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Merck KGaA Gains Most Since 2009 as Profit Beats Estimates

Merck KGaA, the German maker of the Erbitux cancer drug, rose the most almost three years in Frankfurt trading after third-quarter profit beat analysts’ estimates on growth at the Merck Serono pharmaceutical and Millipore equipment businesses.

Net income rose 7.5 percent to 226.6 million euros ($315.2 million) from 210.8 million euros a year earlier, the Darmstadt-based company said today in a statement. Profit exceeded the 179.3 million-euro average of nine analyst estimates compiled by Bloomberg. Core earnings, which exclude costs such as writedowns and merger expenses, totaled 1.91 euros a share, beating the average estimate of 1.67 euros.

Gains in the quarter came from its top-selling drugs, as Merck reorganizes assets and reviews its product line following regulatory setbacks for medicines such as the cladribine pill against multiple sclerosis. The company also got a boost from biotechnology-equipment maker Millipore Corp., which it bought last year, as well as a one-time tax credit.

“It looks like a very solid set of results, driven by Merck Serono,” Jack Scannell, a London-based analyst at Sanford C. Bernstein Ltd., said in an interview today. “There seems to be some real margin expansion, with a clean operating result.”

Merck, which isn’t related to U.S. drugmaker Merck & Co., rose 8.5 percent, the biggest gain since Jan. 23, 2009. The stock has returned 11 percent this year including reinvested dividends, outpacing the 8.3 percent return for the Bloomberg Europe Pharmaceutical Index.

Top-End Forecast Reduced

Sales this year will amount to about 10 billion euros to 10.2 billion euros, the company said. Previously Merck had forecast sales of 10 billion euros to 10.4 billion euros. Third-quarter total revenue rose 3.8 percent to 2.53 billion euros, in line with the average estimate.

Revenue at Merck Serono climbed 5.4 percent to 1.47 billion euros. Sales of the MS therapy Rebif advanced 8.4 percent, excluding special effects such as currency shifts, to 426 million euros. The company benefited from price increases in the U.S. in January and June, and may have more “headroom” to raise prices with newer, more costly MS drugs entering the market, such as Novartis AG’s Gilenya, Scannell wrote in a note today.

Revenue from Erbitux increased 4.7 percent to 218 million euros, benefiting from higher sales in emerging markets.

No ‘Return’

Merck has discontinued seven drug development programs because the company wasn’t seeing “a return on investment,” Chief Executive Officer Karl-Ludwig Kley told reporters at a press conference today. It announced partnerships to develop two early-stage experimental MS drugs, and is “continuously searching” for new products to co-develop, Kley said.

Sales at the Merck Millipore equipment, ingredient and services division increased 5.2 percent to 588 million euros.

The performance-materials unit, the world’s biggest maker of liquid crystals for flat-screen televisions and electronics, reported a sales decline of 5.2 percent to 342 million euros. The increase in liquid-crystal sales was limited to 2.4 percent as customers chose to reduce inventory because of the weaker economic environment, the company said.

While the operating margin for the business improved during the quarter, liquid crystals and the rest of the chemicals business will be weak in the fourth quarter, Chief Financial Officer Matthias Zachert said at the news conference.

Scannell said Merck’s reduced top end of its forecast still exceeds his estimates.

“At the second quarter, they were pretty clear about the climate being challenging,” he said.

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