Merck Shares Slump on Earnings Beat as Januvia Sales Decline in Q3

Andrew Klips |

Shares of Merck & Co. (MRK) have fallen to five-month lows after releasing a third-quarter report that topped expectations, but showed that rivals’ new diabetes drugs and suspending sales of Zilmax feed supplement carved into profits as the company lowered the high end of its full-year guidance.

For the quarter, Whitehouse Station, New Jersey-based Merck, the world’s third-largest pharmaceutical company by revenue, reported total sales of $11.03 billion, down 4 percent from $11.49 billion in the year prior quarter.  Net income was $1.12 billion, or 38 cents per share, down from $1.73 billion, or 56 cents per share, in the third quarter of 2012.  Excluding one-time items, which included acquisition and restructuring costs, adjusted profits were $2.73 billion, or 92 cents per share.

Wall Street was expecting adjusted earnings of 88 cents per share on revenue of $11.13 billion.

Sales of blockbuster Type 2 diabetes drug Januvia surprisingly took a hit, declining from $975 million in last year’s quarter to $927 million this year.  In 2006, Januvia was the first drug of its type, an oral DPP4 inhibitor, but competitors like Bristol-Myers Squibb’s (BMY) Onglyza have since hit the market and taken part of Januvia’s market share.  Apropos, shares of BMY are higher in Monday trading on promising news about its new lung cancer drug candidate and an upgrade to overweight at Morgan Stanley.

Merck blamed exchange rates and wholesalers reducing inventory as part of the reason for reduced Januvia sales.  Sales a Janumet, a drug related to Januvia, improved 9 percent to $442 million.

Three of Merck’s top ten sellers posted year-over-year declines in sales.  Sales of asthma and allergy pill Singulair have been pummeled since losing patent protection in August 2012.  Once raking-in well over $5 billion annually, generics caused sales to plunge by 53 percent last quarter to only $280 million.

Revenue from Merck’s animal health business slipped 2 percent to $800 million, in part because of a decision to suspend sales of weight-gain feed supplement Zilmax because of concerns that the drug caused lameness in cattle.  Meat processing giant Tyson (TSN) said in August that it would no longer accept cattle that had been fed Zilmax.  Merck said that it doesn’t believe Zilmax is the cause, but has halted sales as an investigation explores that situation.

Autoimmune disease treatment Remicade notched by best percentage gain for Merck, rising 17 percent to $574 million.  Another bright spot was Gardasil vaccine, used to prevent cervical cancer, with sales climbing 15 percent to $665 million.

“This quarter we delivered solid financial results, with strong contributions from our vaccine, immunology and HIV businesses, and effective cost management,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “We are improving productivity and focusing our R&D and commercial resources more precisely to enable our investments in the best opportunities for innovation and growth.”

Merck kicked off October by announcing efforts to bolster future profits through a restructuring plan that included cutting 8,500 jobs (about 10% of its total staff) and dumping research efforts on certain drugs in a bid to save $2.5 billion annually in operating costs.  In 2011, Merck announced a plan to eliminate 13,000 positions.

Several majors, like Pfizer Inc. (PFE) , AstraZeneca Plc (AZN) and Sanofi SA (SNY) have made similar moves in recent years to streamline costs after the so-called “patent cliff” squeezed profits as generics to blockbusters hit the market.

For the full year, Merck now sees profits in the range of $3.48 to $3.52 per share.  When it disclosed its restructuring efforts earlier this month, the company guided earnings between $3.45 and $3.55 per share.

Shares of MRK have fallen about 2.5 percent in Monday trading to $45.38 shortly after 1 PM ET.  Through Friday’s close, shares were up about 18 percent in 2013.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TSN Tyson Foods Inc. 61.43 -0.16 -0.26 2,736,723
BMY Bristol-Myers Squibb Company 57.10 1.87 3.38 8,310,153
PFE Pfizer Inc. 31.71 0.77 2.47 19,738,742
AZN Astrazeneca PLC 27.12 0.85 3.22 6,450,109
MRK Merck & Company Inc. (new) 61.31 1.19 1.97 6,557,011
SNY Sanofi American Depositary Shares (Each repstg one 40.32 0.55 1.38 972,339
EPRJF Emperor Watch & Jewellery 0.01 0.00 0.00 0

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