Merck profits signal a rebound

The drugmaker said sales were key to overcoming Vioxx losses.
October 23 , 2007 | Karl Stark (Inquirer Staff Writer)

Merck & Co. Inc. is coming back.
Two years ago, the company was reeling from its failed pain reliever, Vioxx, and from the impending loss of one of its most profitable drugs. Analysts were openly skeptical about the company's prospects.

But yesterday, Merck reported a 62 percent rise in net income for the third quarter, fueled by a doubling of vaccine sales.

Merck, whose vaccine operations are based in West Point, Montgomery County, made more money in part because it cut marketing and administrative costs 18 percent and increased revenue 12 percent.

Driving sales were Merck's heavily marketed drugs, including its top seller, the asthma and allergy medication Singulair, and more recent additions, including the human papillomavirus vaccine Gardasil.

So far, the market has responded, driving up Merck's share price 20 percent over the last year.

Merck's return to glory is far from assured. Like its competitors, the third-largest U.S. drugmaker faces patent expirations on key products in the next few years. And the company's quarterly results improved in part because executives chose to reserve less money for Vioxx lawsuits than in the quarter a year earlier.

Merck must still contend with 26,600 lawsuits involving Vioxx, which the company pulled from the market three years ago for safety reasons.

Vioxx "is still the biggest risk," said Michael Levesque, a credit analyst and senior vice president with Moody's Investors Service.

Still, Levesque added, "they have executed on their pipelines in the last several years in a way that sets them apart from many of their peers."

The company cited the third quarter, which ended Sept. 30, as part of a trend. "The momentum that Merck began to build last year continues, as proven by the strong performance in this last quarter," chief executive officer Richard T. Clark said in a conference call with Wall Street analysts.

Sales for the quarter were $6.1 billion, up from $5.4 billion in 2006. Net income increased to $1.5 billion from $941 million. And earnings per diluted share rose to 70 cents from 43 cents.

Merck's biggest seller, Singulair, which goes off patent in 2012, saw its sales rise 17 percent to $1 billion in the quarter.

The antihypertension drugs, Cozaar and Hyzaar, reached $814 million, or about even with last year. Those patents expire in April 2010.

Another big seller, Fosamax for bone loss, chalked up $725 million in sales, representing a 6 percent drop. It goes off patent in February.

Total vaccine sales were a bright spot, rising from $555 million a year earlier to $1.2 billion. Leading the firm's vaccine sector was Gardasil, the new vaccine against the human papillomavirus, which can cause cervical cancer and genital warts. The drug accounted for $418 million for the quarter and is expected to have one of the largest markets in history for a vaccine.

Rotateq, the vaccine against rotavirus that launched in February 2006, had sales of $171 million in the third quarter. BothChildren's Hospital of Philadelphia and the nearby Wistar Institute helped develop the vaccine and receive royalties.

Eight Merck drugs have been approved by the FDA in the last two years, including six novel compounds, such as Januvia, Gardasil and the new HIV drug Isentress.

Isentress, which won approval this month, is a first-in-class treatment for HIV patients whose infections have become resistant to other drugs.

The medication could gain more than half the sales in its projected $1 billion class by 2016, said analyst Sylvia Eash of Decision Resources, a privately held firm in Waltham, Mass., that analyzes drugs for pharmaceutical and biotech firms.

On the Vioxx front, Merck put aside an additional $70 million for its legal defense, a big drop from the $598 million it reserved in last year's third quarter. The difference helped cut marketing and administrative expenses in this year's third quarter, the company said.

Merck spent $160 million on the suits in the third quarter alone. It has not put aside any money to pay verdicts, a company spokeswoman confirmed.

The company's scorecard, as of yesterday, showed 11 victories and five losses.

The five losses carry judgments totaling $102.5 million, though the company is appealing each case and has yet to pay any money.

Marc Grossman, a Long Island lawyer who is representing about 350 Vioxx plaintiffs, said Merck was "playing this denial game" and "creating the perception that their Vioxx strategy is working . . . when in fact the litigation is just beginning."

Daniel Hoffman, a pharmaceutical analyst based in Glenmore, Chester County, praised management for starting to turn around the company, but said the Vioxx cases remained a concern. "They're not out of the woods by any stretch of the imagination," he said.

Merck's stock rose $1.53, or 2.9 percent, to close at $54.64.

More Information about Vioxx here