Merck’s (MRK) earnings per share (EPS) for the fourth quarter of 2009 came in at 79 cents (excluding non-recurring items), marginally beating the Zacks Consensus Estimate of 78 cents but lower than 87 cents reported in the year-ago period. For the full-year of 2009, Merck reported EPS of $3.25, down from $3.42 in 2008.
Merck reported revenues of $10 billion compared to $6 billion in the fourth quarter of 2008. However, this is not comparable since the reported quarter’s results include Schering-Plough operations since the closure of merger on Nov 3, 2009. Revenues were favorably impacted by 1% due to foreign exchange movement.
For 2009, the company reported $27.4 billion in revenues, up 15% compared to $23.8 billion in 2008. Revenues would have been higher but for the unfavorable foreign exchange movement, which affected global sales by 2%.
Results by Product
Gardasil, Merck’s cervical cancer vaccine, recorded yet another quarter of lower sales. For the reported quarter and 2009, Gardasil’s sales came in at $277 million (a 3% year-over-year decline) and $1.1 billion (a 20% decline), respectively. Sales have struggled recently due to difficulty in penetrating older patients. In addition, the vaccine is witnessing increased competition from GlaxoSmithKline’s (GSK) cervical cancer vaccine, Cervarix.
Singulair, one of the top selling drugs of Merck, continued its growth momentum. The drug recorded $1.3 billion (a 12% year-over-year growth) and $4.7 billion (a 7% growth) in sales for the reported quarter and 2009, respectively.
Cardiovascular franchise sales, primarily consisting of Vytorin and Zetia, recorded $4.7 billion in annual sales, almost unchanged from 2008. Isentress, the company’s product for HIV infection, recorded an increase of 80% to $234 million during the reported quarter.
Isentress’ label was expanded in 2009 to include its use as a combination therapy for previously untreated patients in both Europe and the U.S. As a result, we expect the drug to record increased sales in the forthcoming period.
Merck’s antihypertensive medicines, Cozaar and Hyzaar, recorded an 8% increase in sales ($955 million) during the quarter. We expect sales from these two drugs to decline significantly going forward as they are slated to lose market exclusivity in the U.S. and some of the major European markets during the first half of 2010.
The diabetes franchise, consisting of Januvia and Janumet, had a robust performance during the quarter compared to the year ago period. While Januvia sales grew 35% to $558 million, Janumet recorded sales of $202 million, an increase of 69%.
Confident Following Merger
Following the completion of its merger with Schering-Plough in Nov 2009, Merck is confident of achieving its previously announced target of $3.5 billion in annual savings in 2012.
The company announced the first phase of a global restructuring program, which is expected to yield annual savings in 2012 of about $2.6 billion-$3 billion, a major portion of the final target. The program, expected to be completed by the end of 2012 will incur about $2.6 billion-$3.3 billion in total pre-tax costs.
About $1.5 billion in restructuring charges were recorded during the reported quarter. At the end of 2009, Merck had approximately 100,000 employees which will be reduced by 15% in the next 3 years.
Merck will provide 2010 guidance in April along with its first quarter results. We have a Neutral recommendation on the stock.
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