Merck & Co., the second largest U.S. drugmaker, forecast 2011 earnings that missed analyst estimates and posted a fourth-quarter loss after taking a $1.7 billion charge to write down its experimental blood thinner.
Merck forecast 2011 profit, excluding certain items, to be $3.64 to $3.76 a share, missing the $3.81 a share estimate of 20 analysts surveyed by Bloomberg. The fourth quarter net loss was $531 million, or 17 cents a share, the Whitehouse Station, New Jersey-based company said. The company withdrew its long-term profit forecast of high single-digit growth through 2013.
Merck’s Kenneth Frazier, who took over as chief executive officer on Jan. 1, said meeting the company’s 2013 profit forecast would have required deep cost cuts that limit investment in research and deals, during a conference call today. Earlier this month, a study of Merck’s most promising drug from its 2009 Schering-Plough Corp. purchase, vorapaxar, was halted after patients suffered strokes.
“Investors are looking for clarification on what happened,” said Les Funtleyder, a fund manager at Miller Tabak & Co. in New York. “Revenues and bottom line are fairly consistent; everybody is watching the pipeline.”
Excluding the vorapaxar charge and other one-time items, profit was 88 cents a share, beating by 5 cents the average estimate of 18 analysts surveyed by Bloomberg. Sales jumped 20 percent to $12.1 billion from $10.1 billion after the $49 billion acquisition of Schering-Plough in November 2009, led by sales of diabetes drugs Januvia and Janumet, Singulair for allergies, and the Isentress AIDS pill.
Shares of Merck fell $1.25, or 3.7 percent, to $32.57 at 9:33 a.m. in New York Stock Exchange composite trading. The stock has lost 14 percent in the 12 months before today.
Merck is trimming expenses and adding products through acquisitions and research to replace revenue from drugs facing competition from generic copies. The company said it’s moving forward with its plan to cut 15,000 jobs and close facilities to save $3.5 billion annually by 2012.
“I am not blind to what investors want us to do,” Frazier said today during a conference call with analysts and investors. “They want us to invest in prudent ways, in ways that actually drive return on investment and productivity. But as a company we believe that the only sustainable strategy in the healthcare environment that we’re in is real innovation that makes a difference to patients and payers.”
This is the first quarterly earnings reported by Frazier. His predecessor, Richard Clark, remains chairman.
Frazier takes over Merck with one of the most promising arsenals of experimental drugs in the industry, said Tony Butler, an analyst at Barclays Capital in New York, in a Jan. 24 note to clients. Frazier also faces immediate challenges from the failed blood-thinner trial and an arbitration dispute with Johnson & Johnson over the Remicade arthritis drug, Merck’s second-best selling product.
“The key swing factor in 2011, in our view, remains the arbitration with J&J,” Butler said. “We see 2011 as a significant pipeline newsflow year for Merck.”
Merck’s forecasts released today anticipate keeping the company’s full share of rights to Remicade. J&J and Schering-Plough split proceeds from the drug. J&J has argued that Merck’s acquisition violated a provision in the Schering-Plough agreement that would allow J&J to keep all of the drug’s revenue. Remicade fourth-quarter sales were $710 million.
Vorapaxar researchers stopped a study of 13,000 patients who began taking the drug at the onset of a heart attack or chest pain after a safety board found an increased risk of bleeding in the brain. A second study, of 26,500 patients who previously had heart disease, was stopped for the 25 percent with a history of stroke, who were determined to also be at risk.
Merck lost exclusive rights last year to blood-pressure drugs, Cozaar and Hyzaar, with combined 2009 sales of $3.6 billion. Sales of Cozaar and Hyzaar declined 57 percent to $415 million. That compares with the $410 million average estimate of two analysts surveyed by Bloomberg.
In the past quarter, Merck’s hepatitis C drug, boceprevir, won expedited reviews by regulators in the U.S. and European Union. A decision by the U.S. Food and Drug Administration is also expected this year on an extended version of the Janumet diabetes pill, which combines Merck’s Januvia with a generic drug called metformin.