset Management.

TAXES HELP MERCK

For the fourth quarter, Merck reported net income of $1.64 billion, or 78 cents per share. That compared with a loss of $1.63 billion, or 75 cents per share, in the year-earlier period, when Merck took several big charges.

Excluding special items, earnings were 87 cents per share, 13 cents ahead of analysts’ average estimate, according to Reuters Estimates.

On top of cost controls, Merck’s tax rate was about 10 percentage points lower than some analysts expected, bolstering results.

Merck’s sales fell 3 percent to $6.03 billion, but were slightly ahead of the $5.98 billion expected by analysts. Combined sales of its new diabetes drugs Januvia and Janumet soared 80 percent to $533 million.

The drugmaker cut its forecast for 2009 Gardasil sales by about $300 million to a range of $1.1 billion to $1.3 billion. Gardasil, now competing with Glaxo’s Cervarix, was recently denied approval by U.S. regulators for women ages 27 to 45.

Due to the weaker outlook for Gardasil, once a critical growth engine, Merck said 2009 sales would be at the low end of its forecasted range of $23.7 billion to $24.2 billion.

COST SAVINGS AT SCHERING

For the quarter, Schering-Plough earned $442 million, or 27 cents per share. That compared with a loss of $3.4 billion, or $2.08 a share, a year earlier, when it took charges for its purchase of Organon BioSciences.

Excluding items, Schering earned 39 cents per share, 9 cents ahead of analysts’ targets.

Sales, including new products from the Organon deal, rose 17 percent to $4.35 billion, a bit shy of analysts’ projection of $4.51 billion. Growth was crimped 6 percentage points by the stronger dollar, which lowers the value of overseas sales.

Credit Suisse analyst Catherine Arnold said Schering’s most disappointing product was Remicade, whose sales rose 8 percent to $491 million, but fell $52 million short of forecasts.

Schering’s expenses of $3.81 billion were well below the $4.24 billion Arnold expected.

Schering’s tax rate of 15 percent was 2 percentage points lower than expected, according to Goldman Sachs analyst Jami Rubin.

Although the drug industry is performing relatively well compared with other sectors, Barclays analyst Tony Butler said it is faring poorly versus earlier decades.

“Annual revenue from pharmaceutical companies of old, if you look out 30 years, historically grew on average in the high single-digit to low double-digit range globally,” he said. “But at best, the pharma industry will grow only 5 percent in 2009,” he said. “The fundamentals are fairly anemic.”

Schering shares were up 92 cents, or 5.3 percent, at $18.39 on the New York Stock Exchange, off an earlier high at $18.94. Merck shares rose $1.52, or 5.4 percent to $29.95. (Editing by Derek Caney and Matthew Lewis)

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