Merck KGaA‘s (MKGAF) earnings per share for the third quarter 2011 came in at $1.34, well below the Zacks Consensus Estimate of $2.30, but above the year-ago earnings of $1.29. Despite higher operating expenses, a positive foreign currency impact led to the upside in earnings.
Revenues for the reported quarter climbed 14.0% to $3,583.5 million, surpassing the Zacks Consensus Estimate of $3407 million. Impressive performance of the Pharmaceuticals division and the Merck Millipore division helped boost revenues.
Quarterly Details
The company operates under two heads: Pharmaceuticals and Chemicals. The Pharmaceutical division, in turn, functions under two heads, Merck Serono and Consumer Health Care. The Chemical division is split into Merck Millipore and Performance Materials.
Merck Serono’s revenue increased 5.4% during the quarter, driven by strong performance of Rebif (up 8.4%) and Erbitux (up 4.7%). Erbitux experienced a growth mainly in emerging markets.
The Consumer Health Care division’s revenues went up 7.1%, attributable to improved sales across all markets markets.
The Performance Materials division’s revenues slid 1.3% during the third quarter of 2011, due to negative currency impact and the divestment of Crop BioScience business in the first quarter. The Performance Materials division consists of Liquid Crystals business and Pigments business.
Merck KGaA’s Merck Millipore division saw an increase of 7.3%. This division comprises of three business units – Bioscience, Lab Solutions and Process Solutions,
Merck KGaA recorded a 6.4% increase in research and development expenses during the quarter, primarily due to progress in late-stage pipeline development.
Forecast for 2011
Merck KGaA expects 2011 revenues to lie in the range of EUR10.0 – EUR10.2 billion. The company now expects Merck Serono division sales to grow in the range of 1-2% and Consumer Health Care division sales to experience growth in the range of 5-6%.
Further, the Merck Millipore division is anticipated to grow by about 47% and the Performance Materials division to grow 3-4% in 2011.
Our View
We currently have a Zacks #3 Rank (short-term Hold rating) on Merck KGaA. We note that during the third quarter of 2011, Merck KGaA announced the acquisition of exclusive worldwide development and commercialization rights to multiple sclerosis (MS) candidate PI-2301. The candidate was developed by Peptimmune Inc. prior to the deal. PI-2301, which has completed early-stage studies in MS, is about to enter mid-stage trials.
We believe that the addition of PI-2301 will strengthen Merck Serono’s portfolio.
Merck KGaA already has a presence in the MS market, with Rebif available worldwide as a treatment for the relapsing versions of MS. During the second quarter of 2011, the company submitted an application to the European Medicines Agency (EMA) for the approval of Rebif to treat patients who have experienced a single demyelinating event (an early symptom of the disease) and who stand a high risk of developing MS.
Rebif currently faces competition from Biogen Idec‘s (BIIB), Tysabri and Avonex and Teva Pharmaceuticals Industries Ltd.‘s (TEVA) Copaxone.
