Merck reports increased Victrelis sales in Q4 2011...

Posted on 2/2/12 on Zacks.com - Merck reveals Q4 financials, beating EPS speculations. For us HCV drug development wonks, we find Victrelis on an upward trajectory, with sales increasing to $87 million, up from $31 million and $21 million reported in the 3rd and 2ndquarters of 2011. They boast of a huge formulary win, that of the Veterans Health Administration, the nation's largest provider of Hepatitis C care.

Merck Beats on EPS, Guides In-Line
By: Zacks Equity Research
February 02, 2012 |Comments: 0

Merck & Co. (MRK) reported fourth quarter 2011 earnings per share (excluding special items) of 97 cents, a couple of cents above the Zacks Consensus Estimate and 10.2% above the year-ago earnings.

Revenues for the quarter increased 1.7% to $12.3 billion, just shy of the Zacks Consensus Estimate of $12.5 billion. Including one-time items, Merck swung to a profit of 49 cents per share from the year-ago loss of 17 cents.

The company reported full-year earnings of $3.77 per share, a penny above Zacks Consensus Estimate and 10.2% above the year-ago earnings. Earnings exceeded the top end of the company’s guidance range of $3.72 - $3.76 per share. Full-year revenues increased 4.5% to $48 billion, slightly below the Zacks Consensus Estimate of $48.2 billion. Including one-time items, Merck earned $2.02 per share, well above the year-ago earnings of 28 cents.

The Quarter in Details

Merck’s Pharmaceutical segment posted sales of $10.8 billion, up 3%. Products like Januvia, Janumet, Singulair, Isentress and Gardasil contributed to sales. However, the strong performance of these products was partially offset by lower sales of Vytorin. Remicade sales also declined during the quarter.

Singulair, indicated for the chronic treatment of asthma and relief of symptoms of allergic rhinitis, recorded $1.5 billion in sales, up 8% from the year-ago period. However, Singulair sales will experience a severe decline following its US patent expiry in August 2012.

Meanwhile, with Merck transferring exclusive marketing rights for Remicade and Simponi to Johnson & Johnson (JNJ), Remicade and Simponi combined sales fell 24%. We expect Merck to focus on improving penetration rates and drive growth in Europe, Russia and Turkey.

Isentress, the company’s product for HIV infection, recorded an increase of 24% to $387 million during the reported quarter.

The diabetes franchise, consisting of Januvia and Janumet, continued to perform well, and witnessed growth across all regions. Combined sales increased 40% to $1.3 billion. While Januvia sales increased 42% to $960 million, Janumet sales increased 34% to $386 million. Merck is working on increasing sales of its diabetes franchise by gaining approval for additional indications. The diabetes franchise should benefit from the recent approval of Juvisync, which is a combination of Januvia and Zocor.

Gardasil, Merck’s cervical cancer vaccine, recorded sales of $274 million, up 24% year over year. Sales were driven by increased vaccination of males aged 9-26 years. Zostavax sales came in at $78 million with performance being driven by an improvement in the supply situation. Merck reported that it has filled all backorders and the supply situation has returned to normal in the US.

Meanwhile, Merck’s ProQuad, MMR II and Varivax vaccines recorded combined sales of $276 million, down 3%. Vytorin sales fell 16% to $475 million during the quarter.

Merck provided an update on its recently approved hepatitis C treatment, Victrelis (boceprevir). Sales increased to $87 million, up from $31 million and $21 million reported in the third and second quarters of 2011, respectively. We were encouraged to see the sequential improvement in Victrelis sales.

According to the company, Victrelis was added to the VA formulary, which is the largest single provider of services to hepatitis C patients in the US. This represents a significant commercial opportunity for Victrelis.

Merck has an agreement with Roche (RHHBY) for the global marketing of Victrelis as part of a triple combination therapy. Victrelis is available in the US and 19 other countries.

Emerging markets accounted for 17% of pharmaceutical sales in the fourth quarter of 2011 with China continuing to put in a strong performance.

Merck’s animal health segment posted sales of $868 million, up 6%. Increased sales of companion animal, swine and poultry products helped drive growth.

Consumer Care sales fell 5% to $361 million in the fourth quarter of 2011, mainly due to lower sales of Claritin and Coppertone.

Total costs declined 1.4% to $8.6 billion. Marketing and administrative expenses increased 5.9% to $3.6 billion in the fourth quarter of 2011 due to the impact of product launches, US health care reform fees and corporate charges. R&D spend declined 4.8% to $2.1 billion in the fourth quarter of 2011, mainly due to efficiency savings.

In-Line Guidance for 2012

With the release of fourth quarter results, Merck provided its outlook for 2012. The company expects adjusted earnings in the range of $3.75 - $3.85 per share. Guidance was in line with expectations -- the Zacks Consensus Estimate currently stands towards the higher end of the guidance range at $3.83 per share.

Revenues are expected to remain flat or close to 2011 levels. The company said that revenues would be negatively impacted by 2-3% at current exchange rates.

Merck expects R&D spend to remain at similar levels as in 2011. The company spent $7.7 billion on R&D in 2011. The company’s late-stage pipeline is advancing with five regulatory filings expected in 2012 and 2013. These include Bridion (a neuromuscular reversal agent), V503 (an investigational vaccine to help protect against certain HPV associated cancers), odanacatib (once-weekly oral treatment of osteoporosis), Tredaptive (atherosclerosis) and suvorexant (insomnia).

Neutral on Merck

We currently have a Neutral recommendation on Merck, which carries a Zacks #3 Rank (short-term Hold rating). Merck is entering a challenging period with its biggest product, Singulair, slated to lose US exclusivity in August. Singulair sales came in at $5.5 billion in 2011, accounting for 13.3% of Pharmaceutical sales.

We believe Merck will continue resorting to cost-cutting initiatives to drive the bottom-line. Meanwhile, some of the company’s recent launches should start contributing significantly to the top line in the forthcoming quarters.