Merck seeks new medicine uses, cutting jobs again
January 30, 2009 3:49 PM ET
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WHITEHOUSE STATION, N.J. (AP) - Merck & Co., a Dow component and the world's No. 8 drugmaker by revenue, reports earnings for the fourth quarter on Tuesday morning. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: Merck is in the process of eliminating about 7,200 jobs, or nearly 13 percent of its workforce, as sales of some key products have been flat or slumping, including blockbuster osteoporosis treatment Fosamax, which got generic competition early last year.
It's also been plagued by a variety of production problems with its vaccines, troubles that have limited supplies and reduced revenue. Shingles vaccine Zostavax remains back-ordered, although many orders were filled in December, while hepatitis A vaccine Vaqta is only being shipped for children. It is expected to become available for adults in the second quarter. Shortages hit hepatitis B vaccine Recombivax in January, due to the need to upgrade some manufacturing equipment, with only a version for children available now.
Sales of the cholesterol drugs Merck jointly sells with partner Schering-Plough Corp. have been hammered for a year by reports questioning their efficacy and safety.
But earlier this month, the Food and Drug Administration said patients should not stop taking Vytorin, Zetia or other cholesterol-lowering drugs, based on its review of a controversial study that hammered Vytorin and Zetia sales.
In December, Merck ended its partnership with Dynavax Technologies Corp. on an experimental hepatitis B vaccine that ran into safety problems.
BY THE NUMBERS: Analysts polled by Thomson Financial expect, on average, earnings per share of 74 cents and revenue of $5.98 billion. In the year-earlier period, Merck posted a net loss of 75 cents per share, mainly due to a $4.85 billion charge to settle thousands of lawsuits over withdrawn painkiller Vioxx; revenue that quarter was $6.24 billion.
In the third quarter, earnings per share fell to 51 cents on a charge for restructuring, from 70 cents in the 2007 period.
ANALYST TAKE: Deutsche Bank analyst Barbara Ryan, who has a "Buy" rating on Merck, expects fourth-quarter revenue to be down about 7 percent because of slight declines in sales of vaccines, cholesterol drugs and asthma drug Singulair, plus Fosamax generic competition and unfavorable currency exchange rates, which hurt all major U.S. drugmakers in the quarter. But with the planned job cuts, she believes Merck can increase earnings per share in the mid-single digits through 2011. She writes that the management team seems committed to creating a company with a lower and more flexible cost structure.
Credit Suisse analyst Catherine Arnold sees Merck cutting marketing and administrative costs by a few hundred million dollars in 2009, boosting research spending by $100,000 or more and facing a slightly higher tax rate.
WHAT'S AHEAD: Merck has asked federal regulators to approve use in males of Gardasil, its vaccine against the human papillomavirus, which causes cervical and other sexually transmitted cancers and genital warts. Gardasil was launched in 2006 for girls and young women. Last June, the Food and Drug Administration rejected its use for older women, but in January it asked for more data on that issue. Merck also is seeking FDA approval to market its HIV drug Isentress in new patients, not just ones already treated with other medicines.