Merck Profit Beats Analysts’ Estimates on Diabetes Drugs, Cost Reductions

Merck & Co., the second-largest U.S. drugmaker, reported first-quarter profit that topped analysts’ estimates, boosted by cost reductions and higher sales of its Januvia diabetes pill.

Earnings excluding a $500 million charge to settle an arbitration dispute with Johnson & Johnson (JNJ) and other one-time items were 92 cents a share, beating the 84-cent average estimate of 15 analysts surveyed by Bloomberg. Net income more than tripled to $1.04 billion, or 34 cents a share, the Whitehouse Station, New Jersey-based company said. Sales rose 1.4 percent, led by rising demand for Januvia and the HIV medicine Isentress.

Merck is eliminating jobs, buying back shares and investing in new research as the company loses patent exclusivity in the next five years to products responsible for half of the company’s revenue. The drugmaker settled its dispute with New Brunswick, New Jersey-based J&J in April over the arthritis drug Remicade, ending a conflict that weighed on Merck shares.

“Merck certainly showed they have the numbers under control and things are going well,” said David Maris, an analyst with CLSA in New York, in a telephone interview. “Their core growth products are doing very well, including Januvia.”

Forecast

Merck raised the lower end of its 2011 profit forecast to $3.66 a share, excluding certain items. The company on April 15 had affirmed the previous range of $3.64 to $3.76 following the Remicade resolution.

Merck rose 18 cents to $35.95 at 4 p.m. in New York Stock Exchange composite trading. The shares increased 2 percent in the past 12 months.

This is the first quarter of earnings under Kenneth Frazier, who took over as chief executive officer on Jan. 1. Since then, Merck has reported pipeline setbacks including a halted trial of the company’s experimental blood thinner, vorapaxar, which resulted in a $1.7 billion writedown in February. Last month, the company walked away from a second blood thinner, betrixaban, and had a trial of its vaccine to prevent staph infections suspended pending a review.

Still, Frazier in February said he’s committed to spending as much as $8.5 billion in research and development, a sum that would rank Merck alongside bigger rivals New York-based Pfizer Inc. (PFE) and Roche Holding AG in Basel, Switzerland. That target was lowered today to as much as $8.4 billion.

Hepatitis Drug

Merck is awaiting U.S. approval for its experimental hepatitis C drug boceprevir. This week, a Food and Drug Administration advisory panel recommended that the agency approve the product. The drug is expected to bring in about $600 million a year by 2015, the average estimate of six analysts surveyed by Bloomberg. The company is also conducting tests in 30,000 patients for its cholesterol drug anacetrapib.

Merck lost exclusive rights last year to blood-pressure drugs Cozaar and Hyzaar. In 2012, the company will face generic competition on its asthma treatment, Singulair, the company’s top drug with $4.99 billion in sales last year. Merck eliminated about 11,500 jobs last year in a plan to reduce its workforce by 17 percent by 2012. The workforce was reduced in the first quarter to 93,000 from 94,000 at the end of 2010.

Sales of Cozaar and Hyzaar declined 46 percent to $426 million, from $782 million in the first quarter of last year. That compares with $364 million, the average estimate of three analysts surveyed by Bloomberg.

Januvia, Janumet

Sales of Januvia and Janumet increased 47 percent to $1.04 billion. Januvia stimulates the pancreas to produce more insulin and signals the liver to make less blood sugar. The medicine doesn’t have side effects linked to other types of diabetes medicines, studies suggest.

Revenue from the HIV treatment Isentress increased 26 percent to $292 million. Isentress is the first in a new class of AIDS medicines that attack HIV by blocking an enzyme used to hijack healthy immune cells.

Remicade sales rose 12 percent to $753 million. Under the agreement with J&J, Merck will keep exclusive marketing rights in 70 percent of the areas where it sells the drug and increase J&J’s share of the profit from those sales to 50 percent.

“Investors have clarity around this messy situation and can now focus and invest in Merck for the late-stage pipeline,” said Marc Goodman, an analyst at UBS AG in an April 15 note.

To contact the reporter responsible for this story: Tom Randall in New York at trandall6@bloomberg.net.

To contact the editor responsible for this story: Reg Gale in New York at rgale5@bloomberg.net.

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