March 6 (Bloomberg) -- Merck KGaA, the German maker of the Erbitux cancer medicine, said costs to cut jobs will hurt profit this year after setbacks in the company’s drug unit.
Core earnings, which exclude costs such as writedowns and merger expenses, were 1.69 euros a share in the fourth quarter compared with 1.78 euros a year earlier, Darmstadt-based Merck said today in a statement. Analysts predicted 1.70 euros a share, the average of 11 estimates compiled by Bloomberg.
Merck is reorganizing after setbacks in developing medicines for cancer and multiple sclerosis. The company said Feb. 24 it plans to eliminate jobs, and last year it ended seven drug development programs and hired a new finance chief and head of pharmaceuticals.
“We managed to deliver on our profitability guidance despite facing a softening economy and significant one-time charges,” Chief Executive Officer Karl-Ludwig Kley said. “However, we recognize that the competitive and market pressures we face in our business are likely to increase over the next few years.”
Fourth-quarter net income tripled to 135.6 million euros ($179 million) from 46.5 million euros a year earlier, when earnings were held back by the cost of buying Millipore Corp. Analysts predicted 169.3 million euros, the average of seven estimates. Revenue rose 3.1 percent to 2.63 billion euros, beating the 2.59 billion-euro average estimate.
Merck, which isn’t related to U.S. drugmaker Merck & Co., fell 3.9 percent to 77.50 euros in Frankfurt, giving the company a market value of 16.8 billion euros. The stock has returned 20 percent in the past year, outperforming the 16 percent return for the Bloomberg Europe Pharmaceutical Index.
“Merck displays a solid performance and shows confidence” with its forecast, Elmar Kraus, an analyst at DZ Bank in Frankfurt, wrote in a note to clients today. He recommends buying Merck shares.
Revenue will increase slightly in 2012 and 2013, while earnings before interest, tax, depreciation and amortization probably will decline because of expenses for the reorganization, the company said. Analysts predict sales will rise 1.8 percent this year and 2.2 percent in 2013, based on estimates compiled by Bloomberg.
Merck will pay a dividend of 1.50 euros a share, up from 1.25 euros a year earlier.
A late-stage clinical trial of the experimental lung-cancer drug Stimuvax will continue based on an interim analysis of the study, Merck said today. A final result is expected next year, the company said in a presentation to analysts. Stimuvax is among the drugs Merck is counting on to boost sales.
“Stimuvax-related risk has been lowered by the decision that has just been made, as we don’t have to halt the study, but it remains a high-risk project,” Kley said at a news conference today. U.S. regulators put Stimuvax trials on hold for three months in 2010 after a patient with a blood malignancy developed a brain infection while taking the drug.
Oncothyreon Inc., Merck’s partner on Stimuvax, fell 40 percent to $5.07 at the close of trading in New York.
A decision by the European Medicines Agency on whether to approve Erbitux for lung cancer is expected in the second half, the company said. Stefan Oschmann, Merck’s head of pharmaceuticals, told JPMorgan Chase & Co. analysts in January that the chances of getting Erbitux approved for that use in Europe were less than 50 percent.
Health Unit Sales
Sales at the Merck Serono health unit climbed 2.7 percent to 1.54 billion euros. Erbitux, already sold to treat advanced colon cancer and tumors in the head and neck, increased 6.7 percent to 225.1 million euros, while sales of the Rebif multiple sclerosis treatment rose 0.2 percent to 430.8 million euros.
Consumer-health sales rose 2.4 percent to 129 million euros.
Merck Millipore, which makes lab equipment and research tools, had sales of 610 million euros, up 5.2 percent. The performance-materials unit, the world’s biggest maker of liquid crystals for flat-screen televisions and electronics, reported a sales increase of 1.7 percent to 344 million euros.
To contact the editor responsible for this story: Phil Serafino at firstname.lastname@example.org.