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Merck 2Q profit more than doubles


By Associated Press
Posted: July 29, 2014 - 2:30 pm ET
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A big one-time gain and a tax benefit helped drugmaker Merck & Co. more than double its second-quarter profit, improve its profit forecast and top analysts' expectations.

The maker of popular Type 2 diabetes pill Januvia said Tuesday that net income increased to $2 billion, or 68 cents per share, from $906 million, or 30 cents per share, in the same quarter a year earlier.

Merck, based in Whitehouse Station, New Jersey, said its earnings, adjusted for one-time gains and costs, were 85 cents per share. Analysts surveyed by Zacks Investment Research expected 81 cents.

Merck recorded a $741 million gain from AstraZeneca, which exercised its option to buy out Merck's interest in the British drugmaker's heartburn drugs Nexium and Prilosec.

The world's fourth-biggest drugmaker's revenue fell 1% to $10.93 billion, still $220 million above Wall Street expectations.

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CEO Kenneth Frazier said on a conference call that Merck favors smaller acquisitions — like its $3.85 billion purchase of hepatitis C treatment developer Idenix Pharmaceuticals, expected to close this quarter — and is not looking for a deal enabling it to move its legal headquarters to a country with a lower tax rate.

That strategy, called inversion, is suddenly hot in corporate America. The U.S. has the world's highest corporate tax rate, 35%, but pharmaceutical companies here generally pay well under 30%.

Chicago-based drugmaker AbbVie Inc. just reached a $55 billion deal to combine with British counterpart Shire PLC and incorporate in Britain.

BernsteinResearch analyst Dr. Timothy Anderson wrote to investors that Merck "will likely have another flattish year in 2014 in terms of financial performance but then growth should return more consistently."

Merck noted it expects by early next year to launch two new drugs awaiting approval: long-delayed suvorexant for insomnia and pembrolizumab for advanced melanoma. The latter is part of the promising new class of drugs that stimulate the immune system to identify and attack cancer cells.

Meanwhile, Merck got U.S. approval in April for two tablets to gradually reduce grass and ragweed allergies, and in May for anticlotting drug Zontivity.

Sales of Merck's prescription drugs fell 2% to $9.09 billion. Top sellers were Type 2 diabetes pills Januvia and Janumet, up 2% at $1.58 billion, and cholesterol medicines Zetia and Vytorin, up 6% to a combined $1.13 billion.

Merck's consumer health segment had the biggest sales increase, up 19% to $583 million. In May, Merck agreed to sell that to Germany's Bayer for $14.2 billion. It includes Claritin and the Coppertone sun-care line.

Merck said it expects full-year sales of $42.4 billion to $43.2 billion and profit of $3.43 to $3.53 per share, excluding one-time items. In January, it forecast $3.35 to $3.53.

In morning trading, Merck shares were up 72 cents at $58.69. They have increased 20% in the last 12 months.


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