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Merck Profit Tops Analyst Estimates on Diabetes Drug Sales

Oct. 28 (Bloomberg) -- Merck & Co., the second-largest U.S. drugmaker, reported third-quarter profit that topped analysts’ expectations on higher sales of diabetes drugs and vaccines. The company raised the lower end of its annual forecast.

Net income climbed to $1.69 billion, or 55 cents a share, from $342 million, or 11 cents, a year earlier, when results included a $950 million legal reserve charge, the Whitehouse Station, New Jersey-based company said today in a statement. Earnings excluding one-time items of 94 cents a share beat by 3 cents the average estimate of 15 analysts surveyed by Bloomberg.

Merck has been cutting jobs to save costs, while trying to preserve research, as it prepares for generic competition next year to its best-selling product, the asthma drug Singulair. Third-quarter revenue also exceeded analyst estimates, with the biggest growth coming from sales of the diabetes medicines Januvia and Janumet and the cervical cancer vaccine Gardasil.

“Across the board, it is a very high-quality quarter,” said Seamus Fernandez, an analyst at Leerink Swann & Co. in Boston, in a phone interview. “They beat the earnings, they were very strong on the top line. It was high quality across the board. Almost all of their major products beat our forecast in the quarter.”

Merck raised the lower end of the forecast for full-year earnings excluding certain items to $3.72 to $3.76 a share from $3.68 to $3.76 a share. The company also lowered 2011 projected research and development expenses to a range of $7.8 billion to $8 billion.

Improving Efficiency

Merck researchers “are really identifying ways to improve the efficiency of the R&D process,” said Chief Executive Officer Kenneth Frazier in a conference call. He said the company was “firmly committed” to continuing to invest in research to invent new drugs.

Merck rose 2.3 percent to $35.11 at the close in New York. The company’s shares have declined 2.6 percent this year.

Sales rose 8 percent to $12 billion. Analysts had expected $11.6 billion. The slide in the dollar against foreign currencies boosted worldwide sales by 5 percent, Merck said in the statement.

Revenue from Januvia for diabetes rose 41 percent to $846 million. Gardasil sales soared 41 percent to $445 million because of increased demand for both boys and girls and an introduction of the vaccine in Japan, Merck said.

Gardasil for Males

Thirty percent of first doses of Gardasil in the U.S. were now for males, Merck said. On October 25, the vaccine won a recommendation from a U.S. advisory panel for routine use in boys to protect against cancers related to human papillomavirus. In addition to cancers of the anus and penis, the virus may cause many cases of throat cancer in men spread through oral sex, recent studies have suggested.

Januvia “was incredibly strong,” said Fernandez. “Vaccines were strong across the board.”

The only “disappointing number,” said Fernandez, was the sales of the company’s new hepatitis C drug Victrelis. The drug generated $31 million in the quarter, the company said. The treatment competes with Vertex Pharmaceuticals Inc.’s Incivek, which yesterday reported sales of $420 million in the third quarter.

In July, Merck said it would eliminate another 12,000 to 13,000 jobs by 2015, expanding a restructuring program that reduced 11,500 positions last year.

To contact the reporter on this story: Robert Langreth in New York at rlangreth@bloomberg.net

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

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