Merck sales and profit up sharply in 4th quarter due to $41.1B Schering-Plough purchase

Schering-Plough purchase hikes Merck sales, profit

TRENTON, N.J. — Drugmaker Merck & Co. on Tuesday posted huge jumps in revenue and profit for the fourth quarter, mainly due to its purchase of Schering-Plough Corp., its longtime partner on lucrative cholesterol drugs. It disclosed a little detail on its planned restructuring, but gave no forecast for 2010 profit or research spending.

Merck reported net income of $6.49 billion, or $2.35 per share, up from $1.64 billion, or 78 cents a share, a year earlier. The big gain was due to $7.8 billion worth of mostly merger-related accounting items, plus a few billion dollars in sales from Schering-Plough products.

Merck said the first phase of its restructuring program is expected to bring annual savings of $2.6 billion to $3 billion in 2012 — the bulk of its previously announced plan to save $3.5 billion a year by 2012, a key merger goal.

The combined company had about 100,000 employees on Dec. 31 and expects to reduce that by about 15 percent. Another 2,500 vacant jobs will also be eliminated. When the deal was announced, Merck said it would eliminate roughly 16,000 jobs, or about 1,500 fewer cuts than Tuesday’s total.

Sales jumped to $10.09 billion from $6.03 billion in the fourth quarter of 2008, bolstered by Schering-Plough products such as allergy medicine Nasonex and rheumatoid arthritis drugs Remicade and Simponi, plus higher sales for Merck vaccines and some of its top-selling drugs. Those included asthma and allergy pill Singulair, diabetes pills Januvia and Janumet, and blood pressure pills Cozaar and Hyzaar.

The Whitehouse Station, N.J., company reported earnings per share of $2.35, or 79 cents excluding one-time items, which matched analysts’ average forecast. They were expecting slightly lower revenue, at $9.7 billion.

“Overall, a reasonable quarter,” with higher-than-expected expenses offset by a lower-than-expected tax rate of 16 percent, Bernstein Research analyst Dr. Tim Anderson wrote in a note to investors.

Merck shares rose 74 cents, or 2 percent, to close at $37.66 Tuesday.

One-time costs and gains from the merger and related accounting maneuvers boosted net income by $4.3 billion, or $1.56 per share. Without them, Merck would have earned $2.2 billion, or 79 cents a share.

One-time items included gains of $7.5 billion from an accounting adjustment due to Merck getting a controlling interest in its partnership with Schering-Plough and $400 million from Merck selling its half of the Merial animal health business to get regulators’ approval for the acquisition. Those were partly offset by charges of $1.5 billion for restructuring, $288 million for merger-related costs and $2.29 billion in accounting adjustments for the intangible value of Schering-Plough assets.

“There are a lot of moving parts,” Chief Financial Officer Peter Kellogg told analysts during a conference call.

He said Merck still expects to produce high-single-digit growth in earnings per share, excluding one-time items, each year through 2013, but will not give a detailed financial forecast for 2010 until April.

Anderson was relieved Merck stuck with that forecast, writing, “there had been fears that this could be revised down.”

Erik Gordon, a professor and analyst at University of Michigan’s Ross School of Business, was disappointed, though.

Merck “refused to give specifics on 2010 earnings even though it’s mid-February,” he wrote, but “jawed down expectations with talk about over $3 billion in (first-quarter) patent expirations.”

“They don’t seem to know enough yet about the combined companies’ research portfolios or staff. Apparently those weren’t key motivators for the merger,” Gordon wrote.

The company expects stronger results in 2010’s second half than the first half, when it will get hit with generic competition for Cozaar and Hyzaar, plus brain cancer drug Temodar, slashing their sales.

The report is the first since Merck bought Schering-Plough in November for $41.1 billion, making the combined operation the world’s second-biggest pharmaceutical company, behind Pfizer Inc.

“The new Merck is off to an excellent start,” said Chief Executive Richard T. Clark. “These results were achieved amid an uncertain global economy,” the debate over a U.S. health care overhaul and the start of integration of the two companies.

Clark said the company’s expanded product portfolio now includes 10 brands with annual sales of more than $1 billion. He noted Merck now is launching a number of new products in major markets and has 20 drugs in late-stage testing.

Sales from Schering-Plough’s veterinary medicines totaled $759 million in the quarter, and its consumer health products, led by Dr. Scholl’s foot care items and nonprescription Claritin allergy pills, totaled $232 million.

For the full year, Merck reported net income of $12.9 billion, or $5.65 per share. That was up 65 percent from $7.81 billion, or $3.63 per share. Revenue climbed 15 percent to $27.43 billion from $23.85 billion.