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Merck Second-Quarter Profit Falls as Generics Erode Sales

Merck Profit Beats Analysts Estimates on Diabetes Drug Sales
Sales of the diabetes medications Januvia and Janumet increased 5 percent to $1.5 billion. Photographer: JB Reed/ Bloomberg

Merck & Co., the second-biggest U.S. drugmaker by sales, reported net income plunged 49 percent after sales of its asthma drug Singulair dropped because of generic competition.

Net income fell to $906 million, or 30 cents a share, from $1.79 billion, or 58 cents, a year earlier, the Whitehouse Station, New Jersey-based company said today in a statement. Earnings excluding one-time items of 84 cents a share beat by 2 cents the average of 16 analysts’ estimates compiled by Bloomberg.

Revenue dropped 11 percent to $11 billion, hurt by an 80 percent decline in sales from Singulair, which lost patent protection in the U.S. in 2012 and in Europe in February. The company said full-year sales are forecast to be 5 to 6 percent less than in 2012 at current exchange rates. Growth has stalled as Merck’s experimental osteoporosis therapy odanacatib and sleep drug suvorexant faced regulatory delays.

“The fact they posted weaker sales and took sales guidance down is going to be entering investors’ minds,” Judson Clark, an analyst at Edward Jones & Co., said in a telephone interview today. “It’s not ideal.

Merck fell less than 1 percent to $48.05 at 4 p.m. New York time. The stock has gained 17 percent this year.

Investors Eager

“Investors are eager to see a return to growth,” said Jami Rubin, an analyst with Goldman Sachs Group Inc. who has a neutral rating on the stock. The diabetes drug is facing competition from drugs by Eli Lilly & Co., Johnson & Johnson, and Bristol-Myers Squibb Co.

Rubin predicted that without a rebound in sales, or a major strategic shift at Merck, that the stock would likely be stuck near its current price.

Singulair generated $281 million in the second quarter, Merck said.

In April, The company replaced its head of research and development, Peter Kim, with Roger Perlmutter, who led research at Amgen Inc. Merck is developing drugs in cancer and Alzheimer’s, though those therapies are still years away from the market.

No Major Changes

The company will adjust its research and development to improve efficiency, Perlmutter said on a conference call today. “Our expectation is there aren’t going to be big, enormous changes,” he said.

The company’s prospects look shaky in the short term, said Tim Anderson, an analyst with Sanford C. Bernstein & Co. said earlier this month.

“Following the delay in odanacatib and more recently the lowered 2013 guidance, a ’crisis in confidence’ has been building that makes the near-term story with Merck challenging,” he said in a July 15 note to clients. “The longer-term financial outlook for Merck looks reasonable but not great.” Suvorexant, a sleep drug, was this month rejected by U.S. regulators, though the agency said it may approve the drug at lower doses.

As a result, the company’s stock is relatively cheap, said Mark Schoenebaum, an analyst with International Strategy & Investment Group in New York. “There are pipeline catalysts, it’s just people aren’t optimistic about them,” he said in a video message to clients before today’s results. “That’s what creates the reasonable risk-reward. And I get why investors aren’t optimistic -- they’ve swung and missed on everything in the last two years.”

Download: Earnings

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